Accounting Standards under Companies Act

• Companies must follow accounting standards notified under the Companies Act, 2013.
  
• These standards are issued by the Ministry of Corporate Affairs in consultation with ICAI.
  
• The applicable standards include recognition, measurement, and disclosure principles.
  
• Compliance is mandatory for preparation of financial statements.
  
• They provide the foundation for computation of book profits and taxable income.
  

Income Computation and Disclosure Standards (ICDS)

• ICDS are notified by the Central Board of Direct Taxes under section 145 of the Income-tax Act.
  
• These standards apply specifically for computing taxable income under the head “Profits and Gains from Business or Profession.”
  
• ICDS are different from financial reporting standards and are used only for tax purposes.
  
• They aim to bring uniformity and reduce tax disputes.
  
• ICDS are applicable to all companies following mercantile system of accounting.
  

Key Accounting Areas Affected

• Revenue recognition, construction contracts, and government grants.
  
• Borrowing costs, leases, and foreign exchange transactions.
  
• Valuation of inventories and treatment of provisions and contingencies.
  
• Depreciation and amortization policies impacting tax computations.
  
• Recognition of deferred tax assets and liabilities under Accounting Standard 22 or Ind AS 12.
  

Applicability of Indian Accounting Standards (Ind AS)

• Companies meeting certain thresholds must adopt Ind AS as per MCA roadmap.
  
• Ind AS are converged with International Financial Reporting Standards.
  
• Ind AS impacts calculation of book profits under MAT provisions.
  
• Companies following Ind AS must reconcile accounting and tax results.
  
• Differences between Ind AS and ICDS must be adjusted while computing income.
  

Audit and Disclosure Requirements

• Tax auditors must report compliance with ICDS in Form 3CD.
  
• Companies must disclose deviations between accounting and taxable income.
  
• Proper reconciliation must be presented in the tax audit report.
  
• Financial statements must include disclosures mandated by applicable standards.
  
• Non-compliance may lead to penalties and disallowance of tax claims.