From The President

Dear professional colleagues,

Accounting standards are formulated with a view to eliminate
the use of different accounting policies and practices, thereby ensuring
comparability of financial statements of different enterprises and providing
meaningful information to various users of financial statements to enable them
to make informed economic decisions.

A financial reporting system based on uniform standards
reposes faith of investors and contributes to the economic growth. Further,
global expansion of businesses has made enterprises recognise the advantages of
having a commonly understood financial reporting framework i.e., a single set of
accounting standards across the world.

The IFAC has formulated International Financial Reporting
Standards (IFRS) and has set the goal to achieve international convergence of
financial reporting standards. Presently, 100 countries are using IFRS. Even the
USA is joining in the promotion of and convergence with IFRS. The ICAI has
justifiably opted for convergence of Indian accounting standards with IFRS by
2011.

In the present Indian scenario, different sets of accounting
standards exist viz. standards formulated and pronounced by the ICAI, standards
prescribed u/s.211(3C) of the Companies Act, 1956, as per the advice of National
Advisory Committee for Accounting Standards and standards notified by the CBDT
u/s.145 of the Income-tax Act, 1961.

These different sets of accounting standards issued by
various authorities lead to confusion for the enterprises and the users of
financial statements. The compliance obligation of different accounting
standards on various entities are as under :

The differences, though minor, prevailing in the various sets
of accounting standards result in confusion. India too, should aim at adopting
one set of accounting standards at a time when the world is moving towards
convergence. When the standards issued by the ICAI are passed by the Council
having representatives from the Government, would it not be in the interest of
business enterprises and the users to have only one set of accounting
standards ?

Simultaneously, it is imperative that the Revenue authorities
too need to consider and accept the financial statements prepared following the
accounting standards. Tax laws should generally be in harmony with the
accounting standards. The accounting standards themselves are becoming
increasingly complex. When income computation for the purposes of taxation
deviates from the accounting profit, it only adds to the complexity and is bound
to result in litigation. The divergence from the accounting income should be
minimal. Accounting standards should not be defied merely for collecting revenue
at an earlier point of time. In this connection, the following observation of
the Supreme Court in J. K. Industries 165 Taxman 323, are relevant.

“Main object sought to be achieved by Accounting Standards
which are now made mandatory is to see that accounting income is adopted as
taxable income and not merely as the basis from which taxable income is to be
computed.”

While we march towards adopting IFRS, there is an area of
concern regarding application of accounting standards to small and medium-sized
enterprises (SMEs). The present requirement of compliance needs a review. SMEs
find it difficult to implement the complex standards. The concessions given to
SMEs are generally exemption from extensive disclosure and in some cases in
respect of measurement. This is not sufficient. SMEs form a very big component
of the economy and they should not be burdened with unduly heavy cost of
compliance without commensurate benefit. There is a need for change and what is
required is a set of simple accounting standards for SMEs.