Accounting Standard

Accounting standards are the rules and frameworks that govern how businesses record, measure, present, and disclose financial information. They ensure financial statements are consistent, comparable, and useful for decision‑making by investors, lenders, regulators, and other stakeholders.

Key points

• Apply to all elements of financial reporting: assets, liabilities, equity, revenue, and expenses.
• Promote consistency and comparability across entities and periods.
• Provide guidance on recognition, measurement, classification, presentation, and disclosure.
• Relied on by banks, investors, auditors, and regulators to assess performance and risk.

How accounting standards work

Accounting standards specify:
* When an economic event should be recognized (timing).
* How that event should be measured (valuation methods and estimates).
* How the event should be presented and disclosed in financial statements.

Standards are developed and issued by standard-setting bodies through a process of research, public consultation (exposure drafts), and final pronouncements. Professional accountants apply these standards when preparing financial statements, and auditors evaluate compliance.

Major frameworks

U.S. GAAP

Generally Accepted Accounting Principles (GAAP) are the primary framework used in the United States. GAAP comprises detailed standards and interpretations that guide financial reporting for public and private companies and nonprofits. The U.S. Securities and Exchange Commission (SEC) requires listed companies to follow GAAP.

IFRS

International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), are used widely outside the U.S. IFRS is generally more principles-based and is updated to reflect evolving global business practices. Many multinational companies prepare IFRS financial statements to ensure comparability across jurisdictions.

Standard‑setting bodies

• Financial Accounting Standards Board (FASB) — establishes and interprets GAAP in the United States.
• International Accounting Standards Board (IASB) — issues IFRS for global application.
• Governmental Accounting Standards Board (GASB) — issues accounting standards for U.S. state and local governments.

Common topics covered by standards

• Revenue recognition
• Asset classification and impairment
• Depreciation and amortization methods
• Lease accounting and classification
• Measurement of equity and earnings per share
• Financial instrument recognition and disclosure

Brief history

Early attempts to standardize accounting began in the 1930s. U.S. regulatory milestones—the Securities Act of 1933 and the Securities Exchange Act of 1934—led to the creation of the SEC. In 1973 the FASB assumed primary responsibility for developing U.S. accounting standards. Separate bodies later emerged to address government accounting and international convergence.

Why standards matter

Accounting standards increase transparency, reduce information asymmetry, and enable meaningful comparisons across companies and time. They set the boundaries for what is reported and how, helping users make informed economic decisions and regulators to monitor market integrity.

Takeaway

Accounting standards are the foundation of trustworthy financial reporting. Whether prepared under GAAP or IFRS, adherence to these standards ensures that financial information is relevant, consistent, and comparable—essential for capital markets, credit decisions, and effective governance.