Importance of Accounting Standards

An accounting standard is a common set of principles, standards and procedures that define the basis of financial accounting policies and practices. Accounting standards improve the transparency of financial reporting in all countries. It relates to all aspects of an entity’s finances like assets, liabilities, income, expenses and equity. Banks, investors, and regulatory agencies count on accounting standards to ensure information about a given entity is relevant and accurate.

  • It brings transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.
  • Accounting Standards strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money.
  • They also contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation.

In the United States, the Generally Accepted Accounting Principles (GAAP) form the set of accounting standards widely accepted for preparing financial statements. International companies follow the International Financial Reporting Standards (IFRS), which are set by the International Accounting Standards Board and serve as the guideline for non-U.S. GAAP companies reporting financial statements.

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