Accounting Standards explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Accounting Standards apply to financial statements audited under section 44AB, so the tax auditor must examine compliance with the mandatory standards — whether the Companies (Accounting Standards) Rules, 2021, Ind AS under the MCA roadmap, or ICAI's standards for non-company entities.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. The Accounting Standards framework is set by the Companies Act and by ICAI and is unaffected by the change of tax statute; the audit itself moves to section 63 of the Income-tax Act, 2025 and Form No. 26 under rule 47 of the Income-tax Rules, 2026.
The rule that matters for tax audit
Paragraph 11.6 is short and decisive: AS also apply in respect of financial statements audited under section 44AB of the Income-tax Act, 1961. Accordingly, members should examine compliance with the mandatory Accounting Standards when conducting such audit.
The tax audit opinion on true and fair view is therefore an opinion given against the applicable reporting framework — not against the assessee's own accounting policy choices. The framework has to be identified before fieldwork begins, because it decides which disclosures the auditor tests and which measurement bases the figures in Form 3CD are built on.
How the company framework arrived at its present shape
| Step | What happened |
|---|---|
| October 1998 | Legal recognition of the standards formulated by ICAI, through sections 211(3A), (3B) and (3C) of the Companies Act, 1956 |
| 7 December 2006 | AS 1 to 7 and 9 to 29 notified by MCA under the Companies (Accounting Standards) Rules, 2006, effective for accounting periods commencing on or after that date. Companies classified into SMCs and Non-SMCs |
| Companies Act, 2013 | Section 129 provides for compliance with the standards; under section 133 the Central Government prescribes the standards of accounting recommended by ICAI, in consultation with and after examining the recommendations of the National Financial Reporting Authority |
| Transition | Standards specified under the 1956 Act were deemed to continue until specified under section 133; the 2006 Rules therefore continued to apply under the 2013 Act until 2021 |
| 2021 | The 2006 Rules were mirrored under the Companies Act, 2013 and notified as the Companies (Accounting Standards) Rules, 2021, applicable for accounting periods commencing on or after 1 April 2021 |
The Ind AS stream
A second set — Indian Accounting Standards (Ind AS), converged with globally accepted International Financial Reporting Standards — is notified under the Companies (Indian Accounting Standards) Rules, 2015 and has been implemented per the MCA roadmap by:
- all listed companies and non-banking financial companies; and
- unlisted companies and NBFCs with net worth of Rs 250 crore or more.
A single practice can be signing tax audit reports for an Ind AS company, an AS company under the 2021 Rules, and a partnership firm on ICAI's non-company standards in the same week. The applicable framework has to be identified in the engagement letter under SA 210 paragraph (d), and it drives everything from the depreciation figures in clause 18 to the disclosure sets the auditor tests.
Non-company entities
Paragraph 11.3: ICAI also issues Accounting Standards for non-company entities, which are harmonised with the Rules notified by MCA with minor differences. ICAI has also announced the scheme for applicability of those standards to non-company entities.
The criteria for classification of companies under the Companies (Accounting Standards) Rules, 2021 and the revised criteria for classification of non-company entities decided by ICAI are at Appendix XII — which is also where the exemptions and relaxations for SMCs and for Micro, Small and Medium Sized Non-company Entities are set out (paragraph 11.5). Appendix XI carries the criteria referenced at paragraph 11.3 as well.
What the standards apply to
Paragraph 11.4: the standards issued by ICAI are for use in the presentation of general purpose financial statements issued to the public by such commercial, industrial or business enterprises as the Institute may specify, and subject to the attest function of its members.
General Purpose Financial Statements include:
- the balance sheet;
- the statement of profit and loss;
- a cash flow statement, wherever applicable; and
- other statements and explanatory notes which form part thereof,
issued for the use of various stakeholders, Governments and their agencies, and the public at large.
Reference material
Paragraph 11.5 lists ICAI's publications on the subject, as updated from time to time: the Compendium of Accounting Standards; the Compendium of Indian Accounting Standards; the Accounting Standards Quick Referencer; Indian Accounting Standards: An Overview; and the Quick Referencer on Indian Accounting Standards.
Worked example
| Assessee | Applicable framework | Consequence for the tax audit |
|---|---|---|
| Listed company | Ind AS, Companies (Indian Accounting Standards) Rules, 2015 | Test compliance with Ind AS; Schedule III Division II presentation |
| Unlisted company, net worth Rs 310 crore | Ind AS under the roadmap | Same as above |
| Unlisted company, net worth Rs 60 crore, qualifying as an SMC | Companies (Accounting Standards) Rules, 2021, with SMC exemptions per Appendix XII | Test AS compliance and the availed exemptions |
| Partnership firm, turnover Rs 9 crore | ICAI Accounting Standards for non-company entities, plus the Non-Corporate Entities format Guidance Note | Test AS compliance and the presentation format |
| Small proprietary concern | ICAI standards with MSME relaxations per Appendix XII | Confirm eligibility for each relaxation availed |
Audit checklist
- Identify the applicable framework and record it in the SA 210 engagement letter.
- For companies, confirm whether Ind AS or the 2021 Rules apply under the MCA roadmap.
- For non-company entities, apply ICAI's standards and the announced applicability scheme.
- Check SMC or MSME classification against Appendix XII before accepting any exemption claimed.
- Examine compliance with the mandatory Accounting Standards — paragraph 11.6 makes this part of the section 44AB audit.
- Confirm the cash flow statement is present where applicable.
- Report non-compliance in Para 3 of Form 3CA or Para 5 of Form 3CB.
Common mistakes
- Treating the tax audit as exempt from Accounting Standards compliance.
- Applying the 2006 Rules instead of the Companies (Accounting Standards) Rules, 2021.
- Accepting an SMC exemption without testing the classification criteria.
- Missing the Ind AS net worth trigger for an unlisted company.
- Omitting the cash flow statement where it is applicable.