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Uniform Accounting Standard Produce Uniform Financial Reporting

741 words - 3 pages

Accounting standard is a set of guidelines that financial accountants have to follow in preparation and presentation of business incomes, expenses, assets and liabilities. This helps to ensure that the treatments of these items are fair and just, hence making the financial statements a reliable source for users. There are many types of accounting standards being used all over the world. More than 120 countries such as the European Union, Singapore, India, Taiwan, Australia and Canada adopt the International Financial Reporting Standard (IFRS), which is developed by the International Accounting Standard Board (IASB). It is a principle-based approach. On the other hand, United States of ...view middle of the document...

(Chris Dumont, 2012) By using the same standard, a more transparent statement can be produced, leading to greater comparability and increases the willingness of investors to provide financing.

Secondly, large amount of money can be saved in the long term, as companies will only need to report to one standard. Previously, they would need to reconcile their financial information for several accounting standards. (Diaconu 2007) A single accounting standard also eliminates any adjustments necessary in order to make the financial statements comparable between firms and countries. When different standards are being used, investors would need to spend considerably amount of time and effort to understand the various set of standards in order to make a convincing investment decision. This causes additional transaction costs to incur which does not contribute to future cash flow in investment; instead it increases the required rate of return. (Charles, Ding, Xu, 2010)

If we were to use the same accounting standard across the world, for example IFRS, some countries such as US would have to change from GAAP to IFRS. This leads to several problems. Grant Houston (2011) wrote that small companies would be at cost because they spend a larger portion of their revenue on regulatory compliance as compared to large multinational companies. Integrating the standard means higher...

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