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Accounting Methods

The analysis shows that there is significant variance in adopting different accounting methods.  Some countries may solely adopt one accounting method, which might be the requirements of government regulations.  Others adopt different accounting methods on their choice.

The objective of financial reporting is to provide information useful in making and evaluating decisions.  The reports should be presented by the management and the governing bodies in such a manner as to discharge their accountability.  In doing so, the reports should disclose adequate information relevant to assessing the entityˇ¦s performance, financial position, financing and investing activities, and compliance with statutory regulations and rules.

Business managers, investors, creditors, government boards and agencies, and other outside parties use accounting information from the financial reports to make decisions concerning the allocation of scarce resources.  These decisions have a significant effect on the whole of society since they have impact on the form and direction of the economy.  Hence the implication here is that the effectiveness of decision-makers is enhanced if they have information that is relevant and reliable.  In addition, decision-making requires understandable information about an entity that is comparable with prior periods as well as with other entities.  Consequently, accountants need to prepare financial reports that contain information that is relevant, reliable, understandable and comparable over time and between entities.  The accounting methods discussed in a) should be disclosed if they are material to the decision-making of the entity.

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