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, accounting standards make the financial information credible and allow for more economic decisions based on accurate and consistent reports.
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.
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.
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.
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.
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.
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.
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.
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.
There limitations of Accounting standards are as under.
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.
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.
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.
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 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.
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.
These standards specify the content to publish. Content standards have three aspects such as disclosure, conceptually, and specific.
|IAS. 1||2007||Presentation of Financial Statements|
|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|