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Legal Requirements For Financial Statements

The document discusses regulatory aspects of financial statement preparation and accounting standards in India. It outlines requirements under Section 129 of the Companies Act, 2013 regarding the form and content of financial statements. Financial statements must comply with accounting standards, give a true and fair view of the company's affairs, and follow the form prescribed in Schedule III. Certain companies like banks and insurers are exempt. The role of the National Financial Reporting Authority is to recommend accounting standards to be notified by the government. At present, 40 Indian Accounting Standards have been issued by ICAI and are applicable to Indian companies for financial reporting.

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127 views10 pages

Legal Requirements For Financial Statements

The document discusses regulatory aspects of financial statement preparation and accounting standards in India. It outlines requirements under Section 129 of the Companies Act, 2013 regarding the form and content of financial statements. Financial statements must comply with accounting standards, give a true and fair view of the company's affairs, and follow the form prescribed in Schedule III. Certain companies like banks and insurers are exempt. The role of the National Financial Reporting Authority is to recommend accounting standards to be notified by the government. At present, 40 Indian Accounting Standards have been issued by ICAI and are applicable to Indian companies for financial reporting.

Uploaded by

PRACHI DAS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Regulatory Aspects in Financial Statement Preparation

and Accounting Standards – Part 1

By Prof Arun Kumar Agarwal, ACA, ACS


IBS, Gurgaon
Form of Fin Statements
Section 129 – Companies Act, 2013

Under section 129 of the Companies Act, 2013 the Financial Statements
of a company shall:
a. give a true and fair view of the state of affairs of the company;
b. comply with the Accounting Standards notified in terms of section
133; and
c. shall be in the form or forms as provided in Schedule III of the Act
for different class of companies.
From the above it is clear that the Financial Statements of a Company
must be drawn up in the “form” as laid down in Schedule III of the Cos
Act, 213 for that class of Companies to which the company belongs
AND
The items contained in such Fin Statements are in accordance with the
Accounting Standards;
AND
The Financial Statements must give a true and fair view of the state of
affairs of the company.
Form of Fin Statements
Section 129 – Companies Act, 2013

However, the provisions of Cos Act in this regard shall not apply to:
a. A banking Co;

b. An Insurance Co;

c. A company engaged in the generation or supply of electricity; and

d. Any other company for which the “form” of Fin Statement has been
specified in the Act under which it is governed.
Indian Accounting Standards

In terms of section 129 (1) 1st Proviso of the Cos Act, 2013 the
Financial Statements of a company must be prepared in accordance
with the Accounting Standards.

Further u/s 129 (5) where the Financial Statements of a company do


not comply with the Accounting Standards, the Company shall in its
Financial Statements disclose, the deviation from the applicable
accounting standard, the reasons for such deviation and the financial
effects, if any, arising from such deviation.

Section 132 of the Cos Act, 2013 provides for the constitution of the
National Financial Reporting Authority by the CG for the purpose of
dealing with the accounting and auditing standards under the Cos Act.
Indian Accounting Standards

Under section 132 (2) of the Cos Act, 2013 the National Financial Reporting
Authority shall discharge the following functions:
 Make recommendations to the CG on the formulation and laying down of
the accounting and auditing policies & standards for adoption by Cos or
their auditors, as the case may be.

 Monitor and enforce compliance with the accounting and auditing


standards in such manner as may be prescribed.

 Oversee the quality of services by professionals associated with the task of


ensuring compliance with such standards and suggest measures for
improvements in such services and other prescribed matters.

 Such other functions as may be prescribed in relation to the functions


described herein

The role of the NFRA is that. of a consultant or advisor or a recommending body


Indian Accounting Standards (AS)
Section 133 of the Cos Act, 2013 that the CG may prescribe the standards
of accounting or any addendum thereto, as recommended by the ICAI in
consultation with and after examining the recommendations of the NFRA
(National Financial Reporting Authority).

The process of notification of Accounting Standards is as under:


 Accounting Standards are prescribed by the Central Govt;

 Accounting Standards are prepared and recommended by the ICAI;

 The CG consults with the NFRA on AS recommended by the ICAI and


seeks its recommendations on the same;

 Based on the consultations and recommendations of NFRA the


Central Govt takes a final decision and notifies the AS if satisfied.
So what are Accounting Standards?

Guideline for ensuring uniformity in the accounting and reporting


treatment of a particular accounting transaction…

IFRS: The International Financial Reporting Standards were developed by


the International Accounting Standards Board for the purpose of
establishing global standards in accounting and reporting on a wide range
of transactions.

However, due to specific situations prevailing in countries, these global


standards were not followed but the countries developed their own
standards in line with IFRS.

The US Financial Accounting Standards Board established the US GAAP


Indian Accounting Standards
Converged Indian Accounting Standards issued by the and applicable

Indian Accounting Standards, (abbreviated as Ind AS) are a set of


accounting standards notified by the Ministry of Corporate Affairs which
are converged with International Financial Reporting Standards  and are
currently applicable for all Indian Companies.

At present, there are 40 Accounting Standards issued by ICAI and applicable to


Indian Companies for Reporting their Fin Statements…
Important IND AS Handouts

Some of the important Ind AS are:

IND AS 1 – Presentation of Fin Statements


IND AS 2 – Inventories
IND AS 8 – Changes in Accounting Policies
IND AS 10 – Events occurring after the Balance Sheet Date
IND AS 33 - EPS
IND AS 36 – Impairment of Assets
IND AS 38 – Intangible Assets
IND AS 113 – Fair Value Measurement
IND AS 115 – Revenue Recognition
Thank You…

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