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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