|Type of paper:
|Business Accounting Financial management
Any form of business has to operate under the modern principles of financial accounting. Some of these guidelines that every firm should incorporate include the revenue principle, the objectivity principle, the cost principle, among many other principles. The principles are well laid up by the Financial Accounting Standards Board to ensure standardized accounting for all firms. For instance, the revenue principle states that revenue from a business is recorded at the point of sale. The objectivity principle on its part states that a business should offer factual and correct statements in financial statements, which means that values should not be estimated at any cost. As such, the Financial Accounting Standard Board’s proposal is a perfect idea when it comes to the drafting of financial statements. The paper is, however, premised on the understanding of the Financial Accounting Standards Board proposal and its impact on financial statements.
The FASB’s proposal is a good idea since it assists accountants to get extra time to implement the required standards. The board is working to ensure that they provide relief to some entities that are already affected by the Covid-19 pandemic (Financial Accounting Series, 2020). As such, companies will get to effectively analyze the correct project management and technology to avoid unexpected issues and high cost of implementation during deadlines (Murphy, 2019).
The FASB proposal cannot, therefore, mislead financial statements since the board has a framework upon which potential accounting problems are identified. More so, all businesses in the United States use similar accounting principles, and any potential inadequacies can easily be identified and reported to the board. In case an issue is reported FASB, it investigates the matter, and if need be a rule or the principle is modified, or a new accounting rule is set to avoid such issues. For example, if several businesses find out that reporting a certain type of liability leads to an unfair lowering of net income, the issue can be reported to the board so that problems can be identified (Meder, 2020). The Financial Accounting Standard Board is also an independent and non-profit organization necessary for establishing accounting standards. The board closely works with the international accounting standard board to establish compatible standards globally. One of the main goals of the firm includes achieving uniform accounting standards.
Moreover, the organization aims at improving reporting standards and financial reporting to ensure the information presented in the financial statement is useful to the investors and any other relevant stakeholders (Meder, 2020). Failure to follow these set standards, firms risk audits from the internal revenue service and fines from the security and exchange commission. Therefore, by following the standards set by the FASB, the chances of misleading financial statements are minimal. Despite the many advantages of FASB, the set accounting standards may lead to understatement or overstatement of the financial statements. This issue implies that some set standards are conservative, leading to an understatement of values. Such standards may further lead to misleading financial statements (Meder, 2020). However, the advantages such as uniform accounting standards, measures of problem identification, and the promotion of internationally recognized accounting standards outweigh the disadvantages of making the FASB proposal a good idea for all firms.
In summary, the Financial Accounting Standards Board is trying to develop a realistic and cost-effective plan. The board is making an effort to consider all aspects that will bring a legitimate shift in the requirements of accounting. The financial proposal poses both adverse and positive impacts. The core intentions of the board are to help companies to make a successful transition to the standard and offer immediate relief by providing an additional year.
Meder, C. (2020). Financial Accounting Standards Board (FASB). Reference for Business. https://www.referenceforbusiness.com/encyclopedia/Fa-For/Financial-Accounting-Standards-Board-FASB.html
Financial Accounting Series. (2020). Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842).
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