Module: 4
Financial Standards and Codes: Report of Advisory Group on International Accounting and Auditing

Foreword & Introduction

The Standing Committee on International Financial Standards and Codes (Chairman: Dr. Y.V.Reddy) constituted the Advisory Group on International Accounting and Auditing (Chairman: Shri Y.H. Malegam) to study the present status of applicability, relevance and compliance in India of the relevant standards and codes of international accounting and auditing standards. This Advisory Group in its Report has reviewed the availability of various accounting standards in India and compared them with those of corresponding International Accounting Standards (IAS). The Report is presented in nine sections. In this Report, the Group examined inter alia the basic objectives of Generally Accepted Accounting Principles (GAAP), various accounting standards, the modus operandi of the International Accounting Standards Committee (IASC), major differences between the Indian Accounting Standards with those of IAS and a comparative analysis of US GAAP, Indian GAAP and IAS. The Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) has so far issued 19 standards which are on par with those of International Standards. In the case of two standards, Guidance Notes have been issued and further work is in progress and in the case of other two standards, it is felt that they are not relevant for India as of now. With regard to 11 other standards issued by IASC, corresponding Indian Accounting Standards are under preparation.

The Group also examined the position of Indian Auditing Standards. The Auditing Practices Committee (APC) of the Institute of Chartered Accountant of India has issued 20 statements on Standard Auditing Practices (SAPs) and four additional statements on auditing. Nine standards are in the process of issuance. In addition a number of guidance notes have been issued. The SAPs are anchored on the corresponding standards issued by the International Auditing Practices Committee (IAPC) of the International Federation of Accountants (IFAC). IAPC has issued 36 standards and 12 statements.

The Report also discusses about the agenda for future and in particular addresses issues pertaining to bridging the gap between the Indian Accounting Standards and IASC, restructuring the Accounting Standards Board, the need for a single standards setting authority, the need for convergence of corporate and tax laws with various accounting standards and how to position an effective implementation procedure for the accounting standards.

Three standard setting entities are considered in this report. First, the International Accounting Standards Committee (IASC). The IASC, which was formed in 1973, includes all professional accountancy bodies throughout the world that are members of the International Federation of Accountants (IFAC). Second, the United States' Generally Accepted Accounting Principles (US GAAP) which contain a variety of pronouncements governing the preparation of financial statements in the United States, made by the Financial Accounting Standards Board (FASB), American Institute of Certified Public Accountants (AICPA) and Securities and Exchange Commission (SEC). Third, the Accounting Standards Board (ASB) in India which is a Committee of the Institute of Chartered Accountants of India (ICAI). The ASB includes members from professional, industry and various other segments and government agencies.

The need for a speedy integration of Indian accounting standards with International Accounting Standards cannot be over-emphasised. India today enjoys a very small share of the international funds ear-marked for emerging markets. There is a growing realisation that these funds will increasingly flow to those markets which are strongly regulated and which have an ethical base. Assurance that financial statements are prepared in accordance with internationally accepted accounting standards and audited on a basis comparable with international practice is a key plank in the system of regulation. Apart from this, international investors and lenders will be willing to provide funds only to those enterprises whose financial statements are prepared on lines with which they are familiar. But regulation alone cannot achieve the desired goal.

The gist of the report of the Committee along with its recommendations are reproduced in the following articles.