All publicly listed companies are required to adhere to these standards, which protects investors against being misled or defrauded by fraudulent corporate behavior. Transparency between companies is improved, which in turn promotes healthy competition. This also helps to reduce the possibility of differences between businesses in terms of how they report their profit margins.
These standards must be followed by auditors when they are reviewing financial reports to ensure their accuracy. Accounting rules that are strict ensure auditors have the ability to make an accurate assessment when evaluating if they meet regulatory requirements. All these factors combine together and ultimately allow investors to trust what they see on a company’s balance sheet and make informed decisions about investing capital into it.