What are Accounting Standards (AS)?

Table of Contents

1. Introduction
2. Meaning of Accounting Standard (AS)
3. Coverage of AS
4. Need of AS
5. Scope of AS
6. Objectives and advantages of AS

1. Introduction

An Accounting Standard is a selected set of accounting policies or broad guidelines regarding the principle and methods to be chosen out of several alternatives on a particular issue.

Standards conform to applicable laws, customs, usages and business environment.

Hence, there is no universally acceptable set of standards. Even standard on same issue allows more than one accounting policy to be followed.

Therefore, to reduce the alternatives to acceptable few and to recommend the principles and procedures to be followed and disclosures to be made in financial statement, the Institute of Chartered Accountants of India (ICAI) issues Accounting Standards each one of which covers a particular point or area of accounting.

2. Meaning of Accounting Standard (AS)

It is an authoritative statement issued by ICAI (The Institute of Chartered Accountants of India) a premier body of Accounting in our country.

It deals with the accounting issues related to a particular area which that standard wants to address.

3. Coverage of AS

AS generally covers one or more of the following three things related to the subject-matter of AS:

1. 1. Recognition: How and when to account/recognize the relevant item. It can provide more than one alternatives also. Whether to treat an item as asset or as expense.
   2. Measurement: How to measure the particular item, what to include, what not to include in the valuation.
   3. Disclosure: The information to be disclosed in the annual financial statement regarding that area.

4. Need of AS

Accounts gives information to various groups.

The financial statement can serve the interest of different interest groups only if there is uniformity and full disclosure of relevant information.

There are various alternatives regarding accounting treatment and valuation norms which may be used by an entity.

Hence AS tries to reduce this alternative by allowing only those alternatives which fulfils the basic qualitative characteristics of true and fair financial statements and lays down the minimum information to be disclosed and manner of disclosure.

5. Scope of AS

Responsibility for the preparation of financial statement and for adequate disclosure is that of the management of the enterprise.

The Auditor’s responsibility is to form his opinion and report on such financial statements.

Efforts will be made to issue Accounting Standards which are in conformity with the provisions of the applicable laws, customs, usages and business environment of our country.

However, if due to subsequent amendments in the law, a particular Accounting Standard is found to be not in conformity with such law, the provision of the said law will prevail and the financial statements should be prepared in conformity with such law.

The Accounting Standards are intended to apply only to items which are material.

The date from which a particular Standard will come into effect, as well as the class of enterprises to which it will apply, will also be specified by the Institute.

6. Objectives and advantages of AS

An Accounting Standard is a selected set of accounting policies or broad guidelines regarding the principles and methods chosen out of several alternatives.

The main objectives of Accounting Standards is to establish standards which have to be complied with to ensure that financial statements are prepared in accordance with generally accepted accounting principles.

Accounting standard seek to suggest rules and criteria of recognition, measurement & disclosure.

These standards harmonize the diverse accounting policies and practices at present in use in India.

The main advantage of setting accounting standards is that the adoption and application of Accounting Standards ensure uniformity, comparability and qualitative improvement in the preparation and presentation of financial statements.