accounting standards

Accounting standards are principles and guidelines that provide a framework for financial reporting. They are designed to ensure that financial reports are accurate, transparent, and comparable across different companies and industries. The accounting standards ensure that the financial statements are prepared relatively and consistently across the business.

In addition, it make the financial information credible and allow for more economic decisions based on accurate and consistent reports.

Table of Contents

What are Accounting Standards?

The accounting standard is a set of principles, procedures, and means that define the basis of financial accounting practices and policies.

Accounting standards are the authoritative standard for financial reporting and the primary source of generally accepted accounting principles.

Moreover, It is a set of policies and practices used to systematize bookkeeping and other accounting functions across firms and over time.

Benefits of Implementing Accounting Standards

Accounting standards are the ruling authorities in the world. It makes sure that the information provided to potential investors is not misleading in any way. So let us take a look at the benefits of accounting standards.

1. Attains uniformity in Accounting

It provides rules for standard treatments and recording of transactions. They even have a standard format for financial statements. These are steps in achieving uniformity in accounting methods. 

2. Improve Reliability of Financial Statements

There are many stakeholders of a company, and they rely on financial statements for their information. In addition, many of these stakeholders base their decision on the data provided by these financial statements.

3. Comparability

This is another primary objective of accounting standards. Since all countries follow the same set of standards,therefore  their financial accounts become comparable to some extent. Therefore, the financial statement user can analyze and compare the financial performances of various companies before making any decision.

4. Determining Managerial Accountability

It also helps measure the performance of the management of the entity. For example, it can help measure the management’s ability to increase profitability, maintain the firm’s solvency, and other such critical financial duties of the administration.

5. Assists Auditors

The accounting standards lay down all the accounting rules, regulations, etc., in a written format. These policies have to be followed. So if an auditor checks that the procedures have been correctly followed, he can be assured that the financial statements are fair and accurate.

6. Prevents Frauds and Accounting Manipulation

Accounting standards lay down the accounting principles and methodologies that all entities must follow. One outcome of this is that management of an entity can not manipulate financial data. Following these standards is not optional. It is compulsory.


An accounting standard is often considered the language of business as it communicates the financial position of a company to interested parties.

  • The main objective is to improve the reliability of financial statements. Because the financial statements must be made following the standard, the user can rely on them. They know that not conforming to these standards can have severe consequences for the companies.
  • Following these standards will allow for intra-firms and inter-firm comparisons. This allows us to check the progress of the firms and their position in the market.
  • It also provides one set of accounting policies that include the necessary disclosure requirements and valuations method of various financial transactions.


There limitations of Accounting standards are as under.

Restricted Scope

Accounting standards can not override the law’s statutes. They have to be framed within the confines of the rules prevailing at the time. That can limit their scope to provide the best policies for the situation.

Difficulty Between Choosing Alternatives

There are alternatives for specific accounting treatment or valuations. For example, FIFO, LIFO and weighted average methods can be used to value stocks. So choosing between these alternatives is a tough decision for management. Unfortunately, the accounting standard does not provide guidelines for the appropriate choice.

Why are Accounting Standards Applicable?

Accounting standards improve the clarity of financial reporting in all countries. However, they specify when and how economic events are recognized, displayed, and measured.

External entities such as investors, banks, and regulatory agencies rely on accounting standards to ensure relevant and accurate information about the entity.

These technical advertisements have ensured transparency in reporting and set the boundaries for financial reporting measures.


The three main types of accounting standards are as follow.

Presentation Accounting Standards

These standards outline the accounting information that passes for presentation and the order. This information can include specific financial statements—relative to the disclosure statement. Presentation statements have a small degree of restriction on the choice of accounting policies.

Disclosure Standards

Disclosure standards refer to the basic systematic set of guidelines for external reporting. These standards require only a plain but clear-cut disclosure of the assumption, accounting principles, and method used in preparing financial statements.

National and Global Accounting Standard

Although some businesses operate within the country’s border, others reach beyond the edge. For the latter, this has meant adopting international accounting standards. This is where international financial reporting standards come in.

Content standards

These standards specify the content to publish. Content standards have three aspects such as disclosure, conceptually, and specific.

#Issue DateName
IAS. 12007Presentation of Financial Statements
IAS. 22005Inventories
IAS. 31976Consolidated Financial Statements
IAS. 4Depreciation Accounting withdrawn in 1999
IAS. 51976Information to be Disclosed
superseded by IAS 1 effective 1 July 1998
IAS. 6Accounting responses to Changing Prices
Superseded by IAS 15, which was withdrawn December 2003
IAS. 71992Statements of Cash Flow
IAS. 82003Accounting Policies, Changes in Accounting Error and Estimates
IAS .9Accounting for Research and Development Activities
IAS. 102003Events after the reporting
IAS. 111993Construction Contracts
Superseded by IFRS 15 as of 1 January 2017
IAS. 121996Income tax
IAS .13Presentation of current Asset and Current Liabilities
Superseded by IAS 1 effective one July 1998
IAS. 141997Segment reporting Superseded by IFRS 8 effective 1 January 2009
IAS. 152003Information Reflecting the Effect of Changing Prices
IAS. 162003Property, plant, and equipment
IAS. 172003Leases Superseded by IFRS 16 effective 1 January 2019
IAS. 181993Revenue Superseded by IFRS 15 effective 1 January 2017
IAS. 191998Employee benefits (1998)
superseded by IAS by IAS 19 (2011) effective 1 January 2013
IAS. 192011Employee benefits (2011)
IAS. 201983Accounting for Government Grants and Disclosure of Government Assistance
IAS. 212003The Effect of Changes in Foreign Exchange Rate
IAS. 221998Business Combination Superseded by IFRS 3 effective 31 march 2004
IAS. 232007Borrowing cost
IAS. 242009Related party disclosure
IAS. 25Accounting for investment superseded by IAS 39 and IAS 40 effective 2001

IAS. 261987Accounting and reporting by retirements benefits plans
IAS. 272011Separate financial statements (2011)
IAS. 272003Consolidated and separate financial statement Superseded by IFRS by 10, IFRS 12, and IAS 27(2011) effective 1 January 2013
IAS. 282011Investment in Associate and Joint ventures(2011)
IAS. 282003Investments in Associates
IAS. 291989Financial reporting in hyperinflationary economics
IAS. 301990Disclosure in the financial statement of banks and similar financial institutions superseded by IFRS 7 effective 1 January 2007.
IAS. 312003Interest in joint ventures
Superseded by IFRS 11 and IFRS 12 effective 1 January 2013.
IAS. 322003Financial instruments: presentation
IAS. 332003Earning per share
IAS. 341998Interim financial reporting
IAS. 351998Discontinuing operation
superseded IFRS 5 effective 1 January 2005
IAS. 362004Impairments of Assets
IAS. 371998Provision, contingent liabilities, and contingent Assets

IAS. 382004Intangible assets
IAS. 392003Financial instruments: Recognition and measurement superseded by IFRS 9 where IFRS 9 is applied
IAS. 402003Investment property
IAS. 412001Agriculture

Key Takeaways

  • An accounting standard is a guiding principle that defines the treatment of an accounting transaction in a financial statement. 
  • It should apply to the full extent of an entity’s financial picture, including assets, revenue, liabilities, expenses, and shareholders’ equity.
  • Accounting standards guide for companies to prepare and report applicable financial statements accurately.

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