What are Accounting Standards?
The Accounting Standard is the collection of the accounting procedures, common principles, and Accounting Standards which forms the foundation of policies, financial accounting, and financial principles. The Accounting Standards are used for improving transparency of financial reporting across the world. The Generally Accepted Accounting Principles make up the accounting set standard that is widely accepted for the preparation of financial statements. The international companies follow IFRS, which are set by the International Accounting Standards Board, and it also serves as a guideline to GAAP and non-US companies as a measure of reporting financial statements.
Accounting Standards Formulation in the Country
The Accounting Standard board (ASB) is a committee belonging to the ICAI, which has the responsibility for the creation of Accounting Standards in India, after the passing of statute by the government of India. Let us have a brief look at the functioning of ASB and the procedure behind the Formulation of Accounting Standards in India.
ICAI is widely considered as the highest accounting body in India. The ASB, Accounting Standard board, is the committee of the ICAI that devises all Accounting Standards for Indian enterprises and companies. The entire process is completely transparent and incredibly thorough, plus it is fully independent of any government involvement or intervention. While devising the standards, ASB tries to incorporate and include the IFRS and its principles within the Indian framework and standards itself.
India has no plans to adopt the IFRS system and hence this process provides the merging of both the standards and takes advantage of both the standards. The ASB is responsible for modifying IFRS so that it aligns with the laws, common usages, and customs that are used and prevalent in the country.
The Accounting Standards board (ASB) is made up of representatives from various industries, regulatory authorities, government departments, academic and professional bodies, and financial institutions. The industry is represented on ASB by the associations CII, FICCI, and ASSOCHAM amongst others.
The process of formulating Accounting Standards in India is very detailed and comprehensive. We take a brief look.
The setting process of Accounting Standards has the following steps.
Identifying broad matters of ASB and preparing preliminary drafts.
Constituting study groups by ASB to prepare for preliminary drafts.
Considering preliminary drafts that are prepared by a study group involving ASB.
Circulating drafts among ICAI council members and within some outside bodies such as Indian banks association, SEBI, DCA, CAG, etc.
Meeting with representatives of outside bodies for their opinion on the proposed Accounting Standards draft.
Finalizing the draft for proposed Accounting Standards based on the comments received from various bodies.
Issuing the invite for exposure draft for public opinion.
Finalizing the draft for Accounting Standards and submitting to the ICAI council for consideration and then approving it for issuance.
Considering Accounting Standards drafts from institute council and modifications to be done in the drafts if necessary, in consultation with the ASB.
The finalized Accounting Standards are issued under the council authority.
Formulation of Accounting Standards in India
After the government 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.
Accounting Standard Board
ICAI is recognised as the highest accounting body in the country, India. The ASB is a committee of the ICAI which 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.
FAQs on Formulation of Accounting Standards in India
1. What is the Full Form of IFRS?
The IFRS known as International Financial Reporting Standards helps in creating the Accounting Standards which are issued by the International Accounting Standards Board called IASB. The primary objective is to give the common accounting language, for increasing the transparency as well as clarity in presenting the financial information. There are 16 IFRS that exist in the country. The IFRS is documentation in the financial domain that is issued by the IASB for setting the Accounting Standards.
2. What does SEBI stand for?
The Securities and Exchange Board of India (SEBI), is the statutory regulatory body that is responsible for regulating the Indian Capital Market. It is responsible for monitoring and regulating the securities market. The SEBI is also responsible for protecting the interests of the investors through the formulation of rules and regulations. The Securities and Exchange Board of India also exercises some specific powers in the financial market that gives it executive powers related to financial institutions.
3. What is CAG?
The CAG stands for Comptroller and Auditor General of India. The primary function of the CAG is auditing the accounts of the government and providing comments on wastefulness related to the extravagance of expenditure plus legal receipts or technical aspects of the revenue. The responsibility of appointing the Comptroller and Auditor General of India lies with the President of India. The CAG is an important body that is responsible for keeping checks and ensuring transparency related to financial expenses.
4. What is the importance of Accounting Standards in the financial market?
The Accounting Standards are set for ensuring the improvement in the transparency related to financial reporting in the country. The Accounting Standards ensure that the financial statements from various enterprises and companies can be comparable. Since all of the entities and enterprises follow uniform rules, these standards make financial statements more credible and pave the way for economic decisions based on consistent as well as accurate information.
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