Explain the consequences of differences in accounting standards
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Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP). Accounting standards specify how transactions and other events are to be recognized, measured, presented and disclosed in financial statements.
Practically speaking, in order to avoid the variance which may arise between the accounting principles and accounting practice and also to find a uniformity among diversity among the various underlying principles of accounting. We emphasise the Accounting Standards framed by the IASC or IAS (Indian Accounting Standard, based on IASC) for maintaining accounting practice in our country.
situation or consequences of accounting standards
a) Comparison between two firms is possible if both of them maintain the same principle, otherwise proper comparison is not possible. For example, if Firm A follows the FIFO method of valuation of stock whereas Firm B follows the LIFO method for valuing stock, the comparison between the two firms becomes useless. The same is possible only when both of them follow identical method of valuing closing stock.
b) The firms are not allowed to maintain and present their accounts according to their own will or choice or cannot prepare report of financial statements for various interested groups. The same is possible only when there is some fixed standard for setting practice.
c) The Accounting Standards recognise the principle of equity applicable for different users of accounting information, viz. creditors, investors, shareholders etc. Thus the purpose of setting Accounting Standards is nothing but to find a uniformity in accounting practice while formulating financial reports and make consistency and proper comparison of data which are contained in financial statements for the users of accounting information. Practically, Accounting standards have been presented in order to maintain fairness, consistency and transparency in accounting practice which will satisfy the users of accounting.
I HOPE IT WILL HELP YOU.
Practically speaking, in order to avoid the variance which may arise between the accounting principles and accounting practice and also to find a uniformity among diversity among the various underlying principles of accounting. We emphasise the Accounting Standards framed by the IASC or IAS (Indian Accounting Standard, based on IASC) for maintaining accounting practice in our country.
situation or consequences of accounting standards
a) Comparison between two firms is possible if both of them maintain the same principle, otherwise proper comparison is not possible. For example, if Firm A follows the FIFO method of valuation of stock whereas Firm B follows the LIFO method for valuing stock, the comparison between the two firms becomes useless. The same is possible only when both of them follow identical method of valuing closing stock.
b) The firms are not allowed to maintain and present their accounts according to their own will or choice or cannot prepare report of financial statements for various interested groups. The same is possible only when there is some fixed standard for setting practice.
c) The Accounting Standards recognise the principle of equity applicable for different users of accounting information, viz. creditors, investors, shareholders etc. Thus the purpose of setting Accounting Standards is nothing but to find a uniformity in accounting practice while formulating financial reports and make consistency and proper comparison of data which are contained in financial statements for the users of accounting information. Practically, Accounting standards have been presented in order to maintain fairness, consistency and transparency in accounting practice which will satisfy the users of accounting.
I HOPE IT WILL HELP YOU.
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Answer:
- Lack of uniformity
- Difficult for comparison
- Investors face problem in analyzing the firm
Explanation:
- Due to the lack of uniform global accounting standards, financial statements prepared by firms using different sets of accounting standards are less comparable, making it difficult for investors to effectively compare the performance of companies.
- This incompatibility leads to suboptimal investment decisions and inefficient capital allocation.
- It demonstrates that firms in this industry that use International Financial Reporting Standards (IFRS) report a higher profit than they would have reported under US GAAP (U.S. GAAP).
- Firms are not permitted to keep and present their accounts according to their own will or choice, and they are not permitted to prepare financial statement reports for various interested parties. Only when there is a fixed standard for setting practice is this possible.
Hence, from the above discussion we can conclude that due to differences in accounting standards the comparisons between the frims become difficult.
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