Accounting Standards

& convergence to IFRS

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 History of accounting

Bible and Islamic Quran contains mention about Simple trade accounting.

Luca Pacioli (1445-1517) is to be credited for birth of accountancy

It was because of his mathematical knowledge that double accounting system
was introduced

The First book on accounting in English language was published in London by

John Gouge (or Gough) in 1543 described as A Profitable Treaty called the
instrument

--- It helped us to learn good order of keeping of the famous reconynge, called in
Latin Dare and Habere, In English Debtors and Creditors

Fine art of accounting was present in India even in Vedic times. Rig-Vedas having
references to words Kraya (sale),Vanij (Merchant), Sulka (Price)
As observed by Prof.Max Mueller there is very evidence of highly developed Hindu
Accounting tradition in Arthashatra written by Kautilya around 300 B.C.

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Agenda

Accounting Standards

Convergence of Accounting Standards with IFRS

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 Foreword

OBJECTIVE

Financial reporting not an end

To harmonize Seek to bring

AS to bring qualitative improvement in FR different about
accounting uniformity in
policies and accounting
practices in use practices
ICAI- leadership role-ASB in a country

Legal recognition by Co Act & SEBI Reduce alternative-

bound of rationality-
compatibility-
informed decision
At par with IAS. ASI + Guidance note

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Accounting Standard Board

ICAI constituted an Accounting Standards Board (ASB) on 21st April, 1977

Main function of ASB is to formulate accounting standards so that such standards may be
established by the Council of the Institute in India.

ASB takes into consideration the applicable laws, customs, usages and business
environment

The Institute is one of the Members of the International Accounting Standards Committee
(IASC) and has agreed to support the objectives of IASC.

While formulating the Accounting Standards, ASB gives due consideration to International
Accounting Standards, issued by IASC and tries integrate them, to the extent possible, in
the light of the conditions and practices prevailing in India

ASB issues guidance notes on the Accounting Standards and give clarifications on issues
arising therefrom - also reviews the AS at periodical intervals

Established by an The Institute of Chartered

8/16/2017 Act of Indian Parliament
The Chartered Accountants Act, 1949 Accountants of IndiaVasani
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 Procedure for issue of AS

Council of the Institute

Determine broad area where AS is needed

Assisted by Study Groups

Makes
Considers amendment; if
draft necessary
Hold dialogue with Govt, PSU & industry

Exposure draft prepared- for comments

AS issued under the
authority of Council
Response received - draft finalized

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APPLICABILITY OF ACCOUNTING STANDARDS

ICAI, not being a legislative body, can enforce compliance with its standards only by its
members.

However, Section 211(3A) of the Companies Act requires companies to present their profit and
loss accounts and balance sheets in compliance with the accounting standards

SEBI and the RBI also require compliance with the Accounting Standards issued by the ICAI

Insurance Regulatory and Development Authority (IRDA) (Preparation of Financial Statements

and Auditors Report of Insurance Companies) Regulations, 2000 requires insurance
companies to follow the Accounting Standards issued by the ICAI.

The statutory auditors of every company are required to report whether the AS have been
complied with or not

Accounting Standard and Income Tax Act

Guidance Note on Audit u/s 44AB of Income Tax Act, requires all financial statements prepared under
mercantile system of accounting to comply with all applicable mandatory accounting standards issued by
the Institute.
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Accounting Standards : 1 ~ 32

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ACCOUNTING STANDARDS
AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
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 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11 The Effects of Changes in FEx Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 (revised 2005) Employee Benefits
AS 16 Borrowing Costs
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AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income.
AS 23 Accounting for Investments in Associates in
Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent` Liabilities and Contingent
Assets
AS 30 Financial Instruments: Recognition and
Measurement
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: Disclosures
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ACCOUNTING STANDARD-1
DISCLOSURE OF ACCOUNTING POLICIES

Applicable to: all enterprises since 1-4-93.

Deals with: the disclosure of significant accounting policies followed / method adopted in
preparing and presenting financial statements.

Fundamental accounting assumption: Consideration in selection of AP:

Going Concern Prudence
Consistency Substance over form
Accrual (actual happening Vs legal form)
Materiality
(information influence- judgment)

Disclosure of AP:
One place Change in AP when:
Part of FS Reqd by statute
No remedy for wrong or inappropriate Better/more appropriate presentation
treatment Compliance with AS
Any change

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ACCOUNTING STANDARD- 2
VALUATION OF INVENTORIES

Applicability: to all enterprises since 1-4-1999 [originally issued in june-1981]

Deals with: accounting for inventories other than: AS-7, service providers; financial instruments held
as stock-in-trade; and Producers inventories of livestock, agricultural and forest products,

OBJECTIVE: INVENTORY: Inventories are assets

Method of computation of cost of stock consisting of :
Determine value of C/stock - at which it Finished goods
will be shown in BS till it is not sold WIP & Raw Material
and recognized as revenue other stores, spares, raw material &
consumables

Major point of valuation of inventory DISCLOSURE IN FS

Determine cost of inventory AP adopted for measuring inventory &
(CP+CoA+ CoC) Cost Formula used
Determine NRV of inventory Lower taken Classification of inventory like Finished,
(SP-CP-CoS) WIP & its Carrying cost

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AS-2 and International Accounting Standard (IAS)-2: both are similar
 ACCOUNTING STANDARD- 3
CASH FLOW STATEMENTS

