Need For Accounting Standards And Set Of Principles Accounting Essay

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Accounting is not an easy field for some people to moster; however, the mark of a good accountant is the ability to write a good report with clear and easy recommendations. The best way to do this is with a report with clear and easy recommendation. The best way to do this is with a report which shows trends in spending by comparing the budget forecast to actual spending. This can be done at the of each month, quarterly or annually.

Accounting Standards:

Accounting is the art of recording transactions in the best manner possible. That is to now how can arrive at judgments and guidelines. Another name of guidelines is Accounting Policies. The intricacies of accounting policies permitted companies to alter their accounting principles for their benefit. This made it impossible to make comparisons. In order to avoid the above and to have ahermonised accounting principle, standards need to be set by recognized accounting bodies. This paved the way for accounting standards to come into existence. "Accounting Standards" means the standards of accounting recommended by the Institute of Chartered Accountant (ICAI) and prescribed by the Central Government in construction with the National Advisor Committee on Accounting Standards (NACAS) Objective of Accounting Standards is to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements but the main objective it to have the same way of reporting financial information.

The importance of International Accounting Standards is underpinned by the global nature and impact of virtually all business transactions.

The Good and Bad of Accounting Standards:

Standards are a source of rule and order and generate consistency. In failing to plan, we plan to fail. Lock of rule and order begets chaos and destruction. The more consistently various organizations and reach the commerce can flow any grow.

The disadvantages are small and should be easily over come by competent staff. They are vastly out weighed by the advantages.

I expect in my mind any business should have a standard for all its transactions and should attempt to arrange it to comply with the standards of its clients, customers, rivals, suppliers, vendors and affiliates. For that we must betained to that standard. It also means that your staff must follow that standards and can't wingit. To some extent it may even curtail creativity and affect productivity in the short term.

Purpose and Status of the Framework

The framework serves as a guide to the board in developing accounting standards and as a guide to resolving accounting issues that are not addressed directly in an International Accounting Standards or International Financial Reporting Standards or Interpretation.

In the absence of a standard or an Interpretation that specifically applies to a transaction, management must use its judgment in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgment requires management to consider the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the framework.

The IASB Framework

The Framework:

Define the objective of financial statements.

Identifies the qualitative characteristics that make information in financial statements useful.

Define the basic elements of financial statements and the concepts for recognizing and measuring them in financial statements.

Provides concepts of capital maintenance.

General Purpose Financial Statements:

The framework addresses general purpose financial statements that a business entity prepares and presents at least annually to meet the common information needs of a wide range of users external to the entity. Therefore, the framework does not necessarily apply to special purpose financial reports such as reports to tax authorities, reports to governmental regulatory authorities, prospectuses prepared in connection with securities afferings, and reports prepared in connection with business combinations.

The principle classes of users of financial statement are present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the general public. That to help them in decision making an financial statements.

The framework also concludes that because investors are provides of risk capital to entity, financial statements that meet their needs will also meet most of the general financial information needs of other users. So that interest in the ability of an entity to generate cash and cash equivalents and of the timing and certainty of those future cash flows.

The framework notes that financial statements cannot provide all the information that users may need to make economic decision. For one thing, financial statements show the financial effects of past events and transactions, whereas the decisions that most users of financial statement have to make relate to the future. Further, financial statements provide only limited amount of the non-financial information needed by users of financial statements.

While all of the information needs of these user groups cannot be met by financial statements, there are information needs that are common to all users, and general purpose financial statement focus on meeting these needs.

Responsibility for Financial Statement:

The management of an entity has the primary responsible for preparing and presenting the entity's financial statements.

The Objective of Financial Statements:

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

Financial position:

The financial position of an entity is affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operate.


Performance is the ability of an entity to earn aprafion the resource that has been invested in it. Information about the amounts and variability of profits helps in forecasting future cash flows from the entity's exiting resources that might be invested in the entity. The framework states that information about performance is primarily provided in an income statement.

Changes in Financial position:

Users of financial statement seek information about the investing, financing and operating activities that an entity has under taken during the reporting period. This information helps in assessing how well the entity is able to generate cash and cash equivalents and how it uses those cash flow.

Notes and Supplementary Schedules:

The financial statements also can contain notes and supplementary schedules and other information that:

Explains item in the balance sheet and income statement

Discloses the risk and uncertainties affecting the entity

Explains any resources and obligations not recognized in the balance sheet.

Qualitative Characteristics of Financial Statements:

The characteristics are the attributes that make the information in financial statement useful to investors, creditors, and others

The Framework identifies four principal qualitative characteristics:






Information should be presented in away that is readily understandable by users who have areasonable knowledge of business and economic activities and accounting and who area willing to study the information with reasonable diligence.


Information in financial statements is relevant when it influences the economic decisions of users. Materiality is a component of relevance. Information is material if its omission or misstatement could influence the economic decision of users. Timelines is another component of relevance.


Information in financial statement is reliable if it is free from material error and bias and can be depended upon users to represent and judgment is required to provide the appropriate balance.

Reliability is affected by the use of estimates and by uncertainties associated with items recognized and measured in financial statements. These uncertainties are dealt with, in part, by disclosure and, in part, by exercising does not justify deliberate overstatement of liabilities or deliberate understatement of not have the quality or reliability.


Users must be able to compare the financial statements of an entity over time so that can identify trends in its financial position and performance. Users must be able to compare the financial statements of different entities.

The Elements of Financial Statements:

Financial statement portrays the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements.

The elements directly related to financial position (balance sheet) are:




The elements directly related to performance (income statement) are:



The cash flow statement reflects both income statement elements and some changes in balance sheet elements.

Recognition of the Elements of Financial Statements:

Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition.

It is probable that any future economic benefit associated with the item will flow to or from the entity; and

The item'


In the end, I have much benefited from this report and learned that we need accountants to count all the ants.

A framework can help us to explain why we are doing a project in a particular way also help us to understand, decide and explain the route we are taking.

I expect in my mind any business should have Accounting Standards because it's importing it help to ordering and generate consistency.