INDIAN ACCOUNTING STANDARDS – A PERSPECTIVE The paradigm shift in the economic environment in India during last few years has led to increasing attention being devoted to accounting standards as a means towards ensuring potent and transparent financial reporting by corporate. Further, cross-border raising of huge amount of capital has also generated considerable interest in the generally accepted accounting principles in advanced countries such as USA.
Initiatives taken by International Organisation Securities Commission (IOSCO) towards propagating International Accounting Standards (IASs)/ International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), as the uniform language of business to protect the interests of international investors have brought into focus the IASs/ IFRSs.
The Institute of Chartered Accountants of India, being a premier accounting body in the country, took upon itself the leadership role by establishing Accounting Standards Board, more than twenty five years ago, to fall in line with the international and national expectations. Today, accounting standards in India have come a long way. Presented hereinafter are some salient features of the accounting standard-setting endeavours in India. Rationale of Accounting Standards
Accounting Standards are formulated with a view to harmonise different accounting policies and practices in use in a country. The objective of Accounting Standards is, therefore, to reduce the accounting alternatives in the preparation of financial statements within the bounds of rationality, thereby ensuring comparability of financial statements of different enterprises with a view to provide meaningful information to various users of financial statements to enable them to make informed economic decisions.
The Companies Act, 1956, as well as many other statutes in India require that the financial statements of an enterprise should give a true and fair view of its financial position and working results. This requirement is implicit even in the absence of a specific statutory provision to this effect. The Accounting Standards are issued with a view to describe the accounting principles and the methods of applying these principles in the preparation and presentation of financial statements so that they give a true and fair view.
The Accounting Standards not only prescribe appropriate accounting treatment of complex business transactions but also foster greater transparency and market discipline. Accounting Standards also helps the regulatory agencies in benchmarking the accounting accuracy. International Harmonisation of Accounting Standards Recognising the need for international harmonisation of accounting standards, in 1973, the International Accounting Standards Committee (IASC) was established.
It may be mentioned here that the IASC has been reconstituted as the International Accounting Standards Board (IASB). The objectives of IASC included promotion of the International Accounting Standards for worldwide acceptance and observance so that the accounting standards in different countries are harmonised. In recent years, need for international harmonisation of Accounting Standards followed in different countries has grown considerably as the cross-border transfers of capital are becoming increasingly common. 2
Accounting Standards-setting in India The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, constituted the Accounting Standards Board (ASB) on 21st April, 1977, with a view to harmonise the diverse accounting policies and practices in use in India. After the avowed adoption of liberalisation and globalisation as the corner stones of Indian economic policies in early ‘90s, and the growing concern about the need of effective corporate governance of late, the Accounting Standards have increasingly assumed importance.
While formulating accounting standards, the ASB takes into consideration the applicable laws, customs, usages and business environment prevailing in the country. The ASB also gives due consideration to International Financial Reporting Standards (IFRSs)/ International Accounting Standards (IASs) issued by IASB and tries to integrate them, to the extent possible, in the light of conditions and practices prevailing in India.