Skip to content

Drafting, Pleadings and Appearances · Documents under Companies Act, 2013

Section 133 Companies Act: Accounting Standards Explained

Updated 11 October 2026 · Fact-checked

Section 133 lets the Central Government prescribe accounting standards, as recommended by the ICAI, in consultation with and after examining the recommendations of the National Financial Reporting Authority (NFRA). Section 129 then requires financial statements to comply with the standards so notified. Section 133 makes the standards; Section 129 applies them.

Understand Financial Statements and Accounting Standards (Section 133)

A company's financial statements must be comparable and reliable. For that, everyone needs the same rules for recognising and measuring items. Those rules are accounting standards. Section 133 says who gives them legal force.

Under Section 133, the Central Government may prescribe the standards of accounting, or any addendum to them. The standards are recommended by the Institute of Chartered Accountants of India (ICAI). The Government acts in consultation with, and after examining the recommendations of, the National Financial Reporting Authority (NFRA). So ICAI recommends, NFRA's recommendations are examined, and the Central Government notifies.

There is a proviso. Until NFRA is constituted under Section 132, the Central Government may prescribe standards as recommended by ICAI, in consultation with and after examining the recommendations of the National Advisory Committee on Accounting Standards (NACAS) constituted under Section 210A of the Companies Act, 1956. Know this as a historical and transitional point.

NFRA is constituted under Section 132. Its functions include making recommendations to the Central Government on accounting and auditing policies and standards, monitoring and enforcing compliance with them, and overseeing the quality of service of professions associated with ensuring compliance. It can also investigate professional or other misconduct by members or firms of chartered accountants.

Now link this to Section 129(1). Financial statements must give a true and fair view, comply with the accounting standards notified under Section 133, and follow the forms in Schedule III. If they do not comply, Section 129(5) requires the company to disclose the deviation, the reasons for it and the financial effects, if any. For drafting work, this means notes to accounts and board reports must refer to the notified standards and disclose any deviation.

Key rules to remember

Power under Section 133
Central Government prescribes standards ← recommended by ICAI ← in consultation with and after examining NFRA's recommendations
The Central Government prescribes. ICAI recommends. NFRA is consulted and its recommendations examined.
Transitional proviso to Section 133
Until NFRA is constituted under Section 132: ICAI recommends, in consultation with NACAS (Section 210A, Companies Act, 1956)
Applies only until NFRA is constituted. The proviso was inserted w.e.f. 1-4-2015.
Compliance rule in Section 129(1)
Financial statements = true and fair view + comply with standards notified under Section 133 + Schedule III form
The items in the statements must be in accordance with the accounting standards.
Deviation disclosure, Section 129(5)
Disclose: deviation + reasons + financial effects, if any
Applies where financial statements do not comply with the accounting standards.
Penalty for contravention of Section 129, sub-section (7)
Imprisonment up to 1 year, or fine ₹50,000 to ₹5,00,000, or both
Falls on the managing director, the whole-time director in charge of finance, the CFO or any other person charged by the Board. If none of them is there, all directors are liable.
NFRA functions, Section 132(2)
Recommend standards + monitor and enforce compliance + oversee quality of service + other prescribed functions
Section 132(4) adds investigation of misconduct by chartered accountants and their firms.

How to solve Financial Statements and Accounting Standards (Section 133) questions

Use this method for any question on Section 133, whether it asks for an explanation, a comparison or an opinion on a company's accounts.

  1. 1Identify what is asked: the power to prescribe standards (Section 133), the duty to comply (Section 129) or the role of NFRA (Section 132).
  2. 2State the provision in plain words. For Section 133, say who recommends, who is consulted and who prescribes.
  3. 3Apply it to the facts. Check whether the standard is notified and whether the financial statements follow it.
  4. 4If there is non-compliance, bring in Section 129(5): the company must disclose the deviation, the reasons and the financial effects, if any.
  5. 5Check whether any exemption or special form applies, for example banking or insurance companies under the second proviso to Section 129(1).
  6. 6Mention consequences where relevant: Section 129(7) liability of the named officers.
  7. 7Conclude in one clear line. If the question asks for a draft note or opinion, write it in proper format.

Quickest way: Make, apply, deviate

When to use it: Use when you have little time and the question mixes Sections 129, 132 and 133.

  1. Write: Section 133 = Central Government makes the standards (ICAI recommends, NFRA consulted).
  2. Write: Section 129 = company applies them in financial statements.
  3. Write: Section 132 = NFRA recommends, monitors and enforces.
  4. Add: deviation means disclosure of the deviation, reasons and financial effect.
  5. Close with the penalty under Section 129(7) if the facts show a breach.

Common mistakes in Financial Statements and Accounting Standards (Section 133)

  • Saying ICAI itself prescribes accounting standards under Section 133.

    ICAI issues the standards, so students assume it also makes them binding.

    Fix: Write that ICAI recommends and the Central Government prescribes. The standards bind companies once notified.

  • Saying NFRA prescribes the standards.

    NFRA is the standard-setting body in many students' minds.

