Accounting standards are rules according to which accounts have to be drawn up. They demand minimum levels of disclosure, lay down fundamental principles, define the meanings of terms and specify how numbers should be calculated.
There are three main sources of accounting standards:
- The IASB which issues IFRS,
- National standards bodies such as the ASB,
- the requirements of legislation,
- the requirements of regulators of particular industries or types of organisation. For example, Ofwat has detailed reporting requirements for water companies.
The latter two are not strictly speaking imposing accounting standards in the sense of the first two, but have the same effect
In the case of EU countries, both EU and national legislation set standards.
Conflicting requirements may mean that more than one set of accounts needs to be prepared, or that reconciliations need to be provided. For example, companies with both UK and US listings will need to reconcile accounts draw up under IFRS to US GAAP or vice-versa.
IFRS are important because they are a unifying force. Even countries that have not adopted IFRS are attempting to converge national standards with IFRS. Prior to this there were quite large differences; particularly between countries that has very detailed, prescriptive rules, and those that had looser rules and relied on enforcement of underlying accounting principles.
The position of national standards bodies now varies. In the EU listed companies are required to use IFRS, so the role of national bodies is limited to private companies and unincorporated entities. The ASB is also responsible for enforcement of standards, including IFRS, on British companies.
It is also common for many aspects of accounting standards to vary with company size. The UK goes as far as to have a separate standard for smaller companies (and other entities).