Recognizing Bad Debt Expenses under Accrual Accounting System
Global Accounting Standards Shaped by Three Key Players
The world of accounting is influenced by a trio of significant players: banks, credit unions, accounts receivable financing companies, and professional organizations. These entities play a crucial role in shaping accounting standards, ensuring they cater to the needs of lenders, borrowers, and investors alike.
Firstly, the International Accounting Standards Board (IASB) sets global accounting standards by developing and approving International Financial Reporting Standards (IFRS). This unified set of accounting rules is designed to promote transparency and comparability of financial statements across countries [1][5]. The IASB's main goals include establishing a single set of high-quality, understandable, and enforceable standards, resolving financial reporting disputes internationally, and supporting investors in making informed economic decisions [1][5].
The IASB is overseen by the IFRS Foundation and selects board members based on professional expertise, ensuring diverse international perspectives in standard-setting [1]. IFRS standards are used legally or permitted in over 160 jurisdictions globally, covering most of the world’s major capital markets [1][4][5]. The IASB's work increasingly incorporates sustainability and climate-related financial disclosures to meet evolving global investor demands [5].
In the United States, the Financial Accounting Standards Board (FASB) is responsible for setting accounting standards for US companies. The FASB ensures that financial statements are reliable, comparable, and free from financial trickery by setting rules for how companies report their financial information [2].
Creditors also play a vital role in determining how businesses keep their books. By requiring financial transparency and accurate reporting, they help make informed decisions about who to lend money to and how much. Credit unions, in particular, advocate for accounting standards that promote transparency and accountability [3].
Accounts receivable financing companies push for accounting standards that provide clear and detailed information about a company's receivables. Banks, too, actively participate in shaping accounting standards to ensure an accurate picture of a company's financial health [3].
However, the influence of debtors can lead to reduced transparency, increased complexity, and erosion of consistency in financial reporting. This can occur through debtors delaying recording expenses, taking loans and recording them as revenue, or through direct lobbying, professional involvement, or industry groups [4].
In summary, the IASB, FASB, and the collective influence of creditors, banks, and accounts receivable financing companies work together to create a global accounting landscape that benefits investors, companies, and regulators alike. Their combined efforts aim to achieve transparency, comparability, and accountability in financial reporting, ensuring that companies can present their financial statements in a way that makes sense to investors, creditors, and governments in all the countries they operate in.
[1] IASB (2021). About the IASB. Retrieved from https://www.ifrs.org/about-the-board/ [2] FASB (2021). About FASB. Retrieved from https://www.fasb.org/about/index.html [3] AICPA (2021). AICPA and Creditors. Retrieved from https://www.aicpa.org/interestareas/financialreporting/creditors.html [4] ICAEW (2021). Debtors and Accounting Standards. Retrieved from https://www.icaew.com/en/technical/accounting-and-audit/accounting/debts-and-debtors [5] IASB (2021). IFRS Foundation and IASB. Retrieved from https://www.ifrs.org/about-the-foundation/
- The International Accounting Standards Board (IASB), collaborating with technology to develop and approve International Financial Reporting Standards (IFRS), ensures that financial statements are not only transparent and comparable but also designed to accommodate the needs of businesses, investors, and lenders in the realm of technology and business.
- To foster a business environment powered by transparency and accountability, it's essential for the Financial Accounting Standards Board (FASB) in the United States to incorporate technological advancements, enabling them to set accounting standards that optimize financial reporting for modern business and technology landscapes.
