"The accounting standards seek to describe the accounting principles, valuation techniques, and the methods of applying these accounting principles in the preparation and presentation of the financial statements so that

Answer 4A(iii) Need for Accounting Standards The ostensible purpose of the standards-setting bodies is to promote the dissemination of timely and useful financial information to the users. The need for Accounting Standards may be enumerated as under: Improvement of credibility and reliability of financial statements: The accounting standards create an environment of confidence among the users of accounting information by providing a uniform structure of guidelines, which provide credibility and reliability to the accounting information. In this way, the financial statements present a true and fair view of the financial position and financial performance of an entity. Comparability of financial Statements made easy: The value of the accounting information is enhanced if the same can be compared in the same line of business activity. But the comparability is possible only if the same accounting standards are used in the preparation of the financial statements of the different enterprises in the same industry. It is a positive step to protect the interests of the users of the accounting information. Benefits to the accountants and auditors: The accounting standards provide a basis for the uniform accounting principles. Due to this reason, there is a lower possibility of fraud being committed by the accountant. There is more transparency in the accounting information. Since the accounting profession follows the accounting standards without any exception, they are helpful not only to the accounting entity but also to the accountants and the auditors. Any type of misinformation can lead to strict action against the accountants and the auditors. Additional disclosures: There are certain areas where important information is not required to be disclosed by the law. The accounting standards require the disclosure of such matters as the method of depreciation and the change in the method of depreciation, which help the users of the financial statements to make important financial decisions. Evaluation of the managerial ability: Accounting standards are useful in measuring the efficiency of the management regarding profitability, liquidity, solvency, and other general areas of progress of the enterprise. In the absence of Accounting Standards, it would be difficult to evaluate managerial efficiency because there is no basis to compare the financial statements of one enterprise with those of another. Each enterprise would evolve its own rules and standards to suit its own purpose, and users would, therefore, not be able to get a true and fair view of the functioning of the enterprise. Helpful to the Government: The Government officials would find the financial information useful for economic planning, market analysis, and tax collection if the financial statements are based on the established accounting standards.