What are financial accounting standards?

Financial accounting standards refer to the established guidelines and principles that govern the preparation and presentation of financial statements. These standards ensure consistency, transparency, and comparability of financial reporting across different organizations. By adhering to these guidelines, companies can provide accurate and reliable financial information that stakeholders—such as investors, creditors, and regulatory agencies—can use to make informed decisions.

The primary aim of financial accounting standards is to standardize financial reporting practices, which improves the reliability of financial statements and helps maintain the integrity of financial markets. This is particularly crucial as investors and other stakeholders rely heavily on these documents to assess a company’s financial health and operational performance.

In contrast, the other options address unrelated aspects of financial practices. Instructions for preparing tax returns pertain specifically to tax compliance and not to general financial reporting standards. Rules for budgeting corporate investments focus on internal decision-making regarding capital allocation rather than external financial reporting. Criteria for employee performance evaluations are concerned with assessing employee performance and do not relate to financial statements or accounting standards.