Standard Setting in Political Environment Essay Example

Standard Setting in Political Environment Paper In general, standards, especially auditing standards, have been restricted to the prescribed solution, which has generated a lot Of controversy about the absence of supporting theories and the use of an ad hoc formulating approach. The general trend, however, is to include the description and the reasoned discussion, thereby providing a concise, theoretically supported rule of action. The Public Interest Theory was implicit in our examination of standard-setting. The theory suggests that regulation is required to answer the demand of the public for correction of market failures. The theory assumes that the central authority has the best interests of the society as its objective. In other words it does its best to maximize social welfare. The regulation is a trade off between the costs involved and the benefits received by society. The Interest Group Theory takes the view that an industry operates in the situation where there are a number Of interest groups (constituencies). Development of standard setting approaches in various countries SAAB The International Accounting Standard Board (SAAB) is the independent, accounting standard-setting body of the FIRS. The SAAB was founded on April , 2001 as the successor to the International Accounting Standard Committee (SASS). It is responsible for developing FIRS and promoting the use and application of these standards. The International Financial Reporting Standard (FIRS) was incorporated as a tax-exempt organization in the US state of Delaware. We will write a custom essay sample on Standard Setting in Political Environment specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Standard Setting in Political Environment specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Standard Setting in Political Environment specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The FIRS also the parent entity of the SAAB, an independent accounting standard-setter based in London, England. The ASP has 14 Board members. They are selected as a group of experts with a mix of experience of standard-setting, preparing and using accounts, and academic work. In January 2009, they have their meeting with the Trustees of the Foundation concluded the first part of the second Constitution Review, announcing the creation of a Monitoring Board and the expansion Of the SAAB to 1 6 members and giving more consideration to the geographical composition of the SAAB. FAST Since 1 973, the Financial Accounting Standards Board (FAST) has been the designated organization in the private sector for establishing standards of financial accounting that governs the preparation of financial reports by nongovernmental entities. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commissions policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest. The mission of the FAST is to establish and improve standards of financial counting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundations Board of Trustees. MASS Standard setting in Malaysia entered a new era with the Financial Reporting Act 1997 which established the Financial Reporting Foundation (FRR) and the Malaysian Accounting Standard Board (MASS) in 1997. The Financial Reporting Act 1 997 was gazette on 6 March, 1997. The FRR is established under the Financial Reporting Act 1997 (Act). The FRR comprises representation from all relevant parties in the standard setting process, including preparers, users, regulators and accountancy profession. The FRR, as a trustee body, has responsibility for the oversight of the Mamas performance, financial and funding arrangements, and as an initial source of views for the MASS on proposed standards and pronouncements. It has no erect responsibility with regard to standard setting. This responsibility rests exclusively with the MASS. The aims of the MASS are to implement an efficient, effective structure and due processes for the development of MASS Standards, a conceptual framework and other forms of authoritative guidance. Other than that, MASS also aim to pursue the development of MASS Standards, a conceptual framework and other authoritative guidance on a basis that recognizes that users of financial statements are the primary customer, so that those users are better able to make economic decisions. The MASS established a committee in May, 2002 known as the Issues Committee to replace its predecessor, Interpretation Committee. The change in name reflects the expanded scope of the committee which, in addition to dealing with interpretations of approved accounting standards, also deals with other accounting related issues where there are no existing accounting standards. The committee, hence, is responsible for reviewing accounting issues that have received or likely to receive different views in interpretation and to provide recommendations to the Board for decision. Standard setting approaches Miffs are full convergence, which are copy word by word of Firms issued by the SAAB except for the terminologies. The due process of MIFFS Framework aligns the Mamas due process timeline to that of the SAAB with the aim of putting the new or amended standards in place for adoption and application within a timely manner. This is to ensure, that the effective date of the new or amended standards will be the same as that of Firms. * Stage 1: MASS seeks public comment on Saabs draft technical pronouncements. The SAABS draft technical pronouncements include Discussion paper, Exposure Draft and Request for Views. MASS will disseminate the SAAB draft pronouncements together with an Invitation to Comment to local constituents by publishing on MASS website a Comment Online feature and sending a copy of the documents to the relevant authorities, professional bodies, accounting firms, industry related associations, and public listed companies. The due date for the public to submit comments to MASS is usually one month before Saabs comment deadline so as to allow MASS Working Group and the Board a reasonable time to consider the comments received before making a submission to the SASS. In addition, public forums ay be organized if these SAAB draft pronouncements represent major change or shift from current practice. * Stage 2: Deliberation at the Working Group level on Saabs draft pronouncements