Many corporations and small business would love to be able to set their own accounting standards, but if this was allowed many issue would arise such as; debt be hidden, investor’s not given enough information, and can hurt the company’s value in the long run.
The reason why GAAP is established is that there can be guidelines for company’s financial information than just scattered reports that are all different. Investors would have a hard time trying to figure out what stocks should they invest in for their clients, like CITATION DKi12 \l 1033 (D, J, & T, 2012) said in their text, “As a result, it would be almost impossible to prepare statements that could be compared.’’ If none of the companies have rules for their accounting reports, the clients wouldn’t have truthful information about the certain corporations that they will be investing into, because many corporations would hide their debt so investors wouldn’t be able to see that they’re in trouble. This could be devastating to the stock market, because investors would stop trying to buy stocks, and would go to companies they know are established and in good standings.
Companies would find themselves in trouble if they decided to write their own accounting standards than follow GAAP, because clients wouldn’t understand what their reports are trying to say. This would cause clients to come back and ask for more information, and if they didn’t disclose it in the first place the clients would find this to be unethical and take their business somewhere else rather than with that company. If companies came back to their clients stating that there was an extra cost for these forms this would also cause the investor to not want to buy any stocks.
Clients are looking for honest companies to invest their money, and because of the scandals that have happened they want companies that are following the GAAP accounting standards, so in the long run this causes the corporations to lose out on investors and hurting themselves. This causing their stock prices to crash, and the value amount to go down by quite a bit from what their stock was before. When stock prices go down in the business then other investors see the value decreasing, they decide to transfer their information to a company that goes by GAAP. This causing the company to change the prices of their inventories so they can incur the loss they will receive when the investors pull out from their company. So in the end, it is important that companies financials can be read by everyone who needs to see them and all information should be disclosed to the investors in the first place.
Part 2: IFRS1-5
The International Accounting Standards Board was established in 2001 and is an independent private sector that develops International Financial Reporting Standards, which companies abide by. The standard-setting structure is made up of 4 organizations which are; International Accounting Standards Committee Foundation, IASB, a Standards Advisory Council, and an IFRIC. The ISAB is the major operating unit, their primary mission is to develop a single set of high quality, and understandable rules