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Module -4

The framework of accounting regulation and policy:  need and evolution of accounting regulation in India.
Indian Accounting Standards (abbreviated as Ind-AS) in India accounting standards were issued under the supervision and control of Accounting Standards Board (ASB), which was constituted as a body in the year 1977. ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. icsi, icai, representatives from ASSOCHAM, CII, FICCI, etc.
The Ind AS are named and numbered in the same way as the corresponding International Financial Reporting Standards (IFRS). National Advisory Committee on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA). MCA has to spell out the accounting standards applicable for companies in India. As on date MCA has notified 39 Ind AS. This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis.
Based on the international consensus, the regulators will separately notify the date of implementation of Ind-AS for the banks, insurance companies etc. Standards for the computation of Tax has been notified as ICDS in February 2015
Indian Accounting Standards: History and Accounting Standards (ASB)
History of Accounting Standards Board of India (ASB):
On 21st April 1977, the Institute of Chartered Accountants of India as the premier accounting body in our country, set up “Accounting Standard Board” (ASB) to harmorize the diverse accounting policies and practice prevalent in our country.
The primary duty of ASB is to formulate the accounting standards for India. These standards may be established by the Council of the Institute in India.
During formulation the accounting standards, the ASB considered the applicable laws, usage, customs and the business environment existing in our country. For this purpose, ASB took the valued views and guidelines from various industrial houses, Government, and other interested parties.

The body consists of the following members:
Company Law board, CBDT, Central Board of Excise and Customs, Controller General of Accounts, SEBI, Comptroller and Auditor General of Accounts, UGC, Educational and Professional Institutions, Councils of the Institutes and representatives of Industry.
The Accounting Standards will, however, be issued under the guidance of the Council. As such, ASB has given the authority of propagating the accounting standards and insisting the parties to prepare and present the accounts on the basis of the accounting standards.
ASB will explain the basic concept on which accounting principles should be oriented and also will explain the accounting principles on which the practice and procedure should confirm while performing its functions.
However, the Council of the Institute of Chartered Accountants of India has issued 29 Accounting Standards (AS) so far.
These Accounting Standards are mandatory:
Indian Accounting Standards:
AS 1— Disclosures of Accounting Policies
AS 2— Valuation of Inventories
AS 3— Cash Flow Statement
AS 4— Contingencies and Events Occurring after the Balance Sheet Date (Revised)
AS 5— Prior Period and Extraordinary Items and Changes in Accounting Policies
AS 6— Depreciation Accounting (Revised)
AS 7— Accounting for Construction Contracts
AS 8— Accounting for Research and Development
AS 9— Revenue Recognition
AS 10— Accounting for Fixed Assets
AS 11— Accounting for the Effect of Changes in Foreign Exchange Rates
AS 12— Accounting for Government Grants
AS 13— Accounting for Investments
AS 14— Accounting for Amalgamation
AS 15— Accounting for Retirement Benefits in the Financial Statements of Employees
AS 16— Borrowing Costs
AS 17— Segment Reporting
AS 18— Related Party Disclosures
AS 19— Accounting for Leases
AS 20— Earnings Per Share
AS 21— Consolidated Financial Statements
AS 22— Accounting for Taxes on Income
AS 23— Accounting for Investments in Associates in Consolidated Financial Statements
AS 24— Discontinuing Operations
AS 25— Interim Financial Reporting
AS 26— Intangible Assets
AS 27— Financial Reporting of Interests in Joint Ventures
AS 28— Impairment of Assets
As 29— Provisions, Contingents Liabilities and Contingent Assets.


Ministry of Corporate Affairs


The Ministry of Corporate Affairs (MCA) is an Indian governmentministry.The Ministry is primarily concerned with administration of the Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act, 2008 & other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law.[1] It is responsible mainly for regulation of Indian enterprises in Industrial and Services sector. The current minister of corporate affairs is Arun Jaitley.

The Ministry of Corporate Affairs has notified the rules for the Indian Accounting Standards (Ind-AS) along with its implementation roadmap.

In a notification dated February 16, 2015, the corporate affairs ministry said the new rules would come into force on April 1 this year. However, it would be made mandatory only from next year, and that too in phases.