Applicability: Mandatory to Level III enterprises (since 1-4-2004)

Deals with / explains : cash movement under following heads

Cash flow from operating Cash flow from investing Cash flow from financing
activities activities activities
(sum of these 3 reflect inc/dec in cash & cash equivalent)

Definitions Operating Activity Cash received from sale of

Cash: comprises cash on hand
and demand deposits with banks.
(Principal revenue producing
activity)
good/service
Cash received from royalty, fee, comm..
Cash payment for goods/services, tax
payment
Cash payment on behalf of employee

Cash equivalents: Investing activity Cash received from sale of FA/ITA

short term,
highly liquid investments
having maturity of less than 3
months
can readily be convertible into
cash
w/o risk of changes in value
(Acquiring/disposing long
term asset & other
investment)
Financing activity
(result in change in
size/composition of owners
capital/ borrowing of Org
Cash payment for acquiring FA & ITA
Cash payment / investment in JV and
other Co.
Cash received from sale of share, issue
of shares
Cash payment for buy back of shares,
interest/dividend payment

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Note: Non-cash Transactions are to be excluded from cash flow statement
 ACCOUNTING STANDARD- 4
CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

Applicability: Mandatory to all enterprises (since 1-4-1998)

Deals with : treatment in financial statements of contingency & events occurring after the balance
sheet date.

May have favorable/ un- effect

Existing condition/situation
Result of which is not know
Result will be know on
happening/non-
Result may be gain/loss
Contingency E.g.: litigation, claim, obligation etc
Contingency must exist on a B.S date
No contingency- no provision /notes
to a/c
Prudence- contingent loss only
recognized
Occurs b/w date on which B.S made
and approved by BOD
Requires either adjustment to
asset/liability or disclosure
Events E.g.: debtor insolvent, going concern, MV
occurring of investment, dividend etc.
after B.S Relate to event existing on BS date
date Do not relate to event existing on BS
date
Events which take place after BS but
require adjustment in assets/liability
Event after acceptance of a/c
disclosure in board report

Following information should be provided in disclosure:

the nature of the event;
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made Vasani
ACCOUNTING STANDARD- 5
NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES

Applicability: Mandatory to all enterprises (since 1-4-1996)

Deals with : the following
Presenting P&L from ordinary activities, extraordinary items & prior period items in P&L a/c; a
accounting for changes in accounting estimates, and
disclosure of changes in accounting policies.
Ordinary activities Ordinary activities undertaken by an enterprise as part of its business and related
activities arising due to these activities.
All items of income and expense which are recognized 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.
Prior period item Material charges or credits that arise in current period as a result of error and
omission in past period
Generally infrequent
Separate disclosure nature and amount- impact
E.g. dep faulty calc or mathematical error
Extraordinary item Income/exp arising distinct from ordinary activity expected to be infrequent
Vis--vis business ordinarily carried on.- Subjective - Abnormal not necessarily
extraordinary
E.g. Natural disaster, expropriation of asset by state, change in govt fiscal policy, business
segment discontinuance
Part of net P&L for the period separate disclosure size, nature & amount

Accounting estimate Many FS item cannot be measured with precision but can only be estimated
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ACCOUNTING STANDARD- 6
DEPRECIATION ACCOUNTING

Applicability: to all enterprises since 1-4-1995

Deals with: depreciation accounting and applies to all depreciable assets

Depreciation: a measure of the wearing out, consumption or other loss of value of a

depreciable asset arising from use, efflux, passing of time or obsolescence through
technology and market changes.
Depreciation includes amortization of assets whose useful life is predetermined more than 1
year
No depreciation on land, but applicable on leasehold land
Depreciation as per St. line method: Depreciation as per WDV:
(Cost scrap value) / estimated 1-N (Scrap value/ cost)
useful life N = estimated useful life

Note:
Companies Act, under Schedule XIV gives minimum amount of depreciation and not
the maximum
An Organisation can provide more depreciation disclosure- effect reason
Change in method- to be disclosed in notes
Disclosure
Total cost of each class of asset Accumulated depreciation
Total depreciation for the period
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 ACCOUNTING STANDARD- 7
CONSTRUCTION CONTRACTS

Applicability: to all enterprises (since 01-04-02)

Deals with: the accounting treatment of revenue and costs associated with construction
contracts

Construction contract:
a contract
specifically negotiated for
construction of an asset or a combination of assets
Types
that are
of closely
Contractinterrelated
: or interdependent in terms of their design, technology and function or
their ultimate purpose or use.
Like
Fixedcontract
price contract:
for construction
in this of
thebridge,
contractor
building,
agrees
damtoetc
a fixed contract price, or a fixed rate per unit
of output, which in some cases is subject to cost escalation clauses.

