Effects of the Application of Accounting Standards on Company Performance: A Review

By Beke, Jeno | International Journal of Management, September 2012 | Go to article overview

Effects of the Application of Accounting Standards on Company Performance: A Review


Beke, Jeno, International Journal of Management


This paper traces the benefits of international accounting standards and their contribution to harmonization in business practice. In this review, the goal is to describe and summarize how the accounting standards promote management decisions and influence the business environment in a global scale. With increasing globalization of the marketplace, international investors need access to financial information based on harmonized accounting methods and procedures. It is expected that the unified, standardized accounting information system will lead to new types of analysis and data, furthermore with the possible integration of new indicators from the business management practice of certain countries. This study examines the impact of the adoption of accounting standards on company performance. The results showed that the internal efficiency measured by accounting indicators depended on financial situations, capitalizations after standards adoption. These accounting methods are becoming one of the most efficient tools for company performance measurement and evaluation.

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Introduction

In today's business environment, companies need to take every advantage they can to remain competitive. Global competition, rapid innovation, entrepreneurial competitors, and increasingly demanding customers have altered the nature of competition in the marketplace. This new competitive environment requires companies' ability to create value for their customers and to differentiate themselves from their competitors through the formulation of a clear business strategy. Business strategy must be supported by appropriate organizational factors such as effective manufacturing process, organizational design and accounting information systems too.

Modern business environments are increasingly competitive and dynamic. International competition through e-commerce and demand-based supply chain management dominate business. It is important for companies to develop coherent and consistent business strategies and to utilize accounting tools to support strategic planning, decision-making and control. To integrate business strategies with various accounting tools, first companies need to identify which business they are in. It is essential to identify products and services, customer types, geographical markets, and delivery channels. It is useful to match the strategic business unit (SBU) with the related business unit strategy. An SBU is a company department or sub-section which has a distinct external market for goods or services that differ from another SBU. A business unit strategy is about how to compete successfully in particular markets. It is important to focus on a certain segment, such as environmentally friendly cars in the automobile industry or internet and phone banking in the retail banking industry.

To be successful in this cut-throat competition business world is very tough particularly if you are not too familiar with the diverse strategies which are needed to make a business successful. If you cannot make a success story out of your business, there is no use of operating a business. You must have to undertake some strategies to run your business successful. These strategies are accounting, bookkeeping, marketing, promotion, production and manufacturing. Now what a business owner needs to do is prioritize work - what need to be done on priority basis. And this will vary greatly from business to business. Accounting help is something that any business requires to embark on, in particular if you are operating a large scale business. If you are running a small or mid-size business than you can easily handle the accounting work without obtaining professional assistance. Generally, in a very large company, each division has a top accountant called the controller, and much of the accounting that is done in these divisions comes under the leadership of the controller. On the other hand, the controller usually reports to the vice president of finance for the division who, in turn, reports to the division's president and/ or overall chief financial officer (CFO).

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