Advantages of adhering to accounting concepts and principles
The following advantages are associated with proper use of accounting concepts and principles:
- Accounts prepared in accordance with generally accepted accounting principles and concepts are more accurate and reliable.
- The users of financial statements attach greater credibility to the statements that have been prepared in accordance with generally accepted accounting principles. Hence, if a business wishes to win confidence of its banks, lenders or major suppliers, it must follow these principles while preparing its accounting statements.
- Companies often find it useful to compare their performance with other organizations in the same business. No comparison would be meaningful, or indeed possible, unless all the accounting statements have been prepared on the basis of the same agreed principles and assumptions.
- Following laid down rules makes the job of an accountant easier. He is saved the trouble of making subjective decisions. For example, having a laid down policy on what is considered material for the purpose of recording expenses or capitalization can save a lot of hassle for the accounting staff. Once the organization limit is set, it makes accounting much simpler.
- Following accounting concepts, principles and standards may not be a matter of choice. In most countries, law prescribes that businesses that are operating at a certain level must follow them. Similarly, most professional or trade associations require their members to follow these standards as a matter of essential requirement for continued membership. Similarly, lenders often refuse to lend funds to businesses whose accounts are not in accordance with standards.