Process of Formulation of Accounting Standards in India29/08/2022 0 By indiafreenotes
Procedure for Issuing an Accounting Standard
Broadly, the following procedure is adopted for formulating Accounting Standards:
(i) The ASB determines the broad areas in which Accounting Standards need to be formulated and the priority in regard to the selection thereof.
(ii) In the preparation of Accounting Standards, the ASB will be assisted by Study Groups constituted to consider specific subjects.
(iii) The draft of the proposed standard will normally include the following:
- Objective of the Standard,
- Scope of the Standard,
- Definitions of the terms used in the Standard,
- Recognition and measurement principles, wherever applicable,
- Presentation and disclosure requirements.
(iv) The ASB will consider the preliminary draft prepared by the Study Group and if any revision of the draft is required on the basis of deliberations, the ASB will make the same.
(v) The Exposure Draft of the proposed Standard will be issued for comments by the members of the Institute and the public. The Exposure Draft will specifically be sent to specified bodies (as listed above), stock exchanges, and other interest groups, as appropriate.
(vi) After taking into consideration the comments received, the draft of the proposed Standard will be finalised by the ASB and submitted to the Council of the ICAI.
(vii) The Council of the ICAI will consider the final draft of the proposed Standard, and if found necessary, modify the same in consultation with the ASB. The Accounting Standard on the relevant subject will then be issued by the ICAI.
(viii) For a substantive revision of an Accounting Standard, the procedure followed for formulation of a new Accounting Standard, as detailed above, will be followed.
(ix) Subsequent to issuance of an Accounting Standard, some aspect(s) may require revision which are not substantive in nature. For this purpose, the ICAI may make limited revision to an Accounting Standard. The procedure followed for the limited revision will substantially be the same as that to be followed for formulation of an Accounting Standard, ensuring that sufficient opportunity is given to various interest groups and general public to react to the proposal for limited revision.
Compliance with the Accounting Standards:
While discharging their attest functions, it will be duty of the members of the Institute to ensure that the Accounting Standards are implemented in the presentation of financial statements covered by their audit reports.
In the event of any deviation from the Standards, it will also be their duty to make adequate disclosures in their reports so that the users of such statements may be aware of such deviations.
In the initial years, the Standards will be recommendatory in character and the Institute will give wide publicity among the users and educate members about the utility of Accounting Standards and the need for compliance with the above disclosure requirements. Once an awareness about these requirements Is ensured, steps will be taken, in course of time, to enforce compliance with the accounting standards.
The adoption of Accounting Standards in our country and disclosure of the extent to which they have not been observed will, over the years, have an important effect, with consequential improvement in the quality of presentation of financial statements.