ACCOUNTING STANDARDS

Standardization of Accounting Treatment

Standardization of Accounting Treatment

Introduction

Accounting standard are important for maintaining the quality of financial reporting. Accounting standards helps in communicating the economic information about the organizations and businesses to the investors, board of directors, shareholders, lenders, suppliers, stake holders, and customers. It helps in making the important decisions regarding investment. The stakeholders of the company use the information for assessing and making decisions regarding the people responsible for controlling the organizations. If the information does not fulfil the requirement of the high quality standard then it may result in a decision which is not enough effective and stakeholders and other investor cannot benefit from the decision.

To understand the importance of the accounting standard I will highlight one example that if a financial reporting is manipulated for the sake of showing higher profits in the books, it will result in holding of the shares among investors with the firm belief that company is operating good, it is a misleading point for the investors. (NANDAKUMAR, A. K. 2010 Pp.228-267) The development of accounting standards took place during sixties and from then on many promoting activities started which helped in developing the importance of the accounting profession in a particular way for ensuring the consistency and uniformity in the reporting way of accounting transactions. The standards helped in preparing the books and developing the final accounts of the businesses. This idea was to develop an accounting standard which can help in boosting the confidence level of the stake holders, most precisely the shareholders and investor who have potential to understand the accounting information.

The important thing in preparing the accounting standard is to highlight the information which has the essential characteristics in providing the better understanding and helps in comparing the reliability which can play an effective role in taking important decisions. The role of effective accounting standard is to promote the reliability and transparency of the financial reporting. The accounting standards in Islamic banking and finance industry started from 1991, the existence of this concept decided that the existing international standards are not enough for tackling the needs of standards which can be essential in setting in any organization. The main issue was that the existing standards do not fulfil the Islamic principles of doing business and do not comply with the Shariah standards. In the Islamic finance and accounting structure have around seventy standards which deal with the auditing, accounting, and governance. (BRAGG, S. M. 2011 Pp.336-355) It also makes sure that all standards comply by the codes of Shariah Standards. There are many accounting bodies who have been working for setting up a effective new standards taking new development into account which are essential requirements needed for IFI's around the globe. Many consultancy and research work are taking place for the purpose of enhancing the efforts and skills for developing accounting standards which comply the code of ethics comply by the Shariah law.

Discussion

IASB - International Accounting Standards Board with its IFRS and IAS

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