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BUY BACK OF SHARES INTRODUCTION CONDITIONS TO BE FULFILLED CONDITIONS LAID DOWN BE SEBI ADVANTAGES TO INVESTORS AND COMPANIES The

The companies ordinance (October 1998 and January 1999) have allowed companies to buy back shares subject to conditions laid down be SEBI. A company can finance its buy back out of 1. Free reserves 2. Security premium 3. Proceeds of earlier issues Conditions to be fulfilled 1. Should be authorised by the articles of the company 2. A special resolution authorisng the buy back has to be passed in the general meeting 3. Buy back should not exceed 25% of the total paid up capital and free reserves of the company 4. Debt Equity ratio should not exceed 2:1 after the proposed buy back. 5. All shares are to be fully paid up 6. Buy back should be in accordance with the regulations laid down by SEBI. 7. A statement containing full disclosure of all material facts has to be attached with the notice sent for passing resolution regarding the buy back. 8. A company is required to destroy the shares bought back within 7 days of the completion of the buy back.

9. Company is prohibited from issuing fresh equity within two years of the buy back. Bonus issue, existing obligation to convert warrants, preference shares and debentures into equity and stock options are exempted from the above restriction. 10. Companies defaulted on repayment of public deposit, term loans, debentures and preference shares are not allowed to buy back shares 11.SEBI Regulations 12.It is applicable only to listed companies 13.Tender offer. Book building and purchase through stock exchange are the modes that can be used by companies to buy back shares 14.Pre and post buy back holdings of the promoters need to be disclosed. 15.Buy back through negotiated deals, spot transactions and private arrangements are not permitted. 16.Merchant banker has to be associated with every buy back offer and he has to give due diligence certificate. 17.Time bound steps are provided by regulation. Except in case of purchase through stock exchange, an offer for buy back shall not remain open for more than 30 days. 18.To ensure safety and security, company has to open an Escrow account Advantages 1. It offers flexibility to companies to reorganise their capital structure. 2. it offers liquidity to dormant shares 3. It helps to revive the capital market. 4. It is used as an instrument to prevent hostile takeover bids. 5. It helps to improve EPS and MPS in the long run. CONSOLIDATION OF BALANCESHEETS

Meaning of consolidation Definition of Holding company and subsidiary company Methodology in consolidation Uniform Reporting date Uniform Accounting Policies Minority interest Disclosure Requirements Advantages of consolidation Consolidation It is the process of showing the state of financial position of the group remaining under one umbrella on a specified date. It was first practiced in USA a century ago. It has become popular in UK, France, West Germany in 20th century In India consolidated reporting is not mandatory. However section 212 of the Companies Act 1956 requires a holding company to include certain particulars of its subsidiaries Holding company and Subsidiary company A company acquiring control over the other company is said to be holding company and the company whose business is acquired by mode of investment is said the subsidiary company. As per definition, company X will be subsidiary of company Y if any of the following conditions is fulfilled. 1. Company Y holds more than half of the nominal value of equity share capital of company X 2. Company Y is a member of company X and controls the composition of its Board of Directors, or

3. Company X is the subsidiary of any subsidiary of company Y. Methodology in consolidation Consolidated financial statements include 1. Consolidated balance sheet 2. Consolidated profit and loss account 3. Notes and explanatory material 4. Consolidated cash flow statement Consolidated financial statements should be presented by parent company in addition to its own financial statemen uniform Reporting Date The financial statement of the parent and subsidiary company should be drawn up to the same reporting date. If it is not possible, adjustments should be made for effects of significant transactions or events that occur between these dates. The difference between the reporting dates should not be more than six months. Uniform Accounting Policies Consolidated financial statements should be prepared using uniform accounting policies. If subsidiaries did not use uniform accounting policies 1. The fact should be disclosed along with the proportions of items to which different accounting policies have been applied. 2. If it is possible appropriate adjustments are to be made to its financial statements while doing consolidation.

The consolidation should be on line by line basis by adding together like items of assets, liabilities, income and expenses. The cost of investments made by Parent in subsidiaries should be eliminated. The parents portion of equity of each subsidiary , at the date on which investment is made in each subsidiary should be eliminated. (Equity means the residual interest of an enterprise after deducting all its liabilities.) Cost of investment - Parents portion of equity = Goodwill Parents portion of equity - Cost of investment = Capital Reserve Minority interest in net income and net assets should be identified and presented in the consolidated balance sheet. (Minority means the portion of nets income and net assets attributable to the outside investors which is not belonging to the group) Intra group balances and intra group transactions including sales, expenses and dividends are eliminated in full Unrealised profit resulting from intra group transactions that are included in the carrying amount of assets such as inventory and fixed assts should be eliminated. In case subsidiary is carrying the cumulative preference shares which are held by the outsiders , Parents share of profit is ascertained after adjustment of preference dividend whether declared are not. Disclosure Requirements List of all subsidiaries with complete information about the subsidiaries. If the parent company doesnt have 50% of the voting power in the subsidiary, the disclosure should b made as to nature of relationship between and parent and subsidiary. The effect of the acquisition and disposal of subsidiaries: 1. On the financial position at the reporting date

2. On the corresponding amount for the preceding period. The name of subsidiaries, whose reporting dates are different from the parent reporting date and also the difference of period Advantages of consolidation 1. Overall picture of the group activities 2. Investment and Financing decisions 3. Evaluation of intrinsic value 4. Return on investment 5. Minority interest FINANCIAL STATEMENT ANALYSIS FINANCIAL STATEMENTS Financial Statements present data in a systematic form by following generally accepted accounting principles. Types of Financial Statements: 1. Balance Sheet: Indicates the financial condition of the business at a particular moment of time. 2. Profit and Loss Account: It reflects the earning capacity of the firm over a period of time. 3. Fund Flow Statement: It helps to understand the changes in the distribution of resources between two balance sheet periods. 4. Cash Flow Statement: It indicates the changes in cash position from one period to another. An estimated cash flow statement enables the management to ascertain the availability of cash to meet business obligation. Thus it is useful for short term planning by management. 5. Schedules: The statements which explain the items given in income statement and balance sheet.

