The Hindu Business Line : A new Preface

WITHOUT MUCH FANFARE, the Institute of Chartered Accountants of India has altered something as fundamental as the Preface to its Accounting Standards. There are visible and welcome changes, such as the defining of the composition of the Accounting Standards Board (ASB), setting objectives for itself, asserting the importance of the whole of the Standards text, assuming the responsibility to interpret the standards, and resolving to limit alternatives.

Over the years, the Institute has been pronouncing standards in different areas, so much so that now there is a near parity with the international standards. And much water has flowed under the bridge, be it in the form of legislative recognition of the Accounting Standards in corporate law, increasing the disclosure requirements in annual reports or the greater onus on auditors to benchmark financial statements against ICAI standards. More important, the profession that was the cynosure stuck out like a sore thumb for anybody looking to explain away mega scams and scandals in the corporate world. As damage-control became necessary, the Government got the Naresh Chandra Committee working, and regulatory bodies such as the ICAI began intense soul-searching. The Department of Company Affairs too has been adopting a hands-on approach with the Institute, even as the latter is crying foul about its autonomy being compromised by the new Bill to amend the Chartered Accountants Act.

The latest exercise of re-engineering the Preface to the Accounting Standards, in this context, though a step in the right direction, has all the ingredients of a face-saving measure. A question that arises is if the move is based on a directive from the DCA or a suo motu Institute initiative, though the ICAI points out that it was not under any pressure to change the Preface. Again, on the sudden emphasis of `principles' in contrast with `rules', the Institute's defence is that it was always so, only it is being said explicitly. As a natural consequence of the facelift to the Preface, since the Institute has fewer new standards to work on, it has put some of its existing ones on the revision table. And the results would only add to the swelling number of `limited revisions' and `interpretations'.

There are also other caveats. The drive to make the Accounting Standards Board representative may result in a jumbo-size outfit that would be constrained by its own weight. With more tasks in the Board's portfolio, there are administrative overheads the Institute may have to bear in getting the Board well equipped. There is the danger that the `bounds of rationality' noose around the `alternatives' in applying the Accounting Standards could hamstring accountants who need to grapple with newer business situations. The absence of the `recommendatory' honeymoon period for the Standards can rob the Institute of the facility to test the waters before firming up its pronouncement. Last, doubts abound about the ICAI's capability to oversee the translation of the fond goals envisioned in the Preface at the field level where its members attest the accounts.

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