An accounting standard is set of common principles, accounting standards and the accounting procedures which makes up the basis of the financial accounting, policies and the financial practices. Accounting standards are to improve the transparency of the financial reporting in all the countries. The Generally Accepted Accounting Principles form the accounting set standard which is being widely accepted for preparing the financial statements. While the International companies follow the IFRS, which are set by the International Accounting Standards Board, this serves as the guideline for non-U.S. and the GAAP companies for reporting the financial statements.
After the government have passed a statute, the Accounting Standard Board (ASB) which is a committee of the ICAI took the responsibility for the formulation of the accounting standards in the nation, India. For this we need to take a brief look at the functioning of the ASB and the procedure which is behind the formulation of the accounting standards in India.
ICAI is recognised as the highest accounting body in the country, India. The ASB is a committee of the ICAI who devises all the accounting standards for the Indian Companies. The process is accurately transparent, the process is also very thorough and completely independent of any government intervention or involvement. While designing the standards the ASB tries to incorporate the IFRS and its principles in the Indian standards itself. India does not plan to adopt the IFRS system, thus this process helps the merge of the two standards and thus reap the benefits of the both. So, the ASB modifies the IFRS to align with the laws, and the customs and the common usages that are used by the country.
The Institute of chartered accountants of India with their own methodologies have constituted the accounting standards board in the year 1997. The accounting standards board is the apex body for picturing the accounting standards in India.
Accounting standards board (ASB) consists of the representatives of the industry, various departments of the government and the regulatory authorities, financial institutions and the academic & the professional bodies. The Industry is represented on the ASB by their associations - ASSOCHAM, CII and FICCI etc.
The Accounting standards setting process constitutes the following steps:
Identifying the broad matters by the ASB for formulating the Accounting standards.
Constitution of the study groups by the ASB for preparing their preliminary drafts.
Considering the preliminary drafts which are prepared by the study group by the ASB.
Circulation of the drafts among the council members of the ICAI and some specific outside the bodies like the standing conference of the public enterprises, Indian banks association, CII, SEBI, CAG, DCA.
Meeting with the representatives of the specified outside bodies to certify their views on the drafts of the proposed Accounting Standard.
Finalization of the exposure of draft of the proposed Accounting Standards on the basis of the comments that are received and are in discussion with the representatives of the specified outside bodies.
Issuance of the exposure draft inviting for the public comments.
Consideration of the comments that are received and then finalizing of the draft accounting standards for the submission to the council of the ICAI for its own consideration and then giving approval for its issuance.
Consideration of the drafts by the accounting standards by the council of the institute and if the same is found necessary, modifications of the drafts in consultation with ASB is done.
The accounting standards which are finalized are required to be issued under the authority of the council.
1. What is the Full Form of IFRS?
Ans. The International Financial Reporting Standards is the full form of IFRS, which devises the accounting standards that are issued by the International Accounting Standards Board abbreviated as IASB with the sole objective of providing a common accounting language to increase the transparency and clarity in the presentation of the financial information. There are16 IFRS.
2. What is SEBI?
Ans. Securities and Exchange Board of India is the full form of SEBI. This is a statutory regulatory body which regulates the Indian Capital Market. They monitor and they regulate the securities market also they protect the interest of the investors by devising some rules and regulations. There are powers of SEBI as it functions as a regulatory board. The powers of SEBI include – regulating and approving the by-laws of the stock exchange market, SEBI inspects the books of accounts, they also inspect the books of financial intermediaries, compel the companies to get listed, and register the brokers.
3. What is CAG?
Ans. The full form of CAG is Comptroller and Auditor General of India.
The main function of CAG is to audit the accounts of the government and to comment on the wastefulness of the extravagance of expenditure and technicality or legally receipts of the revenue. The CAG is appointed by the President of India.