Accounting standards (AS) are rules and guidelines set up by the governed bodies, like FASB and IASB. So, it to keep accounting practices consistent and understandable across all companies and industries.
Nature of Accounting Standards
Accounting standard command the work of accountants. Therefore these standards are being changed, added and deleted with passage of time. So, Accounting standard act as guidelines and easy to use rules for the conduct of accounting work. Moreover, accounting standard usually consists three parts.
- A description of the problem to be hold.
- Discussion of ways of solving the problems.
- In the light of discussion the prescribed solution.
Concept of AS
The accounting rules and procedures for recognition, measurement, treatment, presentation and news of accounting transaction in financial statements. Therefore, they order to be follow in preparing and presenting the financial statements. So, the financial statements produced and presented on based of common rules and principles for better understanding by the users.
In short, accounting standard operate with the concept that basic rules and procedures follow by the enterprises are common.
Objectives of AS
- They provide a standard for the diverse accounting policies and principles.
- To put an end to the non-comparability of financial statements.
- It increase the reliability of the financial statements.
- To provide standards which are transparent for users.
- They define the standards which are comparable over all periods present.
- It provide a suitable starting point for accounting.
- It contains high quality information to generate the financial reports. Therefore it can be done at the cost that does not exceed the benefits.
- For the eradication the huge amount of variation in the treatment of accounting standards.
- To facilitate ease of both inter-firm and intra-firm comparison.
Utility of Accounting Standards
- Accounting Standard provide the norms on the basis of which financial statements should be prepared.
- It ensure the presentation of financial statements by remove the effect of diverse accounting practices.
- It crate a sense of confidence among the users of accounting information.
- Therefore, it help auditors in auditing the accounts.