Introduction to accounting standards: AS and Ind AS

1. Meaning

Accounting standards are written policy documents issued by an expert accounting body or by the government, covering the recognition, measurement, presentation and disclosure of transactions in financial statements. Where the concepts and conventions leave a choice (how to value stock, when to recognise revenue), a standard narrows it, so that the accounts of different firms are prepared on the same basis.

2. Objectives and need

• Uniformity — to reduce the variety of methods for the same item.
• Comparability — between firms, and of one firm over years.
• Reliability — users can trust accounts prepared to a known rule.
• Disclosure — the standards prescribe what must be stated in notes.
• Prevention of manipulation and window dressing.
• Help to auditors — a benchmark against which to judge the accounts.

Limitations: they cannot remove all choice; they can be rigid for small businesses; and they apply only within the legal framework — a standard cannot override a statute.

3. Who frames them in India

The Institute of Chartered Accountants of India (ICAI) constituted the Accounting Standards Board (ASB) in 1977. The ASB identifies areas, prepares exposure drafts, invites comment from industry, government and the public, and finalises the standard for issue by the ICAI Council.

For companies the standards have statutory force under the Companies Act 2013:

• Section 133 — the Central Government prescribes the accounting standards, as recommended by ICAI, in consultation with and after examination of the recommendations of the National Financial Reporting Authority (NFRA).
• Section 129 — the financial statements must give a true and fair view and comply with the notified accounting standards, in the form in Schedule III.
• Section 134(5) — the directors’ responsibility statement must say that the applicable standards were followed, with reasons for any material departure.
• Section 132 — constitutes NFRA, which also monitors compliance with standards and oversees the quality of audit.

The standards now apply under two sets of rules: the Companies (Accounting Standards) Rules, 2021 (the “AS”, for companies not on Ind AS) and the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS). For non-corporate entities such as sole traders and partnerships, ICAI’s standards apply through its pronouncements and through audit requirements.

4. The AS in force

The list runs to AS 29 (AS 6 and AS 8 were withdrawn when their subjects were absorbed into AS 10 and AS 26). The others cover amalgamations (14), segment reporting (17), related parties (18), earnings per share (20), consolidated statements (21), associates (23), discontinuing operations (24), interim reporting (25), joint ventures (27) and impairment (28).

5. Four standards explained

AS 1 — Disclosure of Accounting Policies. Accounting policies are the principles and methods a firm adopts (method of depreciation, of stock valuation). AS 1 names three fundamental accounting assumptions: going concern, consistency and accrual; if any is not followed, that fact must be disclosed. Policies are chosen with regard to prudence, substance over form and materiality. All significant policies must be disclosed in one place, and any change, with its effect, must be stated.

AS 2 — Valuation of Inventories. Inventories (raw materials, work-in-progress, finished goods) are valued at cost or net realisable value, whichever is lower. Cost includes purchase price, conversion cost and other costs of bringing the goods to their present location and condition. Cost is found by FIFO or weighted average; LIFO is not allowed. Example: stock costing Rs. 40,000 with a net realisable value of Rs. 36,000 is shown at Rs. 36,000.

AS 9 — Revenue Recognition. Revenue from sale of goods is recognised when the significant risks and rewards of ownership have passed to the buyer and there is no significant uncertainty about collection. Revenue from services is recognised as the service is performed. Interest is recognised on a time basis, royalties on accrual, dividends when the right to receive is established. This is the realisation concept in written form.

AS 10 — Property, Plant and Equipment. Tangible items held for use in production or supply, for rental or for administration, and expected to be used for more than one period. They are recognised at cost — purchase price, import duties, non-refundable taxes, and directly attributable costs such as freight, installation and site preparation. Depreciation is charged systematically over the useful life. The installation charges of a new machine, asked as a capital-or-revenue item in Unit IV, are capital because AS 10 puts them in cost.

6. Ind AS

Indian Accounting Standards (Ind AS) are standards converged with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), London. They were notified by the Companies (Indian Accounting Standards) Rules, 2015, and became mandatory in phases: from 1 April 2016 for companies with a net worth of Rs. 500 crore or more, and from 1 April 2017 for all listed companies and for unlisted companies with a net worth of Rs. 250 crore or more. Ind AS are numbered to match their international counterparts — for example Ind AS 2 (Inventories), Ind AS 16 (Property, Plant and Equipment), Ind AS 115 (Revenue from Contracts with Customers) and Ind AS 116 (Leases).

How this is examined

The 16-mark essay (“What is Accounting Standards? Explain any 4”, January 2026, 100-mark paper) and the 6-mark note (June 2025). For 16 marks: meaning (section 1), objectives (section 2), the ASB and sections 129 and 133 (section 3), four standards with one example each (section 5) and a closing paragraph on Ind AS. For the note, compress sections 1 to 3 and name a few standards. Always give the standard’s number with its title; an answer that says “the standard on inventories” without “AS 2” loses marks.