Test: Indian Accounting Standards and IFRS - UGC NET MCQ

Statement 1 is correct because the IASC was indeed established with the objective of developing international accounting standards to enhance the comparability of financial statements globally. Statement 2 is incorrect; while the IASC was succeeded by the International Accounting Standards Board (IASB) in 2001, it is not accurate to say it was replaced by IFRS. Instead, the IASB adopted and continued to develop the existing IAS standards, which later evolved into IFRS. Therefore, only Statement 1 is correct.

Indian companies primarily followed Indian Generally Accepted Accounting Principles (IGAAP) before the introduction of Ind AS. IGAAP comprised 18 accounting standards set by the ICAI under the Companies Act, 1956. The transition to Ind AS aimed to enhance the quality of financial reporting and bring it more in line with international standards, thereby improving the global competitiveness of Indian companies.

Both statements are correct. Statement 1 accurately reflects the global adoption of IFRS, which is designed to standardize financial reporting practices internationally, facilitating better comparability of financial statements. Statement 2 is also correct as the convergence of IFRS with Ind AS is intended to harmonize India's accounting standards with global practices, thereby reducing discrepancies and improving the transparency of financial reporting in India.

- The Assertion (A) is true because the ASB was indeed established to address the need for proper accounting standards in India, specifically suited to its economic context.

- The Reason (R) is also true; the creation of the ASB aimed to facilitate the comparability of Indian financial statements with international standards.

- The Reason is the correct explanation of the Assertion because the need for the ASB naturally arose from the requirement of aligning Indian accounting practices with global norms, thus validating the assertion about its importance.

In 2016-17, all companies with a net worth exceeding ₹500 crores were mandated to adopt Ind AS. This requirement aimed to enhance the transparency and comparability of financial statements among larger firms, aligning them with global accounting standards. The implementation of Ind AS reflects a significant shift towards more rigorous financial reporting, which can improve investor confidence and facilitate easier cross-border investments. It's interesting to note that the adoption of Ind AS is part of a broader trend among countries to converge local accounting standards with International Financial Reporting Standards (IFRS).

The primary purpose of Indian Accounting Standards (Ind AS) is to align Indian accounting practices with International Financial Reporting Standards (IFRS). This alignment helps ensure that financial statements are consistent, transparent, and comparable across different jurisdictions, which is crucial for investors and stakeholders. The adoption of Ind AS aims to enhance the quality of financial reporting and improve the integrity of financial statements in India. Interestingly, the development of these standards is overseen by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI), which was established in 1977, highlighting a long-standing commitment to improving financial reporting standards in the country.

- The Assertion (A) is true because the Accounting Standards (Ind AS and AS) play a vital role in establishing a consistent financial reporting framework across India.

- The Reason (R) is also true as these standards indeed promote transparency and comparability, which are essential for stakeholders when analyzing financial statements.

- The Reason is the correct explanation of Assertion since the purpose of these standards directly supports the need for a robust financial reporting framework, validating the assertion's claim.

• The Assertion is correct as it states that companies with a net worth above ₹1,000 crores had a mandatory requirement to implement Ind AS from the specified year.
• The Reason is also correct; it accurately describes the rationale behind the phased approach to implementing Ind AS, which considers various factors relevant to different companies.
• Since the Reason provides a valid explanation for the Assertion, Option A is the correct choice.

The ICAI has published 41 accounting standards. These standards serve as guidelines for financial reporting and are crucial for ensuring that financial statements provide a true and fair view of a company's financial position. The comprehensive nature of these standards reflects India's commitment to improving its accounting practices and aligning them with global norms, which is beneficial for both domestic and international investors.

• Assertion (A) is true: The adoption of Ind AS does indeed enhance the credibility of financial statements in India.
• Reason (R) is true: Ind AS simplifies accounting information and promotes uniformity across businesses.
• Reason (R) is the correct explanation of Assertion (A) because the framework provided by Ind AS directly contributes to the credibility of the financial statements.