1

A PROJECT REPORT ON

COMPARATIVE STUDY OF ACCOUNTING STANDARDS (AS) AND

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
SUBMITTED BY
MR/MISS REENA RAMKRISHNA MAHADIK.
ROLL NO: 6225
M.Com. SEM- I
(ADVANCE ACCOUNTANCY)
ACADEMIC YEAR: 2015-16

Under the guidance of PROJECT GUIDE

PROF. S.A.PAWAR.

SUBMITTED TO UNIVERSITY OF MUMBAI

MULUND COLLEGE OF COMMERCE
S N ROAD, MULUND (WEST)
MUMBAI - 400080

Declaration from the Student

I, REENA RAMKRISHNA MAHADIK. R.No. 6225 Student of Mulund College Of
Commerce, S. N. Road, Mulund (West) 400080, studying in M.Com Part- I hereby declare that I
have completed the project on COMPARATIVE STUDY OF ACCOUNTING

STANDARDS (AS) AND INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRS) under the guidance of project guide Prof. S.A.PAWAR during the
academic year 2015-16. The information submitted is true to the best of my knowledge.

Date:
Place:

Signature

CERTIFICATE
I, Prof. S.A.PAWAR , hereby certify that Mr/Miss REENA RAMKRISHNA MAHADIK .
R.No. 6225 of Mulund College of Commerce, S. N. Road, Mulund (West), Mumbai -400080 of
M.com Part I (Advanced Accountancy) has completed her project on COMPARATIVE

STUDY OF ACCOUNTING STANDARDS (AS) AND INTERNATIONAL

FINANCIAL REPORTING STANDARDS (IFRS) during the academic year 201516. The information submitted is true and original to the best of my knowledge.

____________________

___________________

Project Guide

External guide

_____________________

___________________

Co-coordinator

Date:

Principal

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of Mulund College of

Commerce DR. (Mrs.) Parvathi Venkatesh, Course - Coordinator Prof. Rane and our project
guide Prof. S.A.PAWAR, for providing me an opportunity to do my project work on

COMPARATIVE STUDY OF ACCOUNTING STANDARDS (AS) AND

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) I also
wish to express my sincere gratitude to the non - teaching staff of our college. I
sincerely thank to all of them in helping me to carrying out this project work. Last but
not the least, I wish to avail myself of this opportunity, to express a sense of gratitude
and love to my friends and my beloved parents for their mutual support, strength, help
and for everything.

PLACE:
DATE:

Signature

INDEX

SR.

PARTICULARS

NO.

Chapter 1

Introduction Of OPEC

Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8

PAGE
NO.

6-14

Objectives Of AS and IFRS

Hypothesis Of AS and IFRS
Reasearch OF Methodology
Rational Of Study
Review Of Literatures
Limitations Of Study
History OF Accounting Standards
History OF IFRS
Comparative Of AS And IFRS
Analysis Of DATA
Recommendation Of Study
Conclusion
Biblography

17-27
28-33
34-35
36
37-38
39
40

INTRODUCTION
Accounting Standard

In this respect main purpose of standards is to provide information to the users as

to the basis on which the accounts have been prepared.The objective of setting
standards is to bring about uniformity in financial reporting and to ensure
consistency in the data published by enterprises. For accounting standards, to be
useful tool to enhance the corporate governance and responsibility, two criteria
must be satisfied, i.e.

(i) A standard must provide a generally understood and accepted measure of the
phenomena of concern.
(ii) A standard should significantly reduce the amount of manipulation of the
reported numbers and is likely to occur in the absence of the standards.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of accounting

standards developed by the International Accounting Standards Board (IASB) that
is becoming the global standard for the preparation of public company financial
statements. International Financial Reporting Standards (IFRS) are a set
of international
accounting
standards stating
how
particular
types
of transactions and other events should be reported in financial statements. IFRS
are issued by the International Accounting Standards Board, and they specify
exactly how accountants must maintain and report their accounts. IFRS were
established in order to have a common accounting language, so business and
accounts can be understood from company to company and country to country.The
entire world has factually become flat.

OBJECTIVES
Accounting Standard

This Standard prescribes the basis for presentation of general purpose financial
statements to ensure comparability both with the entitys financial statements of
previous periods and with the financial statements of other entities.

It sets out overall requirements for the presentation of financial statements,

guidelines for their structure and minimum requirements for their content.
An entity shall apply this Standard in preparing and presenting general purpose
financial statements in accordance with Indian Accounting Standards (Ind ASs).
Other Ind ASs set out the recognition, measurement and disclosure requirements
for specific transactions and other events.

International Financial Reporting Standards (IFRS)

Variation in the policies of capital markets of each country

Variations in the legal systems of each country
Variation in government policies & systems
Variation in the type and scale of economic activity, from agricultural to financial
services and from developing economies to industrialised economies
Globalisation of trade & capital markets
Rapid development of Information Technology and its impact on operations
Fast & simplified process of moving funds between countries
Increased investors interest in foreign investments

HYPOTHESIS
Accounting Standard

Financial statement comparability has been recognized as an important characteristic of

nancial reporting, improving the usefulness of accounting information. Broadly,
economic decision-making compares alternatives and accounting textbooks emphasize
that nancial results cannot be evaluated in isolation. Libby, Libby and Short (2009,
p.714), for example, maintain that nalyzing nancial data without a basis for comparison
is impossible. The importance of nancial statement comparability across rms is
further underscored in valuation techniques such as price multiples, which are used
extensively by investment banks and institutional investors. Consequently, standard
setters position comparability as a central feature of the nancial reporting system.
Specically, comparability is one of the four enhancing qualitative characteristicsof
accounting information dened in the rst phase of the joint conceptual framework
completed by the International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) (IASB, 2010; FASB, 2010).

