1. Explain emergence of contemporary issues in Accounting. ( Contemporary Accounting 2021 )
Contemporary issues in accounting mean the new problems, challenges and areas which have recently developed in the field of accounting due to changes in business and economic environment. Earlier accounting was mainly concerned with recording transactions and preparing final accounts on a historical cost basis. But now the expectations of users have changed and many new situations have appeared. Because of this, many contemporary issues like inflation accounting, human resource accounting, environmental accounting, social responsibility accounting, fair value accounting, accounting for intangibles, corporate governance, etc. have emerged.
The main reasons for the emergence of these contemporary issues are as follows:
- Limitations of Traditional Accounting
- Traditional accounting records transactions at historical cost and ignores changes in price level, human resources, environment, etc.
- This information is not sufficient for modern decision-making of investors, creditors and management. emergence of contemporary issues in Accounting
- To remove these limitations, new concepts such as inflation accounting, value added reporting, segment reporting, etc. have emerged.
- Globalisation and Liberalisation of Economy
- Business is no longer limited to national boundaries. Companies are operating in many countries and raising funds from international markets.
- For comparison of financial statements of companies of different countries, harmonisation of accounting practices became necessary.
- This has brought contemporary issues like adoption of IFRS / Ind AS, convergence of accounting standards, more disclosures and transparency.
- Rapid Technological and Financial Innovations
- Development of information technology, e-commerce, complex financial instruments, derivatives, etc. has changed the way business is done.
- Traditional accounting methods were not capable of properly recording and reporting such transactions. emergence of contemporary issues in Accounting
- Therefore new issues like accounting for derivatives, financial instruments, e-transactions, digital assets, etc. have arisen.
- Growth of Large Corporate Enterprises
- There is an increase in size and complexity of organisations, expansion through mergers, acquisitions and group companies. emergence of contemporary issues in Accounting
- This led to problems of consolidation of financial statements, segment reporting, transfer pricing, related-party disclosures, etc.
- These are all contemporary issues which require new accounting treatments and detailed standards.
- Rise of Service Sector and Intangible Assets
- The importance of manufacturing assets like plants and machinery has decreased and the value of intangible assets like brands, patents, software, goodwill, knowledge, etc. has increased.
- Traditional accounting does not properly recognise and measure such intangibles. emergence of contemporary issues in Accounting
- Hence issues like accounting and valuation of goodwill, brands, intellectual property rights and other intangible assets have emerged.
- Social and Environmental Awareness
- Society now expects business not only to earn profit but also to protect the environment and discharge social responsibilities.
- Because of this, new fields such as social responsibility accounting, environmental accounting, sustainability reporting and corporate social reporting have developed.
- Companies are required to disclose information regarding pollution control, employee welfare, community development, etc. emergence of contemporary issues in Accounting
- Inflation and Changes in Price Level
- Continuous rise in prices makes historical cost figures unrealistic. Fixed assets purchased long ago are shown at very low values and depreciation based on such cost is inadequate.
- This problem has led to contemporary issues like inflation accounting, current cost accounting, replacement cost accounting to show assets and profits at more realistic amounts.
- Corporate Scandals and Need for Better Governance
- Major frauds and failures (like Enron, Satyam, etc.) have shaken the confidence of investors. emergence of contemporary issues in Accounting
- There is demand for more reliable information, strict disclosure norms, internal control systems, forensic accounting and strong corporate governance practices.
- These issues have also become important contemporary topics in accounting.
- Changing Information Needs of Various Users
- Earlier financial statements were prepared mainly for owners and tax authorities. Now many users such as investors, analysts, employees, government, society, etc. use accounting information. emergence of contemporary issues in Accounting
- Each group demands different types of information like earnings per share, cash flows, value added, EVA, segment results, human resource value, etc. emergence of contemporary issues in Accounting
- To satisfy these needs, various contemporary reporting practices and performance measures have emerged.
Conclusion:
Thus, contemporary issues in accounting have emerged mainly because of rapid changes in the economic environment, technology, globalization, increase in size and complexity of business and rising expectations of different users. To keep accounting relevant and useful, accountants have to continuously study and resolve these new issues through development of new concepts, methods, standards and reporting practices. emergence of contemporary issues in Accounting
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👉 Important questions of Contemporary Accounting