Accounting Standards provide the framework and norms to be followed in accounting so that the financial statements of different enterprises become comparable. It is necessary to standardize the accounting principles to ensure consistency, comparability, adequacy and reliability of financial report bg
In the words of Kohler : “Accounting standards are codes of conduct imposed by customs,
laws or professional bodies for the benefit of public accountants and accountants generally”.
Thus, Accounting Standards are written policy documents issued by the expert accounting body or by government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions and events in the financial statements.
Need for accounting standards :
The need for accounting standards is as follows:
i) To promote better understanding of financial statements.
ii) To help accountants to follow uniform procedures and practices.
iii) To facilitate meaningful comparison of financial statements of two or more entities.
iv) To enhance reliability of financial statements.
v) To meet the legal requirements effectively.
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Accounting Standards in India
In India, Standards of Accounting is issued by the Institute of Chartered Accountants of India (ICAI). The Council of the Institute of Chartered Accountants of India constituted Accounting Standards Board (ASB) on 21st April, 1977 recognizing the need for Accounting Standards in India. ASB. Formulates Accounting Standards so that such standards may be established by the Council of the Institute in India. The ASB will consider the applicable law, custom, usage, business environment and the International Accounting Standards while framing Accounting Standards (AS) in India.
Due to globalization, the accounts prepared in India must be compatible with accounts prepared in other countries. This has resulted in the existing AS being converged with the IFRS. This convergence has resulted in what is known as Ind AS. Ind AS are basically the International Accounting Standards which have been modified in accordance with Indian accounting practices, customs and traditions. Presently, all big companies have to follow Ind AS rules, but smaller business units are allowed to continue using AS. In future, it is expected that all business entities in India will migrate to Ind AS.
Some Accounting Standards (AS): The Council of the Institute of Chartered Accountants of India has so far issued thirty one accounting standards. Some of these Accounting Standards are explained below
1) AS-1 Disclosure of Accounting Policies (1-4-1991 for Companies and 1-4-1993 for
others)
According to this standard the accounting policies followed in the preparation and presentation of financial statements should form a part of the financial statements and normally be disclosed in one place.
2) AS-2 Valuation of Inventories (1-4-1999)
According to this standard inventories in general should be valued at lower of historical cost and net realizable cost.
3) AS-3 Cash Flow Statements (1-4-2001)
According to this standard a cash flow statement is prepared and presented for the period for which the profit and loss account is prepared.
4) AS-6 Depreciation Accounting (1-4-1995)
According to this standard the depreciation amount of an asset should be allocated on a systematic basis for each accounting period during the useful life of an asset.
5) AS-8 Accounting for Research and Development (1-4-1991 for Companies and 1-4-
1993 for others)
According to this standard, the amount of research and development costs should be charged as an expense of the period in which they are actually incurred.
6) AS-9 Revenue Recognition(1-4-1991 for Companies and 1-4-1993 for others)
This standard deals with the basis required for recognition of revenue items in the Profit and Loss Account of an enterprise. It lays down conditions to recognize revenues that arise from the various transactions of an enterprise.
7) AS-10 Accounting for Fixed Assets(1-4-1991 for Companies and 1-4-1993 for others)
According to this standard, the cost of fixed assets should comprise of the original cost and any attributable cost of bringing the asset to its working conditions for its intended use. The fixed assets should be eliminated from the financial statement on disposal or when no further benefit is expected from their use.
8) As-12 Accounting for Government Grants(1-4-1994)
According to this, standard, government grants should be recognized when there is an assurance that the enterprise will comply with the conditions attached to them.
9) As-13 Accounting for Investments (1-4-1995)
According to this standard, an enterprise should disclose the current and long term investments distinction in its financial statements. Current investments should be carried in the financial statements at the lower cost or fair value. However long term investments should always be carried in the financial statements at the cost price.
10) AS-22 Accounting for Taxes on Income (1-4-2001)
According to this standard, tax expenses for the period comprising current tax and deferred tax should be included in the determination of the net profit or loss for the period.
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