Accounting Standards- Meaning, Concept, Nature, Objectives and Need

Hello Friends, Today we learn Accounting Standards- Meaning, Concept, Nature, Objectives and Need. The Institute of Chartered Accountants of India set up the Accounting Standards Board to identify areas of accounting where alternative and diverse practices were followed. Accounting Standards are the set of guidelines that are followed for preparation and presentation of financial statements. Let us discuss these Accounting Standards in more detail.

Meaning of Accounting Standards

The accounting standards are the set of Guidelines that is Generally Accepted Accounting Principles that are followed by business entities for preparation and presentation of Financial Statements. In short accounting standards are the set of Principles, Procedures and Guidelines that defines the basis of Financial Accounting, Accounting standards guides an Accountant by the set of guidelines, laws and rules which is stated by Generally Accepted Accounting Principles.

Concept of Accounting Standards

Accounting standards consists of Accounting rules and procedure for recognisation of Financial transactions, measurement in terms of money, treatment of transactions in the books of accounts, presentation of financial transaction and disclose the accounting transactions in financial statements. Accounting standards are prescribed to be followed in preparing and presenting the financial statements, so that the financial statements produced and presented. 

Nature of Accounting Standards

From the above definition we get to know that accounting standards are the set of Principles, Procedures and Guidelines that defines the basis of Financial Accounting, Accounting standards guides an Accountant by the set of guidelines, laws and rules which is stated by Generally Accepted Accounting Principles. Now we discuss the nature of Accounting Standards, following points tell us the nature of Accounting Standards-

1. Accounting Standards are guide for the Accountants

Accounting standards are guidelines for Accountants so that valuable financial statements are prepared systematically with the help of those guidelines i.e, Accounting Standards

2. Accounting Standards are fix for their respective entities

The objective of setting Accounting Standards is to bring  uniformity in accounting practices and to ensure transparency, consistency and comparability. After setting Accounting Standards, there is no choice of entities to make rules according to their own choices in some selected areas. Let us take an example- Cash Flow Statement should be prepared according to the format set by Accounting standards, their is no choice of any other person to make their own rules in the respective format.

3. Accounting Standards are flexible

 Accounting Standards are flexible because where alternative accounting practices are acceptable, an enterprise is free to adopt any of the practices with a suitable disclosure. In case the enterprise desire to change any of the practices that followed, the effect of such change must be quantified and disclosed. For Example An enterprise may charge depreciation on fixed assets by Written Down Value method or Straight Line method.

4. Accounting Standards are mandatory

Accounting Standards are mandatory in nature. It is compulsory to follow by the Business Entities to maintain the Financial Statements.

5. Accounting standards are the combination of law and Professional body

Accounting standards are prepared keeping in view the business environment and laws of the country. The guidelines prescribed in Accounting Standards get change with change in business environment and laws. It is because of this that Accounting standards are being revised time to time according to need. Whenever a conflict arises between law and Accounting Standards, law will prevail.


👉Also read Generally Accepted Accounting Principles(GAAP) and Accounting Concepts

👉Also read Systems of Accounting and Accounting Information System

Objectives of Accounting Standards

In prior days accounting was done only to record the business transactions which are financial in nature. But according to time and technology accounting is done in addition to recording i.e., Decision making. Below are some objectives of Accounting Standards which helps you to understand better-

1.  Enhancing reliability of Financial Statements

Accounting standards helps in promoting better understanding of Financial Statements. As we know there are many users of financial statements who take relevant decisions according to their area of interest on the basis of financial statements prepared by accountants. So, users take decisions according to the financial statements prepared by accountants,  so it is necessary that the financial statements show the true and fair view of Business Entity. It is only possible with the help of Accounting Standards which is keeping in mind while preparing the Financial Statements.

2. Prevents frauds and manipulations

Accounting Standards prevent manipulation of data by the management and the others. Accounting standards helps in preventing frauds in any accounting related activity. That's why Financial Statements become reliable and give a true and fair view to the related users.

3. Helps in Comparison

Accounting Standards helps in facilitating meaningful comparison of financial statements of two or more business entities. As we know, accounting standards are the set of  guidelines that are followed by business entities for preparation and presentation of Financial Statements. So, Accounting Standards are equal for everyone, Accounting Standards are not biased and bring uniformity in accounting methods. So, it becomes easy to compare financial statements of two or more business entities.

4. Better Understanding of Financial Statements

Accounting standards prevent the users from reaching any misleading conclusions and make the financial data easier for everyone. So, it is become simple to understanding the Financial Statements.

5. Helps in understanding Accounting Policies

Accounting Standard helps in understanding significant Accounting policies adopted and applied. Accounting Standard includes the rules, terms and conditions and set of guidelines  for accounting policies and practices. These set of guidelines becomes the basis of accounting and helps in understanding Accounting Policies.

👉 Must Read Basics of Accounting

👉Must Read Difference between Bookkeeping and Accounting

Utility of Accounting Standards

1. Accounting Standards helps in Auditing

Accounting Standards helps Auditors in auditing the accounts. They help accountants to follow uniform practices and policies because Accounting Standards are mandatory to follow by the business entities. Hence, Accounting Standards helps in auditing the books of accounts.

2. Basis of Accounting

Accounting standards are guidelines for Accountants so that valuable financial statements are prepared systematically with the help of those guidelines. Accounting Standards provide the norms on the basis of which statements should be prepared. So, Accounting Standards are the basis of Accounting.

3. Confidence among Users

By applying Accounting Standards while preparing Financial Statements is considered reliable by users of such information because Accounting Standards prevents frauds and manipulation. By this, Accounting Standards create confidence among the users of accounting information.

4. Uniformity

The guidelines of Accounting Standards make Financial Statements more meaningful and comparable.Accounting Standards ensure uniformity in the preparation and presentation of Financial Statements by removing the effect of diverse accounting practices. 

So, I hope guys you all understand the concept of Accounting Standards- Meaning, Concept, Nature, Objectives and Need of Accounting Standards. I will try my best to cover the concept of Accounting Standards in this post. If you have any doubt or question related to this post then please let me know in the comment section. Have a nice day, Thanks...