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Standard accounting practice

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Standard accounting practice

Standard accounting practices require publicly traded companies to follow certain accounting rules when presenting financial statements so that the readers of the statements can easily compare different companies. Private companies are also often required by banks and shareholders, for example, to present information according to their specified rules.

Usually, countries practicing civil law system write standards into law and countries with English common law systems have private organizations to set the rules. There are specialist organizations that can arrange for the set-up of an accounting practice with a franchise business model which can prove successful from the out-set.

Common accounting standards

Some commonly used accounting standards include:

Rationale for uniform practices

The lack of transparent accounting standards in some nations has been cited as increasing the difficulty of doing business in them. In particular, the Asian financial meltdown in the late 1990s has been partially attributed due to the lack of detailed accounting standards. Giant firms in some Asian countries were able to take advantage of their poorly devised accounting standards to cover up immense debts and losses, which yielded a collective effect that eventually led the whole region into financial crisis.

Limitations

The accounting scandals of the early 21st century, which affected companies such as Worldcom and Enron, have shown the limitations of accounting standards in the United States.

Further reading

  • Meeks, Geoff, and GM Peter Swann. "Accounting standards and the economics of standards." Accounting and Business Research 39.3 (2009): 191-210.
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