Accounting Standards
Accounting Standards
101
LEARNING OUTCOMES
UNIT OVERVIEW
Identification of area
Issue of AS
Accounting standards are written policy documents issued by the expert accounting body or
by the government or other regulatory body covering the aspects of recognition,
measurement, presentation and disclosure of accounting transactions and events in the
financial statements. The ostensible purpose of the standard setting bodies is to promote the
dissemination of timely and useful financial information to investors and certain other parties
having an interest in the company’s economic performance. The accounting standards deal
with the issues of -
(i) recognition of events and transactions in the financial statements;
(ii) measurement of these transactions and events;
(iii) presentation of these transactions and events in the financial statements in a manner
that is meaningful and understandable to the reader; and
(iv) the disclosure requirements which should be there to enable the public at large and
the stakeholders and the potential investors in particular, to get an insight into what
these financial statements are trying to reflect and thereby facilitating them to take
prudent and informed business decisions.
(ii) provide a set of standard accounting policies, valuation norms and disclosure
requirements.
Standardisation
of Alternative
accounting
treatments
Benefits of
Accounting
Standards
Comparability Requirements
of financial for additional
statements disclosures
Difficulties in
Limitations of
making choice
accounting Restricted scope
between different
standards
treatments
♦ Consideration of the preliminary draft prepared by the study group of ASB and
revision, if any, of the draft on the basis of deliberations.
♦ Circulation of draft of accounting standard (after revision by ASB) to the Council
members of the ICAI and specified outside bodies such as Department of Company
Affairs (DCA), Securities and Exchange Board of India (SEBI), Comptroller and Auditor
General of India (C&AG), Central Board of Direct Taxes (CBDT), Standing Conference
of Public Enterprises (SCOPE), etc. for comments.
♦ Meeting with the representatives of the specified outside bodies to ascertain their
views on the draft of the proposed accounting standard.
♦ Finalisation of the exposure draft of the proposed accounting standard and its issuance
inviting public comments.
♦ Consideration of comments received on the exposure draft and finalisation of the draft
accounting standard by the ASB for submission to the Council of the ICAI for its
consideration and approval for issuance.
♦ Consideration of the final draft of the proposed standard and by the Council of the
ICAI, and if found necessary, modification of the draft in consultation with the ASB is
done.
♦ The accounting standard on the relevant subject (for non-corporate entities) is then
issued by the ICAI. For corporate entities the accounting standards are issued by The
Central Government of India.
* Note: The list of accounting standards given above does not form part of syllabus. It
has been given here for the knowledge of students only.
SUMMARY
♦ Accounting Standards (ASs) provide framework and standard accounting policies for
treatment of transactions and events so that the financial statements of different
enterprises become comparable. Accounting Standards standardise diverse
accounting policies with a view to:
(i) eliminate the non-comparability of financial statements
(ii) provide a set of standard accounting policies, valuation norms and disclosure
requirements
♦ By setting the accounting standards, the accountant has following benefits:
Theoretical Questions
1. Explain the objective of “Accounting Standards” in brief.
2. State the advantages of setting Accounting Standards.
ANSWERS/HINTS
True and False
1. True: Accounting standards are documents covering recognition, measurement,
presentation and disclosure of accounting transactions and events in the financial
statements.
2. False: Accounting standards can never override the statute. The standards are required
to be framed within the ambit of prevailing statutes.
3. False: Difficulties in making choice between different treatments is one of the limitation of
accounting standard.
4. False: Benefits of accounting standards are:
• Standardisation of alternative accounting treatments
Theoretical Questions
1. Accounting Standards are selected set of accounting policies or broad guidelines
regarding the principles and methods to be chosen out of several alternatives. The
main objective of Accounting Standards is to establish standards which have to be
complied with, to ensure that financial statements are prepared in accordance with
generally accepted accounting principles. Accounting Standards seek to suggest rules
and criteria of accounting measurements. These standards harmonize the diverse
accounting policies and practices at present in use in India.
2. The main advantage of setting accounting standards is that the adoption and application
of accounting standards ensure uniformity, comparability and qualitative improvement
in the preparation and presentation of financial statements. The other advantages are:
Reduction in variations; Disclosures beyond that required by law and Facilitates
comparison.