Answer to Question #233041 in Economics for bili

Question

what are the recognition criteria of the elements conceptual frameworks and how this would improve financial reporting in Enron, auther Anderson and lemans brothers

Answer 1

The collapse of the Enron corporation has overtaken a market that is not only the largest in the world, but also considers itself the most regulated. As a result, all capital markets will have to commit more resources in the future to ensure the reliability of information targeted at investors. ACCA believes that it is necessary to develop a mechanism that will require market participants - large corporations and institutional investors - to provide the market with the resources necessary for its functioning at the proper level. It is clear that it is necessary to find new solutions to the problems arising in the global market. They must be implemented and monitored at the individual national level. ACCA insists that decision-making at the local level must be based on principles that are coordinated and agreed globally. This will mean that local regulators and others must rise above national differences. And what will be especially difficult, but they will have to give up some of the control on the ground in exchange for the opportunity to participate in decision-making at the global level.

Financial statements

Despite the fact that all the facts related to the bankruptcy of the Enron corporation will not be revealed for a long time, it is already obvious that investors were not sufficiently informed about the importance of off-balance sheet financial transactions. US accounting rules may well have contributed to this where they deal with the legal aspects of ownership of financial instruments rather than control over them. In contrast, International Reporting Standards adhere to the principle of “content over form”, and the use of “special purpose entities” would be transparently reflected in the reporting if these standards were applied.

The difficulty with legally detailed, statutory standards is that by defining precisely the legal boundary, they encourage you to act as close to it as possible, or even test it for strength. They encourage looking for holes in legislation and devalue professional judgment. This is much less about principles-based standards, and therefore judgment. From the ACCA point of view, standards and rules that are based on principles are much preferable. ACCA supports the European Union in its efforts to implement the International Financial Reporting and Auditing Standards in the next few years and believes that those organizations and capital markets around the world that are not yet transitioning to the new standards should address this issue urgently. For example, this will require the US capital markets to prioritize the transition to International Standards over the US GAAP and GAAS standards.