From April 1, 2016, all listed and unlisted companieshaving net worth above Rs 500 crore will have to follow the new accounting standards.

In the second phase, listed companies with net worth below Rs 500 crore and unlisted companies with net worth between Rs 250 crore and Rs 500 crore will have to follow these norms from April 1, 2017.

Holding, subsidiary, joint venture or associate companies, too, will have to comply with the deadlines.

Companies that are listed, or in the process of listing, on SME exchanges are exempted from the implementation roadmap.

Ind-AS norms are converged with the International Financial Reporting Standards (IFRS), but those are not IFRS-equivalent.
Ministry of Corporate Affairs , earlier known as Department of Corporate Affairs under Ministry of Finance, is primarily concerned with the administration of the Companies Act, 1956, and other allied Acts, etc framed there-under for regulating the functioning of the corporate sector in accordance with the law. It is also responsible for administering the Competition Act, 2002 and exercises supervision over the three professional bodies, namely, Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and Institute of Cost and Works Accountants of India (ICWAI), which have been constituted for proper and orderly growth of the professions concerned.
It also has the responsibility of carrying out the functions of the Central Government relating to administration of Partnership Act, 1932, the Companies (Donations to National Funds) Act, 1951 and Societies Registration Act, 1980.
Naresh Chandra Committee Report on Corporate Audit and Governance
The Ministry of Corporate Affairs had appointed a high level committee in August 2002 to examine various corporate governance issues. The committee had been entrusted to analyse and recommend changes, if necessary, in diverse areas such as:
  • the statutory auditor-company relationship so as to further strengthen the professional nature of this interface;
  • the need, if any, for rotation of statutory audit firms or partners;
  • the procedure for appointment of auditors and determination of audit fees;
  • restrictions, if necessary, on non-audit fees;
  • independence of auditing functions;
  • measures required to ensure that the management and companies actually present 'true and fair' statement of the financial affairs of companies;
  • the need to consider measures such as certification of accounts and financial statements by the management and directors;
  • the necessity of having a transparent system of random scrutiny of audited accounts;
  • adequacy of regulation of chartered accountants, company secretaries and other similar statutory oversight functionaries;
  • advantages, if any, of setting up an independent regulator similar to the Public Company Accounting Oversight Board in the Sarbanes Oaxley Act (SOX Act), and if so, its constitution; and
  • role of independent directors, and how their independence and effectiveness can be ensured.
The Committee's recommendations relate to:
  • Disqualifications for audit assignments;
  • List of prohibited non-audit services;
  • Independence Standards for Consulting and Other Entities that are Affiliated to Audit Firms;
  • Compulsory Audit Partner Rotation;
  • Auditor's disclosure of contingent liabilities;
  • Auditor's disclosure of qualifications and consequent action;
  • Management's certification in the event of auditor's replacement;
  • Auditor's annual certification of independence;
  • Appointment of auditors;
  • Setting up of Independent Quality Review Board;
  • Proposed disciplinary mechanism for auditors;
  • Defining an independent director;
  • Percentage of independent directors;
  • Minimum board size of listed companies;
  • Disclosure on duration of board meetings/committee meetings;
  • Additional disclosure to directors;
  • Independent directors on Audit Committees of listed companies;
  • Audit Committee charter;
  • Remuneration of non-executive directors;
  • Exempting non-executive directors from certain liabilities;
  • Training of independent directors;
  • SEBI and Subordinate Legislation;
  • Corporate Serious Fraud Office; etc.
National Foundation for Corporate Governance (NFCG)
Ministry of Corporate Affairs has set up a National Foundation for Corporate Governance (NFCG) in association with CII, ICAI and ICSI, as a not-for-profit trust. It provides a platform to deliberate on issues relating to good corporate governance, to sensitise corporate leaders on importance of good corporate governance practices as well as facilitate exchange of experiences and ideas amongst corporate leaders, policy makers, regulators, law enforcing agencies and non- government organizations.
The NFCG has a three-tier structure for its management, viz, the Governing Council under the Chairmanship of Minister of Corporate Affairs, the Board of Trustees and the Executive Directorate.
NFCG had framed an action plan, which includes development of good corporate governance principles on identified themes i.e. (i) corporate governance norms for institutional investors, (ii) corporate governance norms for independent directors, and (iii) corporate governance norms for audit.
The foundation has been set up with the mission to:
  • foster a culture for promoting good governance, voluntary compliance and facilitate effective participation of different stakeholders;
  • create a framework of best practices, structure, processes and ethics;
  • make significant difference to Indian corporate sector by raising the standard of corporate governance in India towards achieving stability and growth

