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Unit 1: Accounting Standards

15. The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, Notes
constituted the Accounting Standards Board (ASB) on 21st April,…………..
(a) 1999 (b) 1977

(c) 1956 (d) 1966

1.4 Summary

The term standards denote a discipline, which provides both guidelines and yardsticks for
evaluations.
Accounting standard is an authoritative pronouncement of code of practice of the regulatory
accountancy body to be observed and applied in the preparation and presentation of
financial statements.
In India, the Institute of Chartered Accountants of India (ICAI) had established in 1977 the
Accounting Standards Board (ASB).

Accounting Standards will be issued by the ASB constituted for the purpose of harmonising
the different and diverse accounting policies and practices in use in India and propagating
the Accounting Standards and persuading the concerned enterprise to adopt them in the
preparation and presentation of financial statement.

Accounting Standards are formulated with a view to harmonise different accounting policies
and practices in use in a country.
The Accounting Standards are applicable to the preparation of general-purpose financial
statements where the taxable income is calculated on the basis of tax treatment of different
items.

The Preface to Accounting Standards provides that the Accounting Standards shall apply
to commercial, industrial and business enterprises in preparation of general-purpose
financial statements issued to the public by such enterprises.
The accounting standard setting, by its very nature, involves reaching an optimal balance
of the requirements of financial information for various interest-groups having a stake in
financial reporting.

1.5 Keywords

Accounting Standards: These are norms and guidelines to prepare the financial statements. In
India these are framed by ICAI.

Disclosure of accounting policies: Giving the information of methods to prepare the accounts.
Inventories: It includes work-in-progress, materials and finished goods.

1.6 Review Questions

1. PQR Ltd. shows its inventory at cost in the financial statements. In the current year, the
realizable value of a portion of inventory has gone down below the cost of goods.
Comment.
2. H Ltd. manufactures furniture items as per specific order of the customer. Raw material is
purchased as per the order specification. Which method of valuation of stock of raw
materials or finished goods be adopted by the company and why?

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