BENEFITS OF ACCOUNTING STANDARDS

BENEFITS OF ACCOUNTING STANDARDS

Accounting Standards seek to describe the accounting principles, the valuation techniques and the methods of applying the accounting principles in the preparation and presentation of financial statements so that they may give a true and fair view.

The following are the benefits of Accounting Standards:
(i) Standardisation of alternative accounting treatments: Accounting Standards reduce to a reasonable extent or eliminate altogether confusing variations in the accounting treatment followed for the purpose of preparation of financial statements.

(ii) Requirements for additional disclosures: There are certain areas where important information is not statutorily required to be disclosed. Standards may call for disclosure beyond that required by law.

(iii) Comparability of financial statements: The application of accounting standards would facilitate comparison of financial statements of different companies situated in India and facilitiate comparison, to a limited extent, of financial statements of companies situated in different parts of the world. However, it should be noted in this respect that differences in the institutions, traditions and legal systems from one country to another give rise to differences in Accounting Standards adopted in different countries.

Since Accounting Standards are principle based, application of Accounting Standards becomes judgemental in case of complex business transactions. Accounting Standards have to be read in line with the legal requirements, i.e., in case of any conflict, Statute would prevail over Accounting Standards.