The Purpose of Accounting Standards
By Ad Mal, eHow Contributor
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The purpose of accounting standards can be answered by first looking at the purpose of accounting. The accounting profession is looked upon to provide analysis of assets, financial stability, financial performance, record-keeping and more. To provide accurate and reliable information, the accounting profession requires rules and guidelines on how to report information. That is the purpose of accounting standards -- to provide guidance to the accounting profession.
1. Importance to Key Players
* Accounting standards allow accountants to provide information through financial statements in a manner that can be understood by people important to the organization -- management, board of directors, investors and stakeholders. This information must be presented accurately so that key decisions based off the information are made appropriately. Well-designed accounting standards enhance investor confidence in the business.
Role in the Company
* Accounting standards provide day-to-day guidance to accountants to ensure the steady operation of the business. It is the duty of an accountant to provide financial information that is relevant, reliable, neutral and comparable -- all of which is achievable by following accounting standards. Showing the ability to adhere to accounting standards creates confidence in the marketplace. The company is viewed as being transparent, which positively impacts the financial position of the company.
* The ability to compare financial statements is paramount to the accounting profession. Investors will compare one company's information to another's and choose which one to go with. Following accounting standards ensures businesses are playing by the same rules, making comparability easier. However, standards vary by country, so the situation can arise where financial information of two businesses is being compared,...