The Saabs draft pronouncements will be deliberated in WAG meetings and to provide comment / recommendation to the issues raised in the draft pronouncements for the Boards consideration. The WAG will also consider public comments received and their recommendations on those comments for the Boards consideration. Stage 3: Deliberation at the MASS (the Board). The public comments received, Working Groups comments and commendations will be tabled at the Board for deliberation and consideration. During the discussion, the Board will consider all comments received and thereafter, a comment letter to the SAAB will be prepared and submitted to SAAB accordingly. * Stage 4: Issuance of Standard by SAAB. Following publication of the final standard by the ASP (FIRS), the Working Group w ill deliberate on the changes made, if any, from the draft pronouncements. Thereafter, the Working Groups views or recommendation, including possible issues/ implications, if any, of the FIRS will be presented to he MASS for consideration. * Stage 5: Issuance of standard by MASS. After due deliberation by the Board, copy of the MIFFS (word-for-word with Firms) would be presented to the FRR members for their comments before it being issued as approved accounting standards in Malaysia. Ethics of standard setting It is likely that if there was no regulation, markets would cease to work. Have two motivations, there are the external motivation the enforcement approach, a regulator, and the internal motivation -? the people will want to keep their promises and honor contracts. The more ethically that people behave, the greater reduction there would be in required regulation. One way to look at it would be, for example, if all professionals acted in their own self- interest, ignoring the clients recognition, in due course clients would become very suspicious. Regulations would grow and professionals would be very carefully looked into. However, if professionals can be trusted to act in a trustworthy way, then it could be a win-win situation. It goes beyond adopting a code of ethics. Professionals would have to act professionally towards the client. Professionals must become transparent in their actions so clients will eave full trust in their actions. Certainly professionals have self-interest and this must be taken into account. As some regulation would be required, what about standard setting from an ethical point of view. When accountants are dealing with clients there is very likely an imbalance of accounting knowledge between the two but accountants should not impose their own values on the client. Issues involved in standard setting The standard setting bodies have an ethical issue because the standards set for clients, those who manage the companies, have a third dimension, as the angers interests often conflict with those of the public. Our case is the investing public, the third party. Now investors needs are well served by good disclosure of material. But we have seen in our previous modules that standards that are beneficial to the investor often impose burdens on the managers, volatility. Whose interests should the regulator serve. Dusks ; Dusks, stated the accountant and the regulator can easily reconcile the obligations by acting with integrity. In the long-run the interests of the public and the investor merge. The answer comes across clearly in Dusks amp; Dusks. They argue that the profession has an obligation to look out for the best interests of the client, avoiding the temptation to take advantage of the client; this quotation implies the public interest theory. It is important to consider the debate between what is termed rules-based and principle based accounting standards. It is important to consider the debate between what is termed rules-based and principalities accounting standards. Considering Enrons actions they were strictly based on rules actions Of GAP. They were not based on principles There is a difference. Rules attempt to put down detailed directions to be followed, and it is difficult to cover all situations. The Principle indicates the intent we have in mind and the course we follow. It is putting into effect the real ethics we wish to pursue. Accounting issue in Islamic Financial Institution Accounting standards are developed in various parts of the world and are predominantly developed based on the environment of local jurisdiction and typically the behavior of the large and most often multinational corporations would be subjected to these standards. MASS has also appointed a Working Group to develop a framework of accounting concepts based on the Sharis principles to assist the Board in developing financial accounting and reporting standards for the recognition, measurement and disclosure of transactions based on Sharis principles which would facilitate the development of the Islamic Capital Market. The main characteristics that influenced the environment of an Islamic bank in the Sharis and this has to be central in the development of accounting standards for Islamic banks, which was not part of the consideration of the international standard setter. There are major preferences between Islamic banks and Conventional banks that impose difficulties for Islamic banks to comply with standards not actually meant for them. Appropriate mechanism to track the risks and rewards other than a financial reporting system, which Islamic financial institution were deprived of prior to OAF. Foundation of setting standards for Islamic financial institution is on the basis of filling in a vacuum that conventional standards have left void. OAF did not reject existing GAP standards except in cases where such principles conflict with Shari ah principles. It is clearly stated in Falls Statement of Objectives that it is natural that there should be differences between objectives of other bank and objectives of Islamic bank. The kinds of issues addressed by PAYOFF Standards. Us absence over form The framework of accounting standards by SIS and other generally accepted accounting standards require that the accounting information is presented according to the substance and economic reality and not merely the legal form. Requiring and entity that enjoys a greater of economic benefits of an asset to report the asset in their balance sheet appeared in a leasing contract in consistent with this postulate.