Cost plus contract: in this the contractor is reimbursed for allowable or otherwise defined costs,
plus percentage
Before of these
the revision of thiscosts or a fixed
AS, there were fee
two methods to determine profit.
Percentage of completion method >> Post revision of AS only this to be used
D revenue recognized in method
methods used to methods used to aggregate amount of
Completed contract
i the period determine the contract determine the stage of costs incurred and
s
completion of contracts recognised profits
c
l in progress
o
s amount of advances amount of retentions gross amount due from
u
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ACCOUNTING STANDARD- 8
Accounting for Research and Development

In view of operation of AS 26, this Standard stands withdrawn

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ACCOUNTING STANDARD- 9
REVENUE RECOGNITION

Applicability: to all enterprises (since 01-04-93)

Deals with: the bases for recognition of revenue

Revenue: the gross inflow of cash, receivables or other consideration arising in the course of the
ordinary activities of an enterprise from
a. the sale of goods,
b. the rendering of services and
c. the use by others of enterprise resources yielding interest, royalties and dividends
Revenue recognition in case of rendering of Services: Revenue recognition in case of Sale of
when service is performed & no significant Goods:
uncertainty exists Performance is measured either: property in the goods has been
Completed service contract method: recognizes transferred to the buyer for a
revenue only when the rendering of services under a consideration, Or
contract is completed or substantially completed, or significant risks and rewards of
Proportionate completion method: recognizes ownership has been transferred to
revenue proportionately with the degree of the buyer; and
Revenue recognition
completion in case
of services of: a contract.
under seller retains no effective control of
Consignment sale when agent sells ownership of the goods transferred;
Interest- when accrued and
Uncertainty - Provision
Advertisement when displayed to public Postponed
no significant uncertainty exists
- disclosure
regarding the amount of the
Dividend: when Co. declares or individual has right
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ACCOUNTING STANDARD- 10
ACCOUNTING FOR FIXED ASSET

Applicability: to all enterprises (since 01-04-93)

Deals with: accounting for FA

Fixed Assets: is an asset which is:

Expected to be used for more than 1 accounting period
Not held for sale in normal course of business Self made asset only direct cost
Held with the intention of production of good or rendering of service no profit margin
recorded
Asset exchanged: 3 scenarios
Gross book value: - Not similar asset FMV of asset
historical cost .When this amount is shown net of given up
accumulated depreciation, it is termed as net book - Similar asset- FMVof asset
value acquired/given or WDV
- Shares issued FMV of share/asset
Fair market value: whichever higher
the price that would be agreed to in an open and
Valuation of FAmarket
unrestricted in special cases:
between knowledgeable and Gain/loss on sale of FA- generally
willing
Hire Purchase cost price
parties dealing at arm's length who are fully recognized in PnL
Jointly held asset- Prorata cost
informed and are not under any compulsion to FeX fluctuation adjusted in cost of
transact
Acquired at consolidated price valuers value FA
Dividend: when Co. declares or individual has right Improvement cost capitalised
to receive etc Repair debit to PnL
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ACCOUNTING STANDARD- 11
ACCOUNTING FOR EFFECT OF CHANGES IN FOREIGN EXCHANGE RATE

Deals in:
accounting for transaction in foreign currency
translating the FS of foreign branch

Reporting currency: currency of country where FS are prepared

Foreign currency: currency other than reporting
TRANSLATIONcurrency
OF FS OF FOREIGN BRANCHES
Average rate: mean of exchange rate during
Revenue items,(week,
the period exceptfortnight,
openingmonth etc) inventories
and closing
Closing rate: Exchange rate at BS date and depreciation- average rates.
Forwards rate: agreed exchange rate b/w Opening
2 partiesinventories rate
for exchange of 2 at
currencies at a specified
the commencement of the
Afuture date in a foreign currency shouldaccounting
transaction be recordedperiod.
Closing
in the reporting currency by applying to the foreigninventories, Monetary items, - closing rate or
currency amount the exchange rate between realisable
the value.
reporting currency and the foreign currency
Nonat monetary
the date items - rate prevalent at the date of the
of the transaction. transaction.
CHANGES IN EXCHANGE RATE SUBSEQUENT Fixed TO
assets- rate prevalent at the date of the transaction
INITIAL RECOGNITION Contingent Liabilities- closing rate, translation does not
result in any exchange difference
Adjusted to the carrying amount of the fixed assets.
In case the fixed assets are revalued the necessary
adjustments should be given effect to the revalued
asset
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ACCOUNTING STANDARD- 12
ACCOUNTING FOR GOVERNMENT GRANTS

Applicability: Mandatory for all enterprises with respect from 01/04/1994

Government Grants are :

assistance by government
in cash or kind
for past or future compliance with certain conditions
Government Grants should be recognized where
there is reasonable assurance that :
Government grants may be received in the enterprise will comply with the conditions
attached to them; and
following ways:
the grants will be received.
Grants related to acquisition of fixed
assets Amount of Grant:
Government
Grants related to revenue
grants can be accounted either Monetary Grant: Amount earned should be the
Grants
by relatedapproach
using capital to promoters
or bycontribution
using value of grant.
income
Grantsapproach
related to compensation for
Capital approach: The grant is treated as
expenses Non- Monetary Grant:
part of shareholders funds. ++ Where grants are given at concessional rate,
then such assets are accounted for at their
Income approach: The grant is taken to
acquisition cost.
income over one or more periods to match
Contingency related to Govt. Grant Disclosures:
++ Where grants are given free of cost, then such
them with the related costs assets are recorded at nominal value
A contingency related to Govt. grant The accounting policy adopted
receivable and refundable should be treated The nature and extent of govt. grants
in accordance with AS-4. recognized in the financial statements
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ACCOUNTING STANDARD- 13
ACCOUNTING FOR INVESTMENT

Applicability: mandatory to all enterprises (since 01-04-93)

