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An assignment on:


Submitted to:

School of Maritime Management Indian Maritime University Chennai 600119

Submitted by: ARUN STEPHEN MBA Port & Shipping Semester I

On, September 16,2013


Accounting standards Board (ASB) has been set up India by the council of institute of chartered Accountants of India, with a view of form Indian Accounting standards. The council was set up in April 1977. While formulating the standards, the Board attempts to harmonise the diverse accounting policies and practices in India and also takes into account the applicable laws, customs, usages and business environment in the country. While formulating the Accounting Standards ASB will give due consideration to standards issued by IASC and try to integrate them to the extent possible in the light of the conditions and practices prevailing in India The accounting standards will be issued under the authority of the council. ASB has also been entrusted with the responsibility of propagating the Accounting Standards and of persuading the concerned parties to adopt them in the preparation and presentation of financial statements. ASB will issue Guidance notes on Accounting Standards and give clarifications on issues arising therefrom and also review the Accounting standards at periodical intervals.

Objective of Accounting Standards is to standardise the diverse accounting policies and practices with a view to eliminate to the extent possible the noncomparability of financial statements and the reliability to the financial statements. The institute of Chartered Accountants of India, recognizing the need to harmonize the diverse accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977

Procedure of Issuing Accounting Standards

(1) ASB determines the broad areas requiring formulation of Accounting Standards and lists them according to priority (2) An exposure draft is prepared with the help of study group constituted for this purpose. Views of government, public sector undertakings, industry and other organisations are also before formulating the Exposure Draft (ED) (3) Exposure Draft (ED) comprises following (i) A statement of concepts and fundamental accounting principles relating to the standards. (ii) Definition of the term used in the standards. (iii) The manner in which the accounting principles have been applied for formulating the standards. (iv) The presentation and disclosure requirements in complying with the standards. (v) Class of enterprises to which the standard will apply. (vi) Date from which the standard will be effective (4) The Exposure Draft will be published in the professional journals and circulated otherwise to obtain views and comments. ASB after revising standards submits the same to the council. (5) The council will consider and, if necessary, amend the standard after consulting the ASB, then in its final form the council issues the standard under its authority.

Accounting Standards Issued by ICAI

The council of institute of chartered Accountants of India (ICAI) has so far issued 15 Accounting Standards. The details of the standards and there is given below NO. AS-1 AS-2 AS-3 AS-4 Name of the Accounting Standards Whether revised No No Yes Yes Yes Recommendatory/ mandatory Mandatory Recommendatory Recommendatory Mandatory Mandatory

Disclosure of Accounting policies Valuation of Inventories Cash flow statement Contingencies and events occurring after the balance sheet Date AS_5 Net profit or loss for the period, prior period items and changes in Accounting Policies AS-6 Depreciation Accounting AS-7 Accounting for construction contracts AS-8 Accounting for research and Development AS-9 Revenue Recognition ASAccounting for fixed assets 10 ASAccounting for the effects of changes 11 in Foreign exchange rates ASAccounting for government grants 12 ASAccounting for investment 13 ASAccounting for Amalgamations 14 ASAccounting for retirement Benefits in 15 the financial statements of employers Notes:

Yes No No No No Yes No No No No

Recommendatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

(1) AS-3 Prior to revision was titled changes in financial position

(2) AS-5 Prior to revision was titled as Prior Period and Extraordinary items and changes in Accounting policies

Disclosure of Accounting Policies:

Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements.

Valuation of Inventories: The objective of this standard is to formulate

the method of computation of cost of inventories / stock, determine the value of closing stock / inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

Cash Flow Statements: Cash flow statement is additional information to

user of financial statement. This statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise.

Contingencies and Events occurring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is
done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet

Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies: The objective of this accounting
standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period

Depreciation Accounting: It is a measure of wearing out, consumption

or other loss of value of a depreciable asset arising from use, passage of time.

Depreciation is nothing but distribution of total cost of asset over its useful life.

