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CA Intermediate · Advanced Accounting · Introduction to Accounting Standards

Rohan Pharma Ltd. is preparing its annual report. The auditor points out that where a particular Accounting Standard conflicts with a law in force, a specific rule applies. Which statement correctly reflects the position stated in Accounting Standards?

If an Accounting Standard conflicts with a law in force, the law prevails and the financial statements must be prepared in conformity with that law. The company has no free choice between them, and the standard does not override the statute.

  1. AThe Accounting Standard always prevails over the law
  2. BThe law prevails, and the financial statements must be prepared in conformity with the lawCorrect
  3. CThe company may choose whichever it prefers
  4. DBoth must be ignored and the accounting policy decided by the board

Explanation

Accounting Standards state that if a standard is in conflict with a law, the provisions of the law will prevail and the financial statements must be prepared in conformity with the law. Hence the option saying the standard always prevails is wrong.

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