Accounting Education

Striving for Excellence

2010-02-05T02:45:00.000-08:00

Ever since I was a little boy I always wanted to be the best at everything I did. Whether it was in little league or in school I was determined to be the best. Throughout elementary school and into high school I tried my best in each subject but every year I always came to the realization that I always performed well in math. For some reason, math was not difficult for me and as the years past I began to enjoy it more and more. Then in high school I began to have a passion for math and in my senior year I took an accounting class. That accounting class had a dramatic effect on me. I realized I loved accounting because it involved mathematics and the finances of a company. To me, accounting is a subject that incorporates both math and money, my two favorite interests in the world.

Now that I am entering my third year in college I have decided on my major and future career. I want to be a certified public accountant, work for an accounting firm, and hopefully establish my own firm in the future. I believe that people should have many goals in their lives that will make them want to work hard and achieve those goals. I have many goals both personal and educational because I want to live a prosperous and happy life. For instance, I want to become a CPA and be known as a hardworking person who cares about his clients’ best interests. In order for me to become a CPA, I have chosen to attend CSUN where I can obtain an accounting degree at a well-respected university. I am a member of the Business Honors Program at CSUN and as a member I will have the opportunity to achieve my goals because the program challenges me to do well in school. Also, the mentorship program will also be beneficial for me because I will be able to gain guidance and advice from someone who has experience in my major. The symposium series is a great aspect of the program because it teaches a person more about the program and how business works in the real world. The Business Honors Program also has helped me establish relationships with other students in my major that will help me later in life in terms of advisement and job opportunities. Also, I am a member of the Accounting Association and I try to spend as much time to make the club work for me because it is a great opportunity to network and learn more about accounting. I am highly motivated and determined to perform at a high level at the university in order to accomplish my goal of obtaining an accounting degree.

I also have many personal goals that I strive to accomplish. One of them I have already mentioned and that is becoming a CPA. Other personal goals I have set for myself are living a full and healthy life because I know it is important to balance business with pleasure. I want to wed someday and raise a family because I believe that a family makes a person more stable and satisfied with life. I also want to live a healthy life because health is the most important aspect of living happy which is why another personal goal of mine is to exercise regularly. These personal goals can be achieved by having a great career where I can support a family and have extra time to exercise daily and have fun.

Thus, I believe that I am a hardworking individual who is motivated and ready to accomplish all of my goals. I am excited about attending college where I can finally study accounting and create meaningful relationships. I feel ready to perform at a high level, and become a CPA.

International Accounting for DCX

2009-12-24T06:41:00.000-08:00

Over the years business has crossed boundaries, spanned over land and ocean, and generally changed the world. As business continues to evolve more broadly on a worldwide level, an introduction of new products, new jobs, and new ways of operating in the business world has occurred. This evolution does not occur without certain complexities developing, which then fuels a search for more effective ways to be successful worldwide. A major impact is in the accounting policies and methods used by companies operating international subsidiaries. Through a better understanding of international accounting and its affect on a company headquartered in two different countries, these troublesome issues with respect to becoming successful worldwide becomes clear.

Accounting encounters more challenges when entering the international arena. Foreign subsidiaries introduce issues of translation, transaction, and exchange rates. Through exploration of the Federal Accounting Standard 52: Foreign Currency Translation, a better understanding of these three issues becomes apparent.

Translation deals with taking one currency such as the U.S. dollar, and translating it into another currency such as the British Pound, for reporting purposes. This represents one of the main difficulties in international accounting - preparing consolidated financial statements when a company has foreign subsidiaries that are included. FAS 52 explains foreign currency translation as, “The process of expressing in the reporting currency of the enterprise those amounts that are denominated or measured in a different currency” (FAS, Appendix E).

The transactions deal with the second main difficulty in international accounting, which includes how to account for purchases and sales that are made with foreign currency. FAS 52 explains foreign currency transactions as,
“Transactions whose terms are denominated in a currency other that the entity’s functional currency. Foreign currency transactions arise when an enterprise: buys or sells on credit goods or services whose prices are denominated in foreign currency, borrows or lends funds and the amounts payable or receivable are denominated in foreign currency, is a party to an unperformed forward exchange contract or for other reasons acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency” (Appendix E).

Finally, exchange rates are the last big issue in international accounting. Currency values fluctuate from country to country and from day to day. The weight of the currency is mainly reliant on economic and political stability of that country. This brings about the need to calculate how much one currency is worth compared to another.

“The current exchange rate is the rate at which one unit of currency can be exchanged for another currency. For purposes of translation of financial statements, the current exchange rate is the rate as of the end of the period covered by the financial statements or as of the dates of recognition in those statements in the case of revenues, expenses, gains, and losses” (Appendix E).

Operations and transactions of a company are affected by the changing prices of goods and services it buys and sells comparable to a particular currency, which may also be used for financial reporting. If the company operates in more than one currency, it is affected by the changing prices of goods and services in more than one economic environment, and changes in values of the different units of currency. This can bring about gains and losses due to exchange rate differences.

One route companies take to guard against losses is forward exchange contracts which are, “an agreement to exchange at a specified future date currencies of different countries at a specified rate” (Appendix E). Also the use of currency swaps, “an exchange between two enterprises of the currencies of the two different countries agree to re-exchange the two currencies at the same rate of exchange at a specified future date” (Appendix E). These issues may be hard to understand just in reading them. By using a specific example of a company dealing with international accounting these issues become much clearer.
To make the complexities of international accounting more transparent, we will use DaimlerChrysler as an example. Some background information will prove useful in further explanations of International issues. On May 7th 1998 a worldwide announcement was made about the merger of DaimlerBenz and Chrysler. These two combined to form the world’s leading automotive, transportation, and financial services company. This merger brought two different companies and two different worlds together, one headquarters in Stuttgart, Germany, and the other in Auburn Hills, Michigan. The merger has linked two countries together but not without difficulties and differences. Much of what was formally Chrysler territory began to be taken over by the Daimler side, which was greatly aided by the stepping down of Robert Eaton of Chrysler, leaving only one Chairman of the Board, Jurgen E. Schrempp. This merging of companies may be successful in some areas but not without challenges to overcome to be successful in worldwide competition.

