What role do Accounting Standards play in the preparation of financial statements?

Ensure consistency and comparability in financial reporting

There exists a significant third financial statement known as the Cash Flow Statement. This statement delineates the inflows and outflows of cash and cash equivalents. Typically prepared by companies, it serves as a valuable tool for users of financial information, enabling them to discern the origins and applications of cash and cash equivalents over a specific period, stemming from various activities of the enterprise. Its practical utility has grown substantially in recent years, making it indispensable to users of financial information. Companies' financial statements adhere to the accounting standards outlined in the Companies Act, 2013. These Accounting Standards are formally established under Section 133 of the Companies Act, 2013, through the Accounting Standards Rules, 2006, and are legally obligatory. The Companies Act, 2013, emphasizes that adherence to accounting standards is crucial; otherwise, financial statements may not accurately represent the true and equitable state, a hallmark of financial reporting quality.