International Financial Reporting Standards (IFRS)

There is no significant difference between the responses of accountants and auditors on

the accounting areas institutions (professional) should focus in adopting IFRS.
The mean scores of auditors and accountants do not differ significantly on the
implications of adopting IFRS in an institution.
Accountants and auditors do not significantly differ in their mean scores on the personnel
to be involved in IFRS financial instruments.
International Financial Reporting Standards (IFRS) prior to 2005 has contributed to the
informational efficiency regarding panEuropean stock markets. We find evidence of the
potential usefulness of the IFRS for making financial decisions. Taking a sample of IFRS
early adopters, our study indicates that the new standards clearly support the semistrongform of market efficiency for the firms disclosing good accounting news, while a more
progressive diffusion of information and a penalty effect occur for the bad news firms.

REASEARCH METHODOLOGY

Definition of primary Data.

Data used in research originally obtained through the direct efforts of

the researcher through surveys, interviews and direct observation. Primary data is
more costly to obtain than secondary data, which is obtained through published sources,
but it is also more current and more relevant to the research project.

Meaning Of Primary data

Primary data is that which is collected by sociologists themselves during their own
research using research tools such as experiments, survey questionnaires, interviews and
observation.
Primary data can take a quantitative or statistical form, e.g. charts, graphs, diagrams and
tables. It is essential to interpret and evaluate this type of data with care. In particular,
look at how the data is organised in terms of scale. Is it organised into percentages,
hundreds, thousands, etc.? Is it a snapshot of a particular year or is it focusing on trends
across a number of years?
Primary data can also be qualitative, e.g. extracts from the conversations of those being
studied. Some researchers present their arguments virtually entirely in the words of their
subject matter. Consequently the data speaks for itself and readers are encouraged to
make their own judgements.

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Definition Of Secondary Data

Data that has previously been collected (primary data) that is utilized by a person other
than the one who collected the data. Secondary data is often used in social and economic
analysis, especially when access to primary data is unavailable. For example, a survey of
a group of economists (primary data) cannot be repeated, so its results are used in
subsequent research projects. Or, data collected by the Department of Labor (primary
data) that is used in economic analysis.

Meaning Of Secondary Data

Secondary data are the Second hand informations. The data which have already been
collected and processed by some agency or persons and are not used for the first time are
termed as secondary data. According to M. M. Blair, Secondary data are those already in
existence and which have been collected for some other purpose. Secondary data may be
abstracted from existing records, published sources or unpublished sources.

Advantages of Secondary data

It is economical. It saves efforts and expenses.
It is time saving.
It helps to make primary data collection more specific since with the help of secondary
data, we are able to make out what are the gaps and deficiencies and what additional
information needs to be collected.
It helps to improve the understanding of the problem.
It provides a basis for comparison for the data that is collected by the researcher.

Disadvantages of Secondary Data

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Secondary data is something that seldom fits in the framework of the marketing research
factors. Reasons for its non-fitting are:Unit of secondary data collection-Suppose you want information on disposable income,
but the data is available on gross income. The information may not be same as we
require.
This Project is totally based on Secondary data.

RATIONAL OF STUDY
Accounting Standard

I am preparing this project of comparing Accounting Standards and International

Reporting Standards .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.

International Financial Reporting Standards (IFRS)

IFRS and therefore can be presented through an event study around interesting
accounting events. The second and third dimensions account for the impact of a change
14 in accounting values on the market value of the firm. Both the evaluation relevance
and the value relevance of an accounting framework can be studied under the general
analysis of association. We perform the tests of value relevance with our selected sample

12

of 59 IFRS adopters. In order to achieve comparisons of the IFRS framework with the
local Generally Accepted Accounting Principles (GAAP), we build our control group by
selecting, for each observation, the closest non-IFRS adopter that made similar final
results announcements during the same time period.

REVIEW OF LITERATURES

Accounting Standard

Berry and Otley observed, using a case study and narrative grounds theoretical
speculation in the empirical observation of real world phenomena.107 As an empirical
means for exploring an idea, case studies therefore help illuminate a subject and make it
possible to evaluate an hypothesis.108 The New Zealand accounting profession is a
useful case study because the country, and hence the profession, is small and the
profession has one major association, the Institute, which makes it easier to examine the
wider role of the accounting profession in standard setting.109 The activities of the
Institute, the steps it took to develop accounting standards, the workings of the
committees it created to undertake the writing of accounting standards and the forces
influencing those committees clarify the history of standard setting in New Zealand. As
an historical accounting history thesis, this thesis does not attempt to explain the subject
matter of accounting standards themselves, such as depreciation and reserves.
Rather, this thesis focuses on the workings of the accounting profession as a
profession.110 This thesis aims to ground Larsons model of professional behaviour, as

13

the theoretical framework, in the evidence of the New Zealand Institutes role as standard
setter. The thesis tests the hypothesis by extrapolating from a specific example to verify
general observations on the nature of the accounting profession and its reasons for
regulating external financial reporting. Studying the actions of one accounting
association, in this case the New Zealand Institute, during the twentieth century and the
first decade of this century, provides first-hand data and, thus, valuable Taking an
historical narrative approach in this study allows a theoretical framing to be applied to
empirical work, helping place the Institutes actions in the broader framework of
professional

International Financial Reporting Standards (IFRS)

