ACCOUNTING STANDARDS

Accounting standards:Def:

 An accounting standard is a common set of principles, standards, and procedures that

define the basis of financial accounting policies and practices.
 Accounting standards apply to the full breadth of a entity’s financial picture, including
assets, liabilities, revenue, expenses and shareholders' equity.
 Banks, investors, and regulatory agencies, count on accounting standards to ensure
information about a given entity is relevant and accurate.

1- Disclosure of Accounting Policies

The information presented in the financial statements of an organization is of its
financial position. The profit or loss can be affected to a large degree by the
accounting policies followed. The accounting policies followed vary from
organization to organization. It is important to disclose significant accounting
policies followed to make the financial statements understandable. The
disclosure is required by law in certain cases.

In recent years, organizations in India have adopted the practice of including a

separate statement of accounting policies followed in their annual reports to
shareholders.

Many organizations list the accounting policies followed by them in the notes to

their financial statements, but there is no consistency in the disclosures among
organizations. In other words, the disclosure forms part of accounts in some
cases, while in others it is given as supplementary information.

The purpose of this standard is to promote better understanding of financial

statements by establishing the practice of disclosure of significant accounting
policies followed and the manner in which they are disclosed in the financial
statements. Such disclosure would also facilitate a more meaningful comparison
between financial statements of different organizations.
.
2- Valuation of Inventories
This accounting standard is applicable to all companies irrespective of
their level (Level I, II and III). This standard prescribes the accounting treatment for
inventories and sets
the guidelines to determine the value at which the inventories are carried
in the financial statements.
It explains the different methods of accounting the inventory or closing
stock which has a huge impact on the business revenue and the assets
. Definition of the Inventory includes the following:
 A. Held for sale in the normal course of business i.e finished goods
B. Goods which are in the production process i.e work in progress
C. Raw materials which are consumed during production process or
rendering of services (including consumable stores item)
Net Realizable Value (NRV):
“Net realizable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated costs necessary
to make the sale”

9- Revenue Recognition.
Revenue has to be measured by the amount charged to the
clients for the sale of goods and services.
However, in the case of the agency relationship, the revenue has to be
measured by the amount charged for commission and not on the gross inflow of the
cash, receivables or
other consideration.
There are few exceptions to the above-mentioned statement where the
special consideration applies: –

1. Revenue arising from Construction Contracts

2. Revenue arising from hire-purchase, lease agreements
3. Revenue arising from government grants and other similar subsidies
4. Revenue of Insurance companies arising from insurance contracts