Question

Of what value is a common set of standards in financial accounting and reporting?

Short answer

Financial statements prepared in accordance with the accepted accounting standards help in contributing to the comparability of accounting information.

Step-by-step solution

The objective of financial reporting

The objective of financial reporting is to provide financial information about the reporting entity that is useful to the users of this accounting information regarding the provision of resources to the entity.

Setting of standards in financial accounting and reporting

Accounting standards are generally accepted accounting principles that provide the basis for accounting policies and the preparation of financial statements.

The objective of these standards is to provide uniformity in financial reporting and ensure consistency and comparability of the information provided by the business enterprises.

Therefore, the standards set must be easily understandable and acceptable by all and significantly reduce the manipulation of information in the books of accounts.

Thus, accounting standards provide useful information to the users to interpret published reports. It provides information about the basis on which accounts have been provided, and the rules followed while preparing financial statements.

The value in a common set of standards in financial accounting and reporting

In the absence of the unified set of accounting standards the entities would prepare their financial statements in accordance with their needs and requirements. This would result in very diverse and therefore incomparable statements.