5. Accounting Standards

Accounting Standards

History and Development of Accounting Standards

The International Accounting Standards Committee (IASC) came into existence on 29th June 1973.

The main objectives of IASC are to develop the accounting standards. In India the Institute of

Charted Accountants of India (ICAI) had constituted the ‘Accounting Standards Board’ in April

1977 for developing the Accounting Standards

Meaning of Accounting Standards:

Accounting standards are the rules in written form that ensure the uniformity of accounting Standards, and provide guidance for the preparation, presentation and reporting of accounting information.

Features/Characteristics/Nature of Accounting Standards:

a) Provide Guidance to the Accountants ;

b) Brings Uniformity;

c) Accounting Standards are flexible ;

d) Provide information

Advantages of Accounting Standards

a) Helpful in bringing the uniformity

b) Helpful in improving the reliability of financial statements

c) Helpful in resolving the conflicts among the users of financial information.

Accounting Standards issued by the ICAI: Amendment is made recently in the section 211 of

companies act 1956. According to this amendment, the financial statements (Profit and Loss

Account and Balance Sheet) of a company should comply with the Accounting Standards. The

Council of the Institute of Charted Accountants of India has so far issued the following 32

Accounting Standards (AS).

Process of Accounting:

(1) Collecting and identifying financial transactions

(2) Recording

(3) Classifying

(4) Summarizing

(5) Deals with financial transactions

(6) Analysis and Interpretation

(7) Communicates

Accounting Standards

History and Development of Accounting Standards

The International Accounting Standards Committee (IASC) came into existence on 29th June 1973. The main objectives of IASC are to develop the accounting standards. In India the Institute of Charted Accountants of India (ICAI) had constituted the ‘Accounting Standards Board’ in April 1977 for developing the Accounting Standards

Meaning of Accounting Standards:

Accounting standards are the rules in written form that ensure the uniformity of accounting Standards, and provide guidance for the preparation, presentation and reporting of accounting information.

Features/Characteristics/Nature of Accounting Standards:

a) Provide Guidance to the Accountants.

b) Brings Uniformity.

c) Accounting Standards are flexible.

d) Provide information.

Advantages of Accounting Standards

a) Helpful in bringing the uniformity.

b) Helpful in improving the reliability of financial statements.

c) Helpful in resolving the conflicts among the users of financial information.

Accounting Standards issued by the ICAI:

Amendment is made recently in the section 211 of companies act 1956. According to this amendment, the financial statements (Profit and Loss Account and Balance Sheet) of a company should comply with the Accounting Standards. The Council of the Institute of Charted Accountants of India has so far issued the following 32 Accounting Standards (AS).

Process of Accounting:

• Collecting and identifying financial transactions
• Recording
• Classifying
• Summarizing
• Deals with financial transactions
• Analysis and Interpretation
• Communicates

The Institute of Chartered Accountants of India defines Accounting Standards as

The written policy documents issued by the expert accounting body cover the aspects of recognition measurement presentation and disclosure of accounting transactions in financial statements.

 Accounting standard lays down standard accounting policies valuation techniques and disclosure requirements. It helps with comparing the financial statements of the company with other companies.

Benefits of accounting standards 

By following accounting standards the accountant has the following benefits of accounting standards by setting accounting standards the accountant has the following benefits

1. Eliminate confusing variations in accounting treatment used to prepare accounting statements
2. Standards make the call for disclosures in the financial statements which are not required by law and is always better for the user of financial statements.
3. Accounting standards facilitates makes possible comparison of financial statements of companies situated in different parts of the world. For example, the financial statements of Pizza Hut in India and Pizza Hut in the US will be comparable because of accounting standards

Limitations of Accounting Standards

1.  Accounting standards give solutions and choices between alternative accounting treatments. The accountants find it difficult to make a choice between these different treatments
2.  Accounting standards cannot override the statute the standards or to be framed or made with a restricted scope

Applicability of accounting standards (Who all need to follow as)

1. Sole Proprietor
2. Joint Hindu Undivided Family
3. Trusts
4. Societies
5. Cooperatives
6. Companies
7. Association of persons

Basically, ALL forms of business organizations need to follow AS.

Need for Accounting Standards

1.  Accounting standards make the financial statements of different companies, across different countries comparable with each other.
2.  Accounting standards help us provide full information as the standards focus on full disclosure of information in the financial statements
3.  Accounting standards provide us with various alternate accounting solutions and treatments which can be followed by the entity