Abstract
The paper is an examination of the effects of accounting choices on users of financial statements. First of all, a historical examination in the subject matter was examined. It was found that most researches normally dwell on single characteristic effects of accounting decisions on financial statement users. Current GAAP on the matter also concurs with the latter matter.
It was therefore found that there may be a need to look at how these factors intertwine in affecting users of financial statements. Since firms may have to content with a number of effects at any one time, it is important to carry out a study on a combination of factors. Thereafter, an analysis ought to be done in order to investigate which factor is the mot important and which one takes least precedence. This can go a long way in assisting managers and other financial decisions makers about accounting choices in the future.
Introduction
There are a number of users of financial statements within any respective firm. Usually, some of the intended effects of accounting choices can become real effects. On the other hand, there are also foreseen consequences that may emanate from external or internal factors. The essay shall examine some of these issues through existing research on the matter. Suggestions will be made on problematic areas and possible courses of actions will also be laid out. In order to appeal to the latter group, it was found that Australian accounting standards took a turn and began conforming to the US institutional frameworks and also to their GAAP.
There are a number of reasons identified in literature for selecting certain accounting choices and these reason include:
* Improves financial statement credibility
* Reduces processing costs
When accounting policies are voluntarily done in order to come up with the most influential choices on foreign ownership, then chances are that they can attract greater investments if they are aligned to the foreign investor's institutional holdings or if they are also associated with the joint determinants under consideration.
The following table illustrates the example of US foreign investors interested in Australian companies
Variables Statistic Companies with US investments Companies matched by size and industry p-value
Total assets Mean
Median
24,157
2, 890 3, 924
525 <0.001
Policies Mean
Media
0.723
0.75 0.428
0.5 <0.001
US sales Mean
Media
1
0.934 0
0.793 <0.001
BIG 5 Mean
Media
1
0.699 1
0.6 <0.001
Source: (Bath, 1996)
As it can be seen form the latter table, there is a link between the level of investment by US firms in Australia and the amount of matching being done. Consequently, financial statements have an adverse effect on the kind of investment being done in a certain country.
Suggested changes or problem areas revealed in the debate
As it can be seen in the GAAP and historical development, most authors tend to focus on one particular accounting choice with reference to financial statements yet there are instances in which these effects may be more complex. There is a need to look at how effects of accounting choices can intertwine and hence affect the way a firm comes to make its respective decisions. Most of the time i.e. 87% of the time, it has been found that most firms may be dealing with two or more of the following issues
* Management change
* Government negotiations
* Labor union contracts
* Dividend reductions
It is therefore possible to find that a firm may be forced to contend with a number of changes that may occur after the accounting decisions have been made. In other words, most researches usually dwell on a particular effect yet situations are hardly that simple. Some correlations ought to be done in order to see how these various effects intertwine of financial statement users.
There is a need to provide a co relational study on how these factors affect users. A study on the most important or the least important determinate can go a long way in ensuring that accounting choices are more informed and therefore solicit the intended consequences.
References
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Proell, C. (2008): Effects of actual and expected accounting choices on judgments and decisions: Accounting Review, 13, 49
Bath, M (1996): International differences and their relation to share prices - evidence from UK, Canada, US and Australia
Riper, R. (2006): Setting standards for financial reporting; Contemporary Accounting Research; 13, 135
Belkaoui, A. (2007): Accounting in the dual economy; Journal of Accounting Research, 10, 67
Hopwood, A. (2008): The Economics and Politics of Accounting; Political Economy Journal, 7 69-74