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accounting standards

The accounting standards ensure that the financial statements are prepared relatively and consistently across the business

Accounting standards ensure the financial statements from multiple companies are corresponding because all the entities follow the same rules.

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

  • What are Accounting Standards?
  • Benefits of Accounting Standards.
  • Objectives of Accounting Standard.
  • Limitations of Accounting Standard.
  • Why are Accounting Standards Useful?
  • Types of Accounting standards.

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.

An accounting standard is a set of policies and practices used to systematize bookkeeping and other accounting functions across firms and over time.

Benefits of Impleneting 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

Accounting standard 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 country entities follow the same set of standards, 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

The accounting standard 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 principle 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.

Objectives of Accounting standard

An accounting standard is often considered the language of business as it communicates to others the company’s financial position.

  • The main objective is to improve the reliability of financial statements. Because the financial statements must be made following the standard that, 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.

Limitation of Accounting Standards

There are a few limitations of Accounting standards as well.

  • Restricted scope
  • Difficulty between choosing alternatives

Restricted Scope

Accounting standards can not override the laws 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 valued 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.

Types of Accounting standards.

 Four main types of accounting standards.

  • 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. while 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.

List of all accounting standards

List of Accounting Standards – 41

# Issue date Name
IAS.1 2007 Presentation of Financial Statements
IAS.2 2005 Inventories
IAS.3 1976 Consolidated Financial Statements
IAS.4   Depreciation Accounting withdrawn in 1999
IAS.5 1976
Information to be Disclosed
superseded by IAS 1 effective 1 July 1998
IAS.6   Accounting responses to Changing Prices
Superseded by IAS 15, which was withdrawn December 2003
IAS.7 1992 Statements of Cash Flow  
IAS.8 2003
Accounting Policies, Changes in Accounting Error and Estimates  

IAS.9


  Accounting for Research and Development Activities 
IAS.10 2003 Events after the reporting
IAS.11 1993 Construction Contracts
Superseded by IFRS 15 as of 1 January 2017
IAS.12 1996 Income tax 
IAS.13   Presentation of current Asset and Current Liabilities
Superseded by IAS 1 effective one July 1998
IAS.14 1997 Segment reporting Superseded by IFRS 8 effective 1 January 2009
IAS.15 2003
Information Reflecting the Effect of Changing Prices
IAS.16 2003 Property, plant, and equipment
IAS.17 2003 Leases Superseded by IFRS 16 effective 1 January 2019
IAS.18 1993 Revenue Superseded by IFRS 15 effective 1 January 2017 
IAS.19 1998 Employee benefits (1998)
superseded by IAS by IAS 19 (2011) effective 1 January 2013
IAS.19 2011 Employee benefits (2011)
IAS.20 1983 Accounting for Government Grants and Disclosure of Government Assistance 
IAS.21 2003 The Effect of Changes in Foreign Exchange Rate 
IAS.22 1998 Business Combination Superseded by IFRS 3 effective 31 march 2004
IAS.23 2007 Borrowing cost
IAS.24 2009 Related party disclosure
IAS.25   Accounting for investment superseded by IAS 39 and IAS 40 effective 2001
IAS.26 1987 Accounting and reporting by retirements benefits plans
IAS.27 2011 Separate financial statements (2011)
IAS.27 2003 Consolidated and separate financial statement Superseded by IFRS by 10, IFRS 12, and IAS 27(2011) effective 1 January 2013
IAS.28 2011 Investment in Associate and Joint ventures(2011)
IAS.28 2003 Investments in Associates 
IAS.29 1989 Financial reporting in hyperinflationary economics
IAS.30 1990 Disclosure in the financial statement of banks and similar financial institutions superseded by IFRS 7 effective 1 January 2007.
IAS.31 2003 Interest in joint ventures
Superseded by IFRS 11 and IFRS 12 effective 1 January 2013.
IAS.32 2003 Financial instruments: presentation
IAS.33 2003 Earning per share 
IAS.34 1998 Interim financial reporting
IAS.35 1998 Discontinuing operation
superseded IFRS 5 effective 1 January 2005.
IAS.36 2004 Impairments of Assets
IAS.37 1998 Provision, contingent liabilities, and contingent Assets
IAS.38 2004 Intangible assets 
IAS.39 2003 Financial instruments: Recognition and measurement superseded by IFRS 9 where IFRS 9 is applied
IAS.40 2003 Investment property
IAS.41 2001 Agriculture
     

Key takeaways 

  • An accounting standard is a policy that defines the treatment of an accounting transaction in a financial statement. 
  • Accounting standards 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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