Accounting Standards: Duty of Statutory Auditors

Table of Content

1. Duty of Statutory Auditor for Compliances with AS
2. Mandatoriness of AS to Auditor and to Management
3. Recognition of Law to AS
4. Composition of Accounting Standards
5. Type of organizations to whom AS is applicable

1. Duty of Statutory Auditor for Compliances with AS

While discharging their attest functions, it will be the duty of the members of the Institute to ensure that the Accounting Standards are implemented in the presentation of financial statements covered by their audit reports.

In the event of any deviation from the Standards, it will also be their duty to make adequate disclosures in their reports so that the users of such statements may be aware of such deviations.

2. Mandatoriness of AS to Auditor and to Management

When the institute declares an AS as mandatory w.e.f. from a particular date then it applies to all the accounting periods commencing on or after that date.

These AS are in true sense mandatory to the members of ICAI who are acting as Statutory Auditors and not to the management of that organisation.

ICAI as such cannot make these standards mandatory to the management unless the law governing them requires to follow it.

However, choice of accounting policies as suggested in the Accounting Standards are always preferred as these contains the judicious opinion of the professional accountancy body of the country & also it is mandatory for the statutory auditors to report deviations from the accounting policies suggested in the mandatory Accounting Standard.

3. Recognition of Law to AS

As per section 211(3C) of the Companies Act, 1956 Central Govt. has formulated the Companies (Accounting Standards) Rules, 2006. It has notified AS-1 to AS-29 applicable to accounting period commencing on or after 7.12.2006.

The Income-tax Act vide section 145 specifies that assessees should comply with such accounting standards as may be notified by the Government. So far only two accounting standards NAS-1 & NAS-2 which are broadly based on AS-1 & AS-5 have been notified to be followed by assessee’s following mercantile system of accounting.

4. Composition of Accounting Standards

The accounting standard generally comprises of introduction and the background of the areas in which standard is issued.

It also contains meaning and definition of various terms used in the standard and the various accounting practices related to the subject-matter of standard which are presently being followed by different organizations & its pros & cons.

Then finally it contains the Accounting Standards detailing the policies to be followed and this standards are to be read in the context of above background and preface.

Thus standard has explanatory clauses and clauses containing standard. But all the clauses have equal importance.

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5. Type of organizations to whom AS is applicable

AS is applicable to:

1. 1. Sole Proprietary Concerns/Individuals.
   2. Partnership Firms
   3. Societies
   4. Trusts
   5. Hindu Undivided Families
   6. Association of Persons
   7. Co-operative Societies
   8. Companies

It is not applicable to purely charitable organization, if it does not have any commercial, industrial and business activity.