Accounting Standards Class 11 Notes

Kohler defines an accounting standard as “a code of conduct imposed on accountants by custom, law or professional body.” Here are the accounting standards class 11 notes.

In other words, accounting standards may be defined as written statements, issued occasionally by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements.

Nature of Accounting Standards

• They remove the effect of diverse accounting practices and policies so that financial statements of different business units become comparable.
• They limit the area within which an accountant has to function; in this respect, they are just like laws.
• They prescribe a preferred accounting treatment from the available methods for solving one or more accounting problems.
• They provide information to the users of financial statements as to the basis on which such statements have been prepared.

Objectives of Accounting Standards

Objectives of accounting standards are as follows:

1. To ensure uniformity in the preparation and presentation of financial statements.
2. To provide information to the users about the policies adopted in the preparation of financial statements.
3. To remove the effect of diverse accounting policies and practices.
4. To ensure consistency, transparency, and comparability of financial statements.
5. To improve the reliability and credibility of financial statements.

Benefits of Accounting Standards

The benefits of accounting standards are as follows:

1) Accounting Standards improve the reliability and credibility of Financial Statements

There are numerous parties that are interested in the accounting information of an enterprise.

2) Accounting Standards ensure the consistency and comparability of Financial Statements

Accounting standards make the financial statements of different enterprises or of the same enterprise for different accounting periods comparable.

3) Accounting Standards help in resolving conflicts of financial interests among various groups

Sometimes, there is a conflict of financial interests among the various groups interested in financial statements.

4) Accounting Standards significantly reduce the chances of manipulations and fraud

The adoption of accounting standards in the preparation of financial statements has reduced the chances of manipulations, fraud, and insufficient disclosures.

5) Helpful to Auditors

It is the duty of the auditors to ensure that the accounting standards have been followed in the preparation of financial statements.

Limitations of Accounting Standards

1) Restrict Initiative

Since accounting standards are mandatory in nature, they restrict initiative for better presentation and disclosure.

2) Rigid in Nature

Accounting standards are rigid in nature. They restrain the accountants from using a more suitable alternative solution to a particular problem.

3) Based on Historical Cost

Accounting standards are based on historical cost concepts. Assets are shown in the balance sheet on historical cost and as such depreciation is also charged on such historical cost.

4) Obstruct the Judgement of Auditors

Accounting standards obstruct the judgment of the auditors as the standards are mandatory.

Basic Accounting Terms Class 11 Notes

International Financial Reporting Standards (IFRS)

The term IFRS refers to the ‘International Financial Reporting Standards’ issued by the International Accounting Standard Board (IASB).

IFRS also covers a wide range of International Accounting Standards (IAS) issued by the International Accounting Standard Committee (IASC).

International Accounting Standards (IAS) require financial statements to comply with all requirements of IFRS.

Assumptions in IFRS

• Going Concern Assumption: This is an assumption that a business will continue forever.
• Accrual Assumption: Under this assumption, transactions are recorded in the books of accounts when they occur.
• Measuring Unit Assumption: The measuring Unit is the current purchasing power. It means that the assets are shown in the balance sheet at historical cost but they are shown at current or fair value.

Need for IFRS

1. Easy Access to Global Capital Markets: Capital Markets have now become global and companies are now in a position to access the funds globally.
2. Easy to Make Comparisons: International investors would like to compare financial statements based on an internationally accepted set of accounting standards.
3. Uniformity in Financial Reporting: The adoption of IFRS brings uniformity, comparability, and transparency to financial statements. It improves the standard and quality of financial reporting.
4. Lower Cost of Capital Raised Abroad.
5. True and Fair Valuation of Assets.
6. Difficult to Commit Fraud and Manipulate the Accounts.

Benefits of IFRS

• Helpful to Investors: Investors require high quality relevant, reliable, transparent, and comparable information in financial statements to make economic decisions.
• Helpful to Industry: Obtaining funds from outside the country becomes easier if the financial statements comply with globally accepted accounting standards.
  Nowadays most of the stock exchanges require information as per IFRS and convergence to IFRS would enable Indian companies to access the international capital market easily.
• Helpful to Enterprises Operating Globally.
• Lower Cost of Raising Funds Abroad.

Ind-AS

Ind-AS or Indian Accounting Standards are Indianized versions of International Financial Reporting Standards (IFRS).

IFRS is a set of accounting standards developed by the International Accounting Standards Board (IASB) based on which financial statements of enterprises are prepared and presented to its users.

Features of Ind-AS

1. Ind-AS is the modified version of the IFRS.
2. Ind-AS are comprehensive and wide. It comprises revenues, expenses, losses, assets, liabilities, and equity.
3. Ind-AS is principle-based. Under Ind-AS items are shown in the balance sheet as per the principles associated with each item.
4. Ind-AS emphasized transparency and accountability of financial statements.

Accounting Principles Class 11 Notes

Objectives of Ind-AS

• To ensure uniformity in the preparation and presentation of financial statements.
• To provide information to the users about the policies adopted in the preparation of financial statements.
• To remove the effect of diverse accounting policies and practices.
• To ensure consistency, transparency, and comparability of financial statements.
• To improve the reliability and credibility of financial statements.

Merits of Ind-AS

1) Suitable for Indian Conditions

They have been framed in such a way that they are most suitable for Indian conditions.

2) Clear Guidelines for Financial Reporting

Ind-AS provides a wide framework in which clear guidelines are given for financial reporting.

3) Uniformity in Financial Reporting

The adoption of Ind-AS brings uniformity, comparability, and transparency in financial statements. It improves the standard and quality of financial reporting.

4) Helpful to Investors

Investors require high-quality, relevant, reliable, transparent, and comparable information in financial statements in order to make economic decisions. The use of Ind-AS meets their requirement.

5) Difficult to Commit Fraud and Manipulate the Accounts

There are tough and rigid rules for the preparation and presentation of financial statements under Ind-AS and it is extremely difficult to manipulate the accounts.

Difference between Accounting Standards and Ind-AS