Through an interview with Robert E. Menzies, Assistant Controller for Chrysler Brands and Canada at DaimlerChrysler Services I was introduced to the issues of international accounting that really affect the business. The first thing that they have to deal with is the differences in the Generally Accepted Accounting Principles between Germany and the United States. These differences have created different problems with reporting. But it is not only Germany that poses a problem for the United States in terms of GAAP but also Canada and Mexico. DaimlerChrysler Services deals with all of North America and includes Canada and Mexico. DaimlerChrysler consists of 470 German and non-German subsidiaries and one joint venture. 102 of these companies are accounted for in the consolidated financial statements using the equity method of accounting. When consolidated financial statements are made for DaimlerChrysler’s annual report they are prepared in terms of U.S. GAAP and also to comply with certain German requirements. “The consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. The consolidated financial statements were supplemented with a consolidated business review report, which comply with the fourth and seventh directives of the European community. For the interpretation of these directives we relied on the statement by the German Accounting Standards Committee” (Annual Report, 68).

The reporting currency for DaimlerChrysler is the Euro, but in the annual report the amounts are also shown in U.S. dollars, “The dollar being unaudited and presented solely for the convenience of the reader at a rate of 1 Euro = $0.8901 the Noon Buying Rate of the Federal Reserve Bank of New York on December 31, 2001” (78).
DaimlerChrysler is also concerned with accounting for translation and transactions. As Mr. Menzies explained, they must first take the different currencies in North America and translate them into the U.S. dollar. So translation entails taking the Mexican peso and the Canadian dollar and converting it into the U.S. dollar. Then they must take the translations they have in U.S. dollars and translate them into the Euro, which is the reporting currency for the financial statements.

The way that DaimlerChrysler deals with foreign exchange rates is also something we need to look at. Foreign exchange rate management is something a company like DaimlerChrysler needs to think about, since their business produces cash in various currencies. Mr. Menzies also informed me of the difference in practices between the German and U.S. sides of the company. In terms of foreign exchange rate on the American side, they use a month end average of exchange rates, which was expected to be good enough for reporting on the balance sheet.

A problem arose when translating these figures to match up with Germany. Part of the German GAAP is using an average daily rate, so there are 365 different foreign exchange rates that are averaged together rather then the month end average method. Because these differences cause so much extra work and confusion at Chrysler they have now actually changed over to German GAAP and use their exchange rates to prevent the extra time it was previously taking to reconcile the financial statements.
DaimlerChrysler does use some derivative financial instruments like forward foreign exchange contracts, swaps, and forward rate agreements to help control losses in changes in exchange rates. As a consequence of the global nature of DaimlerChrysler businesses, its operations and its reported financial results and cash flows are exposed to the risks associated with fluctuations in the exchange rates of the U.S. dollar, the Euro and other world currencies. The group’s businesses are exposed to transaction risk whenever revenues of a business are denominated in a currency other than the currency in which the business incurs the costs relating to those revenues.
As we have seen through the example of DaimlerChrysler international issues do have a great affect on the business and accounting for the company. We have seen that it can sometimes become confusing in dealing with different regulations and different currency for so many companies. These difficulties will hopefully reduce as the International Accounting Standards Committee works towards global accounting that plans to be out in the next 5 to 6 years. This will help many issues that companies with foreign subsidiaries face, but until then companies will continue to work through what issues they have to compete successfully on the worldwide stage.

What are the Challenges for Ethics in Business? Are They Different for Accountants?

2009-11-12T06:32:00.000-08:00

Ethics is defined as that branch of philosophy concerned with the moral life and consisting of consideration of one’s ordinary actions, judgments and justification as a means of discovering what one ought to do and of determining what actions are morally good, acceptable, or right and what actions are unacceptable or wrong (Campbell, 1989).

A manager within an organisation always faces a conflict of interest between short term profitability and long term sustainability of the entity. If the manager chooses to implement decisions that are beneficial to the entity in the long term, his behaviour is primarily considered to be ethical. However, the goal of achieving short-term profit maximization has been duly compromised. According to self-interest theory an individual seeks to maximize his/her personal utility whereby short-term profit maximization motives could be thought dominate managerial incentives.
Ethicists have developed two frameworks relevant to businesses. They are the Utilitarian and Deontology frameworks. Utilitarianism is defined as the moral correctness of an action based entirely on its consequences whereas Deontology defines moral correctness of an action through the underlying nature of its correctness. Deontology can be divided into two parts where one part considers that action itself is measured thus lying is always unacceptable, on the other hand, the other part considers the cumulative nature of action as well as the consequences and thereby deems that lying could be acceptable under certain circumstances.

Ethics within the scenario of businesses are largely determined by the frameworks outlined above. Business ethics have a large impact upon the global society as fraud and embezzlement can impose large dead-weight losses within the world economy. In Australia, business ethics are primarily defined by the Corporations Law and Accounting Professional Codes Of Conduct such as the ICAA which govern the professional behaviour of the relevant professional members.

Ethical rules for accountants are subtly more stringent than for normal business professionals. Under the assumption, that the ethical behaviour of accountants mirrors the behaviour of the company auditors, I seek to explain the underlying dilemma. The Chief Financial Officer works under the supervision of the Chief Executive Officer of the organisation. His/her primary responsibility is to ensure that the financial reports prepared under his supervision mirrors the true and fair view about the financial. operating and investing decisions of the entity. He is directly accountable to the shareholders for his actions. However, his actions are determined by the leadership of the CEO. If the CEO demands the CFO to incorrectly manipulate the financial reports of the organisation, the individual faces a dilemma. He has a dual sense of responsibility and an ethical situation arises whereby, he/she can either pursue his own self-interests (financial security) or disobey the commands of the CEO and report fairly to the share-holders. Thereby, following the correct spirit of ethical behaviour, his role entails reporting fairly to the shareholders and whistle blowing against the CEO.

What are the Limitations of Accounting Information?

2009-10-21T01:31:00.000-07:00

Accounting information can be used to assist both financial and managerial oriented decisions. In order to come to effective financial or managerial decisions, many factors other than accounting should be duly considered.

Accounting information is extremely vital in/and for all enterprises though it does have certain limitations:
I. Accounting is only one source of information and primarily provides information based on financial terms: Although this information is vital, decisions cannot be based solely on a monetary basis. Various decisions depend upon a diverse range of issues being considered. A unique combination of Quantitative as well as Qualitative factors should be considered to ensure an effective decision making process.

