Business Accounting

Accounting is a process of keeping track day-to-day business transactions within a business entity. And the process is carried out by using a systematic approach of recording, reporting and analysis the financial transactions of the business. (http://www.investorwords.com/48/accounting.html). With the accounting system in place only then a business is able to determine its current financial status and make prospering decisions to increase the wealth of the company.

Therefore to ensure the preparation of the financial statements of a business is presented accurately and coherently, it is required to follow an accounting standard. And the accounting standard namely The Generally Accepted Accounting Principles (GAAP), is a set rules, standards and procedures which are use when companies are preparing and compiling their financial statements. The creation of the Generally Accepted Accounting Principles (GAAP) were designed to better aid the needs of a particular nation capital markets. It also found to have work well in the legal, cultural, political and economic aspect of each nation. (http://www.thecaq.org/publications/GuidetoIFRS.pdf).

Not only does GAAP serves as a guideline, it also dictates the recording and reporting of business transactions in the financial statements. Hence the data recorded on the financial statement can be viewed in a precise and true manner. Thus it would allow shareholders and investors to be well educated on the company's financial position, therefore are able to make well-informed economic decision.

Following the subject matter in this essay, the advantages and disadvantages of the accounting standards would be mention in the next few paragraphs. Followed by the set of principles, the principle-based and rules-based accounting standards, lastly a conclusion on the need of accounting standards.

Firstly the advantages of accounting standards are to provide a source of credibility and reliability of the financial statements of the business. Which means the information written on the financial statements are structurally done in a proper manner following a set of uniform guidelines. Therefore the users who are extracting information from the financial statements are aware that the accounting information provided is of a high-standard, as it holds onto its creditability and reliability. Hence it would create a true and unbiased view on the financial position and operating performance of the business.

Secondly it also allows comparability to take place in businesses within the same industry. The investors and users of the financial statements are able to make comparison of the financial statements of different firms and companies especially if it is in the same industry.

Thirdly it would be more beneficial to the accountants and auditors when they are preparing the financial statements. The accounting standards act as a strong foundation providing support of detailed and comprehensive rules and standards. Thus it would greatly reduce the possible of fraudulent activities to be taken place by accountants and auditors. Because GAAP holds a strong guidelines which all financial statements are required to follow, this would inevitably create a much greater transparency on the accounting information and data written on the financial statements.

Besides following the accounting standards would also greatly benefit the accountants and auditor as well, as by their profession they are ought to follow guidelines, however if any misinformation are recorded in the books, it can lead authoritative actions against the accountants and the auditors.

Fourth, there may be some other important information which may or not seem as a requirement to be disclosed in the eyes of the law. However the accounting standards states that any additional disclosures that is required by the guideline such as for example, the methods used in calculating depreciation or if any changes in methods were to arise during the accounting period, it is regarded as an additional information to be recorded. Of which it would help the users of the accounting information such as shareholders, investors, suppliers, lenders, creditors, banks to be better-informed while making financial investing decisions.

The users of accounting information, such as the Management would also profit from accounting standards.