5. Accounting Standards

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