Accounting Standard - Explained
What is an Accounting Standard?
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Table of ContentsWhat is an Accounting Standard?How is an Accounting Standard Used?History of Accounting Standards and PurposeU.S. GAAP Accounting StandardsInternational Financial Reporting Standards Accounting StandardsAcademic Research on Accounting Standard
What is an Accounting Standard?
An accounting standard refers to a set of guidelines, rules and principles set up by a regulatory board or the government that serves as framework for accounting policies and practices. In the United States, generally accepted accounting principles (GAAP) is an accounting standard that must be followed when preparing and presenting a company's financial statements. Typically, accounting standards are established to ensure transparency of accounting professionals and consistency in accounting practices. All countries have accounting standards set up by a regulatory body or the government. These standards can however vary from one country to another.
How is an Accounting Standard Used?
All aspects of a company which are included in financial statements and reports are bound by the accounting standards for the state in which the company operates. While international companies follow International Financial Reporting Standards, non-international companies adhere to the accounting standards of their respective states. All aspects pertaining to a company's finance are regulated by accounting standards, these include; the company's assets, liabilities, revenue, equity, among others. There are different accounting standards to suit different forms of finance. Allowable methods for depreciation, asset classification and revenue recognition are some examples of accounting standards.
History of Accounting Standards and Purpose
Generally, accounting standards are set of principles and guidelines created to serve as a bedrock for financial accounting practices. The first attempt to launch accounting standards was in the 1930s, this was when the American Institute of Accountants, and the New York Stock Exchange made their first attempt to launch accounting standards. Afterwards, the Securities and Exchange Commission was created after the 1933 and 1934 attempts to launch accounting standards by the Securities Act of 1933 and Securities and Exchange Act of 1934. Accounting standards are basis for which accounting practices are to be measured or examined. Accounting professionals, banks and regulatory agencies perform accounting tasks based on the principles outlined by accounting standards.
U.S. GAAP Accounting Standards
The first set of accounting standards were developed by the American Institute of Certified Public Accountants and was enacted in 1973. The accounting standard used in the United States is generally accepted accounting principles (GAAP). The Securities and Exchange Commission ensure that all listed companies as well as certified accounting professionals adhere to these principles when preparing financial statements. Financial statements compiled by professionals for publicly listed companies in the U. S are listed on the securities exchange. Since all financial statements or reports must adhere to the rules of GAAP, it aids credibility of financial statements of listed companies.
International Financial Reporting Standards Accounting Standards
Different states have different names given to accounting stages used in the state. For example, GAAP is the accounting standard used in the United States. However, there are rules and guidelines set up by governing bodies, like FASB and IASB, to ensure consistency and credibility of accounting practices in all companies and industries. The International Accounting Standards Board (IASB) set up accounting standards for international businesses or multilateral entities. IASB ensures the adherence to accounting standards by international or multilateral entities when compiling or filing their financial statements.