Question

There are those who suggest that any standard setting body is redundant because accounting standards are unnecessary. Other people feel that such standards should be produces, but by the government, so that they are a legal requirement.

Required:

Discuss the statement that accounting standards are unnecessary for the purpose of regulating financial statements.

Answer 1

Accounting standards are basically policy documents which can help accountants and those who are responsible for making books of accounts in better preparation and presentation of the same. If there will be no accounting standards, there will not be any uniformity in accounts that are prepared by different companies and the accounts prepared by one company can not be accepted universally. This is due to the fact that financial statements prepared by one company may differ from the one prepared by another company, there will be no uniform binding element in the accounts. Some of the main issues in which accounting standard plays a major role are as follows:

• Recognizing the financial events
• .Measurement of financial transactions
• Presentation as well as preparation of financial statements
• Proper disclosure etc.

If there will be no accounting standards, people will make books of accounts in a way they want and there will be no reliability of the same in front of external stakeholders like investors, government etc. There will be lack of comparability, as comparison of different firms would be highly difficult. Thus accounting standards are a necessary part of accounting and one can say that accounting is basically based on accounting standards and it can't be separated completely from the profession of accounting.