Accounting Standards - The Guiding Light to Accounting Practices

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Need for Accounting Standards:

Gone are the days when the size of the businesses were small and the investment into that business was limited to a single trader or his family members. However, the business world has changed upside down in the modern era. Nowadays, investors put their money into thousands of different companies across the world. Similarly, the government and tax authorities are also interested in understanding the true and fair view of the financial position of the businesses. Because of these factors, the scope of accounting records is widened. Hence, accounting records are the vital source of information not only for the finance managers but also for millions of investors who invest in the business.

In order that all stakeholders can interpret the accounting records of a business in the same way, there must exist some standard practices for accounting processes and reports to be followed by all companies. Preparing accounting records of two different companies based on different accounting practices/principles will render the two balance sheets incomparable. This is where Accounting Standards come into the picture.

Major Accounting Standard Setting Bodies in the World:

International Accounting Standards Board (IASB):

The formalisation of accounting standards began in the year 1973 with the establishment of International Accounting Standards Committee (IASC). The purpose was to create accounting standards which are followed across the globe. The IASC initially formed accounting standards known as "International Accounting Standards". The Standards were numbered as IAS 1 to IAS 41.

In the year 2001, a new accounting standards board called International Accounting Standards Board (IASB) was formed under International Financial Reporting Standards (IFRS) Foundation. IASB replaced IASC and introduced new accounting standards called International Financial Reporting Standards (IFRS) instead of existing "International Accounting Standards". The objective of the IFRS is to develop, in the public interest, a high-quality set of comprehensible, internationally accepted, and enforceable accounting standards.

Financial Accounting Standards Board (FASB):

Financial Accounting Standards Board (FASB) is the accounting standard-setting body in the USA. It is an independent body of accounting professionals who publish accounting standards known as "General Accepted Accounting Principles" (GAAP). The accounting standards are more popularly known as US-GAAP as these standards are followed mainly by US corporations.

FASB was established in the year 1973 with a view to lay down accounting standards to be followed in the USA in the maintenance of books of accounts and preparation of financial reports.

Accounting Standards in India:

In India, the task of setting accounting standards is performed by Accounting Standards Board (ASB). The ASB was established in the year 1977 by Institute of Chartered Accountants of India (ICAI). The accounting standards formed by ASB are issued by ICAI and the same is notified by the Union Ministry of Corporate Affairs.

Indian Accounting Standards (IAS):

IAS is a set of accounting standards developed by ICAI and notified under the Companies (Accounting Standards) Rules, 2006. Before the formation of Ind AS, the IAS were the sole set of accounting standards which governed all forms of organisations across India.


In the wake of globalisation, the financial reporting of Indian companies must be compliant with global standards so as to make it comprehensible to foreign institutional investors. With this view, the Institute of Chartered Accountants of India (ICAI) has issued 39 Accounting Standards known as "Ind AS". The new accounting standards are notified under the Companies (Indian Accounting Standards) Rules, 2015 (‘Ind AS Rules’), of the Companies Act, 2013. Unlike IAS, The Ind AS is fully compliant with IFRS.

Applicability of Ind AS:

At present Ind AS is applicable to the following category of entities:

Applicable From Financial Year Listing Requirement Net worth
FY 2016-17 Applicable to Listed as well as unlisted companies

equal to or greater than
500 crore INR

FY 2017-18 Listed Companies Applicable to all listed companies
FY 2017-18 Unlisted Companies Applicable when net worth is equal to or greater than 250 crore INR

Note: When a company becomes eligible for the adoption of Ind AS, all its holding companies, subsidiaries, associates and joint venture companies will also be covered under Ind AS irrespective of the net worth of such companies.


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