Beruflich Dokumente
Kultur Dokumente
Proper and accurate compilation of financial information of a corporate and its disclosure, in a
manner that is standardized and understood by stakeholders, is central to the credibility of the
corporates and soundness of investment decisions by the investors. The preparation of financial
information and its audit, therefore, needs to be regulated through law with stringent penalties for
non-observance. It would however, not be feasible for the law to prescribe all the details guiding
the treatment of this subject. This is a technical matter which needs to be gone into by experts
keeping in view the requirements of proper disclosures of financial information in the interests of
healthy corporate governance. However, once developed, use of such principles should be
mandated through law. Accounting Standards serve a vital function in this respect. These should
be developed keeping in view international best practices and provided statutory backing. There
should be integration of Accounting Standards with substantive law.
1. The present statute provides for a mechanism for development of Accounting Standards. We
understand that Accounting Standards for the use of Indian corporate sector, taking into account
International Accounting Standards, are being developed through the instrumentality of the
National Advisory Committee on Accounting Standards (NACAS). This is an important aspect
that needs to be pursued. In the meantime, the Institute of Chartered Accountants of India (ICAI)
has done useful work in prescribing operational standards of accounting to fill the gap till
Accounting Standards could be notified. We expect that the process of notification of Accounting
Standards, incorporating international best practices, would be completed shortly.
2. The Committee took note of the contribution made by the ICAI and the NACAS in
development of proposals for Accounting Standards and took the view that the existing
institutional mechanism for formulating and notifying Accounting Standards under the
Companies Act, 1956 may be retained.
3. The Committee took the view that consolidation of financial statements of subsidiaries with
those of holding companies should be mandatory. The Committee discussed the question of the
manner of maintenance of accounts of entities other than companies but controlled by companies
registered under the Act. With the proposed consolidation of accounts by holding companies, the
Committee felt the need for prescribing maintenance of proper records by a non-corporate entity
which is controlled by a company to which the provisions of the Act apply.
5. Further, the Committee took the view that the holding companies should be required to
maintain records relating to consolidation of financial statements for specified periods.
Presentation of consolidated financial statements by the holding company should be in addition
to the mandatory presentation of individual financial statements of that holding company.
6. At present, Section 209 (4A) of the Act requires companies to preserve the books of accounts,
together with the vouchers relevant to any entry in such books of account, in good order, relating
to a period of not less than 8 years immediately preceding the current year. The Committee felt
that the rules may provide for preservation of books of account and records of the company for a
period of 7 years to bring it in harmony with Income Tax Act.
7. In order to bring about more transparency and uniformity in the maintenance of accounts, the
Committee felt that the companies should continue to be mandated to maintain their books of
accounts on accrual basis and double entry method of book keeping. The question arose before
the Committee as to whether the form and content of the financial statements needs to be
specified separately in the Act or should be left to the Accounting Standards prescribed by the
Central Government in consultation with NACAS. After considerable deliberations, it was
decided that the form and content of the financial statements and the disclosures required therein
need to be provided for under the Act/Rules. Any changes made in the Accounting Standards
could be factored in the Act/Rules from time to time. It was also decided that the companies
should be given the option to maintain the records in electronic form capable of conversion into
hard copy.
8. The companies should have an option to keep records outside the country provided financial
information in compliance with the Companies Act is available within the country and written
notice is given to the Registrar of the place where the records are kept. However, such a
Company should be obligated to produce the records that are kept outside the country, if and
when required to do so as specified in the Rules.
10. The Committee discussed at length the existing provisions of the Act regarding approval and
authentication of accounts, circulation of accounts and filing of accounts with the Regulatory
body. The Committee was of the view that the concept of appointment of CFO should be
recognized under the Act who should be made responsible for preparation and submission of
financial statements to the Board.
11. The provisions under the Companies Act relating to circulation of financial statements should
continue. However, the Committee recommended that the financial statements should be
permitted to be sent by electronic means instead of hard copy. In the case of listed Companies.
Where abridged financial statements are circulated amongst members, the full financial
statements should be made available on the web-site and the hard copy thereof should also be
made available on request.
12. The Committee noted that the Companies Act was amended by inserting section 217 (2AA)
by the Companies (Amendment) Act, 2000, which has brought about inclusion of Directors’
Responsibility Statement in the report of the Board of Directors. Other Recommendations
Q 5. How AS is applicable in Co-operative societies?
Accounts
(1) The governing body of every society registered under this Act shall keep at the registered
office of the society or at such other place in the State as the governing body thinks fit, proper
books of account with respect to,—
(a) all sums of money received and expended by the society and the matters in respect of which
the receipt and expenditure takes place;
(b) all sales and purchases of goods by the society; and
(c) the assets and liabilities of the society.
