The use of the word ‘Standards‘ is generally known as ‘Principles‘ a few years ago. The British introduced the term ‘standards’ in place of ‘principles’ when they set up their Accounting Standards Steering Committee at the end of 1969, and then Americans adopted the same term in 1973, when the Financial Accounting Standards Board was established in place of Accounting Principles Board. In India this term mainly become popular since the formation of the Accounting Standards Board in April 1977 by the Institute of Chartered Accountants of India (ICAI).
An Accounting Standard is a selected set of accounting policies or board guidelines regarding the principles and methods to be chosen out of several alternatives. Accounting Standard is considered as written statements issued from time to time by institutions. Such accounting bodies are currently found in many countries of the world. e.g., Accounting Standards Board (India), Financial Accounting Standards Board (USA), Accounting Standards Board (UK), etc.
The main objective of Accounting Standards is to harmonize the diverse accounting policies and practices at present in the use of India. Harmonization of accounting standards does permit flexibility to make the necessary adjustments to suit their purpose. There are some other objectives of Accounting Standards like standardizing the diverse accounting policies and practices with a view to eliminating to extent the non-comparability of financial statements.
At present, Accounting Standards are regarded as a major component in the framework of accounting and reporting practices. Standards exist to help the accounting practices which are regarded as the most suitable for the circumstances covered. They help individual companies and their managements to justify whatever practices they adopt when producing their financial statements.
Auditors are duty-bound while discharging their function to ensure that the Accounting Standards issued and made mandatory by the ICAI are implemented. Section 227 (3) of the Companies Act, 1956 requires to report auditor to report his opinion on the Profit and Loss Accounting and Balance Sheet.