II. The historical perspective of financial accounting: In order to obtain a recent estimate of an entity’s financial performance, the corporate managers carefully scrutinize financial accounting information. In retrospect, this information is based on past performance. The information does provide clarity on the monetary issues but does not provide a definite insight into the strategic future; as the future holds various changes in terms of technology, economic situations as well as political scenarios etc. Such factors in relation to accounting are unpredictable. Therefore, a careful balance between historical accounting as well as the future forecasted outlook is required.

III. Historical cost accounting vs. underlying value in use: Some items loose their monetary value over a period of time, but under the financial accounting rules need to be included in financial reports. Though mentioned year after year in the books as monetary figures, the information may be unreliable due to the historical assumptions made on the item’s measurability criterion. For example, a machine in a textile factory is considered to have a useful life which extends over a period of ten years in monetary terms; however, after the period of ten years, the machine may still have the same value as prior years and contribute significantly to the overall operability of the factory.

IV. Inability to reflect the true value of strategic management: Various factors such as goodwill and natural circumstances influence the operations of an enterprise; however, these elements are difficult to measure thus, leading to their unavoidable exclusion from financial reports. For example companies depend upon their shareholders, who in turn depend on the performance of the Chief Executive Officers. Although the CEOs may have been hired by the company based upon prior performance, their future performances are not reliably measurable as they may continually vary. In the initial stages, it may be impossible to measure whether the CEO’s presence will deter or appeal to the shareholders, which in turn will influence the profitability of the enterprise.

V. Measuring Volatility of external factors: Financial accounting information does not take into consideration volatile and ever increasing changes in the natural and commercial environment. Although scarcely measurable in monetary terms, their unstable nature may have adverse effects if included within the financial reports and have a volatile and cosmetic impact upon the earnings of the firm. For example, tariffs on trade, duties and other environmental issues can have significant short-term volatile effects on the organisation.

VI. The effect of non-stable monetary unit: Based from region to region, accounting information is generated at all enterprises based on the assumption that the monetary unit is stable over a period of time. In the real world scenario, the unit fluctuates on a daily basis. Enterprises usually decide on a flat rate to calculate their financing and investing needs. However, this can have adverse impacts which cannot be communicated to shareholders, if the unit has high fluctuations. For example: Indonesia 1995 US$ 1 = RP 6000, 1997 US$ 1 = RP 12000, 1999 US$ 1 = RP 9000. (Figures are approximates, just to provide an insight into the argument about the effects of the fluctuations)

From the answer above, it is evident that certain limitations of accounting information have to be taken into consideration before enterprises use merely financial information to aid their decision making process.

Problems with Theories

2009-09-19T11:06:00.000-07:00

Introduction
Positive accounting theory (PAT) is a general term for any theory that provides descriptive information regarding the behavior of accountants. The title has been used by Watts and Zimmerman and this is largely an expansion of previous studies carried out firstly by Fama and later by Ball & Brown in the 1960’s. In looking at the apparent acceptance by politicians, firms and wide publication in academic journals PAT could easily be mistaken as being a success. A deeper analysis of the premises of PAT, its questionable scientific status, and the groups upon whom this theory has appealed to would suggest that it is flawed on many levels and is little more than an argument for deregulation and market capitalism. This opposes its claim to be a useful theory used regularly by those concerned with the effects of accounting policy on the status of the firm.

The Premises of Positive Accounting Theory
Positive Accounting Theory finds its roots with the Efficient Market Hypothesis (EMH). The EMH was developed by Fama in the 1960’s and is based on economic principles and assumes a perfect market where there is information symmetry and no transaction costs. The semi strong form of EMH argues that capital markets will reflect all information that is publicly available and it is this form that Watts and Zimmerman claim to be predominant.

The EMH was used in a study performed by Ball and Brown during the same period. The Ball and Brown study rejected the argument put forward by normative theorists that present accounting results were misleading and irrelevant and stated that historical cost accounting is actually useful (Deegan 2000). This was because their study demonstrated that unexpected accounting earnings produced abnormal returns in capital markets. This was also the case for unexpected poor earnings as they produced abnormal losses in capital markets. This was measured using the Capital Assets Pricing Model (CAPM).

Watts and Zimmerman used this research in developing PAT to illustrate that because there was a reaction in capital markets when accounting information showing abnormal results was released this information was useful and those who wanted to change the present system of measurement failed to appreciate the incumbents usefulness. They claimed that capital markets could see through changes in accounting policy and see the bigger picture of firms, therefore rendering them impervious to misleading accounting methods (Watts & Zimmerman 1986).

This was then used to form and anti regulatory stance. As capital markets could ‘see through’ the accounting methods being used, regulation was considered little more than an inefficiency that interfered with the function of free markets and was costly to firms. These firms could determine the best ways to report for themselves and it is believed under this theory that auditing will also occur without regulation because users of information will demand audited information so as to give it some value (Mouck 1992).

The question still existed however, that if managers didn’t change accounting methods in order to affect share prices then why did they do it? This is the question that Watts and Zimmerman attempted to answer and this was done with assistance from the concept of ‘agency theory’.
Agency is defined as
“A contract under which one or more (principals) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent”
- Jensen & Meckling (1976, p.308)
This means (in a nutshell) that firms are a nexus where various self motivated utility maximizes met to generate as much wealth as possible for their own selfish selves. This means that the owners of firms must align their goals with those of the ‘drivers’ of firms in order to minimize the associated costs of the separation of ownership and management (eg laziness). This will mean tying bonuses to goal achievement and this then produces the need for accounting information with which to measure goal achievement.

It is from this theory that the three main parts of Watts and Zimmerman’s PAT come into existence; the debt hypothesis, the political cost hypothesis and the bonus plan hypothesis. For example, the bonus plan hypothesis states that management will change their accounting policies (to the extent that is reasonably allowed) in order to maximize reported income if their bonuses are dependant on the level of reported income due to their self interest. This notion of self interest can also be applied to the other PAT hypothesis put forward by Watts and Zimmerman.

Therefore, the premises of Positive Accounting Theory can be summarized as: empiricism and scientific research; the economic theory of perfect markets, The Efficient Market Hypothesis, (which is reliant upon the above economic theory) and agency theory
and its arguments of self interested agents. The broader new age conservative/anti regulation ideology could also be said to be a premise for PAT (although not an overt one).