Dr. Naseem Ahmad and Professor Nawab Ali Khan (2010), Global convergence
of financial reporting this article define that all major economies have established time
lines to converge with or adopt IFRSs in the near future. The international convergence
efforts of the organisation are also supported by the Group of 20 Leaders (G20) who, at
their September 2009 meeting in Pittsburgh, US, called on international accounting
bodies to redouble their efforts to achieve this objective within the context of their
independent standard-setting process. In particular, they asked the IASB and the US
FASB to complete their convergence project by June 2011.
Adopting a single global accounting language will ensure relevance, completeness,
understandability, reliability, timeliness, neutrality, verifiability, consistency,
comparability and transparency of financial statements and these bring about a qualitative
change in the accounting information reports which will strengthen the confidence and
empower investors and other users of accounting information around the world. It will

14

also help acquirers to assess the actual worth of the target companies in cross border deals
and thereby furthering the economic growth and search and help researcher in deter
business expansion globally. For a decade the companies in India have been using both
US GAAPs and more recently International Financial Reporting Standards (IFRS) to
raise funds from US and European Markets. The Institute of Chartered Accountants of
India has announced that it will align existing accounting standards with IFRS w.e.f.
April 1, 2011 to join the group of 100 countries reporting under IFRS.

LIMITATIONS OF STUDY

Accounting Standard

Altenative solutions to certain accounting policies may each have arguments

attached to them. So, the choice between different alternative accounting treatments
becomes difficults.
Generally there is rigidity in applying the Accounting standards.
The standards are required to be framed within the Ambit of prevailing statutes.
Accounting standars cannot override the statute.

15

The use of different accounting frameworks (e.g. IFRS, US GAAP) by entities

operating in different geographic areas also presents similar problems when comparing
their financial statements. The problem is being overcome by the growing use of IFRS
and the convergence process between leading accounting bodies to arrive at a single set
of global standards. Accountancy assists users of financial statements to make better
financial decisions. It is important however to realize the limitations of accounting and
financial reporting when forming those decisions.

International Financial Reporting Standards (IFRS)

IFRS are conceptually conditionally conservative but inappropriate application of

conditional conservatism principles may have prevented financial reporting from
reaching the level of conservatism targeted by the IASB. The form of prudence that the
Board intended to eliminate from the conceptual framework (and financial reporting) can
be clearly related to unconditional conservatism, not to conditional conservatism.
Additionally, fair value for financial assets does not significantly impact many industries
other than the financial sector, and if firms decide to follow the fair value option, both
unrealized gains (good news) and unrealized losses (bad news) are recognized in earnings
(or other comprehensive income). Fair value cannot be considered less conditionally
conservative than amortized cost. Conversely, IFRS do include various mechanisms
ensuring the application of conditional conservatism.

History OF Accounting Standards

Whatever sphere of the human mind you may select for your study , whether be it
language, or religion, or mythology , or philosophy, whether be it laws or customs ,
primitive art or primitive science, everywhere you have to go to India, whether you like it
or not , because some of the most valuable & most instructive materials are treasured up
in India, & in India only.
Sufficient evidence exists to conclude that art and practice of accounting existed
even in Vedic times. There are references to kraya (sale), Vanij (merchant), sulka (price)

16

in Rigveda. Kautilyas Arthashastra contains details on business of keeping up accounts

in the office of accountants .It provides details of matters which should be recorded,
registers to be maintained, system of examination of accounts and even details of
punishments for default.
During this era (which lasted until 500 B.C.), Sumeria was a theocracy whose
rulers held most land and animals in trust for their gods, giving impetus to their recordkeeping efforts. Moreover, the legal codes that evolved penalized the failure to
memorialize transactions. The Code of Hammurabi, for example, required that an agent
selling goods for a merchant give the merchant a price quotation under seal or face
invalidation of a questioned agreement.
The parties willing to transact sought the scribe at the gates to the city.
They would describe their agreement to the scribe, who use a small quantity of
specially prepared clay to record the transaction.
The moist clay was molded into a size and shape adequate to contain the terms of the
agreement.
Using a wooden stylus, the scribe recorded the names of the contracting parties, the
goods and money exchanged and any other promises made.
The parties then signed their names to the tablet by impressing their respective
seals.

Meaning of Accounting Standards

In this respect main purpose of standards is to provide information to the users as to the
basis on which the accounts have been prepared.The objective of setting standards is to

17

bring about uniformity in financial reporting and to ensure consistency in the data
published by enterprises. For accounting standards, to be useful tool to enhance the
corporate governance and responsibility, two criteria must be satisfied, i.e.
(i) A standard must provide a generally understood and accepted measure of the
phenomena of concern.
(ii) A standard should significantly reduce the amount of manipulation of the reported
numbers and is likely to occur in the absence of the standards.

Significance of Accounting Standards

Accounting standards facilities uniform preparation and reporting of general purpose

financial statements published annually for the benefit of shareholders, creditors,
employee and public at large. They are very useful to the investors and other external
groups in assessing the progress and prospects of alternative investments in different
companies in different countries.

Need for Accounting Standards

Accounting standards can be seen as providing an important mechanism to help in the

resolution of potential financial conflicts of interest between the various important groups
in society. It is essential that accounting standards should command the greatest possible
credibility among shareholders, creditors, employee and public at large.

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Indian Accounting Standards

The accounting standards board of the Institute of Chartered Accountants of India has
issued the following Accounting Standards:
AS 1 Disclosure of Accounting policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statement
AS 4 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 Construction Contracts (revised 2002)
AS 8 Accounting for Research and Development (AS-8 is no longer in force since it
was merged with AS-26)
AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003),
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits (revised 2005)
AS 16 Borrowing Costs
AS 17 Segment Reporting

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AS 18 Related Party Disclosures

AS 19 Leases
AS 20 Earnings Per Share

(AS) 1
Disclosure of Accounting Policies
This statement deals with the disclosure ofsignificant accounting policies followed in
preparing and presenting financial statements. 2. The view presented in the financial
statements of an enterprise of its state of affairs and of the profit or loss can be
significantly affected by the accounting policiesfollowed in the preparation and
presentation of the financial statements. The accounting policies followed vary from
enterprise to enterprise. Disclosure ofsignificant accounting policiesfollowed is necessary
if the view presented is to be properly appreciated.

