Accounting Standards are required to ensure the compliance of the following information with the qualitative characteristics of accounting:
Need for Accounting Standards
- Profit or Loss of the business enterprise
- Financial Position of the business enterprise
- Inflow and outflow of Cash
All the above information must suit the qualitative characteristics of accounting i.e. Reliability; Relevance; Understandability; and Comparability. Accounting Standards also assure its various users about the truth and fairness of the information contained in the Financial Statements of the business enterprise.
These standards maintain uniformity in the process of accounting records as well as assist in the comparison of books of accounts of different business enterprises.
Uses of Accounting Standards
- They provide a standardized format that is to be followed while preparation of accounts, minimizing the variations in the method of preparation of accounts.
- They provide the basic rules on the basis of which financial statements are prepared.
- They make it compulsory for the businesses to form disclosure of the accounting policies followed while preparation of monetary statements.
- When a corporation complies with the accounting standards while preparation of monetary statements it creates a way of confidence among the users of monetary statements.
- They help the auditors in auditing the books of accounts as consistent use of the same accounting policies helps an auditor in forming an opinion about the financial statements.
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