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Accounting Standards

AS are written policy documents issued by expert accounting body or by government or by other regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting transactions and events in the financial statements. The ostensible purpose of the standard setting bodies is to establish uniform practices and common techniques of accounting across the country.

Objectives The whole idea of AS is centered around harmonization of accounting policies and practices followed by different business entities.Main objective is to : -- eliminate the non comparability of financial statements and thereby improving the reliability of financial statements -- provide a set of standard accounting policies, valuation norms,and disclosure requirements.

Benefits AS seek to describe the accounting principles , the valuation techniques and the methods of applying them , so that FS give a true and fair view. It eliminates the confusing variations in the accounting treatments and establish a framework to prepare FS in uniform manner thereby increasing the credibility and reliability of FS. It may call for certain disclosures beyond that required by any law and mitigate the occurrence of frauds and bring transparency in accounting data. The application of AS facilitate comparison of FS of Companies in different parts of the country and world

Issuing Body In India, ICAI constituted Accounting Standards Board ( ASB ) on 21st April 1977 to formulate AS after taking into consideration the applicable laws, customs and business environment.It also gives due consideration to International Accounting Standards issued by ISAC. AS issued by the ICAI had got legal recognition through insertion of sections 211(3A) , (3B) , (3C) in the Companies Act, 1956.Till date 32 AS are issued by ICAI.

Brief overview of AS
AS 1 Disclosure of Accounting policies It is related with disclosure requirements of significant accounting policies followed in preparing FS.The areas where different policies followed are accounting for depreciation , valuation of inventories,fixed assets,investments etc. The disclosure should form part of FS and any change in accounting policies which has a material effect in current period or later periods should be disclosed.

AS 2 Valuation of Inventories It specifies the methods of computation of the value of inventory to be shown in the FS.Inventory is valued by following conservatism principle i.e., at lower of cost or market value.

AS 3 Cash Flow Statements This standard deals with the historical changes in cash and cash equivalents of an enterprise by means of cash flow statement which classifies cash flows during the period into operating, investing and financing activities.

AS 4 Contingencies and events occurring after the Balance Sheet date. Events occurring after the balance sheet date are those significant events (both favourable and unfavourable ) that occur between the balance sheet date and the date on which FS are approved by the approving body of any entity.

AS 5 Net profit or Loss for the period , Prior period items and Changes in Accounting Policies This statement should be applied by the enterprise in presenting P & L from ordinary activities, extraordinary items and prior period items , changes in accounting estimates,and disclosure of changing the accounting policies in the statement of Profit and loss.

AS 6 Depreciation Accounting It requires that the depreciable amount of a depreciable asset should be allocated on a systematic basis to each acc. Period during the useful life of the asset and the dep. Method selected should be applied consistently from period to period.If there is any change in method,or asset is demolished ,disposed off,it should be quantified and disclosed separately.

AS 7 Construction Contracts The standard prescribes the accounting treatment of revenue and costs associated with the construction contracts to the accounting periods by lying down the guidelines as such construction contracts are normally for more than one acc. Period.

AS 9 Revenue recognition The standard deals with the basis for recognition of revenue arising from the ordinary activities, from sale of goods, rendering of services income from interest, royalties, dividends etc. in the profit and loss statement of an enterprise.

AS 10 Accounting for Fixed Assets It deals with the disclosure of the status of the fixed assets in terms of value . An entity should disclose the gross and net book values of FA , at the beginning and the end of the year showing additions, disposals and other movements , revalued amounts substituted for historical costs and other relevant details.

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