Accounting Standard

An accounting standard means a document that establishes the minimum required accounting procedures, as well as acceptable methods of accounting practices.

Essence of the term

Promotion of transparency in financial statements is provided due to the appliance of accounting standards. For instance, in the U.S. there are the GAAP that produce the set of accounting standards extensively used for reporting. In contrast, multinational corporations apply the IFRS, which are regulated by the international board (IASB) and act as a manual for the enterprises that don’t follow the GAAP.

Global firms are obliged to put the accounting standards into practice. International board maintains supervision over the company’s compliance with these procedures during the reporting period.

In fact, accounting standards allude to all aspects of corporate finances, such as assets, obligations, earnings, expenditures, and owner’s equity. Cases in study for accounting standards are revenue recognition, assets arrangement, admissible procedures for depreciation, rental grading, as well as assessment of outstanding shares.

Historical note

Initially, the first accounting standards were presented in the 1930s. The American Institute of Accountants attempted to impose them. This entailed a creation of the Securities and Exchange Commission, which subsequently led to enacting current accounting standards for the U.S. 

This set of procedures is applied to all state and local power structures. So that the accounting standards establish exact economic events that need to be recognized, evaluated and reflected. Entities including financial organizations, investors, along with regulatory authorities are dependent on the accounting standards, in order to submit effective data. As a consequence, there are particular boundaries for providing financial statements.

Accounting Standards by the GAAP

The actual set of accounting standards was firstly introduced in the 1970s. Established in 1733, the Financial Accounting Standards Board (FASB) has acquired the right to elaborate new practices in the light of evolving reporting issues. 

Thus, these accounting standards contribute to comparing financial statements of different enterprises. So, provided information should meet all the requirements, and can be called credible.

Pros of Accounting Standards

As stated above, corporations in different states prepare and present financial statements in various manners. Moreover, in some countries, such as France, Germany and Japan, accounting standards are set by legislative action. In others, i.e. Australia, Canada, Sweden, the UK and the U.S. the accounting profession is more involved in the standard-making process.

Therefore, following the international accounting standards implies certain advantages for entities:

• There are more opportunities to increase the number of potential foreign investors even in times of crisis.
• This type of reporting is highly informative and useful for all stakeholders.
• Improvement of specialists' knowledge and skills contributes to the reliability of financial accounting.