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CA Foundation · Accounting · Theoretical Framework

Which of the following statements about the nature of Accounting Standards is correct?

Accounting Standards are written policy documents issued by expert bodies that harmonise differing accounting practices by prescribing recognition, measurement and disclosure. They do not remove judgement, apply to all covered entities rather than only banks, and cannot be ignored even with the auditor's agreement.

  1. AThey are written policy documents that harmonise diverse accounting practices by prescribing treatment and disclosureCorrect
  2. BThey are laws that replace the need for any judgement in preparing financial statements
  3. CThey apply only to the cash flows of banks and insurers
  4. DThey are suggestions that a company may ignore if its auditor agrees

Explanation

Accounting Standards are policy documents that reduce alternative treatments and bring uniformity in recognition, measurement and disclosure. They do not eliminate judgement, they are not limited to banks and insurers, and for companies covered by the Act compliance is mandatory, so auditor consent cannot waive them.

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