(AS) 2
Valuation of Inventories
This Accounting Standard includes paragraphs set in bold italic type and plain type,
which have equal authority. Paragraphs in bold italic type indicate the main principles.
This Accounting Standard should be read in the context of its objective and the Preface to
the Statements of Accounting Standards 1 .) The following is the text of the revised
Accounting Standard (AS) 2, Valuation of Inventories, issued by the Council of the
Institute of Chartered Accountants of India. Thisrevised Standard supersedes Accounting
Standard (AS) 2, Valuation of Inventories, issued in June, 1981. The revised standard
comes into effect in respect of accounting periods commencing on or after 1.4.1999 and
is mandatory in nature.
Cost of Inventories
The cost of inventories should comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
Costs of Purchase

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The costs of purchase consist of the purchase price including duties and taxes (other than
those subsequently recoverable by the enterprise from the taxing authorities), freight
inwards and other expenditure directly attributable to the acquisition. Trade discounts,
rebates, duty drawbacks and other similar items are deducted in determining the costs of
purchase
Costs of Conversion
The costs of conversion of inventories include costs directly related to the units of
production, such as direct labour. They also include a systematic allocation of fixed and
variable production overheads that are incurred in converting materials into finished
goods.

(AS) 3
Cash Flow Statements
Accounting Standard (AS) 3, Cash Flow Statements (revised 1997), issued by the
Council of the Institute of Chartered Accountants of India, comes into effect in respect of
accounting periods commencing on or after 1-4-1997. Information about the cash flows
of an enterprise is useful in providing users of financial statements with a basis to assess
the ability of the enterprise to generate cash and cash equivalents and the needs of the
enterprise to utilise those cash flows. The economic decisions that are taken by users
require an evaluation of the ability of an enterprise to generate cash and cash equivalents
and the timing and certainty of their generation. The Statement deals with the provision
of information about the historical changes in cash and cash equivalents of an enterprise
by means of a cash flow statement which classifies cash flows during the period from
operating, investing and financing activities.
An enterprise presents its cash flows from operating, investing and financing activities in
a manner which is most appropriate to its business.

(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.

21

Events occurring after the balance sheet date are those significant events, both favourable
and unfavourable, 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

Contingencies
The amount of a contingent loss should be provided for by a charge in the statement of
profit and loss if:
it is probable that future events will confirm that, after taking into account any related
probable recovery, an asset has been impaired or a liability has been incurred as at the
balance sheet date, and
(b) a reasonable estimate of the amount of the resulting loss can be made.

(AS) 5
Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies
Net Profit or Loss for the Period
All items of income and expense which are recognised in a period should be included in
the determination of net profit or loss for the period unless an Accounting Standard
requires or permits otherwise. Normally, all items of income and expense which are
recognised in a period are included in the determination of the net profit or loss for the
period.
This includes extraordinary items and the effects of changes in accounting estimates. 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; and
(b) extraordinary items.

(AS) 6

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Depreciation Accounting
The depreciation methods used, the total depreciation forthe period for each class of
assets, the gross amount of each class of depreciable assets and the related accumulated
depreciation are disclosed in the financialstatements alongwith the disclosure of other
accounting policies. The depreciation rates or the useful lives of the assets are disclosed
only if they are different from the principal rates specified in the statute governing the
enterprise. In case the depreciable assets are revalued, the provision for depreciation is
based on the revalued amount on the estimate ofthe remaining useful life of such assets.
In case the revaluation has a material effect on the amount of depreciation, the same is
disclosed separately in the year in which revaluation is carried out. A change in the
method of depreciation is treated as a change in an accounting policy and is disclosed
accordingly

(AS) 7
Construction Contracts
Revenue from fixed price construction contracts is recognised on the percentage of
completion method, measured by reference to the percentage of labour hours incurred
upto the reporting date to estimated total labour hours for each contract. Revenue from
cost plus contracts is recognised by reference to the recoverable costs incurred during the
period plus the fee earned, measured by the proportion that costs incurred upto the
reporting date bear to the estimated total costs of the contract. Contract costs recovery of
which is not probable are recognised as an expense immediately. Examples of
circumstancesin which the recoverability of contract costs incurred may not be probable
and in which contract costs may, therefore, need to be recognised as an expense
immediately include contract

(AS) 8
Accounting for Research and Development
Accounting Standard (AS) 8, Accounting for Research and Development, is withdrawn
from the date of AS 26, Intangible Assets, becoming mandatory for respective
enterprises. AS 26 is published elsewhere in this Compendium.

(AS) 9
Revenue Recognition

23

Revenue is the gross inflow of cash, receivables or other consideration arising in the
course of the ordinary activities of an enterprise 6 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 is measured by the charges made to customers or clients
for goods supplied and services rendered to them and by the charges and rewards arising
from the use of resources by them. In an agency relationship, the revenue is the amount
of commission and not the gross inflow of cash, receivables or other consideration.
Completed service contract method is a method of accounting which recognisesrevenue
in the statement of profit and loss only when the rendering of services under a contract is
completed or substantially completed. Proportionate completion method is a method of
accounting which recognises revenue in the statement of profit and loss proportionately
with the degree of completion of services under a contract

(AS) 10
Accounting for Fixed Assets
Fixed assets often comprise a significant portion of the total assets of an enterprise, and
therefore are importantin the presentation offinancial position. Furthermore, the
determination of whether an expenditure represents an asset or an expense can have a
material effect on an enterprises reported results of operations.
Stand-by equipment and servicing equipment are normally capitalised. Machinery spares
are usually charged to the profit and loss statement as and when consumed.

