Accounting Standards & IFRS

  • Accounting Standards are written statements of uniform accountingrules and guidelines or practices relating to measurement, valuation and disclosure.
  • Accounting standards are developed by the Accounting Standards Board constituted by the Institute of Chartered Accountantsof India. These standards bring uniformity in accounting practices to ensure transparency, consistency and comparability in accounting policies.
  • Accounting Standards help in disclosing important information beyond that required by law.
  • Objectives of AS are dictate the manner in which financial statements should be prepared, they harmonies diverse accounting policies and practices to ensure uniformity in presentation of financial statements, they create a sense of confidence among the users of financial information, etc.
  • Advantages of accounting standards are that they improve the reliability and credibility of financial statements,help accountants to follow uniform practices, etc.
  • There are 32 Accounting Standards, compliance of most of which ismandatory for companies.
  • International Financial Reporting Standards is a set of accounting standards explaining how different types of business transactions and events should be reported in the financial statements.
  • The main aim of IFRS is to make international comparisons as easy as possible. There is a need for IFRS as enterprises are carrying on businesses worldwide.
  • The financial statements prepared under IFRS are statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flow, notes and significant accounting policies.
  • The underlying assumptions in IFRS are Accrual Assumption, Going Concern Assumption, Measuring Unit Assumption and Constant Purchasing Power Assumption.
  • IFRS is beneficial for investors investing globally, business industry etc.
  • They are principle based while Indian GAAP is rule based. IFRS was made mandatory in India for financial statements for the periods beginning on or after 1st April 2011.

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  • Q1

    GAAP refers to

    Marks:1
    Answer:

    Generally Accepted Accounting Principles.

    Explanation:
    In order to maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by the accounting profession. They are popularly known as GAAP (Generally Accepted Accounting Principles).
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  • Q2

    GAAP is being replaced by

    Marks:1
    Answer:

    IFRS.

    Explanation:
    IFRS is being used increasingly by companies throught the world and GAAP is being replaced by these standards.
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  • Q3

    Full form of ASB is

    Marks:1
    Answer:

    Accounting Standard Board.

    Explanation:
    Accounting Standard Board was constituted by ICAI for developing Accounting Standards in 1977.
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  • Q4

    What are Accounting Standards? Mention some of its advantages.

    Marks:3
    Answer:

    Accounting Standards are a set of guidelines issued by the accounting body of the country like The Institute of Chartered Accountants of India that are followed for preparation and presentation of financial statements.

    Accounting Standards have following advantages:
    ü Provide the norms on the basis of which financial statements should be prepared.
    ü Ensure uniformity in the preparation and presentation of financial statements by removing the effect of different accounting practices.
    ü Create a sense of confidence among the users of accounting information and considered reliable by users of such information.
    ü Help accountants to follow uniform practices and policies which facilitate auditors in auditing the accounts.

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  • Q5

    Give some features of Accounting Standards.

    Marks:3
    Answer:

    Accounting Standards have following features:
    - These are the guidelines that provide the framework so that credible financial statements can be produced.
    - Main objective of accounting standards is to bring uniformity in accounting practices and to ensure transparency, consistency and comparability.
    - They are prepared after keeping in view the business environment and laws of the country.
    - They are mandatory in nature.
    - Accounting Standards are flexible and an enterprise is free to adopt any of the practices with a suitable disclosure.

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