..

ACCOUNTING STANDARDS

ACCOUNTING STANDARDS

Accounting standards may be defined as written statements, issued from time to time by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements.

ACCORDING TO KOHLER

“Accounting standards are code of conduct imposed on accountants by custom, law or professional body.”

Accounting standards mainly deal with four major issues of accounting, namely

  • Recognition of financial events
  • Measurement of financial transactions
  • Presentation of financial statements in a fair manner
  • Disclosure requirement of companies to ensure stakeholders are not misinformed.

NATURE

SERVE AS A GUIDE TO ACCOUNTANTS

These serve as a guide to the accountants and help them in maintaining the books of accounts. Example: The accounting standards tell about the method of valuation of inventories or stock and methods of providing the depreciation.

LAYS DOWN THE NORMS OR RULES

These lays down the norms or rules of accounting policies and practices by way of codes to direct as to how the transactions and events should be dealt in with accounts and disclosed in the financial statements.

PRESCRIBE PREFERRED ACCOUNTING TREATMENT

These prescribe the preferred accounting treatment from the available set of methods for solving one or more accounting problems.

FLEXIBLE IN NATURE

The Standards have been made flexible in the sense that where alternative accounting practices are acceptable, the companies are free to follow any of the alternatives suitable to them with a suitable disclosure. The consistency must be preferred in the adoption of a method chosen. In case of switching over to some other acceptable alternative method, the effect of such change must be quantified and disclosed.  

OBJECTIVES OF ACCOUNTING STANDARDS

Accounting standards provide the accountants policies which are most suitable in a given situation. The objectives of Accounting Standards are:

IMPROVEMENT IN CREDIBILITY AND RELIABILITY OF FINANCIAL STATEMENTS

There are various parties which are interested in the accounting information of an enterprise. They include the investors, management, creditors, employees, government officials, researchers etc. It is therefore necessary that the financial statements present a true and fair view of the financial position and operating results of an enterprise. These standards generate confidence among the users of the financial information by providing a definite structure of uniform guidelines which enhance the reliability and credibility of the accounting information.

TO ENSURE CONSISTENCY AND COMPARABILITY OF FINANCIAL STATEMENTS

The Standards make the financial statements of different enterprises or of the same enterprise for different financial periods comparable. They bring the uniformity of assumptions, rules and policies adopted in the preparation of financial statements and thus they ensure the consistency and comparability of such statements which in turn ensures better comparison of profitability, financial position and future prospects of an enterprise.

TO RESOLVE THE CONFLICTS OF FINANCIAL INTERESTS AMONG VARIOUS GROUPS

Sometimes, there is a conflict of financial interests among the various groups interested in financial statements. For Example: Shareholders and creditors may have opposite interests in assessing the profitability and net worth of an enterprise. These standards are helpful in resolving such a conflict because financial statements are drawn up on the basis of accounting standards will be accepted to all the groups.

TO REDUCE THE CHANCES OF MANIPULATIONS AND FRAUDS

Adoption of the standards in the preparation of financial statements has reduced the chances of manipulations, frauds, insufficient disclosures or the use of inappropriate policies of accounts.

The adoption and application of Accounting Standards ensures uniformity, comparability and qualitative improvement in the preparation and presentation of financial statements.

Also StudyAlso StudyAlso StudyAlso Study
AccountingNon profit organisationDepreciationLiquidity ratios
Nature of AccountingReceipts and Payments AccountDepreciation AccountingAcid Test Ratio
Benefits of AccountingScope of accountingHire Purchase AccountingCash Ratio
Difference between cost accounting and financial accountingFinancial accounting, cost accounting and management accountingDifference between hire purchase and instalment systemFinancial ratio analysis
Difference between transaction and eventTransactionsUsers of AccountingRatio analysis
Limitation of AccountingCapital ExpenditureInstalment SystemDifference between consignment and sale
Book KeepingRevenue ExpenditureReserves AccountingAbnormal loss vs normal loss in consignment
AccountancyDifference between capital and revenue expenditureProvisions Treatment of loss on consignment
Accounting as science or an artAccounting EquationSingle entry systemAccounting treatment of consignment
Book Keeping vs accountingDeferred Revenue ExpenditureDifference between statement of affairs and balance sheetJoint venture vs consignment
Book keeping vs accountancyCapital receiptIFRSDepartmental Accounting
Accounting vs accountancyRevenue receiptBalance SheetMethods of departmental accounting
Basis of AccountingDifference between capital and revenue receiptProfit and loss AccountAllocation of expenses in departmental accounting
Branches of accountingDifference between accounting concepts and conventionsTrading AccountInter-departmental transfers
Cash and mercantile system of accountingAccounting StandardsVoyage AccountDifferent types of branches
Accounting PrinciplesObjectives of AccountingAccounting for Incomplete VoyageDepartmental vs Branch accounting
Golden rules of accountingProcess of AccountingJoint ventureMethods of branch accounting
Double entry system of book keepingScope of AccountingJoint Venture Vs PartnershipIncorporation of branch trial balance
Double entry vs Single entry systemAccounting Concepts vs Accounting conventionsMethods of recording transactions in Joint VentureGarner VS Murray Rule
History of AccountingDifference between provisions and reservesConsignment

Leave a Reply