Nature, Purpose And Scope Of Audit And Review (2)

Financial AccountingYou may think that hiring a good accountant is all you need to have a good accounting system, but this is not true. Answer : Formation of the accounting standards board: THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, recognising the need to harmonise the diverse Accounting Policies and present use in India, constituted an Accounting Standards Board (ASB) on 21st April 1977. Scope and functions of Accounting Standards Board: The main function of ASB is to formulate accounting standards so that such standards may be established by the council of the institute in India. While formulating the accounting standards, ASB will take into consideration the applicable law, customs, usages and business environment.Financial Accounting

The institute is one of the members of the international Accounting Standards Committee (IASC) and has agreed to support the objectives of IASC. While formulating the accounting standards, ASB will give due consideration to international accounting standards issued by IASC and try to integrate them to the extent possible in the lights of the conditions and situations prevailing in India. ASB has also been entrusted with responsibility of propagating the accounting standards and of pressuring the concerned parties to adopt them in the preparation and presentation of financial statement.

The’ Accounting Standards’ issued by the Accounting Standards Board establish standards which have to be complied by the business entities so that the financial statements are prepared in accordance with generally accepted accounting principles. This Standard is related with presentation/ disclosure requirements of the significant accounting policies (specific accounting policies and the methods of applying those principles) followed in preparing financial statements. Going concern, consistency and accrual is not followed in financial statements, the fact should be specifically disclosed.

The true and fair state of affairs and the financial results of an entity is significantly affected by the accounting policies followed in accounting. The areas in which different accounting policies can be followed are accounting for depreciation, revaluation of inventories, valuation of fixed assets etc. The disclosure of the significant accounting policies should form part of the financial statement and any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in the later periods should be disclosed.

Mandatory in respect of accounting periods commencing on or after 1st April, 2004, paragraphs of AS 4 dealing with contingencies stand withdrawn except to the extent they deal with impairment of assets not covered by any other Indian AS. The project of revision of this standard by ASB in the light of newly issued AS 29 is under progress. Thus, the present standard (AS 4) deals with the treatment and disclosure requirements in the financial statements of events occurring after the balance sheet.

Financial Accounting