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Critically Evaluate the Need for Accounting Standards and the Need for a Set of Principles on Which They Are Based

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Critically Evaluate the Need for Accounting Standards and the Need for a Set of Principles on Which They Are Based
Question 1
Critically evaluate the need for accounting standards and the need for a set of principles on which they are based.
Accounting Standards
Accounting standards contain a set of rules and governing practices for the treatment of all financial transactions. The main objective of accounting standards is to establish recognition, measurement, presentation and disclosure requirements dealing with financial transactions and key events which are important in the financial statements of companies. These financial statements give end-users important information, as well as an in depth understanding about an organization's performance, position and cash flow. Some examples of users of financial statements include potential investors, employees, suppliers and government agencies.
As such, accounting standards provide the basic framework for financial statements to be presented in a fair and credible manner, such that it reflects the true overview of the financial status of an organization. These standards also help to present financial statements in a standardized and coherent manner, so that end-users worldwide are able to extract information and make decisions based on them.
Advantages of Accounting Standards
One advantage of having accounting standards is that it helps to ease the understanding of financial statements. What this means is that with accounting standards, financial statements reflect the financial position and status of an organization in a clear and coherent manner. With the need to publish financial statements in accordance to accounting standards, it also improves the credibility and reliability of the information present in the financial statements. End users, such as potential investors, top management and stakeholders, are able to make more informed decisions with greater confidence based on the information extracted.
Accounting standards also provides guidance for accountants in their line of work. When financial reporting issues arise,


References: IASB Framework, 2012, http://www.ifrs.org/current-projects/iasb-projects/conceptual-framework/Pages/Conceptual-Framework-Summary.aspx (Cited 23 December 2012) Deloitte IAS Plus, History of IASB Framework, http://www.iasplus.com/en/standards/standard4 (Cited 23 December 2012) Steven Bragg, 13 March 2011, What is the prudence concept in accounting, http://www.accountingtools.com/questions-and-answers/what-is-the-prudence-concept-in-accounting.html (Cited 23 December 2012)
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