HISTORY OF ACCOUNTING:-
Accounting has evolved and emerged, as have medicine,
law, and most other fields of human activity, in response to
the social and economic needs of society.
The history of accounting can be traced as far back as to
the dawn of commerce. Sufficient evidence exists to
conclude that art and practice of accounting existed even in
There are references to kraya (sale), Vanij (merchant),
sulka (price) in Rigveda.
Simple accounting is mentioned in the Christian Bible
(New Testament) in the Book of Matthew, in the Parable of
According to the Qur’an, followers are required to keep
records of their indebtedness (Sura 2, ayah 282), thus Islam
provides general approval and guidelines for the recording
and reporting of transactions.
Kautilya’s Arthashastra contains details on business of
keeping up accounts in the office of accountants
Earliest Accounting: Jericho, an ancient city located near
the Jordan River in the West bank is estimated to be at least
11,000 years old.
The earliest accounting records were found amongst the
ruins of ancient Babylon, Assyria and Sumeria, which date
back more than 7,000 years.
The Res Gestae Divi Augusti (Latin: "The Deeds of the
Divine Augustus") is a remarkable account to the Roman
people of the Emperor Augustus' stewardship. It listed and
quantified his public expenditure.
The earliest extant evidence of full double-entry book-
keeping is the Farolfi ledger of 1299-1300.
The oldest discovered record of a complete double-entry
system is the Messari (Italian: Treasurer's) accounts of
the city of Genoa in 1340.
Luca Pacioli's "Summa de Arithmetica, Geometria,
Proportioni et Proportionalità" (Latin: "Review of
Arithmetic, Geometry, Ratio and Proportion") was first
printed and published in Venice in 1494.
It included a 27-page treatise on book-keeping. It
represents the first known printed treatise on book-
It was during the 19th century that a move from book-
keeping to accounting was seen. The end of the 19th
century was marked by the most extraordinary expansion
of the business.
MEANING AND DEFINITIONS:-
The word "Accountant" is derived from the French word
‘Compter’, which took its origin from the Latin word
‘Computare’. The word was formerly written in English as
"Accomptant", but in process of time the word, which was
always pronounced by dropping the "p", became gradually
changed both in pronunciation and in orthography to its
Book keeping:- Book keeping is a process of accounting
concerned merely with recording transactions and keeping
records. Book-keeping is a small and simple part of
accounting. Book-keeping is mechanical and repetitive
while dealing with business transactions.
According to North Cott Book-keeping is defined as “the art
of recording in the books of accounts the aspect of
commercial or financial transactions.”
Accounting: Accounting is defined by the American
Institute of Certified Public Accountants (AICPA) as "the art
of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events
which are, in part at least, of financial character, and
interpreting the results thereof.“
Accounting aims at designing a satisfactory information
system which may fulfill informational needs of different
users and decision-makers. Accounting primarily focuses on
measurement, analysis, interpretation and use of
Accountancy: Accountancy is defined by the Oxford
English Dictionary (OED) as "the profession or duties of an
Accountancy is the process of communicating financial
information about a business entity to users such as
shareholders and managers. The communication is
generally in the form of financial statements that show in
money terms the economic resources under the control of
management; the art lies in selecting the information that is
relevant to the user and is reliable.
Accounting Postulates are basic assumptions
concerning the business environment. They are
generally accepted as self-evident truths in accounting.
Accounting Concepts are also self-evident statements or
truths. Accounting concepts are so basic that people
accept them as valid without questioning. They provide
the conceptual guidelines for application in the financial
Accounting Principles are not laws of nature. They are
broad areas developed as a way of describing current
accounting practices and prescribing new and improved
practices. Accounting principles are general decision
rules derived from the accounting concepts.
MEANING & DEFINITION:-
Accounting Standards are the statements of code of
practice of the regulatory accounting bodies that are to be
observed in the preparation and presentation of financial
Accounting standards deal mainly with financial
measurements and disclosures used in producing a set of
fairly presented financial statements. In this respect,
accounting standards can be thought of as a system of
measurement and disclosure. Without standards,
comparisons between companies would be difficult.
Bromwich defines accounting standards as “uniform rules
for financial reporting applicable either to all or to a certain
class of entity promulgated by what is perceived of as
predominantly an element of the accounting community
specially created for this purpose. Standard setters can be
seen as seeking to prescribe a preferred a accounting
treatment from the available set of methods for treating one
or more accounting problems. Other policy statement by the
profession will be referred to as recommendation.”
OBJECTIVES OF ACCOUNTING STANDARDS:-
The basic objective is to remove variations in the
treatment of several accounting aspects and to
bringing standardization in presentation.
They intent to harmonize the diverse accounting
policies followed in the preparation and
presentation of financial statements.
They intent to standardize the diverse accounting
policies and practices with a view to eliminate to the
extent possible the non-comparability of financial
statements and the reliability to the financial
BENEFITS OF ACCOUNTING STANDARD:-
To improve the credibility and reliability of financial
Benefits to accountants and auditors
Determining managerial accountability
Reform in accounting theory and practice
TYPES OF ACCOUNTING STANDARDS:-
Accounting standards may be classified by their subject matter
and by how they are enforced. According to subject-matter,
standards may be as follows
Accounting standards may be based upon their method of
preparation and enforcement. Such standards are:
WHO WILL SET THE STANDARDS??
Government as a Standard Setter: It is argued that government
should act as standard setter because government would be free
of conflicts of interest. It can better enforce compliance with
accounting standards in that it is backed by the enforcement
power of law. Finally, government would act more quickly on
Private sector body as Standard setter: Certain opinions have
also been advanced for giving standard setting task to private
sector body because it is argued that government could neither
attract enough high quality talent nor devote sufficient resources
to standard setting. government would be susceptible to undue
political influence from special influence groups. Finally, a private
sector body would be more responsive to the needs of diverse
Some agency is involved in standard setting: Both government
and private sector body have their own advantages and
disadvantages as well. So in this situation it appears a
governmental agency may prove useful as compared to standard
setting in public and private sector.
DIFFICULTIES IN STANDARD SETTING:-
Difficulties in definition
Political bargaining in standard setting
Conflict in accounting theories
STANDARD SETTING IN INDIA:-
In India, we have standard bodies which are, in practice, the
national regulations, which have the legal authority to set
and implement regulatory rules and procedures in the
financial sector. The Ministry of Company Affairs, provides
legal framework for incorporation and proper functioning of
Further, we have self-regulatory organization such as the
Indian Bank Association (IBA), Fixed Income Money Market
and Derivates Association of India (FIMMDA), Association of
Merchant Bankers of India (AMBI), Association of Mutual
Funds of India (AMFI), Foreign Exchange Dealers
Association of India (FEDAI), Primary Dealers Association
of India (PDAI), among others, which play a critical role in
developing codes of conduct and setting and maintaining
GOVERNMENT BODIES RESPONSIBLE SETTING UP AS
ICAI: The institute of chartered accountants of India on
April 21, 1975 established accounting standard board. The
main function assigned to the ASB was to formulate
accounting standards from time to time. However ICAI with
ASB is carrying a good work of formulation and issuance of
accounting standards. The Institute of Chartered
Accountants of India (ICAI) is a statutory body established
under the Chartered Accountants Act, 1949 (Act No.
XXXVIII of 1949) for the regulation of the profession of
chartered accountancy in India.
Accounting Standard and SEBI: Securities and Exchange
Board of India was established in 1982 and it deals with the
formulation of laws, by –laws, rules and amendments for the
purpose of giving smooth and strong support to stock
market. SEBI also focuses on protecting to interest of
Accounting Standard and Income Tax Act 1961:
Section 145 of the income tax Act 1961 deals with the
method of accounting to be adopted for computing the
income under the head of “Profit and gains from business
and Profession.” The finance Act 1995 had amended
section 145 w.e.f. from 1st April 1997.
Accounting standard and company law: Accounting
standards and company bill 1997, 415(2) of the company’s
bill 1999 now (withdrawn) proposed prescription of
accounting standard by the central government in
consultation with the national Advisory committee on
Accounting Standards (NACAS) established with sub-
clause of the clause 415, companies bill 1997 defines
Accounting Standards to means standards of Accounting
recommended by the institute of chartered Accountants on
India constituted under the chartered Accountants Act 1949
as may be prescribed by the control government in
consultations with NACAS, established under sub-section
(1) of the clause 415, companies bill 1997 define.
PROCEDURE OF ISSUING AS (INDIA)
ASB of ICAI after consultation with various study groups
prepares the draft of AS.
The draft as prepared will be circulated to Council
members of ICAI and to the specified bodies like ICSI,
ICWAI, CBDT, FICCI, ASSOCHAM, RBI, SEBI etc for their
After the meeting with the above bodies the exposure
draft is finalized and is issued to ICAI and public for their
After considering the comments received, the draft is
finalized by ASB and submitted to ICAI.
The ICAI if found necessary may with consultation with
ASB make required modification and issue the final AS.
NACAS to recommend to MCA for notifying the AS.
PRESENT STANDARD SETTING PROCESS IN INDIA
Identification of the broad areas by the ASB for formulating
the Accounting Standards.
Constitution of the study groups by the ASB for preparing
the preliminary drafts of the proposed Accounting
Consideration of the preliminary draft prepared by the study
group by the ASB and revision, if any, of the draft on the
basis of deliberations at the ASB.
Circulation of the draft, so revised, among the Council
members of the ICAI and 12 specified outside bodies such
as Standing Conference of Public Enterprises (SCOPE),
Indian Banks’ Association, Confederation of Indian Industry
(CII), Securities and Exchange Board of India (SEBI),
Comptroller and Auditor General of India (C& AG), and
Department of Company Affairs, for comments.
Meeting with the representatives of specified outside
bodies to ascertain their views on the draft of the proposed
Finalization of the Exposure Draft of the proposed
Accounting Standard on the basis of comments received
and discussion with the representatives of specified outside
Issuance of the Exposure Draft inviting public comments.
Consideration of the comments received on the Exposure
Draft and finalization of the draft Accounting Standard by
the ASB for submission to the Council of the ICAI for its
consideration and approval for issuance.
Consideration of the draft Accounting Standard by the
Council of the Institute, and if found necessary, modification
of the draft in consultation with the ASB.
The Accounting Standard, so finalized, is issued under the
authority of the Council.