Administration

The ministry administers the following acts:
In August 2013 The Companies Act, 2013 passed. It will regulate fraud by corporations and is intended to avoid the accounting scandals such as the Satyam scandal which have plagued India.[ It replaces The Companies Act, 1956 which has proven outmoded in terms of handling 21st century problems.
The Ministry has constituted a Committee for framing of National Competition Policy (India) and related matters (formulate amendments in the Act) under the Chairmanship of Dhanendra Kumar, former Chairman of Competition Commission of India.

National Advisory Committee on Accounting Standards 
National Advisory Committee on Accounting Standards (NACAS) is a body set up under section 210A of the Companies Act, 1956 by the Government of India. It advises the Central Government on the formulation and laying down of accounting policy and accounting standards for adoption by companies .[1] The advisory committee shall consist of the following members, namely:
1. A chairperson who shall be a person of eminence well versed in accountancy, finance, business administration, business law, economics or similar Discipline;
 2. One member each nominated by the chartered accountants of India constituted under the chartered Accountants Act, 1949, The Institute of Cost and Work Accountants Act, 1959 and The Institute of Company Secretaries of India constituted under the Company secretaries Act 1980.
 3. One representative each of the Central government, Reserve Bank of India, Comptroller & Auditor General of India to be nominated by it.
 4. A person who holds or has held the office of professor in Accountancy, Finance or Business Management in any University or deemed university;
5. The Chairman of the Central Board of Direct Tax (India) constituted under the Central Board of Revenue Act, 1963 (India) or his nominee;
6. Two members to represent the chambers of commerce and industry to be nominated by The Central Government of India; and
7. One representative of the Security and Exchange Board of India to be nominated by it.
Further, Institute of Chartered Accountants of India (ICAI) has the responsibility of preparing the accounting standardsand recommend them to NACAS


The National Financial Reporting Authority (NFRA)
One of the foremost step for improving corporate governance since birth of concept of corporate governance is improving quality of accounting and auditing of companies. Audit Committee is one of these measures, which has been taken to improve standard of financial reporting. But concerns related to quality of financial reporting are not new. We can trace these concerns in earlier legislation, all earlier versions of the Companies Act in general and the Chartered Accountants Act, 1949. Without going deep in these laws, we simply say; what was otherwise need to enact such Act to regulate a profession of accounting and auditing, standardizing whole process of accounting and auditing.
The National Financial Reporting Authority is a quasi – judicial body to regulate matters related to accounting and auditing. With increasing demand of non – financial reporting, I may safely predict, a National Business Reporting Authority to regulate standards of all kind of reporting, financial as well as non – financial, from companies in near future.
The authority will change the way of notification of Accounting and Auditing Standards as clear from provisions of Sections 133 and 143 of the Companies Bill, 2012 the Companies Act, 2013.
Accounting and Auditing Standards:
The Central government may prescribe the standards of accounting as recommended by the Institute of Chartered Accountants of India in consultation with and after examination of the recommendations made by the National Financial Reporting Authority. (Section 133)
The Central government may also prescribe the standards of accounting as recommended by the Institute of Chartered Accountants of India in consultation with and after examination of the recommendations made by the National Financial Reporting Authority. (Sub – section (10) of Section 143)
The Central Government may in consultation with the National Financial Reporting Authority direct, in respect of such class or description of companies, as may be specified in the order that the auditor’s report shall also include a statement on such matters as may be specified there. (Sub – section (11) of Section 143)
Now, it is clear primary object behind establishment of the National Financial Reporting Authority to give its recommendation on accounting and auditing standards. But the main Section 132 gives wide range of power to the authority.
Constitution:
The constitution of National Financial Reporting Authority proposed to be constituted under Section 132 for matter related accounting and auditing standards.
There shall be a chairperson and not exceeding part – time and full – time members. The chairperson and all members shall make a declaration in prescribed form about no conflict of interest or lack of independence in respect of their appointment. The chairperson and all full – time members shall not be associated with any audit firm or related consultancy firm during course of their appointment and two years after ceasing to hold such appointment.
The seat of National Financial Reporting Authority shall be at New Delhi and it may meet as any place in
Duties:
National Financial Reporting Authority shall:
1.         Make recommendations on formulation of accounting and auditing policies and standards for adoption by companies, class of companies or their auditors,
2.         Monitor and enforce the compliance with accounting standards,
3.         Oversee the quality of service of professions associated with ensuring compliance with such standards and suggest measures required for improvement in quality of service, and
4.         Perform such other functions as prescribed.
These duties simply bring chartered accountants, cost accountants, management accountants, company secretaries, as well as independent directors in audit committees under jurisdiction of Authority.
Jurisdiction, Powers and Penalties:
The National Financial Reporting Authority shall jurisdiction over bodies corporate and persons into matters of professional and other misconduct committee by any member or firm of chartered accountants registered under the chartered Accountants Act, 1949. No other institute or body shall initiate or continue any proceeding in such matters of misconduct where the authority has initiated an investigation under this section.
The authority shall have powers as are vested in a civil court under Code of Civil Procedure in respect of following matters:
1.         Discovery and production of books of accounts and other documents
2.         Summoning and enforcing the attendance of persons and examining them on oath
3.         Inspection of any books, registers and other documents of any person
4.         Issuing commission for examination of witness or documents.
The authority shall have power to make an order for
1.         Imposing penalty of (i) not less than one lakh rupees which may extend to five times of the fees received in case of individuals and (ii) not less than ten lakh rupees which may extend to ten times of the fees received in case of firms
2.         Debarring member or the firm from engaging himself or itself from practice for a period of six months to ten years.
Appeals and Appellate Authority:
Any person aggrieved by any order of the National Financial Authority may prefer appeal to Appellate Authority.
The appellate authority shall consist of a chairperson and not more than two members

