.png)
Accounting standards establish guidelines and benchmarks for accounting practices, ensuring consistency and common techniques across enterprises. These standards are generally applicable to all corporate enterprises and become effective from a specified date.
In India, the Institute of Chartered Accountants of India (ICAI) established the Accounting Standards Board (ASB) in April 1977 to develop accounting standards. Internationally, the International Accounting Standards Committee (IASC) was formed in 1973, headquartered in London, UK.
Role of the Accounting Standards Board (ASB) :
The ASB's role is to formulate standards on significant accounting matters while considering international developments and legal requirements in India. Its primary function is to identify areas needing uniform standards and develop draft standards after consulting with representatives from the government, public sector undertakings, industries, and other agencies.
Initially, accounting standards were recommendatory. Once their benefits and relevance were recognized, steps were taken to make these standards mandatory for all companies. Companies that do not comply must disclose the reasons for deviations and their financial effects.
International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS):
The IASC issued 41 accounting standards known as International Accounting Standards (IAS). In 2001, the International Accounting Standards Board (IASB), which succeeded the IASC, began issuing International Financial Reporting Standards (IFRS) instead of IAS. These global standards facilitate business comparisons worldwide, enhance transparency, and improve financial reporting, promoting global trade and investment. For a list of standards issued by the IFRS, visit the IFRS website.
Accounting Standards in India :
The ICAI has issued 29 accounting standards, recommended for companies listed on recognized stock exchanges and other large commercial, industrial, and business enterprises in both the public and private sectors. For a detailed list of standards issued by ICAI, visit the ICAI website.
AS and Ind AS
Accounting Standards (AS):
Traditional set of standards issued by ICAI.
Rule-based, providing specific guidelines for various accounting treatments.
Indian Accounting Standards (Ind AS):
Aligned with International Financial Reporting Standards (IFRS).
Recommended by the National Financial Reporting Authority (NFRA) to the Ministry of Corporate Affairs (MCA), which specifies applicable standards for Indian companies.
As of now, the MCA has notified 40 Ind AS (with Ind AS 11 omitted).
Prior to Ind AS, India followed the Indian Generally Acceptable Accounting Principles (IGAAP).
For more information on Ind AS, visit the MCA website.
Applicability of Ind AS
Mandatory applicability to companies with a net worth of not less than ₹500 crores (₹5 billion) from 1 April 2016.
From the accounting period beginning on or after 1 April 2018, mandatory applicability to every listed company and unlisted companies with net worth is more than or equal to ₹250 crores.
Mandatory applicability of Ind AS to all banks, NBFCs, and insurance companies from 1 April 2018, whose net worth is more than or equal to ₹500 crores
All NBFCs whose net worth is more than or equal to ₹250 crores shall have Ind AS mandatorily applicable to them from 1 April 2019.
Companies can follow Ind AS voluntarily or mandatorily. Once a company adopts Ind AS, it cannot revert to the old method of accounting.
Having grasped the concepts of accounting, conventions, GAAP, and Accounting Standards, we recognize how these standards ensure uniformity in financial reporting. By mastering these practices, accountants can accurately record and report business transactions in financial statements.
Next, read our article The Process of Recording Business Transactions in Accounting.