Financial Reporting of Economics and Business

Question: Describe about the Financial Reporting of Economics and Business? Answer: (a) An economist and an accountant both are efficient enough to measure income but the manner of computation is different. Economist measures income on the basis of several assumptions related to future events where as accountant follows accounting concepts which is based on past events. Inflation plays a very vital role in income measurement because inflation is inversely proportional to purchasing power which is generated by income. Price of the commodities are increased due to inflation and this prise rise of commodities indirectly affects income generated by people, both accountant and economics consider the importance of inflation but in a different ways as economists considers on the real income based on inflation rates where as accountants inflate the historical income with the inflation rates. (b) The different theories that had been developed in the recent times are being done in the form of Capital Maintenance Theories which comes under the purview of the Changing Price Values Method which was being formulated for deciding the value of the assets and their valuation at the time of decision making. These theories were not able to survive due to the non existence of basis of maintaining a consistent tracking of the changing economic scenario as well. The CVA known as current value accounting served with many practical issues due to which this could be carried for accounting of wealth and value in the present terms. (Chow, 2012) (c) Cocoa means continuously contemporary accounting which suggests that in order to survive in this competitive environment an organisation has to adopt the needs of the changing environment and this requires cash. So organisations must have strong certain current cash equivalents, this is possible only when the base of the company is rock solid and all the applicable accounting principles and policies are being followed by the company. Fair value accounting also deals with the same tune that proper accounting principles and policies should be followed and all the assets and liabilities should be valued at fair value to make the base of the company stronger.(Persson, 2013)(d) Fair Value Accounting is a new concept which is introduced to reduce the complexities created by traditional historical cost accounting method. The financial statement is prepared for disclosing the current position of the business and then such financial statement is audited by the auditor who provides his opi nion on true and fair view of the contents of the financial statement. So to fulfil this requirement fair value accounting is introduced. The main concept is measure any asset or liability at that amount which it would fetch today. This new concept had introduced earlier it will reduce the impact of Global Financial Crisis of 2008 where big corporate become bankrupt as they carried their assets at historical cost hence under stating or over stating the accounting figures(Laux, 2010) (e) Proprietary theory follows the concept of all are one means the entity and its owner are no two different persons rather for the purpose of accounting both are treated as one because at the end owners are the beneficial from the working of the entity. Proprietary theory lays the base for the development of the other accounting theories as the analyst analyse the given theories and search the need for the solving the problems arising from this theory and in this way more advanced and more suitable accounting theories are given which is now helping everyone in doing proper accounting. (f) Proprietary theory is now considered as on old theory although it is still applicable to certain organisations but now a days organisations tends to not to follow this theory. According to companies act 2013 companies and its members are treated as separate entity. So in order to tune with the applicable laws the organisations also wants to follow modern accounting theories rather than this old theory which creates lot of complications for the owners of the company which the owners dont want to handle as transparency is required in todays world.(Watner, 1982) We are aware that the concept of Epistemology deals with the branch of knowledge and a philosophical concept that deals with theories of sources and knowledge. As accounting is a field of knowledge that has its origination from the various theories formed for this purpose. So the concept of epistemology is widely useful to the accounting theory concept. The account theories are developed out of intense knowledge of the human and the economy behaviour which is being studied by this concept of Epistemology. One of branches of epistemology is to deal with historical aspects in order to determine the correct course of actions. As accounting is a study of knowledge so it can be said that it is very useful for the process of developing accounting theories.(Whittington, 2008) The two different types of epistemology in the world of accounting are Infallibilism and Reliabilism.The concept of reliabilism speaks that the overnight and historical beliefs in the field of accounting can only be done if it is proved by the processes that take place during the research stages and gathering knowledge stage by the people.The concept of infalibilism says in order to prove a traditional accounting theory no false steps should be taken by any of the knowledge posting people as it needs to be proved by using this branch of knowledge as a whole.(Mohammad Nizarul Alim, 2014)Concept means providing base to any thing and similarly the basic accounting theories provides base on the basis of which accounting can be done. There is no such fixed rule that in a particular situation only this theory is to be followed. Application of accounting theory depends upon situations to situations. It is commonly heard that regulation is substitute for theory and there is no acceptable theory in accounting. Regulations are made by various acts made by government to keep a check on the working of the companies and companies had to follow the applicable regulations in order to avoid the heavy penalties for non compliance. So we can say that regulations are not the substitutes for theories it is rather a key enabler for the applicability of theory. Different situations demand different accounting theories so we can say that there is no single applicable accounting framework in each and every situation.(Freedman, 2013) Yes the conceptual framework project had significantly contributed to the development of accounting theories. Without base no building can stand and conceptual framework laid a strong base for the development of many modern accounting theories. One cannot ignore the relevance and importance of conceptual framework in accounting field, many accounting standards are developed on the basis of conceptual framework.(ACCA, 2014) Bibliography: ACCA. (2014). accaglobal. Retrieved 03 2015, from ACCA: https://www.accaglobal.com/in/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f7/technical-articles/iasb-conceptual-framework-financial-reporting.html Chow, J. H. (2012). Financial reporting. In J. H. Chow, Financial reporting (pp. 1-77). London: The London school of economics and business. Freedman, J. (2013). What Is the Conceptual Framework Developed by the Financial Accounting Standards Board. Chron , 1-1. Laux, C. (2010). Did Fair-Value Accounting Contribute to the Financial Crisis. Journal of Economic Perspectives , 93-118. Mohammad Nizarul Alim, M. A. (2014). THE DEVELOPMENT OF SHARIAH ACCOUNTING:. In M. A. Mohammad Nizarul Alim, THE DEVELOPMENT OF SHARIAH ACCOUNTING: (pp. 109-117). Indonesia: University of Trunojoyo Madura. Persson, M. E. (2013). The Rise and Fall of Comprehensive Accounting Theories: R. J. Chambers and Continuously Contemporary Accounting. Social Research Network , 1-1. Watner, C. (1982). The Proprietary Theory of Justice in the Libertarian Tradition. THE JOURNAL OF LIBERTARIAN STUDIES , 1-1. Whittington, G. (2008). Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View. Abacus , 1-1.