Accounting Standards: A Comprehensive Overview

To improve international accessibility and openness for Indian businesses, a set of financial reporting guidelines known as Indian Accounting Standards have been harmonised with International Financial Reporting Standards (IFRS). Integrating local reporting procedures with international standards has become crucial as Indian enterprises grow internationally. Businesses in India increase the accuracy of their financial accounts and enable well-informed decision-making by implementing accounting standards. By ensuring that Indian companies adhere to international standards, these guidelines—issued by the Institute of Chartered Accountants of India (ICAI)—promote credibility and trust in the worldwide marketplace. The full details of Indian Accounting Standards are given in this article.

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Table of Contents:

What are Accounting Standards?

Classification of Enterprises from the Perspective of Accounting Standards Applicability

Level I Enterprises

Level II Enterprises

Level III Enterprises 

List of Accounting Standards and Their Applicability

Objectives of Accounting Standards

Benefits of Accounting Standards

Limitations of Accounting Standards

Conclusion

Most Asked Questions

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What are Accounting Standards?

Accounting Standards are written policy papers that address the recognition, measurement, treatment, presentation, and disclosure of accounting transactions in financial statements. They can be issued by the government, an expert accounting body, or another regulatory agency. The Central Government of India publishes Indian Accounting Standards (Ind AS), which are IFRS-converged standards. They are created in cooperation with the National Financial Reporting Authority (NFRA) and overseen by the Institute of Chartered Accountants of India's (ICAI) Accounting Standards Board (ASB). Some Indian businesses are required to adhere to these criteria, which guarantee that their financial statements reflect international norms. The ASB, which was founded in 1977, is in charge of developing and implementing Ind AS, which are the main accounting standards that Indian businesses use.

Classification of Enterprises from the Perspective of Accounting Standards Applicability

The businesses are categorised as Level I, Level II, and Level III businesses. The accounting standards that apply to businesses are determined by this classification and the category in which they are placed. 

Level I Enterprises

These are defined as businesses that fit into one or more of the following categories.

• Enterprises with equity or debt securities listed whether in India or abroad.

• Enterprises in the process of listing their equity/debt securities. The Board of directors’ resolution should be available as proof.

• Financial institutions.

• Banks including co-operative banks.

• Enterprises operating insurance business.

• All commercial, industrial and business reporting enterprises, whose turnover not including ‘other income’ for the preceding accounting period based on audited financial statements, exceeds Rs. 50 crore.

• All commercial, industrial and business reporting enterprises whose borrowings, including public deposits, are over Rs. 10 crores at any time during the accounting period.

• Holding and subsidiary enterprises of any of the above at any time during the accounting period.

Level II Enterprises

Level II Businesses

Businesses that fit into one or more of the following categories are referred to as Level II enterprises:

• According to audited financial accounts, all commercial, industrial, and business reporting businesses with a turnover of more than Rs. 40 lakhs but less than Rs. 50 crore for the immediately prior accounting period (excluding "other income").

• At any point during the accounting year, all commercial, industrial, and business reporting companies with borrowings—including public deposits—that total more than Rs. 1 crore but less than Rs. 10 crore.

• Holding and subsidiary businesses of any of the aforementioned at any point during the accounting period.

Level III Enterprises 

Businesses that do not fit within Level I or Level II are categorised as Level III businesses.

List of Accounting Standards and Their Applicability

Accounting Standard	Level I	Level II	Level III
AS 1 Disclosure of Accounting Principles	Yes	Yes	Yes
AS 2 Valuation of Inventories	Yes	Yes	Yes
AS 3 Cash Flow Statements	Yes	No	No
AS 4 Contingencies and Events Occurring After the Balance Sheet Date	Yes	Yes	Yes
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies	Yes	Yes	Yes
AS 6 Depreciation Accounting	Yes	Yes	Yes
AS 7 Construction Contracts (Revised 2002)	Yes	Yes	Yes
AS 9 Revenue Recognition	Yes	Yes	Yes
AS 10 Accounting for Fixed Assets	Yes	Yes	Yes
AS 11 The Effects of Changes in Foreign Exchange Rates (Revised 2003)	Yes	Yes	Yes
AS 12 Accounting for Government Grants	Yes	Yes	Yes
AS 13 Accounting for Investments	Yes	Yes	Yes
AS 14 Accounting for Amalgamations	Yes	Yes	Yes
AS 15 Employee Benefits (Revised 2005)	Yes	Yes	Yes
AS 16 Borrowing Costs	Yes	Yes	Yes
AS 17 Segment Reporting	Yes	No	No
AS 18 Related Party Disclosures	Yes	No	No
AS 19 Leases	Yes	Partial	Partial
AS 20 Earnings Per Share	Yes	Partial	Partial
AS 21 Consolidated Financial Statements	Yes	No	No
AS 22 Accounting for taxes on income	Yes	Yes	Yes
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements	Yes	No	No
AS 24 Discontinuing Operations	Yes	No	No
AS 25 Interim Financial Reporting	Yes	No	No
AS 26 Intangible Assets	Yes	Yes	Yes
AS 27 Financial Reporting of Interests in Joint Ventures	Yes	No	No
AS 28 Impairment of Assets	Yes	Yes	Yes
AS 29 Provisions, Contingent Liabilities and Contingent Assets	Yes	Partial	Partial

