Benefits and Limitations of Accounting Standards


Accounting Standards describe the accounting principles. They provide for the valuation techniques and the methods of applying the accounting principles. Accounting Standards help in establishing comparability and reliability features for financial statements. This helps financial statements to represent the true and fair view.

Benefits of Accounting Standards

  • It reduces confusing variations in the accounting treatments used to prepare financial statements, to a reasonable extent.
  • It allows for disclosure of certain information beyond what are statutorily required.
  • By bringing in comparability features, it helps in assisting comparison of financial statements of different enterprises. It also helps in comparing financial statements of entities in different countries to a limited extent. Although such standards are set for a specific country recognising the differences in institutions, traditions and legal systems, they provide recognition for differences in accounting standards adopted in different countries.

Limitations of Accounting Standards

Although they are beneficial to bring in comparability and reliability, they have some limitations too.

  • Each alternative solution to certain accounting problems has its own benefits. By eliminating the choice between such alternatives, it brings in rigidity. It takes away flexibility in applying the accounting principles.
  • Also, each alternative has its own arguments and choosing the best one for standard itself is a challenging task.
  • Accounting standards cannot override the statute. They are required to be framed within the ambit of prevailing statutes.

Accounting Standards as a whole are very important in preparing financial statements. They help in bringing comparability features. It is very much vital for investors to access the true and fair view of the enterprise. It is also necessary for accountants. Comparability and reliability features established by these standards help in building up and maintaining the trust on the works of accountants. Despite the limitations mentioned above, they are important part of functions of an accountant in preparing financial statements.

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