1. Interaction of accounting standards refers to the way in which different accounting standards and frameworks interact with each other.
2. It is important to understand the interaction of accounting standards because it can affect the way financial information is reported, and can impact the comparability of financial statements between different companies and industries.
3. Understanding the interaction of accounting standards can also help in determining the appropriate accounting treatment for complex transactions.
4. The International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are two of the most widely used accounting standards in the world, and understanding how they interact is crucial for international financial reporting.
5. The interaction of accounting standards also plays a critical role in financial statement analysis and valuation, as investors and stakeholders need to compare financial statements between companies and industries to make informed decisions.

Let us try to understand with teh help of an example:

Let's say a company is operating in multiple countries and has to prepare financial statements according to the local GAAP (Generally Accepted Accounting Principles) of each country. The company also wants to comply with the IFRS (International Financial Reporting Standards) for the purpose of listing on a foreign stock exchange.

In this scenario, the interaction of accounting standards becomes important as the company needs to ensure that the financial statements prepared under the local GAAP of each country are consistent with the IFRS.

For example, if the company has a subsidiary in Japan, it needs to prepare financial statements according to the Japanese GAAP. However, if the company wants to list on a foreign stock exchange, it needs to comply with the IFRS. Therefore, the company needs to ensure that the financial statements prepared under Japanese GAAP are reconciled with the IFRS.

This reconciliation involves adjusting the financial statements to reflect the differences between the local GAAP and the IFRS. These adjustments may include changes in accounting policies, accounting estimates, and disclosures.

In summary, the interaction of accounting standards is important as it ensures that the financial statements of a company are consistent and comparable across different jurisdictions and comply with the relevant accounting standards.