The Flaws of Positive Accounting Theory – The premises
The Flaws of Perfect Markets
The first flaw that can be found with a premise of PAT is that of economics and its reliance on the theoretical perfect market. A perfect market relies on (amongst other things) perfect information and no transaction costs. This point of view finds problems because “accounting exists because of transaction costs” (Boland & Gordon 1992). It is also difficult to imagine equilibrium for information when accounting information contributes to this equilibrium. Watts and Zimmerman also say that regulation and political costs interfere with the operation of perfect markets. In saying this they are effectively conceding that perfect markets do not exist as they call for the removal of regulation to assist in the more efficient allocation of resources (Boland & Gordon 1992).

The Flaws of Efficient Market Hypothesis
This lack of perfect markets then calls into question the EMH as it is upon perfect markets that it finds its basis (Deegan 2000). Defenders of the EMH will argue that there is empirical evidence to back up this perspective; however an analysis performed by Chambers in 1992 demonstrated that the Ball and Brown research on the EMH relied on some rather superficial evidence. Chambers tells of how only a very small number of

shares were ever traded after the release of information and the evidence did not include collapsed companies. It is also pointed out that capital market reactions to accounting information were not a new discovery and that researchers had known of it for some time. Another question about the EMH regards the assumption by Ball and Brown that because historical cost information is ‘used’ it is then instantly transformed into being useful. The ‘uselessness’ of historical cost information is something that theorists such as Chambers had taken as a given during the normative period of research and as nothing substantial had changed in accounting policy during the period there seems little reason to change that point of view.

Plausible explanations (for example), that much investment is done in an ad hoc manner also find no place with in the EMH framework. Essentially the EMH and the premise of PAT that historical cost information is useful and the system does not need additional regulation are questionable (and perhaps somewhat dogmatic).

The Flaws of Agency Theory
The EMH argues effectively that markets can see through accounting methods, but it doesn’t explain why accountants change their reporting methods from time to time. This is why Watts and Zimmerman have called upon another theory with which to support their work. Agency theory uses examples of self-interested people who don’t act out of good will. This theory has been criticised as being dehumanising (Godfrey, Hodgson & Holmes 2000) as being “unobservable” (Chambers 1992) and referring to phenomena that could be explained in another way. For example, agency theory describes political
interference in accounting as being the way self interested politicians can gain popularity
– by acting on the wants of minority groups. Politicians acting in the public interest could also explain the same occurrence just as effectively (Mouck 1992). There are further PAT studies that look to notions besides that of self-interest and look at efficiency; however Watts and Zimmerman have not been a part of this. Above all, agency theory is hard to swallow on the basis that people are self-interested. If such a notion were true then it would be logical to introduce more legislation, not less.

The Flawed argument that PAT is scientific and empirically based.
Watts and Zimmerman have claimed that normative theories were not effective and are not to be respected because they did not base themselves on scientific or empirical research (Godfrey et al. 2000). This argument however is flawed on numerous levels. Although Watts and Zimmerman spend a lot of time discussing their empirical basis for their theory, the actual results are not particularly firm. Mouck (1992) has stated that their basis is more of rhetoric than science and that for two researchers who spend so much time describing the benefits of empiricism the results are somewhat disappointing. Watts and Zimmerman’s only counter to the small amount of empirical evidence supporting PAT is
“Methodology criticisms have failed the market test because they have little influence on accounting research”
- Watts and Zimmerman (1990, p.149)
It will be discussed later as to why the level of research as a basis for judging a theory is spurious when claiming success.

Other arguments of the ‘flawed’ scientific nature of PAT come from the presumption by Watts and Zimmerman that they are objective observers of an identifiable reality, are therefore free of value judgements and are able to conduct their research within a vacuum. This point of view seems contradictory because one of the premises of PAT – agency theory – is heavily reliant on the value judgement that people are self-interested. Watts and Zimmerman also claim “The objective of accounting theory is to explain and predict accounting practice” (1986, p.2). This statement is a very much value judgment that leads us to think their claim to objectivity is something of a myth (Deegan 2000).

PAT can not be judged as being successful on the basis of its premises. They all have deficiencies in at least one respect and when put together to form PAT they produce a theory that bears little resemblance to anything that can be applied to actual situations. The only respect in which PAT has been successful has been in the area of publication and research and the reasons for this lie more with ideology than merit.

Positions put forward by others regarding the success of PAT.
A normative theorists’ position on PAT– Chambers.
The premises of PAT are not the only things that have been criticized by competing researchers. Differences in ideology and research beliefs have also contributed to the debate as to its success.

Chambers, whose research came to prominence during the normative period of the 1960’s questioned the usefulness of scientific or empirical research. He was quoted as saying that PAT has “set the research agenda back 20 years”. It was stated that PAT doesn’t improve present methods or lead us to improved techniques. It is a given fact that the present historical cost basis for measurement of assets is problematic due to a lack of ‘additivity’, yet PAT ignores these problems. In effect, it justifies the problems of the generally accepted accounting principles (GAAP) without ever trying to fix them and this in itself is not satisfactory (Chambers 1993).

While the Chambers is criticizing from a different paradigm his arguments are still valid. PAT leaves its readers with something of an empty feeling as there no prescription other than to behave in ones own self interest. This in itself is a danger because research claiming people act in a self interested manner could potentially encourage such behavior (Deegan 2000).

The Lack of Development of PAT
When Positive Accounting Theory was first developed in the 1970’s it relied upon three hypotheses, the debt hypothesis, the bonus plan hypothesis and the political cost hypothesis. Since this period however there have been no additions to these three, nor has there been any development or expansion of them. Although much research has been performed throughout the 1980-90’s PAT has remained stagnant in its development and this has perhaps led to the present decline in interest in PAT (Deegan 2000). Sterling (1990, p.130) has argued that PAT doesn’t have any potential for future development and that it will continue indefinitely in its present form without any new ideas. This lack of development and PATs recent decline in research are firm arguments that PAT will be deemed a failure in the light of hindsight.

Critical theory and the popularity of PAT
Positive Accounting Theory has been the predominant research paradigm of the 1980’s and 1990’s however upon reading PAT this becomes something of a curious phenomenon (Mouck 1992). Watts and Zimmerman would claim this ‘success’ is due to its scientific or empirical basis however the evidence of this is threadbare at best and rhetoric is the main instrument used in getting PATs message across.

