Objectives and Functions of Accounting Standing Board (ASB)

Table of Contents:

1. Introduction
2. ASB and its functions
3. Introduction of Indian Accounting Standards (Ind ASs)
4. Procedure for Establishment of an AS
5. Status of the Accounting Standard (AS)

1. Introduction

An Accounting Standard is a selected set of accounting policies or broad guidelines regarding the principle and methods to be chosen out of several alternatives on a particular issue.

Standards conform to applicable laws, customs, usages and business environment.

Hence, there is no universally acceptable set of standards. Even standard on same issue allows more than one accounting policy to be followed.

Therefore, to reduce the alternatives to acceptable few and to recommend the principles and procedures to be followed and disclosures to be made in financial statement, the Institute of Chartered Accountants of India (ICAI) issues Accounting Standards each one of which covers a particular point or area of accounting.

2. ASB and its functions

2.1 Formation of ASB

The Institute of Chartered Accountants of India, recognizing the need to harmonize the diverse accounting policies and practices at present in use in India, constituted an Accounting Standards Board (ASB) on 21st April, 1977.

2.2 Functions of ASB

The main functions 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.

ASB will enumerate and describe the basic concepts to which Principles of Accounting should be oriented and state the accounting principles to which the practices and procedures should conform.

ASB will clarify the phrases commonly used in such financial statements and suggest improvements in the terminology wherever necessary.

ASB will examine the various current alternative practices in vogue and identify such alternatives which should be preferred.

2.3 Brief Procedure for Issuing AS

ASB shall determine the broad areas in which Accounting Standards need to be formulated and the priority in regard to the selection thereof.

In the preparation of Accounting Standards, ASB will be assisted by Study Groups, & provision will be made for wide participation by the members of the Institute and others.

ASB will also hold a dialogue with the representatives of the Government, Public sector undertakings, industry and other organisations for ascertaining their views.

On the basis of the work of the Study Groups and the dialogue with the organisations referred to above, an exposure draft of the proposed standard will be prepared and issued for comments by members of the Institute and the public at large.

After taking into consideration the comments received, the draft of the proposed Standard will be finalised by ASB and submitted to the Council of the Institute.

The Council of the Institute will consider the final draft of the proposed Standard, and if found necessary, modify the same in consultation with ASB. The Accounting Standard on the relevant subject will then be issued under the authority of the Council.

3. Introduction of Indian Accounting Standards (Ind ASs)

India is one of the emerging economies in the world. For economic development, foreign direct investment (FDI) is needed, to facilitate the investment climate. There is a need to integrate its financial reporting with rest of the economies of the globe so that investors from outside will appreciate the financial results and financial positions of the companies. This will provide uniformity and comparability of financial statements with the financial statements prepared in other countries.  The Idea of global harmonization of Accounting Standards stems from lack of comparability of financial statements across the world. The need to communicate across the borders has increased with the increase in global trade and globalization of capital markets.