ACCOUNTING STANDARDS

PRESENTED BY
ROLL. NO. 17 07 NAMES Sunayna Kuncolienkar Vernon Fernandes TOPICS COVERED Introduction, AS 1, AS 2, AS 3, AS 4, AS 5, AS 6 AS 7, AS 9, AS 10, AS 11, AS 12, AS 13, AS 14, AS 15

21
10

Alisha Pereira
Lorraine Godinho

AS 16, AS 17, AS 18, AS 19, AS 20, AS 21, AS 22

AS 23, AS 24, AS 25, AS 26, AS 27, AS 28, AS 29

22

Paloma Pereira

AS 30, AS 31, AS 32, GAAP v/s IFRS, Application of Accounting Standards and their significance, Disclosure of Standards under SEBI

WHAT ARE ACCOUNTING STANDARDS ?

Accounting Standards are the rules framed by an expert committee to recognize, disclose and measure financial information while preparing financial statements

WHAT ARE THE OBJECTIVES OF ACCOUNTING STANDARDS?

The basic objective of Accounting Standards is to standardise the accounting principles and policies wit the intention of bringing a common approach in preparation of financial statements

WHO ISSSUES ACCOUNTING STANDARDS IN INDIA

The Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices at present in use in India constituted Accounting Standards Board (ASB) on April 21, 1977. The main role of ASB is to formulate Accounting Standards from time to time.

AS-1 DISCLOSURE OF ACCOUNTING POLICY

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. Its objective is to present a true and fair view of state of affairs of the enterprise

AREAS IN WHICH DIFFERING ACCOUNTING POLICIES ARE ENCOUNTERED

a) Methods of depreciation,depletion b) Valuation of inventories c) Treatment of goodwill, retirement benefits, contingent liabilities d) Valuation of investments and fixed assets e) translation of foreign currency items f) Treatment of expenditure during construction and recognition of profit on long-term contracts

AS-2 VALUATION OF INVENTORIES

Valuation of Inventories: The objective of this standard is to formulate the method of computation of cost of inventories and determine the value of closing inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

Inventories include
Goods purchased and held for resale Finished goods produced and held for resale Work-in-progress being produced and Materials, maintenance supplies, consumables held for use introduction process Inventories of livestock ,agricultural and forest products ,mineral ores, ores and gases and machinery spares

AS-3 CASH FLOW STATEMENTS

Cash Flow Statements: Cash flow statement is additional information to user of financial statement which 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.

The following terms are used in this Statement with the meanings specified
Cash comprises cash in hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 Cash flows are inflows and outflows of cash and cash equivalents. Operating activities are the principal revenueproducing activities of the enterprise and other activities that are not investing or financing activities.

 Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the owners capital (including preference share capital in the case of a company) and borrowings of the enterprise

AS-4
Contingencies and Events Occurring After the Balance Sheet Date
A contingency is a condition or situation, the ultimate outcome of which, gain or loss will be known or determined only on the occurrence, or non-occurrence, of one or more uncertain future events. Events occurring after the balance sheet date are those significant events, both favorable and unfavorable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity.

AS-5
Net Profit or Loss for the Period Prior Period Items and Changes in Accounting Policies
It is the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis. This enhances the comparability of the financial statements of an enterprise overtime and with the financial statements of other enterprises

 The net profit or loss for the period comprises the following components, each of which should be disclosed on the face of the statement of profit and loss: (a) profit or loss from ordinary activities (b) extraordinary items.

AS-6 DEPRECIATION ACCOUNTING

Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined.

Depreciable assets are assets which [1] are expected to be used during more than one accounting period; [2] have a limited useful life; [3] are held by an enterprise for use in the production or supply or for administrative purposes

Useful life is the period over which a depreciable asset is expected to be used by the enterprise. The useful life of a depreciable asset is shorter than its physical life. There are two method of depreciation: 1] Straight Line Method (SLM) 2] Written Down Value Method (WDVM)

AS - 7 CONSTRUCTION CONTRACT
A Construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

The outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: a) Total contract revenue can be measured reliably; b) The receipt of revenue is probable; c) The contract costs to complete the contract can be measured reliably; d) The stage of completion at the reporting date can be measured reliably; e) The contract costs attributable to the contract can be clearly identified.

Contract Revenue should comprise: the initial amount of revenue agreed in the contract; variations in amount to be received to the extent that it is probable that they will result in revenue; they are capable of being reliably measured.

Contract Costs should comprise: (a) costs that relate directly to the specific contract; (b) costs that are attributable to contract activity in general and can be allocated to the contract.

AS - 9 REVENUE RECOGNITION
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends

Revenue Includes: - Proceeds from sale of goods - Proceeds from rendering of services - Interest, royalty and dividends.

Sale of goods - Revenue from sales should be recognized when - All significant risks and rewards of ownership have been transferred to the buyer from the seller. - Ultimate reliability of receipt is reasonably certain.

