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Unit 1: Accounting Standards

(3B): Where the profit and loss account and the balance sheet of the company do not Notes
comply with the accounting standards, such companies shall disclose in its profit
and loss account and balance sheet, the following, namely:
(i) the deviation from the accounting standards
(ii) the reasons for such deviation, and
(iii) the financial effect, if any, arising due to such deviation

(3c): For the purpose of this section, the “expression, accounting standards”, means
the standards of accounting recommended by the Institute of Chartered Accountants
of India, constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may
be prescribed by the Central Government in consultation with the National Advisory
Committee on Accounting Standards established under Sub-section (1) of Section
210 A:
Provided that the standards of accounting specified by the Institute of Chartered Accountants
of India shall be deemed to be the Accounting Standards as are prescribed by the Central
Government under this sub-section.
2. Section 217 (2AA) (i): Compliance with Accounting Standards
The Board’s report shall also include a Director’s Responsibility Statement, indicating
therein that in the preparation of the annual accounts, the applicable accounting standards
had been followed along with proper explanation relating to material departures.
According to the sec 217(2AA) the statement should indicate:

(i) that in the preparation of the annual accounts, the applicable accounting standards
had been followed along with proper explanation relating to material departures;
(ii) that the directors had selected such accounting policies and applied them consistently
and made judgments and estimates that are reasonable and prudent so as to give a
true and fair view of the state of affairs of the company at the end of the financial
year and of the profit or loss of the company for that period;
(iii) that the directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding
the assets of the company and for preventing and detecting fraud and other
irregularities;
(iv) that the directors had prepared the annual accounts on a going concern basis.

3. Section 227 (3) (d): Powers and Duties of Auditors
The auditor’s report shall also state –
Whether, in his opinion, the profit and loss account and balance sheet complied with the
accounting standards referred to in Subsection (3c) of Section 211.

The members discharging attest functions are bound by regulations and should examine
whether the standards complied with in the presentation of financial statements covered
by audit. In the event of deviation, adequate disclosures are to be made. For those occupying
managerial positions, exercising control functions in the area of finance and accounts,
compliance with standards is a legal requirement as well.

1.2.2 Accounting Standards and Income Tax Act, 1961
There appears to be no link and harmony between the Accounting Standards issued by the ICAI
and the tax laws and procedure for calculation of taxable income of corporate assesses. The

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