An Analysis of Accounting Standards and Business Financial Management

This report examines the critical role of accounting standards in the business world. It emphasizes the importance of accurate financial reporting, the use of International Financial Reporting Standards (IFRS), and the reduction of fraudulent activities and material misstatements. The report discusses the accounting process, including recording, processing, and communication of financial transactions, and how it aids stakeholders in decision-making. It highlights the significance of accounting standards in ensuring transparency and consistency in financial statements, enhancing the reliability and quality of financial data, and facilitating comparisons between companies. The report also addresses how accounting standards help prevent fraud, manipulation, and unethical practices, using examples like the Enron scandal to illustrate the consequences of non-compliance. The conclusion reiterates the importance of accounting standards for maintaining the consistency and reliability of a company's financial position. The report draws on several academic sources to support its arguments.

Running Head: ACCOUNTING STANDARD IN BUSINESS
ACCOUNTING STANDARD IN BUSINESS
Name of the Student
Name of the University
Author Note

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Executive Summary
The main purpose of this paper is to identify the importance of accounting standard in
business world. The study has been supported by evaluating the policies of International
Financial Reporting Standard. It has been found that accounting standard plays an important
role in properly dealing with the financial statement. They reduce fraudulent activity and can
kind of material misstatement that can cause the company in trouble.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
The paper will focus on the concept of accounting and accounting standards. The
importance of accounting standard in the business world has been discussed. The third part
has discussed on the fraudulent activities done in accounting process. The main objective of
this paper is to identify the importance of accounting standard in business world.
Discussion
Accounting
Accounting process is includes the recording, processing & communication of the
financial transactions of a business entities. Accounting process is done to help the company
to prepare financial statements for the annual report. The financial statement of a company
helps the stakeholders and the shareholders to do decision on company. The management use
the financial statements for decision-making process (Kieso, Weygandt & Warfield, 2019).
The report contains all the information of a business related to the cost, performance and
business transactions. Hence, accounting is the most important process that helps the
management to make business related decisions.
Importance of Accounting
The transactions recorded in accounting process is done on daily basis. All the
transactions related to business income & expenditures are clearly written in this process.
Income and expenses will give a clear view on how much the company has generated profit
or how much loss have been incurred from the business operations. The details on company
assets and liabilities are recorded in the balance sheet statements. This statement will help the
company to know its financial statement (Ahmad, Ahmed & Mustaffa, 2017). The daily
transactions related to business cash inflows and outflows is also recorded in the cash flow
statement. This statement helps the company to easily manage its business operations

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according to cash inflow and cash outflow. Accounting process plays a very important role in
evaluating the performance of a business. It reflects the operational result of a company. It
helps the company to compare their present performance with the past data. On the basis of
comparison of past analysis, company can forecast its future transactions (Komori, 2016).
Forecasting will help the company to prepare budget and helps the business to control the
cost of its operations. Accurate budget forecast will help the company to be profitable.
Hence, accounting process helps in accurately preparing the financial statement.
Accounting Standard
Accounting process should be accurately done for efficient decision-making in a
business. A company can accurately perform this process by following the accounting
standards. Accounting standards are the policies and procedures that provides guidelines for
the book-keeper and the accountant to do the accounting process (Himick, Brivot & Henri,
2016). Accounting standard provides all the guidelines related to recognition of the financial
transactions, measurement of the financial transaction, effective presentation of the financial
data and the required disclosure of the financial information. Accounting standards have been
provided on the basis of enterprise classification and size of the industry.
Importance of Accounting Standard in Business world
In this competitive business world, the companies undergoes a huge amount of
transactions on daily basis. In such cases, the business process may become complex and
unaccountable. Companies may find difficult to recognise their transactions and financial
data. Business expenditures and income should be analysed daily for the business. It will be
quiet difficult if the accounting process is simply done manually (Persic, Vlasic & Jankovic,
2016). Hence, it may create confusion for the business. Accounting standard plays a very
important role in ensuring transparency and consistency in the financial statements. The

