Bring out the advantages and disadvantages of accounting standards
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They Foster Transparency
One advantage of using accounting standards involves the ease of understanding the financial statements. The accounting standards published by the FASB represent the required processes for businesses to follow. Financial statement users expect companies to follow the published accounting standards when creating financial statements. These users rely on the assumptions set forth in the accounting standards when interpreting the results reported. The users interpret the financial statements of different companies using the same assumptions. Once the users understand these assumptions, they use this knowledge when reading any financial statement.
They Provide Guidance
Another advantage of using accounting standards concerns the guidance provided to accountants. When financial reporting issues arise, the accountant may refer to the published accounting standard to determine how to record the event. These issues include new accounting transactions arising from technology, such as Internet sales, or new actions incorporated by the company, such as changes in pension plans. The FASB incorporates the needs of financial statement users as well as company feedback when creating accounting standards. This process allows the accountant to trust that the guidance provided through the accounting standard passed the rigorous process of ensuring that it meets everyone’s needs.
They Can be Inflexible
A disadvantage of using accounting standards involves the inflexible framework the accountant must comply with. Each company faces different experiences. The accountant must make the company’s unique experiences fit into the guidelines of the published accounting standards.
Compliance Can be Costly
Another disadvantage of using accounting standards considers the costs for the company to comply with the standard. New accounting standards require the company to consider the requirements of the standard, what actions the company must take to implement the standard and what the cost will be. In many cases, the company must design new procedures, which requires a large financial investment that includes employee labor costs, system upgrades and employee training
One advantage of using accounting standards involves the ease of understanding the financial statements. The accounting standards published by the FASB represent the required processes for businesses to follow. Financial statement users expect companies to follow the published accounting standards when creating financial statements. These users rely on the assumptions set forth in the accounting standards when interpreting the results reported. The users interpret the financial statements of different companies using the same assumptions. Once the users understand these assumptions, they use this knowledge when reading any financial statement.
They Provide Guidance
Another advantage of using accounting standards concerns the guidance provided to accountants. When financial reporting issues arise, the accountant may refer to the published accounting standard to determine how to record the event. These issues include new accounting transactions arising from technology, such as Internet sales, or new actions incorporated by the company, such as changes in pension plans. The FASB incorporates the needs of financial statement users as well as company feedback when creating accounting standards. This process allows the accountant to trust that the guidance provided through the accounting standard passed the rigorous process of ensuring that it meets everyone’s needs.
They Can be Inflexible
A disadvantage of using accounting standards involves the inflexible framework the accountant must comply with. Each company faces different experiences. The accountant must make the company’s unique experiences fit into the guidelines of the published accounting standards.
Compliance Can be Costly
Another disadvantage of using accounting standards considers the costs for the company to comply with the standard. New accounting standards require the company to consider the requirements of the standard, what actions the company must take to implement the standard and what the cost will be. In many cases, the company must design new procedures, which requires a large financial investment that includes employee labor costs, system upgrades and employee training
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Benefits of Accounting Standards
1] Attains Uniformity in Accounting. ...
2] Improves Reliability of Financial Statements. ...
3] Prevents Frauds and Accounting Manipulations. ...
4] Assists Auditors. ...
5] Comparability. ...
6] Determining Managerial Accountability. ...
1] Difficulty between Choosing Alternatives. ...
2] Restricted Scope.
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