Financial reporting standards are set of standards adopted by certain jurisdiction in preparation of financial statements. there exist a number of acceptable financial reporting standards in different countries such as USA GAAP, UK GAAP, Plan Comptable Général (France) and International Financial Reporting Standards (IFRS) issued by IFAC. the financial reporting standards which used by majority of the countries in the world is IFRS. International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external.
The following are arguments for financial reporting standards.
- they guide preparer and user of financial statements.
- standards compel organization to disclose information which they may not want to disclose had the standards not been in existence.
- standards reduce the number of choices in the methods used to prepare financial statements thereby reducing the risk of creative accounting.
- foreign companies which are target for takeover or mergers can be more easily evaluated.
- the use of financial reporting standards enhances the objectivity and comparability of financial statements which would in turn engender reliability.
- the use of financial reporting standards help to curtail or significantly narrow the divergence in the principles adopted by preparer of financial statements.
- financial reporting standards improve the uniformity of treatment of transactions in the financial statements among companies thereby increasing the credibility and comparability of financial statements.