ICAI - Mission / Objectives / Functions of the Committee
The ICAI is leveraged with modern resources in terms of infrastructure and capable of handling all type of consulting assignments in the field of institutional development, capacity building, developing accounting/auditing standard and drafting different acts and regulations.The institute actively takes part in different projects initiated by government. At times, the institute also suggests government of India on different financial issues. 

The institute makes its presence in different government organizations through its nominees. The organizations like Central Direct Tax Advisory Committee of Government of India (GOI); Reserve Bank of India Sub-Committee (Audit) of the Board for Financial Supervision; SEBI Primary Market Advisory Committee; SEBI Committee on Substantial Acquisition of Shares & Takeover Regulations; RBI's Informal Advisory Group on NBFC's; RBI's Group for Evaluating Internal Audit System in Banks and many other recruit ICAI nominees and avail their services.

The ICAI makes its presence at web space as well. This is the first institute that has acquired a digital certificate issuing capability as a sub - certifying authority. The projects of e-education and e-learning are actively considered by the institute.

The institutes' primary function is to prescribe qualification for membership, conducting examination and making arrangement for practical training of candidates, publication and maintenance of register of members qualified to practice the profession, carrying on activities for development of the chartered accountancy as a profession and regulation and maintenance of status of standard and standard of professional qualification of the members.

The institute provides postal coaching, oral training and make arrangements for practical training of the candidates all over the country.Also the institute sets up center for examination all over the country and thus students can write the examination at ease.The institute organizes seminars, workshops, etc and provides library facilities.Various Handbooks and Pamphlets are also published by the institute on the basis of researches conducted by it.

The Institute of Chartered Accountants of India (ICAI) explores employment opportunities for its members.The institute issues certificates of practice to its members and exercises disciplinary Jurisdiction as quasi-judicial authority over their profession and their conduct.The institute also works up with universities and other education providers in commerce and industry in shaping up their curricula and content.A monthly journal titled "The Chartered Accountant" is published by the institute.

Besides regularizing the profession of chartered accountancy in India, the institute also sets up National Accounting Standards.

The Auditing & Assurance Standards (AAS) is also issued by the ICAI. The AAS encode the audit practices followed by the members of the institute whenever audit is carried out by the institute member.The ICAI has issued 30 AAS till date that meet the International standard.

