Accounting standards Benefits limitations
Accounting standards Benefits limitations:
Accounting standards seek to describe the accounting principles, the valuation techniques and the methods of applying the accounting principles in the preparation and presentation of financial statements so that they may give a true and fair view. By setting the accounting standards the accountant has following benefits:
(i) Standards reduce to a reasonable extent or eliminate altogether confusing variations inthe accounting treatments used to prepare financial statements.
(ii) There are certain areas where important information are not statutorily required to bedisclosed. Standards may call for disclosure beyond that required by law.
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Accounting standards Benefits limitations
(iii) The application of accounting standards would, to a limited extent, facilitate comparison of financial statements of companies situated in different parts of the world and also of different companies situated in the same country. However, it should be noted in this respect that differences in the institutions, traditions and legal systems from one country to another give rise to differences in accounting standards adopted in different countries.
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However, there are some limitations of setting of accounting standards:
(i) Alternative solutions to certain accounting problems may each have arguments torecommend them. Therefore, the choice between different alternative accounting treatments may become difficult.
(ii) There may be a trend towards rigidity and away from flexibility in applying the accounting standards.
(iii) Accounting standards cannot override the statute. The standards are required to be framed within the ambit of prevailing statutes.
The need for accounting standards specifically suitable for the country’s economic environment was also felt in India. Recognising the need to harmonise the diverse accounting policies and practices in India and keeping in view the international developments in the field of accounting, the Council of the Institute of Chartered Accountants of India (ICAI) constituted the Accounting Standards Board (ASB) on 21st April, 1977.
The composition of ASB is broad based to ensure due representation and the participation of all those who are interested in the formulation and implementation of these standards.
Accounting standards Benefits limitations
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