Why It Is Important to Have Accounting Standards in India

What Are Accounting Standards?

Accounting standards are rules and guidelines established to ensure that financial statements are consistent, comparable, and transparent. In India, accounting standards are issued by the Institute of Chartered Accountants of India (ICAI) and are now converging with the globally recognized Indian Accounting Standards (IND AS), which align closely with the International Financial Reporting Standards (IFRS). IND AS helps Indian companies maintain financial statements that are understandable both domestically and internationally.

IND AS applies to large Indian companies, including listed entities, companies with a net worth over INR 250 crore, and their subsidiaries, joint ventures, and associates, aligning them with international financial reporting standards.

AS (Accounting Standards) applies to smaller companies and unlisted entities in India, providing a simpler, India-specific framework for financial reporting where IND AS is not mandatory.

While many professional’s dealing into the Ind AS consider it the difficult as compare to AS however I would say IndAS is more logical than AS.

Importance of Accounting Standards and IND AS in India

1. Transparency and Trust
   Accounting standards in India ensure that financial statements accurately reflect a company’s financial health. This transparency builds trust among investors, regulators, creditors, and other stakeholders. The use of IND AS further supports transparency by adhering to global financial reporting norms.
2. Comparability and Consistency Across Companies
   With IND AS, financial statements from different Indian companies become comparable not only within the country but also with global counterparts. This comparability is crucial for investors who need to assess performance objectively. By adopting IND AS, Indian companies align with international practices, facilitating easier comparisons and aiding investment decisions.
3. Legal Compliance and Reduced Fraud
   Adhering to IND AS ensures compliance with corporate governance requirements set by regulatory bodies such as the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI). Consistent and structured reporting reduces the risk of financial misstatements and deters fraudulent activities, contributing to a more robust financial ecosystem.
4. Global Investment and Economic Growth
   IND AS compliance boosts India’s credibility in the global market, attracting foreign investors by aligning with international accounting principles. This alignment supports India’s integration into the global economy and promotes cross-border investments, which contribute to national economic growth.
5. Enhanced Stakeholder Decision-Making
   Stakeholders such as banks, investors, and credit rating agencies rely on standardized financial statements to make informed decisions. IND AS ensures that Indian companies' financial data is not only consistent but also presented in a language recognized worldwide, making it easier for foreign investors and partners to evaluate opportunities.
6. Adoption of IND AS and Its Benefits
   Transitioning to IND AS brings Indian companies in line with global standards while accounting for local factors specific to the Indian economy. This harmonization strengthens India’s financial reporting landscape and prepares Indian businesses to operate more effectively in the international marketplace.

Ignorance of Accounting standards

While it is technically possible to evade accounting standards, the risks and repercussions for doing so are severe.

It is the responsibility of the auditor to form an opinion on the financial statements regarding whether they show a true and fair view as per the financial reporting framework (FRF). The FRF includes accounting standards. If the company is not complying with these accounting standards, the auditor will qualify their report.

For a comprehensive look at how statutory audits are conducted, check out our guide on "How to Conduct a Statutory Audit."

The consequences of evading include legal and financial penalties, damaged reputation, loss of investor trust, and challenges in raising capital, both domestically and internationally, Income tax notices etc. Compliance with AS and IND AS is not only a regulatory requirement but also a foundation for business integrity and growth.

FAQs on Accounting Standards and IND AS in India

• What are accounting standards and IND AS?
  Accounting standards are principles that guide financial reporting in India. IND AS refers to the Indian Accounting Standards that are harmonized with IFRS to support global comparability and transparency.
• Why are these standards essential for Indian companies?
  IND AS enhances transparency and trust, supports regulatory compliance, and facilitates global investment by aligning with international accounting norms.
• What’s the difference between Indian Accounting Standards and IFRS?
  While IFRS is globally recognized, IND AS is tailored for Indian companies with specific modifications to meet local regulatory and economic needs.

Authority Links

• Institute of Chartered Accountants of India (ICAI)
• Ministry of Corporate Affairs (MCA) – Official Accounting Standards

Conclusion
Accounting standards and IND AS are essential pillars of financial reporting in India. By adhering to these standards, Indian companies promote consistency, transparency, and reliability in their financial statements. This alignment with global norms enables better stakeholder trust, supports regulatory compliance, and positions India as a preferred destination for global investments.