Accounting Standards

 Accounting Standards

Accounting standards are written policy documents covering the aspects of

recognition, measurement, treatment, presentation and disclosure of accounting

transactions in financial statements. Accounting standard is an authoritative

statement issued by ICAI, a professional body of accounting in our country.

The objective of accounting standard is to bring uniformity in different

accounting policies in order to eliminate non comparability of financial

statements for enhancing reliability of financial statements. Secondly, the

accounting standard provides a set of standard accounting policies, valuation

norms and disclosure requirements. In addition to improving credibility of

accounting data, accounting standard enhances comparability of financial

statements, both intra and inter enterprises. Such comparisons are very effective

and widely used for assessment of firms’ performance by the users of accounting.

Need for Accounting Standards

Accounting extends information to various users of information. Accounting

information can serve the interest of different users only if it possesses uniformity

and full disclosure of relevant information. There can be alternate accounting

treatment and valuation norms which may be used by any business entity.

Accounting standard facilitate the scope of those alternatives which fulfil the

basic qualitative characteristics of true and fair financial statement.

Benefits of Accounting Standards

1. Accounting standard helps in eliminating variations in accounting

treatment to prepare financial statements.

2. Accounting standard may call for disclosures of certain information which

may not be required by law, but such information might be useful for

general public, investors and creditors.

3. Accounting standard facilitate comparability between financial

statements of inter and intra companies.

Limitations of Accounting Standards

1. Accounting standard makes choice between different alternate

accounting treatments difficult to apply.

2. It is rigidly followed and fails to extend flexibility in applying accounting

standards.

3. Accounting standard cannot override the statue. The standards are

required to be farmed within the ambit of prevailing status.

Applicability of Accounting Standards

Except the purely charitable organisation which does not have any commercial,

industrial and business activity, accounting standard is applicable to:

1. Sole proprietorship unit

2. Partnership firm

3. Societies

4. Trusts

5. Hindu undivided family

6. Association of persons

7. Cooperative societies

8. Companies

9. International Financial Reporting System

10. There have been vast changes in the global economic scenario with the

emergence of globalisation, liberalisation and privatization. The advent

of translational corporations in search of funds in order to sustain their

ongoing operations in addition to fuelling the growth of economy has

resulted in raising capital globally, i.e., cutting across international

boundaries. Since each country has its own set of rules and regulations

for maintaining business records for accounting purposes and financial

reporting, it becomes a cumbersome and complex exercise to comply

with the existing accounting rules and regulations of the country in case

the business enterprise decides to raise its capital needs from foreign

country. In order to make economy more dynamic, competitive and to

boost confidence amongst international analysts and investors, it is

important that the financial statements put forward by the business

organisations across the countries are comparable on similar parameters,

investor friendly, fair, transparent and decisions worthy. In view of this, a

trend towards global convergence of accounting standards is seeking

momentum for international financial reporting.

Need for IFRS

1. The important economic decisions are made on the basis of financial

statements. In order to avoid manipulations of figures in the financial

accounts, there is a need for consistent way of deciding which elements

require recognition and measurement and how information is presented

in the financial statements. Hence, IFRS helps to prevent material

manipulation or errors in financial statements.

2. IFRS helps in global harmonisation. Unless accounting activities are

regulated, different countries will apply different set of accounting rules

and regulations are prevalent in each country. This will restrict uniformity

2019-2020

Theory Base of Accounting 37

and comparability of financial statements. Hence, IFRS promotes global

standards for each of business growth.

3. It facilitates global investment. The convergence of financial reporting

and accounting standards is a valuable process that contributes to the

free flow of global investments and achieves substantial benefits for all

capital market stakeholders.

To uniform accounting policies and procedures almost all countries have

agreed to apply IFRS. But the name of this IFRS has been converged as Ind

AS. In substance , Ind AS is not different from IFRS. Ind AS is accounting

standard notified by ministry of corporate affairs and has wide range of

convergence as compared to existing accounting standards.

The list of Ind AS and existing standards for comparative analysis is given

below:

Comments

Post a Comment

Popular posts from this blog

Meaning, Nature and Significance of Business Finance

  Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. For carrying out various activities, business requires money. Finance, therefore, is called the life blood of any business. The requirements of funds by business to carry out its various activities is called business finance. A business cannot function unless adequate funds are made available to it. The initial capital contributed by the entrepreneur is not always sufficient to take care of all financial requirements of the business. A business person, therefore, has to look for different other sources from where the need for funds can be met. A clear assessment of the financial needs and the identification of various sources of finance, therefore, is a significant aspect of running a business organisation. The need for funds arises from the stage when an entrepreneur makes a decision to start a business. Some funds are needed immediately say for the purchase...
Read more

Some Facts about GST

  Some Facts about GST 1. GST aims to subsume a plethora of taxes into one single tax across the  country and make goods uniformly priced across India, albeit some goods  become costly and some become cheaper. 2. With the implementation of GST, luxury goods have become costlier, while  items of mass consumption have become cheaper. 3. GST is not taxation at source. It is a destination tax or rather it’s a consumption  tax. A product is manufactured in Tamil Nadu and travels through the country  before it reaches Delhi, where the buyer or consumer pays tax for it. Both  the Centre and the State have their share in this tax. 4. The Indian GST will have a mechanism of matching of invoices. Input tax credit of  purchased goods and services will only be available if the taxable supplies received by the supplies received by the supplier. The Goods and Services Tax network is a  self-regulating mechanism, which not only checks tax frauds and tax eva...
Read more

Meaning of Trial Balance

  A trial balance is a statement showing the balances, or total of debits and credits, of all the accounts in the ledger with a view to verify the arithmatical accuracy of posting into the ledger accounts. Trial balance is an important statement in the accounting process as it shows the final position of all accounts and helps in preparing the final statements. The task of preparing the statements is simplified because the accountant can take the balances of all accounts from the trial balance instead of going through the whole ledger. It may be noted that the trial balance is usually prepared with the balances of accounts. It is normally prepared at the end of an accounting year. However, an organisation may prepare a trial balance at the end of any chosen period, which may be monthly, quarterly, half yearly or annually depending upon its requirements. In order to prepare a trial balance following steps are taken: • Ascertain the balances of each account in the ledger. • List each...
Read more