Posted: January 20th, 2023

Why is accounting important? Who governs accounting?

Why is accounting important? Who governs accounting? How consistent is accounting among companies in the same industry? Can show an example of where accounting rules may be applied differently and yet consistent with GAAP? Why do we care as a society about accounting rules? Show by way of example, what happens when a company does not follow legitimate accounting practices.

Explain the value of financial ratios and why they are important? How are they used by companies, by investors, by analysts?

Please respond to each part of this multi-part discussion topic and to at least two of your peers.
==>
Accounting is important for several reasons. It provides a means for companies to track and report their financial performance, which is crucial for making informed business decisions. Accounting also helps companies comply with legal and regulatory requirements, such as filing taxes and providing financial statements to shareholders. Additionally, accounting is important for investors, as it allows them to assess the financial health and potential profitability of a company.

Accounting is governed by various organizations and bodies, such as the Financial Accounting Standards Board (FASB) in the United States and the International Accounting Standards Board (IASB) internationally. These organizations establish accounting standards and guidelines, known as Generally Accepted Accounting Principles (GAAP), that companies must follow in order to ensure the comparability and reliability of financial statements.

Accounting is generally consistent among companies in the same industry, as they are all subject to the same accounting standards and guidelines. However, there may be some variations in how certain accounting rules are applied, depending on the specific circumstances of the company. For example, different companies may have different methods for valuing inventory, but as long as these methods are consistent with GAAP, they are still considered acceptable.

We care as a society about accounting rules because they help ensure the transparency and integrity of financial information. This is important for a number of reasons, including protecting investors from fraud and enabling companies to make informed business decisions.

An example of a company not following legitimate accounting practices is Enron, the energy company that was involved in a major accounting scandal in 2001. The company used various accounting tricks, such as hiding debt and inflating profits, to create the illusion of financial stability. This led to the collapse of the company and significant losses for shareholders.

Financial ratios are important because they provide a quick and easy way to analyze a company’s financial performance. They are calculated by comparing different financial information, such as revenue and expenses, and can provide insights into a company’s liquidity, profitability, and efficiency. Companies use financial ratios to assess their own performance and identify areas for improvement, while investors and analysts use them to evaluate the potential investment opportunities. Financial ratios are also useful in identifying trends and comparing a company’s performance with industry averages or competitors.

Order | Check Discount

Tags: Why is accounting important? Who governs accounting?