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Faizan
The growth of international business has continued to change the landscape of the accounting field. There is a growing need for a consistent accounting standard to be set for our global economy. The Securities and Exchange Commission continues to permit publicly traded companies to submit their financial statements in accordance with the Generally Accepted Accounting Principles (GAAP). The International Financial Reporting Standards (IFRS) are the accounting standards used by many companies whom the United States currently does business with. Financial statements are prepared in accordance with IFRS in over 100 countries.
Financial statements are designed to provide useful information for the stakeholders of a company. A company can make their financial position more preferable by manipulating their financial statements. The United States Securities and Exchange Commission is the government agency responsible for regulating the stock market. Their work is to protect the integrity of personal investments made by American public. They designated the Financial Accounting Standards Board to maintain the GAAP.
Individuals have the opportunity to invest their finances into a company with a reasonable expectation of return on their investment. A company has an equal opportunity to make an investment in another company through stocks and bonds. A company can continue to acquire more ownership of another entity up until a point before they have become the majority owner. Majority ownership does not necessarily mean a company owns over half of an entity's outstanding stock. A company can be considered a majority owner once they have enough voting power to influence the decisions made by the smaller entity. The accounting for this scenario is handled differently by the aforementioned standards.
In accordance with IFRS, all subsidiaries are to be consolidated without exception. "An investor 'controls' an investee if it is exposed to (has rights to) variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee" (Muntor & Santoro). The IASB has left little room for interpretation when it comes to consolidations. FASB takes into consideration the amount of financial interest that is controlled. Generally, a company needs over fifty percent of outstanding voting shares and the majority voting interest. At this point, a company needs to consolidate their financial statements. This can provide the users of the financial statements to have the most useful information available to them.
Consolidated financial statements of companies with foreign operations create an additional challenge for the users of financial statements. It would be very difficult to understand the foreign affairs of a company without an understanding of the foreign currency. The IASB and the FASB have both established the necessary guidelines for foreign currency translation. The two organizations have similar standards on how to handle the currency issue.
Financial statements are designed to provide useful information for the stakeholders of a company. A company can make their financial position more preferable by manipulating their financial statements. The United States Securities and Exchange Commission is the government agency responsible for regulating the stock market. Their work is to protect the integrity of personal investments made by American public. They designated the Financial Accounting Standards Board to maintain the GAAP.
Individuals have the opportunity to invest their finances into a company with a reasonable expectation of return on their investment. A company has an equal opportunity to make an investment in another company through stocks and bonds. A company can continue to acquire more ownership of another entity up until a point before they have become the majority owner. Majority ownership does not necessarily mean a company owns over half of an entity's outstanding stock. A company can be considered a majority owner once they have enough voting power to influence the decisions made by the smaller entity. The accounting for this scenario is handled differently by the aforementioned standards.
In accordance with IFRS, all subsidiaries are to be consolidated without exception. "An investor 'controls' an investee if it is exposed to (has rights to) variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee" (Muntor & Santoro). The IASB has left little room for interpretation when it comes to consolidations. FASB takes into consideration the amount of financial interest that is controlled. Generally, a company needs over fifty percent of outstanding voting shares and the majority voting interest. At this point, a company needs to consolidate their financial statements. This can provide the users of the financial statements to have the most useful information available to them.
Consolidated financial statements of companies with foreign operations create an additional challenge for the users of financial statements. It would be very difficult to understand the foreign affairs of a company without an understanding of the foreign currency. The IASB and the FASB have both established the necessary guidelines for foreign currency translation. The two organizations have similar standards on how to handle the currency issue.
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