Accounting Standards - The Set Of Accounting Criteria

Accounting standards are set of accounting criteria that establishes proper practice in a given situation defining the basis of financial accounting policies and practices covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions in financial statements. Accounting standard is an authoritative statement issued by ICAI, a professional body of accounting in India.

Accounting standards play a critical role in improving the transparency and reliability of financial reporting. They provide a standardized framework that companies must follow when preparing their financial statements.

1. The main objective of accounting standard is to bring uniformity in different accounting policies in order to eliminate non comparability of financial statements for enhancing reliability of financial statements.
2. Secondly, the accounting standard provides a set of standard accounting policies, valuation norms and disclosure requirements. In addition to improving credibility of accounting data, accounting standard enhances comparability of financial statements, both intra and inter enterprises. Such comparisons are very effective and widely used for assessment of firms’ performance by the users of accounting.

Accounting extends information to various users of information. Accounting information can serve the interest of different users only if it possesses uniformity and full disclosure of relevant information. There can be alternate accounting treatment and valuation norms which may be used by any business entity. Accounting standard facilitate the scope of those alternatives which fulfill the basic qualitative characteristics of true and fair financial statement.

1. Accounting standard helps in eliminating variations in accounting treatment to prepare financial statements.
2. Accounting standard may call for disclosures of certain information which may not be required by law, but such information might be useful for general public, investors and creditors.
3. Accounting standard facilitate comparability between financial statements of inter and intra companies.

1. Accounting standard makes choice between different alternate accounting treatments difficult to apply.
2. It is rigidly followed and fails to extend flexibility in applying accounting standards.
3. Accounting standard cannot override the statue. The standards are required to be farmed within the ambit of prevailing status.

1. Generally Accepted Accounting Principles (GAAP) and
2. International Financial Reporting Standards (IFRS)

GAAP is a set of accounting standards widely used in the United States. Developed and maintained by the Financial Accounting Standards Board (FASB), GAAP outlines how companies should record and report their financial transactions. GAAP is heavily utilized among public and private entities in the U.S., and adherence to these standards is mandatory for companies listed on U.S. securities exchanges.

IFRS is a set of global accounting standards developed by the International Accounting Standards Board (IASB). These standards are used by multinational companies and many countries outside the United States. IFRS aims to bring consistency to accounting language, practices, and statements, ensuring that financial statements are comparable across international boundaries.