India

Member Organizations

Member Organization Associate Other PAOs

  Institute of Chartered Accountants of India
  Institute of Cost Accountants of India

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    The financial reporting requirements for companies in India are stipulated in the Companies Act of 1956 (revised in 2013).

    Accounting Framework

    In India, there are currently two sets of accounting standards to be applied; Indian Accounting Standards (Ind AS) and local Accounting Standards (AS). Ind AS are outlined in the Companies (Indian Accounting Standards) Rules of 2015 issued by the Ministry of Corporate Affairs (MCA), and the AS are outlined in the Companies (Accounting Standards) Rules of 2006.

    Ind AS are to be applied by all listed companies, commercial banks, and non-bank finance companies. All other companies in India, primarily unlisted companies can apply Ind AS, but continue to use AS. Insurance companies currently apply AS and are required to comply with Ind AS in 2020. Ind AS are based on and substantially converged with IFRS as issued by the IASB; however, differences remain. The AS were developed utilizing an older version of IFRS, and the Institute of Chartered Accountants of India (ICAI) has plans to update the AS to be in line with current international standards. The plan is however, for all companies to eventually apply Ind AS.

    In accordance with the Companies Act, the Accounting Standards Board operating under ICAI is responsible for developing the accounting standards. The standards are approved and granted legislative backing by the MCA upon the recommendation of the National Advisory Committee on Accounting Standards (NACAS). Approved accounting standards are then published in the Gazette of India and are authoritative under law. In 2013, upon the revision of the Companies Act, the National Financial Reporting Authority (NFRA) was established to replace the NACAS. However, as the NFRA is yet to be operational, the NACAS was reconstituted by the MCA in 2014 to continue its. As of July 2018, ICAI reports that regulation and the structure regarding the appointment of members of the NFRA including a Chairperson has been issued; however, a timeline and steps for further operationalization is unclear.

    IFRS for SMEs has not been adopted and there are no plans in place for adoption. Small and medium-sized entities (SMEs) can either apply Ind AS or AS but they are not required to prepare a cash flow statement.

    Auditing Framework

    Under the Companies Act, all companies are required to be audited in accordance with Indian Standards on Auditing (SA) issued by the Auditing and Assurance Standards Board (AASB) of ICAI. Prior to 2013, SA that were developed and approved by the AASB were considered final; however, with the revision of the Companies Act in 2013, the NFRA was to assume the responsibilities of approving auditing standards to be applied in India. As of July 2018, the AASB continues to issue the auditing standards until the NFRA becomes operational. At this time, SA are approved and granted legislative backing by the MCA upon the recommendation of ICAI. Approved SA are then published in the Gazette of India. Gazetted standards are authoritative under law. ICAI reports that the AASB has adopted the 2016 ISA, except for ISA 600, which the national authorities in India have considered not applicable in the jurisdiction.

    In addition, Section 148 of the Companies Act states that the Central Government may require that certain companies conduct cost audits in addition to audits of financial statements. The Act stipulates that cost audits may only be performed by Cost and Management Accountants in accordance with Cost Auditing Standards (CAS) issued by the Institute of Cost Accountants of India (ICAI-CMA) subject to approval by the government. As on March 2018, 4 CAS have been issued by the CASB.

  • Regulation of Accountancy Profession

    The accountancy profession in India is self-regulated. Until 2013, both the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost Accountants of India (ICAI-CMA) were responsible for regulating Chartered Accountants (CA) and Cost and Management Accountants, respectively. However, as the Companies Act of 1956 was revised in 2013, the Act provided for the establishment of the National Financial Reporting Authority (NFRA), which is envisioned as the entity responsible for the overall regulation of the accountancy profession. The NFRA is expected to (i) monitor and enforce compliance with accounting and auditing standards; (ii) oversee the quality of the services provided by members of the profession; (iii) make recommendations to the government on the establishment of accounting and auditing policies and standards; and (iv) investigate and sanction professional misconduct by auditors and audit firms. As of July 2018, the NFRA has not yet become operational.

