by, the requirement for a central global standard for accounting has emerged in order to close the gaps that exist among the many national standardization bodies. The IASB was therefore formed in 2001 as a way to consolidate the worlds accounting standards with the intention to make them more accommodative of all firms regardless of where they operate from.
Accounting standardization are every important in not only allowing the generation of standard accounting and financial reports but also in increasing transparency (Needles, 2012). Accounting and financial report play a big role in the economy in that they are used to make useful economic decision both by the managers of a particular firm and by many other stakeholders who are not directly involved in the management of the firm. Standards make it easy for outside stakeholders to access this information in a form that they can understand and also have faith in such reports. Lack of such standards can lead to disaster. A good example is the Enron firm which was an energy generation firm that was based in Texas. Prior to its bankruptcy in 2001, the firm had been using unfair and substandard accounting methods to make its book look good and therefore attract many investors (Sterling, 2002). Enron was able to use this method to lure so many investors, fool the analysts at the NYSE and also to fool the regulators. In fact, Enron management was the main supporters of the mark to market method of accounting which came to be seen as an unrealistic way to do accounting. It used this as a way to book future (prospective) profits from assets. Because it was performing so well (at least based on its fabricated accounting books), it was able to push for this kind of accounting, to the point of even pressuring the IASB to accept this as a standard of accounting. This later led to disaster and the firm had to finally collapse.