Financial reporting standards are meant to level the playing field and avoid the role of management bias in reporting.
Managers may want to prepare financial statements that report on the company in its “best light”. They may want to meet financial analysts’ expectations for a positive reaction in the capital markets. What this means is that the financial reporting standards are meant to stave off rampant corruption or greed for personal benefit.
Standards are not rules, regulations, or laws, but should generally be followed, because they aid transparency and credibility. Many companies that chose not to report the truth or follow standards suffer in the open market (i.e., share prices tank).
One example is the Intertain Group, which had the exact thing happen. Then a capital management firm issued a report about this, essentially suggesting that Intertain was bullshitting the public and that they weren’t telling the truth and their financial statements don’t fairly represent what’s happening.