What is the need, benefits, limitation and role of accounting standards?
Benefit & Role of Accounting, Accounting requirements are written coverage files masking the weather of recognition, measurement, treatment, presentation and disclosure of accounting transactions in monetary statements. Accounting preferred is an authoritative statement issued by using ICAI, an expert physique of accounting in our country. The goal of accounting trendy is to deliver uniformity in several accounting insurance policies to get rid of the non-comparability of monetary statements for improving the reliability of economic statements.
Secondly, the accounting trendy gives a group of stylish accounting policies, valuation norms and disclosure requirements. In addition to enhancing the credibility of data, accounting fashionable enhances comparability of monetary statements, each intra and inter enterprises. Such comparisons are very effective and broadly used for the evaluation of firms’ overall performance by using the purchasers of accounting.
Benefits & Role of Accounting Standards
Benefits & Role of Accounting standard helps in eliminating variations in accounting treatment to prepare financial statements.
- Accounting standard may call for disclosures of certain information which may not be required by law, but such information might be useful for the general public, investors and creditors.
- Accounting standard facilitates comparability between financial statements of inter and intra companies.
Limitation of Accounting Standards
- Accounting standard chooses between different alternate accounting treatments difficult to apply.
- It is rigidly followed and fails to extend flexibility in applying accounting standards.
- Accounting standard cannot override the statute. The standards are required to be farmed within the ambit of prevailing status.
Applicability of Accounting Standards
Except for the merely charitable agency which does no longer have any commercial, industrial and enterprise activity, accounting standard is relevant to:
- Sole proprietorship
- Partnership firm
- Hindu undivided family
- Association of persons
- Cooperative societies
- International Financial Reporting System
There have been tremendous modifications in the world financial state of affairs with the emergence of globalization, liberalization and privatization. The advent of translational firms in search of dollars to preserve their ongoing operations in addition to firing the boom of the economic system have resulted in elevating capital globally, i.e., slicing throughout international boundaries.
Since every user has its personal set of guidelines and regulations for retaining enterprise documents for accounting functions and financial reporting, it turns into a cumbersome and sophisticated exercise to comply with the present accounting guidelines and policies of the united states in case the enterprise company decides to increase its capital wants from a foreign country.
To make the financial system extra dynamic, aggressive and to spice up self-assurance amongst worldwide analysts and investors, the economic statements must put ahead via the business organizations throughout the international locations are the same on comparable parameters, investor-friendly, fair, obvious and selections are worthy. Because of this, the trend toward international convergence of accounting requirements is seeking momentum for worldwide monetary reporting.