This leads us to examine other reasons for PATs popularity. The positive/empirical paradigm became popular around the same time that new age conservative governments were elected in the USA and the UK. A connection can therefore be made between the rise of governments ruled by ideologies based around deregulation and ‘small government’ and an accounting theory that argues the same point. It is also plausible that universities in the USA that benefit from corporate funding were conducting accounting research as a tool to promote the deregulation argument that forms the foundation of Positive Accounting Theory. This means that the apparent success of PAT in the ‘research market’ has little to do with the merits or applicability of PAT, and much more to do with its ideological arguments that preserve the power of those who presently hold capital (Deegan 2000). Those who stand to reap the benefits of a deregulated government have in effect ‘captured’ the accounting research movement so as to glorify and justify their position.

Conclusion
Watts and Zimmerman will claim that PAT is a success because it has dominated accounting research and publication and because it is scientific. These claims are false on one hand because the amount of publication it has received is due its popularity with the right-wing deregulatory ideology and on the other because far from being scientific PAT is actually based on large amounts of rhetoric used as a veil to conceal its poor ability to predict behavior that has been reflected in its empirical results. The flow of PAT from its economic roots through the EMH and agency theory appears to be logical upon first inspection; however given greater scrutiny the premises of PAT have themselves been shown to be of questionable reliability. This leads to the conclusion that far from being a success, PAT is simply a mish mash of other theories that has been used as vehicle to promote the free market ideology that has dominated the political and research program. Recently PAT has been running out momentum in terms of publication and this is perhaps evidence that PAT was a fad that has had its time and has now been shelved in favor of more pragmatic and useful research opportunities.

DEFINITION OF CULTURE AND ITS IMPACT TOWARDS ACCOUNTING

2009-09-10T09:17:00.000-07:00

Many researchers have suggested that culture have been important factor that affect the development of accounting systems in international accounting. Bloom and Naciri (1989, page 72) defined culture as the total pattern of human behaviour and its products embodied in thought, speech, action and artifacts and dependent upon manбпs capacity for learning and transmitting knowledge to succeeding generations through the use of tools, language and systems of abstract thought.

They used this definition based on the Websters Third New International Dictionary Unabridged (1961). While Belkaoui (1994) said that culture plays an important role in the organization of everyday understanding in accounting and implies that accounting knowledge is organized in a culturally standardized format which tells individuals how to react to a particular accounting phenomenon.

Cultures changes in different country have been proven when it is applied in accounting environment. This can be seen clearly in two different countries. According to Pourjalali and Meek (1995), they explore the change in cultural values in Iran and found out four changes in cultural variables, which were lower individualism, large power distance, stronger uncertainty avoidance and higher masculinity. While in Spanish case, Blake have found out that the results are quite different from Iran case, which were higher individualism, small power distance and weaker uncertainty avoidance. These results might cause by the move from dictatorship to democracy in Spain. It shows that Spain and Iran have two different cultures that give impact on the accounting environment of respective country.

As we know, each country has different kind of culture, which makes them to use different kind of accounting systems. That is why we are having problem in differentiating financial statements in those countries. In order to overcome this problem, each country has to use standardized or universal accounting systems. However, this canбпt be happening because culture have been identified as the most important factors in influencing accounting systems and the process of accounting changes. This is proven in the two case studies that are stated above.

International Accounting Standards (IAS)

2009-08-20T09:09:00.000-07:00

There are two important trends in the financial reporting the U.S.’s GAAP and UK’s IAS. More and more countries are converting to the International Accounting Standards (IAS). The U.S. should learn the IAS it’s the future of financial reporting.

International Accounting Standards Committee (IASC) was formed in June 1973. Most countries recognize the need for more uniform standards and that’s how IASC was formed. IASC’s standard is to work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements. IASC lasted until 2001 and then came International Accounting Standards Board. In 1974 the first associate members admitted were Belgium, India, Israel, New Zealand, Pakistan and Zimbabwe.

In 1977 International Federation of Accountants (IFAC) was international professional activates. In 1981 IASC got complete control in setting of international accounting standards. Now members of IFAC became members of IASC.

On April 2001 the IASC gave up accounting standards responsibilities to IASB. The IASC Foundation is the body of IASB and independent accounting standard setter based in London, UK. IASB has responsibility for setting accounting standards. The IASC Foundation is a non-profit corporation and is privately funded. It has five bodies the Trustees, the IASB, Standards Advisory Council and International Financial Reporting Interpretations Committee. The Trustees oversee the whole organization and raise funds for the organization. The Trustees also select the IASB members. The IASB’s board members consist of fifteen and come from nine countries. The Board is devoted to developing in the public interest, clear and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. And the Board helps with national accounting standard setters to achieve meeting in accounting standards around the world.

IAS is gaining widespread use and recognition around the world. Many countries already endorse International Accounting Standards as their own without amendment or with little change. The global business community is responding quickly to the IASB’s efforts to develop uniform global accounting standards. The European Commission recognized that it couldn’t use the U.S. GAAP. It considers that IAS provides a comprehensive set of standards for financial reporting that is albe to serve the needs of the international business. The European Commission thinks that the IAS has the advantage of being developed with an international outlook. The European Commission is progressing proposals that will require all listed companies in the European Union to prepare their consolidated financial statements using IAS. This regulation will require 7000 companies in the Europe Union to unite their financial statements under IAS starting 2005. Many leading companies in the European Union already stated their financial reports in agreement with IAS. It is expected that companies with listed debt in the European Union will be required to report IAS results by 2007. This new rule will change the accounting procedures for European Union companies; it will not be easy (“IASB”).

Many developing and newly industrialized nations like Nigeria and Singapore have adopted IASC standard as their national standards. The most significant international developments are the adoption IAS by at least fifteen new different countries around the world. European Union, Australian, and Russian companies and others will be required to us IAS in the next few years.

The Securities and Exchange Commission (SEC) indicated that it would allow foreign companies to use IASC standards in securities offerings in the United States it the IASC met the three conditions. The IASC is making substantial progress with conditions. It is entirely possible that the SEC will accept IASC standards in the near future. If this happens many U.S. companies will petition to use IASC stands instead of U.S. standards. It is better that all companies follow the same standards. Under the IAS users of financial information will find it easier to make comparisons among companies in different countries.

U.S. standards have been criticized for being overly detailed and complex and containing on/off switch rules that worship the form and not the substance of the transactions (“IASB”).

The IASB is a set of global accounting standards to provide common financial language for the world’s capital markets and make it easier for financial statement users to understand and compare financial information.

Convergence of accounting standards is the centerpiece of the efforts to build a global financial reporting infrastructure. The desire for convergence of accounting standards is greater than ever. Achieving this would greatly aid cross border investing and decision-making.

