GSEB Class 11 Solutions Chapter 7 Accounting Standards Concept and Objectives

Text Book Questions and Answers

Question 1. Write a short note on Accounting Standards.
Answer: Accounting Standards are written statements containing consistent accounting rules and guidelines. These must be followed when preparing and presenting financial statements. Different business entities often prepare their accounts in unique ways because of management choices or varying opinions among accountants on various practices. If different entities use different policies for the same accounting issue, their accounts become difficult to compare, and helpful conclusions cannot be drawn. Therefore, to bring consistency in how financial statements are prepared and presented, efforts are made at both international and national levels to create and publish accounting standards. For this reason, the International Accounting Standards Committee (IASC) was set up in 1973. On April 1, 2001, the International Accounting Standards Board (IASB) took over the responsibility for setting International Accounting Standards. India is also now preparing to apply IFRS, and ICAI has started issuing Indian Accounting Standards that comply with IFRS. In the beginning, issued accounting standards were sometimes advisory for entities, gradually becoming compulsory later. However, accounting standards are not strict. When the business environment or laws change, these standards are updated. The goals of setting accounting standards include bringing consistency to accounting policies and practices and ensuring clarity, regularity, and ability to compare.
In simple words: Accounting Standards are written rules that ensure everyone prepares financial reports in a similar way. Without them, different companies might use different methods, making it hard to compare their financial information accurately. These standards are developed internationally and nationally, are updated as needed, and help make financial reporting clear and consistent.

Exam Tip: When writing a short note, ensure you define the term, explain its purpose, mention the problem it solves, and include its historical development and objectives for a comprehensive answer.

Question 2. State meaning of Accounting Standards and explain the concept thereof.
Answer:
Meaning: Accounting standards offer guidelines for financial accounting, detailing how a company prepares and presents its statements and reports. Put simply, accounting standards are written statements of consistent accounting rules and guidelines, which must be followed when preparing and presenting financial statements. Explanation: Accounting standards are developed considering the business environment and laws of the country. Accounting Standards are not rigid. Because of this, when the business environment or laws change, the accounting standards are updated. Concept: The rules, policies, or guidelines mentioned by accounting standards are typically for the measurement, valuation, and disclosure of financial information in the financial statements. According to Kohlar, accounting standards represent a Code of Conduct imposed on accountants by common practice, law, and professional organizations. Professional accounting bodies find areas of accounting where alternative and diverse practices are common. In their early years, such accounting standards are advisory for entities and become mandatory over time. Accounting Standard suggests the best practice among various accounting methods or evaluates them in detail to confirm their suitability. If there is a conflict between an accounting standard and law, the law will always take precedence.
In simple words: Accounting Standards are rules for how companies should record and show their financial information, ensuring consistency. They are flexible and get updated if laws or business conditions change. These standards cover how to measure, value, and share financial details, acting as a guide for accountants, and if ever a standard conflicts with a law, the law comes first.

Exam Tip: For definitional questions, always provide a clear definition, then elaborate with an explanation, and finally discuss the underlying concept, ensuring all parts of the question are addressed.

Question 3. State the objectives and utilities (uses) of Accounting Standards.
Answer: The main objectives and uses of Accounting Standards are outlined below:

• Uniformity: The primary goal of establishing accounting standards is to ensure consistency in accounting policies and practices.
• Comparison of accounts: Accounting standards are valuable for comparing different accounts.
• Framing law: Accounting standards give useful information and data to the Central Government, helping them create laws about accounting matters.
• Useful to auditors: Accounting standards also become helpful for auditors. If accounts are not kept according to accounting standards, auditors can conduct a detailed investigation and uncover accounting frauds.
• Reliability: Accounts become objective and trustworthy by following accounting standards.
• Comparison with different firms: Because of accounting standards, it becomes possible to compare different years as well as different firms.
• Useful to accountants: Accounting Standards are also beneficial for accountants in their work. If they follow accounting standards, personal opinions or bias do not enter the accounts.
• Useful in preparing financial statements: Accounting standards offer rules and guiding principles for preparing and presenting financial statements.

Exam Tip: When listing objectives, ensure each point is distinct and clearly explains a specific benefit or purpose of the accounting standards.

Question 4. Answer the following questions in one sentence:

Question 4. (1) In which year International Accounting Standards Committee (IASC) was established?
Answer: The International Accounting Standards Committee was set up in the year 1973.
In simple words: The IASC was created in 1973.

Exam Tip: For single-sentence answers, be precise and directly state the requested fact without additional details.

Question 4. (2) In which year ASB was set up by ICAI?
Answer: The Accounting Standards Board (ASB) was established by the Institute of Chartered Accountants of India (ICAI) in the year 1977.
In simple words: ICAI formed the ASB in 1977.

Exam Tip: Remember key dates and the organizations involved in setting up accounting bodies for factual recall questions.

Question 4. (3) For what purpose ASB was set up?
Answer: The ASB was established to formulate accounting standards.
In simple words: ASB was created to make accounting rules.

Exam Tip: Understand the primary function of each regulatory body to answer purpose-based questions directly.