2004年-世界发展银行全球_India___Report_on_Observance_of_Standards_and_Codes_-_Accounting_and_Auditing_50页_5mb

Summary of Report No. 32510-IN: India - Report on Observance of Standards and Codes (ROSC) - Accounting and Auditing

Executive Summary

This report assesses India's accounting and auditing practices in the context of institutional capacity for high-quality financial reporting. India's accounting profession has a long history, dating back to the 19th century, and has made significant strides in aligning with international standards. However, there is still room for improvement in the institutional framework and compliance with these standards. The report includes stakeholder inputs and provides policy recommendations aimed at strengthening the corporate financial reporting regime, enhancing monitoring and enforcement, and promoting an independent oversight body for auditing. The recommendations focus on improving comparability, transparency, and accountability in financial reporting.

Core Content

I. Introduction and Background

• India is the largest democracy and second most populous country in the world, with a population of 1.1 billion and a GDP of $3 trillion.
• The report is part of a joint initiative by the World Bank and IMF on ROSC, which covers twelve internationally recognized core standards.
• The review evaluates the effectiveness of monitoring and enforcement mechanisms and uses IFRS and ISA as benchmarks for evaluating local accounting and auditing standards.
• India's economic reforms since 1991 have improved the investment climate, but further reforms are needed to increase private investment and productivity to meet growth targets.
• The report emphasizes the importance of improving comparability, transparency, and accountability in financial reporting.

II. Institutional Framework

A. Statutory Framework

• The Companies Act (1956) is the primary legislation governing financial reporting in India. It requires the preparation, presentation, and audit of financial statements by ICAI-certified auditors.
• Schedule VI of the Companies Act outlines the form, content, and disclosure requirements for financial statements.
• The Department of Company Affairs (DCA), Company Law Board, Regional Directors, and Registrar of Companies (ROC) are responsible for enforcing the Companies Act.
• The Companies (Amendment) Acts (1999, 2001, 2002) have introduced significant changes, including mandatory compliance with ICAI-issued accounting standards, disclosure of deviations, and the establishment of audit committees.
• The Chartered Accountants (Amendment) Bill 2003 proposes changes to the regulatory framework, including the formation of a Quality Review Board, increasing Government representation on the ICAI Council, and revising disciplinary procedures.

B. The Profession

• The Institute of Chartered Accountants of India (ICAI) is the primary regulatory body for the accounting profession, modeled after the ICAEW.
• ICAI regulates the profession, provides education and training, and acts as a disciplinary authority.
• ICAI has a membership of over 110,000 and is one of the largest professional accountancy bodies globally.
• The Income Tax Act empowers the Central Government to notify accounting standards for taxation purposes, and the Central Board of Direct Taxes has issued notifications for AS 1 and AS 5, while examining other standards for tax applicability.

III. Accounting Standards as Designed and as Practiced

• Indian accounting standards are based on international standards, and many accountants in India are capable of providing international-standard services.
• The Naresh Chandra Committee was appointed to strengthen the institutional framework and legislative environment for the accounting and auditing profession.
• The Malegam Committee studied the observance of international standards and made recommendations to reduce the standards gap.

IV. Auditing Standards as Designed and as Practiced

• Auditing in India is governed by Indian Auditing and Assurance Standards (IAAS), which are based on ISA.
• The Comptroller and Auditor General of India (CAG) oversees audits of state-owned enterprises.
• The Reserve Bank of India (RBI) regulates the appointment of auditors for banks and has formed committees to evaluate and improve the process.
• Urban Cooperative Banks are under RBI supervision, while Rural Cooperative Banks are under the National Bank for Agriculture and Rural Development (NABARD).
• The Insurance Regulatory and Development Authority (IRDA) requires insurance companies to comply with ICAI-issued accounting standards and has established rules for auditor appointment and rotation.

V. Perception of the Quality of Financial Reporting

• There is a generally positive perception of the quality of financial reporting in India, but concerns remain regarding compliance and enforcement.
• The Securities and Exchange Board of India (SEBI) sets listing requirements for companies, which include compliance with ICAI accounting standards.
• The Stock Exchange Listing Agreement requires listed companies to publish unaudited quarterly financial results, which are subject to limited review by auditors.

VI. Policy Recommendations

• Strengthen the institutional framework to enhance the quality of corporate financial reporting.
• Improve compliance and enforcement mechanisms.
• Establish an independent oversight body for auditing, similar to the Public Company Accounting Oversight Board (PCAOB).
• Enhance penalties for noncompliance to act as deterrents.
• Promote professional development and continuing education for accountants and auditors.
• Improve transparency and accountability in financial reporting.

Key Information

• Main Regulatory Bodies:

  • ICAI: Regulates the accounting profession.
  • DCA: Enforces the Companies Act.
  • ROC: Scrutinizes compliance of registered companies.
  • SEBI: Regulates the securities market and sets listing requirements.
  • RBI: Regulates the financial sector and bank audits.
  • IRDA: Regulates the insurance sector.

• Key Reforms:

  • Introduction of audit committees in 2000.
  • Amendments to the Companies Act to align with international standards.
  • Formation of the Naresh Chandra Committee and Malegam Committee to improve institutional and regulatory frameworks.

• Accounting and Auditing Standards:

  • Indian accounting standards are aligned with IFRS.
  • Auditing standards are based on ISA.
  • The Quality Review Board is proposed to improve audit quality and oversight.

• Challenges:

  • Compliance and enforcement remain weak.
  • Capacity constraints in the ROC limit oversight to listed companies.
  • Limited review of unaudited financial results may influence subsequent audits.
  • Inconsistent application of accounting standards across sectors.

Appendices

• Appendix A: Indian Accounting Standards Applicability to Enterprises.
• Appendix B: Indian Auditing and Assurance Standards.
• Appendix C: Proposed Definition of "Control" for Consolidation.
• Appendix D: International Developments in Regulatory Framework of Accounting and Auditing.