Deals with: Accounting for investments in the financial statements of enterprises and
related disclosure requirements
INVESTMENTS INVESTMENTS TYPE:
are assets held by an enterprise Long term investment
for earning income Short term investment
by way of dividends, interest, and rentals, for capital
appreciation, or for other benefits to the investing enterprise.
DISCLOSURE
CARRYING
Assets heldAMOUNT OF INVESTMENTS
as stock-in-trade are not investments
Classification of investments,
Current Investments - At Lower of cost or fair value.
Accounting policies used
Long term investments - At Cost.
Amounts included in PnL for
interest, dividends, rentals
Any reduction in the carrying amount should be
Realisability of investments
charged to the profit and loss statement
or the remittance of income
However, in case of a permanent decline, provision and proceeds of disposal
DISPOSAL OF INVESTMENT
for diminution shall be made
When any investments is sold, the difference between the carrying amount and net sale
proceeds should be charged or credited to the profit and loss statement

In case of partial disposal, the carrying amount to be allocated to that part is to be determined
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ACCOUNTING STANDARD- 14
ACCOUNTING FOR AMALGAMATION

Deals with:
Accounting for amalgamations
Treatment of any resultant goodwill or reserves
It does not deal with acquisition by one company of another company in consideration
for payment in cash or by issue of shares

PURCHASE METHOD
TYPES OF AMALGAMATION The assets & liabilities are
recorded either at existing
NATURE OF MERGER
carrying values or by
- Pooling of interest method allocating the consideration
NATURE OF PURCHASE on the basis of Fair values
- Purchase method on the date of
amalgamation.
The reserves of the
transferor company, other
POOLING OF INTEREST METHOD than the statutory reserves,
The assets, liabilities and reserves are recorded at their should not be included in
existing carrying amounts the financial statements of
Uniform set of accounting policies is adopted the transferee company
The difference between the share capital issued and the share
capital of the transferor company should be adjusted in
reserves.
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ACCOUNTING STANDARD- 15
ACCOUNTING FOR RETIREMENT BENEFIT

Deals with: the accounting treatment of the cost of the retirement benefits in the financial
statements of employers

Retirement Benefits consists of :

Retirement benefit schemes are: 1. Provident Fund
Legal contractual arrangement 2. Superannuation / Pension (20 years)
Where employer provides benefit to 3. Gratuity (5 yrs)
employee 4. Leave Encashment Benefit (leave not taken ~
On leaving service, retirement or at cash)
death 5. Other Retirement Benefits

Liability arises at the due date for There are 3 stages of payment of
the payment of liability expense
Expense arise
These benefits do not accrue at the Enforceable claim against the Co.
time of death, resignation etc Payment of expense

Disclosure:
Method by which retirement benefit costs for the period have been defined
When accounting is made as per actuarial valuation, date on which such valuation
was conducted
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 ACCOUNTING STANDARD- 16
BORROWING COST

Applicability: mandatory to all enterprises

Deals with: whether the cost of borrowing should be included in cost of asset or
not
BORROWING COST
Borrowing costs are interest and Interest and commitment charges on bank & other short term
other costs
borrowings
incurred by an enterprise in connection with the
borrowing of funds Amortisation of discounts or premiums relating to borrowings
Amortisation of ancillary costs incurred in connection with the
arrangement
Qualifying asset is an asset that necessarily of borrowings
takes a
Finance
substantial period of time to get ready for itscharges
intendedof assets acquired under finance leases or
use or sale E.g. construction process,under other
patent etcsimilar arrangements
RECOGNITION Exchange differences arising from foreign currency
Capitalize borrowing costs that areborrowings
directly attributable to the
to the extent that they are regarded as an
acquisition, construction or production of a qualifying
adjustment asset
to interest costs

These should be capitalized only if:

++ it is probable that they will result in future economic benefits to
the enterprise and
++ costs can be measured DISCLOSURE
reliably
++ other borrowing costs toThe
be accounting
expensed off.policy adopted for borrowing costs.
The amount of borrowing costs capitalised during
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ACCOUNTING STANDARD- 17
SEGMENT REPORTING

Deals with: Reporting financial information about:

Different types of products and services an enterprise produces, and
Different geographical areas in which it operates.

APPLICABILITY:
BUSINESS SEGMENT is a distinguishable component of an enterprise
Accounting period commencing on or after April 1, 2001 in respect of
enterprises:
following that is engaged in providing an individual product or service or
LISTED ENTERPRISES
a group of related products
or those whichorare
services and
in the process of Listing
that
Enterprises is subject
with to risks and
annual turnover returns
more that50
than Rs. are different from those of other
crores
business segments.

GEOGRAPHICAL SEGMENT is a distinguishable component of an

enterprise
BENEFIT TO USERS
that is engaged
Better understanding in performance
of the providing products or services within a particular
of the enterprise;
Assess theeconomic
risks andenvironment and
returns of the enterprise.
that
Make more is subject
informed to risks about
judgments and returns that are different from those of
the enterprise
components operating in other economic environments

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ACCOUNTING STANDARD- 18
RELATED PARTY DISCLOSURE

Applicability: Mandatory for all enterprises with respect from 01/04/2004

Deals with: Related party relationships; and transactions between a reporting enterprise and its
related parties.
RELATIONSHIP COVERED
RELATED PARTY: Ability to -
Control of another enterprise (parent);
Control ; or
Control by another enterprise (subsidiary);
Exercise significant influence in making
Under common control (fellow subsidiary);
financial and/or operating decisions
Associates/ joint ventures/ co-venturer;
Investor in respect of which the enterprise
CONTROLNOT RELATED PARTY SIGNIFICANT
is an associate;INFLUENCE
Ownership,
Twodirectly
companies
or indirectly,
simply ofbecause
more they have Individuals
Participation
a director in in financial
owning, and/or
directly operating
or indirectly,
than 50% ofcommon.
the voting power policypower
voting decisions
that but notthem
gives control;
control or
Control ofAcomposition
single customer,
of board
supplier,
of significant
franchise/ distributor
May be gained by - and their relatives;
influence
directors
of a company
Providers of finance, trade unions, publicKey
utilities,
Share government
ownership
management personnel and their
A substantial
departments
interest inand
voting
government
power (20%agencies in the course
relatives
Statute; andof their
or more) normal dealing agreement
Assumed to exist in case of holding of
20% or more voting power directly or
indirectly.