The Board of Studies of council is dedicated to provide education to the students of Chartered Accountancy (CA) programme mainly through distance mode.The revision of CA syllabi and keeping a watch on the institutes that are accredited for providing oral coaching is among main tasks of the board
·  To examine the tax laws coming within the ambit of International Taxation, rules, regulations, circulars, notifications, DTAA etc. which may be enacted or issued by the Government from time to time and to send suitable memoranda containing suggestions for improvements in the respective legislation.


·  To conduct workshops for Pre-Budget Memorandum and Post-Budget Memorandum along with the Direct and Indirect Taxes Committee.


·  To prepare and submit to the Government, suggestions relating to International Taxation in the Pre-Budget and Post-Budget Memoranda along with the Direct and Indirect Taxes Committee.


·  To prepare suitable representations to the Government, the Central Board of Direct Taxes or other appropriate bodies on various issues.


·  To assist, advise and coordinate with the Government of India in the functioning of various committees formed by Central Board of Direct Taxes from time to time.


·  To prepare Memoranda for submission to the Government or Committees formed by the Government from time to time.


·  To organize workshops, seminars, conferences and joint program independently and /or with the Government / trade associations etc

·  To respond to issues referred by the Government/Statutory Authorities/Regulatory Bodies.


·  To bring out new publications and revise the existing publications.


·  To give suggestions on new legislations.


·  To organize Certificate Courses on International Taxation/ short term courses


·  To organize In-house Executive development programme.


·  To deal with such other matters as the Council or the President may consider appropriate.

 As an Advisory Body

The institute provides technical advice to the following authorities, time to time.

  • Comptroller and Auditor General of India
  • Department of Company Affairs
  • Reserve Bank of India
  • The Securities and Exchange Board of India
  • Central Board of Direct Taxes
  • Insurance Regulatory Authorities
  • Insurance Regulatory Authorities
..And many more

The ICAI also provides inputs when require to the Trade Policy Division, Ministry of Commerce & Industry of Government of India. As effect to this, the government actively takes part in negotiations with the Working Party on Professional Services (WPSS) of the World Trade Organizations (WTO).

The role of security exchange board of India

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors. SEBI gets education from past cheating with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital market. 
The role of security exchange board of India (SEBI) in regulating Indian capital market is very important because government of India can only open or take decision to open new stock exchange in India after getting advice from SEBI.
It was left as a watch dog to observe the activities but was found ineffective in regulating and controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body corporate having a separate legal existence and perpetual succession.

Reasons for Establishment of SEBI:

With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI).

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups.
1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.
2. Investors:
For investors it provides protection and supply of accurate and correct information.
3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI:

The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are:
1. To regulate the activities of stock exchange.
2. To protect the rights of investors and ensuring safety to their investment.
3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.

Functions of SEBI:

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc. These insiders have sensitive information which affects the prices of the securities. This information is not available to people at large but the insiders get this privileged information by working inside the company and if they use this information to make profit, then it is known as insider trading, e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at the end of year and they purchase shares from market to make profit with bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which are likely to induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.

Reserve Bank of India: Working and Functions

Reserve Bank of India (RBI) is India's central bank. Central bank of a country execute multiple functions such as overseeing monetary policy, issuing currency, managing foreign exchange, working as a bank of government and as banker of scheduled commercial banks, etc. It also works for overall economic growth of the country. The Reserve Bank of India was established in 1935 with the provision of Reserve Bank of India Act, 1934.[1] Though privately owned initially, in 1949 it was nationalized and since then fully owned by Government of India (GoI). The preamble of the Reserve Bank of India describes it main functions as:
The Reserve Bank”s affairs are governed by a central board of directors. The board is appointed by the Government of India for a period of four years.
  • Full-time officials : Governor and not more than four Deputy Governors. The Governor of RBI is Raghuram Rajan. There are 4 Deputy Governors, H R Khan, Dr Urjit Patel, R Gandhi and SS Mundra.
  • Nominated by Government:  ten Directors from various fields and two government Officials
  • Others: four Directors – one each from four local boards

