ACCOUNTING STANDARDS

Ms. Deeksha Suneja

 Meaning of Accounting Standards
• Accounting standards are defined as codified
or written statements, or documents of
accounting rules and guidelines or practices
for preparing the uniform and consistent
financial statements relating to recognition,
measurement and disclosures of accounting
transactions.
The essence of accounting standards is that they
provide specific guidelines as to how the various
items which go to make up the financial
statements should be dealt within accounts and
disclosed in the annual reports relating to net
income and financial position.
 Accounting concepts v/s accounting
standards
ACCOUNTING CONCEPTS
These are in the nature of general
statements
A concept may allow alternative
treatments for the same items, like
inventories may be valued by lifo, fifo, etc.
These are unwritten general statements
These don’t have legal status
Financial statements are incomparable in
absence of accounting concepts
These do not restrict the discretionary
power of the accountant.
ACCOUNTING STANDARDS
These aim at specific solutions to specific
issues such as inventory valuation,
valuation of fixed assets, etc.
Accounting standards however limit the
number of valuation for these items
AS are written or codified statements
issued by ICAI
These are legally recognized by
Government or regulatory agencies like
SEBI, etc.
AS are mandatory in most cases
These do restrict the discretionary power
of the accountant.
 Nature/characteristics
1. Prescribe a model code of accounting policies
and practices
2. Eliminate or remove the use of several or
various accounting policies or practices so
that the financial statements become
comparable
3. Provides the most suitable accounting
method to solve one or more accounting
problems
4. AS clearly communicate to the users of the
financial information the basis on which
financial statements have been prepared
 Benefits of Accounting Standards.
• Easy inter firm- intra firm comparison.
• Reliability and credibility.
• True and fair view of the financial position
• Improve the quality of financial reporting.
• Reduction in alternative accounting practices.
• Efficiency of management
• Value of accounting information
• Useful to accountants and auditors
• Reduction of manipulation and frauds
• Resolving conflict of financial interest.
 Procedure for issue of accounting
standards in India.
The ICAI constituted an Accounting Standard Board(ASB)
on April 21, 1977. The main function of ASB is to
formulate the accounting standards from time to time
and then they the issued by the council of ICAI
The procedure to issuing AS is:
a. ASB determines the main areas or subjects in which AS
are required
b. In the selection of specific subjects and preparation of
AS, ASB is assisted by study groups(participation by the
members and others concerned with the subject)
c. ASB will also hold dialogue or talk with the
representatives of government and other
undertakings for knowing their views
d. Based on the discussions ASB prepares an
exposure draft. It mainly includes
• Objectives of the standard
• Scope of the standard
• Definitions of the terms used in the standard
• Recognition of the measurement principles
• Presentation and disclosure requirements
e. ASB will circulate the draft
f. Hold meetings with the representatives of
specified bodies to ascertain their views on the
draft and will finalise the final draft
g. The exposure draft will be issued for comments
by members of the ICAI and the public
h. After comments, it is revised again and submitted
to the council of ICAI
i. Council will consider the final draft and if
necessary modify the same and will then be issued
in its journal: the chartered accountant
 IFRS : Introduction
• The goal of IFRS is to provide a global framework for how public
companies prepare and disclose their financial statements. IFRS
provides general guidance for the preparation of financial
statements, rather than setting rules for industry-specific reporting.
• IFRS is sometimes confused with IAS (International Accounting
Standards), which are older standards that IFRS has replaced.
• The schedule VI of the Companies Act is based on the IFRS relating
to the Presentation of Financial Statements. According:
(i) The assets and liabilities have been divided into current and non-
current groups as against the earlier presentation on the liquidity
basis.
(ii) The statement of Profit & Loss is also based on functional
grouping of production expenses, administrative expenses and
selling & distribution expenses.
 Need & importance for IFRS
• Business going global.
• Consolidation of financial statements.
• Enhances confidence of global stakeholders.
• Facilitate International acquisitions.
• Provide standardized quality of MIS across
global businesses.
• Comparability
 XBRL
• XBRL stands for Extensible Business Reporting Language.
• It is a technology language for electronic communication. In
other words, it is an electronic format for communication of
business and financial data or information.
• XBRL belongs to the family of XML (Extensible Mark Up
Language). It provides an identifying tag (or code) for each
individual item of data instead of treating financial
information as a block of text in the form of a printed
document.
• XBRL enables the automated processing of business and
financial information by computer software cutting
laborious and costly procedures of manual re- entry and
comparison.
 XBRL
XBRL is not-
1. An accounting
2. A chart of accounts
3. An Indian GAAP
4. A proprietary technology
 Who develops XBRL
XBRL is an open, royalty and license free
software developed by XBRL International, a
not for profit organisation or consortium of
over 700 major companies and government
agencies.
 Objectives of XBRL
• To promote and encourage the adoption of XBRL
in India as the standard for electronic business
reporting in India.
• To facilitate education and marketing of XBRL.
• To develop and manage XBRL taxonomies
• To represent Indian interest within XBRL
International.
• To contribute to the international development of
XBRL.
 ADVANTAGES OF XBRL
• Time and cost saving
• Automated data processing
• Easy and enhanced comparability
• Flexibility
• More connectivity with the markets.
• Useful for lenders and regulators
• Increased use of financial statements