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ACCOUNTING STANDARD- 19
ACCOUNTING FOR LEASE

Applicability: leases commencing on and from 1st April 2001

Deals with: accounting policies & disclosures for lessees & lessors

Lease : A lease is
an agreement, whereby
the lessor conveys to the lessee
in return for a payment or series of payments
the right to use an asset for an agreed period of time

CLASSIFICATION OF LEASES

Finance lease is a lease that transfers substantially

EXAMPLE allOF
theFINANCE
risks andLEASE
rewards incident to
ownership of an asset. Title may or may not eventually
Ownershipbe transferred
transferred by end of lease term.
Lease
Operating lease is a lease other than a finance leasecontains bargain purchase option.
Lease term for major part of assets economic
life.
Classification depends on substance of the transaction rather than the form of the contract
Present value of minimum lease payments
Accounting for finance lease amounts to these
at least substantial all ofhave
assets
Basic criteria providing guidance in determining whether risks and rewards been
Accounting for operating lease fair value.
transferred
Sale and buy back transaction Leased asset of specialized nature that only
lessee can use without major modifications
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ACCOUNTING STANDARD- 20
EARNING PER SHARE

Applicability: Mandatory w.e.f. 1.04.2001 in respect of Cos listed in India

Objective: Comparability enhancement
Different enterprises, same period
Different periods, same enterprise

An enterprise should present BASIC & DILUTED EPS on the face of the statement of profit and loss
account for each class of equity shares that has a different right to share in the net profit for the
BONUS
period. EPS to be calculated
ISSUE, SHARE & presented even inSHARE
SPLIT, REVERSE case of SPLIT
losses.etc
RIGHTS ISSUE
Basic EPS = Net profit/loss for the period attributable to equity shareholders
/ Weighted Average No. of Equity Shares

Diluted EPS= Adjusted Net profit/loss for the period attributable to equity shareholders.
/ Weighted Average No. of (Equity Shares + Dilutive Potential Equity Shares)

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ACCOUNTING STANDARD- 21
CONSOLIDATED FINANCIAL STATEMENT

Applicability: to all enterprises (since 01-04-93)

Deals with: principles and procedures for preparation and presentation of consolidated financial
statements
APPLICABLE TO FOLLOWING ENTERPRISES EXCLUDED CASES
Group of enterprises under the control of a parent Amalgamations
Investments in subsidiaries Investments in associates
Investments in joint ventures

COMPOSITION CONSOLIDATION
OF CONSOLIDATED PROCEDURES
FINANCIAL STATEMENTS
Consolidated balance sheet,
BASIC
Consolidated PROCEDURE:
statement of profitThe
andfinancial
loss, statements of the parent and its subsidiaries should be combined
on a ONE-TO-ONE BASIS by grouping together the like items of assets, liabilities, income and
Notes, additional statements and explanatory material that
expenses.
outline an essential part thereof
OTHER PROCEDURE
NOTE: Consolidated
The holdingfinancial
company statements are presented,
should eliminate its cost to
of investment in each of its subsidiaries
the extent possible, in the same format as adopted by the
parent for Ifitscost
separate financial>statements
of investment holdings share in equity --------- GOODWILL

If cost of investment < holdings share in equity ---------- CAPITAL RESERVE

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ACCOUNTING STANDARD- 22
ACCOUNTING FOR TAXES ON INCOME

Applicability: to all enterprises (since 01-04-06)

Seeks to: redress the distortions caused by traditional method of accounting for income-taxes by
requiring the adoption of deferred tax accounting in respect of timing differences

Accounting income and taxable income for a period are seldom CURRENT TAX
the same The amount that is expected
Differences between the two are on account of: to be paid to the taxation
ACCOUNTING INCOME (LOSS) authorities.
Permanent Differences are the differences between taxable income and accounting income for a
Netperiod
profit or loss
that for a period
originate in oneas per profit
period andnot
and do loss statement.
reverse subsequently.
Examples: DTA/DTL: At the tax rates and
tax laws that have been
Expenditure
TAXABLE INCOME (TAX LOSS)
disallowed as per Income Tax Act (Forever)
enacted at the balance sheet
Excess
Income (loss) for a period
expenditure determined
allowed in accordance
by Income withinthe
Tax Act, 1961 respect of Scientific
date. Expenditure
tax laws
Timing Differences are the differences between taxable income and accounting income for a
period that originate in one period and are capable of reversal in one or more subsequent periods.
Examples:
Depreciation rate/method different as per Accounts and Income tax Calculation
Expenditure of the nature mentioned in Section 43B (e.g. sales tax charged in account on accrual
basis but not paid; such sales tax will be an allowable expenditure in the year of payment and a
disallowable expenditure in the year in which accrued)

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ACCOUNTING STANDARD- 23
ACCOUNTING FOR CONSOLIDATED FINANCIAL STATEMENT

Applicability: to all enterprises (since 01-04-02)

Deals with: to set out principles and procedures for recognizing, in the consolidated financial
statements, the effects of the investments in associates on the financial position and operating
results of a group.

