Unit 8: Accounting Standards CA CPT Notes | EduRev

Principles and Practice of Accounting

Created by: Sushil Kumar

CA CPT : Unit 8: Accounting Standards CA CPT Notes | EduRev

The document Unit 8: Accounting Standards CA CPT Notes | EduRev is a part of the CA CPT Course Principles and Practice of Accounting.
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Unit 8: Accounting Standards CA CPT Notes | EduRev

8.1 Introduction of Accounting Standards
Accounting as a ‘language of business’ communicates the financial results of an enterprise to various stakeholders by means of financial statements. If the financial accounting process is not properly regulated, there is possibility of financial statements being misleading, tendentious and providing a distorted picture of the business, rather than the true. To ensure transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to standardize the accounting principles and policies. Accounting Standards (ASs) provide framework and standard accounting policies for treatment of transactions and events so that the financial statements of dierent enterprises become comparable. Accounting standards are written policy documents issued by the expert accounting body or by the government or other regulatory body covering the aspects of recognition,  measurement, presentation and disclosure of accounting transactions and events in the financial statements. The ostensible purpose of the standard setting bodies is to promote the dissemination of timely and useful financial information to investors and certain other parties having an interest in the company’s economic performance. The accounting standards deal with the issues of -
(i) recognition of events and transactions in the financial statements;
(ii) measurement of these transactions and events;
(iii) presentation of these transactions and events in the financial statements in a manner that is meaningful and understandable to the reader; and
(iv) 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.

8.2 Objectives of Accounting Standards
The whole idea of accounting standards is centered around harmonisation of accounting policies and practices followed by different business entities so that the diverse accounting practices adopted for various aspects of accounting can be standardised. Accounting Standards standardise diverse accounting policies with a view to:
(i) eliminate the non-comparability of financial statements and thereby improving the reliability of financial statements; and
(ii)  provide a set of standard accounting policies, valuation norms and disclosure requirements.
Accounting standards reduce the accounting alternatives in the preparation of financial statements within the bounds of rationality, thereby ensuring comparability of financial statements of different enterprises.

8.3 Benefits and limitations  of Accounting Standards
Accounting standards seek to describe the accounting principles, the valuation techniques and the methods of a pplying the accounting principles in the preparation and presentation of financial statements so that they may give a true and fair view. By setting the accounting standards, the accountant has following benefits:
(i) Standards reduce to a reasonable extent or eliminate altogether confusing variations in the accounting treatments used to prepare financial statements.
(ii) There are certain areas where important information are not statutorily required to be disclosed. Standards may call for disclosure beyond that required by law.
(iii) The application of accounting standards would, to a limited extent, facilitate comparison of financial statements of companies situated in dierent parts of the world and also of different companies situated in the same country. 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 dierent countries.

 Unit 8: Accounting Standards CA CPT Notes | EduRev
However, there are some limitations of  accounting standards:
(i) Difficulties in making choice between different treatments: Alternative solutions to certain accounting problems may each have arguments to recommend them.  Therefore, the choice between different alternative accounting treatments may become difficult.
(ii) Restricted scope: Accounting standards cannot override the statute. The standards are required to be framed within the ambit of prevailing statutes.

Unit 8: Accounting Standards CA CPT Notes | EduRev

8.4 Process of Formulation of Accounting Standards In India
The Institute of Chartered Accountants of India (ICAI), being a premier accounting body in the country, took upon itself the leadership role by constituting the Accounting Standards Board (ASB) in 1977.  The ICAI has taken significant initiatives in the setting and issuing procedure of Accounting Standards to ensure that the standard-setting process is fully consultative and transparent.  The ASB considers International Financial Reporting Standards (IFRSs) while framing Indian Accounting Standards (ASs)  in India and try to integrate them, in the light of the applicable laws, customs, usages and business environment in the country.  The composition of ASB includes, representatives of industries (namely, ASSOCHAM, CII, FICCI), regulators, academicians, government departments etc.  Although ASB is a body constituted by the Council of the ICAI, it (ASB) is independent in the formulation of accounting standards and Council of the ICAI is not empowered to make any modifications in the draft accounting standards formulated by ASB without consulting with the ASB. The standard-setting procedure of Accounting Standards Board (ASB) can be briefly outlined as follows:

  • Identification of broad areas by ASB for formulation of AS. 
  • Constitution of study groups by ASB to consider specific projects and to prepare preliminary drafts of the proposed accounting standards.  The draft normally includes objective and scope of the standard, definitions of the terms used in the standard, recognition and measurement principles wherever applicable and presentation and disclosure requirements.
  • Consideration of the preliminary draft prepared by the study group of ASB and revision, if any, of the draft on the basis of deliberations.
  • Circulation of draft of accounting standard (after revision by ASB) to the Council members of the ICAI and specified outside bodies such as Department of Company Affairs (DCA), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C&AG), Central Board of Direct Taxes (CBDT), Standing Conference of Public Enterprises (SCOPE), etc. for comments.
  • Meeting with the representatives of the specified outside bodies to ascertain their views on the draft of the proposed accounting standard.
  • Finalisation of the exposure draft of the proposed accounting standard and its issuance inviting public comments.
  • Consideration of comments received on the exposure draft and finalisation of the draft accounting standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance.
  • Consideration of the final draft of the proposed standard and by the Council of the ICAI, and if found necessary, modification of the draft in consultation with the ASB is done.
    The accounting standard on the relevant subject (for non-corporate entities) is then issued by the ICAI.  For corporate entities the accounting standards are issued by The Central Government of India.

8.5 List of Accounting Standards In India

List* of Accounting Standards



Number of the Accounting Standard (AS)

Title of the Accounting Standard


AS 1

Disclosure of Accounting Policies


AS 2 (Revised)

Valuation of Inventories


AS 3 (Revised)

Cash Flow Statements


AS 4 (Revised)

Contingencies and Events Occurring after the Balance Sheet Date


AS 5 (Revised)

Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies


AS 6 (withdrawn pursuant to issuance of AS 10 on Property, Plant and Equipment 2016)

Depreciation Accounting


AS 7 (Revised)

Accounting for Construction Contracts


AS 8 (withdrawn pursuant to AS 26 becoming mandatory)

Accounting for Research and Development


AS 9

Revenue Recognition


AS 10

Property, Plant and Equipment


AS 11 (Revised)

The Effects of Changes in Foreign Exchange Rates


AS 12

Accounting for Government Grants


AS 13

Accounting for Investments


AS 14

Accounting for Amalgamations


AS 15 (Revised)

Employee Benefits


AS 16

Borrowing Costs


AS 17

Segment Reporting


AS 18

Related Party Disclosures


AS 19



AS 20

Earnings Per Share


AS 21

Consolidated Financial Statements


AS 22

Accounting for Taxes on Income


AS 23

Accounting for Investments in Associates in Consolidated Financial Statements


AS 24

Discontinuing Operations


AS 25

Interim Financial Reporting


AS 26

Intangible Assets


AS 27

Financial Reporting of Interests in Joint Ventures


AS 28

Impairment of Assets


AS 29

Provisions, Contingent Liabilities & Contingent Assets

(Question with Answer)

Ques 1.  Accounting Standards for Non-Corporate entities in India are issued by
(a) Central Govt.
(b) State Govt.
(c) Institute of Chartered Accountants of India.  

(d) Reserve Bank of India.

Ans: (c)

Ques 2.  Accounting Standards
(a)  Harmonise accounting policies.
(b)  Eliminate the non-comparability of financial statements.
(c)  Improve the reliability of financial statements.
(d)  All the three.
Ans: (d)

Ques 3.  It is essential to standardize the accounting principles and policies in order to ensure
(a)  Transparency.
(b)  Consistency.
(c)  Comparability.
(d)  All the three.

Ans: (d)

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