(2) Every balance sheet of a society shall give a true and fair view of the state of affairs of the
society as at the end of the specific year and every income and expenditure account shall give a
true and fair view of the excess of income over expenditure, or excess of expenditure over
income, of the society for the specific year.
• Their recognition, measurement and disclosure criteria will depend on, the level to which the
society belongs.
• Following are some of the accounting standards along with some of the essential points that
must be considered while conducting audit of a co-operative society.
– AS 2 Valuation of Inventories
– AS 9 Revenue Recognition
– AS 15 Employee Benefits
– AS 16 Borrowing Costs
– AS 17 Segment Reporting
– AS 26 Intangible Assets
– AS 28 Impairment of Assets
Since 1977 after the government passed a statute, the Accounting Standard Board (ASB) a
committee of the ICAI has been responsible for the formulation of accounting standards in India.
Let us take a brief look at the functioning of the ASB and the procedure behind the formulation
of accounting standards in India.
The ASB formulates all the accounting standards for the Indian companies. This process is fully
transparent, very thorough and completely independent of any government involvement. While
framing the standards the ASB will try and incorporate the IFRS and its principles in the Indian
standards. While India does not plan to adopt the IFRS, this process will help the convergence of
the two standards. So the ASB will modify the IFRS to suit the laws, customs and common usage
in the country.
The ASB is composed of various members. There are representatives of industries like the FICCI
and ASSOCHAM. There are also certain government officials, a few academics, and regulators
from various departments. The idea is to make the ASB as inclusive and representative as
possible.
Let us take a brief look at the procedure setting process that the ASB follows
First, the ASB will identify areas where the formulation of accounting standards may be needed
Then the ASB will constitute study groups and panels to discuss and study the topic at hand. Such
panels will prepare a draft of the standards. The draft normally includes the definition of
important terms, the objective of the standard, its scope, measurement principles and the
representation of said data in the financial statements.
The ASB then carries out deliberations of the said draft of the standard. If necessary changes and
revisions are made.
Then this preliminary draft is circulated to all concerned authorities. This will generally include
the members of the ICAI, and any other concerned authority like the Department of Company
Affairs (DCA), the SEBI, the CBDT, Standing Conference of Public Enterprises (SCPE),
Comptroller and Auditor General of India etc. These members and departments are invited to give
their comments.
Then the ASB arranges meetings with these representatives to discuss their views and concerns
about the draft and its provisions
The exposure draft is then finalized and presented to the public for their
review and comments
The comments by the public on the exposure draft will be reviewed. Then a final draft will be
prepared for the review and consideration of the ICAI
The Council of the ICAI will then review and consider the final draft of the standard. If necessary
they may suggest a few modifications.
Finally, the Accounting Standard is issued. In the case of standard for non-corporate entities, the
ICAI will issue the standard. And if the relevant subject relates to a corporate entity the Central
Government will issue the standard.
Q 23. What is comparative financial Reporting? What are its importance /benefits?
Comparative financial reporting statements is a term, referring to the complex of the company’s
annual financial report elements, which reflect the information from different time periods. Most
commonly they include comparative balance sheet (reporting company’s total assets, liabilities
and equity for multiple dates), comparative profit and loss report (reflecting the financial results
and financial position of the company over several periods or business cycles), comparative cash
flow statement (containing information on the company’s cash flows for multiple periods), etc.
A reason for the company management to choose comparative financial statements as the
reporting standard is that they provide a much wider understanding of the company’s
performance trends than usual single period statements do. Comparative financial statements
allow:
1. Applying horizontal analysis and compare the company’s performance indicators over
multiple periods of time, determine development trends, while with the single period statement
only current position can be analyzed.
2. Applying vertical analysis to see how proportions of different items of the financial report
change from period to period.
3. Using analytical methods of forecasting the future performance of the entity, based on trends
of the past periods, which impossible to do when you only have a current period financial report.
Commonly comparative financial statements reporting forms are being customized, containing
not only lines with actual information on the company’s assets, revenues, cash flows, etc., but
also the changes between different periods values, reflected as absolute values or as a percentage.
Such reporting method gives analyst another advantage of comparing and analyzing different-
sized companies. This happens due to the elimination of the difference in money amounts,
presented in normal financial statements, by the use of percentage.
Another example of the comparative financial statement is the monthly presentation of the
information for the last 12 months on a rolling basis. Using reporting method allows company
management to analyze the operating performance of their business more efficiently since the
reporting period is flexible and thus statements reflect the most recent and actual information.
Conclusion
Comparative financial statements give managers and analysts advantages, which allow more
efficient and detailed analysis of the entity’s performance. While the normal financial statement
is a static reflection of the current financial position of the company, comparative financial
statements reflect the dynamics in its development and allow to determine trends and forecast
changes.
