Rules of Conduct and Rules of Measurement | Financial Statement Analysis
1. Discuss your views on the difference between “rules of conduct” and “rules of measurement.”
2. Explain how accounting standard setting is a political process. Identify arguments for and against viewing accounting standard-setting as political.
Rule of Conduct Vs Rule of Measurement
Rule of conduct represents the set of ethical guidelines for the people working in an organization that consists of various norms, values as well as the responsibilities within certain specified organizational settings. The key importance of having a proper set of rules of conduct guides the organization to maintain transparency (Kate, 2016).
For example; A public limited company does have their shareholders expects a certain amount of money in the form of return as these shareholders have invested their money in raising capital. Shareholders can have look at the company’s performance only with the help of the company’s financial statements. The rule of conduct is more concerned with the concept of transparency and reliability.
Rule of measurement is all about dealing with the calculation of economic and financial activities that is expressed in terms of time, money, and other forms of measurable indicators (Ostrowski, 2013). One of the key aspects of this is determining how the company is performing along as well as determining the economic and financial position of the company. Rule of measurement abides with the rule of conduct. In order to communicate the complex nature of economic data into simpler forms, the rule of measurement is designed.
Accounting Standard Setting is a Political Process
It is a true statement that “Accounting Standard Setting is a Political Process”. The position of the company can be analyzed with the proper understanding of accounting whereas the accounting standard is a structured method that has been set for the process of conveying the information.
For example, the economy where the expenditure of government relies on the taxes they collect from people and organizations is determined by the accounting standard followed by the companies. The company-specific factors (managers’ compensation and companies’ debt constraints) and country-specific factors (self-interest of setters or governments) involve political lobbying followed in the accounting standard-setting process.
References
Kate, M. (2016, June 15). Rules of Conduct. Retrieved from RICS: https://www.rics.org/south-asia/upholding-professional-standards/standards-of-conduct/rules-of-conduct/
Ostrowski, S. D. (2013, December 12). Measurement using the New Rules of Measurement. Retrieved from Wiley: https://www.wiley.com/en-us/Measurement+using+the+New+Rules+of+Measurement-p-9781118333013