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Unit 1: Accounting Standards

9. The tax treatment is primarily guided by the fiscal considerations and other principles of Notes
taxations.
10. The ICAI has clarified that even if a part of the activities of charitable organisations and co-
operation societies enterprises are commercial in nature, then the Accounting Standards
shall apply to all the activities of the enterprise.

1.3 Accounting Standards Setting in India

The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC,
constituted the Accounting Standards Board (ASB) on 21st April, 1977, with a view to harmonise
the diverse accounting policies and practices in use in India. After allowing the adoption of
liberalisation and globalisation as the corner stones of Indian economic policies in early ‘90s,
and the growing concern about the need of effective corporate governance in case 90s, the
Accounting Standards have increasingly assumed importance. While formulating accounting
standards, the ASB takes into consideration the applicable laws, customs, usages and business
environment prevailing in the country. The ASB also gives due consideration to International
Financial Reporting Standards (IFRSs)/International Accounting Standards (IASs) issued by
IASB and tries to integrate them, to the extent possible, in the light of conditions and practices
prevailing in India.

1.3.1 Accounting Standards Setting Process

The accounting standard setting, by its very nature, involves reaching an optimal balance of the
requirements of financial information for various interest-groups having a stake in financial
reporting. With a view to reach consensus, to the extent possible, as to the requirements of the
relevant interest-groups and thereby bringing about general acceptance of the Accounting
Standards among such groups, considerable research, consultations and discussions with the
representatives of the relevant interest-groups at different stages of standard formulation become
necessary. The standard-setting procedure of the ASB, as briefly outlined below, is designed in
such a way so as to ensure such consultation and discussions:
1. Identification of the broad areas by the ASB for formulating the Accounting Standards.
2. Constitution of the study groups by the ASB for preparing the preliminary drafts of the
proposed Accounting Standards.
3. Consideration of the preliminary draft prepared by the study group by the ASB and
revision, if any, of the draft on the basis of deliberations at the ASB.
4. Circulation of the draft, so revised, among the Council members of the ICAI and 12 other
specified. Outside bodies such as Standing Conference of Public Enterprises (SCOPE),
Indian Banks’ Association, Confederation of Indian Industry (CII), Securities and Exchange
Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department
of Company Affairs, for comments.
5. Meeting with the representatives of specified outside bodies to ascertain their views on
the draft of the proposed Accounting Standard.
6. Finalization of the Exposure Draft of the proposed Accounting Standard on the basis of
comments received and discussion with the representatives of specified outside bodies.
7. Issuance of the Exposure Draft inviting public comments.
8. Consideration of the comments received on the Exposure Draft and finalization of the
draft Accounting Standard by the ASB for submission to the Council of the ICAI for its
consideration and approval for issuance.

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