What are the main reasons for the development of accounting

What are the main reasons for the development of accounting regulations like the accounting standards?

Solution

An accounting standard is a principle that guides and standardizes accounting practices.

The major reasons for development of accounting standards are as follows:

- Elimination of Ambiguity:

As an accountant, there are times when there is confusion regarding what accounting treatment is to be used for a particular transaction. Accounting standards provide clarification regarding such transactions.

- Facilitation of Comparison:

Preparation of the books of accounts by following the accounting standards helps an enterprise\'s stakeholders to compare the financial information with past year\'s or with peers\' financial data. If a standard is not set and different enterprises follow different accounting practices, then comparison would not be possible and it would lead to \'comparison of apples with oranges\'.

-Disclosure Requirements:

Accounting standards define certain minimum disclosure requirements that the enterprise needs to present to its stakeholders (e.g. certain notes, valuation policies, accounting policies, etc.) in order to understand the financial information. In the absence of standards, the enterprise might misrepresent/hide such information that may prove to be disadvantageous for the management.

-Timely Financial Information:

With set accounting standards at the disposal of the accountants, financial statements can be prepared in a timely manner and distributed to the stakeholders to provide useful decision making information.