Compliance with accounting standards

A new sub–section 3A to Section 211 of the Companies Act, 1956 was inserted in 1999. This sub-section requires that every profit and loss account and Balance sheet shall comply with accounting standards. Accounting Standards mean the standards issued by the Institute of Chartered Accountants of India (ICAI) and prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards (NACAS) constituted under Section 210(a)(1) of the Companies Act, 1956. Until the Central Government prescribes accounting standards under this section, accounting standards issued by the ICAI shall be deemed to be the accounting standards.  NACAS shall consist of the following 12 members:

• A chairman, who shall be a person of eminence well versed in accountancy, finance, business administration, business law, economics or similar discipline;
• One member each nominated by the Institute of Chartered Accountants of India, Institute of Cost & Works Accountants of India and Institute of Company Secretaries of India;
• One representative of the Central Government to be nominated by it;
• One representative of the Reserve Bank of India to be nominated by it;
• One representative of the Comptroller and Auditor General of India to be nominated by him;
• A person whole holds, or has held the office e of Professor in accountancy, finance or business management in any University or deemed university;
• The chairman of the Central Board of Direct Taxes, constituted under Central Board of Revenue Act, 1963 or his nominee;
• Two members to represent the chambers of commerce and industry to be nominated by the Central Government;
• One representative of the Securities Exchange Board to be nominated by it.

Deviation from accounting standards:

Section 211(3B) of the Companies Act, 1956 requires that in case the profit and loss account and balance sheet of company do not comply the requirements of the accounting standards, disclosure should be made stating: –

• Deviation from the accounting standards;
• Reasons for such deviations; and
• The financial effect, if any, due to such deviations.