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

The cleanest way to answer this is to recall exactly what Section 2(7) itself defines, since the provision is quite specific about which second category it recognises.

1. Check the definition clause: Section 2(7) of the Companies Act, 2013 defines "auditing standards" as the standards of auditing notified under Section 143(10), issued in consultation with the National Financial Reporting Authority on recommendations of professional accounting bodies.
2. Compare with the other options: Nothing equivalent exists for "financing," "business," or "responsibility" as a standard-setting category referenced in this clause; CSR (which might tempt someone toward "responsibility") is governed separately under Section 135, and financing or business conduct is not the subject of any parallel "standard" at all.
3. Confirm against the practical scheme: Every statutory auditor's report has to state compliance with auditing standards, mirroring how accounts have to comply with accounting standards, which is precisely why the 2013 Act elevated auditing standards to the same statutory recognition.

So the correct answer is Auditing.

Answer 2

A useful angle here is to ask why the 2013 Act needed to add a second category of standards at all, and what gap that was meant to fill.

1. Financing: The 2013 Act's reforms were aimed at governance and reporting quality, not at prescribing how companies raise money; financing decisions remain a matter of commercial judgment and separate financial regulation, so no "financing standards" gap existed for this clause to fill.
2. Auditing: The audit failures that prompted the 2013 Act's overhaul, which also led to the creation of the National Financial Reporting Authority, made it clear that audit quality needed the same statutory backing as accounting quality. Recognising auditing standards under Section 2(7), enforced through Section 143(10), was the legislature's direct response to that gap.
3. Business: There is no standard-setting body or notified code called "business standards" that the reform was responding to, so this option describes something that simply does not exist in the statutory scheme.
4. Responsibility: The 2013 Act did introduce CSR obligations, but as a distinct chapter (Section 135) with its own rules, not as a "standard" recognised alongside accounting standards in the definitions clause; the two reforms run on separate tracks.

Viewed through the lens of what the 2013 Act was actually trying to fix, auditing standards is the only option that matches the legislative intent behind Section 2(7).

Hence, the correct answer is Auditing.