Qualitative Characteristics of Financial Statements Understandability : it is readily understandable by users who are having a reasonable knowledge of business and economic activities and accounting, and also willing to study the information with reasonable diligence. Relevance : Information has relevance with economic decisions to be taken by users. Materiality : The relevance of information is affected by its nature and materiality. Reliability : To be reliable information must represent faithfully the transactions and other events . Substance : To be reliable the information should be accounted for and presented in accordance with their substance and economic reality and not merely their legal form. Neutrality : To be reliable the information should be free from bias. Prudence : Overstatement of profit should be avoided while due consideration should be given for possible losses. Completeness Objectives of Financial Statements Providing information for economic decisions Providing information about financial position Information about economic resources controlled by the enterprise. Information about financial structure Information to predict success of the enterprise

in raising further finance. Information about liquidity and solvency.

Providing information about performance of enterprise. Providing information about changes in financial position.

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Contepted Format of Income State Other Income Expenditure Material and Other Expenditure Interest Depreciation Contents of Balance Sheet I. Assets 1. Fixed Assets 2. Investments 3. Current Assets, Loans and Advances

4. Miscellaneous Expenditure and Losses II. Liabilities 1. Share Capital 2. Reserves and Surplus 3. Secured Loans 4. Unsecured Loans 5. Current Liabilities and Provisions

NATURE OF FINANCIAL STATEMENT ANALYSIS Process of establishing relationships between various components of the financial statements and finding their relative importance. Helps in assessing the profitability and operating efficiency of the firm. Helps in providing useful information to the interested parties: creditors, shareholders, researchers, government etc. TOOLS FOR FINANCIAL STATEMENT ANALYSIS Tools For Analyzing the Financial Statements: 1. Ratio Analysis: Helps in evaluating the performance of the firm by establishing relationship between two or more variables. 2. Comparative Analysis: Helps in evaluating the firms position relative to industry standards/ competitors/ firms past performance.

3. Funds Flow Analysis: Depicts the changes in assets and liabilities between two periods

Sources of Financial information The financial data needed in the financial analysis comes from many sources. The primary source is the data provided by the firm in its annul report. The other sources of data are market prices of securities and financial press.

PROFITABILITY RATIOS Types of Profitability Ratios: (a) Ratios computing profit in relation to sales: These ratios measure the ability of the firm to generate profit on each unit of sales. (b) Ratios computing profit in relation to assets: These ratios measure the extent to which the firm has earned profit on its asset base.

LEVERAGE RATIOS They reflect the long-term solvency of the firm. There are two categories of leverage ratios: (a) Capital Structure Ratios: They indicate the mix of debt and equity in the capital structure of the firm. (b) Coverage Ratios: They help to compute the firms ability to meet interest and other fixed charges.

Session 2 Chapter II Accounting Standards The changing economic trend of the world requires balance sheets and accounts to be comparable and one that would reflect the common picture. Bringing Indian accounting standards on par with international standards is a step which will help the investor community and the entire corporate world. (Arun Jaitley, Former Law Minister) Slide 2: This slide gives an overview of Format of standards International Accounting standards Indian Accounting standards Difference between International Accounting standards and Indian Accounting standards

Slide 3:

The format of each standard contains: 1. A statement of concepts and fundamental accounting principles relating to the standard. 2. Definition of the terms used in the standard. 3. The manner in which the accounting principles have been applied for formulating the standard. 4. Presentation and disclosure requirements. 5. Class of enterprise to which it applies. 6. Effective date. Accounting standards apply only to material items. The Accounting Standard Board (ASB) of the Institute of Chartered Accountants of India has issued the following Accounting Standards that are to be followed by its members. Let us discuss them in detail:

Slide 4: Accounting Standards are a collection of generally followed accounting principles, policies and practices. These help to ensure a common basis for financial statements of different organizations. This means that people can understand these more easily and make useful comparisons. Financial statements are at the centre of business reporting. Financial statements usually provide users with essential information that heavily influences their decisions. The US is the leader in financial reporting, and the US Securities and Exchange Commission is respected for its role in formulating and implementing US GAAP despite the general vote of confidence. In India, the Statements on Accounting Standards are issued by the Institute of Chartered Accountants of India (ICAI) to establish standards that have to be complied with to ensure that financial statements are prepared in accordance with generally accepted accounting standards in India (India GAAP). Slide 5:

The Council of ICAI constituted the Accounting Standards Board (ASB) in April, 1977 to formulate Accounting Standards. While formulating the Accounting Standards, ASB takes into consideration the applicable laws, customs, usages and business environment. However, users were strongly critical about certain aspects of financial statements and they offered or supported many substantive ideas for improvement. Standard setters, regulators, and many others devote considerable resources in maintaining and improving the standards. The new accounting norms are aimed at protecting share/holders interest and recommending ways of improving corporate governance.