Main Role and Functions of RBI

  • Monetary Authority: Formulates, implements and monitors the monetary policy for A)  maintaining price stability, keeping inflation in check ; B) ensuring adequate flow of credit to productive sectors.
  • Regulator and supervisor of the financial system: lays out parameters of banking operations within which the country”s banking and financial system functions for- A) maintaining public confidence in the system, B) protecting depositors’ interest ; C) providing cost-effective banking services to the general public.
  • Regulator and supervisor of the payment systems: A) Authorises setting up of payment systems; B) Lays down standards for working of the payment system; C)lays down policies for encouraging the movement from paper-based payment systems to electronic modes of payments. D) Setting up of the regulatory framework of newer payment methods. E) Enhancement of customer convenience in payment systems. F) Improving security and efficiency in modes of payment.
  • Manager of Foreign Exchange: RBI manages forex under the FEMA- Foreign Exchange Management Act, 1999.  in order to A) facilitate external trade and payment B) promote development of foreign exchange market in India.
  • Issuer of currency: RBI issues and exchanges currency as well as destroys currency & coins not fit for circulation to ensure that the public has adequate quantity of supplies of currency notes and in good quality.
  • Developmental role : RBI performs a wide range of promotional functions to support national objectives. Under this it setup institutions like NABARD, IDBI, SIDBI, NHB, etc.
  • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
  • Banker to banks: An important role and function of RBI is to maintain the banking accounts of all scheduled banks and acts as banker of last resort.
  • Agent of Government of India in the IMF.

Monetary Policy of RBI :

As discussed earlier, RBI executes Monetary Policy for Indian Economy. The RBI formulates monetary policy twice a year. It reviews the policy every quarter as well. The main objectives of monitoring monetary policy are:
  • Inflation control
  • Control on bank credit
  • Interest rate control

Political Economic and Social Effects of Accounting regulation and policy

 

'The view that accounting standard setters consider the economic, political and social consequences of accounting standards is consistent with the view that accounting reports, if compiled in accordance with accounting standards and other generally accepted principles, will be neutral and objective'`

Objectivity and neutrality are the ultimate goals of general purpose financial reporting. However there are many factors involved that make this goal almost impossible to attain. Economic, political and social issues are huge influences on the Accounting Standard setting process, and these influences spill over into everyday accounting, with personal gain often ahead of reliability and objectivity. Users of financial reports have demands that need to be satisfied, and regulatory boards involved in Standard setting have done their best to ensure that information is clear and reliable.

 Considering these factors, Accounting does not exist in a vacuum, Accountants are human beings, not robots and the profession has strict guidelines and heavy penalties for unprofessional or fraudulent activity. It is thus clear that every attempt is made to acknowledge the operating societal factors, gauge the impact they have on different industries at different times and move from that point. The result than, has to be, the best attempt at a neutral and objective report by the professional accountant.

Economic, political and social issues are powerful driving forces within any society. These issues therefore need to be focused on when major decisions in industries, are being made. One industry that heavily relies on, and incorporates economic, political and social issues in its' decision-making, is that of Accounting. The Accounting profession is made up of many standards and regulatory boards that govern the way in which entities maintain their general-purpose financial reports.

Accounting standards set minimum benchmarks of the quality required in financial reporting. They specify that reporting entities shall prepare general-purpose financial reports and that these reports will comply with Statements of Accounting Concepts (SAC's) and Accounting Standards (Accounting Handbook 2001, SAC1, pg. 3). The 'objective of general purpose financial reporting', (Accounting Handbook 2001, SAC2, pg. 13) is that all general purpose financial reports are prepared to provide users with information about the reporting entity, which is useful for making and evaluating decisions about the allocation of scare resources (Accounting Handbook 2001, SAC1, pg. 4).

These reports 'should' be neutral and objective, free from bias, allowing users to make informed decisions. Considering that the process of 'setting'...