(AS) 11
The Effects of Changesin Foreign Exchange Rates
foreign currency monetary items should be reported using the closing rate. However, in
certain circumstances, the closing rate may not reflect with reasonable accuracy the
amount in reporting currency that is likely to be realised from, or required to disburse, a
foreign currency monetary item at the balance sheet date, e.g., where there are restrictions
on remittances or where the closing rate is unrealistic and it is not possible to effect an
exchange of currencies at that rate at the balance sheet date. In such circumstances, the
relevant monetary item should be reported in the reporting currency at the amount which
is likely to be realised from, or required to disburse, such item at the balance sheet date
non-monetary items which are carried at fair value or other similar valuation
denominated in a foreign currency should be reported using the exchange rates that
existed when the values were determined.

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(AS) 12
Accounting for Government Grants
Government refers to government, government agencies and similar bodies whether
local, national or international. Government grants are assistance by government in cash
or kind to an enterprise for past or future compliance with certain conditions. They
exclude those forms of government assistancewhich cannotreasonably have a value
placed upon them and transactions with government which cannot be distinguished from
the normal trading transactions of the enterprise
The receipt of government grants by an enterprise is significant for preparation ofthe
financial statements for two reasons. Firstly, if a government grant has been received, an
appropriate method of accounting therefor 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.

(AS) 13
Accounting for Investments
The carrying amount for current investments is the lower of cost and fair value. In respect
of investments for which an active market exists, market value generally provides the
best evidence of fair value. The valuation of current investments at lower of cost and fair
value provides a prudent method of determining the carrying amount to be stated in the
balance sheet.
Valuation of current investments on overall (or global) basis is not considered
appropriate. Sometimes, the concern of an enterprise may be with the value of a category
of related current investments and not with each individual investment, and accordingly
the investments may be carried at the lower of cost and fair value computed categorywise
(i.e. equity shares, preference shares, convertible debentures, etc.). However, the more
prudent and appropriate method is to carry investments individually at the lower of cost
and fair value.

(AS) 14
Accounting for Amalgamations
Amalgamation means an amalgamation pursuant to the provisions of the Companies Act,
1956 or any otherstatute which may be applicable to companies.

25

(b) Transferor company means the company which is amalgamated into another
company.
(c) Transferee company means the company into which a transferor company is
amalgamated.
(d) Reserve means the portion of earnings, receipts or other surplus of an enterprise
(whether capital or revenue) appropriated by the management for a general or a specific
purpose other than a provision for depreciation or diminution in the value of assets or for
a known liability
Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately before
the amalgamation, by the transferee company or itssubsidiaries or their nominees)
become equity shareholders of the transferee company by virtue of the amalgamation.

(AS) 15
Employee Benefits
(a) hort-term employee benefits, such as wages, salaries and social security contributions

(e.g., contribution to an insurance company by an employer to pay for medical care of its
employees), paid annual leave, profit-sharing and bonuses (if payable within twelve
months of the end ofthe period) and non-monetary benefits(such asmedical care, housing,
cars and free or subsidised goods or services) for current employees;
(b) post-employment benefitssuch as gratuity, pension, otherretirement benefits, postemployment life insurance and post-employment medical care;
(c) other long-term employee benefits, including long-service leave or sabbatical leave,
jubilee or other long-service benefits, long-term disability benefits and, if they are not
payable wholly within twelve months after the end of the period, profit-sharing, bonuses
and deferred compensation; and
(d) termination benefits

(AS) 16
Borrowing Costs

26

Borrowing costs that are directly attributable to the acquisition, construction or

production of a qualifying asset should be capitalised as part of the cost of that asset. The
amount of borrowing costs eligible for capitalisation should be determined in accordance
with this Statement. Other borrowing costs should be recognised as an expense in the
period in which they are incurred.
Borrowing costs are capitalised as part of the cost of a qualifying asset when it is
probable that they will result in future economic benefits to the enterprise and the costs
can be measured reliably. Other borrowing costs are recognised as an expense in the
period in which they are incurred.

(AS) 17
Segment Reporting
If a single financial report contains both consolidated financial statements and the
separate financial statements of the parent, segment information need be presented only
on the basis of the consolidated financial statements. In the context of reporting of
segment information in consolidated financial statements, the references in this Statement
to any financial statement items should construed to be the relevant item as appearing in
the consolidated financial statements.

(AS) 18
Related Party Disclosures
This Statement should be applied in reporting related party relationships and transactions
between a reporting enterprise and its related parties. The requirements of this Statement
apply to the financial statements of each reporting enterprise as also to consolidated
financial statements presented by a holding company
enterprises that directly, or indirectly through one or more intermediaries 4 , control, or
are controlled by, or are under common control with, the reporting enterprise (this
includes holding companies, subsidiaries and fellow subsidiaries); (b) associates and joint
ventures of the reporting enterprise and the investing party or venturer in respect of which
the reporting enterprise is an associate or a joint venture

(AS) 19

27

Leases
lease agreements to explore for or use natural resources, such as oil, gas, timber, metals
and other mineral rights; and
(b) licensing agreements for items such as motion picture films, video recordings, plays,
manuscripts, patents and copyrights; and
(c) lease agreements to use lands.
2. This Statement applies to agreements that transfer the right to use assets even though
substantial services by the lessor may be called for in connection with the operation or
maintenance of such assets. On the other hand, this Statement does not apply to
agreements that are contracts for services that do not transfer the right to use assets from
one contracting party to the other.