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AS-1: Disclosure of Accounting Policies Effective date: 1-Apr-93 This statement deals with the disclosures of significant accounting policies followed in preparing and presenting financial statements. The purpose of this standard is to promote better understanding of financial statements by instituting the disclosure of significant accounting policies in the financial statements and the manner of doing it. The emphasis in AS-1 is on disclosure of accounting policies in the presentation of financial statements. These are to be normally disclosed at one place. This practice is now being followed by all the companies. Accounting policies refer to the specific accounting principles; adopted by the enterprise and methods of applying these principles in the preparation and presentation of financial statements. Some of the areas in which such disclosure is to be made are as under: 1. 2. 3. 4. 5. Methods of depreciation, depletion, and amortization, Treatment of expenditure during construction, Valuation of inventories, Conversion or translation of foreign currency items, Treatment of goodwill

6. Valuation of investments, 7. Valuation of fixed assets, 8. Recognition of profits on long term contracts, 9. Treatment of retirement benefits, 10.Treatment of contingent liabilities. It is for the management to select the accounting policy to be followed by the enterprise. However, while making this selection, it is necessary to ensure that the financial statements present a true and fair view of the state of affairs. The major considerations to be followed during the selection of accounting policies are stated in AS-1 as under: 1. Prudence: This is a world of uncertainty. Profits are recognized only when realized. At the same time provisions for all known liabilities and losses are made even though the amount represents only the best estimate.

2. Substance over form: The accounting treatment and presentation of transactions and events in the financial statements should be governed by their substance and not just by the legal form. For example, the accounting of finance leases is based on the substance rather than the form of transaction. The lessee capitalizes the lease equipment as fixed assets being the owner in the substance; whereas the lessor records the investment made as debtor

3. Materiality: Financial statements disclose all material facts. The IASC defined audit materiality as under:

Information is material if its omission or misstatement could influence the economic decision of users taken on the basis of financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatements. Thus materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic whose information should be there to be useful.

There are no hard and fast rules for determining materiality. What is materiality is a matter of judgment. For instance, what is material to the financial statements of one firm may not be material to the financial statements of another firm of a different nature or size.

Fundamental Accounting Assumptions:

As we discussed in the 1st session, the fundamental accounting concepts underlie the preparation of financial statements. Their use is not specifically stated in the financial statements because their use is assumed. If they are not accepted and used a disclosure of such facts should be made. The following are generally accepted fundamental accounting concepts:

Going concern Consistency Accrual AS-2: Valuation of Inventories How to value and account for stocks. This standard was revised in June-99. Effective date: 1-Apr-99 The standard deals with the principles of valuing inventories for financial statements including the ascertainment of cost of inventories and any write-down thereof to net realizable value. Requirements:

1. Inventories should be valued at lower of cost and net realizable value. 2. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to the present location and condition. Administrative, selling and

distribution expenses, abnormal wastages should not be included in the cost of inventories. 3. The cost of inventories of items that are not ordinarily interchangeable and goods and services produced and segregated for specific projects should be assigned by specific identification of their individual costs. 4. The cost of inventories, other than those dealt with in (3) above, should be assigned by using the first-in, first out (FIFO) or weighted average cost formula. 5. Under the weighted average formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of the period and the cost of similar items purchased or produced during the year. 6. Generally, inventories are written down to net realizable value on an item by item basis. However, similar items can be grouped wherever it is appropriate. Disclosure:

The financial statements should disclose the following:

ii. The accounting policies adopted in measuring inventories, including the cost formula iii. The total carrying amount of inventories and its classification. Slide 7: AS-3: Cash Flow Statements Preparing and presenting a cash flow statement. Revised in March-97. Effective date: 1-Apr-2001

The statement deals with the provisions of information about the historical changes in cash and cash equivalents of an enterprise by means of cash flow statement which classifies cash flows during the period from operating, investing and financing activities. AS-4: Contingencies and events occurring after the Balance Sheet Date Revised in April-95. Effective date: 1-Apr-95 This standard deals with. a) contingencies, and b) events occurring after the balance sheet date, in financial statements This standard deals with the accounting treatment of contingencies and events occurring after the balance sheet date. The standard does not apply to the following contingencies:

Liabilities of life insurance and general insurance enterprices arising from policies issued Obligations under retirement benefit plans Commitments arising from long term lease contracts Accounting

The amount of contingent loss should be provided for by a change in the profit and loss account if:

a) 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.

b) A reasonable estimate of the amount of the resulting loss can be made. The existence of the contingent loss should be disclosed in the financial statements if either of conditions in the above paragraph are not met, unless the possibility of loss is remote. The existence and amount of guarantees, obligations arising from discounted bills of exchange and similar obligations undertaken by an enterprise are generally disclosed in financial statements by way of note, even though the possibility that a loss will occur to the enterprise is remote. Provisions and contingencies are not made in respect of general or unspecified business risks since they do not relate to conditions or situations existing at the balance sheet date. Contingent gains should not be recognized in the financial statements Assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date or that indicate the fundamental accounting assumption of going concern. Dividends that are stated to be in respect of the period covered by the financial statements, which are proposed or declared by the firm after the balance sheet date but before approval of the financial statements, should be adjusted. Disclosure Requirements:

Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the firm. The following information has to be provided.

a) The nature of the event b) An estimate of the financial effect or a statement that such an estimate cannot be made. AS-5: Net Profit or Loss for the period, Prior Period Items and changes in Accounting Policies Revised in Feb-97. Effective date: 1-Apr-96 The objective of this statement is to prescribe the classification and disclosures of certain items in the statement of profit and loss so that all enterprises prepare and present such statement on a uniform basis. Accounting Net Profit or Loss for the period, prior period items and changes in accounting policies: All items of income and expense which are recognized in a period should be included in the determination of net profit or loss.