Economic Effect of IFRS Adaptation: To test this issue, 11 questions are presented and respondents asked to answer the questions by selecting one of these choices: strongly disagree, disagree, neither agree nor disagree, agree and strongly agree.
 These questions are as followings:
·         IFRS adaptation increases comparability between financial reporting of domestic and foreign firms which is in favor of Iranian investors.
·         IFRS adaptation encourages the society to achieve economic goals. IFRS adaptation develops foreign economic relationships.
·         IFRS adaptation prepares Iranian firms to develop their operations in free international economy.
·         IFRS adaptation encourages multinational firms to develop their operations in Iran.
·         IFRS adaptation encourages multinational firms to invest in Iranian firms.
·         IFRS adaptation causes to develop country economic.
Political Effect of IFRS Adaptation:
·         IFRS adaptation causes that developed countries dictate their political wishes to developing ones.
·         IFRS adaptation develops foreign relationships with developed countries. IFRS adaptation makes Iran one of subsets of international environment.
·         IFRS adaptation is a part of globalization process and applies globalization concepts. Encouraging developing countries to adapt IFRS is a start for developed countries governance.
·         IFRS adaptation is a political tool for controlling developing countries economic.
·         IFRS adaptation dictates political issue by lobbies influence on standard setting. IFRS adaptation satisfies all countries needs even developing ones.
·         IFRS adaptation is a type of following some international groups. Though professional role of IFRS, adaptation of these standards have political effect.
·         IFRS standards are set to comply political, social and economic aims of specific countries.

Social Effect of IFRS Adaptation:
·         IFRS adaptation encourages firms to increase employee’s education efforts and make them active elements in society development.
·         IFRS adaptation gives firms an incentive to disclose their operations environmental negative and positive effects.
·         IFRS adaptation gives firms an incentive to prepare social statements. When IFRS is adapted, social role of firms is more highlighted.
·         IFRS adaptation gives firms an incentive to accept social accounting. IFRS adaptation mitigates conservative behavior of investors.
·         IFRS adaptation gives firms an incentive to take part in the development of social institutions
·         IFRS adaptation commits firms to employ people from different classes which is a type of social justice
·         IFRS adaptation improves the social relationships between accountants, auditors and scholars

In recent years, the International Auditing and Assurance Standards Board (IAASB) has considered the issue of auditing disclosures in financial statements, prompted by a number of factors including developments in IFRS requirements and the increased level of complexity and subjectivity involved in the preparation of information to be disclosed in financial statements. This article examines this issue, and reminds candidates to review the examinable documents list for guidance.

DISCLOSURES IN FINANCIAL STATEMENTS

Auditors are required to express an opinion on the financial statements as a whole. This includes the notes to the financial statements which are an integral part of the accounts, providing additional information on balances and transactions and other relevant information. Therefore, it is important that during all stages of the audit the auditor gives appropriate consideration to, and plans to obtain sufficient and appropriate audit evidence in relation to the disclosures made in the notes to the financial statements.
ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing specifies that the financial statements include related notes which ‘comprise a summary of the significant accounting policies and other explanatory information’.
The notes to financial statements contain different types of information, some quantitative and some qualitative, as required by IFRS. Some examples are given below:
Quantitative disclosures:
·         Disaggregation and analysis of balances and transactions included in the financial statements, for example of property, plant and equipment, intangible assets, provisions, lease obligations, financial instruments.
·         Segmental analysis of revenue, profit and certain other items, and information about major customers (for listed companies).
·         Summarised financial information in relation to associates and joint ventures.

Qualitative disclosures:
·         Descriptions of significant accounting policies and areas where critical accounting judgement has been exercised, and rationale for any changes in accounting policies.
·         Confirmation that the going concern assumption is appropriate, or discussion of significant doubt over going concern.
·         Information on related parties, and related party transactions.
·         Explanation of impairment losses recognised in the year.
·         Discussion of areas of risk, for example those relating to financial instruments.

A key driver for the IAASB’s consultation and the exposure draft, Addressing Disclosures in the Audit of Financial Statements, issued in May 2014, is that in recent years, IFRS requirements in relation to disclosures in the notes to financial statements have become more onerous. The exposure draft states that ‘over the past decade, financial reporting disclosure requirements and practices have evolved. They now provide more extensive decision-useful information that is more detailed and often deals with matters that are subjective such as assumptions, models, alternative measurement bases and sources of estimation uncertainty. As these financial reporting disclosures continue to evolve, challenges have arisen for preparers and auditors in addressing new types of quantitative and non-quantitative information’.

