THEORY BASE OF ACCOUNTING

Accounting Standard : Concept and Objectives

The accounting principles or GAAP in the form of concepts and conventions have been developed to bring comparability and uniformity in the financial statements. But GAAP also allow a large number of alternative treatments for the same item. Different organizations may adopt different accounting policies for the same transaction or an organization may follow different accounting policies for the same item over different accounting period. As a result, the financial statements become inconsistence and incomparable.

As result it was felt that certain minimum standards should be universally applicable, so that the accounting statements have the qualitative characteristics of reliability, relevance, understandability and comparability.

  • International Accounting Standard committee (IASC) was set up in 1973. (Now renamed as International Financial Reporting Committee IFRC). The Institute of Chartered Accountants of India (ICAI) and the Institute of Cost and Works Accountants of India ( ICWAI) are members of this committee.
  • ICAI set up the Accounting Standard Board (ASB) in 1977 to identify the areas in which uniformity in accounting required.
  • ASB prepare and submit a draft accounting standard to the Council ICAI.
  • The Council ICAI issue the draft for the comments of the Govt., industry and professionals etc.
  • After due consideration fo comments received, the Council ICAI notify it for its use in financial statements.

Concept of Accounting Standard

Accounting standards are written statements, issued from time to time by institutions of accounting professional, specifying uniform rules or practices for drawing the financial statements.

Objectives of Accounting Standard

  1. Accounting standards are required to bring uniformity in accounting practicesand policies- by proposing standard treatment in preparation of financial statements.
  2. To improve reliablilty of the financial statement-accounts prepared by using accounting standard are reliable for various users, because these standard create a sense of confidence among the users.
  3. To prevent frauds and mainpulation- by codifying the accounting methods and practice.
  4. To help auditors- accounting standard provide uniformity in accounting practice, so it help auditors to audit the books of accounts.
IFRS- International Financial Reporting Standard

Concept- this term refers to the financial standard issued by International Accounting Standard Board (IASB). Numbers of IFRS issued so far is 8. GAAP is being replaced by the use of IFRS. Applicability of IFRS in India Govt. of India opted for a stage implementation :

stages Date of implementation To be adopted by
1st stage 1st April 2011 companies that are listed in Nifty/SENSEX/Over seas/or net worth of over ϕ 1,000 crores.
2nd stage 1st April 2012 Insurance companies
3rd stage 1st April 2013 Listed companies with net worth of over ϕ 500 crore. Banks and large Non-Banking Finance Companies (NBFC)
4th stage 1st April 2014 Listed companies over ϕ 500 crore, NBFC with net worth of over ϕ 500 crore. Urban co-opera tive Bank with net worth of over ϕ 200 crore.

Note : The following organizations won't be required to adopt IFRS :

1. Unlisted companies with a net worth under 500 crore and ;
2. Urban co-operative Bank with a net worth of under 200 crore.
3. Rural co-operative Bank.

CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
Email Id : [email protected]

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