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Accounting Standards - Objectives, Benefits, Limitations

Last updated date: 29th May 2024
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While discussing the importance of stakeholders within any given realm of financial investment and procedure, it is imperative to consider that the aspect of financial statement plays an important role in financing. Therefore, when the question of “What do you mean by accounting standards?” gets addressed, it is imperative to analyse the question with regards to accounting procedures along with their explanations. 

So, to understand accounting, these terms and procedures will be briefly discussed beforehand. Therefore, with regards to the question of “What are Accounting standards?” the answer shall be discussed here on. 

What is meant by Accounting?

To put it bluntly, accounting can be defined as the activity of measuring, processing and communicating financial as well as non-financial information with regards to the economic facets of businesses and corporations. Therefore, accounting refers to the process of keeping track and records of the transactions that occur at a business. 

What is Accounting Standards?

In order to proceed with the discussion of understanding accounting standards objectives benefits limitations, the aspect of accounting standards must be defined upfront. Accounting Standards (AS) are generally defined as authoritative standards with which financial statements are presented, measured, disclosed and recognized for transactions that occur within the market. 

Accounting standards are, in effect, the primary source for the Generally Accepted Accounting Principles or GAAP. And that is where the second question of “What is GAAP?” arises. Let us, therefore, define GAAP.

What is GAAP?

Generally Accepted Accounting Principles or GAAP are referred to the financial practices and procedures that are used primarily in the United States and are interchangeably known as U.S. GAAP. The utilization of GAAP enables businesses in a market to conduct their operations through presenting financial reporting to existing and potential investors in order for them to make ethical and rational decisions regarding financing, investment, credits, etc. 

However, as stated above, GAAP is the most used in the United States and although it has proven to be largely effective, other nations have resorted to a newer accounting standard, known as IFRS which leads to the question “What is IFRS in Accounting?” Therefore, this accounting standard shall thereby be discussed here on. 

What is IFRS?

According to its definition, IFRS or the International Financial Reporting Standards are used to refer to the accounting standards that have been issued in order to describe a company’s performance in an industry or market with regards to its financial stability and market positioning. The Indian Accounting Standards cater to this financial reporting process as well.

What is Ind AS?

As stated earlier, the Indian Accounting Standards or Ind AS refers to the financial reporting standards that are used in India with regards to the processing and recording the financial proceedings in businesses and corporations of India. 

What is International Accounting?

International accounting is referred to the older accounting standards which were put into use in order to promote transparency and compatibility among businesses. 

What is Hedge Accounting?

In the practices of accountancy, Hedge accounting is referred to the specific practice of providing an account of the profit and/or loss of market entries. 

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FAQs on Accounting Standards - Objectives, Benefits, Limitations

1. What is US GAAP?

Ans. The Generally Accepted Accounting Principles of the United States or the U.S. GAAP is referred to the accounting standard (AS) which has been adopted by the SEC or the U.S. Securities and Exchange Commission in order to conduct financial statements within the country’s financial marketplace consisting of stakeholders and customers. The U.S. GAAP is especially useful to present financial reports to potential and existing investors while making an investment. It is similarly helpful while making decisions that are related to financing or long-term investments in a market. It is also highly effective in keeping records and tracks of financial decisions. 

2. What is International Accounting Standards?

Ans. The International Accounting Standards or IAS are referred to accounting standards that are relatively older in procedure and outlook and are issued by IASB in London. Since IAS is an older form of accounting standard, the International Financial Reporting Standards (IFRS) have, therefore, replaced the former since 2001. The goal of IAS has been to promote transparency and implement a more trustworthy model for financial reporting among businesses and firms around the world in order to refine the marketplace practices of global investment as well as trade. As a result of these, the impending risks and future opportunities were estimated beforehand by investors. 

3. What do you mean by GAAP?

Ans. As per the definition of it, GAAP or Generally Accepted Accounting Principles are referred to a set of principles, financial standards and accounting procedures that are used to compile financial statements. It is generally the most evident and widely used accounting principle in the United States. GAAP is often categorised as “authoritative standards” that are set up by policy boards and are directed towards the improvement of the financial marketplace with regards to market consistency, effective communication and compatibility, among others.  GAAP is generally concerned with the market practices of financial revenue recognition and classification of balance sheets among firms.