Financial Reporting involves the disclosure of financial information to the various stakeholders
about the financial performance and financial position of the organization over a specified period
of time. These stakeholders include – investors, creditors, public, debt providers, governments &
government agencies. In case of listed companies the frequency of financial reporting is
quarterly & annual.
Financial Reporting is usually considered an end product of Accounting. The typical components
of financial reporting are:
1. The financial statements – Balance Sheet, Profit & loss account, Cash flow statement
& Statement of changes in stock holder’s equity
The Government and the Institute of Chartered Accounts of India (ICAI) have issued various
accounting standards & guidance notes which are applied for the purpose of financial reporting.
This ensures uniformity across various diversified industries when they prepare & present their
financial statements. Now let’s discuss about the objectives & purposesof financial reporting.
2. Providing information to investors, promoters, debt provider and creditors which is used
to enable them to male rational and prudent decisions regarding investment, credit etc.
3. Providing information to shareholders & public at large in case of listed companies about
various aspects of an organization.
8. Enhancing social welfare by looking into the interest of employees, trade union &
Government.
The importance of financial reporting cannot be over emphasized. It is required by each and
every stakeholder for multiple reasons & purposes. The following points highlights why financial
reporting framework is important –
1. In help and organization to comply with various statues and regulatory requirements. The
organizations are required to file financial statements to ROC, Government Agencies. In
case of listed companies, quarterly as well as annual results are required to be filed to
stock exchanges and published.
2. It facilitates statutory audit. The Statutory auditors are required to audit the financial
statements of an organization to express their opinion.
3. Financial Reports forms the backbone for financial planning, analysis, benchmarking and
decision making. These are used for above purposes by various stakeholders.
4. Financial reporting helps organizations to raise capital both domestic as well as overseas.
5. On the basis of financials, the public in large can analyze the performance of the
organization as well as of its management.
6. For the purpose of bidding, labor contract, government supplies etc., organizations are
required to furnish their financial reports & statements.
Conclusion
So we can conclude from the above points that financial reporting is very important from various
stakeholders point of view. At times for large organizations, it becomes very complex but the
benefits are far more than such complexities. We can say that financial reporting contains reliable
and relevant information which are used by multiple stakeholders for various purposes. A sound
& robust financial reporting system across industries promotes good competition and also
facilitates capital inflows. This, in turn, helps in economic development.
Conceptual Fraework:
The Conceptual Framework (or “Concepts Statements”) is a body of interrelated objectives and
fundamentals. The objectives identify the goals and purposes of financial reporting and the
fundamentals are the underlying concepts that help achieve those objectives. Those concepts
provide guidance in selecting transactions, events and circumstances to be accounted for, how
they should be recognized and measured, and how they should be summarized and reported.
The FASB is the most direct beneficiary of the framework. The framework provides the FASB
with a foundation for setting standards and concepts to use as tools for resolving accounting and
reporting questions. The FASB staff is guided by pertinent concepts that might provide guidance
in developing its analysis of issues for consideration by the FASB, as well as in making its
recommendations to the FASB when developing accounting standards. Consequently, those
concepts are an important aspect of the FASB’s discussions of issues and for making its decisions
about a specific standard.
The framework provides a basic reasoning on which to consider the merits of alternative
solutions to complex financial accounting or reporting problems. Although it does not provide all
the answers, the framework narrows the range of alternative solutions by eliminating some that
are inconsistent with it. It thereby contributes to greater efficiency and consistency in the
standard-setting process by avoiding the necessity of having to redebate fundamental issues such
as “what is an asset?” time and time again.
A guiding principle of the Board is to be objective in its decision making and to ensure, insofar
as possible, the neutrality of information resulting from its standards. The use of an agreed-upon
framework reduces the influence of personal bias on standard-setting decisions. Without the
guidance provided by an agreed-upon conceptual framework, standard-setting would be quite
different because it would be based on the personal frameworks of individual members of the
Board. A framework also should reduce political pressures in making accounting judgments.
The FASB is not the only beneficiary of the framework. The credibility of financial reporting is
enhanced when objectives and concepts are used to provide direction and structure to financial
accounting and reporting. The framework helps by leading to the development of standards that
are not only internally consistent but also consistent with each other. As a result, both preparers
and users of financial statements benefit from financial statements that are based on a body of
accounting requirements that are more internally consistent.
The framework further helps users of financial reporting information to better understand that
information and its limitations. It also provides a frame of reference for understanding the
resulting standards. That frame of reference is useful to preparers who apply those standards and
to auditors who examine the resulting reports, as well as to students who study accounting and
the faculty who teach it.