1. The net profit or loss for the period comprises the following components:

a) Profit or loss from ordinary activities b) Extraordinary items The above components should be disclosed on the face of the profit and loss statement.

2. Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of extraordinary

item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit and loss can be perceived.

3. When items of income and expense within profit and loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. Disclosure In the financial statements there should be disclosure of (i) the amount of construction work-in-progress; (ii) progress payments received and advances and retentions on account of contracts included in construction work-in-progress; and (iii) the amount receivable in respect of income accrued under cost, plus contracts not included in construction work-in-progress. Disclosure of changes in an accounting policy used for construction contracts should be made in the financial statements giving the effect of the change and its amount. Slide 8 AS-6: Depreciation Accounting Revised in Aug-94. Effective date: 1-Apr-95 Depreciation should be charged on assets. Related information should be disclosed. Different enterprises adopt different accounting policies for depreciation. Disclosure of accounting policies for depreciation that are followed by an enterprise is necessary to appreciate the view presented in the financial statement of the enterprise.

AS-7: Accounting for Construction Contracts Effective date: 1-Apr-93 This standard deals with the determination of construction cost of and its disclosure in accounts.

A construction contract is a contract for the construction of an asset or of a combination of assets which together constitute a single project. Examples of activity covered by such contracts include the construction of bridges, dams, ships, buildings and complex pieces of equipment. Types of Construction Contracts: Construction contracts are formulated in a variety of ways but generally fall into two basic types: (i) Fixed price contracts: The contractor agrees to a fixed contract price, or rate, in some cases subject to cost escalation clauses; (ii) Cost plus contracts: The contractor is reimbursed for allowable or otherwise defined costs, and is also allowed a percentage of these costs or a fixed fee. Accounting Treatment of Construction Contract Costs and Revenues The methods of accounting for contracts commonly followed by contractors are as under: Percentage of completion method Completed contract method. Percentage of completion method: Revenue is recognized based on the stage of completion reached as the contract activity progresses. The costs incurred in reaching the stage of completion are matched with this revenue, resulting in the reporting of results which can be attributed to the proportion of work completed. Although (as per the principle of 'prudence') revenue is recognized only when realized, under this method the revenue is recognized with the progress of the activity even though in certain circumstances it may not be realized. Completed contract method: Revenue is recognized only when the contract is completed or substantially completed; that is, when only minor work is expected other than warranty obligation. Costs and progress payments received are accumulated during the course of the contract but revenue is not recognized until the contract activity is substantially completed.

Under both methods, provision is made for losses for the stage of completion reached on the contract. In addition, provision is usually made for losses on the remainder of the contract. It may be necessary for accounting purposes to combine contracts made with a single customer or to combine contracts made with several customers if the contracts are negotiated as a package or if the contracts are for a single project. Conversely, if a contract covers a number of projects and if the costs and revenues of such individual projects can be identified within the terms of the overall contract, each such project may be treated as equivalent to a separate contract. AS-8: Accounting for Research and Development Effective date: 1-Apr-93 This standard deals with the treatment of costs of research and development in the financial statements. The standard identifies items of cost which comprise R & D costs lays down conditions under which R & D costs may be deferred and requires specific disclosures to be made regarding R & D costs. Slide 9: AS-9: Revenue Recognition Effective date: 1-April-93 This statement deals with the basis to recognise revenue in the statement of profit and loss of an enterprise. The statement is concerned with the recognition of revenue arising in the course of ordinary activities of the enterprises. AS-10: Accounting for Fixed Assets Effective date: 1-Apr-93 Financial statements disclose certain information relating to fixed assets. In many enterprises these assets are grouped into various categories, such as land, building, plant and machinery, vehicles, furniture and fitting goodwill, patents, trade marks and designs. This statement deals with the accounting for such fixed assets AS-11: Accounting for effects of changes in Foreign Exchange Rates Effective date: 1-Apr-95 Objective

An enterprise may have transactions in foreign currencies or it may have foreign branches. Foreign currency transactions should be expressed in the enterprise's reporting currency and the financial statements of foreign branches should be translated into the enterprise's reporting currency in order to include them in the financial statements of the enterprise. The principal issues in accounting for foreign currency transactions and foreign branches are: to take decision on the exchange rate to use and how to recognize the financial effect of changes in exchange rates in the financial statements. Scope This Statement should be applied by an enterprise: (a) in accounting for transactions in foreign currencies; and (b) in translating the financial statements of foreign branches for inclusion in the financial statements of the enterprise. Disclosures An enterprise should disclose (i) the amount of exchange differences included in the net profit or loss for the period; (ii) the amount of exchange differences adjusted in the carrying amount of fixed assets during the accounting period; and (iii) the amount of exchange differences in respect of forward exchange contracts to be recognized in the profit or loss for one or more subsequent accounting periods.

Slide 10: AS-12: Accounting for Government Grants Effective date: 1-Apr-94.

