Accounting and economic development.
Economic development entails increases in production, consumption, savings and investments. The foundations of accounting theory lie on pricing and profit maximization strategies with reduced levels of risk in both management and production process. The consumer model relies heavily on profit and pricing strategies put forward by accounting theory.
Development of accounting in an economy implies adherence to professional accounting, FASB, IASB and GAAP standards. Implementation of these standards imply that resources are put to their maximum use, distributed evenly according to felt needs, profit maximization with consideration of consumption behavioral trends, and reduced risks incurred in running businesses. It ensures that every transaction is accounted for thus reducing chances of fraudulent behavior or money laundering (Greuning, Scott and Terblanche, 2011).
The implication is that the development of accounting plays a critical role in developing a nation’s economy. It ensures that firms are conditioned to price floors, and ceilings, production meets demand, reduced waste in production process, and profit maximization. It ensures the development of accounting ethics so that every stakeholder becomes responsible and accountable. It allows equal and uniform distribution of an economies profits, surpluses, and natural resources. It allows an assessment of privatization against publicity of firms in an attempt to increase an economy’s productivity. The foundation of economic development lies on development of accounting, and observance to accounting ethics (Padmavathi, 2005).
Importance of culture to stock exchanges and professional accounting around the world.
Culture implies influences on people’s values, which eventually determine their attitude, and behavior. The pricing strategy on financial assets or shares relies comprehensively on decisions made by interested investors. This implies that if investors from different economies share a commonality in consumption and investment attitudes, it is likely that this similarity would result to high levels of co movement in the stock market. Cultural effect on stock exchanges and in professional accounting is more pronounced in active-trading economies as compared to thin-trading economies (Porter and Norton, 2011).
As argued by behavioral finance practitioners, investors have psychological biases, which contribute massively to matters of finance. Culture influences the marginal propensity to invest in two perspectives; natural barriers, and frictions in international integration. The process of global integration varies in time. Investors hold modest amounts of assets in form of foreign equity even when there are no international restrictive measures on cross-border investments.
The current global asset pricing models fail to elaborate on cross-sectional returns of cross-border investments, in emerging markets. This implies that investors become home biased, and do not integrate internationally. On the other hand, when an economy removes its artificial barriers to investment, natural barriers still hinder connections. This creates cultural distances amongst investors, and hinders key determinants of cross-border asset flows.
Prospects for the global converge of accounting systems
International convergence of accounting standards imply the modes and means implemented in achieving the standards stipulated in FASB, IASB, and GAAP. FASB holds that the ultimate objective of the convergence is a set global accounting standard that can be used for both local and cross border financial and accounting reporting. The path towards this objective is a collaboration of IASB and FASB standards in improving GAAP principles. The convergence prospects at eliminating the differences that accrues in performance of these standards, and come up with a common accounting standard that is globally acceptable (Greuning, Scott and Terblanche, 2011).
The convergence aims at providing comparable accuracy of financial reports, and builds on transparency of these reports (Padmavathi, 2005). The aim is to enhance transparency, and trustworthy of financial reports, which are common essentials for making investment choices either locally or globally. While setting IASB and FASB standards, different environment factors hinder a convergence to a common accounting standard. Such factors are inclusive of varied taxation levels in different economies, business ownership and organization, legal systems, and accounting as a profession. Research indicates that such differences are significant in Middle East economies. Convergence of accounting systems would, therefore, mean coming up with an accounting system that solves the differences arising in business operations and the legal systems in each economy.
Saudi Arabia Accounting controls.
Companies in Saudi Arabia re required by the state to conform to accounting standards stipulated in Saudi Organization of Certified Public Accountants (SOCPA). I cases that SOCPA do not exist the companies are expected to use IFRS laws as a guide to financial reporting. Accounting standards in the country are statutory controlled, and are flexible to income tax regulations, IFRS, regulation for companies, Saudi Arabian accounting and auditing standards issues by SOCPA, and accounting standards issued by Saudi Arabian Monetary Agency (SAMA).
These regulations require that financial reporting should be inclusive of balance sheets, income statements, cash flows, and changes in shareholder’s equity. All auditors in the economy are required to have valid licenses of operation issues by SOCPA, which functions under MOCI. The economy operates under transparency principle where every company is required to have independent annual reports from internal and external auditors. The economy of the country can be said to be conservatism in nature (Porter and Norton, 2011). The economy prospects about growth in future, and tries to boost resource utilization in a utilitarian way that supports current short term prospects and expected long run prospects.
Reference.
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Greuning, H. ., Scott, D., & Terblanche, S. (2011). International financial reporting standards: A practical guide. Washington, D.C: World Bank.
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Padmavathi, C. (2005). Accounting standards: Towards harmonization and convergence. Hyderabad: ICFAI University Press.
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Porter, G. A., & Norton, C. L. (2011). Financial accounting: The impact on decision makers. Australia: South-Western Cengage Learning.
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