    Chartered Accountants (CAs)

    The Chartered Accountants Act of 1949 (revised in 2013) established the ICAI with regulatory authority over Chartered Accountants and powers to establish regulations as necessary to fulfill its duties. The Act permits ICAI to (i) establish initial professional development and continuing professional development requirements; (ii) maintain a register of its members; (iii) ensure members’ adherence to laws and professional standards; and (iv) investigate and discipline members for professional misconduct. In 2002, ICAI developed the Peer Review Mechanism that covers all audit work conducted by its members. The Peer Review Mechanism’s objectives are to ensure that Chartered Accountants who are authorized to conduct audits are complying with applicable standards set by the institute and that audit firms have proper systems in place to demonstrate compliance with the applicable standards. Additionally, in accordance with the Companies Act of 2013, ICAI is responsible for developing accounting and auditing standards.

    Under the Act, ICAI is responsible for defining the pathways to becoming a member of the institute and to attain the title of Chartered Accountant, a protected designation. Individuals have to pass all prescribed exams, complete three years of practical training and meet other general requirements. Members who have achieved all requirements become Associate Chartered Accountants (ACA). After being in practice for five years, ACAs can apply to become Fellow Chartered Accountants. Chartered Accountants who choose to practice as auditors are required to be members of ICAI, and have a practicing certificate issued by ICAI in order to conduct statutory audits. Auditors are prohibited from providing non-audit services, such as accounting and bookkeeping, internal audit, investment advisory and banking services, management services, actuarial design, and implementation of any financial information system.

    In 2007, a Quality Review Board (QRB) was established to oversee the work of ICAI after revisions were approved in 2006 to the Chartered Accountants Act. The QRB is primarily responsible for carrying out quality assurance reviews of audit firms that conduct statutory audits of public interest entities.

    In 2010, the Securities and Exchange Board of India issued a circular stating that all audit firms that perform financial statement audits of listed companies are subject to the Peer Review mechanism administered by ICAI.

    Cost Accountants (ICAI-CMA)

    The Cost and Works Accountants Act of 1959 grants regulatory authority to the Institute of Cost Accountants of India (ICAI-CMA) with respect to Cost and Management Accountants. ICAI-CMA is responsible for (i) maintaining and publishing a register of persons qualified to practice as Cost and Management Accountants;(ii) issuing certificates of practice; (iii) prescribing IPD and CPD requirements for its members; (iv) establishing ethical, professional and technical standards; (v) monitoring the performance of its members; and (vi) investigating and disciplining members for misconduct. Members of ICAI-CMA are not allowed to conduct financial statement audits; however they may perform financial statement audits if they possess a certificate of practice issued by ICAI.

    A Quality Review Board (QRB)—distinct from the abovementioned QRB for Chartered Accountants—was established in 2007 by the Ministry of Corporate Affairs in accordance with the Cost and Works Accountants Act of 1959 in order to evaluate and review the quality of work provided by members of ICAI-CMA. However, as reported by ICAI-CMA, the QRB has not conducted any reviews as part of its mandate. In lieu of the QRB, ICAI-CMA has established a Peer Review Board to conduct reviews of the work of Cost Accountants.

  • Audit Oversight Arrangements

    There are currently no independent audit oversight arrangements in India although the Companies Act of 1956 (revised in 2013) provides for the establishment of the National Financial Reporting Authority (NFRA) as the entity responsible for overseeing the quality of services provided by professional accountants. It is envisioned that as a part of its efforts to oversee the quality of services, the NFRA will establish quality assurance (QA) and investigative and disciplinary (I&D) mechanisms for auditors and audit firms.

    As the NFRA is not operational as of 2018, auditors conducting statutory audits continue to be regulated by the Institute of Chartered Accountants of India (ICAI), which was established under the Chartered Accountants Act of 1949 (revised in 2013). The Act grants ICAI authority to (i) establish initial professional development and continuing professional development (CPD) requirements; (ii) maintain a register of its members; (iii) ensure members’ adherence to laws and professional standards; and (iv) investigate and discipline members for professional misconduct. In 2002, ICAI developed a QA review system called the Peer Review Mechanism that covered all audit work conducted by its members. The Peer Review Mechanism’s objectives are to ensure that Chartered Accountants who are authorized to conduct audits are complying with applicable auditing and ethical standards set by the institute.

    Chartered Accountants are the only individuals permitted to conduct statutory audits after receiving a practicing certified issued by the ICAI. Under the Act, auditors are prohibited from providing non-audit services, such as accounting and bookkeeping, internal audit, investment advisory and banking services, management services, actuarial design, and implementation of any financial information system.

    In 2007, a Quality Review Board (QRB) was established to oversee the work of ICAI after revisions were approved in 2006 to the Chartered Accountants Act of 1949. The QRB is primarily responsible for carrying out QA reviews of audit firms that conduct statutory audits of public interest entities.

    In 2010, the Securities and Exchange Board of India issued a circular stating that all audit firms that perform financial statement audits of listed companies are subject to the Peer Review mechanism administered by ICAI.

  • Professional Accountancy Organizations

    The Institute of Chartered Accountants of India (ICAI)

    Under the Chartered Accountants Act of 1949 (revised in 2013), the ICAI was established with the authority to regulate the accountancy profession and powers to establish regulations as necessary to fulfill its duties. ICAI’s membership is comprised of Chartered Accountants, a designation protected under the Act. The Act grants ICAI authority to (i) establish initial professional development and continuing professional development (CPD) requirements; (ii) maintain a register of its members; (iii) ensure members’ adherence to laws and professional standards; and (iv) investigate and discipline members for professional misconduct. In 2002, ICAI developed the Peer Review Mechanism that covers all audit work conducted by its members. The Peer Review Mechanism’s objectives are to ensure that Chartered Accountants who are authorized to conduct audits are complying with applicable standards set by the institute. In accordance with the Companies Act of 1956 (revised in 2013), all auditors must have a practicing certificate issued by ICAI in order to conduct statutory financial statement audits. In addition to being an IFAC founding member, ICAI is a member of Confederation of Asian and Pacific Accountants (CAPA) and the South Asian Federation of Accountants (SAFA).

    The Institute of Cost Accountants of India (ICAI-CMA)

    The Institute of Cost Accountants of India (ICAI-CMA), formerly the Institute of Cost and Works Accountants of India, was established in 1944 as a registered company under the Companies Act, and is the only recognized statutory professional organization and licensing body in India specializing exclusively in Cost and Management Accountancy in accordance with the Cost and Works Accountants Act of 1959. Membership is required for individuals who wish to perform cost accountancy work in India. ICAI-CMA is required to (i) maintain and publish a register of persons qualified to practice as Cost and Management Accountants; (ii) issue certificates of practice; (iii) prescribe IPD and CPD requirements for its members; (iv) establish ethical, professional and technical standards; (v) monitor the performance of its members; and (vi) investigate and discipline members for misconduct. Members of the ICAI-CMA are not allowed to conduct financial statement audits unless they are members of ICAI and possess a certificate of practice issued by ICAI. In addition to being an IFAC member, ICAI-CMA is also a member of CAPA and SAFA.

  • Projects or Other Information

    The Companies Act of 1956 (revised in 2013) provides for the establishment of a National Financial Reporting Authority (NFRA). Although it is unclear when the NFRA will become operational, it is envisioned the entity will: (i) monitor and enforce the compliance with accounting and auditing standards; (ii) oversee the quality of the services provided by members of the profession; (iii) make recommendations to the government on the establishment of accounting and auditing policies and standards; and (iv) investigate and sanction professional misconduct by auditors and auditors firms.

Adoption of International Standards

  • Quality Assurance

    The Chartered Accountants Act of 1949 (revised in 2013) established the Quality Review Board) with the responsibility for the quality assurance (QA) reviews of audit firms that conduct statutory audits of public interest entities. Audit firms are required to comply with Standard on Quality Control (SQC) 1 issued by the Institute of Chartered Accountants of India (ICAI). SQC 1 are developed based on ISQC 1 with modifications. It is unclear if the QA system adopted by the QRB is aligned with the best practices of SMO 1.

    In 2002, the Council of ICAI established a mandatory Peer Review mechanism that is overseen by the institute’s Peer Review Board. Its objectives are to ensure that all Chartered Accountants who are authorized to conduct audits are complying with applicable standards set by the institute and to ensure that audit firms have proper systems in place to comply with the applicable standards. ICAI reports that its Peer Review mechanism is aligned with the requirements of SMO 1.

    Current Status: Adopted

  • International Education Standards

    Both the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost Accountants of India (ICAI-CMA) are responsible for establishing initial professional development (IPD) and continuing professional development (CPD) requirements for professional accountants in India.

    Under the Chartered Accountants Act of 1949 (revised in 2013), ICAI is responsible for establishing IPD and CPD requirements for Chartered Accountants. ICAI reports that the revised 2015 IES have been incorporated in its IPD and CPD program.

    Under the Cost and Works Accountants Act of 1959, ICAI-CMA is responsible for establishing IPD and CPD requirements for Cost and Management Accountants in India. In 2016, the institute reports that it conducted a revision of its curriculum and that while its syllabus incorporates some elements of the revised IES, it is not clear how the institute may be addressing all the revised 2015 requirements.

    Current Status: Partially Adopted

  • International Standards on Auditing

    The Companies Act of 1956 (revised in 2013) states that auditing standards issued by the Institute of Chartered Accountants of India (ICAI), and subsequently approved by the Ministry of Corporate Affairs, are mandatory for the audit of financial statements of companies in India.

    The Auditing and Assurance Standards Board (AASB), operating under the Council of ICAI, is responsible for developing Indian Standards on Auditing for application in India. The AASB has adopted the 2016 ISA, except for ISA 600, which the national authorities in India have considered not applicable in the jurisdiction.

    The AASB of ICAI also issues Standards on Assurance Engagements, Standards on Review Engagements, and Standards on Related Services. ICAI reports that these standards are aligned with their international equivalents.

    Current Status: Partially Adopted

  • Code of Ethics for Professional Accountants

    Each professional accountancy organization in India is responsible for establishing ethical requirements for its members. Although convergence with the IESBA Code has been stated as a planned objective for both institutions, this effort has neither been completed nor has a clear timeline been outlined.

    Under the Chartered Accountants Act of 1949, the Institute of Chartered Accountants of India (ICAI) is responsible for establishing ethical requirements for its members. ICAI’s Code of Ethics, which was developed in 2009, incorporates elements of the 2005 IESBA Code of Ethics, with modifications. The institute reports that while in the process of convergence with the 2016 IESBA Code of Ethics; the 2018 IESBA Code of Ethics was issued, which includes a wide range of structural changes as compared to the 2016 version. As a result of the newly issued Code, the Council of ICAI has begun the convergence process with the 2018 Code.

    Under the Cost and Works Accountants Act of 1959, the Institute of Cost Accountants of India (ICAI-CMA) is responsible for establishing ethical requirements for its members. The institute reports that it has developed a Code of Ethics for its members and planned to bring it in line with the IESBA Code of Ethics by 2014. No progress on this initiative has been reported.

    Current Status: Not Adopted

  • International Public Sector Accounting Standards

    In India, there are three levels of government: Union Government, State Government, and Local Self-Government.

    The Comptroller and Auditor General of India (CAG), in accordance with Article 150 of the Indian Constitution, established the Government Accounting Standards Advisory Board (GASAB) in 2002 to formulate accounting and financial reporting standards for both Union and State Governments, and Union Territories with legislative assemblies. The GASAB developed Indian Government Accounting Standards (IGAS) for these entities, which are primarily cash-based.

    The Institute of Chartered Accountants of India (ICAI) reports that in order for the GASAB to eventually adopt accrual-based standards, it has also developed Indian Government Financial Reporting Standards (IGFRS), which are developed using IPSAS as a reference. Five IGFRS are being considered for adoption by the Government of India.

    Local Self-Government follow accounting standards issued by the Committee on Accounting Standards for Local Bodies (CASLB), which operates under ICAI. These standards are called the Accounting Standards for Local Bodies (ASLB) and follow accrual-basis accounting. ICAI reports that elements of IPSAS are integrated into the development of ASLB. The CASLB is comprised of members of the Council of the ICAI, representatives from the Ministry of Urban Development (MOUD), the CAG, the Controller General of Accounts , the National Institute of Urban Affairs, the Ministry of Panchayati Raj, the Directorate of Local Bodies, the Directorate of the Local Fund Audit Department, representatives from Academic institutions, and other professionals as appointed by ICAI.

    The ASLB are approved by the Technical Committees on budget and Accounting Standards for Urban Local Bodies/Panchayati Raj Institutions (Rural Local Bodies) constituted by the MOUD and MOPR Institutions, all part of the Government of India. Thirteen ASLB have been issued including one cash based ASLB to facilitate transitioning from cash based to accrual based accounting.

    Current Status: Partially Adopted

  • Investigation and Discipline

    Both the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost Accountants of India (ICAI-CMA) are responsible for establishing investigative and disciplinary (I&D) mechanisms for their respective members. In addition, the National Financial Reporting Authority (NFRA), established under the Companies Act of 1956 (revised in 2013) is responsible for the investigation and discipline of audit firms; however, as of July 2018, the NFRA is not operational.

    Under the authority of the Chartered Accountants Act of 1949 (revised in 2013), ICAI has established an I&D system. ICAI reports based on a self-assessment conducted in September 2017, gaps have been identified and that its system does not fully comply with the requirements of SMO 6. The identified gaps include the following: the I&D system is not linked with the institute’s QA mechanism but is linked with the QRB’s QA mechanism only referred by the QRB; the investigative committee does not have members that are independent of the profession; no timeframe exists to complete disposal of cases; results of the I&D process are not made available to the public but are eventually published in disciplinary volumes which are for sale; and while ICAI does regularly liaise with external investigating agencies and the government on matters, a formal process to liaise with these external parties does not exist. It is unclear if there are plans to address the identified gaps.

    Under authority of the Cost and Works Accountants Act of 1959, ICAI-CMA has also established an I&D system and the institute reports that in 2012 it had commenced a review of its I&D system against the requirements of SMO 6; however, it is unclear if the review was completed.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    In accordance with the Companies Act of 1956 (revised in 2013), the Accounting Standards Board (ASB) operating under the Institute of Chartered Accountants of India (ICAI) is responsible for developing national accounting standards. The standards are approved and granted legislative backing by the Ministry of Corporate Affairs (MCA) upon the recommendation of the National Advisory Committee on Accounting Standards (NACAS). In 2013, upon the revision of the Companies Act, the National Financial Reporting Authority (NFRA) was established to replace the NACAS. However, as the NFRA is yet to be operational, the NACAS was reconstituted by the MCA in 2014 to continue its functions.

    In India, there are currently two sets of accounting standards to be applied; Indian Accounting Standards (Ind AS) and local Accounting Standards (AS). Ind As are outlined in the Companies (Indian Accounting Standards) Rules of 2015 issued by the MCA, and the AS are outlined in the Companies (Accounting Standards) Rules of 2006. Ind AS are based on and substantially converged with IFRS as issued by the IASB; however, differences remain. Ind AS are to be applied by all listed companies, commercial banks, and non-bank finance companies. All other companies in India, primarily unlisted companies can apply Ind AS, but continue to use AS. Insurance companies currently apply AS and are required to comply with Ind AS by 2020. The AS were developed utilizing an older version of IFRS, and ICAI reports that there are plans to update the AS to be in line with current international standards. The plan is however, for all companies to eventually apply Ind AS.

    Small and medium-sized entities (SMEs) are required to apply Ind AS but do not have to prepare a cash flow statement. There are no plans in place for the adoption of IFRS for SMEs.

    Current Status: Partially Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

Methodology

Methodology
Last updated: 11/2018
We welcome feedback. Please email compliance@ifac.org

Thank you for your interest in our publications. These valuable works are the product of substantial time, effort and resources, which you acknowledge by accepting the following terms of use. You may not reproduce, store, transmit in any form or by any means, with the exception of non-commercial use (e.g., professional and personal reference and research work), translate, modify or create derivative works or adaptations based on such publications, or any part thereof, without the prior written permission of IFAC.

Our reproduction and translation policies, as well as our online permission request and inquiry system, are accessible on the Permissions Information web page.

For additional information, please read our website Terms of Use. ALL RIGHTS RESERVED.