How are accounting principles different from accounting standards?

Accounting is very crucial to the success of a business. Being viable in the long term and growing requires proper financial management. Without a good accounting framework, the ability of a business to manage its finances, prepare financial statements, and communicate information to interested parties like investors, banks, and regulators can be affected. In this regard, accounting principles and accounting standards are the elementary factors that influence the manner a business performs its accounting work. Though both are of equal importance, there exists a difference between the two based on the objective, its application, and flexibility. The paper explains the difference between accounting principles and accounting standards and the reasons why it is imperative for companies like Mehasa Consulting to know and apply the said two concepts in proper context.

What Are Accounting Principles?
Accounting principles refer to the theoretical underpinnings of accounting practices which give broad guidelines on how financial information has to be prepared and presented. The principles allow companies room for applying accounting practices in a fashion peculiar to their mode of operations but within the defined framework. These principles represent a basis for building the accounting standards.
Some major accounting principles are

Going Concern Principle: Business is assumed to be operating forever and ever unless there is evidence to the contrary.
Accrual Principle: Revenue and expenses should be recognized when they occur, not when cash is changed hands.
Economic Entity Principle: The financial records of a business must be separate from the personal finances of its owners or any other entities.
Matching Principle: Expenses should be recorded in the same period as revenues generated.
Revenue Recognition Principle: Revenue is recognized when it is earned, not necessarily when it is received.
Full Disclosure Principle: All pertinent financial information must be disclosed in financial statements for proper disclosure.
Accounting principles are flexible, adaptable, and allow businesses liberty of choice between various methods that best suit their operations. Therefore, they are widely used but not mandatory, hence businesses like Mehasa Consulting have some leeway in shaping their financial reporting.

What Are Accounting Standards?
Accounting standards are those rules which guide how businesses ought to live when measuring, valuing, and presenting and disclosing their financial information. Accounting standards guide in seeking uniformity, comparability, and transparency of financial reports. Accounting principles are theories while accounting standards are prescriptive as it guides one on the actual mode in which actual transactions are to appear in the books of accounts and then report it.
Key examples of accounting standards include:

IFRS 9- Financial Instruments: It provides information on how to account for loans, investments, and other derivatives.
IFRS 10- Consolidated Financial Statements: This standard prescribes the manner in which a company’s consolidated financial statements ought to be presented whenever it controls other entities.
IAS 38- Intangible Assets: This standard outlines the process of recognizing and measuring intangible assets, which may include patents and trademarks.
In any event, accounting standards are way more stringent than accounting principles. Businesses must follow all standards stringently while performing their reporting tasks in order not to tolerate the inconsistency between industries and jurisdictions. These standards, therefore, allow regulatory and investing bodies to gauge any firm’s financial well being.
Accounting Principle VS Accounting Standard
Whereas both accounting principles and standards try to make sense of the financial reporting procedures for businesses, they fundamentally differ in several areas that stand out as follows:

1. Flexibility vs. Rigidity
Accounting Principles: Are flexible in nature and might allow businesses to apply those principles in different ways than would depend upon business entities.
Accounting Standards: Severe and uniform and can impose uniform rules that would have to be followed while trying to achieve compliance.
2. Objective
Accounting Principles: Are general guidelines within the framework of theory of accounting.
Accounting Standards: Are clear prescriptions for practical use in accounting activities.
3. Answerability
Accounting Principles: Provides businesses with a high degree of latitude in application methods the companies want to use in terms of accounting principles, thus demanding less answerability in direct interpretation.
Accounting Standards: There is more accountability to obey specific rules prescribed.
4. Coverage
Accounting Principles: Possess greater scope theoretically and may be applicable in many different scenarios and lines of business.
Accounting Standards: More specific and often single topic-oriented, such as revenue recognition or valuation of financial instruments.
IFRS vs GAAP
Discussions about accounting standards bring up the need to address the two dominant accounting standards: IFRS, which is short for International Financial Reporting Standards, and GAAP, which is short for Generally Accepted Accounting Principles.
GAAP
GAAP is accounting standards that were founded by the Financial Accounting Standards Board and are mainly used in the United States. The accounting standard, GAAP, is rule-based, and as such, it has very detailed instructions regarding the handling of particular accounting situations, making it highly prescriptive.
IFRS : It is a set of principles-based standards created by the International Accounting Standards Board (IASB). IFRS is internationally accepted, and hence it is less prescriptive and focuses on broad principles that ensure consistency and transparency across borders.
Why Mehasa Consulting Should Care:
For businesses like Mehasa Consulting, it’s important to know the difference between accounting principles and accounting standards. This will ensure that practices in financial reporting are on par with the regulations and industry norms. Whether preparing financial statements, performing financial analysis, or auditing, adherence to both principles and standards ensures transparency, reduces the risk of errors, and fosters trust with investors and regulatory bodies.

In doing so, accurate financial reporting would provide assurance that stakeholders such as investors, clients, and regulatory bodies could rely on the information provided in the financial statement. It would therefore comply with accounting standards to ensure fulfillment of the expectations set by external authorities.
Internal management can be very lenient with accounting methods. Principles are quite lenient regarding the method used, but standards would ensure that the financial practices adopted have clear, measurable guidelines. To Mehasa Consulting, consistency is the most important aspect because it ensures decisions are properly made through financial data.
For Global Operations: If Mehasa Consulting has operations in multiple countries or serves international clients, then the knowledge of what IFRS and GAAP are will help them navigate cross-border accounting challenges and comply with global standards.
Conclusion
Accounting principles and accounting standards are two important parts of the accounting process, yet they play different roles. A principles account essentially provides a basis of foundational concepts that will guide accounting practice, whereas standards give particular rules businesses need to apply. Therefore, for an organization like Mehasa Consulting, which deals with much consulting services, it should be well informed of both aspects in depth for transparency and compliance in the reporting of its financial performance and a high-quality picture regarding its performance compared to competitors in the market.