This statement deals with accounting for government grants. Government grants are sometimes called by other names such as subsidies, cash incentives, duty draw backs, etc. This Statement does not deal with: (i) the special problems arising in accounting for government grants in financial statements reflecting the effects of changing prices or in supplementary information of a similar nature; (ii) government assistance other than in the form of government grants; (iii) government participation in the ownership of the enterprise. Definitions Government: Government refers to government, government agencies and similar bodies whether local, national or international. Government grants: 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 assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise. 12. Disclosure 12.1 The following disclosures are appropriate: (i) The accounting policy adopted for government grants, including the methods of presentation in the financial statements; (ii) The nature and extent of government grants recognized in the financial statements, including grants of non-monetary assets given at a concessional rate or free of cost. AS-13: Accounting for Investments Effective date: 1-Apr-95 This statement deals with accounting for investments in the financial statement of the enterprises and related disclosure requirements

AS-14: Accounting for Amalgamations: Effective date: 1-Apr-95 Introduction This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This statement is directed principally at the companies although some of its requirements also apply to financial statements of other enterprises. Definitions Amalgamation: It means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies. Transferor company: It means the company which is amalgamated into another company. Transferee company: It means the company into which a transferor company is amalgamated. Amalgamation in the nature of merger: An amalgamation has to satisfy all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) 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 its subsidiaries or their nominees) will become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company, is discharged by the transferee company wholly by the issue of equity shares in the

transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. Amalgamation in the nature of purchase: It is an amalgamation which does not satisfy any one or more of the conditions specified in sub-paragraph above. Consideration: Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. Fair value: It is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction. Explanation Types of Amalgamations Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders' interests and of the businesses of these companies. Such amalgamations are in the nature of 'merger' and their accounting treatment should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the

company which is acquired is not intended to be continued. Such amalgamations are in the nature of 'purchase'. Methods of Accounting for Amalgamations There are two main methods of accounting for amalgamations: (a) the pooling of interests method; and (b) the purchase method. The use of the pooling of interests method is confined to circumstances which meet the criteria for an amalgamation in the nature of a merger. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase. The Pooling of Interests Method Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts. The Purchase Method Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company. Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company. For example, the transferee company may have a specialized use for an asset, which is not available to other potential buyers. The transferee company may intend to effect changes in the activities of the transferor company which necessitate the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs. Consideration

The consideration for the amalgamation may consist of securities, cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques are applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. Balance of Profit and Loss Account In the case of an 'amalgamation in the nature of merger', the balance of the Profit and Loss Account appearing in the financial statements of the transferor company is aggregated with the corresponding balance appearing in the financial statements of the transferee company. Alternatively, it is transferred to the General Reserve, if any. In the case of an 'amalgamation in the nature of purchase', the balance of the Profit and Loss Account appearing in the financial statements of the transferor company, whether debit or credit, loses its identity. Disclosure For all amalgamations, the following disclosures are considered appropriate in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each company's equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof

including the period of amortization of any goodwill arising on amalgamation. Slide 11: AS-15: Accounting for retirement benefits in the Financial Statements of Employers1 Effective date: 1-Apr-95 This statement deals with accounting for retirement benefits in the financial statement of the employers. Retirement benefits usually consists of: a) Provident fund b) Superannuation/pension c) Gratuity d) Leave encashment benefits on retirement e) Post-retirement health and welfare schemes and f) Other retirement benefits. Accounting 16. In respect of retirement benefits in the form of provident fund and other defined contribution schemes, the contribution payable by the employer for a year is charged to the statement of profit and loss for the year. Thus, besides the amount of contribution paid, a shortfall of the amount of contribution paid compared to the amount payable for the year is also charged to the statement of profit and loss for the year. On the other hand, if contribution paid is in excess of the amount payable for the year, the excess is treated as a pre-payment. The accounting treatment for gratuity and other schemes will depend upon the type of arrangement that the employer has chosen to make. (i) If the employer has chosen to make payment for retirement benefits out of his own funds, an appropriate charge to the statement of profit and loss for the year is made through a provision for the accruing liability. The accruing liability is calculated according to actuarial valuation. However, many enterprises which employ only a few persons do not calculate the accrued liability by using actuarial methods. They calculate the accrued liability by using other rational methods e.g. a method based on the assumption that such benefits are payable to all employees at the end of the accounting year. (ii) In case the liability for retirement benefits is funded through creation of a trust, the cost incurred for the year is determined actuarially. Many employers undertake such valuations every year while others undertake them less frequently, usually once in every three years. Where the contribution paid during a year is lower than the amount required to be contributed during the year to meet the accrued liability as certified by the actuary, the shortfall is charged to the statement of profit and loss for the year. Where the contribution paid during a year is in excess of the amount required to be contributed during the year to meet the accrued liability as certified by the actuary, the excess is treated as a pre-payment.

(iii) In case the liability for retirement benefits is funded through a scheme administered by an insurer, it is usually considered necessary to obtain an actuarial certificate or a confirmation from the insurer that the contribution payable to the insurer is the appropriate accrual of the liability for the year. Where the contribution paid during a year is lower than the amount required to be contributed during the year to meet the accrued liability as certified by the actuary or confirmed by the insurer, as the case may be, the shortfall is charged to the statement of profit and loss for the year. Where the contribution paid during a year is in excess of the amount required to be contributed during the year to meet the accrued liability as certified by the actuary or confirmed by the insurer, as the case may be, the excess is treated as a pre-payment. Disclosures The financial statements should disclose the method by which retirement benefit costs for the period have been determined. In case the costs related to gratuity and other defined benefit schemes are based on an actuarial valuation, the financial statements should also disclose whether the actuarial valuation was made at the end of the period or at an earlier date. In the latter case, the date of the actuarial valuation should be specified and the method by which the accrual for the period has been determined should also be briefly described, if the same is not based on the report of the actuary. AS-16: Borrowing Costs Effective date: 1-Apr-2000 The objective of this statement is to prescribe the accounting treatment of borrowing costs meaning thereby interest and other costs incurred by an enterprise in connection with borrowing of funds. Briefly stated, it lays down that borrowing costs that are directly attributable to the acquisition, construction or production of an asset should be capitalized as part of the cost of that asset. This Statement does not deal with the actual or imputed cost of owners equity, including preference share capital not classified as a liability.

