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Importance of accounting standards as per the regulator's expectations
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SUBJECT: CORPORATE ACCOUNTING TOPIC: “ROLE OF ACCOUNTING STANDARDS”
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I hereby declare that the project assignment entitled “ROLE OF ACCOUNTING STANDARDS IN INDIA” is submitted for fulfilling the essential criteria of INDORE INSTITUTE OF LAW, is a record of an original work done by me under the guidance of Asst.Prof. Mr. Manish Phalke B.B.A. LL.B. (HONS.) 2nd^ year- IV semester , Indore Institute of Law for the Academic session 2019-20. Rishika Jain B.B.A.LL.B (HONS.) 2 nd^ year – IV semester
It is not possible to prepare a project without the assistance and encouragement of other people. This is certainly no exception. On the very outset of this project I would like to extend my sincere and heartfelt obligation towards all the personages who helped me in this endeavour. Without their guidance, help, cooperation and support I would not have made headway in this project. I am ineffably thankful to Asst.Prof Mr. Manish Phalke for conscientious guidance and encouragement to accomplish this assignment. I extend my sincere gratitude to INDORE INSTITUTE OF LAW for giving me this opportunity. I also acknowledge a deep sense of reverence, my gratitude towards my friends and family members who have always supported me morally as well as economically. Last but not the least I want to thank THE ALMIGHTY who made everything possible.
The method adopted for the research casts the content analysis and doctrinal method of the available fledged data. Content analysis is a methodology in the social sciences by which texts are studied as to authorship, authenticity, or its meaning. Content analysis is a summarizing, quantitative analysis of messages that relies on the scientific methods including some prerogative methods as well, and is not limited as to the types of variables that may be measured but has its vastness up to sky high limits that is unfeasible. In this research the methodology of content analysis is used for analysing researched data comprising of various articles, news articles, reports of various institutions etc. & books on the relevant topic to bring forth useful & appropriate information as it is the doctrinal type of research.
To study in particular about the Indian Accounting Standard. To understand the procedure for issue of Indian Accounting Standard, and who issues it. To know about all the list of all Accounting Standards issued till date. To know about the Objectives and Role of Indian Accounting Standards.
CHAPTER 1: Introduction CHAPTER 2: Review of Literature CHAPTER 3: Objectives of Accounting Standards CHAPTER 4: Who issues the Accounting Standards in India Procedure of issuing Accounting Standards CHAPTER 5: Accounting Standards in Indian context List of Accounting Standards in India CHAPTER 6: Role and Importance of Accounting Standard CHAPTER 7: Conclusion CHAPTER 8: References
Bhatt, P. (2016) in his Ph.D. thesis titled as "A Study on Issues Related to Converging Indian Accounting Standards into International Financial Reporting Standards", concluded that this is a high time for Indian corporate sector to adopt IFRS, because this is a matter of international prestige of India. Indian government should also make some efforts by creating rules for smooth adoption and acceptance of IFRS. Researcher has also analyzed that this convergence will not create significant impact on liquidity and profitability of the companies selected by him. Dr. Muniraju, M. and Ganesh S.R.(2016) pointed out that, Implementation of IFRS will make India capable of attracting capital from world capital market it will also make accounting rules application truthful by lease accounting, tax accounting and economic instrument accounting rules convergence. Researchers have specified that respondents are not well aware about the IFRS. This lack of knowledge is creating hurdles in the implementation in India. Sambaru M. and Kavita N.V. (2014) have found out that, adoption of IFRS in India will be very challenging task but it will also become rewarding to Indian corporate disclosure system, It will also result in transparent financial reporting of companies and become fruitful to investors, customers and other stakeholders, ultimately it will increase reliance and trust of stakeholders on financial reports of the company.
For the following purposes, accounting standards are needed: (i) For bringing uniformity in accounting methods: Accounting standards are required to bring uniformity in accounting methods by proposing standard treatments to the accounting issue. For example, AS-6(Revised) states the methods for depreciation accounting. (ii) For improving the reliability of the financial statements: Accounting is a language of business. There are many users of the information provided by accountants who take various decisions relating to their field just on the basis of information contained in financial statements. In this connection, it is necessary that the financial statements should show true and fair view of the business concern. Accounting standards when used give a sense of faith and reliability to various users. They also help the potential users of the information contained in the financial statements by disclosure norms which make it easy even for a layman to interpret the data. Accounting standards provide a concrete theory base to the process of accounting. They provide uniformity in accounting which makes the financial statements of different business units, for different years comparable and again facilitate decision making. (iii) Simplify the accounting information: Accounting standards prevent the users from reaching any misleading conclusions and make the financial data simpler for everyone. For example, AS-3 (Revised) clearly classifies the flows of cash in terms of ‘operating activities’, ‘investing activities’ and ‘financing activities’. (iv) Prevents frauds and manipulations: Accounting standards prevent manipulation of data by the management and others. By codifying the accounting methods, frauds and manipulations can be minimized. (v) Helps auditors: Accounting standards lay down the terms and conditions for accounting policies and practices by way of codes, guidelines and adjustments for making and interpreting the items appearing in the financial statements. Thus, these terms, policies and guidelines etc. become the basis for auditing the books of accounts.
