How Accounting standards are developed in india

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How Accounting Standards Are Developed In India Concept of Accounting Standards: We know that Generally Accepted Accounting Principles GAAP aims at bringing uniformity and comparability in the financial statements. It can be seen that at many places GAAP permits a variety of alternative accounting treatments for the same item. For example different methods for valuation of stock give different results in financial statements. Such practices sometimes can misguide intended users in taking decision relating to their field. Keeping in view the problems faced by many users of accounting a need for the development of common accounting standards was aroused.

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How Accounting Standards Are Developed In India For this purpose the Institute of Chartered Accountants of India ICAI which is also a member of International Accounting Standards Committee IASC had constituted Accounting Standard Board ASB in the year 1977. ASB identified the areas in which uniformity in accounting was required. After detailed research and discussions it prepared and submitted a draft to the ICAI. After proper examination ICAI finalized them and notified for its use in financial statements. Meaning of Accounting Standards: Accounting standards are the written statements consisting of rules and guidelines issued by the accounting institutions for the preparation of uniform and consistent financial statements and also for other disclosures affecting the different users of accounting information. Accounting standards lay down the terms and conditions of accounting policies and practices by way of codes guidelines and adjustments for making the interpretation of the items appearing in the financial statements easy and even their treatment in the books of account. Nature of Accounting Standards: On the basis of forgoing discussion we can say that accounting standards are guide dictator service provider and harmonizer in the field of accounting process. i Serve as a guide to the accountants: Accounting standards serve the accountants as a guide in the accounting process. They provide basis on which accounts are prepared. For example they provide the method of valuation of inventories.

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How Accounting Standards Are Developed In India ii Act as a dictator: Accounting standards act as a dictator in the field of accounting. Like a dictator in some areas accountants have no choice of their own but to opt for practices other than those stated in the accounting standards. For example Cash Flow Statement should be prepared in the format prescribed by accounting standard. iii Serve as a service provider: Accounting standards comprise the scope of accounting by defining certain terms presenting the accounting issues specifying standards explaining numerous disclosures and implementation date. Thus accounting standards are descriptive in nature and serve as a service provider. iv Act as a harmonizer: Accounting standards are not biased and bring uniformity in accounting methods. They remove the effect of diverse accounting practices and policies. On many occasions accounting standards develop and provide solutions to specific accounting issues. It is thus clear that whenever there is any conflict on accounting issues accounting standards act as harmonizer and facilitate solutions for accountants. Objectives of Accounting Standards: In earlier days accounting was just used for recording business transactions of financial nature. Its main emphasis now lies on providing accounting information in the process of decision making. For the following purposes accounting standards are needed:

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How Accounting Standards Are Developed In India i For bringing uniformity in accounting methods: Accounting standards are required to bring uniformity in accounting methods by proposing standard treatments to the accounting issue. For example AS-6Revised states the methods for depreciation accounting. ii For improving the reliability of the financial statements: Accounting is a language of business. There are many users of the information provided by accountants who take various decisions relating to their field just on the basis of information contained in financial statements. In this connection it is necessary that the financial statements should show true and fair view of the business concern. Accounting standards when used give a sense of faith and reliability to various users. They also help the potential users of the information contained in the financial statements by disclosure norms which make it easy even for a layman to interpret the data. Accounting standards provide a concrete theory base to the process of accounting. They provide uniformity in accounting which makes the financial statements of different business units for different years comparable and again facilitate decision making. iii Simplify the accounting information: Accounting standards prevent the users from reaching any misleading conclusions and make the financial data simpler for everyone. For example AS-3 Revised clearly classifies the flows of cash in terms of ‘operating activities’ ‘investing activities’ and ‘financing activities’. iv Prevents frauds and manipulations:

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How Accounting Standards Are Developed In India Accounting standards prevent manipulation of data by the management and others. By codifying the accounting methods frauds and manipulations can be minimized. v Helps auditors: Accounting standards lay down the terms and conditions for accounting policies and practices by way of codes guidelines and adjustments for making and interpreting the items appearing in the financial statements. Thus these terms policies and guidelines etc. become the basis for auditing the books of accounts.

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