Govt does not propose to formulate accounting standards of its own
December, 09th 2006
Mr T. N. Manoharan
A few days ago, there was an unusual report about Accounting Standards (AS). It cited a top official of the Ministry of Company Affairs to say that the Government would soon specify the AS that companies need to adopt for the preparation of their financial statements under the company law.
To know more, Business Line contacted Mr T.N. Manoharan, President of the Institute of Chartered Accountants of India (ICAI). Here are his answers to a few questions:
Does the Government propose to formulate AS of its own separately for corporates?
No. The Government does not propose to formulate AS of its own for corporates. There is no such proposal or intention. The Government proposes to notify the AS formulated by the ICAI as recommended by the National Advisory Committee on Accounting Standards (NACAS).
Are we heading towards a mandatory status for AS, as against the present `deemed' legal recognition granted under the Companies Act?
Up to 1999, there was no statutory banking for AS formulated by the Institute. They were binding only on the members of the ICAI. In 1999, company law was amended to incorporate Section 211(3C) wherein it is provided that `Accounting Standards' means "the standards of accounting recommended by the ICAI as may be prescribed by the Central Government in consultation with the NACAS". Till such time such notification is done, AS specified by the Institute shall be deemed to be the Accounting Standards.
Has the NACAS kept pace with the standards issued by the Institute?
Every standard formulated by the ICAI has been vetted by the NACAS. So far, the Institute has issued 29 AS out of which AS-8 has been withdrawn. The 28 AS that are effective were recommended by the NACAS on February 7 for notification. These are the standards that are intended to be notified by the Government as mandatory for companies, as against the present deemed legal recognition.
How do you react to the observation of the Ministry of Company Affairs that the 28 AS of the ICAI are now put to "legal vetting"?
As per the procedure, any notification requires vetting by the Ministry of Law. Also, a Hindi translation has to be done. These are as per the Government's policy. These requirements do not alter the substance of the Accounting Standards.
Do you agree with the statement of the FICCI (Federation of Indian Chambers of Commerce and Industry) adviser that breathing time should be given for making AS mandatory for corporate units?
The ICAI has always kept this aspect in mind before issuing any Accounting Standard. Accordingly, AS are recommendatory for a certain period, and are made mandatory only after giving some breathing time for the industry to gear up to the compliance of such standards. This issue is examined on case-to-case basis and decision taken as appropriate.
Does the ICAI have any time frame for adopting the IFRS (International Financial Reporting Standards)? Will the adoption be complete or staggered?
The ICAI has constituted a taskforce to prepare a concept paper on full convergence with IFRS, and also a road map for the purpose. Even at present, the AS formulated by the ICAI are on the basis of the IFRS. Deviations are minimal in view of the legal framework, domestic environment and preparedness of Indian industry. We expect the taskforce to submit its report after few months. The Council of ICAI will then decide on the future course of action and time frame.