Need and Development of Accounting

Practically speaking, in order to avoid the variance which may arise between the accounting principles and accounting practice and also to find a uniformity among diversity among the various underlying principles of accounting. We emphasise the Accounting Standards framed by the IASC or IAS (Indian Accounting Standard, based on IASC) for maintaining accounting practice in our country.

However, the reasons for setting the Standards are:

(a) Comparison between two firms is possible if both of them maintain the same principle, otherwise proper comparison is not possible. For example, if Firm A follows the FIFO method of valuation of stock whereas Firm B follows the LIFO method for valuing stock, the comparison between the two firms becomes useless. The same is possible only when both of them follow identical method of valuing closing stock.

(b) The firms are not allowed to maintain and present their accounts according to their own will or choice or cannot prepare report of financial statements for various interested groups. The same is possible only when there is some fixed standard for setting practice.

(c) The Accounting Standards recognise the principle of equity applicable for different users of accounting information, viz. creditors, investors, shareholders etc. Thus the purpose of setting Accounting Standards is nothing but to find a uniformity in accounting practice while formulating financial reports and make consistency and proper comparison of data which are contained in financial statements for the users of accounting information. Practically, Accounting standards have been presented in order to maintain fairness, consistency and transparency in accounting practice which will satisfy the users of accounting.

Objectives and Features of Accounting Standards:

(i) To formulate and publish in the public interest Accounting Standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observation.

(ii) To work for the improvement and harmonisation of regulation of Accounting Standards and procedures relating to the presentation of financial statements.

In regard to the objective (i) stated above, i.e. worldwide acceptance and operation, the statement of). L. Kirkparick, Chairman of the Board of IASC, delivered to the members of the Institute of Chartered Accountants, Ireland, is quite significant. According to him: “When we sit round the IASC Board table and in the steering committee which creates the standard, we do so in our capacity as experts in Accounting and certainly not as auditors. It is irrelevant whether we are practitioners or not.” Therefore, the Standards which are set/issued by ISAC are meant for universal acceptance.

Development of Accounting Standards:

A. International Accounting Standards (IAS):

International Accounting Standard Committee (IASC):

It came into being on 29th June 1973 when 16 accounting bodies (Viz. The Institute of Chartered Accountants from 10 nations i.e., USA, Canada, UK and Ireland, Australia, France, Germany, Japan, Mexico and Netherlands) signed the constitution for its formation. Its headquarters is situated at London. The Objectives of IAS is to develop accounting standards which are to be observed in the presentation of audited financial statements and to promote their worldwide acceptance.

Moreover, its other responsibility is to keep member bodies informed of the latest development and standards by issuing exposure drafts form time to time. Needless to mention that the Institute of Chartered Accountants of India and the Institute of Cost and Works Accountants of India are Members of the International Accounting Standards Committee.

The objectives of IASC, which are set out in its revised agreement and constitution (Nov. 1982), are:

(i) To formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observation, and

(ii) To work for the improvement and harmonisation of regulating accounting standards and procedures relating to the presentation of financial statements.

Moreover, The International Federation of Accountants (IFAC)—which was held at the IX International Congress of Accountants in October 1977 had been set up in order to harmonies accounting, auditing and reporting practices in an area which will see growing interdependence of the commercial and industrial systems of the world.

In order to formalize their relationship, International Accounting Standards Committee (IASC) and International Federation of Accountants (IFAC) constituted a working group which has, in the meantime) issued a statement of ‘Mutual Commitments’. Practically, this statement, inter alia, accepts IASC as the sole body responsible for issuing pronouncements on international accounting standards. The Council of IFAC has approved it on May 1981.

At regional level, ‘International Cooperation in Accountancy’ was actually the theme of the Confederation of Asian and Pacific Accountants (CAPA) conference held in 1979 in recognition of the universality of accounting and the consolidation of efforts of accounting organisations throughout the world. Similarly, the Financial Accounting Standards Board (FASB) of USA has recently issued a number of Statements on conceptual framework for financial accounting and reporting in order to develop the respective standards.

Till 1st January 2004, International Accounting Standards have been issued by IASC. Some standards have been withdrawn and some were revised.

The standards are:

IAS 1: Presentation of Financial Statements

IAS 2: Valuation and Presentation of Inventories

IAS 7: Cash Flow Statement

IAS 8: Net Profit or Loss for the Period― Fundamental Errors and Changes in Accounting Policies

IAS 10: Events occurring after Balance Sheet Date

IAS 11: Accounting for Construction Contracts

IAS 12: Accounting for Taxes on Income

IAS 14: Reporting Financial Information by Segments

IAS 15: Information reflecting the effects of Changing Prices

IAS 16: Accounting for Property, Plant and Equipment

IAS 17: Accounting for Leases

IAS 18: Revenue Recognition

IAS 19: Accounting for Retirement Benefits of Employees in the Financial Statements of Employers

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance

IAS 21: Accounting for Effects of Changes in Foreign Exchange Rates

IAS 22: Accounting for Business Combinations

IAS 23: Capitalizations of Borrowing Costs

IAS 24: Disclosure of Related Party Transactions

IAS 26: Accounting and Reporting by Retirement Benefits Plans

IAS 27: Consolidated Financial Statements and Accounting for Investments

IAS 28: Accounting for Investments in Associates

IAS 29: Financial Reporting by Hyperinflationary Economics

IAS 30: Disclosure of Financial Statement and Banks and Similar Financial Institutions

IAS 31: Financial Reporting of Interests in Joint Ventures

IAS 32: Financial Instruments—Disclosure and Presentations

IAS 33: Earning per Share

IAS 34: Accounting for Interim Financials Reporting

IAS 35: Discontinuing Operations

IAS 36: Impairment of Assets

IAS 37: Provisions, Contingent Liabilities and Contingent Assets

IAS 38: Intangible Assets

IAS 39: Financial Investments—Recognition and Measurement

IAS 40: Investment Property

IAS 41: Accounting for Agriculture.