Accounting Reform

Accounting Reform

Accounting reform is an expansion of accounting rules that goes beyond the realm of financial measures for both individual economic entities and national economies. It is changed to accounting rules that go beyond the enforcement of standard accounting practices and the elimination of “creative accounting”. It is advocated by those who consider the focus of the present standards and practices wholly inadequate to the task of measuring and reporting the activity, success, and failure of a modern enterprise, including government.

Effective and efficient reform implementation is entirely dependent on the specific country context. The real debate concerns concepts such as whether to report transactions, such as asset acquisitions, at their cost or at their current market values. The transition to accrual accounting will vary from country to country based on their objectives, strategic concerns, capacity, and administrative traditions. The former, traditional approach, appeals for its reliability, but can quickly lose its relevance due to inflation and other factors; the latter, increasingly common approach, is appealing for its relevance but is less reliable due to the need to use subjective measures. There is an increasing focus on the subject of corruption around the world. Accounting standards setters such as the International Accounting Standards Board attempt to strike a balance between relevance and reliability.

Any comprehensive scheme of accounting reform is a major professional and academic enterprise. Typically it requires examination of the role of each of the fundamental factors of production, an analysis of capital indicating how many types there are and how each supports each factor of a production process.

A comprehensive scheme that would affect, for instance, the United Nations standards for national accounts, the rules of the Bank for International Settlements, or listing requirements on the major stock exchanges, would have to defend any change against critics that advocated lesser reforms.