Role of Accounting
Standards
Accounting Standards
• Accounting Standards (AS) are basic policy documents. Their main
aim is to ensure transparency, reliability, consistency, and
comparability of the financial statements. They do so by standardizing
accounting policies and principles of a nation/economy. So the
transactions of all companies will be recorded in a similar manner if
they follow these accounting standards.
• These Accounting Standards (AS) are issued by an accounting body or
a regulatory board or sometimes by the government directly. In India,
the Indian Accounting Standards are issued by the Institute of
Chartered Accountants of India (ICAI).
AS Deals four major Issue
1.Recognition of financial events
2.Measurement of financial transactions
3.Presentation of financial statements in a fair manner
4.Disclosure requirement of companies to ensure stakeholders
are not misinformed
Objectives of Accounting Standards
• Accounting is often considered the language of business, as it
communicates to others the financial position of the company. And like
every language has certain syntax and grammar rules the same is true here.
These rules in the case of accounting are the Accounting Standards (AS).
• The main aim is to improve the reliability of financial statements. Now
because the financial statements have to be made following the standards
the users can rely on them.
• Then there is comparability. Following these standards will allow for inter-
firm and intra-firm comparisons. This allows us to check the progress of
the firm and its position in the market.
Limitations of Accounting Standards
• 1] Difficulty between Choosing Alternatives
There are alternatives for certain accounting treatments or valuations.
Like for example, stocks can be valued by LIFO, FIFO, weighted
average method, etc. So choosing between these alternatives is a tough
decision for the management. The AS does not provide guidelines for
the appropriate choice.
• 2] Restricted Scope
Accounting Standards cannot override the laws or the statutes. They
have to be framed within the confines of the laws prevailing at the time.
That can limit their scope to provide the best policies for the situation.
Types of accounting standards
• GAAP
GAAP stands for generally accepted accounting principles and
is the primary set of accounting standards that public and
private organizations use within the U.S. GAAP compliance is
mandatory for all publicly traded companies. These standards
help create clarity in financial reporting and allow for
comparison between the financial situations of different
companies. GAAP standards also ensure that regulatory bodies
can effectively monitor private companies and that investors
and banks can make informed decisions about their business
interactions
IFRS
IFRS stands for international financial reporting standards and is the primary set of accounting standards
that international companies use. They aim to provide consistency in accounting and reporting processes
throughout a variety of countries. The IFRS Foundation publishes 17 standards that apply to different
aspects of accounting:
1.IFRS 1: First-time adoption of international financial reporting standards
2.IFRS 2: Share-based payment
3.IFRS 3: Business combinations
4.IFRS 4: Insurance contracts
5.IFRS 5: Noncurrent assets held for sale and discontinued operations
6.IFRS 6: Exploration for and evaluation of mineral resources
7.IFRS 7: Financial instruments: disclosures
8.IFRS 8: Operating segments
9.IFRS 9: Financial instruments
10.IFRS 10: Consolidated financial statements
11.IFRS 11: Joint arrangements
12.IFRS 12: Disclosure of interests in other entities
13.IFRS 13: Fair value measurement
14.IFRS 14: Regulatory deferral accounts
IFRS Foundation
The International Financial Reporting Standards
Foundation (IFRS) is a nonprofit organization based in
London. The primary goals of the IFRS Foundation
include developing, maintaining, updating and
interpreting accounting standards for companies
throughout the world. This foundation also oversees
another international accounting organization called
the IASB. The IFRS Foundation's standards include IFRS
standards, IAS standards and interpretations of these
standards from different committees
IASB
The IASB is an accounting standards organization that
forms part of the IFRS Foundation. They're a nonprofit
organization that's independent of any national
government. The primary goal of the IASB is to provide
uniform standards for accounting in different countries.
AICPA
The American Institute of Certified Public Accountants
(AICPA) is a professional association for certified public
accountants (CPAs) in the U.S. The AICPA sets
standards for its members that include auditing
standards and professional standards of conduct. It
also provides professional credentials and support for
CPAs.
SEC
The Security and Exchange Commission (SEC) is a U.S.
government agency that regulates the stock market.
Its primary task is to enforce financial law, protect
investors and prevent market manipulation. All
publicly traded companies in the U.S. submit their
financial reports to the SEC, which delegates the
setting of accounting standards to the FASB. The two
organizations work to ensure that clear and uniform
financial information is available to the public
GASB
The Governmental Accounting Standards Board (GASB)
is a private organization that sets accounting
standards for government agencies in the U.S. Like the
FASB, it sets standards based on GAAP principles.
Local, state and federal governments all use GASB
standards in their financial reporting.
FAF
The Financial Accounting Foundation (FAF) is a private
company that oversees both the FASB and the GASB. It
funds these organizations and works with them to
issue GAAP standards for private companies and
government bodies. The FAF also includes two other
branches, the Governmental Accounting Standards
Advisory Council (GASAC), which consults with GASB,
and the Financial Accounting Standards Advisory
Council (FASAC) that provides consulting for FASB