Rendering of Services Revenue from service transactions is usually recognized as the service is performed, either by proportionate completion method or by the completed service contract method.
Revenue from Interest: - Recognized on time proportion basis Revenue from Royalties: - Recognized on accrual basis in accordance with the terms of the relevant agreement. Revenue from Dividends: - Recognized when right to receive is established

AS- 10 ACCOUNTING FOR FIXED ASSETS

Fixed Asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.

The cost of fixed asset includes: Purchase price Direct cost incurred to bring the asset to its working condition Installation cost Professional fees like fees of architects Any expenses before the commercial production, including cost of test run and experimental production Any expenses before the asset is ready for use not put to use

AS -11 The Effects of Changes in Foreign Exchange Rates

This Standard will come into effect in respect of accounting periods commencing on or after 1.4.1995 and will be mandatory in nature. An enterprise may have transactions in foreign currencies or it may have foreign branches

 Foreign currency transactions should be expressed in the enterprise's reporting currency and the financial statements of foreign branches should be translated into the enterprise's reporting currency in order to include them in the financial statements of the enterprise.

AS - 12 Accounting for Government Grants

This Statement deals with accounting for government grants, which may also be called subsidies, cash incentives, duty drawbacks, etc. The receipt of government grants by an enterprise is significant for preparation of the financial statements for two reasons:-

 Firstly, if a government grant has been received, an appropriate method of accounting therefore is necessary. Secondly, it is desirable to give an indication of the extent to which the enterprise has benefited from such grant during the reporting period. This facilitates comparison of an enterprise's financial statements with those of prior periods and with those of other enterprises.

AS - 13 Accounting for Investments

This Statement deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.

Classification of Investments
Enterprises present financial statements that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets.

AS -14 Accounting for Amalgamations

This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This statement is directed principally to companies although some of its requirements also apply to financial statements of other enterprises.

AS 15

Employee Benefits
AS 15 was amended in 2005. The objective of this statement is to prescribe the accounting and disclosure for employee benefits. Types of employee benefits: a) Short-term employee benefits b) Long-term employee benefits c) Post-employment benefits d) Multi-employer plans e) Termination benefits

AS - 16 Borrowing Costs
The objective of this Statement is to prescribe the accounting treatment for borrowing costs.
Borrowing costs may include: (a) interest and commitment charges on bank borrowings and other short-term and longterm borrowings; (b) amortization of discounts or premiums relating to borrowings;

 (c) amortization of ancillary costs incurred in connection with the arrangement of borrowings; (d) finance charges in respect of assets acquired under finance leases or under other similar arrangements; and (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

AS 17

Segment Reporting
This Standard became mandatory for all accounting periods on or after 01-04-2004. The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates.

AS 18

RELATED PARTY DISCLOSURES

This Standard became mandatory for all accounting periods on or after 01-04-2004. The objective of this Statement is to establish requirements for disclosure of: a) related party relationships b) transactions between a reporting enterprise and its related parties.

AS 19

LEASES
This Standard became mandatory for all accounting periods on or after 01-04-2001. The objective of this Statement is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures in relation to finance leases and operating leases.

 This Statement should be applied in accounting for all leases other than: a) lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral rights b) licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights c) lease agreements to use lands.

AS 20

EARNINGS PER SHARE

This Standard became mandatory for all accounting periods on or after 01-04-2001. The objective of this Statement is to prescribe principles for the determination and presentation of earnings per share which will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise.

 This Statement should be applied by enterprises whose equity shares are listed on a recognised stock exchange in India. Companies that are not registered may also follow this Statement.

AS 21

CONSOLIDATED FINANCIAL STATEMENTS

This Standard became mandatory for all accounting periods on or after 01-04-2001. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group.

AS 22

Accounting for Taxes on Income

This Standard became mandatory for all accounting periods on or after 01-04-2001. Is applied in accounting for taxes on income. It includes the determination of the amount of the expense or saving related to taxes on income in respect of an accounting period and the disclosure of such an amount in the financial statements.

AS 23
Accounting for Investments in Associates in Consolidated Financial Statements
This Standard became mandatory for all accounting periods on or after 01-04-2002. This Statement should be applied in accounting for investments in associates in the preparation and presentation of consolidated financial statements by an investor.

AS 24

Discontinuing Operations
This Standard became mandatory for all accounting periods on or after 01-04-2004. The objective of this Statement is to establish principles for reporting information about discontinuing operations, thereby enhancing the ability of users of financial statements to make projections of an enterprise's cashflows and financial position by segregating information about discontinuing operations from information about continuing operations.

AS 25

Interim Financial Reporting

This Standard became mandatory for all accounting periods on or after 01-04-2002. Timely and reliable interim financial reporting improves the ability of investors, creditors, and others to understand an enterprise's capacity to generate earnings and cash flows, its financial condition and liquidity.