Borrowing Costs

Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. Borrowing costs may include: (a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings; (b) amortization of discounts or premiums relating to borrowings; (c) amortization of ancillary costs incurred in connection with the arrangement of borrowings; (d) finance charges in respect of assets acquired under finance leases or under other similar arrangements; and (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Qualifying asset: It is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Examples of qualifying assets are manufacturing plants, power generation facilities, inventories that require a substantial period of time to bring them to a saleable condition, and investment properties. Other investments, and those inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis over a short period of time, are not qualifying assets. Assets that are ready for their intended use or sale when acquired, are also not qualifying assets. Recognition Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Statement. Other borrowing costs should be recognized as an expense in the period in which they are incurred. Borrowing costs are capitalized 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 recognized as an expense in the period in which they are incurred. Disclosure The financial statements should disclose: (a) the accounting policy adopted for borrowing costs; and (b) the amount of borrowing costs capitalized during the period . AS-17: Segment Reporting Effective date: 1-Apr-2001 This Standard applies to Enterprises, whose equity or debt securities are listed on a recognized stock exchange in India, and to enterprises that are in the process of issuing equity or debt securities that will be listed on a recognized stock exchange in India as evidenced by the board of directors resolution in this regard. All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crore. The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Such information helps users of financial statements to: a. understand better the performance of the enterprise; b. assess better the risks and returns of the enterprise; and c. make more informed judgements about the enterprise as a whole. Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about different types of products and services of an enterprise and its operations in different geographical areas - often called segment information - is relevant in assessing the risks and returns of a diversified or multi-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements. Slide 12: AS-18: Related Party Disclosures Effective date: 1-Apr-2001 The objective of this statement is to establish requirements for disclosure of: a) related party relationships; and b) transactions between a reporting enterprise and its related parties.

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. This Statement applies only to related party relationships described as under: (a) enterprises that directly, or indirectly through one or more intermediaries, 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; (c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual; (d) key management personnel and relatives of such personnel; and (e) enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise. Disclosure The statutes governing enterprise often require disclosure in financial statements of transactions with certain categories of related parties. In particular, attention is focused on transactions with the directors or similar key management personnel of an enterprise, especially their remuneration and borrowings, because of the fiduciary nature of their relationship with the enterprise. Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties. Where the reporting enterprise controls, or is controlled by, another party, this information is relevant to the users of financial statements irrespective of whether or not transactions have taken place with that party. This is because the existence of control relationship may prevent the reporting enterprise from being independent in making its financial and/or operating decisions. The disclosure of the name of the related party and the nature of the related party relationship where control exists may sometimes be at least as relevant in appraising an enterprise's prospects as are the operating results and the financial position presented in its financial statements. Such a related party may establish the enterprise's credit standing, determine the source and price of its raw materials, and determine to whom and at what price the product is sold. If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following: (i) the name of the transacting related party;

(ii) a description of the relationship between the parties; (iii) a description of the nature of transactions; (iv) volume of the transactions either as an amount or as an appropriate proportion; (v) any other elements of the related party transactions necessary for an understanding of the financial statements; (vi) the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date; and (vii) amounts written off or written back in the period in respect of debts due from or to related parties. The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise: * purchases or sales of goods (finished or unfinished); * purchases or sales of fixed assets; * rendering or receiving of services; * agency arrangements; * leasing or hire purchase arrangements; * transfer of research and development; * licence agreements; * finance (including loans and equity contributions in cash or in kind); * guarantees and collaterals; and * management contracts including deputation of employees. AS-19: Leases Effective date: 1-Apr-2001 Objective

The objective of this Statement is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures in relation to finance leases and operating leases. 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. Financial lease: A financial lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Operating lease: It is a lease other than a financial lease. Lease term: It is the non-cancellable period for which the lessee has agreed to take on lease the asset together with any further periods for which the lessee has the option to continue the lease of the asset, with or without further payment, which option it is reasonably certain that the lessee will exercise at the inception of the lease. Fair value: It is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction. Residual value: It is the estimated fair value of the asset at the end of the lease term.

Classification of Leases The classification of leases adopted in this Statement is based on the extent to which risks and rewards incident to ownership of a leased asset, lie with the lessor or the lessee. Risks include the possibilities of losses from idle capacity or technological obsolescence and of variations in returns due to changing economic conditions. Rewards may be represented by the expectation of profitable operation over the economic life of the asset and of gain from appreciation in value or realization of residual value.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. Title may or may not eventually be transferred. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incident to ownership. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than its form. Examples of situations which would normally lead to a lease being classified as a finance lease are: a. the lease transfers ownership of the asset to the lessee by the end of the lease term; b. the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised; c. the lease term is for the major part of the economic life of the asset even if title is not transferred; d. at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and e. the leased asset is of a specialised nature such that only the lessee can use it without major modifications being made. Leases in the Financial Statements of Lessees Finance Leases: At the inception of a finance lease, the lessee should recognize the lease as an asset and a liability. Such recognition should be at an amount equal to the fair value of the leased asset at the inception of the lease. However, if the fair value of the leased asset exceeds the present value of the minimum lease payments from the standpoint of the lessee, the amount recorded as an asset and a liability should be the present value of the minimum lease payments from the standpoint of the lessee. In calculating the present value of the minimum lease payments, the discount rate

