Preparation and presentation of financial statements based on accounting standards usually known as Indian GAAP has emerged as an effective way of harmonizing different accounting practices followed in India. Besides other benefits, financial statements prepared on the basis of these standards are considered to present a true and fair view of financial results of the enterprises. In this article, the various aspects of accounting standards like the advantages, scope, procedure, compliance, etc., are discussed, along with their contents and applicability.
enterprise needs to take care that its financial statements are prepared in accordance
with the accounting standards. If the organization is operating globally, statements
of various US GAAP are also to be taken care of. These accounting standards are
applicable only to the items that are material in nature. Any deviation from these
accounting standards requires a disclosure in the financial statement along with
the impact thereof.
business entity prepares financial statements to depict its performance in monetary
terms as either profits or losses. These financial statements are used by various
people. While preparing these statements, there are diverse methods available
to an entity for recording such business transactions. Even the preparations of
financial statements are not governed by a practice of uniformity for recording
transactions by different business entities. These accounting standards have been
prepared with a view to harmonize the various accounting practices used in India
to prepare financial statements. These standards are also known as Indian Generally
Accepted Accounting Principles (GAAP).
Institute of Chartered Accountants of India (ICAI) being the body responsible
for framing accounting standards in India, constituted the Accounting Standards
Board (ASB) in the year 1977. The reason behind framing the ASB was to harmonize
the diverse accounting policies and practices that are being used in India. These
accounting standards have assumed increased importance after the 1990s, as globalization
throws new challenges to enterprises by exposing them to the best. One of them
is that management not only needs to be honest, but also open and transparent
to the shareholders, the government and stakeholders.