What are Accounting Standards?
Definitive benchmarks prescribed by a country's Accounting Standards Board (as in the UK), or Financial Accounting Standards Board (as in the US) for reporting of accounting data in financial statements. These rules must be applied to all financial statements in order to provide a true and fair view of the firm's financial position, and a standardized method of comparison with financial statements of the other firms.
Who sets Accounting Standards?
There are many different accounting standards in use in the world, ranging from full-accrual based accounting standards to cash- and tax-basis accounting standards. Each are known as Generally Accepted Accountancy Principles, or GAAP. Some significant GAAPs are as follows:
- IFRS - International Financial Reporting Standards - used for European Union listed entities, many other EU entities, Australian companies and others.
- US GAAP - used by US companies.
- UK GAAP - used by UK and Irish companies that have not adopted IFRS.
- Canadian PE GAAP - private enterprises in Canada have the option to use either IFRS or PE GAAP. Canadian public companies must use IFRS.
- Indian GAAP - used by Indian companies.
In commercial and non-profit accounting in the United State of America, the standard setter is the Financial Accounting Standards Board. For governmental accounting, GAAP is determined by the Governmental Accounting Standards Board. Both of these entities are sections of the Financial Accounting Foundation.
The use of GAAP for publicly held business entities in the United States is mandated by the Securities and Exchange Commission, a federal agency. Other business entities may find that other accounting standards may meet the needs of the users and therefore not adopt GAAP due to the extra costs required.
Accounting Standards in India are developed by Accounting Standards Board and these are issued by The Institute of Chartered Accountants of India Click here to view all Accounting Standards Issued by ICAI]
In Bangladesh, The Institute of Chartered Accountants of Bangladesh adopt compatible IAS and followed them by the company as per Companies Act 1994.
There is currently a movement around the world to harmonise all accounting standards into one set of IFRSs. This is on ongoing project, primarily being undertaken by the International Accounting Standards Board. This project is being coordinated with the standard setting bodies in the United States.
Compliance with Accounting Standards
IAS 1 is a base document of the IASB defining the contents of the general financial reporting statements ( statement of financial position , statement of comprehensive income, statement of changes in equity, Notes ; cashflow statments have their own standard, IAS 7 ) . Paragraph 20 of IAS 1 allows non-compliance with standards when a fairer view can be achieved, but it must be disclosed how the non-compliance is fairer. Some countries, for example Australia, who attempt to harmonise with IASB, AASB 101 being the australian counterpart of IAS 1, forbids departure from the standards in all instances, due to Australia's incorporation of AASB financial reporting standards compliance in its Corporation Law , ostensibly to regulate corporation behaviour towards economically dependent shareholders. In the AASB 101, disclosure of how non-compliance will achieve a fairer view in the Notes is prescribed, rather than allowing statements to be non-compliant to achieve a fairer view, as in IAS 1.