As the world is becoming a global village, so is the business world. More companies are operating globally. The International Financial Reporting System has developed standards that ensures a transparent, efficient, and accountable financial market all over the world. International standards on accounting and finance can be read here http://www.ifrs.org/. All countries have their own set of rules and standards for accounting and financial reporting in business. And, it’s important to know them.
For a corporation that has gone global, it is a must to follow these accounting standards. These standards are a set of guidelines and procedures for accounting in private or government bodies. The purpose of developing these standards is to ensure that accounting information is uniform and accounting decisions are made in a reasonable way.
The principal role of the accounting standards is to bring a universality to financial records and bookkeeping. Government organizations, private corporation, and every other accounting body has to follow the same accounting procedure. Following a uniform procedure in accounting, all comparisons can be made among the financial status of similar bodies. The financial status of a government organization can easily be compared with the financial status of a private organization with the same objectives.
Accounting standards are developed to ensure a transparent system in an organization. The principles and procedures of accounting are made with a purpose that information can be open to observers. In case of public systems, trusts, and government companies, transparency and openness is very important. Standards put a limit on organizations to use ingenious accounting to move items around.
Accounting standards give an insight into the most appropriate information in the most rational way. Companies which follow clear, uniform, and transparent accounting information attract more investors. Observers of such information can make rational decisions about a company. Standards put a limit on organizations so that they cannot hide the financial status of a company from observers. Entrepreneurs can access fair information related to accounting data and make better decisions jointly. Potential investors can study open accounting policies to decide if they will invest in a business or not.
The importance of accounting standards is that it makes the work of investors, taxpayers, auditors, and decision-makers easier and more fair across the board. Critical decisions for a company’s future can be made in a more uniform way.
In public organizations, a uniformity in accounting standards makes it clear and easy for the taxpayers to see how their money is being spent in the most rational and suitable way. Taxpayers are the public who’s money is then collectively spent on societal welfare works. Regulatory authorities can easily keep a check to ensure that laws are being followed. Audit and inspections, both internal and external, allow auditors to work in an appropriate manner when accounting is done according to standards.
If a firm does not follow standard accounting procedures and practices, then it can be legally challenged. Especially in government or publicly traded companies, a uniform, clear, transparent accounting data is crucial.
In business oriented companies, financial statements that have followed accounting standards are credible and clear. These businesses can solidly grow and potential investors have more trust in them. Bank loans and other subsidies are preferably given to businesses when accounting standardization is in their business.
Types of accounting standards
Disclosure standards: There are a standard set of rules in the disclosure of accounting policies to external users.
Presentation standards: The accounting information comprising of financial statements, cash flow charts, and balance sheets must be uniform as designated by the accounting standards for financial reporting.
Content standards: The contents in accounting data must be according to the standards set for the content data. No single entity should be missing from the contents of a financial reporting.
If a company tries to go against these standards, it can face legal issues with its competitors or its observers. In the case of public or government organizations, the public is also the observer to challenge the organization. Fraudulent practices are difficult to get away with in the presence of accounting standards. Compliance in accounting standards is a chief principal of business.
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