Accounting Standards and its Application in a Public Company.

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1. An explanation of the purpose of accounting standards. Accounting standards are authoritative statements according to which specific type of transaction or event should be displayed in the financial statement. (Collis, 2007) These rules request definitions of fundamental principles and terms, minimum levels of disclosure, and specifications of calculation methods. (Pieterzs, 2012) The purpose of this report is to discuss standardizing of accounting practices concentrating on FRS 18 example. There is no standardization of accounting standards nowadays as there are several sources of financial standards, which are: International Accounting Standard Board that issues International Financial Reporting Standards, national standard bodies such as Accounting Standard Board of UK, and legislation requirements. (Pieterzs, 2012) Essentially, the purpose of accounting standards is that complying with the standards financial statements should display the financial performance and cash flows of an organization fairly and consistently. Thus, “True and Fair” view is provided. (AASB, 2011) Variations in accounting practices are decreased, and a degree of uniformity is introduced. (Melvile, 2008) Accounting standards improve the quality and usefulness of the financial statements, as the specific procedures used in the production of consistent and functional reports are outlined. (Beke, 2011) Application of accounting standards allows users to compare the financial reports of an organization over time or, as well, to compare financial statements of different organizations in order to evaluate their strengths and weaknesses. (Melvile, 2008) International standards generate more clarity in the financial markets which results in more accurate information for investors. Thus, costs are reduced and investors’ confidence is enhanced. (Beke, 2011) Moreover, standards eliminate bias from the financial reporting, thus the information provided represents a complete and faithful...
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