Every activity in life when taken can be done in various ways.

Going to market, you can

either go by walk or by cycle, studying for exam you can either do over night or start
your preparation well in advance, so does accounting has various ways in which it can be
done, you can either follow straight line or WDV for depreciation, valuation of stock can
either be done by FIFO method or by weighted average method, and the list goes on like
this.

Why Standardization in accounting?

Various activities can be done at different points of times in various ways according to
convenience but following different methods in accounting at different points of time
leads to haphazard financial interpretations resulting in jeopardy and confusion.
Thus comes in to scene the importance of accounting standards.

Accounting Standards

Accounting standards are written policy documents issued by expert accounting body or
by government or other regulatory body covering the aspects of recognition,
measurement, presentation and disclosure of accounting transactions in the financial
statements.

Objectives of Standardization

The purpose of preparing financial statements does not stop with finding the profit
or loss of the business and its financial position. It further provides useful, valuable and
timely information to various users, both internal and external who have an interest in the
company’s economic performance.
Accounting standards focus mainly on recognition, measurement, presentation
and transparency of transactions and events with a view to enable the public and the stake
holders to understand the financial statements to take wise and prudent decisions.
Further, accounting standards eliminate non-comparability of financial statements and
provide a set of standard accounting policies, valuation norms and disclosure
requirements.
It reduces the accounting alternatives in the preparation of financial statements
within the bounds of rationality, thereby ensuring comparability of financial statements of
an enterprise at different points of time or different enterprises.

Benefits of standardization

As seen already there are number of ways and means of accounting and
presenting items in the books of accounts which hampers understanding, creates
confusion and leads to drawing wrong conclusions. Standardization helps in handling
these problems and offers various other benefits in the field of accounting. Some of them
are:
Identification of proper accounting policies

The Standard policies are intended to reflect a consensus on accounting policies to

be used in different identified areas like inventory valuation, capitalization of costs,
etc..At this point, it should be understood that it is not only important to comply with then
standards and state that they have been followed, but it is also necessary to state the
accounting policies actual used in the preparation of financial accounts.
Improves Credibility
Standardization helps to reduce to a reasonable extent confusing variables in the
accounting treatments used to prepare financial statements and thereby improves
credibility of accounting data.

Facilitates Comparison

Standardization of accounting procedures improves comparability of financial

statements, both intra-firm and inter-firm. Such comparisons help the management of the
enterprise in taking valuable economic decisions like cost controlling, investment
decisions, etc.

Reduces creative accounting

Creative accounting refers to twisting of accounting policies to produce financial

statements favorable to a particular interest group. Standardization helps in reducing this
by framing rules in various areas of accounting.

Evolution of accounting standards

The International Accounting Standards Board, (IASB), began life as the International
Accounting Standards Committee (IASC) in the 1973. The IASC was created in June
1973 as a result of an agreement by the accountancy bodies of Australia, Canada, France,
Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the
United States. These countries constituted the Board of IASC at that time.

The international professional activities of the accountancy bodies were organized under
the International Federation of Accountants (IFAC) in 1977. In 1981, IASC and IFAC
agreed that IASC would have full and complete autonomy in setting international
accounting standards and in publishing discussion documents on international accounting
issues. At the same time, all members of IFAC became members of IASC. This
membership link was discontinued in May 2000 when IASC's Constitution was changed
as part of the reorganization of IASC.

The main objective of the IASC was the development of International Accounting
Standards, in an effort to reduce the differences in accounting practices across countries.
Harmonization is the name given to the process of reducing differences in financial
reporting practices and increasing comparability of financial statements in various
countries. As such the intent of the IASC was to create a set of accounting rules that
would be relevant and consistent to all countries involved.

The IASC started with the ten board members above but gradually expanded this number
and also added associate members along the way. Currently it has professional
accounting bodies of about 75 counties including the Institute of Chartered Accountants
of India.

Institute of Chartered Accountants of India.

