Question

What roles do financial accounting standards play in the modern world, what would our financial world be like without them? How do these standards serve the needs of both the preparers of financial statements and the users of those statements, now think about a financial world with a different set of standards for each country--what problem does this create for users and preparers, and for global business?

Answer 1

The financial accounting standards implementation worldwide results in

(i) consistent application of accounting rules and standards which allows investors to have meaningful comparison of performance and results among the competitor companies and between periods.

(ii) transparency of the various business transactions in all the companies.

(iii) full disclosure of all the accounting information in the financial statements through putting in common formats and contents.

(iv) in consistent follow-up of the underlying accounting structure conceptually.

(v) no ambiguity and unclear accounting statements.

Without the accounting standards the financials would be totally meaning-less and in-comparative both in industry-wise and period-wise because of different treatment and consolidation of accounts.

The financial accounting standards help the stakeholders and the prospective investors through providing common standardized financial statements round the world companies. It brings transparency in the financial statements. The financial statement preparers know that to what extent they have to include the accounting transactions, in what grouping and in which format. Like-wise, the users also know that through the use of accounting standards, the statements are having common transactions under common grouping and under the standard formats.

If the accounting standards are not followed, it will bring Corus and ambiguous financial statements which would be not comparable industry-wise and period-wise. The useful information are not disclosed in the statements. In-proper grouping of the accounts will lead to miss-conceptual understanding about the company.