Construction Contracts: Accounting for long term construction

contracts involves question as to when revenue should be recognized and how to measure the revenue in the books of contractor. As the period of construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so

Revenue Recognition: The standard explains as to when the revenue

should be recognized in profit and loss account and also states the circumstances in which revenue recognition can be postponed. Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of enterprises resources by other yielding interest, dividend and royalties

Accounting for Fixed Assets: It is an asset, which is Held with intention

of being used for the purpose of producing or providing goods and services. Not held for sale in the normal course of business. Expected to be used for more than one accounting period.

The Effects of changes in Foreign Exchange Rates: Effect of

Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting for transaction in Foreign currencies in translating in the Financial Statement Of foreign operation Integral as well as non- integral and also accounting for forward exchange.

Accounting for Government Grants: Government Grants are

assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government assistance, which cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with Government, which cannot be distinguished from the normal trading transactions of the enterprise, are not considered as Government grants

Accounting for Investments: It is the assets held for earning income

by way of dividend, interest and rentals, for capital appreciation or for other benefits.

Accounting for Amalgamations: This accounting standard deals with

accounting to be made in books of Transferee company in case of Amalgamations. This accounting standard is not applicable to cases of acquisition of shares when one company acquires / purchases the share of another company and the acquired company is not dissolved and its seperate entity continues to exist. The standard is applicable when acquired company is dissolved and separate entity ceased exist and purchasing company continues with the business of acquired company

Employee Benefits: Accounting Standard has been revised by ICAI and is

applicable in respect of accounting periods commencing on or after 1st April 2006. the scope of the accounting standard has been enlarged, to include accounting for short-term employee benefits and termination benefits

Legality of Accounting Standards

The object of issuing Accounting Standards is to facilitate uniform priparation and reporting of general purpose financial statements published annualy for the benefit of shareholders, creditors, employees and public at large. These do not apply to statements prepared for purpose of internal management. In every country including India the issue of financial statements is governed greater or lesser degree by local legislation. Therefore the Accounting Standard issued should not be inthconsistent with the provisions of laws. A standard may become inconsistent with law due to subsequent amendments to the law. In such cases law overrides any provision in the standard. The standard has to be amended accordingly by the professional body.

Deficiencies in Indian standards

In the framing of certain standards the institute must consult certain expert bodies so that the best accounting practic is suggested as the accounting standards. RBI has this to observe when some bank sought the advise regarding the applicability of AS-11. On examiningthe revised AS-11 we find that the standards are not in accordance with FEDAI(foreign exchange dealers association of India) guidelines or prudential practices followed by the bank. Finally RBI has advised the banks to translate the foreign branches using crieteria different from the standards. Where there is cause to differ the Indian standards should differ from the international standards. Some of the unseemly differences

(1) IAS-11 suggets only the percentage of completion method as it serves better the cause of transparency by linking the activities to results. AS-2 on the other hand recomments both percentage of completion method and completed contract method for reveue recognition of construction contracts. (2) IAS-2 suggests FIFO method as the bench mark for inventory valuation as it reflects currents value of inventory better. The Indian standards gives a wide choice. Again while the international standard suggests absorption costing for valuing inventory,the Indian standard suggest both absorption costing as well as direct costing. Valuing inventory on the basis of direct costing results in deflation inventory as well as profits. (3) IAS-20 requires vauation of Government grants in the form of non monetary assets at fair value. AS-12 suggests showing them at acquisition cost if obtained at a concessional rate and at a normal value if obtained free. By following the Indian standard companis would report better profits if the grants relate to raw material, fees, technical services and other related items which are charged to profit and lossaccount. (4) IAS-8 has defined the prior items as fundemental errors and recommends the adjustment of such fundemental errors to retained earnings. AS-5 (revised) requires the disclosure of such items in the

profit and loss account, althrough seprately. It is preferable to follow the international standard in this regard.

Advanced Accountancy by R.L.GUPTA & M RADHASWAMY Through net