Accounting standards

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 2.What is a accounting standard?

Accounting standards are a common set of rules, principles, and procedures that define how financial transactions and economic events should be measured, recorded, and disclosed in financial statements. They ensure consistency, transparency, and comparability in financial reporting across different organizations and time periods. [1, 2, 3, 4]



Why Are They Important?
  • Comparability: They allow investors and stakeholders to evaluate and meaningfully compare the financial performance of different companies.
  • Transparency: They prevent organizations from misrepresenting their financial health or using manipulative accounting practices.
  • Credibility: They assure banks, lenders, and regulators that financial reports are accurate and trustworthy. [1, 3]
Major Global Frameworks


Different regions follow specific standard-setting frameworks, though many global bodies work to harmonize them:
  • GAAP (Generally Accepted Accounting Principles): Commonly used in the United States, providing the foundational guidelines for public and private entities.
  • IFRS (International Financial Reporting Standards): Set by the International Accounting Standards Board (IASB), these are used globally in over 140 jurisdictions outside of the U.S.. [1, 3]
Local Context (India)


Depending on the size and nature of the company, organizations adhere to specific guidelines issued by the Institute of Chartered Accountants of India (ICAI):
  • Traditional Accounting Standards (AS): Followed by smaller entities and unlisted companies.
  • Ind AS (Indian Accounting Standards): These are converged with global IFRS and are mandatory for listed companies and larger enterprises. [3]
For detailed information on the standard-setting process, you can explore the Investopedia Accounting Standards Guide. For specific guidelines applicable to businesses in your area, refer to the Institute of Chartered Accountants of India (ICAI) resources. [7]




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