Accounting standards are the framework of principles, rules, and guidance that are used in the preparation of financial statements. They are issued by relevant standard-setting bodies and are designed to ensure the accuracy and consistency of financial statement presentation and disclosure. Organizations that issue financial statements must abide by these standards for the presentation of financial information, enabling users of financial statements to compare companies’ financial information more easily.

The primary aims of accounting standards are to achieve accurate and consistent reporting from different companies, to facilitate comparison between different companies and over time, and to enable decision makers to gain a clearer view of the financial performance and financial position of a company. Because each company has different requirements and resources, accounting standards create a consistent language and system for preparing and reporting financial information for greater transparency and accuracy.

Accounting standards aim to provide assurances that the proper information is being collected and reported each reporting period, helping protect investors and creditors from being misled by companies. By creating independence between financial reporting and preparers of financial statements, accounting standards may reduce the chances of fraudulent financial reporting and financial statement manipulation.

Accounting standards differ around the world, depending on the regulating body. In the United States, the Financial Accounting Standards Board (FASB) is the most respected accounting standard–setting organization and their Generally Accepted Accounting Principles (GAAP) are the most widely used in the world. The International Accounting Standards Board (IASB) is the international standard-setting body and their guidelines, known as International Financial Reporting Standards (IFRS), are used throughout most of the world.

The Generally Accepted Accounting Principles (GAAP) were created to ensure investors, lenders, and other stakeholders get a clear understanding of the financial performance and financial position of a company, to make it easier to compare companies and over time. Ensuring companies follow the same accounting standards helps all stakeholders make informed decisions, increasing the confidence of the investing public and the stability of financial markets. By providing full disclosure, it allows users to review the financial information to form a reasoned opinion about future events and performance, making their decisions more informed.