Management Accounting

2009-08-18T06:25:00.000-07:00

The purpose of this report is to review the changes that Management accounting has undergone throughout the 20th century and how these changes will have an effect on Management Accounting in the 21st century, according to Ferrara. The article by Ferrara provides a comprehensive view as to how Management Accounting has been beneficial for organizations, which is divided into four separate areas and how it will continue to be as Management Accounting approaches the 21st century. These changes are all outlined below:

The first paradigm that Ferrara outlines is Paradigm A, which consists of the turn of the 20th century until the 1940’s. This was the era of the Industrial revolution plus, and was a representation of the image of an early day industrial engineering type. As a result, the costs that were involved were direct materials, direct labor, manufacturing overhead, as well as marketing and administrative costs. All of these costs were joined together in order to form a total cost per unit of output. Therefore, in many ways, the total cost per unit excluded marketing and administrative costs, which were included as a factor of desired profit. This enabled the sum of the total cost and desired profit to generate a target selling price per unit.

The second paradigm focused on the period from the 1940’s until the 1980’s, which was the era of cost-volume profit analysis as well as direct costing, and in which it was introduced through the distinction between fixed and variable costs. Therefore, variable costs per unit were determined by engineering standards and analytic techniques, which meant that the volume of activity primarily related to fixed costs. This has also led to many variable costs becoming fixed as time has gone by.
The variable costs per unit for direct materials and direct labor were easily determined by the engineering specifications for materials and labor requirements. The derivation of variable costs per unit through engineering standards and analytic techniques only left the fixed costs to be considered when determining the volume of activity to be divided by the derivation of per- unit costs. The issue of dividing the volume of activity had become a larger issue as the relative amount of variable costs had diminished and the relative amount of fixed costs had increased.

The third paradigm focused on the period of the late 1980’s through to the early 1990’s. This was the era when activity- based costing was introduced.

Under activity- based costing (abc), there were 3 elements of variable manufacturing costs:
I. Costs that varied with product units;
II. Costs that varied with product complexity, such as the number of batches; and
III. Costs that varied with product diversity, such as the number of products. Activity- based costing (abc) was argued as being nothing more than an updated, revised, and most likely a more accurate version of the absorption costing concept. This caused the new face of management accounting to focus on the implication of basing decisions on their estimated effects of marginal balances and contribution margins instead of ‘full cost’ calculations.

The fourth paradigm was based on the period of the 1990’s and beyond. This was the era of market driven standard (allowable or target) costs as opposed to engineering driven standard costs. This means that the allowable or target cost per unit is a market- driven standard cost that must be met, if the desired profits are to be achieved.

Furthermore, Paradigm D creates a series of provocative new issues, such as:
- all that counts, is that the total cost per unit must not be greater than the allowable or target costs, should the desired profits be achieved. This gives Ferrara reason to suggest that the distinction between fixed and variable costs is either considerably less relevant or totally irrelevant.
The second issue is:
- if it is believed to be a part of continuous improvement, then the allowable or target cost per unit must be reduced as time goes by.

Ferrara concludes this paradigm by outlining that continuous improvement even creates the possibility of more positive relationships with suppliers and customers, in order to reduce costs and increase quality as well as performance.

According to Ferrara, the relationship between costs and selling price has undergone considerable change throughout the 20th century. He proceeds to highlight that a desired profit as well as the sum of the total cost and desired profit, which generated a target selling price per unit was added to the calculation of the total cost per unit. The main result was to primarily achieve the target selling price per unit, which was the sort of price that would generate the desired profitability, if projected unit- costs could be achieved. Therefore, variable costs per unit for direct materials and direct labor were easily determined by engineering specifications for materials and labor requirements. This enabled per unit amounts of other variable costs to be calculated.

The focus on the development of a total cost in order to assist in determining a selling price had diminished. Instead, a selling price which was believed that the market would allow to help determine the cost in which the market was going to allow, would be used.

This concept was often referred to as ‘price-led costing’ instead of cost-led pricing. As a result, the target cost per- unit was a market- driven standard cost that was always required to be met if desired profits were to be reached.

Finally, Ferrara outlines his thoughts on the 21st century paradigm in which he believes that management accounting is entering into a whole new era. Therefore, there is a necessity for continuous improvement in management accounting through the changing times. The use of activity- based costing (abc), would be greatly assisted by combining paradigms C and D in the determination of product promotion and pricing strategies. This combination would add more depth in the role of activity- based costing (abc), when it comes to forcing the use of alternative cost structures. As a result, the shifts from Paradigms C and D, which focus on per-units, could be achieved by the multiplication of the expected actual and actual volumes for each product, through the per- unit amounts at every respective volume production level.

It would then be easy to develop contribution margins in the product line income statements.

Ferrara concludes that activity- based costing (abc) will continue to play a large role in management accounting, and along with combining paradigms B and D, it will have a huge influence as management accounting proceeds to the 21st century.

Accounting and Finance Report

2009-08-17T01:33:00.000-07:00

Introduction
Ratio analysis is deemed to be important when assessing the performance of a firm and can be used as a tool to predict company failure or success. However ratio analysis shouldn’t be the only provider of information it should be supplemented by other information. E.g. external factors and non-financial information should be considered also past records need to be considered to look at the longer-term picture of the company. But past records are merely a guide and don’t always illustrate future performance. Furthermore the trends of the market need to be analysed.
However this information is not all available, this report will consider four main areas of ratio analysis which are: profitability, efficiency, liquidity and investment to come a concise conclusion on whether or not an investment in Longway P.L.C would prove beneficial.

Liquidity ratios
“Liquidity is concerned with the short term solvency of the company” Solvency is extremely important for survival because the firm needs to pay its debts to stay in business. In order the assess the liquidity of Longway I made use of the “acid test” shows that the liquidity in 2001 was 1.0:1 times then it increased to 1.19:1 times in 2002. This shows that the longway can repay its short-term obligations. It shows also shows that liquidity is increasing. A company could actually survive on 1.0. The current ratio also shows that the company is in a safe position with regards to liquidity.

Profitability ratios
The profitability of longway has shown significant decreases between 2001-2002. For instance Return on investment has dropped from 32.8% in 2001 to 11.5% in 2002. Also Net profit has dropped from 23% in 2001 to 8.3% in 2002, similarly has gross profit. Return on equity has more than halved in the same period this doesn’t show maximisation of profit or maximisation of sales therefore stability looks poor.

