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Assignment

ON
NEED AND OBJECTIVE OF ACCOUNTING STANDARDS AN IFRS.

POST GRADUATE DIPLOMA IN MANAGEMENT SESSION: 2013-2015

SUBMITTED TO: Dr. Simmi Agarwal Faculty - Finance

SUBMITTED BY: Gaurav.k.Gautam - BM-013026

What is Accounting standards?


Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. In layman terms, accounting standards are the written documents issued by the expert institutes or other regulatory bodies covering various aspects of measurement, treatment, presentation and disclosure of accounting transactions.

What are the Objectives?


The basic objective of Accounting Standards is to remove variations in the treatment of several accounting aspects and to bring about standardization in presentation. They intent to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison.

The Need and Objective of Accounting Standards an IFRS


International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external. 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. They are sometimes still called by the original name of International Accounting Standards (IAS). 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 took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards International Financial Reporting Standards (IFRS). The IFRS Foundation is an independent, not-for-profit private sector organization working in the public interest.

The principal objectives of the IFRS Foundation are:

To develop a single set of high quality, understandable, enforceable and globally accepted International Financial Reporting Standards (IFRSs) through its standard-setting body, the International Accounting Standards Board (IASB); To promote the use and rigorous application of those standards; To take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and To promote and facilitate adoption of IFRSs, being the standards and interpretations issued by the IASB, through the convergence of national accounting standards and IFRSs.

The governance and oversight of the activities undertaken by the IFRS Foundation and its standard-setting body rests with its Trustees, who are also responsible for safeguarding the independence of the IASB and ensuring the financing of the organization. The Trustees are publicly accountable to a Monitoring Board of public authorities.

There are numerous numbers of accounting standards which lies in International Accounting Standards such as:
N Title Originally issued Effective Fully withdrawn Superseded by

Disclosure of Accounting Policies (1975) IAS 1 Presentation of Financial Statements (1997) Valuation and Presentation of Inventories in the Context of the Historical Cost System (1975) Inventories (1993) IAS 3 IAS 4 IAS 5 IAS 6 Consolidated Financial Statements Depreciation Accounting Information to Be Disclosed in Financial Statements 1976 1976 1976 January 1, 1977 January 1, 1977 January 1, 1977 January 1, 1978 January 1, 1990 July 1, 1999 July 1, 1998 IAS 27 and IAS 28 IAS 36 IAS 1 1975 January 1, 1975

IAS 2

1975

January 1, 1976

Accounting Responses to Changing Prices 1977 Statement of Changes in Financial Position (1977)

January 1, 1983 IAS 15

IAS 7

Cash Flow Statements (1992) Statement of Cash Flows (2007) Unusual and Prior Period Items and Changes in Accounting Policies (1978) Net Profit or Loss for the Period,

1977

January 1, 1979

IAS 8

Fundamental Errors and Changes in Accounting Policies (1993) Accounting Policies, Changes in Accounting Estimates and Errors (2003)

1978

January 1, 1979

IAS 9

Accounting for Research and Development 1978

January 1,

July 1, 1999

IAS 38

N Activities

Title

Originally issued

Effective 1980

Fully withdrawn

Superseded by

Contingencies and Events Occurring After the Balance Sheet Date (1978) IAS 10 Events After the Balance Sheet Date (1999) Events after the Reporting Period (2007) Accounting for Construction Contracts (1979) Construction Contracts (1993) Accounting for Taxes on Income (1979) IAS 12 Income Taxes (1996) 1979 1978 January 1, 1980

IAS 11

1979

January 1, 1980

January 1, 1981 January 1, 1981 January 1, 1983 January 1, 1983 January 1, 1983 July 1, 1998 IAS 1

IAS 13

Presentation of Current Assets and Current 1979 Liabilities Reporting Financial Information by Segment (1981) Segment reporting (1997)

IAS 14

1981

January 1, 2009 IFRS 8

IAS 15

Information Reflecting the Effects of Changing Prices Accounting for Property, Plant and Equipment (1982) Property, Plant and Equipment (1993) Accounting for Leases (1982)

1981

January 1, 2005 N/A

IAS 16

1982

IAS 17

Leases (1997) Revenue Recognition (1982)

1982

January 1, 1984 January 1, 1984

IAS 18

Revenue (1993) Accounting for Retirement Benefits in Financial Statements of Employers (1983)

1982

IAS 19

Retirement Benefit Costs (1993) Employee Benefits (1998)

1983

January 1, 1985

IAS 20 IAS 21

Accounting for Government Grants and Disclosure of Government Assistance Accounting for the Effects of Changes in Foreign Exchange Rates (1983)

