Monday 17 June 2013

Back to Basics-Accounting Standard

Back to Basics-Accounting Standard

What Are Accounting Standards

Accounting standards are written documents, policy documents issued by expert accounting body or by the government or other regulatory bodies covering the aspect of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement. Accounting standard in India are issued by ICAI.

Objective of Accounting Standards 

Objective of accounting standards is to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statement and add the reliability to the financial statements.
The Institute of Chartered Accountants of India recognized the need to harmonize the diverse accounting policies and practices, constituted an Accounting Standard Board (ASB) on 21st April 1977. 

Scope of Accounting standard

v  The standard formulated by ASB includes paragraphs in bold italic type and plain type, which have equal authority. Paragraph bold and italic type indicates the main principles.
v  An individual standard should be read in the  in the context of the objective stated in that standard and their preface
v  Any issue in the interpretation of AS will be resolved by the council by issuing interpretation.
v  AS are intended to apply on items which are material
v  All AS are applicable prospectively these cannot apply retrospective unless otherwise mentioned specifically.
v  AS cannot override the local regulations which govern the presentation of financial  statements, however ICAI will determine the extent of disclosure to be made  by way of appropriate notes explaining the treatment of particular item   in financial statement and Auditors Report
v  If a particular AS is found to be not in conformity to the law in force then the provision of said laws will prevail and the financial statements should be prepared in conformity with such law.

Advantages and disadvantage of Accounting Standard

                           Advantages

v  Standards reduce to a reasonable extent or eliminate altogether confusing variation in the accounting treatment used to prepare the financial statements.
v  There are certain areas where important information are not required by law to be disclosed, standards may call for disclosure beyond that required by law.
v  It facilitates comparison of financial statements of different companies situated at different companies situated at different place.

                            Disadvantages

v   There may be trend towards rigidity and away from flexible in applying accounting standards.
v  Accounting standard cannot override law. The standards are required to be framed within ambit of prevailing statute even though it is not an acceptable standard.
v  The choice between better alternative accounting treatment in a particular situation is eliminated
v  Difference in accounting standards is bound to be because of difference in the traditions and legal system from one country to another.

Compliance with the Accounting Standards

v  The accounting standards are mandatory from the respective dates mentioned in AS. It will be duty of the member of the institute to examine whether the Accounting Standards are complied with in the presentation of financial statements covered under Audit. And if any deviation found it will be the duty of member to make adequate disclosure in their audit reports so that user of financial statements are aware of such deviation.
v  It is responsibility of management that financial statements to comply with Accounting standards.
v  Financial statements cannot be described as complying with the AS unless they comply with all the requirements of each applicable standard.

Let’s Recapitulate


Accounting standards are written documents, policy documents issued by expert accounting body or by the government or other regulatory bodies covering the aspect of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement and the objective to issue AS  are to eliminate diversification in accounting practices throughout the country. The ICAI recognized the need to harmonize accounting practices constituted ASB  

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