What is Indian Accounting Standard?

What is Indian Accounting Standard?

Accounting principles, concepts and conventions are used in writing accounts and in preparing financial statements. As seen in the discussion on accounting Principles, concepts and conventions, these can be diverse accounting practices. Accountants have different opinions on various practices. Therefore, the same transaction may be recorded differently based on various accepted practices.

Examples :-

• Straight line method or written down method value method or any other method may be used for providing depreciation.
• Stock can be valued by FIFO or by LIFO method. Out of various options available, the choice of a particular practice depends upon the management policy.
• If different entities adopt different policies for the same accounting matter, accounts do not remain comparable and useful conclusions cannot be drawn from such accounts.

Therefore, to bring uniformity in preparation and presentation of financial statements, attempts are made at the international and national level to formulate and issue Accounting principles. For the purpose, in the year 1973 International Accounting Standards Committee (IASC) was set up. On 1^st April, 2001, International Accounting Standards Board (IASB) took over the responsibility for setting International Accounting Standards. In India, the institute of Chartered Accountants of India (ICAI) set up the Accounting Standards Board (ASB) on 21^st April, 1977 to formulate accounting standards.

The institute of Chartered Accountants of India (ICAI) issues Indian Accounting Standards. IASB issues International Financial Reporting Standards (IFRS) with a view to unify the accounting practices worldwide. Now, preparation is on India also for applying IFRS and ICAI has started issuing Indian Accounting Standards (Ind Ass) compliant with IFRS.

Meanings and concepts of accounting Standards: –

• Accounting standards are written statements of uniform accounting rules and guidelines issued by the accounting bodies (like ICAI or IASB) to be followed while preparing and presenting the financial statements. The rules, policies or guidelines stated by Accounting Standards are usually for measurement, valuation and disclosure of accounting information in the financial statements.

Definition of Accounting Standards: –

• According to Kohlar, Accounting Standards are a code of conduct imposed on accountants by custom, law and a professional body.

In India, Central Government, in consultation with the National Advisory Committee on Accounting Standards (NACAS), notified Companies (India Accounting Standards) Rules, 2015 on 16^th February, 2015 to come into force from 1^st April, 2015. Under these rules, the Companies as specified there in and their auditors shall comply with the Indian Accounting Standards (Ind AS) specified there in preparation of their financial statements and audit respectively.

Professional accounting bodies (such as ASB set up by ICAI) identify areas of accounting where alternative and diverse practices are followed. After detailed deliberations, a draft of accounting standards on specific area of accounting is issued. Thereafter, suggestions or comments are also invited on such draft Accounting Standard. Then, after considering all the aspects, Accounting Standard is issued. In the initial years, sometimes such accounting standards are re commendatory for entities and are made mandatory gradually after some time. Such accounting standards may be made mandatory for specified entities or they may be made applicable to all entities. Accounting standards recommends the practice out of diverse accounting practices that are available or evaluates them in detail to ascertain acceptability thereof.

However, accounting standards are not rigid. They also permit adoption of a particular practice out of various options available. Accounting standards are prepared keeping in view the business environment and laws of the country. Therefore, when business environment or laws change, the accounting standards are revised. In case of conflict between the accounting standard and law, the law shall prevail.

Objectives and Uses of Accounting Standards: –

• Accounting Standards is to bring uniformity in accounting policies and practices and to ensure transparency, consistency and comparability.
• Accounting standards is to allow flexibility of adopting a particular practice or method with suitable disclosure to entities out of various acceptable accounting methods or practices available.
• To enhance the reliability of financial statements among their users.
• Accounting Standards provide rules and guiding principles for preparation and presentation of financial statements.
• When financial statements are prepared in compliance with accounting standards and auditors have certified such compliance, it enhances the reliability of financial statements.

Accounting standards issued by ICAI issued by : –

The accounting standards of India, also known as Indian Accounting Standards (Ind AS), are a set of accounting standards issued by the Institute of Chartered Accountants of India (ICAI) for companies in India. These standards are based on International Financial Reporting Standards (IFRS) and are designed to ensure that financial statements provide a true and fair view of a company’s financial performance and position. Ind AS are mandatory for certain companies and voluntary for others. Companies that are required to comply with Ind AS must follow the standards for the preparation and presentation of their financial statements.

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