(AS) 20
Earnings Per Share
Basic earnings per share should be calculated by dividing the net profit or loss for
the period attributable to equity shareholders by the weighted average number of equity
shares outstanding during the period.
For the purpose of calculating basic earnings per share, the net profit or loss for the
period attributable to equity shareholders should be the net profit or loss for the period
after deducting preference dividends and any attributable tax thereto for the period.
All items of income and expense which are recognised in a period, including tax
expense and extraordinary items, are included in the determination of the net profit or
loss for the period unless an Accounting Standard requires or permits otherwise (see
Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies). The amount of preference dividends and any
attributable tax thereto for the period is deducted from the net profit for the

Scope

28

An entity shall apply this Standard in preparing and presenting general purpose
financial statements in accordance with Indian Accounting Standards (Ind ASs).
Other Ind ASs set out the recognition, measurement and disclosure requirements
for specific transactions and other events.
This Standard does not apply to the structure and content of condensed interim
financial statements prepared in accordance with Ind AS 34 Interim Financial Reporting.
However, paragraphs 1535 apply to such financial statements. This Standard applies
equally to all entities, including those that present consolidated financial statements and
those that present separate financial statements as defined in Ind AS 27 Consolidated and
Separate Financial Statements
This Standard uses terminology that is suitable for profit-oriented entities,
including public sector business entities. If entities with not-for-profit activities in the
private sector or the public sector apply this Standard, they may need to amend the
descriptions used for particular line items in the financial statements and for the financial
statements themselves.
Similarly, entities whose share capital is not equity may need to adapt the financial
statement presentation of members interests.

Advantages OF Accounting Standards

Ease of Understanding
One advantage of using accounting standards involves the ease of understanding
the financial statements. The accounting standards published by the FASB represent the
required processes for businesses to follow. Financial statement users expect companies
to follow the published accounting standards when creating financial statements. These
users rely on the assumptions set forth in the accounting standards when interpreting the
results reported. The users interpret the financial statements of different companies using
the same assumptions. Once the users understand these assumptions, they use this
knowledge when reading any financial statement.

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Bookkeeping Guidance

Another advantage of using accounting standards concerns the guidance provided

to accountants. When financial reporting issues arise, the accountant may refer to the
published accounting standard to determine how to record the event. These issues include
new accounting transactions arising from technology, such as Internet sales, or new
actions incorporated by the company, such as changes in pension plans. The FASB
incorporates the needs of financial statement users as well as company feedback when
creating accounting standards. This process allows the accountant to trust that the
guidance provided through the accounting standard passed the rigorous process of
ensuring that it meets everyones needs.

Inflexible Framework

A disadvantage of using accounting standards involves a sometimes inflexible

framework the accountant must comply with. Each company faces different experiences.
The accountant must make the companys unique experiences fit into the guidelines of
the published accounting standards. For example, an accountant can mark down the value
of inventory, but is not allowed to mark it up. This can lead to an understated ending
inventory value on a balance sheet.

Cost to Comply

Another disadvantage of using accounting standards involves the costs for the
company to comply with the standard. New accounting standards require the company to
consider the requirements of the standard, what actions the company must take to
implement the standard and what the cost will be. In many cases, the company must
design new procedures, which requires a large financial investment that includes
employee labor costs, system upgrades and employee training.

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Introduction Of IFRS

Accounting fraternity of 10 countries formed International Accounting Standards

Committee (IASC) in 1973 and it issued International Accounting Standards. In 2001, the
responsibility got transferred to IASB whereby standards were restructured and are now
known as IFRS. International Accounting Reporting Standards is a provider of
information aiding n economic decisions, giving importance to preference and changes in
the financial position of an entity. Accounting Standards, when in conflict with courts
decision are respected. India needs major improvements in Accounting Standards. More
than 100 countries now require changing and many are in the way of replacing and
accepting it. It is mainly based on two concepts and are principle based on
Accrual
Going concern. Its framework is qualitative and characteristics are
Understandability
Relevance
Reliability
Comparability

Meaning of IFRS

International Financial Reporting Standards (IFRS) are a set of international

accounting standards stating how particular types of transactions and other events should
be reported in financial statements. IFRS are issued by the International Accounting

31

Standards Board, and they specify exactly how accountants must maintain and report
their accounts. IFRS were established in order to have a common accounting language, so
business and accounts can be understood from company to company and country to
country.
In the current time of liberalization and globalization the globe has turned into an
economic community andshrunk the geographical barriers of commerce. The entire world
has factually become flat. The development ofe-commerce and liberalization of the
economy, which is supported by structures and regulations, led to have a uniform
andsingle worldwide accepted system of financial reporting.
IFRS are standard in many parts of the world, including the European Union and
many countries in Asia and South America, but not in the United States. The Securities
and Exchange Commission (SEC) is in the process of deciding whether or not to adopt
the standards in America. Countries that benefit the most from the standards are those
that do a lot of international business and investing. Advocates suggest that a global
adoption of IFRS would save money on alternative comparison costs and individual
investigations, while also allowing information to flow more freely.

Features Of IFRS
Fair presentation and compliance with IFRS: Fair presentation requires the
faithful representation of the effects of the transactions, other events and
conditions in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the Framework of IFRS
Going concern: Financial statements are present on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has no
realistic alternative but to do so
Accrual basis of accounting: An entity shall recognise items as assets,
liabilities,equity, income and expenses when they satisfy the definition and
recognition criteria for those elements in the Framework of IFRS.

