Accounting standards are considered as GAAP (Generally Accepted Accounting Principles) which are highly known as the guidelines and a set of rules & regulations that are required to report the financial statements of both government & non – government organizations.
What an Accounting standard exactly does?
Let me just make the point clear. It is a guideline for the company to prepare its accounting reports & presents its business income, expenses and various assets & liabilities in accordance with standards provided by IASB (International Accounting Standards Board).
The new sets of standards that are given by IASB are popularly known as “International Financial Reporting Standards (IFRS)”.
What is the purpose of Accounting standard?
Accounting standards are used to configure the special procedures that are required to produce the financial reports.
However the main purpose is to improve quality, transparency, relevancy and audit efficiency of financial statements that will be reported at the year end.
List of Accounting Standards:
In this I am going to mention the list of accounting standards which are considered as important for financial reporting and a brief description of each standard.
Ready? Here we go.
AS 1: Disclosure of accounting policies
This standard will explain about the policies and regulations that have to follow in order to ensure proper understanding of financial statements.
AS 2: Valuation of Inventories
Major issue in accounting is that the amount of cost to be recognized as an asset & carried forward until the related incomes are recognized.
So the primary objective of this standard is to establish the proper accounting treatment for inventory valuation.
AS 3: Statement of Cash flows
The objective of this standard is to provide proper information about the cash flows of the business to the interested users of financial statements in order to assess the cash generation ability of company.
AS 4: Contingencies and events occurring after the date of Balance sheet
This standard deals with the uncertainties that and events that occurring after the balance sheet date. The concept of accrual will be applied in this case.
AS 5: Net profit or loss for the period or prior period items & Changes in accounting policies
The main objective of this standard is to prescribe the clarification & disclosure of certain items in income statement so that all businesses prepare and present such statement on a uniform basis.
This standard increases the comparability of the financial statements and requires clarification & disclosure of certain items in Income statement.
AS 6: Accounting for depreciation
The objective of this standard is to establish the process for calculation of depreciation on depreciable assets which are held for the purpose of producing goods & services.
Amount of depreciation under this standard will be calculated using Historical cost method, estimated life of asset method and Scrap value of asset basis.
AS 7: Accounting for construction contracts (Revised 2002)
This standard deals with the method of accounting for the preparation of financial statements in the books of contractors in construction business.
AS 9: Revenue recognition
This standard gives an overview about recognition of revenue in P&L account which arises in the ordinary course of business. This revenue may be from sale of goods, rendering of services, royalties and dividends etc.
AS 10: Accounting for fixed assets
This standard describes about the treatment of accounting that should be followed to value the fixed assets, valuation of assets in special cases and disclosure policies.
AS 11: Accounting for changes in foreign exchange rates
This standard explains about the rate of currency that should be followed by the company in order to finalize the financial statements.
AS 12: Accounting for government grants
AS 13: Accounting for Investments
This standard establishes the guidelines for accounting various long-term & short-term investments and its disclosure requirements.
AS 14: Accounting for amalgamation
This standard explains about the method of accounting for amalgamation and treatment of reserves & goodwill in case if they are resulted.
Types of amalgamation are generally considered as Merger and Purchase.
AS 15: Accounting for employee benefits
It deals with all short-term, long-term and termination employee benefits other than employee share based payments. This standard is more accurate from the auditor’s perspective.
AS 16: Accounting for borrowing costs
Deals with the accounting treatment for the borrowed costs and doesn’t deal with actual & imputed costs of owners which are classified as a liability.
AS 17: Segment reporting
This standard describes about the reporting of financial data about different types of products & services and different areas in which the business has been operating.
AS 18: Related party disclosures
This establishes the provisions of related to party disclosures under income tax act, 1961 and provisions to be followed under corporate laws.
AS 19: Accounting for leases
The main objective of this standard is to establish required accounting & disclosure policies for both the parties. The types of leases are classified as a Finance Lease and Operating Lease under this standard.
AS 20: Earnings per share
EPS is considered as a key financial ratio that used to describe the earnings that are available to equity shareholders of the company.
The objective of this standard is to improve the comparability between accounting reports of two or more enterprises and as between two or more accounting periods.
AS 21: Consolidation of financial statements
If a company is operating in more than one location, it should maintain the proper set of accounting records for each subsidiary.
But as per this standard, finalization of accounting reports that relates to entire company should be consolidated as a single statement.
AS 22: Accounting for Income taxes
This standard explains about the incomes that are taxable under Income tax act, 1961 and eligible amount of deductions prescribed for tax purposes.
AS 26: Accounting for Intangible assets
This standard explains about the method of accounting and disclosure policies that are required to value intangible assets like goodwill, patents & copy rights etc.
AS 28: Impairment costs
The objective of this standard is to prescribe the procedures to an organization to ensure when the assets of such entity are not carried more than the recoverable amount.
AS 29: Provisions, contingent assets and contingent liabilities
Deals with accounting procedures and disclosure requirements for various liabilities and assets that are uncertain.
This standard explains about the different set of provisions that should be included and followed in the preparation of financial statements.
Ta-daa! That’s it. You are done.
For better understanding of each accounting standard, I would recommend you a separate book Student Guide to Accounting standards written by Dr.D.S Rawat. This is available in Amazon.in
You can visit “The Institute of Chartered Accountants of India” ‘s website for detailed explanation about every accounting standard.
If you are looking for other information on accounting, business incorporation and its legal formalities, do read more articles on my finance blog.
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