2. CONTENTS
Accounting Standards
Objectives and Needs : Accounting Standards
Accounting Standards in different nations
Indian Accounting Standards
International Accounting Standards (IFRS)
IFRS vs. IAS
Benefits of IFRS
Conclusion
3. ACCOUNTING STANDARDS
Accounting is considered as the language of business
Each language has certain set of rules
Similarly accounting has certain rules to be observed by the accountants so that it is understood by all in
the same sense these set of rules become accounting standards
Thus accounting standards are certain set of rules and guidance based on the principles and methods of
accounting to be followed to have uniformity in terminology approach and presentation of results
Written Documents issued by Government or Regulatory Body
In India, issued by ICAI on 21st April,1977
4. OBJECTIVES AND NEED :
ACCOUNTING STANDARD
Objectives of Accounting Standard :
• Standardize the diverse Accounting Policies
• Add the reliability to the Financial Statement
• Eradicate baffling variation in treatment of accounting aspects
• Facilitate inter-firm and intra-firm comparison
The need for Accounting Standards arises from following reasons :
• Facilitate transparent and meaningful reporting of financial information
• Reduce accounting alternatives to reasonable and practical level
• Enhance comparability of financial statements in time and space
• Encourage consistency in accounting practices
5. ACCOUNTING STANDARDS IN
DIFFERENT NATIONS
In India, 32 Accounting Standards as IAS under NACAS
As per International, there are 41 Accounting Standards called as IFRS
Adopted by 8 countries in the world
70 to 80 countries planning to adhere IFRS
Clause 50 added to the listing agreement mandatory
6. EVOLUTION AND TYPES OF
ACCOUNTING STANDARD
Accounting Standards Initiation
AS 1 to AS 15 1979 - 1995
AS 16 to AS 29 2000 - 2007
AS 30 to AS 32 Later Part of 2007
8. Specific policies adapted to prepare FS
Should be disclosed at one place
Purpose :-
1. Better understanding of FS
2. Better comparison analysis
3. Mostly needed w.r.t Depreciation
Used for computation of Cost of inventories
and to show in BS till it is sold
Consists of :-
1. Raw Materials
2. Work in progress
3. Finished goods
4. Spares, etc.
INDIAN ACCOUNTING STANDARD
AS 1 – Disclosure of Accounting
Policies
AS 2 – Accounting for Inventories
9. Incoming and outgoing of cash
Act as barometer to judge surplus and
deficit
Explain Cash flow under 3 heads :-
1. Cash flow from operating activities
2. Cash flow from financing activities
3. Cash flow from investing activities
For maintaining Provision of Bad debts
Generally uses Conservative concepts of
Accounting like Bankruptcy, frauds & errors
INDIAN ACCOUNTING STANDARD
AS – 3 Cash Flow Statements
AS 4- Contingencies and events
occurring after BS date
10. Ascertain certain criteria for certain items
Include income and expenditures of Financial
year
Consists of 2 component
1. Profit and loss of ordinary activities
2. Profit and loss of extra ordinary activities
A non-cash expenditure
Distribution of total cost to its useful life
Occurs due to obsolescence
Different methods of computation
1. Straight line method ( SLM )
2. Written-down value or diminishing value (WDV)
INDIAN ACCOUNTING STANDARD
AS 5- Net profit or loss for the period, prior period
items and change in Accounting policies
AS 6- Accounting for Depreciation
11. Contract specifically negotiated for
construction of Asset or combination of
Assets closely inter-related
To deal with treatment of Cost of research
and development in the financial statements
Identify items of cost which comprise R&D
costs lays down condition R&D cost may be
deferred and requires specific disclosures to be
made regarding R&D costs.
INDIAN ACCOUNTING STANDARD
AS 7- Construction Contract AS 8- Accounting for R&D
12. Means gross inflow of cash and other
consideration like arising out of :-
1. Sale of goods
2. Rendering services
3. Use of enterprise resources by other
yielding interest, dividend and royalties
Called as Cash generating Assets
Expected to used for more than a Accounting
period like land, building, P/M, etc.
Shown at either Historical or Revalued value
INDIAN ACCOUNTING STANDARD
AS 9- Revenue Recognition AS 10- Accounting for Fixed Assets
13. Classification for Accounting treatment:-
• Category I: Foreign currency transactions:
• buying and selling of goods or services
• lending and borrowing in foreign currency
• Acquisition and disposition of assets
• Category II: Foreign operations:
• Foreign branch
• Joint venture
• Foreign Subsidiary
• Category III: Foreign Exchange contracts:
• For managing Risk/hedging
• For trading and Speculation
Assistance provided by Govt. in cash or
in kind like
1. Grants of Assets like P/M, Land, etc.
2. Grants related to depreciable FA
3. Tax exemptions in notified area
INDIAN ACCOUNTING STANDARD
AS 11- Effect of change in FOREX Rates AS 12- Accounting for Govt. Grants
14. Assets held for earning incomes like dividend,
interest, rental for capital appreciation, etc.
It involves:-
1. Classification of Investment
2. Cost of Investment
3. Valuation of Investment
4. Reclassification of Investment
5. Disposal of Investment
6. Disclosure of Investment in FS
Section 391 to 394 of Companies Act, 1956
governs the provision of amalgamation.
Disclosures:
1. Names and nature of amalgamating companies
2. Effective date of amalgamation
3. Method of Accounting used
4. Particulars of scheme sanctioned under a
statute
INDIAN ACCOUNTING STANDARD
AS 13- Accounting for Investments AS 14- Accounting for Amalgamation
15. All forms of consideration given by
enterprise directly to the employees or their
spouses, children or other dependents, to
other such as trust, insurance companies in
exchange of services rendered
Interest and cost incurred by an enterprise in
connection to the borrowed funds.
