WHAT ARE ACCOUNTING STANDARDS?
- Business entities prepare financial statements to summarise the result of the business activities, during an accounting period in monetary terms.
- These business activities differ from one enterprise to the other. It is difficult to compare the financial statements of different enterprises because of the different accounting methods and principles adopted. Accounting standards are necessary to make these methods and principles uniform and financial statements comparable to the possible extent.
Definition of Accounting Standards:
- Accounting standards provide the framework and norms to be followed in accounting, so that, the financial statements of different enterprises become comparable.
- Accounting standards are written policy documents issued by expert accounting body or by government or other regulatory authorities covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions in the financial statement.
- Accounting standards ensure the consistency and comparability of the financial statements presented by different enterprises creating a general sense of confidence that users have in the fairness and reliability of the statements they rely upon.
Objectives of Accounting Standards:
- To standardise diverse accounting policies.
- To enhance the reliability of financial statements.
- To eliminate non-comparability of financial statements.
- To provide a framework of norms to be followed by the accounts team.
Advantages of Accounting Standards:
- It provides the accountancy profession with enough working rules.
- It helps in improving the quality of work performed.
- It ensures that various users of financial statements get complete, crystal information on consistent basis from time to time.
- It helps the users to compare and analyse the financial statements of two or more organisations engaged in the same type of business activities
Disadvantages of Accounting Standards:
- Users are likely to think that the reported statements prepared using the accounting standards are foolproof.
- The more standards there are, the more expensive the financial statements are to prepare.
- The working rules may be rigid to some users of financial statement.
