Accounting Standards are written statements of uniform accounting rules and guidelines or practices relating to measurement, valuation and disclosure. Accounting standards in India are developed by the professional body called Accounting Standards Board. Board consists of members of the Institute of Chartered Accountants of India. (ICAI) These standards bring uniformity in accounting practices and ensures transparency, consistency and comparability in accounting policies followed by the businesses all over the country.
The accounting standards offer the following benefits:
1.Standards reduce or eliminate confusing variations in the accounting treatments used to prepare the financial statements.
2.There are certain areas where important information is not legally required to disclose. Standards may call for disclosure beyond that required by law.
3.The application of accounting standards facilitates the comparison of the financial statements of companies situated in different regions and also from different companies located in the same area.
Limitations of Accounting Standards
Accounting standards are no doubt are beneficial to the organization but they have some limitations too.
1.It takes away flexibility in applying the accounting principles.
2.Each alternative has its own arguments and choosing the best one for standard itself is a challenging task.
3.Accounting standards cannot override the statute.
Despite the limitations mentioned above, AS are important part of functions of an accountant in preparing financial statements.
Applicability of Accounting Standards
Accounting standard is applicable to below organizations except Charitable trusts:
- Sole proprietorship
- Partnership firms
- Hindu undivided family
- Association of persons
- Cooperative societies
- Companies (Public /private both)
Below is the list of Accounting Standards in India.
AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the Balance Sheet Date
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
AS 6 Depreciation Accounting
AS 7 Construction Contracts
AS 8 Accounting for Research and Development
AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11 The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employees Benefits (Revised 2005)
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets
AS 30 Financial Instruments: Recognition and Measurement
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: Disclosureservices
International Financial Reporting Standards
International Financial Reporting Standards (IFRS) is defined as a common set of rules that helps financial statements to be uniform, clear and similar across the globe. IFRS rules are published by the International Accounting Standards Board (IASB). They designate how a business should manage and record their accounts.
Need of IFRS
- Financial statements prepared using a common set of accounting standards help investors better understand the financial statements. It helps investors to get the clear idea of investment opportunities.
- It offers accounting professionals more opportunities in any part of the world if same accounting practices prevail throughout the world.
- It encourages the international investors to invest which leads to more foreign capital flows to the country.
- IFRS specifies how businesses need to maintain and report their accounts. It is created to establish a common accounting language across the globe.
- IFRS covers a broad range of topics like revenue recognition, income taxes, inventories, fixed assets and the presentation of financial statements.
Thus, accounting standards are rules for preparing financial statements.