32

Materiality and aggregation: Every material class of similar items has to be

presented separately. Items that are of a dissimilar nature or function shall be
presented separately unless they are immaterial
Offsetting: Offsetting is generally forbidden in IFRS. However certain standards
require offsetting when specific conditions are satisfied (such as in case of the
accounting for defined benefit liabilities in IAS 19 and the net presentation of
deferred tax liabilities and deferred tax assets in IAS 12 ).
Frequency of reporting: IFRS requires that at least annually a complete set of
financial statements is presented However listed companies generally also publish
interim financial statements (for which the accounting is fully IFRS compliant)for
which the presentation is in accordance with IAS 34 Interim Financing Reporting.
Comparative information: IFRS requires entities to present comparative
information in respect of the preceding period for all amounts reported in the
current period's financial statements.
IFRS 13

Fair Value Measurement applies to IFRSs that require or permit fair value
measurements or disclosures and provides a single IFRSframework for measuring
fair value and requires disclosures about fair value measurement. The scope of
IFRS 13 is wider than that of IFRS 7 as it includes non-financial assets and
liabilities measured at fair value. This publication only covers the disclosure
requirements relating to financial assets and liabilities. IFRS 13 is applicable from
1 January 2013 with early adoption permitted.

IFRS 7

IFRS 7 is divided in two distinct sections. The first section covers quantitative
disclosures about the numbers in the balance sheet and the income statement. The
second section deals with risk disclosures which reflect the way management
perceives measures and manages the funds risks. IFRS 7 has been amended
several times over the years with the clear intention to improve the disclosure
requirements about financial instruments. The latest two amendments relate to
transfers of financial assets (applicable for financial years beginning on or after 1

33

July 2011) and offsetting financial assets and financial liabilities (applicable for
financial years beginning on or after 1 January 2013).

IFRS 9

IFRS 9 Includes a logical model for classification and measurement, a single,

forward-looking expected loss impairment model and a substantially-reformed
approach to hedge accounting.
The IASB has previously published versions of IFRS 9 that introduced new
classification and measurement requirements (in 2009 and 2010) and a new hedge
accounting model (in 2013). The July 2014 publication represents the final version
of the Standard, replaces earlier versions of IFRS 9 and completes the IASBs
project to replace IAS 39 Financial Instruments: Recognition and Measurement.

Effective IFRS
The objective of this amendment is to clarify the meaning of each IFRS effective at the
end of an entity's first IFRS reporting period as used in paragraph 7 of IFRS 1 First-time
Adoption of IFRSs.
The IASB had been informed that there was uncertainty about which version of an IFRS
should be applied in an entitys first IFRS financial statements in circumstances where a
new or a revised IFRS that is not yet mandatory, but that can be adopted early, has been
issued. The IASB had been asked to clarify which version of the IFRS should be applied.
The IASB proposes to amend the Basis for Conclusions of IFRS 1 to clarify that if a new
IFRS is not yet mandatory but permits early application, that IFRS is permitted, but not
required, to be applied in the entitys first IFRS financial statements. This proposed
amendment will be included as part of the Annual Improvements Cycle 2011-2013.

34

Other areas of the profession will IFRS affect

As IFRS grows in acceptance, most CPAs, financial statement preparers and auditors will
have to become knowledgeable about the new rules. Others, such as actuaries and
valuation experts who are engaged by management to assist in measuring certain assets
and liabilities, are not currently taught IFRS and will have to undertake comprehensive
training. Professional associations and industry groups have begun to integrate IFRS into
their training materials, publications, testing, and certification programs, and many
colleges and universities are including IFRS in their curricula. Some textbooks are
already covering IFRS, primarily in a comparative presentation to their instructions on
U.S. GAAP. New textbooks covering IFRS are currently being written and should be in
circulation in the reasonably near future.

Advantages of converting to IFRS

By adopting IFRS, a business can present its financial statements on the same basis as its
foreign competitors, making comparisons easier. Furthermore, companies with
subsidiaries in countries that require or permit IFRS may be able to use one accounting
language company-wide. Companies also may need to convert to IFRS if they are a
subsidiary of a foreign company that must use IFRS, or if they have a foreign investor
that must use IFRS. Companies may also benefit by using IFRS if they wish to raise
capital abroad.

35

Disadvantages of converting to IFRS

Despite a belief by some of the inevitability of the global acceptance of IFRS, others
believe that U.S. GAAP is the gold standard, and that a certain level of quality will be
lost with full acceptance of IFRS. Further, certain U.S. issuers without significant
customers or operations outside the United States may resist IFRS because they may not
have a market incentive to prepare IFRS financial statements. They may believe that the
significant costs associated with adopting IFRS outweigh the benefits.

Benefits and Challenges

The move to IFRS it not just a technical accounting exercise. It is an exercise in change
management and offers opportunities for improvement. IFRS conversion offers companies an
opportunity to improve their business in several ways. The company can:

Reshape its management reporting systems to better manage both its financial accounting
and its financial statement generation and provide company leadership with essential
information

Improve disclosure to analysts, investors, regulators and other stakeholders of your

company's financial results and position and other performance indicators

Improve the metrics used to evaluate both company and executive performance

Benchmark itself against its global peers

Ensure all finance team members have the training, knowledge and skills needed to
perform their roles

IFRS: The Impact on Indian Corporate

The use of international financial reporting standards (IFRS) as a universal financial

reporting language is gaining momentum across the globe. Over a 100 countries in the
European Union, Africa, West Asia and Asia-Pacific regions either require or permit the

36

use of IFRS. The Institute of Chartered Accountants of India (ICAI) has recently released
a concept paper on Convergence with IFRS in India, detailing the strategy for adoption of
IFRS in India with effect from April 1, 2011. This has been strengthened by a recent
announcement from the ministry of corporate affairs (MCA) confirming the agenda for
convergence with IFRS in India by 2011. Even in the US there is an ongoing debate
regarding the adoption of IFRS replacing US GAAP. Adopting IFRS by Indian corporates
is going to be very challenging but at the same time could also be rewarding. Indian
corporate is likely to reap significant benefits from adopting IFRS. The European Union's
experience highlights many perceived benefits as a result of adopting IFRS. Overall, most
investors, financial statement preparers and auditors were in agreement that IFRS
improved the quality of financial statements and that IFRS implementation was a positive
development for EU financial reporting (2007 ICAEW Report on 'EU Implementation of
IFRS and the Fair Value Directive'. There are likely to be several benefits to corporates in
the Indian context as well. These are:

