What Is a Statement of Financial Accounting Standards?

Accounting Standard (Accounting Standard) is a basic principle that accountants must follow in their accounting work, and it is a standard for accounting work. It refers to the provision of specific accounting treatments for economic operations to guide and standardize the company's accounting and ensure the quality of accounting information. ^[1]

Accounting Standards

Accounting standards are a set of documents that standardize accounting calculations and accounting reports. The purpose of accounting standards is to establish accounting on a fair and reasonable basis and to enable comparison of accounting results between different periods and different entities. According to the operating nature of the units it uses, accounting standards can be divided into accounting standards for profit organizations and accounting standards for non-profit organizations.

General

Article 1 In order to standardize the accounting of public institutions, guarantee the quality of accounting information, and promote the healthy development of public welfare undertakings, this Law is formulated in accordance with relevant laws and administrative regulations such as the Accounting Law of the People's Republic of China

According to its role, it can be divided into basic guidelines and specific guidelines.

China's New Accounting Standards for Business Enterprises

Divide accounting standards into

Accounting standards are essentially a "complex" of "public contract" and "private contract" for two reasons: First, the government (also one of the uses of accounting information) has a comparatively violent advantage, and "natural" access To the status of the conclusion of a private contract with the management authority; and the government only acts as a "substitute" when the private contract between the minority shareholders (scattered creditors) and the management authority declines and is absent. Creditors conclude a contract with potential investors. The government's participation in the formulation of accounting standards directly or indirectly is first a "general purpose" contract, which is partly based on the "public choice" principle, and accounting standards present a "public contract" feature. But public choice is after all "

Each enterprise has a variety of economic businesses, and companies in different industries have their own unique characteristics. The advent of accounting standards has given accounting personnel a common standard to follow when performing accounting calculations. Can be based on the same standard. The role of accounting standards is to provide basic norms for accounting work.

To grasp accounting standards, we should also pay attention to the "four natures" of accounting standards.

(1) Normative. Each enterprise has a variety of economic businesses, and companies in different industries have their own particularities. With accounting standards, accounting personnel have a common standard to follow when performing accounting calculations, and accounting work in all walks of life can be carried out on the basis of the same standard. So that

Accounting standards transaction costs

It is explained from multiple aspects from the perspective of contract costs.

(1) Inevitability of transaction costs and accounting standards as incomplete contracts. Contracts concluded in order to eliminate uncertainty must accompany transaction costs.

Transaction cost = cost of searching information + negotiation cost (bargaining) + cost of monitoring contract performance + internalization of contract externality cost Among them, the first three costs are from the perspective of the government, and the cost of externality is mainly aimed at the autonomy of the management authority-a special contract such as accounting standards (a combination of bilateral contracts, public contracts and private contracts). It is inevitably required that the government must always consider the users of the information and follow the user-oriented nature of financial reporting. The following situations may exist:

1. The government (or standard-setting agency) enjoys the exclusive right to formulate accounting standards. It provides detailed accounting policies and pursues absolute unity (such as China's unified accounting system in the past). In this case, the government s violent advantages and power are vividly demonstrated. Although it can greatly reduce the cost of user search information and negotiation costs, the cost and externality of monitoring whether the contract is fulfilled (indicated by the lack of accounting policies of the management authority) Choice of autonomy, lack of flexibility in corporate accounting) is extremely high.

2. The government has the right to formulate general accounting standards (thus requiring the management to prepare financial reports in a general sense to protect investors), while the management has the right to formulate the remaining accounting rules, but the external supervision and management of the certified public accountant follows the general The status of accounting standards and the appropriate exercise of the right to formulate residual accounting rules (this is also the extensive model for the development of standards in some countries, such as the United States), has high monitoring costs and externalities, while information costs and negotiation costs are correspondingly low.

3. The management authority has exclusive rights to formulate accounting standards (such as before the United States before 1910). Information costs, negotiation costs, and monitoring costs are high, but externality costs are low.

Which accounting standard arrangement is chosen depends on the trade-off of the above four costs. Governments and management authorities that are parties to this special contract of accounting standards (must also consider other users of accounting information): The government has a cost in developing accounting standards, so it also tries to reduce the cost of its own operating process, which is reflected in the formulation of accounting standards The above is to try to reduce transaction costs; and the management authority is to strive for the freedom of choice of accounting policies as much as possible. The result is that the government has the power to formulate general accounting standards, while the management authority has the power to formulate the remaining accounting rules. However, the external supervision and management of a certified public accountant must exercise the power to formulate the remaining accounting rules in accordance with the general accounting standards. In this way, accounting standards as a contract will necessarily be an incomplete contract.

Accounting standards claim control

(2) The administrative authority has an inevitable extension of the matching of the remaining claim right and the remaining control right.

In the modern enterprise organization, especially in the company limited by shares, there is a difference in effectiveness between the owner and the agent (management authority). As a rational economic person, the owner and the management authority are trying to maximize their effectiveness. In order to keep the agent owner's goals as consistent as possible, so that the agent can maximize the shareholders' wealth when pursuing their own interests, the owner Numerous compensation schemes have been designed to motivate agents, the best of which is to allow management to be a holder of mixed rights, that is, to have a portion of the remaining claim in addition to a fixed salary. Enterprise theory and related empirical studies show that having only residual claims and no residual control rights; or merely having corresponding residual claims will result in cheap voting rights. The degree or proportion of the residual management rights of the enterprise management authority is "positively related" to its level of effort. The former affects the latter in two ways: first, it directly affects the profit function so that the first derivative of the profit function is greater than 0; the second is By choosing its favorable accounting policy to conduct accounting manipulation to increase its actual demand share; meanwhile, under the guidance of the "invisible hand", to increase shareholder wealth and corporate value, which requires management authorities to have freedom of choice in accounting policy.

Accounting Standards Multi-layer Agent

(3) The necessity of a multi-layered proxy chain.

Since the enterprise is a contract network, there must be complex and multi-level principal-agent relationships within the enterprise. In the simplified agency chain of "Shareholders' Meeting Management Authority Subordinate Managers and Employees", the management authority is located in the middle link. It is both the "Shareholders Meeting Management Authority" agent at the level of proxy agency, and is entrusted by the general meeting and external supervision At the same time, it is also the principal at the level of "management authority lower managers and employees". The use of accounting standards by the government to impose restrictions on the freedom of choice of management's accounting policies can only to a certain extent mitigate the "manager's wanton manipulation of accounting information" that may occur in the first-level principal-agent relationship to protect minority shareholders and Potential investors. However, if the choice of the accounting policies of the management authority is completely restricted in the accounting standards, it will not be conducive to the coordination between the management authority and the various stakeholders within the enterprise. Because according to the contract theory, the management authority has the right to supervise and command employees, and information is required for performance. In order to provide the best incentives and control for employees, it is necessary to make corresponding adjustments according to the characteristics of the company and the changing environment. The characteristics of different enterprises are different, so accounting standards need to give management authorities a certain degree of choice so that they can make timely adjustments when the environment changes.