It is common practice for firms in the United States to maintain and present multiple sets of accounting records. This sounds rather odd given that the records contain details of the same transactions. One would be forgiven for concluding that this practice is unacceptable and perhaps illegal. However, note must be taken that US law and regulations allow firms to maintain multiple records (Connolly, 2012). Most companies which keep multiple books do so out of the need to serve different purposes. While it is true that the multiple accounts could encourage fraud, they enable companies to conveniently achieve a number of lawful aims that are vital for business growth and compliance with relevant laws.
It would be unfair to demand that firms maintain only one set of accounting records. This is because the structure of US law on financial reporting makes it nearly impossible for a firm to record all its transactions in a single set of books. Most companies have at least two set of books. In the first set, the firms record transactions in a manner compliant with the provisions of the GAAP guidelines (Connolly, 2012). The firms then present the records in the form of a report every quarter to the US Securities and Exchange Commission. The second set is primary for tax purposes. The records in this set are presented to the Internal Revenue Service which relies on the records to determine the amount of tax that a firm owes the government for a particular accounting period (Connolly, 2012). Given the complex nature of the legal and operating environment in the US, it is clear that companies simply have to maintain multiple accounting books.
Delegate your assignment to our experts and they will do the rest.
In addition to the fact that companies have to present their financial reports to different parties, the fact that different accounting standards are in use in the US is another issue that necessitates multiple sets of accounts (Connolly, 2012). As already noted above, firms in the country use the GAAP guidelines when preparing financial reports to submit to the US Securities and Exchange Commission. One of the provisions of these guidelines is firms need to provide estimates of their expenses and revenues. The set of records that is presented to the IRS for tax computations is maintained using different accounting principles. Unlike the GAAP guidelines which require firms to make estimates, the standards used in the second set of records spell out that firms must provide accurate figures (Connolly, 2012). It is nearly impossible to reconcile the two accounting guidelines because they are fundamentally different. Any attempts to merge them and create a single set of records would only result in chaos, confusion and accounting errors. Therefore, in the interest of promoting financial accountability, firms must be permitted to maintain multiple accounting books. If the calls for firms to use just one set of books are to have any justification, then there is need for the relevant parties to streamline the accounting guidelines.
For one to fully understand why firms need to keep multiple set of accounting records, it is necessary to consider the case of a parent company that serves as an umbrella for a number of other firms which operate in different markets. The particular operations that these companies are involved in will determine the accounting practice that they adopt (“Choosing Single vs. Multiple”, n.d). For example, one firm may have many operations while another has operations in a smaller market. This means that the former firm may need three books while one set of books will suffice for the latter. It is clearly very difficult to maintain a single set of books where the transactions that the two companies undertake are recorded. Therefore, it is necessary for companies to be permitted to maintain multiple sets of accounting records.
Difference in the accounting calendar is yet another factor that push firms to set up multiple accounting records (“Choosing Single vs. Multiple”, n.d). The same large parent company mentioned above can be considered. Suppose that the accounting calendar for one of the company begins in March while that of the second one begins in July. This situation could arise in cases where the two firms operate in different environments. Given the difference in accounting calendars, the task of maintaining a single set of records would be very daunting. Moreover, companies whose transactions are recorded in different currencies also require multiple sets of books (“Choosing Single vs. Multiple”, n.d). It is clear that the only way companies can comply with regulations that require them to maintain records is when they are allowed to have multiple books.
There are those who feel that it is improper for a firm to maintain multiple sets of accounting records. For the purposes of ensuring fairness and a comprehensive coverage of this issue, it is important to consider the arguments that these individuals raise to support their opposition. They hold that firms may conveniently introduce discrepancies in the records to achieve certain goals. For example, in an effort to please shareholders, a company may manipulate accounting principles to inflate the profits (Connolly, 2012). To minimize the taxes that it pays, the company fails to make a similar change to the books which it presents to the IRS. This amounts to fraud and poses a threat to the economy. However, this argument alone is not sufficient to impose a prohibition on the maintenance of multiple accounting records. Instead, companies should be urged to be honest and transparent in their accounting practices. The benefits that companies enjoy as a result of multiple sets of books far outweigh the risk that this practice poses.
In conclusion, the keeping of multiple books remains a contentious issue. However, one cannot deny that companies need to keep multiple sets of books for different purposes. As they do this, the firms are able to present their financial records to such stakeholders as the IRS, the SEC and their shareholders. Multiple sets of books also allow firms with varying accounting calendars and which use different accounting standards to maintain records of their transactions. To ensure that firms do not exploit this practice, it is necessary to institute ant-fraud measures.
References
Connolly, T. P. (2012). Is it OK to Keep Two Sets of Books? A Primer on Deferred Tax
Assets. Retrieved 23 rd September 2017 from https://blogs.cfainstitute.org/insideinvesting/2012/10/02/is-it-ok-to-keep-two-sets-of-books-a-primer-on-deferred-tax-assets/
Maintaining Single vs. Multiple Sets of Books for Multi-Company Accounting. (n.d).
Retrieved 23 rd September 2017 from https://docs.oracle.com/cd/A60725_05/html/comnls/us/gl/multic01.htm