Improvement in comparability of financial information and financial performance with

global peers and industry standards. This will result in more transparent financial
reporting of a company's activities which will benefit investors, customers and other key
stakeholders in India and overseas;

The adoption of IFRS is expected to result in better quality of financial reporting due to
consistent application of accounting principles and improvement in reliability of financial
statements. This, in turn, will lead to increased trust and reliance placed by investors,
analysts and other stakeholders in a company's financial statements; and

Better access to and reduction in the cost of capital raised from global capital markets
since IFRS are now accepted as a financial reporting framework for companies seeking to
raise funds from most capital markets across the globe. A recent decision by the US
Securities and Exchange Commission (SEC) permits foreign companies listed in the US
to present financial statements in accordance with IFRS. This means that such companies
will not be required to prepare separate

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38

39

Analysis OF Data
Accounting Standard

This study focused on the effects of financial accounting standards on financial reporting
and practices of modern business organizations. It discussed extensively the objectives,
impacts, approaches and processes leading to standard setting and financial reporting. It
also discussed some arguments in favour and against financial accounting standards. The
study looked at critical issues in standard setting as well as the application of accounting
standards in financial reporting and practices. Both quantitative and qualitative survey
methods were used to obtain relevant data for the study. These data were analyzed using
Pearsons product moment correlation coefficient to test the relationship between
accounting standards and financial reporting and practices of business organizations.
The result showed a high and positive level of correlation. The chi-square statistical tool
was also used to test the cost implication of adhering to accounting standards. The result

40

showed that there is a significant level of cost associated with the application of financial
accounting standards in financial reporting and practices. Suggestions were made that
standard setter should state the limit to which the public contribute to the standard setting
while looking at the peculiarities of individual enterprise as this will prevent the watering
down of standards through the exposure draft. Finally, that Financial Accounting
Standard Board should state the cost/benefit of adhering to financial standards in
financial reporting particularly in terms of the disclosure of intangible assets as this will
build the confidence of the financial reporters .and users of financial reports.

International Financial Reporting Standards (IFRS)

IFRSs impact on financial ratios is driven by fundamental differences in application of

fair value accounting and consolidation underIFRS and pre-changeover Canadian GAAP,
and by a number of other differences. Fair value accounting causes adjustments in
balance sheet figures, direct allocation of some unrealized gains and losses to the income
statement, and allocation of some other unrealized gains and losses to other

41

comprehensive income. As a result, liquidity and leverage ratios are affected due to
balance sheet variations while profitability
The impact of consolidation on ratios is difficult to isolate as the differences are
incorporated or combined in the consolidated figures. Incorporating minority interest in
equity also significantly impacts the financial statements; directly affecting profitability
and leverage ratios. Other differences affect leverage and profitability ratios, particularly
in impairment test procedures applied to long-lived assets.

To develop global accounting standards requiring transparency, comparability and

high quality in financial statements
To encourage global accounting standards
When implementing global accounting standards, to take into account the needs
of emerging markets
Converge various national accounting standards with the global accounting
standards

RECOMMENDATION

42

Accounting Standard

Investors, companies, auditors, and other participants in the U.S. financial reporting
system benefit from the increased comparability that can result from the closer alignment
of standards used internationally. More comparable standards have the potential to reduce
costs for both users and preparers of financial statements and make worldwide capital
markets more efficient. The Securities and Exchange Commission (SEC) expects the
FASB to consider, in developing standards, the extent to which international
comparability is necessary or appropriate in the public interest and for the protection of
investors.

International Financial Reporting Standards (IFRS)

Improvements project contains amendments to IFRSs or Interpretations that are minor or

narrow in scope that are packaged together and exposed in one document even though the
amendments are unrelated. These amendments are limited to changes that either clarify
the wording in an IFRS or correct relatively minor unintended consequences, oversights
or conflicts between existing requirements of IFRSs. Because of their nature, it is not
necessary to undertake consultation or outreach for annual improvements beyond the
comment letter process.
The exposure draft for Annual Improvements is normally published for comment for 90
days; this is shorter than the normal comment period for an exposure draft (120 days),
reflecting the nature of Annual Improvements, i.e. they are clarifying or correcting in
nature, and do not propose new principles or changes to existing ones.
Rather than separately publishing a series of piecemeal changes, the publication of the
proposals in a single exposure draft is intended to streamline the standard-setting process,
with benefits both for interested parties and for the IASB.

43

Conclusion

Accounting Standard

Overall, however, the accounting changes introduced by Ind-AS are positive for foreign
firms operating in India. Implementation of the new principals will align a companys
reporting more closely with best practices in their home country, allowing for enhanced
transparency that will help investors and stakeholders better understand a businesss
financial situation.
With mandatory compliance fast approaching, there is a limited amount of time for
companies operating in India to prepare for Ind-AS implementation. Businesses should
firstly develop an outline of how the new standards will replace existing ones, and then
look to embed Ind-AS into their operational systems, train their financial teams, and
ensure all company managers understand the new accounting principles.

International Financial Reporting Standards (IFRS)

The project team should have adequate and essential qualificationand knowledge about
the project. They should be provided with all the necessary resources required for the
success. Nevertheless if the transition is planned andmanaged properly, it will be a
positive step for financial reporting in India. It needs top management to take
responsibilityfor the successful conversion, for that effective communication of different
elements of IFRS conversion project must becommunicated to all those who will be
affected by it.

44

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45

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