Question

The Companies Act of 1956 accords recognition only to accounting standards whereas under Section 2(7) of the Companies Act of 2013 the recognition is accorded to both accounting and ---------- standards.

• A. Financing
• B. Auditing
• C. Business
• D. Responsibility

Hint:

A major theme of the Companies Act, 2013, is enhanced corporate governance and accountability. The statutory recognition of Auditing Standards (under Sec 143) and the creation of the National Financial Reporting Authority (NFRA) are key examples of this theme.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The question highlights a key difference between the Companies Act, 1956, and the Companies Act, 2013, regarding the types of standards that are given statutory recognition. The 2013 Act significantly strengthened the regulatory framework for financial reporting and auditing.
Step 2: Detailed Explanation:
The Companies Act, 2013, for the first time, gave statutory backing not only to Accounting Standards but also to Auditing Standards.
- Accounting Standards (prescribed under Section 133) dictate how financial transactions should be recorded and presented in the financial statements (like the Balance Sheet and Profit & Loss Account).
- Auditing Standards (prescribed under Section 143(10)) provide the guidelines and principles that an auditor must follow while conducting an audit of a company's financial statements.
The 2013 Act's parallel statutory recognition and mandatory compliance with Auditing Standards was a major step towards improving the quality and reliability of audits in India.
Step 3: Final Answer:
The Companies Act, 2013, accords recognition to both accounting and Auditing standards.