AS 26

Intangible Assets
This Standard became mandatory for all accounting periods on or after 01-04-2003. This Statement should be applied by all enterprises in accounting for intangible assets, except: a) intangible assets that are covered by another Accounting Standard b) Financial assets c) mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources d) intangible assets arising in insurance enterprises from contracts with policyholders.

AS 27 Financial Reporting of Interests in Joint Ventures

This Standard became mandatory for all accounting periods on or after 01-04-2002. The accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors.

AS 28

Impairment of Assets
This Standard became mandatory for all accounting periods on or after 01-04-2004.
The objective of this Statement is to prescribe the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount.

AS 29 Provisions, Contingent Liabilities and Contingent Assets

This Standard became mandatory for all accounting periods on or after 01-04-2004. The objective of this Statement is to: a)ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities b)sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. c)lay down appropriate accounting for contingent assets.

AS 30 Financial Instruments: Recognition and Measurement

The objective of this Standard is to establish principles for recognizing and measuring Financial assets,financial liabilities in an entity's balance sheet. The introduction of this Standard is likely to affect almost all items in a corporate/bank balance sheet. It deals with recognition/de-recognition and measurement of financial instruments.

AS 31 Financial Instruments: Presentation

This Standard became mandatory for all accounting periods on or after 01-04-2011. The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities.

AS 32 Financial Instruments: Disclosures

The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate: o the significance of financial instruments for the entitys financial position and performance; and
o the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

Accounting standards are essentially about disclosure and, in many respects, are at the heart of market efficiency. The basic purpose of accounting standards is to facilitate the provision of financial information about entities to enable investors, analysts, creditors and the entities themselves to make informed decisions about the allocation of resources .

Clearly, while accounting standards assist preparers of financial statements by providing a framework within which to construct the statements, their prime importance is to assist users of the statements to make meaningful assessments about the financial position of an entity. Users of financial statements range from directors to investors, through to credit rating agencies.

 Accounting standards facilitate both the efficient day-today operations of individual business entities and contribute to the efficient operation of capital markets.

By promoting accurate reporting, accounting standards the management of a business entity to maximise the wealth of the entity.
Accounting standards that result in the provision of accurate and comparable information about the true financial performance and position of business entities promote investors performance and market integrity.

Terms of reference of the SEBI Committee on Disclosures and Accounting Standards:

1. To advise SEBI on issues related to the disclosure requirements in the Offer Documents/Application Forms/Advertisements and in any other mode of mass communication used by the issuer for protecting the interests of the investors improving the overall efficiency of the market.

2. To advise SEBI on issues related to the continuous disclosure requirements pertaining to listing of equity or debt of an issuer.
3. To advise SEBI on matters related to disclosure requirements of the intermediaries registered with SEBI. 4. To review of continuous disclosure requirements of listed companies and for disclosures, valuation methods and standard norms for Intermediaries operating in the Capital Market.

5. To advise SEBI on issues for addressing the operational and systemic risks, if any, in the primary securities market. 6. To ensure smooth implementation of accounting standards, statements,guidance notes and studies evolved by the Institute of Chartered Accountants of India (ICAI) to the extent that it pertains to disclosures in the Capital Market documents and for disclosures related to Intermediaries.

Historical cost IFRS:

Historical cost, but intangible assets, property plant and equipment (PPE) and investment property may be revalued.

Indian GAAP:
Historical cost, but fixed intangibles, may be revalued. assets, other than

Contents of financial statements IFRS: Two years balance sheets, income statements, cash-flow statements, changes in equity, accounting policies and notes. Indian GAAP: Two years balance sheets, profit and loss accounts, accounting policies and notes. Listed entities are required to give their consolidated financial statements and the related notes along with the standalone financial statements. (Financial Statements
should also include cash flow statements in certain cases)

 Income Statements IFRS Does not prescribe a particular format. However, expenditure must be presented in one of two formats (function or nature). Certain items must be presented on the face of the income statement. Indian GAAP The Indian Companies Act does not prescribe a particular format. The Company law and accounting standards however, prescribes certain disclosure norms for income and expenditures. For certain industries, industry specific laws specify formats.

Reporting currency IFRS: Requires the measurement of profit using the functional currency. Entities may, however, present financial statements in a different currency.

Indian GAAP: Schedule VI to the Companies Act, 1956 specifies Indian Rupees as the reporting currency.

convergence of Indian GAAP with IFRS

ICAI has decided to implement IFRS in India In 2011 The inception of the idea of convergence of Indian GAAP with IFRS was made my the Prime Minister of India Dr. Manmohan Singh by committing to align Indian accounting standards with IFRS. India is one of the over 100 countries that have or are moving towards IFRS (International Financial Reporting Standards) convergence with a view to bringing about a uniformity in reporting systems globally.