Benefits and Limitations of Accounting Standards – IPCC Group 1 (Paper 1)

Accounting Standards aims to disseminate the true information about financial position and profitability of an enterprise to the stakeholders for prudent management decisions, by preparing and presenting the financial information by applying the valuation techniques and methods of accounting principles, thereon. By setting the standards the accountant has following benefits.

By setting up certain Accounting Standards we can reduce the alternative accounting treatments and bring the unity in the applying accounting methods for recording the business transactions. Hence, there will be no confusion for choosing the accounting method to apply among the alternative methods available.

It enables to compare financial statements of various enterprises located different places in the World or situated in the same country. And it should be noted that there would be deviation in adopted accounting policies from one country to another country, in which competition is not possible.

However, there are some limitations of setting of accounting standards:

There will be alternative solution for any specific accounting problem, where each solution has its own argument to choose. Hence, it has complicated to choose the Accounting Treatment among the alternatives.

During the application of the Accounting Standards there is trend towards the inflexibility.

Accounting Standards should be framed within the limitations, restrictions of the Statute and these should not override the statutes of the government.