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financial transactions are recorded according to the accounting policies that has been declared
by International Financial Reporting Standard (IFRS) and Generally Accepted Accounting
Principles (GAAP). This accounting standards are used internationally by all the companies
to prepare their financial statements (Wang & Xian, 2019. Some of the important function of
accounting standards are:
 The main objective of this standard is to enhance the reliability of the company’s
financial statement. It enhance the quality of all the financial data by properly
measuring and recognising the financial data. High quality of financial information
helps the company to expose better in the market place. The company can build
confidence in the market place. Companies will be able to do the work by attracting
more and more investors in the business (Woodside et al., 2019). This will help the
business to grow money and invest more on business operations.
 Accounting standard helps the companies in easily doing the comparison process.
Companies can compare its internal and external business process. They can also
compare it with other firms. Comparison will help them to identify where they are
lagging and accordingly they can drag their position in the business market.
Companies can easily compare their data with multiple organisation (Azar, Zakaria &
Sulaiman, 2019). This is a fundamental requirement of a business. Examples- If an oil
company continuously apply the same accounting standard of the similar industry,
then they can easily compare their finding with other companies of similar industry
and accordingly meet its competitive position. Hence, accounting standard will help
to easily compare the business transactions and improve the financial position of the
company.
 Accounting standards direct the business to do only one type of disclosure
requirement and only one type if valuation method for performing their financial

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transactions. Following the same accounting standard will help the company to easily
perform the transaction process. Business can record and estimate the data according
to the rules given in the accounting standards. Companies can make sure that any
fraud activities is not taking place in the business. The information provided in the
financial statement is not mislead by any member of the organisation (Muda et al.,
2018). Fraud, manipulation and other unethical activity can be reduced by following
the accounting standard. Companies will be able to take responsibility by following
this accounting standard. Hence, it also secures the company’s reputation towards the
business. More investors will be attracted towards the business.
Example- The book-keepers or the accountants can simply adjust the amount of
elements in the financial statement. They estimate the findings and write in their annual
report. Accountants also do delay in measuring and writing the business expense. They
simply manipulate the data and present it in the financial statement. Company doesnot
properly disclose the data to the stakeholders. They overstate the revenues and expenses.
Even if the company is in loss, still to cover their situation, they simply write an amount in
their income statement which is beyond their reality. The profitability of the company
becomes more. This improves their share prices and hence attracts more investors to invest in
the business operations. Companies write expenses which is not its actual expenses. The cost
of the business operations are understated in this case in order to improve their net incomes.
This fraud activity is seen in most of the companies (Ekechukwu, Chidubem & Mbah, 2018).
Company’s also undergoes material misstatements. The accounting team involved in the
company sometimes undergone this process. They overstates its liabilities & the company
assets. They might do material misstatement of the company’s current asset or current
liabilities. Material misstatement is the incorrect information related to the financial
statement. For-example a company may increase the value of their assets. This indicates the

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short-term liquidity of the company. If the company understate its liabilities, then it may
affect its liquidity position. Hence, a firm may simply adjust or estimate their financial
record. In such case the firm may suffer from poor liquidity. Then the company may also
suffer from punishment in such circumstances. One of the example of accounting fraud is
seen in Enron scandal. Enron has been found to properly disclose its financial statements
(Larson & Sale, 2016). They were considered as fraud. The true figure of Enron debt has
been disclosed in the public and the company’s share price were affected. Hence, accounting
standard can prevent a company in reducing the fraudulent activity.
 The corporate affairs are the managers of public relations who are engaged in
developing the accounting standards. They helps in coordinating and implement the
accounting standard (Haditama, Wardi & Syamwil, 2018). The standards deal with
consolidated financial statement, insurance contracts, fair value measurements,
revenue from contracts and many more.
Conclusion
Therefore, it can be concluded that, accounting standard plays an important role in
properly dealing with the financial statement. They reduce fraudulent activity and can kind of
material misstatement that can cause the company in trouble. The standards are coordinated
by corporate affairs. The corporate affairs are the managers of public relations who are
engaged in developing the accounting standards. It enhance the quality of all the financial
data by properly measuring and recognising the financial data. High quality of financial
information helps the company to expose better in the market place. Accounting standard will
help to easily compare the business transactions and improve the financial position of the
company. Hence, accounting standard is very important in business world to maintain its
consistency and reliability of the financial position.

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