The Institute of Chartered Accountants of India (ICAI), a leading accounting organization in the country, established the Accounting Standards Board (ASB) in 1977 to take on the leadership role in developing accounting standards for India. The ICAI has taken significant steps to ensure that the standard-setting process is transparent and involves all stakeholders. The ASB considers international accounting standards, such as the International Accounting Standards (IASs) and the International Financial Reporting Standards (IFRSs), when formulating Indian Accounting Standards (ASs). The ASB strives to integrate these international standards with the applicable laws, customs, practices, and business environment of India. The ASB is composed of representatives from various sectors, including industries, industry associations (such as ASSOCHAM, CII, and FICCI), regulators, academics, and government departments. This diverse composition ensures that the ASB’s decisions reflect the needs and perspectives of a wide range of stakeholders. While the ASB is a body constituted by the ICAI, it operates independently in formulating accounting standards. The National Financial Reporting Authority (NFRA) reviews and recommends these standards to the Ministry of Corporate Affairs (MCA). The MCA is responsible for determining which accounting standards are mandatory for companies operating in India. This process ensures that the implementation of accounting standards in India is aligned with the country’s regulatory framework and business environment.
Brief Outline of Standard Setting Process of ASB
Step 1: Identification of area
In this step Accounting Standard Board (ASB) identifies broad areas where formulation of accounting standard in needed.
Step 2: Constitution of study group
The Accounting Standards Board (ASB) forms study groups to examine specific accounting issues and create preliminary drafts of proposed accounting standards. These drafts typically include the standard’s purpose, scope, definitions of relevant terms, recognition and measurement principles, and presentation and disclosure requirements. The ASB then evaluates these preliminary drafts and makes any necessary revisions based on the discussions.
Step 3: Preparation of draft and its circulation
After revising the draft accounting standard, the Accounting Standards Board (ASB) sends it to the Council members of the ICAI and specific external bodies for feedback. These external bodies include the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (SEBI), the Comptroller and Auditor General of India (C&AG), the Central Board of Direct Taxes (CBDT), and the Standing Conference of Public Enterprises (SCOPE). The feedback received from these entities is considered by the ASB before finalizing the accounting standard.
Step 4: Ascertainment of views of different bodies on draft
The Accounting Standards Board (ASB) arranges meetings with representatives from designated external bodies to gather their opinions on the proposed accounting standard’s draft. This step ensures that the perspectives of various stakeholders are considered before the standard is finalized.
Step 5: Finalization of exposure draft
The Accounting Standards Board (ASB) finalizes the exposure draft of the proposed accounting standard and releases it for public comment. This step allows interested parties to provide feedback on the proposed standard before it is finalized. The ASB carefully considers all comments received during the public comment period before issuing the final accounting standard.
Step 6: Comments received on exposure draft
The Accounting Standards Board (ASB) thoroughly examines the feedback gathered on the exposure draft of the proposed accounting standard. This extensive review enables the ASB to refine and finalize the draft accounting standard. Once finalized, the ASB presents the draft to the Council of the Institute of Chartered Accountants of India (ICAI) for careful consideration and approval before its official issuance.
Step 7: Modification of draft
The Council of the Institute of Chartered Accountants of India (ICAI) meticulously evaluates the final draft of the proposed accounting standard. If deemed necessary, the Council collaborates with the Accounting Standards Board (ASB) to refine the draft. This collaborative approach ensures that the final accounting standard is comprehensive, well-structured, and aligned with the ICAI’s objectives.
Step 8: Issue of AS
The Institute of Chartered Accountants of India (ICAI) has the authority to issue accounting standards for non-corporate entities. Meanwhile, the Ministry of Corporate Affairs (MCA), in consultation with the National Financial Reporting Authority (NFRA), is responsible for issuing accounting standards for corporate entities. This distinction reflects the different regulatory frameworks and accounting needs of these two types of entities.
Previously, the Accounting Standards Board (ASB) issued Accounting Standard Interpretations (ASIs) to address questions arising from the application of accounting standards. These interpretations were released after the corresponding standard was issued. The authority of an ASI was equivalent to that of the standard to which it belonged.
However, after the Central Government notified Accounting Standards (ASs) for companies, the consensus portion of ASIs was integrated into the relevant paragraphs of the corresponding ASs as ‘Explanations.’ The Council of the Institute of Chartered Accountants of India (ICAI) also decided to incorporate the consensus portion of ASIs as ‘Explanations’ into the relevant paragraphs of ASs issued by them. This decision was made to harmonize both sets of standards: ASs issued by the ICAI for non-corporate entities and ASs notified by the Ministry of Corporate Affairs (MCA) for corporate entities.
It is important to note that Section 133 of the Companies Act, 2013, empowers the Central Government to prescribe accounting standards or any addendum thereto, as recommended by the ICAI, in consultation with and after considering the recommendations made by the National Financial Reporting Authority (NFRA).
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