Financial Accounting - 2011 (Solved)

Accounting Standards are the policy documents or written statements issued, from time to time, by an apex expert accounting body in relation to various aspects of measurement, treatment and disclosure of accounting transactions for ensuring uniformity in accounting practices and reporting. These standards are prepared by Accounting Standard Board (ASB). Accounting Standards are formulated with a view to harmonise different accounting policies and practices in use in a country.

Objectives or Purposes of Accounting Standards:
The  whole  idea  of  accounting  standards  is  centered  around  harmonization   of   accounting  policies  and practices  followed  by  different  business  entities   so  that  the  diverse  accounting  practices  adopted  for   various  aspects   of  accounting  can be  standardized. Accounting   standards   standardizes diverse accounting policies   with a view to:
a)      To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
b)      To serve the statutory purpose of eliminating the impact of diverse accounting policies and practices and to ensure uniformity in accounting policies & practices, i.e., to harmonize the diverse accounting policies & practices which are in use the preparation & presentation of financial statements.
c)       To make the financial statements more meaningful and comparable and to make people place more reliance on financial statements prepared in conformity with the accounting standards.
d)      To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year?
e)      provide   a  set  of  standard  accounting  policies, valuation  norms  and  disclosure  requirements.

Procedure adopted in formulation of Accounting Standards:
The Institute of Chartered Accountants of India (ICAI), recognising the need to harmonise the diverse accounting policies and practices, constituted an Accounting Standards Board (ASB) on April 21, 1977. The main function of ASB is to formulate accounting standards so that such standards may be mandated by the Council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws, customs, usages and business environment.  Following procedure will be adopted for formulating Accounting Standards:
a)      Identification of the broad areas by the ASB for formulating the Accounting Standards.
b)      Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.
c)       Consideration of the preliminary draft prepared by the study group by the ASB and revision, if any, of the draft on the basis of deliberations at the ASB.
d)      Circulation of the draft, so revised, among the Council members of the ICAI and 12 specified outside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks’ Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department of Company Affairs, for comments.
e)      Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.
f)       Finalisation of the Exposure Draft of the proposed Accounting Standard on the basis of comments received and discussion with the representatives of specified outside bodies.
g)      Issuance of the Exposure Draft inviting public comments.
h)      Consideration of the comments received on the Exposure Draft and finalisation of the draft Accounting Standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance.
i)        Consideration of the draft Accounting Standard by the Council of the Institute, and if found necessary, modification of the draft in consultation with the ASB.
j)     The Accounting Standard, so finalised, is issued under the authority of the Council.