Accounting Standards and International Financial Reporting Standards (IFRS)
Accounting Standards- Introduction, Purpose and Importance
After going through this lesson, you shall be able to understand the following concepts.
• Meaning of Accounting Standards
• Nature & Scope of Accounting Standards
• Uses of Accounting Standards
• Limitations of Accounting Standards
• Accounting Standards Issued by The Institute of Chartered Accountants of India (ICAI)
Meaning of Accounting Standards
The main objective of preparation of financial statements is to summarise the financial position of a business enterprise for an accounting period in monetary terms. In order to compare the financial position of an enterprise with that of another enterprises, there needs to be a consistency in the method of preparation of financial statements across various companies. In order to make these methods and principles uniform and consistent across organisations the accounting standards have evolved.
Accounting Standards are the statements of code of practice from the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. In layman terms, accounting standards are the written documents issued by the expert institutes (ICAI) or other regulatory bodies covering various aspects of measurement, treatment, presentation and disclosure of accounting transactions.
According to Kohler, “A code of conduct imposed on an accountant by customs, law and professional bodies”
Nature & Scope of Accounting Standards
The below mentioned are the basic points explaining the nature of accounting standards.
1. Accounting standards are a set of guidelines that help in the preparation of reliable financial statements.
2. Accounting standards help in bringing a standardisation of presentation and help in removal of variations that exist in treatment of accounting information.
3. Accounting standards depend on the environment and legal structure of the country in which the business operates. Due to constant changes in the environment of our country, the accounting standards are updated by the ICAI from time to time. In case of dispute between the Law of Land and Accounting Standards, the law will prevail.
4. It is compulsory for various companies to adopt accounting standards.
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