Consolidated financial statements are the financial statements of a group presented as those of a single
enterprise

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ACCOUNTING STANDARD- 24
DISCONTINUING OPERATION

Covers: discontinuing operation and not discontinued operation

DICONTINUING OPERATION is a component of an enterprise:

(a) that the enterprise, pursuant to a single plan, is:

- disposing of substantially in its entirety (example demerger)
- disposing of piecemeal (selling and settling assets and liabilities one by one)
EXAMPLE:
- terminating through
gradual abandonment;
or evolutionary and out of a product line or class of service;
phasing
NOT DICONTINUING OPERATION
(b) Thatrepresents a separate
discontinuing, even major
if line of
relatively business
abruptly, or geographical
several area of
products within anoperations; and
ongoing line
Planned change in product line
(c) That canof business;
be distinguished operationally and for financial reporting purposes.
Abrupt/unplaned change in product line
shifting of some production or marketing activities for a particular line of
business from one location to another;
closing of a facility to achieve productivity improvements or other cost savings;
Selling shares of subsidiary whose activities are similar to those of the parent or
other subsidiaries. (In case of Consolidated Financial Statements)

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ACCOUNTING STANDARD- 25
INTERIM FINANCIAL REPORTING

Applicability: to all enterprises (since 01-04-02)

Deals with: reporting for period < 1 year. Clause 41 of listing agreement provides to publish
financial result on quarterly basis

Timely
Interim period
and is ainterim
reliable financial reporting
financial periodimproves
reporting shorter than
the a full financial
ability year. creditors, and
of investors,
others to understand an enterprise's capacity to generate earnings and cash flows, its financial
condition
Interim financial report means a financial report containing either a complete set of
and liquidity
financial statements or a set of condensed financial statements (as described in this
Statement) for an interim period

During the first year of operations of an enterprise, its annual financial reporting period
may be shorter than a financial year. In such a case, that shorter period is not considered
as an interim period

Minimum Components of an Interim Financial Report

A. condensed balance sheet;
B. condensed statement of profit and loss;
C. condensed cash flow statement; and
D. selected explanatory notes

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ACCOUNTING STANDARD- 26
INTANGIBLE ASSET

Applicability: to all enterprises (since 01-04-04)

Deals with: accounting for intangible assets that are not dealt with specifically in another
Accounting Standard

An intangible asset is an identifiable non-monetary asset, without physical substance, held

for use in the production or supply of goods or services, for rental to others, or for administrative
purposes.

An asset is a resource:
A. controlled by an enterprise as a result of past events; and
B. from which future economic benefits are expected to flow to the enterprise.

Monetary assets are money held and assets to be received in fixed or determinable amounts of
money.

Non-monetary assets are assets other than monetary assets.

Research is original and planned investigation undertaken with the prospect of gaining
new scientific or technical knowledge and understanding.

Development : Converts result of research into marketable product

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ACCOUNTING STANDARD- 27
FINANCIAL REPORTING OF INTEREST IN JOINT VENTURE

Scope:
Applicable in accounting for
interests in joint ventures and
reporting of joint venture assets, liabilities, income and expenses in the financial statements
of venturers and investors

A joint venture is a contractual arrangement whereby two or more parties undertake an

economic activity, which is subject to joint control

A venturer is FORMS
a party toOFa JV
joint venture and has joint control over that joint venture.
jointly controlled operations,
An investor in ajointly controlled
joint venture is aassets,
party toand
a joint venture and does not have joint control
over that joint venture.
jointly controlled entities.

Proportionate consolidation is a method of accounting and reporting whereby a venturer's

share of each of the assets, liabilities, income and expenses of a jointly controlled entity is
reported as separate line items in the venturer's financial statements.

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ACCOUNTING STANDARD- 28
IMPAIRMENT OF ASSET

OBJECTIVE
To identify the assets which are sick / unhealthy
To ensure that enterprise assets are carried at not more than their recoverable amount

If carrying
Treatment amount
of impairment < = Recoverable
loss:
AS-28 applies amount
to all assets :
other than
Asset is not impaired
1. Inventories(AS-2)
An impairment loss should be recognized against the revaluation reserve, if any, and balance,
2. Assets arising from construction contract (AS-7)
if any,If as an expense
carrying amount in the P/Lassets/Investments(AS-13)
A/c
> Recoverable
3. Financial amount :
Asset is impaired
4. Deferred tax assets(AS-22)
Impairment loss for a Cash Generating Unit should be allocated in the following order
Goodwill, if any.
Impairment Loss = Carrying Amount Recoverable Amount
Balance, if any, to individual assets in proportion to their carrying cost

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ACCOUNTING STANDARD- 29
PROVISION, CONTINGENT LIABILTY AND CONTINGENT ASSET

PROVISION: CONTINGENT LIABILITY:

A provision is a liability
CONTINGENT which
ASSETS: can be measured
A contingent liability only
is: by using
a substantial degree of estimation.
A possible obligation that arises from past events and;
A contingent assets is: existence of which will be confirmed by the occurrence or non
Treatment : A provision
a possible assetshould occurrence
be recognized when:events not wholly within the control of the
of future
An enterprise hasfrom
that arises a present obligation
enterpriseas a result of past
past events
event
existence of which will be confirmed only by the occurrence or non-occurrence of one or
It is probable that an outflow
more uncertain future of resources embodying
events
Treatment:
economic benefits will be required to settle the obligation;
not wholly within the control of the enterprise.
An enterprise should not recognize a contingent liability. It
and
should be disclosed in financial statements unless the possibility
A reliable estimate can be made of the amount
of outflow of the
is remote.
Treatment:
obligation.
(Prudence) - An enterprise should not recognize a contingent asset. An enterprise should not
be disclosed in financial statements.
It may be disclosed in the report of approving authority, where an inflow is probable

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ACCOUNTING STANDARD- 30
Financial Instruments: Recognition and Measurement

ACCOUNTING STANDARD- 31

Financial Instruments: Presentation

ACCOUNTING STANDARD- 32

Financial Instruments: Disclosures

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Financial instruments

Embedded
Derivatives

Derivatives

Hedging
AS 30, 31, 32

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Financial instruments

AS 30 AS 31 AS 32

Recognition
and Measurement Derivatives
derecognizing of and Presentation
Disclosure
of financial hedge
financial instruments accounting
instruments

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Market trends as reflected in AS 30, 31 and 32

Key principles of the Standards

Harmonisation of markets

Increased complexity
All derivatives are Most financial
recognized on the assets measured
balance sheet at fair value
Detailed disclosures

Use of fair values

Measurement of the hedging
instrument is the basis for
Reduction of options hedge accounting

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Convergence of Accounting Standards
with IFRS

Why, When, What & How

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 IFRS - International Financial Reporting Standards

International Financial Reporting Standards (IFRS) are:

principles-based
IASB is based in London
Standards, Interpretations and Framework (SIF)
adopted
Its overall
by the International
objective Accounting
is to create a soundStandard Board
foundation for(IASB).
future accounting
International
standards thatFinancial Reporting Standards
are principles-based, internallycomprise:
consistent and internationally
International
The converged.
principle-based Financial
standards Reporting
have Standards that
distinct advantage (IFRS)standards
the transactions can not
be manipulatedissued after
easily to2001
achieve a particular accounting
The IASB
International
and the US Accounting
FASB (the Standards (IAS)standards
boards) are undertaking the issued
project jointly
IFRSs lay downbefore 2001
treatments based on the economic substance of various events and
transactions Interpretations
rather than theiroriginated from the International Financial
legal form.
Reporting Interpretations Committee (IFRIC)issued after 2001
Standing
The application of thisInterpretations
approach mayCommittee
result into (SIC)issued before 2001being
events and transactions
presentedinFramework for the Preparation
a manner different and Presentation
from their legal form. of Financial
Statements
To illustrate, as per IAS 32, preference shares that provide for mandatory redemption
by the issuer are presented as a liability

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IFRS Structure

IAS 1(2007) Presentation of Financial Statements IAS 26 Accounting and Reporting by Retirement
Benefit Plans
IAS 2 Inventories
The
IFRS term IFRSs
1 First-time currently
Adoption comprises
of International of:
Financial Reporting
IAS 27(2008) Standards
Consolidated and Separate Financial
IAS 7 Statement of Cash Flows
IFRS>> 9 IFRSs, 29Payment
2 Share-based IASs (originally 41), 18Statements
IFRIC and 11 SIC interpretations, plus
IAS 8 Accounting Policies, Changes in Accounting
Estimates
the Framework
and Errors Combinations
IAS 28 Investments in Associates
IFRS 3 Business
There
IAS 10 Eventsare
after15
thenew standards
Reporting Period and major projects for which
IAS 29 Financial exposure
Reporting drafts are
in Hyperinflationary
IFRS 4 Insurance Contracts Economies
issued
IAS 11 Construction Contracts
IAS 31 Interests in Joint Ventures
IFRS 5
Final Non-current
SME
IAS 12 Income Taxes
Assets
standard Held
have for
been Sale and
issued Discontinued
in July 2009. Operations
IAS 32 Financial Instruments: Presentation

IAS 8 existing
IFRS
16 standards
6 Exploration
Property, Plant andare
forEquipment
and being amended
Evaluation of Mineral for which exposure drafts are issued
Resources
IAS 33 Earnings per Share
IAS 17 Leases
IFRS 7 Financial Instruments: Disclosures IAS 34 Interim Financial Reporting
IAS 18 Revenue
IFRS 8 Operating Segments IAS 36 Impairment of Assets
IAS 19 Employee Benefits
IFRS 9 Financial Instruments - Assets IAS 37 Provisions, Contingent Liabilities and
IAS 20 Accounting for Government Grants and Contingent Assets
Disclosure of Government Assistance
IAS 38 Intangible Assets
IAS 21 The Effects of Changes in Foreign Exchange
IAS 39 Financial Instruments: Recognition and
Rates
Measurement
IAS 23 Borrowing Costs
IAS 40 Investment Property
IAS 24 Related Party Disclosures
IAS 41 Agriculture
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Non-financial Disclosures

The Framework recognizes financial statements do not provide all the information
required for decisions

To achieve, the objective the financial reports may include additional information in
the form of non-financial disclosures - that is useful to a wide range of users in
making economic decisions

