ROLES OF ACCOUNTING STANDARDS

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Accounting standards allow accountant to provide information through financial statements in a manner that can be understood by people important to the organization, management board of directors, investors and stakeholders. This information must be presented accurately so that decisions taken on the basis of the given information are made appropriately. To fulfill this purpose, accounting standards serve the following major roles.

Comparability:
The role of accounting standards is that it brings to financial record keeping. Governmental organizations must follow accounting procedures that are the same as their counterparts, and non-governmental organizations must do the same.

Transparency:
Accounting standards are designed to enforce transparency in organizations. Standards limit the freedom and flexibility of entities to use clever accounting to move items around or even to hide them.

Relevance:
Accounting standards play an important role to help entities by providing the most relevant information in the most reasonable way possible. The standards make it more difficult for organizations to misdirect observers and fool them with data that does not have sufficient relevance.

Audiences:
An absence of accounting standards would make the work of investors, regulators, taxpayers, reporters, and others more difficult and risky. For instance, without standards, an investor who has studied the financial statements of a large publicly traded company would not know whether to trust the findings of those statements.

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