Accounting standards are accepted as the pillars of accountancy. Many organizations publish accounting standards for specific purposes, and there are international consensuses about various large-scale types of financial reporting.
If you don’t know, accounting payroll– or financial reporting – is the mathematical science called the language of business. Basically, accounting means processing of economic results relating to the corporate activities and payroll facts for the clients, shareholders, investors, managers, etc.
Now, off to the importance of accounting standards.
Why do we need accounting standards?
Well, companies might release many economic results and official statements as part of accountancy. And there are people who need to know these facts and data about multiple such companies. To make things easier for them and to enable them to compare different companies – it’s required to follow certain accounting standards.
An accountant also needs to figure out an appropriate method of reporting when faced with certain situations. Standardized accountancy makes it easier to believe.
There are many such accounting standards.
• The international one – International Financial Reporting Standards.
• Countries like Canada, US, UK, Russia, and France employ a Generally Accepted Accounting Practice of their own.
• Other common accounting standards are that of Germany, India, China, etc.
There are a few more things important to learn why do we need accounting standards:
Organizations (government or non-governmental) share many similarities. It’s very important for the data to be comparable so that it can be better understood.
Exposure and transparency:
The accounting standards bring exposure. The readers of official statements gain a lot if standards are present. Trust and transparency are important as well. If a company isn’t following the standards, it can be risky to invest into that because there won’t be methods to confirm the reports.
Everyone is covered:
All corporates are covered by accounting standards. Most countries employ GAAP – Generally Accepted Accounting Practices. Even not-for-profit organizations have accounting standards, as FASB recently released one. There’s no kind of organization that is out of reach, therefore it’s not a reason to even consider.
Following accounting standards is good for readers:
Following accounting standards is considered a good practice. Financial accounting as well as management accounting must be done in accordance with accounting standards.
From issuing invoices to clients to displaying company’s balance sheets– accountancy that abides by the accounting standards provides greater usability and ease of information consumption.
Nothing to lose in it:
Not following accounting standards set in place by authorities isn’t better than following them in any way. People would be just discouraged if you don’t use them.
As the Indian Institute of Chartered Accountants of India (ICAI) says in its Disclosure of Accounting Policies document,
“To ensure proper understanding of financial statements, it is necessary that all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed.”
The document continues,
“It would be helpful to the reader of financial statements if they are all disclosed as such in one place instead of being scattered over several statements, schedules and notes.”
It’s hard to ignore the intention of financial accounting standards. Disclosure is one thing, and abiding by the set of rules laid out for the proper reporting of economic results is another.
Authored by Jessica Page.Jessica is a professional accounting payroll expert who has been in the industry for close to a decade now. She stared from a small, almost bankrupt firm and made her way to the Forbes 100 companies. Jessica leverages power and personalized calculation methods to make effective accounting services happen. Her work is highly satisfying. To know more about her work, visit: