Advancements in accounting practices in India: Reforms, implementation and emerging areas

New Delhi July 12 Accounting practices in India have undergone significant improvements in recent years, driven by the increasing demand for transparency, accountability and adherence to international standards.

These advancements aim to enhance financial reporting and foster a robust and reliable financial system across various sectors in the country. Notable improvements in accounting practices have been observed in several key areas.

Firstly, India has made significant strides in aligning its accounting standards with International Financial Reporting Standards (IFRS) through the adoption of Indian Accounting Standards (Ind AS). This move has resulted in improved comparability and transparency in financial statements, enabling better analysis, decision-making, and cross-border investments.

The convergence with international standards has not only enhanced the credibility of financial reporting but has also facilitated greater investor confidence in Indian companies.

Secondly, the emphasis on enhanced corporate governance practices has played a vital role in improving accounting standards in India. Listed companies are now required to comply with stringent corporate governance norms, ensuring effective oversight, internal controls, and transparent financial reporting.

These measures promote integrity, accountability, and responsible financial management, thereby strengthening the overall governance framework and trust in the corporate sector.

Furthermore, the integration of technology-driven reforms has revolutionised accounting practices in the country. Initiatives such as the implementation of the Goods and Services Tax (GST) have streamlined tax reporting, enhanced transparency, and improved efficiency in financial transactions.

The adoption of digital accounting software and automation tools has significantly improved accuracy, accessibility, and analysis of financial data, enabling organizations to make more informed and data-driven decisions.

In addition to these improvements, the Indian government has been proactive in driving accounting reforms and promoting financial transparency. The Companies Act, 2013 introduced provisions to enhance corporate governance and financial reporting practices. It emphasises independent audits, and established the National Financial Reporting Authority (NFRA) to oversee accounting standards and ensure their effective implementation.

The establishment of the National Advisory Committee on Accounting Standards (NACAS) has also been instrumental in advising on accounting standards and facilitating the convergence of Indian practices with international standards.

NACAS plays a crucial role in continually improving and aligning accounting practices in line with global best practices.

Moreover, the government has undertaken significant efforts to implement public sector accounting reforms, recognizing the need for transparency and accountability in the government sector. These reforms involve the transition from cash accounting to accrual accounting, the adoption of Indian Government Accounting Standards (IGAS), and the introduction of the Financial Management Information System (FMIS). These reforms aim to bring consistency, standardization, and best practices to financial reporting in government entities, enabling better financial planning, budgeting, and monitoring of public funds.

The implementation of accrual-based accounting in the public sector facilitates a more accurate and comprehensive representation of financial transactions, assets, and liabilities, leading to improved decision-making and resource allocation.

In addition to the aforementioned improvements in accounting practices in India, there are other evolving areas that have undergone significant reforms and have a direct impact on the financial sector.

One such area is the implementation of the Insolvency and Bankruptcy Code, 2016 (IBC), which is considered one of the largest reforms in theIndian banking sector. The IBC consolidates the previous insolvency resolution framework and introduces a single law for insolvency and bankruptcy.

The key objective of the law is to ensure timely resolution of insolvencies within a specific timeframe, typically 270 or 180 days. The IBC aims to transfer control from existing promoters to lenders and resolve the complexities that existed in the previous law.

The implementation of the IBC provides significant potential for investors to acquire distressed assets in India at discounted prices, further contributing to the overall development of the financial sector. Additionally, Asset Reconstruction Companies have been established to manage and recover non-performing assets from banks.

India's advancements in accounting practices reflect a commitment to transparency, accountability and international standards. Reforms in corporate governance, adoption of Ind AS, digitalisation and public sector accounting have contributed to a more robust and reliable financial reporting system.

The implementation of the IBC and the clarity in the applicability of Income Computation and Disclosure Standards (ICDS) are further steps towards strengthening the financial sector and facilitating sustainable economic growth. As India continues on this path of reform, it is expected to create an environment conducive to business growth, investor confidence and long-term financial stability.