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.

Answer 2

The question is testing which second category of standards, alongside accounting standards, received statutory recognition under Section 2(7) of the Companies Act, 2013. Let's weigh each option against what that provision actually contains and against the practical apparatus a company must comply with.

1. Financing: There is no concept of "financing standards" recognised by company law; financing arrangements are governed by contract, banking regulation and SEBI rules, not by a standard-setting body referenced in Section 2(7). This option does not correspond to any real regulatory category.
2. Auditing: Section 2(7) defines "auditing standards" as the standards of auditing referred to in Section 143(10), which the Central Government prescribes in consultation with the National Financial Reporting Authority based on recommendations of the Institute of Chartered Accountants of India. Every auditor's report under the 2013 Act must comply with these standards, so this is a real, independently defined statutory category sitting alongside accounting standards.
3. Business: "Business standards" is not a defined or recognised term of art under the Companies Act; a company's business activities are governed by its objects clause and applicable sectoral law, not by a standard analogous to accounting standards.
4. Responsibility: Corporate Social Responsibility is addressed separately under Section 135 of the Act and does not fall under any "responsibility standards" referenced in Section 2(7); the CSR provisions are a distinct compliance obligation, not a standard of the kind being asked about here.

Of the four, only auditing standards are actually defined in Section 2(7) and given the same statutory footing as accounting standards.

Therefore, the correct answer is Auditing.