    Fix: NFRA makes recommendations to the Central Government under Section 132(2)(a). The Government prescribes under Section 133.

  • Mixing up Sections 129 and 133.

    Both deal with accounting standards.

    Fix: Section 133 gives the power to prescribe. Section 129 requires financial statements to comply and covers consolidation, deviation disclosure and penalty.

  • Ignoring the transitional proviso on NACAS.

    It looks like a minor footnote.

    Fix: Mention it briefly. Until NFRA is constituted, the Government acted on ICAI's recommendations in consultation with NACAS.

  • Treating deviation from a standard as permitted without disclosure.

    Students focus on the true and fair view and forget Section 129(5).

    Fix: State that any deviation must be disclosed with reasons and financial effects, if any.

  • Applying Section 129(1) to every company without exception.

    The exceptions sit in the provisos and are skipped.

    Fix: Remember the proviso: it does not apply to insurance, banking and electricity generation or supply companies, or others whose form is set by their own Act.

Worked examples

Example 1

Explain who prescribes accounting standards for companies under the Companies Act, 2013 and the role of NFRA in the process.

Show the solution
  1. Provision: Under Section 133, the Central Government may prescribe the standards of accounting or any addendum thereto.
  2. The standards are those recommended by the Institute of Chartered Accountants of India.
  3. The Government acts in consultation with and after examination of the recommendations made by NFRA.
  4. NFRA is constituted under Section 132. Under Section 132(2)(a), it makes recommendations to the Central Government on accounting and auditing policies and standards.
  5. It also monitors and enforces compliance with the standards and oversees the quality of service of the professions associated with that compliance.
  6. Proviso: until NFRA was constituted, the Government acted on ICAI's recommendations in consultation with NACAS under Section 210A of the Companies Act, 1956.

Answer: The Central Government prescribes accounting standards under Section 133. ICAI recommends them, and NFRA's recommendations are examined in consultation with it. NFRA also recommends standards, monitors and enforces compliance and oversees service quality under Section 132.

Example 2

Sunrise Textiles Limited, Surat, has a subsidiary. Its financial statements for the year do not follow one notified accounting standard on inventory valuation. The notes to accounts say nothing about this. Advise the Board.

Show the solution
  1. Provision: Section 129(1) requires financial statements to give a true and fair view, comply with the accounting standards notified under Section 133 and follow Schedule III. The items must be in accordance with the standards.
  2. Analysis: The company has not followed a notified standard. Section 129(5) then requires disclosure of the deviation, the reasons for it and the financial effects, if any.
  3. The notes are silent, so this disclosure duty has not been met.
  4. Because the company has a subsidiary, Section 129(3) also requires consolidated financial statements. Under Section 129(4), the provisions on preparation, adoption and audit apply to them with necessary changes, so the same standards matter there.
  5. Consequence: Under Section 129(7), the managing director, the whole-time director in charge of finance, the CFO or any other person charged by the Board, and failing them all directors, are punishable with imprisonment up to one year or fine of ₹50,000 to ₹5,00,000, or both.
  6. Advice: Recompute inventory under the standard, or add a note disclosing the deviation, reasons and financial effect, and place the revised statements before the AGM.

Answer: The Board should comply with the notified standard or disclose the deviation, reasons and financial effects under Section 129(5). Silence exposes the officers named in Section 129(7) to imprisonment up to one year or a fine of ₹50,000 to ₹5,00,000, or both.

Exam tips

  • Write the chain in order: ICAI recommends, NFRA consulted, Central Government prescribes. Examiners look for it.
  • In comparison questions, use two columns in words: Section 133 gives the power to prescribe; Section 129 imposes the duty to comply.
  • Quote the fine range and the one-year imprisonment limit under Section 129(7) accurately, and name who is liable.
  • In case questions, follow provision, analysis, conclusion, and mention the deviation disclosure under Section 129(5).
  • Mention the transitional proviso on NACAS in one line when the question asks for the full provision.

Practice questions from Documents under Companies Act, 2013

Financial Statements and Accounting Standards (Section 133) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Financial Statements and Accounting Standards (Section 133): frequently asked questions

What does Section 133 of the Companies Act, 2013 say?

It lets the Central Government prescribe standards of accounting, or any addendum to them, as recommended by ICAI. The Government acts in consultation with and after examining the recommendations of NFRA.

What is the difference between Section 133 and Section 129?

Section 133 is the source of power to prescribe accounting standards. Section 129 requires financial statements to give a true and fair view and comply with the standards notified under Section 133. Section 129 also covers consolidation, deviation disclosure and penalty.

What is the role of NFRA in accounting standards?

NFRA, constituted under Section 132, makes recommendations to the Central Government on accounting and auditing policies and standards. It also monitors and enforces compliance and oversees the quality of service of the professions involved.

What happens if financial statements do not follow accounting standards?

Under Section 129(5), the company must disclose the deviation, the reasons for it and the financial effects, if any. Contravention of Section 129 attracts the penalty in Section 129(7) for the officers named there.