The Institute of Chartered Accountants of India (ICAI) is a statutory body established

under the Chartered Accountants Act, 1949 (Act No. XXXVIII of 1949) for the
regulation of the profession of Chartered Accountancy in India. During its more than
sixty years of existence, the Institute has achieved recognition as a premier accounting
body in India for its contribution in the fields of education, professional development,
maintenance of high accounting, auditing and ethical standards. The ICAI now is the
second largest accounting body in the whole world

Accounting Standards Issued by ICAI

To date, the Institute of Chartered Accountants of India has issued 32 Accounting

Standards. These are numbered AS-1 to AS-7 and AS-9 to AS-32. AS-8 is no longer in
force having been merged with AS-26. The compliance of Accounting standards issued
by ICAI has become a statutory requirement with the notification of Companies
(Accounting Standards) Rules, 2006 by the Government of India.

Accounting Standards issued By ICAI

AS Effective
Title of the Statement
No. date
1 Disclosure of Accounting Policies 01/04/1993
2 Valuation of Inventories (Revised) 01/04/1999
3 Cash Flow Statement (Revised) 01/04/2001
4 Contingencies and Events Occurring after the Balance Sheet Date 01/04/1998
Net Profit or Loss for the Period, Prior Period Items and Changes
5 01/04/1996
in Accounting Policies (Revised)
6 Depreciation Accounting (Revised) 01/04/1995
7 Construction Contracts (Revised) 01/04/2002
8 Research & Development Withdrawn
9 Revenue Recognition 01/04/1993
10 Accounting for Fixed Assets 01/04/1993
11 The Effects of Changes in Foreign Exchange Rates (Revised) 01/04/2004
12 Accounting for Government Grants 01/04/1994
13 Accounting for Investments 01/04/1995
14 Accounting for Amalgamations 01/04/1995
15 Employee Benefits 01/04/2006
16 Borrowing Costs 01/04/2000
17 Segment Reporting 01/04/2001
18 Related Party Disclosures 01/04/2001
19 Leases 01/04/2001
20 Earning Per Shares 01/04/2001
21 Consolidated Financial Statement 01/04/2001
22 Accounting for Taxes on Income 01/04/2001
Accounting for Investment in Associates in Consolidated
23 01/04/2002
Financial Statement
24 Discontinuing Operations 01/04/2004
25 Interim Financial Statement 01/04/2002
26 Intangible Assets 01/04/2003
27 Financial Reporting of Interests in Joint Ventures 01/04/2002
28 Impairment of Assets 01/04/2004
29 Provisions, Contingent Liabilities and Contingent Assets 01/04/2004
30 Financial Instruments: Recognition and Measurement
31 Financial Instruments: Presentation
32 Financial Instruments: Disclosures

Applicability of accounting standards

Earlier, the institute of chartered accountants of India not being a legislative body
could enforce compliance with its standards only by its members. also, the standards
could not override laws and local regulations. However, the accounting standards are
made mandatory from the dates specified in respective standards and are applicable to all
enterprises, subject to certain exceptions.

Accounting standards apply in respect of any enterprise engaged in commercial,

industrial or business activities, whether or not profit oriented and even if established for
charitable or religious purposes. Accounting standards however do not apply to
enterprises solely carrying on the activities, which are not of commercial, Industrial or
business nature. Exclusion of an enterprise from the applicability of the Accounting
standards would be permissible only if no part of the activity of such enterprise is
commercial, industrial or business nature. Even if a very small proportion of the activities
of an enterprise were considered to be in such nature, the Accounting Standards would
apply to all its activities including those, which are not commercial, industrial or business
in nature.

Limitations of accounting standards

Everything has pros and cons, so does standardization. Some of them are:
1. Alternative solutions to certain accounting problems may each have arguments to
recommend them. Therefore, the choice between different alternative accounting
treatments may be difficult.
2. There may be a trend towards rigidity and away from flexibility in applying the
accounting standards.
3. Accounting standards cannot override statute. They are required to be framed
within the ambit of prevailing statutes.

Conclusion

Though there are certain limitations that standards account for, the benefits they
offer outnumber the limitations greatly. If not for standardization, the whole of
accounting would’ve remained to be a tedious and complicated process. Accounting
standards removed difficulties in accounting and has made it a better language of
business.