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Political, Economic & Social Effects Of Accounting Standard Setters

2386 words - 10 pages

Accy 202'The view that accounting standard setters consider the economic, political and social consequences of accounting standards is consistent with the view that accounting reports, if compiled in accordance with accounting standards and other generally accepted principles, will be neutral and objective'SYNOPSISObjectivity and neutrality are the ultimate goals of general purpose financial reporting. However there are many factors involved that make this goal almost impossible to attain. Economic, political and social issues are huge influences on the Accounting Standard setting process, and these influences spill over into everyday accounting, with personal gain often ahead of reliability ...view middle of the document...

Accounting standards set minimum benchmarks of the quality required in financial reporting. They specify that reporting entities shall prepare general-purpose financial reports and that these reports will comply with Statements of Accounting Concepts (SAC's) and Accounting Standards (Accounting Handbook 2001, SAC1, pg. 3). The 'objective of general purpose financial reporting', (Accounting Handbook 2001, SAC2, pg. 13) is that all general purpose financial reports are prepared to provide users with information about the reporting entity, which is useful for making and evaluating decisions about the allocation of scare resources (Accounting Handbook 2001, SAC1, pg. 4).These reports 'should' be neutral and objective, free from bias, allowing users to make informed decisions. Considering that the process of 'setting' these Accounting Standards incorporates economic, political and social factors, it is almost impossible for financial reporting to be totally objective and neutral and totally free from bias. Although in theory we would like to believe that financial reports, took a neutral and objective view, it is unlikely that in practice this could ever be attained with the huge influences that economic, political and social (external) issues have in our personal and business lives.The identified, major, influencing issues on Accounting Standard setting are the very same factors which have always and will continue to influence modern society, economic, political and social issues. These modern sociological issues impact all aspects of life and Accounting Standards too, must acknowledge them and be thus influenced.Economic issues are those which relate to the production, distribution and use of wealth and income; Political issues refer to or are connected with political parties, or their principles, aims and activities; and Social issues are ones which affect the lives and relationships of human beings who live in a community (The Macquarie Dictionary, 1985). Each of theses issues have their own agendas, but as we can appreciate from our own life experiences it is possible that some of these issues can interrelate. '..To judge from current discussions of the standard setting process, accounting can no longer be thought of as non-political. The numbers that accountants have, or at least are widely thought to, have a significant impact on economic behaviour (Solomons, D., 1978, Journal).Economic, political and social groups all have information needs to be satisfied through general purpose financial reporting. This is highlighted further when stated that the 'economic or political importance/ influence refers to the ability of an entity to make a significant impact on the welfare of external parties. The greater the economic or political importance of an entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating decisions (Accounting Handbook 2001, SAC1, pg. 7)....

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