Generally accepted accounting principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice.
Accounting presents the financial results of a company to various stakeholders through financial statements. If the financial accounting process is not properly regulated, there is possibility of financial statements being misleading, tendentious and providing a distorted picture of the business, rather than the true state of affairs. In order to ensure transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to standardize the accounting principles and policies. The Institute of Chartared Accountant of India (ICAI) establishes the policies for the Generally Accepted Accounting Principles of India (Indian GAAP). In this book, 29 Accounting Standards are discussed that are included in the Indian GAAP as published by ICAI. Accounting Standards provide the framework and standard accounting policies so that the financial statements of different organisations become comparable.
The Accounting Standards lower the accounting dissimilarities in the preparation of rational financial statements thereby ensuring comparability of financial statements of different enterprises. The Accounting Standards deal with the issues of recognition of events and transactions in the financial statements, measurement of these transactions and events, presentation of these transactions and events in the financial statements in a manner that is meaningful and understandable to the reader, and the disclosure requirements which should be there to enable the public at large and the stakeholders and the potential investors in particular, to get an insight into these financial statements which helps the users to take prudent and informed business decisions.
The objective of Accounting Standards is to standardize diverse accounting policies with a view to eliminate, to the maximum possible extent, the non-comparability of financial statements and thereby improving the reliability of financial statements, and to provide a set of standard accounting policies, valuation norms and disclosure requirements.