Accounting Standards

Purpose of Accounting Standards: Accounting standards are guidelines for financial accounting, such as how a company prepares and presents its business income, expenses, assets, and liabilities.
International Financial Reporting Standards (IFRS): These are standards developed by the International Accounting Standards Board (IASB). They include rules on how to account for transactions and other events, and definitions for financial statement elements.
Generally Accepted Accounting Principles (GAAP): This is a common set of accounting principles, standards, and procedures that public limited companies must follow when they compile their financial statements.

Summary of Key Accounting Standards

IAS 1 Presentation of Financial Statements: This standard establishes the basis for presentation of general purpose financial statements. It prescribes the basis for presentation of general purpose financial statements, guidelines for their structure, and minimum requirements for the content.
IAS 2 Inventories: This sets out the accounting treatment for inventories, including the determination of cost and its subsequent recognition as an expense, including any write-down to net realisable value.
IAS 16 Property, Plant and Equipment: IAS 16 details how to handle the recognition of property, plant, and equipment, the determination of their carrying amounts, and the depreciation charges.
IAS 18 Revenue: This standard outlines the accounting requirements for when revenue should be recognised. It also provides practical guidance on the recognition criteria for revenue arising from certain types of transactions and events.
IAS 36 Impairment of Assets: IAS 36 ensures that an entity’s assets are carried at no more than their recoverable amount, which is the higher of an asset’s fair value less costs of disposal and its value in use.

Investor Confidence: Accounting standards enhance the credibility and reliability of financial statements. They increase investors’ confidence in the transparency and integrity of financial reporting.
Comparison: Accounting standards create a sense of uniformity, making it easier to compare different companies’ accounts. This is incredibly beneficial to investors and other stakeholders.
Compliance and Legal Requirements: Public limited companies need to adhere to these accounting standards to maintain their listing on the stock exchange. Non-compliance can lead to severe penalties.
Developing Business Strategies: Understanding and following accounting standards can also help businesses plan and develop strategies. The information derived from standardised financial statements can be used to make informed decisions and forecasts.