Such disclosures are usually contained in Management Report

To deal with the aspect, the IASB is developing a separate IFRS on Management
Commentary

Recently, a discussion paper on the subject has been issued

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 The Global Move Towards IFRS

Canada
2009/11
Europe
2005
United States
(2014/15/16?) China Japan
2007 (2016)

India
2011

Brazil
2010
Chile
2009
South Africa
2005 Australia
2005

Current or anticipated requirement

or option to use IFRS (or equivalent)
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 IFRS Adoption

Approximately 100 countries have China Similar to IFRS

adopted or are in the process of (effective for
adoption listed entities
2007)
Status of adoption by some Brazil 2010
countries which compete with Russia Currently
India for capital allocation: applicable for
banks.
South Korea 2011

USA 2014/15/16

UK 2005

Nepal 2011 (as per

action plan
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IFRS Adoptioncontd.

BIGGEST STAMP OF APPROVAL

Securities and Exchange Commission (SEC), United States of America

have permitted Foreign Private Issuers to file IFRS compliant financial
statements (as promulgated by the IASB) without reconciliation to US GAAP

SEC has issued a proposed roadmap to assess whether US domestic

registrants should be permitted to use IFRS

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Convergence of Accounting Standards

What is Convergence ?

Convergence means eliminating the differences between Indian

GAAP and IFRS
and/or
aligning Indian GAAP more closely to IFRS
and/or
may be even adopting IFRS as it is.

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WHY IFRS

To bring uniformity in reporting systems globally

ICAI has decided to implement IFRS in India.
Indian companies are listed on overseas stock exchanges and have to recast their
accounts to beof
The Ministry compliant
CorporatewithAffairs
GAAP requirements of those countries
has also announced its
commitment to convergence to IFRS by 2011.
Foreign companies having subsidiaries in India are having to recast their accounts to
meet Indian & overseas reporting requirements which are different

Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more
comfortable with compatible accounting standards

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Convergence Project in India

In October 2007, ICAI issued concept paper giving the approach and
roadmap for convergence
Various study groups have been formed
The convergence exercise will be taken up in phases - listed and bigger
companies initially, smaller public companies thereafter, and eventually all
private companies/SMEs

The ministry of Company affairs has appointed two working groups, headed
by Mr. Y.H. Malegam and Mr. Mohandas Pai to finalise the roadmap to IFRS
convergence.
SEBI Committee on Disclosures and Accounting Standards (SCODA) is the
standing Committee - Voluntary adoption of International Financial Reporting
Standards (IFRS) by listed entities having overseas subsidiaries or by all
listed entities.

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Convergence Project in Indiacontd.

On January 22, 2010

Phase I - 1st: MCA has released Road Map for convergence with
IFRS in India
IFRS in India Phase II April, 2011
- 1st April, 2013
IFRS For large Companies
The following categories of companies will convert atheir opening balance Rs.
The
On companies,
April 5, 2010whether listed or
: Amendment to not, having
listing net worth
Agreement exceeding
provides the option of
sheets
500 in compliance
croresofbut with the
not exceeding notified accounting
Rs. 1,000 standards which
croresStandards (IFRS) are
adoption International Financial Reporting by listed
convergent with IFRS. These companies are:-
entities having subsidiaries while declaring Consolidated results/financial
statementswhich are part of NSE Nifty 50
a. Companies
b. Companies
Standalone results
which are will
partbeofas
BSEper -the
IFRS in India Phase III - 1st April, 2014
existing
Sensex 30 Indian GAAP

c. Companies whose shares

Listed companies or other
which have a netsecurities
worth ofare
Rs.listed on stock
500 crores or less
exchanges outside India
d. Companies, whether listed or not, which have a net worth in excess of
Rs.1,000 crores

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Convergence with IFRSs in India

While formulating ASs, ICAI comply IFRSs as far as possible

The Preface to the Statements of Accounting Standards, issued by the

ICAI, recognizes the same

While formulating ASs, the ICAI makes changes from IFRSs only in those
cases where these are unavoidable, particularly, considering legal and/ or
regulatory framework prevailing in the country

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 IFRS THE GREY AREAS

While IFRS compliance date has been declared by the ICAI, there are several
areas which are still not in consonance with such implementation and several
accounting standards and statutes will need amendment.

Full & unreserved compliance with IFRS is the objective. However, not many
entities are aware about the significance or ramifications thereof, which may lead
to a rush for compliance later with some undesirable consequences.

The onus will be on the management to comply with the requirements and the
auditors will only have to comment on whether the management has properly
complied with the norms or not.

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 IFRS THE PLAIN AREAS

IFRS is itself a moving target, with changes being introduced continually

There are not many trained resources to effect the requisite change.

There is a lack of awareness and understanding of the requirements and

implications of IFRS transition and compliance

Communicating the change and managing the transition properly attains

importance in this regard.

Training the organizational components will be a huge task.

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IFRS IMPACT

IFRS implementation affects several

areas of the business entity, such as:
presentation of accounts,
accounting policies and
procedures,
the way legal documents are
drafted,
the way the entity looks at its
assets and their usage,
Its communications with its
stakeholders and also
the way it conducts its business.

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Steps for transition

Parallel run and test

systems
Implement business
decisions
Train staff

Design and implement

systems
Plan the
implementation
Think of business
issues
Scope the
impact

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 Thank you!

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