Availed for acquiring building, installed FA
to make it useable and saleable
INDIAN ACCOUNTING STANDARD
AS 15- Employees Benefits AS 16- Borrowing Costs
16. It consists of 2 segment:-
1. Business segment
2. Geographical segment
Information and different risk and return
reporting
Related party are those party that controls or
significantly influence the management or operating
policies of the company during reporting period
Disclosure:
1. Related party relationship
2. Transactions between a reporting enterprises
and its related parties.
3. Volume of transactions
4. Amount written off in the period in respect of
debts
INDIAN ACCOUNTING STANDARD
AS 17- Segment Reporting AS 18- Related party disclosure
17. Agreement between Lessor And Lessee
Two types of leases:
1. Operating lease
2. Finance lease
Different from Sale
Classification to be made at the inception
Earning capacity of the firm
Assessing market price for share
AS gives computational methodology for
determination and presentation of EPS
2 types of EPS
INDIAN ACCOUNTING STANDARD
AS 19- Accounting for Leases AS 20- Earning per share
18. Accounting for Parent and Subsidiary
company in single entity
Disclosure:-
1. List of all subsidiaries
2. Proportion of ownership interest
3. Nature of relation whether direct or
indirect
Tax accounted for period in which are accounted
It should be accrued and not liability to pay
Deals in 2 measurements:-
1. Current tax
2. Deferred tax
INDIAN ACCOUNTING STANDARD
AS 21- Consolidated Balance Sheet AS 22- Accounting for taxes and income
19. Objectives to set out principles and
procedures for recognizing the investment
associates in CFS of the investors, so that
effect of investments in associates on
financial position of group is indicated
Establishes principles for reporting
information about discontinuing operations
Covers discontinuing operations rather
than discontinued operation
INDIAN ACCOUNTING STANDARD
AS 23- Accounting for investments in
Associates in CFS
AS 24- Discontinuing operations
20. Reporting for less than a year i.e. 3
months
Clause 41 says publish financial results on
quarterly basis
Objective is to provide frequently and
timely assessment
No physical existence
Can not be seen or even touched
3 featured as per AS
1. Identifiable
2. Non-monetary assets
3. Without physical substance
INDIAN ACCOUNTING STANDARD
AS 25-Interim Financial Reporting (IFR) AS 26- Intangible Assets
21. What is joint venture?
• A joint venture is a contractual arrangement
whereby two or more parties undertake an
economic activity, which is subject to joint
control.
Joint ventures take many different forms and
structures
1. jointly controlled operations,
2. Jointly controlled assets
3. jointly controlled entities
Weakening of Assets value
Occurs when carrying cost more than
recoverable amount
Carrying cost = Cost of assets –
Accumulated Depreciation
INDIAN ACCOUNTING STANDARD
AS 27- Financial Reporting of interest in
Joint Venture
AS 28- Impairment of Assets
22. Provisions:-
• It is a Liability
• Settlement should result in outflow
• Liability is result of obligating event
Contingent liabilities:-
• Obligation arises of past event
• Existence confirmed when actually occurred of
uncertain future
Contingent Asset:-
• Same as Contingent liability
AS 30 – Recognition and Measurement
AS 31 – Presentation
AS 32 – Disclosures
Has not been made mandatory
INDIAN ACCOUNTING STANDARD
AS 29- Provision, contingent liabilities
and assets
Financial Instruments
24. INTERNATIONAL FINANCING
REPORTING SYSTEM (IFRS)
IFRS – International Accounting Standards
IFRS are designed as a common global language for business affairs so that company accounts are understandable
and comparable across international boundaries
IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization
quickly made the concept attractive around the world
IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC).
On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility
for setting International Accounting Standards
25. IAS are rule based wherein the rules
guide how to record a transaction.
IAS lay more emphasis to laws over
standard
Companies following IAS follow their
defined format while presenting financial
statements
IFRS are principle based
IFRS lay more emphasis to the standard
over laws
IFRS have no prescribed format
IFRS VS. INDIAN ACCOUNTING
STANDARDS
Indian Accounting Standards
International Financing Reporting
System (IFRS)
26. Indian Company’s Act while following
the Indian Standards has issued certain
depreciation rates on tangible assets to be
followed by companies
International Accounting Standards
(IFRS) levies charge based on the life of
assets
IFRS VS. INDIAN ACCOUNTING
STANDARDS
Indian Accounting Standards
International Financing Reporting
System (IFRS)
27. BENEFITS OF IFRS
Global exposures to the Indian Market ; India is already is global market player. Above that the IFRS system will lead
to a more detailed exposures to the global markets
Tedious process can be avoided
Lowers Accountant’s fees and funds
Single Platform : Accounting techniques adopted internationally will not only lower the burden but also bring all the
global market entrepreneurs under a single platform
Targets globally : The Indian market thereafter has the permission to issue targets to be achieved according to the
global market
Eliminate multiple reports
28. CONCLUSION
Harmonization of Accounting Standards :
• Harmonization is an essential to facilitate comparability of financial statements.
• With globalization financial statements of national entity/organization are no longer the
requirement of domestic users.
• This is more pronounced in case of business houses from one country expanding to other
countries for all their activities of operations, investing and financing.
• The problem that occurs in that scenario is that the financial statements prepared using
Accounting Standards of one country may not be understood in the same sense in another
country, which would require drawing up of financial statements in a different frame work.
• Need of single set of accounting standards applicable for government and commercial entities