is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee's incremental borrowing rate should be used. The lessee should, in addition to the requirements of AS 10, Accounting for Fixed Assets, AS 6, Depreciation Accounting, and the governing statute, make the following disclosures for finance leases: a. assets acquired under finance lease as segregated from the assets owned; b. for each class of assets, the net carrying amount at the balance sheet date; c. a reconciliation between the total of minimum lease payments at the balance sheet date and their present value. In addition, an enterprise should disclose the total of minimum lease payments at the balance sheet date, and their present value, for each of the following periods: i. not later than one year; ii. later than one year and not later than five years; iii. later than five years; d. contingent rents recognised as income in the statement of profit and loss for the period; e. the total of future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date; and f. a general description of the lessee's significant leasing arrangements including, but not limited to, the following: i. the basis on which contingent rent payments are determined; ii. the existence and terms of renewal or purchase options and escalation clauses; and iii. restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing. Operating Leases: Lease payments under an operating lease should be recognized as an expense in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern of the user's benefit. The lessee should make the following disclosures for operating leases: a. the total of future minimum lease payments under non-cancellable operating leases for each of the following periods: i. not later than one year;

ii. later than one year and not later than five years; iii. later than five years; b. the total of future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date; c. lease payments recognized in the statement of profit and loss for the period, with separate amounts for minimum lease payments and contingent rents; d. sub-lease payments received (or receivable) recognized in the statement of profit and loss for the period; Leases in the Financial Statements of Lessors Finance Leases: The lessor should recognise assets given under a finance lease in its balance sheet as a receivable at an amount equal to the net investment in the lease. Under a finance lease substantially all the risks and rewards incident to legal ownership are transferred by the lessor, and thus the lease payment receivable is treated by the lessor as repayment of principal, i.e., net investment in the lease, and finance income to reimburse and reward the lessor for its investment and services. The lessor should make the following disclosures for finance leases: a. a reconciliation between the total gross investment in the lease at the balance sheet date, and the present value of minimum lease payments receivable at the balance sheet date. In addition, an enterprise should disclose the total gross investment in the lease and the present value of minimum lease payments receivable at the balance sheet date, for each of the following periods: i. not later than one year; ii. later than one year and not later than five years; iii. later than five years; b. unearned finance income; c. the unguaranteed residual values accruing to the benefit of the lessor; d. the accumulated provision for uncollectible minimum lease payments receivable; e. contingent rents recognized in the statement of profit and loss for the period;

f. a general description of the significant leasing arrangements of the lessor; and g. accounting policy adopted in respect of initial direct costs. Operating Leases: The lessor should present an asset given under operating lease in its balance sheet under fixed assets. Lease income from operating leases should be recognized in the statement of profit and loss on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which benefit derived from the use of the leased asset is diminished. The depreciation of leased assets should be on a basis consistent with the normal depreciation policy of the lessor for similar assets, and the depreciation charge should be calculated on the basis set out in AS 6, Depreciation Accounting. AS-20: Earnings per Share Effective date: 1-Apr-2001 This standard is relevant only for companies with equity share capital. The objective of this Statement is to prescribe principles for the determination and presentation of earnings per share, which will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise. The focus of this Statement is on the denominator of the earning per share calculation. Even though earnings per share data has limitations because of different accounting policies used for determining earnings, a consistently determined denominator enhances the quality of financial reporting. Slide 13: AS-21: Consolidated Financial Statements Effective date: 1-Apr-2001 This standard is designed for holding companies and group companies and applies only if consolidated statements are prepared by the group or parent company. Some concepts are relevant to consolidation of accounts of NGOs The objective of this statement is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated Financial statements are presented by the parent of a group to provide financial information about the economic activities of its groups. AS-22: Accounting for Taxes on Income Applies selectively from 1-Apr-2001 onwards and applies to all from 1-Apr-2003

It deals with the estimation and disclosure of income tax. This Statement should be applied in accounting for taxes on income. This includes the determination of the amount of the expense or saving related to taxes on income in respect of an accounting period and the disclosure of such an amount in the financial statements. The objective of this Statement is to prescribe accounting treatment for taxes on income. Taxes on income is one of the significant items in the statement of profit and loss of an enterprise. In accordance with the matching concept, taxes on income are accrued in the same period as the revenue and expenses to which they relate. Matching of such taxes against revenue for a period poses special problems that arise from the fact that in a number of cases, taxable income may be significantly different from the accounting income. This divergence between taxable income and accounting income arises due to two main reasons. Firstly, there are differences between items of revenue and expenses as appearing in the statement of profit and loss and the items which are considered as revenue, expenses or deductions for tax purposes. Secondly, there are differences between the amount in respect of a particular item of revenue or expense as recognized in the statement of profit and loss and the corresponding amount which is recognized for the computation of taxable income. Recognition: Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period. Deferred tax should be recognized for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Presentation and Disclosure: An enterprise should offset assets and liabilities representing current tax if the enterprise: (a) has a legally enforceable right to set off the recognized amounts; and (b) intends to settle the asset and the liability on a net basis.