Efficiency ratios
The creditor days have fallen from 243 days in 2001 to 209 days in 2002, which shows greater efficiency in paying for supplies bought on credit. However debtor days have risen which shows delayed payments from credit customers, which could create cash flow problems.

Investment ratios
Earnings per share have dramatically dropped in just two years, from 20pence per share to only 6 pence per share. This shows that shareholders are not maximising there wealth and could be willing to sell, obviously would have poor consequences for longways. Furthermore the price/earnings ratio shows significant decreases and underpins that the investments in longways have minimal returns.

Consideration/ Discussion of directors views and recommendation
I must disagree with the financial director who believes the liquidity of longways is poor, this is clearly not the case as shown in the liquidity ratio’s.

The profitability has undisputedly fallen and I must agree with him on that score.
However the comment made by the operations director suggesting that over the last five years longway has shown a financial decline cannot be commented on because we only have information from 2001-2002, which does actually show a decline in the one year period. However without seeing previous years records only a limited judgment can be made simply because 2002 could simply have been a one off poor year.

I believe by investing in longway, it would make good marketing sense because a greater proportion of the market would be acquired but I don’t believe there is any significant financial logic behind the investment based on the profitability ratios. However its unfair to make assumptions about profitability because the remainder of the market needs to be considered, furthermore do past records of performance. I don’t believe that records of just two years can justify a clear decision about investment. Liquidity does show that the company could in fact survive but I don’t feel as though the profitability margins are great enough to make such an investment as they show huge decreases between 2001-2002. The reasons why the profitability has dropped need to be considered and the external factors need to be explored before fully justifying this decison.

Forensic Accounting

2009-08-16T06:16:00.000-07:00

Introduction
Until recently, detecting fraud was thought to be a part of the responsibility of the accountant. Fraud was something the internal or external auditors were expected to guard against by their periodic audits. We now know that auditors can only check for compliance of a company’s books to the Generally Accepted Accounting Principles (GAAPs) and to company policy; therefore, a new category of accounting had to be established, one which revealed the fraud for companies with suspected fraudulent transactions. This new area of accounting is known as forensic accounting.

What is Forensic Accounting?
To fully understand the definition of forensic accounting, we can use parts of the definition of forensic medicine and accounting, both taken from Webster’s Dictionary, to produce a clear definition. Forensic medicine is a “science that deals with the relation and application of facts to legal problems.” Accounting is “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the result.” So, the combination of these two definitions would yield forensic accounting as an accounting method that deals with the relation and application of system used to record and summarize business and financial transactions to a legal problem (http://www.forensicaccounting.com). Within this area of accounting, there are two general categories of accountants or areas of practice. They are the following: litigation support specialists and investigative or fraud accountants (Crumbly, New Accountant).

The Historic Forensic Accountant
This profession has not been around for long. However, this line of work is nothing new, as there were people dealing with “employee” crime thousands of years ago. Back in the 3300 and 3500 BC, the world’s first accountants, or scribes, can be found in Mesopotamia and Egypt. These “accountants” recorded commercial transactions onto damp clay tablets or papyrus. Fast forward to the 19th century, Scotland introduces the first official chartered accounting profession. It started out as a profession where legal work accounted for a large portion of an accountant’s job. However, by the early 20th century, chartered accountants expanded their services to a much wider field and court appearances shrank relative to the size of their business. As one can see, forensic accounting is not a new and exciting field in accounting; rather it is a return to where accounting had all started.

The Modern Forensic Accountant
The demand for forensic accountants with CFE or CIRA credentials is increasing approximately 100% per year. Their average pay range is between $70 000 - $200 000. A reason for this increased demand for forensic accounting can be credited to the increase in white collar crime associated with society’s up and rising technology and expanded use of computers to handle increasingly complex private and business transactions.

Who are litigation support specialists?
Litigation support specialists provide professional assistance of an accounting nature in matters to laywers involving existing or pending litigation in the litigation process. Within the litigation support specialists, there are the following categories: business valuation, revenue analysis, expert witness testimony, and future earnings' evaluation ("Forensics," New Accountant). Litigation support specialists deal primarily with issues related to the computations of economic damages. A typical litigation support assignment would be calculating the economic loss resulting from a breach of contract, or a fairly recent example would be the economic loss due to the damages resulting from September 11, 2001.

Who are investigative accountants?
Investigative accountants, or sometimes referred to as fraud accountants, are associated with investigations of criminal matters. The investigative or fraud accountant have two areas of emphasis. They are to seek out evidence of criminal conduct and dispelling or supporting of damages (Crumbly, New Accountant). Examples of typical investigative accounting assignments would include the following: an investigation of employee theft, securities fraud, insurance fraud, kickbacks, and proceeds of crime investigations.

What do Forensic Accountants do?
Forensic accountants are often retained to analyze, interpret, summarize, and present complex financial and business related issues in a manner which is both understandable and properly supported (http://www.forensicaccounting.com). Forensic accountants also have the option of being engaged in a public practice or being employed by organizations such as banks, insurance companies, police forces, government agencies, etc.

A Forensic Accountant is often involved in the following:
• Investigating and analyzing financial evidence
• Developing computerized applications to assist in the analysis and presentation of financial evidence
• Communicating their findings in the form of reports, exhibits, and collections of documents
• Assisting in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.

Forensic accountants must be familiar with legal concepts and procedures in order to properly perform these services. Also, forensic accountants must be able to identify “substance over form” when dealing with a given issue.

What types of assignments to Forensic Accountants perform?
Forensic accountant become involved in a broad range of investigations spanning many different industries. Forensic accountants provide practical and in-depth analysis to cases which help uncover fraudulant trends and also bring light to the relevant issues. Forensic accountants are often involved in the following: criminal investigations, shareholders’ and partnership disputes, personal injury claims or motor vehicle accidents, business interruption or other types of insurance claims, business or employee fraud investigations, matrimonial disputes, business economic losses, professional negligance, and mediation and arbitration.

How do I become a Forensic Accountant?
In order to become a qualified forensic accountant, there are several degrees, certifications, and positions that an accountant can choose to attain in order to be considered an “expert” in this field. Forensic accountants, who are usually involved in litigation support or investigative accounting, must have some form of credentials to consider them capable of the work or career they are pursuing. First of all, they must complete the basic requirements for an undergraduate degree. After that, there are two main professionals certifications that are available to them. They are the Certified Fraud Examiner (CFE) and the Certified Insolvency and Reorganization Accountant (CIRA).

