Question

discuss the needs and importance of accounting standards​

Answer 1

ANSWER :

Accounting Standards are the established and accepted models which aim at providing excellent, adequate and unbiased treatment of accounting transactions/informations and reporting the same in the financial statements to facilitate their users in forming rational and judicious decisions.

• According to T.P. Ghosh, "Accounting standards are the policy document issued by the recognized expert accountancy body relating to various aspects of measurement, treatment and disclosure of accounting transactions and events".

Accounting standards are descriptive in nature and provide guidelines in details in respect of preparation and presentation of financial statements. Accounting Standards play an important role in the field of accounting.

The needs and importance of accounting standards are discussed below :-

• [1] To ensure consistency and comparability : The main necessity of the prescribing accounting standards is to bring uniformity in the financial reporting as well as to ensure the consistency and comparability of data contained in the financial statements.

• [2] To develop accounting as a language of business : Another importance of accounting standards is to develop accounting as a language of the business. The main objective of a language is to express the information about the activity or the state of affairs. In the same way, as a language of business, accounting communicates the information about an entity to its users. Accounting as a language of business can be developed if the grammar of this language in the form of accounting standards is followed.

• [3] To harmonise accounting policies and practices : To harmonise the diverse accounting policies and practices followed by different business entities is another importance of accounting standards. The accounting standards help in the harmonisation of the various accounting practices as well as the accounting policies which are followed by the different business firms. Moreover, in view of the globalization and internationalization of business, it has become an imperative necessity that globally acceptable treatment of accounting issues and their reporting methods be evolved and implemented.

• [4] To provide a tool to enhance corporate governance and responsibility : Another need is to use accounting standards as a tool to enhance corporate governance and responsibility. Accounting standards ensure the consistency, fairness, transparency in accounting practices as well as in business operations. These help to eliminate several alternative accounting practices.