1983 1983

January 1, 1984 January 1, 1985

Title

Originally issued

Effective

Fully withdrawn

Superseded by

The Effects of Changes in Foreign Exchange Rates (1993) Accounting for Business Combinations (1983) Business Combinations (1993) Capitalisation of Borrowing Costs (1984) IAS 23 Borrowing Costs (1993) Related Party Disclosures Accounting for Investments Accounting and Reporting by Retirement Benefit Plans Consolidated Financial Statements and Accounting for Investments in Subsidiaries (1989) IAS 27 Consolidated and Separate Financial Statements (2003) Separate Financial Statements (2011) Accounting for Investments in Associates (1989) IAS 28 Investments in Associates (2003) Investments in Associates and Joint Ventures (2011) IAS 29 IAS 30 Financial Reporting in Hyperinflationary Economies Disclosures in the Financial Statements of Banks and Similar Financial Institutions Financial Reporting of Interests in Joint Ventures (1990) Interests in Joint Ventures (2003) Financial Instruments: Disclosure and Presentation (1995) Financial Instruments: Presentation (2005) 1989 1990 January 1, 1990 January 1, 1991 January 1, 1992 January 1, 2007 IFRS 7 1989 January 1, 1990 1989 January 1, 1990 1984

IAS 22

1983

January 1, 1985

April 1, 2004

IFRS 3

January 1, 1986 January 1, 1986 January 1, 1987 January 1, 1988 January 1, 2001 IAS 39 and IAS 40

IAS 24 IAS 25 IAS 26

1984 1986 1987

IAS 31

1990

January 1, 2013

IFRS 11 and IFRS 12

IAS 32

1995

January 1, 1996

Title

Originally issued 1997 1998 1998 1998 1998 1998 1998 2000 2000 2003 2004 2004 2004 2004 2004 2005 2006 2009 2011 2011 2011 2011

Effective January 1, 1999 January 1, 1999 July 1, 1999 July 1, 1999 July 1, 1999 July 1, 1999 January 1, 2001 January 1, 2001 January 1, 2003 January 1, 2004 January 1, 2005 April 1, 2004 January 1, 2005 January 1, 2005 January 1, 2006 January 1, 2007 January 1, 2009 January 1, 2015 January 1, 2013 January 1, 2013 January 1, 2013 January 1, 2013

Fully withdrawn

Superseded by

IAS 33 IAS 34 IAS 35 IAS 36 IAS 37 IAS 38 IAS 39 IAS 40 IAS 41 IFRS 1 IFRS 2 IFRS 3 IFRS 4 IFRS 5 IFRS 6 IFRS 7 IFRS 8 IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13

Earnings per Share Interim Financial Reporting Discontinuing Operations Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Financial Instruments: Recognition and Measurement Investment Property Agriculture First-time Adoption of International Financial Reporting Standards Share-based Payment Business Combinations Insurance Contracts Non-current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures Operating Segments Financial Instruments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement

January 1, 2005 IFRS 5

Accounting Standard (AS) 6

Depreciation Accounting
1. This Standard deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply: (i) Forests, plantations and similar regenerative natural resources; (ii) Wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources; (iii) Expenditure on research and development; (iv) Goodwill and other intangible assets; (v) Live stock. This standard also does not apply to land unless it has a limited useful life for the enterprise. 2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.

What is Depreciation?
Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, efflux ion 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. Types of depreciation calculation methods: Straight line method Written down value method Straight line method: Straight-line depreciation is the simplest and most often used method. In this method, the company estimates the salvage value(scrap value) of the asset at the end of the period during which it will be used to generate revenues (useful life). (The salvage value is an estimate of the value of the asset at the time it will be sold or disposed of; it may be zero or even negative. Salvage value is also known as scrap value or residual value.) The company will then charge the same amount to depreciation each year over that period, until the value shown for the asset has reduced from the original cost to the salvage value.

Written down value method: Suppose a business has an asset with $1,000 original cost, $100 salvage value, and 5 years of useful life. First, the straight-line depreciation rate would be 1/5, i.e. 20% per year. Under the double-declining-balance method, double that rate, i.e. 40% depreciation rate would be used.

Example of Depreciation with Straight line method:


Depreciation Accumulated depreciation Book value expense at year-end at year-end (original cost) 17,000 3,000 3,000 3,000 3,000 3,000 3,000 6,000 9,000 12,000 15,000 14,000 11,000 8,000 5,000 (scrap value) 2,000

A vehicle that depreciates over 5 years is purchased at a cost of 17,000, and will have a salvage value of 2000. Then this vehicle will depreciate at 3,000 per year, i.e. (17-2)/5 = 3. This table illustrates the straight-line method of depreciation. Book value at the beginning of the first year of depreciation is the original cost of the asset. At any time book value equals original cost minus accumulated depreciation. We have calculated the book value with the formula given below, Book value = original cost accumulated depreciation Then, Book value at the end of year becomes book value at the beginning of next year. The asset is depreciated until the book value equals scrap value.