{
Unit 5 – Accounting
Standards in India and IFRS
Topic – Accounting Standards in India
Ñ
A standard means an acceptable level of quality that is acceptable
Ñ
Accounting Standard refers to accounting guidelines related to specific issues in financial accounting and reporting
Ñ
Accounting Standards are written statements which contain rules and guidelines issued by expert bodies
Ñ
They specify how transactions are to be recognized, measured, presented and disclosed
Ñ
The guidelines are practical and realistic
Ñ
They provide guidance and directions to working, rather than putting accounting in water tight
compartments
What are Accounting
Standards
Ñ
To communicate financial results
Ñ
To depict a true and fair view
Ñ
Ensuring uniformity, transparency,
comparability, adequacy and reliability
Ñ
To confirm to global standards
Why do we need
Accounting Standards
Rat io nale b ehind A cc ount ing St and ard s (A dv ant ag es )
Enhances Credibility and Reliability of Financial
Statements
Facilitates Comparison
Reduces the Scope of Creative Accounting
Beneficial for Accountants and Auditors
Protects the Investors Enhances Value of Accounting
Information
1. Enhance Credibility
AS bring about transparency, uniformity and fairness thereby enhancing credibility and confidence of stakeholders.
2. Facilitates Comparison
Financial Statements are based on guidelines thereby, making them consistent and reliable.
This enables inter-firm as well as intra-firm comparison.
3. Reduces Creative Accounting
Creative accounting means manipulating or window-dressing of accounts using specialized knowledge. AS are issued to reduce this possibility.
4. Beneficial for Accountants and Auditors
Since a definite accounting framework is laid down, it is easier for
accountants and auditors to prepare, report and audit such statements, without any pressure or bias.
5. Protects Investors
AS increase confidence of investors. Most investors like to go through the financial statements carefully before parking their funds in a
company.
6. Enhancing Value of Accounting Information
As discussed before, a definite structure is provided by AS. These AS define standard rules for valuation and measurements. This enhances value, improves quality of financial reporting and encourages
development of better theories and practices.
Standard Setting by Government
Standard Setting by Government backed Agency
Standard Setting by Private Body
Merits:
- Standards can be made legally enforceable - Penalties can be
prescribed
- Standards set will be impartial
- Intellectual resources can be pooled
Demerits:
- Unreasonable delays - May lack objectivity and
accuracy due to political influence
Merits:
- It may employ qualified personnel to handle this technical task
- It will enjoy backing of legislature to ensure compliance
Demerits:
- May experience
difficulties due to political pressure
- Its scope and functioning may be closely monitored - Agency might become a
puppet of the government authorities
Merits:
- Can attract highly qualified talent and thus, contribute effectively to the
accounting profession - Less susceptible to political
pressure and delays - More responsive to
changes in environment - Likely to consider the cost-
benefit trade-off.
Demerits:
- Compliance not necessary due to absence of force of - law Vulnerability and
insufficiency due to misuse by those in control
Ñ
In India, standards are set by the Accounting Standards Board (ASB)
Ñ
It was formulated in April 1977, by the ICAI (Institute of Chartered Accountants in India)
Standard Setting in India
1.
To suggest areas in which standards need to be developed
2.
To formulate Accounting Standards
3.
To integrate relevant International Accounting Standards/IFRS while formulating AS and adopting them subsequently
4.
To issue interpretations and guidance on AS
5.
To review and revise AS regularly, keeping in mind the changing accounting environment
Objectives of ASB
Ñ
There are some more notes which need to be sent to you, scanned copies of the same will be sent on the class whatsapp group
Ñ
Viva for projects will be held group-wise via online class
Ñ