Objectives of Accounting Standards

Since accounting conveys to outsiders the company's financial status, it is frequently referred to as the language of business. Additionally, this language follows the same syntax and grammatical rules as all others. In the context of accounting, these guidelines are known as Accounting Standards (AS). They serve as a nation's framework of laws and guidelines pertaining to reporting and accounting. Let's examine the primary goals behind creating these guidelines.

• Enhancing the accuracy of financial accounts is the primary goal. Users can now rely on the financial statements since they must be prepared in accordance with the requirements. They are aware that failure to adhere to these standards may have detrimental effects on the businesses.

• Comparability comes next. Comparisons between and within firms will be possible if these criteria are followed. This enables us to monitor the company's development and market position.

• Additionally, it seeks to offer a single set of accounting rules that cover the required disclosures and the methods used to value different financial transactions.

Benefits of Accounting Standards

The governing body in the field of accounting is the Accounting Standards. It ensures that there is no deception in the information given to possible investors. Let's examine the advantages of AS. 

• Rules for the uniform handling and documentation of transactions are provided by accounting standards. Even their financial statements follow a set format. These are actions taken to make accounting procedures more consistent.

• A company's financial statements are a source of information for its numerous stakeholders. The information included in these financial accounts serves as the foundation for many of these stakeholders' decisions. Additionally, some prospective investors base their investment choices on these financial figures. Therefore, it is crucial that these statements give an accurate and impartial view of the company's financial status. This is guaranteed by the Accounting Standards (AS). They ensure that the statements are trustworthy and dependable.

• All entities are required to adhere to the accounting principles and procedures outlined in Accounting Standards (AS). One consequence of this is that financial data cannot be manipulated by an entity's management. It is mandatory to adhere to these criteria; it is not a choice. Therefore, it is difficult for management to falsify any financial information because of these requirements. It even makes it more difficult for them to defraud others.

• All accounting policies, rules, regulations, etc. are now outlined in writing by the accounting standards. These rules must be adhered to. Therefore, an auditor can be sure that the financial accounts are accurate and fair provided he verifies that the policies have been correctly followed.

Limitations of Accounting Standards

Additionally, there are some restrictions on Accounting Standards. To limit these restrictions, the regulatory agencies are constantly revising the requirements. 

• For some valuations or accounting treatments, there exist alternatives. For instance, the weighted average approach, LIFO, FIFO, and others can be used to value equities. The management must therefore make a difficult choice between these options. Guidelines for making the right decision are not provided by the AS. 

• Statutes and laws cannot be superseded by accounting standards. They must be written within the parameters of the laws that were in effect at the time. This may restrict their ability to offer the most appropriate insurance for the circumstances.

Conclusion

India has adopted Indian Accounting Standards to bring its financial reporting procedures into compliance with international norms. They seek to improve the transparency, comparability, and dependability of financial statements by integrating with International Financial Reporting Standards (IFRS). By enabling cross-border transactions, drawing in foreign investors, and enhancing the general legitimacy of the Indian financial reporting environment, this convergence helps Indian businesses. 

FAQ

Q1. What is an accounting standard?

The main source of widely accepted accounting principles, accounting standards are official guidelines for financial reporting. The recognition, measurement, presentation, and disclosure of transactions and other events in financial statements are all outlined in accounting standards.

Q2. What is the 29 Accounting Standard?

This Standard's goal is to guarantee that provisions and contingent liabilities are subject to the proper recognition criteria and measurement bases, and that enough information is provided in the financial statements' notes to allow users to comprehend their nature, timing, and amount.

Q3. What is the exemption to AS 19 applicable to leases?

Level II and Level III businesses are exempt from AS 19's paragraphs 22(c), (e), and (f); 25(a), (b), and (e); 37(a), (f), and (g); and 46(b), (d), and (e).

Q4. What is AS 20 Earnings Per Share?

All businesses must reveal earnings per share in their financial statements in accordance with Part IV of Schedule VI to the Companies Act of 1956. Disclosure of diluted earnings per share and other information needed by paragraph 48 for Level II and Level III firms are not required by AS 20. Therefore, only Level I businesses must fully implement AS 20 without any exceptions.