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Meaning of Accounting Standards


In order to ensure transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to standardize the accounting principles and policies, Accounting Standards provide framework and Standard accounting policies so that the financial statements of different enterprises become comparable.

Accounting Standards are selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. The Accounting Standards board of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be established by the Council of the ICAI.

Issues Dealed by accounting standards

Recognition of events and transactions in the financial statements

(2) Measurement of these transactions and events

(3) Presentation of these transactions and events in the financial statements in a manner that is meaningful and understandable to the reader

(4) The disclosure requirements which should be there to enable the public at large and the stakeholders and the potential investors in particular, to get an insight into what these financial; statements are trying to reflect and thereby facilitating them to take prudent and informed business decisions.

Objectives of Accounting Standards

The main objective of Accounting Standards is to establish standards which have to be complied with, to ensure that financial statements are prepared in accordance with generally accepted measurements. These standards harmonize the diverse accounting policies and practices at present in use in India.

Limitations of setting of accounting standards

(i) Choice between different alternative accounting treatments may become difficult

(ii)    Trend towards rigidity

(iii)   Accounting standards cannot override the statute.



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