Since times immemorial, accounting has been the primary source of generating information about the day to day working and future planning of the organization. The other qualitative characteristics of financial statements are faithful representation, substance over form, prudence and competence. Financial statements are of immense value for assessing the performance and financial position of a business undertaking or any other institution requiring use of scarce resources However, one should remember also that statements suffer from a number of limitations. This standard requires that the accounting information should be reported on segment basis.
Accounting as a ‘language of business’ communicates the financial results of an enterprise to various stakeholders by means of financial statements. If the financial accounting process is not properly regulated, there is possibility of financial being misleading tendentious and providing a distorted picture of the business, rather than the true state of affairs. In order to ‘ensure transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to standardize the accounting principles and policies. However harmonization does not mean that accounting standards should become very rigid.
Accounting Standards (ASs) provide framework and standard accounting policies so that the financial statements of different enterprises become comparable. Answer: Meaning: An accounting standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives, Standards conform to applicable laws customs, usage and business environment, so there are not universally acceptable set of standards. Objective: The main objective of accounting standards is to harmonise the diverse accounting policies and practices at present in use in India.
In fact harmonization of accounting standards do permit flexibility to make the necessary adjustments to suit their purpose. Significance: The adoption and application of accounting standards ensures uniformity, comparability and qualitative improvement in the preparation an presentation of financial statements. Compliance with Accounting standard: During starting period the accounting standard is recommendatory in nature. In the event of any deviation from the accounting standard, it will be their duty to make adequate disclosure in their reports so that users of financial statements may be aware of such deviations.
Once the standard becomes mandatory it will be the duty of the members of the institute while discharging their attars function, whether this accounting standard is sampled with in the presentation of financial statements covered by their audit. Step 1 To determine the broad areas in which accounting standards need to be formulated and the priority in regard to the selection thereof. The accounting standard on the relevant subject will then be issued under the authority of the council. ASB will issue guidance notes on the accounting standards and give clarification on issues arising there from.