商务英语阅读Accountig and Financial Management.ppt

Chapter 5 Accounting and Financial Management Background Introduction Standard-setters create accounting standards that mandate how financial reporting should be conducted so that the information available to relevent stakeholders can be reliable and consistently comparable. These standards can be divided into two basic categories: rules-based and principle-based. Under the former, detailed rules must be followed when preparing financial statements. Many accountants favor rules-based standards, because in the absence of rules they could be brought to court if their judgments of the financial statements were incorrect. When there are strict rules to follow, the possibility of lawsuits is diminished. Background Introduction However, the US GAAP went under a great deal of criticism in the wake of Enron and Worldcom scandals. A major concern arising from these business scandals was that GAAP had become “rules-based,” filled with specific details in an attempt to address as many potential contingencies as possible. This made standards longer and more complex, and led to arbitrary criteria for accounting treatments that allow companies to structure transactions to circumvent unfavorable reporting. In addition, the quest for bright-line accounting rules shifted the goal of professional judgment from consideration of the best accounting treatment to concern for parsing the letter of the rules. Some experts argued that rules-based accounting standards encourages a check-the-box mentality to financial reporting that eliminates judgments from the application of the reporting. To address these concerns, the Sarbanes-Oxley Act of 2002 required the SEC to examine the feasibility of a principles-based accounting system, which represents a call for the convergence of US accounting practices and corporate governance with their international counterparts. Background Introduction The present text highlights the recent development in the US accounting landscape and exams the be