Accounting standards refer to authoritative standards for financial reporting and specify how accounting transactions and events are to be recognized, measured, presented and disclosed in the financial statements.
internation financial reporting standards (IFRS) are issued by a global body referred to as International Accounting Standards Board. The idea is that these same standards are used across the globe by companies, so financial statements can be prepared and compared on the same basis.
Importance of accounting standards
To prevent material manipulations or errors in financial statements.
Many important economic decisions are regularly made on the basis of financial statements. However, financial information is open to manipulation or errors. In order to avoid manipulation of figures in the financial accounts, there needs to be a consistent way of deciding which elements are recognised and measured, and how information is presented in the financial statements.
To ensure that items are treated in a consistent manner or an explanation is given as to why not. Accounting is not a subject where the results are always the same whoever does it. For example, in mathematics, 2 plus 2 must always equal 4; but in accounts, a figure for (say) profit or loss may vary, sometimes vastly, depending upon the subjective judgments of the person doing the calculations. It is important that explanations are given to help the user of financial statements make correct decisions
To help in global harmonisation of accounting practices. This is a corollary of the purpose mentioned in the previous paragraph. Unless accounting activities are regulated across the globe, different entities in different countries will apply their own rules, which are unlikely to be harmonious. The process of global harmonisation leads to global accounting standards. Global standards will help global trade and global economic growth as all users will be able to use the same standards to analyse the financial
statements of any company, whether in the BUGURUNI, Posta, Kariakoo or Mwenge.
The process of global harmonisation of standards is not complete. There are countries like North America and India which use their own standards. However, now most of the national standard setters are harmonising their standards with the international standards