What are accounting standards? Explain the need for them and the qualitative characteristics of useful financial information.

How to lay out the answer. Follow the frame, then write it in your own words.

1 · Define accounting standards. Authoritative rules on recognition, measurement, presentation and disclosure.
2 · Give the Sri Lankan setting. CA Sri Lanka issues SLFRS (based on IFRS) and LKAS (based on IAS).
3 · Explain the need for standards.
- Comparability between companies and years.
- Less room for manipulation; more trust.
- A common language for local and foreign investors and lenders.
- Clear guidance for preparers and auditors.
4 · Fundamental characteristics.
- Relevance, including materiality.
- Faithful representation: complete, neutral, free from error.
5 · Enhancing characteristics. Comparability, verifiability, timeliness, understandability: one line each.
6 · Give one example of a standard at work. Inventory at the lower of cost and NRV; LIFO not allowed.
7 · Conclude. Standards turn concepts into rules so that users can trust and compare financial statements.

Scoring tip: Name the two groups of characteristics separately; many answers lose marks by mixing them.