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Explain why accounting standards are needed to help the market mechanism work effectively for the benefit of preparers and users of corporate reports?
Wiki User
∙ 12y ago
This has to do with the accounting standards where it recognises revenue and expenses. As a result, the users of the corporate reports are eventually able to identify the current state of the market mechanism and take steps to rectify any possible errors in that might occur from the market mechanism.
For example: If there is a loss, it will be shown in the financial statement as expenses more than revenue. Therefore, there information users will need to identify the possible reasons for such occurence. Perhaps there is a reduction in consumer's purchasing power. Therefore, the corporate can take actions such as reducing the price of the products or services. This in return smoothen the market mechanism and eventually generates more profit for the corporate.
Wiki User
∙ 12y ago
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