Question 1 OR (e)

Accounting Standards: need and importance

3 marks

Time to write
About 6 minutes
Topic
Accounting Standards and IFRS
Notes
Crux notes

Question

Question 1 OR (e) · 3 marks

What are Accounting Standards? Explain their need and importance.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

6 minfor 3 marks

Read from the question

  • What…?Explain…2 asks, each with its own marks below. Answer both.

Write it in this order

  1. 1 Meaning of Accounting Standards 1 mark 1 min
  2. 2 Need and importance uniformity, comparability, reliability 2 marks 5 min

Easy marks

  • Meaning of Accounting Standards (step 1, 1 mark): a definition in one or two lines. It opens the answer, so it takes a minute or two.

Short on time? Cut step 2 short rather than leave anything out.

Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Meaning. Accounting Standards are written policy documents that codify the generally accepted accounting principles; they lay down, as codes or guidelines, how items in the financial statements should be dealt with in the books and presented in the annual reports, to be applied using professional judgement.

Need and importance.

  1. Uniformity: they standardise the assumptions, rules and policies used in financial reporting, so different enterprises follow the same treatment.
  2. Comparability: statements of different enterprises, and of the same enterprise over time, become comparable; in their absence comparison "may lead to misleading conclusions".
  3. Reliable, less-manipulable information: a good standard "reduce[s] significantly the degree of manipulation of the reported data", giving users dependable information for their decisions.

The ICAI constituted the Accounting Standards Board "recognising the need to harmonise the diverse accounting policies and practices" in use in India.

Where the 3 marks sit

#ComponentMarks
1Meaning of Accounting Standards1
2Need and importance (uniformity, comparability, reliability)2
Total3
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