Standards: non-solution to a non-problem

Article Abstract:

The imposition of compulsory accounting standards creates the danger that accountants will cease exercising their expert judgment and will just rely on the rules laid down by standard-setters. Standards that come into being as a result of direct government intervention, business lobbying or the approval of misguided rules by government agencies may only serve to legitimize bad accounting practices and inhibit good ones. If the existence of standards do minimize the accountants' scope for judgment and compel them to abdicate their professional responsibility, then the field of accounting runs the risk of becoming a lower-risk lower-skill job, with lower pay. The profession may be better served if compliance with standards is voluntary rather than compulsory. This way, accountants will still be permitted to exercise their freedom of choice instead of being forced to accept what standard-setters have decreed as rules.

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What they would rather not tell us

Article Abstract:

Financial Reporting Standard (FRS) No. 5 'Reporting the Substance of Transactions' was introduced in 1994 to ensure that entities report the commercial substance of transactions instead of their strict legal form. Although 'substance over form' has long been considered an accounting principle, no accounting standard has ever covered it before except Statement of Standard Accounting Practice No. 21, which only applies to leases. Consequently, entities were free to deliberately complicate the transaction so that its commercial substance is no longer the same as the legal form. In some such transactions, entities gained control of assets without ownership so that the assets did not have to be reflected in the balance sheet. This practice ended with the introduction of FRS 5, which applies to all types of transactions.

Financial statements

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