Explain the following: (i) What are the objectives of accounting standards? (ii) What is the difference between liability and contingent liability?

(i) Accounting Standards standardise diverse accounting policies with an objective to: (i) eliminate the non-comparability of financial statements and thereby improving the reliability of financial statements; and (ii) provide a set of standard accounting policies, valuation norms and disclosure requirements. (ii) A liability is defined as the present financial obligation of an enterprise, which arises from past events. The settlement of a liability results in an outflow from the enterprises of resources embodying economic benefits. On the other hand, in the case of contingent liability, either outflow of resources to settle the obligation is not probable or the amount expected to be paid to settle the liability cannot be measured with sufficient reliability. For example - claims against the enterprise not acknowledged as debts, guarantees given in respect of third parties, liability in respect of bills discounted and statutory liabilities under dispute etc. In addition to present obligations that are recognized as liabilities in the balance sheet, enterprises are also required to disclose contingent liability in their balance sheets by way of notes.