Accounting Standards Essay

630 WordsOct 13, 20143 Pages
Accounting standards are the criteria a company must follow when they produce their financial statements. Accounting standards are important for a company to follow when producing financial statements. Countries have different accounting standards to go by when recording data. The use of different accounting standards could lead to different end results in businesses financial statements which could cause inconsistencies in domestic and international companies. International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are the most widely used accounting standards. These two different standards pose different advantages and disadvantages to a companies’ financial statement. Internally, financial statements are important for the company to decide improvements that are needed to further profit. Externally, financial statements are important to investors who are looking to invest in the company. These two accounting standards have different pros and cons on financial statements. The various problems that arise from the use of different accounting methods affect investors, owners and the government. One problem that has aroused is the companies seem to more profitable under certain accounting methods more so than others; this has lead to investors investing in businesses in which they wouldn’t have if it was under another accounting standard. Also, international companies seem to be more profitable in some countries over other countries because of the use of different standards. The use of different standards also makes it hard to accurately compare and monitor factors across companies. For example if Lockheed Martin accounts for more expenses than General Dynamics with all else being equal, investors will be more likely to invest in General Dynamics. General Dynamics will look more profitable because they aren’t

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