What Is Meant By Compliance with Accounting Standards

 A mandatory accounting standard has been implemented. It is required that every profit and loss account and balance sheet comply with accounting standards, as mandated by Section 211 (inserted by the Companies Amendment Act, 1999). A standard of accounting is one that is recommended by the Institute of Chartered Accountants of India (ICAI) and prescribed by the Central Government in consultation with the NACAS. The ICAI's accounting standards shall be deemed to be the accounting standards until the Central Government prescribes them. Listed companies must comply with all applicable accounting standards in preparing and presenting their financial statements according to newly inserted Clause 50 of the Listing Agreement.                            



(i) NACAS is established:

As a result of the Companies Amendment Act, 1999, section 210A discusses the establishment of NACAS. The Central Government is empowered by section 210A (1) to establish NACAS which will advise the Central Government on formulating and laying down accounting policies and accounting standards for adoption by companies.

Occasionally, NACAS may be asked for advice on accounting policies, standards, and auditing by the Central Government.

As it has done since 1977, the ICAI sets accounting standards. ICAI-recommended accounting standards are prescribed by the Central Government under the Companies Act. If the Central Government prescribes an accounting standard, NACAS may be consulted. According to Section 210A (2), NACAS consists of twelve members:

i. An eminent chairman in accountancy, finance, business administration, business law, economics, or similar disciplines;

ii. Chartered Accountants of India, Cost & Works Accountants of India, and Company Secretaries of India each nominate one member;

iii. The Central Government will nominate one representative;

iv. It will nominate one representative from the Reserve Bank of India::

v. The Comptroller and Auditor General of India shall nominate one representative;

vi. An individual who holds in any university or deemed university the position of professor of accountancy, finance, or business management;

vii. Under the Central Board of Revenue Act, 1963, the chairman of the Central Board of Direct Taxes or his nominee;

viii. The government will nominate two members to represent chambers of commerce and industry;:

ix. Nominated by the Securities and Exchange Board of India.

(ii) Accounting standards deviations:

According to section 211, a company's profit and loss account and balance sheet must disclose if they do not comply with the requirements of the accounting standards

Departures from accounting standards;

Disclosures as required in Section 211(3A) will bring transparency, but these deviations can affect the truth and fairness of the financial statements. As a result, statutory auditors must give negative reports when such deviations violate truth and fairness of the financial statements. Auditor reporting norms need to be changed.

Mandatory Accounting Standards and Statutory Auditors:

If an item is treated differently from the prescribed treatment in the relevant accounting standard, the statutory auditors must qualify their report. The relevant item's materiality should be considered while qualifying. Auditor reports must mention non-disclosure of significant accounting policies. According to the ICAI, "the company has disclosed those accounting policies required to be disclosed under the Companies Act, 1956." Additionally, other significant accounting policies have not been disclosed, such as those related to revenue recognition for long-term construction contracts and warranty expenses, nor have all the policies been disclosed at one time, in violation of Accounting Standard-1, "Disclosure of Accounting Policies."

Non-corporate bodies that prepare financial statements on a cash basis also require auditors to specify this fact. According to the ICAI, auditors may state that accounts give a true and fair view on the cash basis if the fact is specified.

In Section 227, subsection (3) requires the auditor to report whether the profit and loss account and balance sheet comply with the requirements of Section 211 (3C).

Income-Tax Act of 1961:

From time to time, the Central Government can announce in the Official Gazette Compliance with Accounting Standards  for any class of assesses or income classes under the Income-tax Act, 1961. There are two accounting standards: (1) Disclosure of Accounting Policies and (2) Disclosure of Prior Period and Extraordinary Items and Changes in Accounting Policies.

Parallel standards issued by the ICAI are more or less in accordance with these standards. It was believed that the ICAI's standards permitted alternative treatment in various situations, which led to the amendment of the Income-tax Act. Alternatives have already been reduced by ICAI.

In addition, the RBI issues directions to non-banking finance companies (NBFCs) on certain accounting matters as a regulatory authority.

An equally significant development is the appointment of a Standing Committee on Accounting Standards by the Securities and Exchange Board of India (SEBI). Assuring that corresponding accounting standards are harmonized with international accounting standards is the function of this committee.

Standards are mandated by listing agreements between companies and stock exchanges. As a result, listed companies will have a better enforcement mechanism.

Despite the lack of mandatory support for accounting standards, auditors and accountants are expected to observe accounting standards or to seek adherence by business enterprises. In light of the fact that accounting standards are only a means to an end, the ultimate objective should be their acceptance and implementation.


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