The Need for Accounting Standards

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What would financial statements look like if there were no accounting standards?”

Accounting standards are a set of principle that govern current accounting practice and are used as a reference to determine the appropriate treatment of complex transactions. Having financial statements in the same format allow them to be compared and in this essay we shall discuss how the accounting standards came about, and why it continues to exist until this very day, as the format of such practice has changed dramatically over the years as they are now used as a reference when problems occur.

There were no accounting standards until the 13th century when an Italian man named Luca Pacioli invented double entry bookkeeping; a system that records the money flows. This concept of double entry bookkeeping at that time period was not internationalized until around the 1960s when the public started demanding to know how much their wealth exactly worth due to problems such as stagflation. The International Accounting Standards Committee was formed in 1973 in order to provide a solution for these problems. Some could argue that some companies and banks were established before the committee was founded and have produced financial statements and performed well, but I would argue that times have changed especially when the 2 major shocks that hit the global economy during the 1970s.

With a standardized format, it rules out unfair mathematical advantages by people who explain the system quite well, consider the fact that the stand format was to make information clear, concise, comparable and reliable, without all these key components, most of the funds may end up as Ponzi schemes and rather than having the best firm in the industry in terms o...

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Financial Accounting Standards Board (2014), INTERNATIONAL CONVERGENCE OF ACCOUNTING STANDARDS—A BRIEF HISTORY [Online].

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[Accessed on 21st March 2014]

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Classification Of Assets on Balance Sheet: Numia Biz, Accounting Made Easy [Viewed 17 March 2014] Available from http://numia.biz/edodocument/classification-of-assets.php
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