Back Generally accepted but poorly understood
D. Murali
The difference between the two acronyms is that one is on accounting practices while the other is on auditing standards, though both are `generally accepted'.
The problem with pronouncements coming from the ivory towers of an accounting regulatory body or the government is that such declarations are often labelled as generally accepted even when they are not that generally understood and often not widely adopted.
However, AS or accounting standards have a lofty goal — that of eliminating non-comparability of financial statements.
For a long time, standard-setting was the monopoly of the Institute of Chartered Accountants of India. Then came the National Advisory Committee on Accounting Standards (NACAS) through an amendment to the Companies Act, pushing the ICAI down to a recommendatory role.
With effect from April 1, 2004, there are three `levels' of enterprise, for the purpose of applicability of AS.
Rawat takes up each AS and explains the same through easy questions, such as: "What are notes to accounts?" and "What is retirement benefit?" A definite value addition of the book is to dissect the standards into their component concepts, provide examples, highlight links with other statutes such as tax and company law, and wrap up `practice notes for the auditor'.
There's a sprinkling of flowcharts too.
To save you from stacking up a book on other GAAPs to study side-by-side, Rawat factors in the differences when discussing the Indian AS.
For example, he explains `significant differences between AS-4, IAS and US GAAP' thus: "Proposed dividend after balance sheet date but before the date of the financial statements is non-adjusting event under corresponding IAS-10 and US GAAP. However, as per AS-4, the proposed dividend is shown in balance sheet and thus treated as adjusting event."
Similarly, you'd learn that AS-12 does not state about fair value measurement of non-monetary grants whereas IAS-20 talks about non-monetary grants at fair value at the time of initial recognition."
Yet, the book is short on critical analysis, preferring instead the rut of paraphrasing the standard and resorting to presentation engineering, especially in the audit segment.
For instance, audit sampling (AAS-15) is finished off in less than two pages, though auditors may greatly benefit from something more than cryptic statement such as: "It is the responsibility of the auditor to — analyse any errors detected in the sample, project errors in the total population, and reassess sampling risk."
Likewise, AAS-17 on quality control gets just about a page of treatment. Since auditors are good at ticking, Rawat has provided a `checklist to ensure compliance of AAS.
There is no doubt that a book like this on your table can infuse confidence in the minds of your clients.
Audit work for taxman
Similarly, tax and audit are so chummy that you'd find the offices of the two bodies juxtaposed to each other in many towns and cities. Which is why it is said that tax audit was a benevolent provision to get some regular job for CAs.
Perhaps, that explains also why the monetary limits for the purpose that were fixed long ago have not been revised lest there be a reduction in the assignments for accounting firms.
However, as long as the law stays on the statute book, you may need guidance such as Ram Kumar Agarwal's Tax Audit, from Current Publications.
The author explains the legal provisions and also cites cases where appropriate.
For instance, the topic on `method of accounting' informs how the assessee can choose between cash or mercantile system. As held in Manilal Kher Amba Lal, "the AO does not have the power to impose his own method of accounting on the assessee." However, it is essential that the method chosen by the assessee should be followed regularly.
A fertile area for disputes is that of capital versus revenue in booking expenditure.
The book gives a list of cases relating to what's been held to be capex.
Thus, the Gopal Mills case was about expenses incurred to fill up a pit where the accumulation of waste was causing a nuisance, and the East India Commercial case was on stamp duty on ineffective lease deed. Cost of reconstructing and refurbishing business premises, and expenses incurred for erecting temporary structures too have been held to be capital in nature.
Useful knowledge on audit work done for the taxman, or tax work done by auditors.
Want ethics lesson from Ambani?
Yet, you may find the work interesting if you like to engage your clients in esoteric argument on yoga, spirituality, dharma, gunas, maya, Vidhura, and so on.
The chapter on `meditation' instructs that my spine has to be erect and that eyes should be closed.
Keep your hands "on the knees or the lap", I mean yours, and palms may be turned upwards. Bheeshma had said that "a king's treasury should always be full," and to keep it so, "subjects should give part of their belongings and wealth."
We should keep our FM away from such dangerous wisdom, I feel.
The authors devote attention to trusteeship and define it as `a way of life', and give reference to a 2002 speech of Mukesh Ambani where he spoke of business leaders considering themselves as trustees of society's wealth. Something belied by experience, so we should be happier if society had the benefit of their wealth!
As for the book, my comment is: Not reading this doesn't mean you're unethical.
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