In order to obtain the CFE certification, they must have a bachelor’s degree in accounting, complete one or two years of professional accounting experience, and successfully pass all four portions of the CFE Examination. The examination includes four sections which are the following: financial transactions, investigation, legal elements, and criminology.

In order to obtain the CIRA certification, the accountant must have attained at least five years of professional accounting experience. Of these five years, 4 000 hours must be accumulated in insolvency and reorganizational accounting. There are three parts to the CIRA exam. They are the following: financial reporting and taxes, managing turnaround and bankruptcy cases, and plan development and accounting.

Other than a certificate to acknowledge that one is a forensic accountant, a forensic accountant should also possess the following characteristics: curiosity, persistence, creativity, discretion, organization, confidence, and sound professional judgement. A forensic accountant must also be open to consider all alternatives and options, be able to dissect the fine details and at the same time, see the big picture. Forensic scientists must also have excellent communication skills because they must be able to listen effectively and communicate clearly and concisely.

Case Studies on Forensic Accounting
Al Capone, a name that has been infamous for many decades, was never convicted for any of the criminal activities normally associated with mobsters. The courts never caught him for assaults, murders, robbery’s etc, but rather he was jailed for what seems to be such a small crime in comparison: tax evasion. Back in the early 1900’s, the IRS Special Intelligence Unit was formed primarily to combat employee crime. An accountant by the name of Elmer Irey, the head of the IRS and the US Treasury Enforcement Branch, was a key component in pursuing Capone for his tax crimes. Irey was essentially America’s first well known forensic accountant. He and his team were named “the silent investigators”, due to their superior investigative and analytical skills which in the end cracked Capone’s financial scandals.

In the 1950’s and 1960’s, Atlantic Acceptance was one of Canada’s leading financial firms. It had 105 small loans offices and 35 sales finance offices across the country. The company collapsed in June of 1965 with $150 million of receivables still outstanding. Introducer, Tedd Avey, a pioneer of forensic accounting in Canada, recalling the scandal:
“Atlantic Acceptance was one of the first cases in which forensic accountants were used to present evidence in a Canadian court,” he says. “The enormous complexity of the financial documents — dozens of companies were either implicated or impacted — made the situation difficult for people to grasp. But the forensic accountants were able to take a roomful of complicated financial documents and boil them down. The evidence came to life through a series of charts and simple explanations.”

Without these scientific-minded accountants, such breakthroughs in the case would have been improbable. Being able to scientifically sort through complex accounting documents is not a skill many people have, and must go a lot of training in order to get to that stage.

In another case, forensic accountants were expert witnesses in some major court cases. In the murder trial of Helmuth Buxbaum, a millionaire from Komoka, Ontario, crown attorneys determined that his bankbook was as important to the case as his marriage bed. His financial records followed the motive for the murder, and were essential in confirming his guilt to the jury.

Conclusion
The field of forensic accounting seems to be becoming a very popular and demanding occupation for many. It is not a career that just anyone can choose to puruse because it requires a lot of hard work, effort, and personal characteristics that not many people possess. This career appears to be very appealing because it is not the ordinary “behind-the-desk” job. Although it is a subdivision of accounting, it is not what most people would consider the stereotypical form of accounting. Forensic accounting provides both a legal and accounting aspect in the career; therefore, probably appealing to many who may be interested in both law and accounting. After completing this report, I discovered another branch of accounting that I was unaware of that also appealed to me, and I will consider it as a potential future occupation.

History of Accounting

2009-08-16T06:12:00.000-07:00

This paper will inform you on the history of Accounting, from the beginning to the present. Even how the idea of Accounting came into existence and how it’s changed throughout time to become one of today’s mainstream jobs for the workplace.

Accounting is one of the oldest professions that there is. In fact, since prehistoric times families had to account for food and clothing. The first record of currency began with tokens in shapes to symbolize certain commodities such as grain, and other items people needed for everyday living. These methods were used for over 5000 years, before the first writings were found. Evidence of accounting records can be found in the Babylonian Empire (4500 B.C), in pharaohs Egypt and in the Code of Hammurabi (2250 B.C). Eventually, keeping records became a necessity for governments to sustain social order.

Now, it is the time of the Renaissance and the accomplishments of man are coming to new heights. This is when a man, by the name of Fra Luca Pacioli, also known as “The Father of Accounting” would come into play and express his ideas plus his theories on Accounting. Pacioli showed the world that Accounting was one of the most important inventions know to man. Born in 1445, Pacioli was a mathematician, who was also a friend of Leonardo da Vinci. He wrote and taught in many different fields, such as mathematics, theology, architecture, games, military strategy and commerce.

In 1494, he wrote a book called “Summa de Arithmetica Gemetria Porportionalita”, which was on Arithmetic; but included a section dedicated to the description of Double-Entry Accounting. The book became a major success and was translated from Italian to many other languages. Even through he was not credited for developing the system he was first to publish text on its practice. The system that he used included most of today’s accounting routines such as the use of memorandums, journals, and ledgers. He described the year-end, closing entries and proposed that a trial balance be used to prove a balance ledger. There would be little modification to Pacioli’s system for the next years. Double-entry Accounting is used to catch errors to accurately track the various streams of money in your business. This made banking reliable, and also enhanced trade and commerce.

By the 1800’s, Scotland became the world’s leader in modern Accounting. In the lat 1800’s, Edinburgh society, followed by other accounting societies in Scotland and England, adopted the title of Chartered Accountant (CA) to identify its members. The first certified Public Accountant (CPA) law was passed in 1896 in the state of New York. This law required accountants to pass an examination to become certified. There were no education requirements since most accountant were trained an apprenticeship and not by formal education. The actual exam had very little to do with Accounting, it focused on reading, writing, and arithmetic. By 1912 thirty-three states had CPA laws and by 1921 all fifty states did.

In 1973 the Financial Accounting Standards Board (FASB) was founded. Its goal was to establish standard of financial accounting and reporting. Such standard are important for the creditors, investors, auditor and other people rely on credible and comparable information about their finances and the finances of others. The FASB accomplishes this mission by acting to: improve the usefulness of Financial reporting, keep standards current, and promptly consider any faulty areas in methods of financial reporting, promote international accounting standards, and to improve the understanding of the information in financial reports.

Today, computers play an important role in the field of Accounting. Different software types are doing most of accounting applications. Whether an accounting system is manual or computerized, the underlying principles of accounting are the same.