(x) Indian Banks’ Association (IBA) (xi) Any other body considered relevant by the ASB keeping in view the nature of the Accounting Standard. The ASB will hold a meeting with the representatives of specified bodies to ascertain their views on the draft of the proposed Accounting Standard. On the basis of comments received and discussion with the representatives of specified bodies, the ASB will finalize the Exposure Draft of the proposed Accounting Standard. 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. After taking into consideration the comments received, the draft of the proposed Standard will be finalized by the ASB and submitted to the Council of the ICAI. 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. For a substantive revision of an Accounting Standard, the procedure followed for formulation of a new Accounting Standard, as detailed above, will be followed. Subsequent to issuance of an Accounting Standard, some aspect(s) may require revision which is 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.
Indian Accounting Standards, (abbreviated as India AS) are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with “International Financial Reporting Standards (IFRS)”. These accounting standards are formulated by Accounting Standards Board of Institute of Chartered Accountants of India. Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 and IFRS converged Indian Accounting Standards (India AS). The India AS are named and numbered in the same way as the corresponding IFRS. NACAS recommend these standards to the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has to spell out the accounting standards applicable for companies in India. As on date the Ministry of Corporate Affairs notified 35 Indian Accounting Standards (India AS). But it has not notified the date of implementation of the same. LIST OF INDIAN ACCOUNTING STANDARDS: IAS 1 Disclosure of Accounting policies" IAS 2 Valuation of Inventories IAS 3 Cash Flow Statement IAS 4 Contingencies and Events Occurring after the Balance Sheet Date IAS 5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies IAS 6 Depreciation Accounting IAS 7 Construction Contracts (revised 2002) IAS 8 Accounting for Research and Development (AS-8 is no longer in force since it was merged with AS-26) IAS 9 Revenue Recognition IAS 10 Accounting for Fixed Assets IAS 11 the Effects of Changes in Foreign Exchange Rates (revised 2003) IAS 12 Accounting for Government Grants IAS 13 Accounting for Investments IAS 14 Accounting for Amalgamations IAS 15 Employee Benefits (revised 2005) IAS 16 Borrowing Costs
Operating a line of work is not simply to make profits, deposit money in the money box, paying employees, and lure more customers and clients. It is whether the commercial enterprise is booming or if the owner is simply investing in something that will not win them all. Accounting standards in the United States appear in the conformation of the generally accepted accounting principles, a set of measures, guidelines and operations that are used when accounting for the affairs of most governmental and non- governmental bodies. The reading of numbers and the wherewithal to put them in the proper context are at the essence of accountability. Measures exist to assure that accounting decisions are reached in a unified and reasonable manner. Comparison Paramount to the purpose of accounting standards is the universality that it brings to financial record keeping. Governmental organizations must to accounting procedures that are the same as their counterparts, and non-governmental organizations must execute the same. The answer is that it is easy to compare the fiscal standing of similar entities. All comparisons within groups are a matter of comparing "apples to apples." This helps both external and internal observers weigh the state of an entity in the context of other comparable entities. For example, the financial standing of a town can be appraised against a neighbouring town with the presumption that the pertinent numbers have been achieved in a standardized style. Transparency Accounting standards are planned to implement transparency in governing bodies. The rules, procedures and standards that form up the generally accepted accounting principles were selected with the intention of assuring that organizations lean in the focal point of openness when deciding how to provide data to observers. This sort of transparency is particularly significant in the event of public entities, such as governments or publicly traded companies. Standards limit the freedom and flexibility of entities to use clever accounting to move points around or even to obscure them. Relevance Standards exercise to help entities provide the most relevant information in the most sensible manner possible. In this way, an organization run by accounting standards will get the kind of financial information that observers are most concerned in studying. Entities ultimately should provide information in a manner that more fairly and clearly represents the current financial standing of the surgical procedure. The standards make it more hard for organizations to misdirect observers and to fool them with information that does not have sufficient relevancy.
Hearings Finally, the importance of accounting standards lies in the value that it brings to financial documents for the various audiences that view and make vital decisions based on it. An absence of accounting standards would cause the work of investors, regulators, taxpayers, reporters and others more difficult and more speculative. For example, without banners, an investor who has examined the financial statements of a large publicly traded company would not know whether to trust the findings on those instructions. Standards mean that taxpayers can understand how their tax dollars are being dropped, and regulators can see to it that laws are observed. Other reasons for which accounting standards are important for whole businesses. Protecting Investors Using the accounting standards, the interests of investors are ensured that the documents they examine are certainly accurate and sincere. As investors, they are interested to know that their money will eventually pull ahead and come back to them. Accounting standards increase the confidence of investors in the company. Regulatory Compliance Government regulators set of accounting standards that must be met by all companies. This is both beneficial for the investor or business proprietor as well as for customers or clients, because it protects against fraud in companies. It also promotes transparency between business transactions that will eventually lead to improved market efficiency. Accounting standards issued by the FASB and the IASB will help prevent a company or business expenses relating to legal proceedings instituted against him by the government.
REFERENCES
1. Indian Accounting Standards and GAAP- Dolphy D’Souza. 2. Financial Reporting Volume 1- The institute of Chartered Accountant of India. 3. http://www.icai.org 4. http://www.ifrs.org 5. Bhatt, Parth R. (2016),“A Study on Issues Related to converging Indian accounting standards into international financial reporting standards”, Ph.D. thesis, Dept. of business studies, S.P. University, V.V. Nagar. 6. Muniraju, M. and Ganesh S.R. (2016). A study on impact of IFRS convergence on Indian Corporate sector, IOSR Journal of Business and Management,VOl:18/Issue:4/ April 7. Kaur, Manpreet (2014). Convergence of Accounting Standards in India with IFRS, Indian Journal of Research Vol:3/Issue:6/June
