Question

Why do we need accounting standards'? Discuss

Answer 1

ACCOUNTING BECOMES NECESSARY IN EVERY TYPE OF ORGANISATION WHERE FINANCIAL TRANSACTIONS ARE TAKING PLACE. IT MAY BE FOR PROFIT OR NON PROFIT TOO.

INVESTORS AND OTHER STAKE HOLDERS WILL SURELY NEED THE INFORMATIONS RELATING TO THE PROFITABILITY AND FINANCIAL STRENGTH OF THE COMPANY BEFORE GETTING ENGAGED IN ANY TRANSACTION WITH THE ORGANISATION.

THESE USEFUL INFORMATIONS ARE AVAILABLE IN THE FINANCIAL STATEMENTS OF THE ORGANISATIONS.

THEREFORE, IT BECOMES VERY NECESSARY THAT THE BOOKS AND THE FIGURES WHICH IS MADE AVAILABLE TO STAKEHOLDERS FOR THEIR DECISION MAKING SHALL BE RELIABLE AND COMPARABLE. ONE CAN TRUST IT FOR THE ANALYSIS PURPOSE.

TO SERVE THE ABOVE PURPOSE, THERE SHALL BE A SET OF RULES AND REGULATIONS BASED ON WHICH THE BOOKS OF ACCOUNTS ARE TO BE PREPARED AND THAT RULES SHALL BE APPLICABLE TO ALL IN RESPECTIVE SITUATIONS.

THESE RULES AND REGULATIONS MADE FOR ACCOUNTING PURPOSE ARE THE STANDARDS.

IT GUIDE THE ORGANISATIONS WHILE PREPARING THE ACCOUNTING POLICY OF THE ORGANISATION BASED ON ITS APPLICABILITY.

IF THE APPLICABLE STANDARDS ARE FOLLOWED PROPERLY THEN RELIABILITY OF THE BOOKS OF ACCOUNTS GET INCREASED.

IT INCREASE THE COMAPARABILITY OF THE FINANCIAL RECORDS WITH THE OTHER ORGANISATIONS AND HELPFUL FOR THE DECISION MAKING PURPOSE.