State of Emergency: Economics and Accounting
State of Emergency: Economics and Accounting
During this time of transition between the 43rd and 44th President of the United States, I have decided to focus on how the current state of Economics is affecting the Accounting world. If you have been under a rock for 8 years then you need to know that the current state of finances and economies are in disarray. The U.S alone has faced the highs and lows of the stock market. The housing market is unstable with big mortgage lenders folding and being sold to other banks and competitors. The American auto industry is on hands and knees at the feet of Congress hoping to grab a piece of the nearly 800 million dollar bailout plan earmarked for the struggling economy. We have just had a historical election for the 44th president of the U.S but already the honeymoon is over. President –elect Barack Obama has assembled an economic team to ensure stability before he is even inaugurated. President Bush is not a popular figure in America partly because of the economic crisis. According to Congressman Barney Frank (D-Ma), Bush has not supported the economic help, opting instead to let it run its course.
“I am pleased that President-elect Obama has made the appointment of an economic team as one of his first moves. This sets the stage for badly overdue decisive action to provide the economic help the Bush Administration has refused to support.” -Congressman Frank. [1]
Accounting is a gigantic part of economics. Many of the companies that are staples of the American economy and economies worldwide use GAAP. GAAP is a monogram for Generally Accepted Accounting Principles and these principles translate to every company that uses accounting methods to keep track of money inflows and outflows. (Revenues and Costs) Accounting GAAP is governed by the FASB (Financial Accounting Standards Board) which has the authority to set and enact all accounting standards by the Securities Exchange Commission. Although it is not a public organization, the FASB is respected by the SEC and U.S government because they believe the private sector knows best and has the best resources. These GAAP and FASB led accounting principles have been a mainstay for a while but now have a replacement. The IFRS (International Financial Reporting Standards) have been adopted by more than 100 countries around the world including the majority of Europe.[2] The United States is the next company to adopt these standards with the earliest start date in 2010. This gives the U.S plenty of time to make sure that all companies are reporting finances correctly so there will be no more Enron’s or MCI WorldCom’s left undiscovered. The new IFRS standards will have every company that reports in the U.S give the same information that they might withhold in another country’s reporting standard. This also is easier on the economy as we move into a more global market.
The old standards that we are using will not track today’s economy very well. When the GAAP and other accounting principles were developed, society was built on tangible assets and contributions that were seen and written off. Today’s economy is more information based and thriving off of intangible assets such as: ideas, brands, ways of working, and franchises. These intangible assets are not being assessed the same by GAAP and other principles anymore. Companies are benefiting from a missing link between concrete finances and the Information age. The gap affects more than just financial analysts and financial officers. Employees don't know how to value their contributions correctly. Managers don't have high-quality numbers to refer to when deciding whether to back a project, or when assessing a project's performance. Companies however are getting caught with their hands in the proverbial “cookie jar” trying to maximize revenues when their books have no semblance of accountability.
Hopefully with the advent of the IFRS, there can be a change in how Accounting relates to the current economy. The information age should be able to ensure that Accounting stay relevant by making sure these intangible assets are valued correctly. Accounting is making changes along with the economy to become better suited at keeping the accountability and integrity of companies intact. Barack Obama is doing his due diligence as president –elect at this time as well. He is not only showing the American people that he is here to fix the economic problems that plague the U.S, but also the world. In this time of a global market, it is important that companies here and abroad are keeping the books and finances straight to make sure jobs are prevalent in each economy. Goods and services are the backbone of any economy, and to make sure that the economy stays intact, there must be Accountability. Accounting will not let us down.
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