Wednesday, October 7, 2009

Accounting Standards under the New Companies Bill

Recent posts have discussed the issue of ‘true and fair view’ and whether compliance with accounting standards necessary translated into meeting this standard laid down in the Companies Act.

This makes it interesting to note that the new Companies Bill, apart from specifically stating that Accounting Standards are mandatory (proposed section 117(1)), also provides for them being incorporated in the Act itself. The relevant provision is proposed section 119, which states,

The Central Government may, after consultation with the Advisory Committee, by notification, lay down accounting standards for adoption by companies or class of companies.

This is a departure from the current scheme where the Standards are only recognised under the Act. Their incorporation into the Act would help to resolve issues of conflicts between the Act and the Standards, and also enable timely alterations to the Act through rules in the case of new Accounting Standards.

Given the International Finance Reporting Standards that will be effective in April 2011, and the current debate over the duties and liability of auditors, this proposal seems one of great interest, and significant implications. Another discussion on the same is available here.

1 comment:

Anonymous said...

Accounting Standards may undergo changes whenever necessary/ as and when situation warrants. Statutes are not changed so frequently.Instead of incorporating accounting standards in an Act, it would be prudent to legally recognise a set of accounting standards as set up by an entity of professional accountants like the Institute of Chartered Accountants of India.