QUESTION: It is understood that two accounting standards have been published inviting comments. What is the scope of such standards and the need for them, when there are already accounting standards issued by the Institute of Chartered Accountants of India?
ANSWER: Income for income-tax purposes is not the same as for accounting purposes. Most accounting standards prescribed by the Institute of Chartered Accountants of India have been notified under the Company Law and are, therefore, mandatory for companies to keep accounts in the manner prescribed. Even assessees other than companies are expected to follow the accounting principles enjoined by the standards. Schedule VI of the Companies Act, 1956, gives a format, which is also undergoing a change from April 1, 2012. Income-tax law, however, has its own deeming provisions and separate depreciation schedule. It is in this context that the Board was vested with power to prescribe accounting standards by an amendment to Sec. 145(2) by the Finance Act, 1995, with effect from April 1, 1997.
Accounting Standards 1 and 2 as applicable to all cases were issued in pursuance of such power practically adopting the first two standards of the Institute relating to accounting policies and prior period and extraordinary items. However, in 2011 two draft standards were proposed inviting comments from the public. It has been made clear that Tax Accounting Standards will override the other standards and that the statute will override tax accounting standards as well.