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CMA Intermediate · Financial Accounting · Introduction to Accounting Standards (GAAP, AS and Convergence to Ind AS)

As per the Framework, how does compliance with Accounting Standards, including disclosure of the accounting policies used, help users of the financial statements of Kaveri Foods Ltd and Narmada Dairy Ltd?

Compliance with Accounting Standards, including disclosure of accounting policies, helps achieve comparability. Users can identify differences in policies for like transactions used by the same enterprise over time and by different enterprises. It does not force identical policies or remove the need to disclose changes and their effects.

  1. AIt makes both companies use identical policies for every transaction
  2. BIt helps achieve comparability by letting users identify differences in policies for like transactions between periods and between enterprisesCorrect
  3. CIt guarantees that profits of both companies are equal for similar sales
  4. DIt removes the need to disclose any change in accounting policy

Explanation

The Framework says users must be informed of policies used, changes in them and their effects, so they can identify differences for like transactions over periods and across enterprises. Compliance with Standards and policy disclosure helps comparability. It does not mean uniformity or remove disclosure of changes.

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