An enterprise will normally have a legally enforceable right to set off an asset and liability representing current tax when they relate to income taxes levied under the same governing taxation laws; and the taxation laws permit the enterprise to make or receive a single net payment. AS-23: Accounting for Investments in Associates in Consolidated Financial Statements Effective date: 1-Apr-2002 This standard applies only if consolidated statements are prepared by the enterprises.

Slide 14: This slide brings out the difference between the International Accounting Standards and Indian Accounting Standards. The following are the differences Reporting Vs. Disclosure: Firstly the accent of the Indian accounting standards is on reporting where as the accent of the US GAAP is on disclosure and transparency. For example in India it is not necessary to disclose the portion of long-term debt which has an unexpired term of maturity of less than one year. This gives an erroneous picture of the potential short-term liabilities of the company and the liquidity risk that the company could face in such an eventuality. The US GAAP on the contrary insists on the disclosing the portion of long-term debt separately which has an un expired term to maturity of less than one year.

Form vs. Substance: The accent of the Indian Accounting standards is on form where as the accent of the US GAAP is on the substance of the transaction. For example, while accounting of a lease in India the depreciation benefit is available to the lessor because in structure or form a lease deal is not a sale. On the contrary, in the US GAAP a lease deal confers the depreciation benefit on the lessee since the benefits of the productive use of the asset rests with the lessee

Accounting vs. Analysis The accent of the Indian accounting standards is on abiding by accounting principles whereas the accent on the US GAAP is on presenting a true and fair picture of the financial position of the company to the analysts. For example, under the US GAAP the companies are required to disclose the sales, operating profits and the assets that can be identified with each product division enabling analysts to get a true and unbiased picture of the performance and profitability of each division . According to the Indian accounting standards it is not necessary.

Globalization vs. Localization The other difference between the Indian Accounting Standards and the US GAAP is that the accent of Indian accounting standards is on localization of the business while the accent of the US GAAP is on globalization of the business. The US GAAP stipulates that companies consolidate their subsidiary accounts and show the results as a part of the parent company accounts. This has provided an incentive to US corporates to expand offshore through subsidiaries and ensure its good performance.

Changes in Indian Accounting standards and their impact: Like any other listed firms, Satyam Computers is now required to consolidate its accounts of its subsidiaries into its balance sheet. Satyam reported a net profit of around 119 crore in the quarter ending December 2001. But, its 52.5 subsidiary, Satyam Infoway, reported a net loss of around Rs.391.96 crore as per US GAAP. Under the new norms, Satyam Computers would be required to add the losses of its subsidiary as its bottom-line after subtracting the minority interest i.e. after subtracting 47.5 percent of net losses.

If Satyam Infoways losses are not taken into account, the situation is very bright. However, one cannot be happy once Satyam Infoways losses are taken into account.

How ever, new accounting norms do not necessarily mean losses to the companies. Some companies are going to see a jump in their net profits. For example, Reliance is likely to see a jump in net profit after consolidating the accounts of Reliance Petroleum. Similarly, there is going to be a jump in the profits of State Bank of India by 20 percent after it consolidates the accounts of its subsidiaries. Criticism of US Accounting Standards

The current standard setting process is too cumbersome and slow Much of the recent FASB guidance is rule based and inhibits transparency Much of the recent FASB guidance is too complex Accounting Standards Should Change

It is widely believed that rather than enforcing standards based on specific rules, if it were on it were on intent, there is a possibility of avoiding the loopholes exploited by many companies. The International Accounting bodies like the International Accounting Standards Board and the Financial Accounting Standards Boards are trying their best to change the accounting rules to benefit both the companies and the investing companies and the investing community by way of better and informed financial statements.

Capital markets all over the world, particularly the US capital markets are plagued by murky accounting standards. Enron is the best example for this. All this has resulted in the lack of confidence in the US financial reporting standards. It may result in deterring the foreign investors trust on the most revered and feared US GAAP.

Many fear that the situation in US may result in many mangers around the world withdrawing their investments from US. The reason for US not to ensue with accounting standards is its negative networth against the world. Consider these figures: World assets in the US amount to $7.3 tn, Us investment outside its borders is $5.2 tn.

To understand the amusing aspect of the US accounting standards, consider this example. A company that owns an asset, say an aircraft, and finances this asset with debt, reports it as an asset and liability. Under the existing accounting standards, if the company acquires the asset under a lease structured as an operating lease, it will neither report the asset nor the liability. So this makes the situation where it is possible for a company to operate an airline without reporting any of its principle assets on the balance sheet. Thus a Balance Sheet that presents an airline without showing it on the sheet is not a faithful representation of economic reality. All these make a case to harmonize global accounting standards for the benefit of both global and US investors.

Slide 15: This slide summarizes what has been covered in the session. The main points on which the session dealt are: Format for standards Evolution of International Accounting Standards. Overview of different standards mentioned in the Indian Accounting Standards. Tracing the difference between International Accounting Standards and Indian Accounting Standards

Session Objectives To understand the basics of accounting To understand the different types of accounting; distinction between various types of accounting

To understand the financial statements and their importance To understand the various concepts and conventions that help in the preparation of accounts Definition of Accounting the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof -American Institute of Certified Public Accountants

Financial Statements Income Statement Trading account

Profit and Loss Account Profit and Loss Appropriation Account Balance Sheet

Definition of accounting Classification of accounting Various financial statements used in accounting Different users of financial statements? Concepts of capital and income Different accounting concepts

Summarize: Definition of accounting Classification of accounting Various financial statements used in accounting Different users of financial statements? Concepts of capital and income Different accounting concepts