The Chartered Accountant

compliance of Accounting Standards by companies in
the preparation of profit and loss account and balancesheet.
By virtue of the said amendment, Accounting
Standards are required to be prescribed by the Central
Government in consultation with the NAC established
under section 210A. Until the NAC is established and
Accounting Standards are prescribed by the Central
Government, the Accounting Standards specified by
the Institute shall be followed by all the companies. In
the present case, the NAC has been established. In the
present case, by the impugned notification dated December
7, 2006, the Accounting Standards have been
prescribed by the Central Government. In the present
case, by the impugned notification, AS 22 earlier specified
by the Institute has been adopted by the Central
Government in the form of a rule. Therefore, vide the
impugned notification, AS 22 stands prescribed by the
Central Government in consultation with NAC which
has been established under section 210A of the Companies
Act…
Under section 211(1) every balance-sheet of
a company has to comply with the following
requirements:
(i) It must give "true and fair" view of the
affairs of the company at the end of the financial
year;
(ii) it must be in the form set out in Part I
of Schedule VI or as near thereto as circumstances
admit ; and
(iii) it must give regard to the general instructions
for preparation of balance-sheet under
the heading "Notes".
Similarly, section 211(2) of the Companies
Act requires that every profit and loss account
of a company must give a "true and
fair" view of the profit or loss of the company
for the financial year and comply with
the requirements of Part II of Schedule VI
so far as they are applicable thereto.
It may be noted that the balance-sheet prescribed
by Part I of Schedule VI has to be in
the form of a proforma. However, the Companies
Act does not prescribe a proforma of
DECEMBER 2008 964 THE CHARTERED ACCOUNTANT
ACCOUNTING
The issue which needs to be addressed is whether prescribed AS 11 should be
followed in accounting for exchange difference in respect of imported fixed
assets or Schedule VI should be followed? What is mandatory-prescribed
AS 11 or Schedule VI? This controversy needs to be set right by the Central
Government or else companies may choose to follow different accounting
treatment of exchange difference in respect of imported fixed assets.
profit and loss account. Part I of Schedule
VI prescribes a proforma of balance-sheet.
Part II of Schedule VI only prescribes the
particulars which must be furnished in the
profit and loss account. Therefore, as far as
possible, the profit and loss account must
be drawn up according to the requirements
of Part II of Schedule VI. It is important
to note that section 211 read with Part I
and Part II of Schedule VI prescribes the
form and contents of balance-sheet and
profit and loss account. However, section
211(1), inter alia, states that every balancesheet
of a company shall subject to the provisions
of that section, be in the form set
out in Part I of Schedule VI. The words
"subject to the provisions of this section"
would mean that every sub-section following
sub-section (1) including sub-sections
(3A), (3B) and (3C) shall have an overriding
effect and consequently every profit and
loss account and balance-sheet shall comply
with the Accounting Standards. Therefore,
implementation of the Accounting Standards
and their compliance are made
compulsory and mandatory by the aforestated
sub-sections (3A), (3B) and (3C).
The insertion of the concept of "true and
fair" view in place of "true and correct" has
been made to do away with the view that accounts
should disclose arithmetically accuracy.
Adherence to the disclosure requirements
as per Schedule VI is subservient
to the overriding requirement of "true
and fair view" as regards the state of affairs.
Therefore, the annual financial statements
should convey an overall fair view and
should not give any misleading information
or impression... Further, the information to
be disclosed should be in consonance with
the fundamental accounting assumptions
and commonly accepted accounting policies.
..In this regard it may be noted that under
section 227(3)(d) it is the duty of the auditor,
to state in his audit report whether the