Procedure for issue of standards by AASB

ICAI is the highest accounting body in the country. And the ASB is a committee of the ICAI. But to ensure maximum transparency and independence, the ASB is a completely independent body.

The ASB formulates all the accounting standards for the Indian companies. This process is fully transparent, very thorough and completely independent of any government involvement. While framing the standards the ASB will try and incorporate the IFRS and its principles in the Indian standards. While India does not plan to adopt the IFRS, this process will help the convergence of the two standards. So, the ASB will modify the IFRS to suit the laws, customs and common usage in the country.

The ASB is composed of various members. There are representatives of industries like the FICCI and ASSOCHAM. There are also certain government officials, a few academics, and regulators from various departments. The idea is to make the ASB as inclusive and representative as possible.

ICAI has issued 43 Engagement and Quality Control Standards (formerly known as Auditing and Assurance Standards) covering various topics relating to auditing and other engagements. All Chartered Accountants in India are required to adhere to all these standards. If a Chartered Accountant is found not to follow the said standards he is deemed guilty of professional misconduct. These standards are fully compatible with the International Standards on Auditing (ISA) issued by the IAASB of the IFAC except for two standards SA 600 and SA 299, where corresponding provisions do not exist in ISA.

Objectives and Functions of The Auditing and Assurance Standards Board (AASB)

The following are the objectives and Functions of the Auditing and Assurance Standards Board (AASB):

1. To review the existing and emerging auditing practices worldwide and identify areas in which Standards on Quality Control, Engagement Standards and Statement on Auditing need to be developed.
2. To formulate Engagement Standards, Standards on Quality Control and Statement on Auditing so that these may be issued under the authority of the Council of the Institute.
3. To review the existing Standards and Statements on Auditing to assess their relevance in the changed conditions and to undertake their revision, if necessary.
4. To develop guidance notes on issues arising out of any Standard, auditing issues pertaining to any specific industry or on generic issues, so that those may be issued under the authority of the Council of the Institute.
5. To review the existing Guidance Notes to access their relevance in the changed circumstances and to undertake their revision, if necessary.
6. To formulate General Clarifications, where necessary, on issues arising from Standards.
7. To formulate and issue Technical Guides, Practice Manuals, Studies and other papers under its own authority for guidance of professional accountants in the cases felt appropriate by the Board.

Procedure for Formulation of Accounting Standards

• At First, the ASB will identify areas where the formulation of accounting standards may be needed
• Then the ASB will constitute study groups and panels to discuss and study the topic at hand. Such panels will prepare a draft of the standards. The draft normally includes the definition of important terms, the objective of the standard, its scope, measurement principles and the representation of said data in the financial statements.
• The ASB then carries out deliberations of the said draft of the standard. If necessary, changes and revisions are made.
• Then this preliminary draft is circulated to all concerned authorities. This will generally include the members of the ICAI, and any other concerned authority like the Department of Company Affairs (DCA), the SEBI, the CBDT, Standing Conference of Public Enterprises (SCPE), Comptroller and Auditor General of India etc. These members and departments are invited to give their comments.
• Then the ASB arranges meetings with these representatives to discuss their views and concerns about the draft and its provisions
• The exposure draft is then finalized and presented to the public for their review and comments
• The comments by the public on the exposure draft will be reviewed. Then a final draft will be prepared for the review and consideration of the ICAI
• The Council of the ICAI will then review and consider the final draft of the standard. If necessary they may suggest a few modifications.
• Finally, the Accounting Standard is issued. In the case of standard for non-corporate entities, the ICAI will issue the standard. And if the relevant subject relates to a corporate entity the Central Government will issue the standard.