Dynamic Standards of Accounting

An accounting standard is a policy that defines the treatment of an accounting transaction in financial statements.

The entire concept of accounting standards is to harmonise accounting policies and practices used by different business entities in order to standardise the numerous accounting methods used for various aspects of accounting. They, therefore, provide guidance for companies to prepare and report useful financial statements in an accurate fashion.

Accounting standards exist to define the way economic events are recorded and reported. They are also valuable to external stakeholders such as shareholders, banks, and regulatory institutions to ensure that relevant information is reported accurately. The technical conventions provide the boundaries between measures of financial reporting, as well as facilitate transparency and accountability.

BENEFITS OF ACCOUNTING STANDARDS:

1. Avoid frauds and manipulations
2. Facilitate comparability
3. Assist auditors
4. Enhance the reliability of financial statements

However, as given below, there are disadvantages to this as well:

1. Involves high costs
2. Brings inflexibility and rigidity
3. It is extremely time-consuming
4. The scope is restricted due to accounting standards that cannot override statutes and laws.
5. Since the standard does not clearly mention which treatment is the most appropriate, choosing the best one is a difficult task.

Since we have established that standards create uniformity, transparency, and reliability, the main problem lies in the lack of qualified and competent manpower rather than the inadequacy of standards.

In this modern era of the global market, it is imperative to have a single set of accounting standards across the globe to increase the confidence of investors, improve transparency and make the financial results more comparable and understandable. Thus, the need for convergence of our standards with these global standards was necessary and we are now on the right path.