DISCLOSURES IN FINANCIAL REPORTS: SUPPLEMENTARY ITEMS

The financial report of a business includes more than just the financial statements; a financial report also needs information called disclosures. Supplementary items such as financial schedules and tables provide one form of disclosure in financial reports.
A wide variety of other information is also presented, some of which is required if the business is a public corporation subject to federal regulations regarding financial reporting to its stockholders. Other information is voluntary and not strictly required legally or according to GAAP.
In addition to the financial statements and footnotes to the financials, public corporations typically include some or all the following disclosures in their annual financial reports to their stockholders:
·         Cover (or transmittal) letter: A letter from the chief executive of the business to the stockholders, which usually takes credit for good news and blames bad news on big government, unfavorable world political developments, a poor economy, or some other thing beyond management’s control.
·         *Management’s report on internal control over financial reporting: An assertion by the chief executive officer and chief financial officer regarding their satisfaction with the effectiveness of the internal controls of the business, which are designed to ensure the reliability of its financial reports (and to prevent financial and accounting fraud).
·         Highlights table: A table that presents key figures from the financial statements, such as sales revenue, total assets, profit, total debt, owners’ equity, number of employees, and number of units sold (such as the number of vehicles sold by an automobile manufacturer). The idea is to give the stockholder a financial thumbnail sketch of the business.
·         Management discussion and analysis (MD&A):Deals with the major developments and changes during the year that affected the financial performance and situation of the business. The SEC requires this disclosure to be included in the annual financial reports of publicly owned corporations.
·         Segment information: A report of the sales revenue and operating profits (before interest and income tax, and perhaps before certain costs that cannot be allocated among different segments) for the major divisions of the organization, or for its different markets (international versus domestic, for example).
·         Historical summaries: A financial history that extends back beyond the years (usually three) included in the primary financial statements.
·         Graphics: Bar charts, trend charts, and pie charts representing financial conditions; photos of key people and products.
·         Promotional material: Information about the company, its products, its employees, and its managers, often stressing an overarching theme for the year. Most companies use their annual financial report as an advertising opportunity.
·         Profiles: Information about members of top management and the board of directors. Of course, everyone appears to be well qualified for his or her position. Negative information (such as prior brushes with the law) is not reported.
·         Quarterly summaries of profit performance and stock share prices: Shows financial performance for all four quarters in the year and stock price ranges for each quarter (required by the SEC).
·         Management’s responsibility statement: A short statement indicating that management has primary responsibility for the accounting methods used to prepare the financial statements, for writing the footnotes to the statements, and for providing the other disclosures in the financial report. Usually, this statement appears near the independent CPA auditor’s report.
·         *Independent auditor’s report: The report from the CPA firm that performed the audit, expressing an opinion on the fairness of the financial statements and accompanying disclosures. Public corporations are required to have audits; private businesses may or may not have their annual financial reports audited.
·         Company contact information: Information on how to contact the company, the Web site address of the company, how to get copies of the reports filed with the SEC, the stock transfer agent and registrar of the company, and other information.
Managers of public corporations rely on lawyers, CPA auditors, and their financial and accounting officers to make sure that everything that should be disclosed in the business’s annual financial reports is included, and that the exact wording of the disclosures is not misleading, inaccurate, or incomplete. This is a tall order. The field of financial reporting disclosure changes constantly

Objectives of Accounting policy

The broad objects of Accounting may be briefly stated follows:
1.To maintain the cash accounts through the Cash Book and to find out the Cash balance on any particular day.
2.To maintain various other Journals for recording day-to –day non –cash transactions.
3.To maintain various Ledger Accounts to find out the exact amounts of incomes and expenses or gain and losses or receivables and payables.
4.To furnish information regarding Purchases and Sales, both Cash and Credit.
5.To find out the net profit or net loss or surplus or deficit for any particular period.
6.To find out the total capital on a particular date.
7.To find out the positions of assets on a particular date.
8.To find out the position of liabilities on a particular date.
9.To detect any defalcations and to check the frauds and misappropriations of money.
10.To detect the various errors and to rectify those through entries in the journal proper.
11.To confirm about the arithmetical accuracy of the books of accounts.
12.To help the management by supplying accounting ratios, reports and relevant data.
13.To calculate the cost of productions.

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