ACCOUNTING STANDARDS By CA CS Harish A Mathariya

99 70 66 88 07

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ACCOUNTING STANDARDS
written policy documents issued by expert accounting body or by government or
other regulatory body
AS covers following aspects
 recognition,
 measurement,
 presentation and
 Disclosure
of accounting transactions

reduce the accounting alternatives

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ACCOUNTING STANDARDS DEAL WITH
1. Recognition of events and transactions in the financial statements;
2. Measurement of these transactions and events;
3. Presentation of these transactions and events in the financial statements in a
manner that is meaningful and understandable to the reader; and
4. Disclosure requirements for better understanding of F.S. by SH & potential
investors

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 WHY ACCOUNTING STANDARDS?
• To ensure transparency, consistency, comparability, adequacy and reliability of
financial reporting, it is essential to standardize the accounting principles and
policies.
• Accounting Standards (ASs) provide framework and standard accounting policies
for treatment of transactions and events so that the financial statements of different
enterprises become comparable
• Are written policy documents issued by the expert accounting body or by the
government or other regulatory body covering the aspects of recognition,
measurement, presentation and disclosure of accounting transactions and events in
the financial statements

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PROCESS OF FORMULATION OF ACCOUNTING
STANDARDS

Identification of Constitution of Preparation of Ascertainment of

area study group draft and its views of different
circulation bodies on draft

Finalisation of Comments
exposure draft received on Modification of Issue of AS
(E.D.) exposure draft the draft
(E.D.)

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 OBJECTIVES OF ACCOUNTING STANDARDS
1. Eliminate the non-comparability of financial statements and thereby
improving the reliability of financial statements; and
2. Provide a set of standard accounting policies, valuation norms and
disclosure requirements.
3. Accounting standards reduce the accounting alternatives in the preparation
of financial statements

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 BENEFITS OF ACCOUNTING STANDARDS
1. Standardisation of alternative accounting treatments
2. Certain areas where important information are not statutorily required to
be disclosed. Standards may call for disclosure beyond that required by
law.
3. Facilitate comparison of financial statements of companies situated in
different parts of the world and also of different companies situated in the
same country.

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LIMITATIONS OF ACCOUNTING STANDARDS
1. Difficulties in making choice between different treatments
2. Restricted scope: Accounting standards cannot override the statute
3. Lack of flexibilities

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ACCOUNTING STANDARD AND AUDITORS
1. It is the duty of the auditors to ensure that the AS are compiled with
2. (Section 143(3)(e)) requires auditor to report whether in his opinion the financial
statements comply with the AS referred in section 133 of the Companies Act,
2013.

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APPLICABILITY OF ACCOUNTING STANDARDS
1. Entities were classified into three levels I, Level II entities and Level III entities
2. But, according to Government, there are two levels, namely, Small and Medium-
sized Companies (SMCs) and companies other than SMCs.
3. Non-SMCs are required to comply with all the Accounting Standards in entirety,
while certain exemptions/ relaxations have been given to SMCs.

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LEVEL 1 ENTITIES
1. Securities are listed or are in the process of listing
2. Banks (including cooperative banks), financial institutions or entities carrying on
insurance business.
3. (All C/I/BR) whose turnover (excluding other income) exceeds rupees fifty crore in
PY.
4. (All C/I/BR) having borrowings (including public deposits) more than ten crore @
any POT in PY.
5. Holding and subsidiary entities of any one of the above.

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LEVEL II ENTITIES
1. (All C/I/BR) whose turnover (excluding other income) exceeds rupees 10 crore in
PY.
2. (All C/I/BR) having borrowings (including public deposits) more than 1 crore @
any POT in PY.
3. Holding and subsidiary entities of any one of the above.

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LEVEL III ENTITIES (SMES)
Non-corporate entities which are not covered under Level I and Level II are
considered as Level III entities.

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SMALL-AND MEDIUM-SIZED COMPANY
1. whose equity or debt securities are not listed or are not in the process of listing on
any stock exchange, whether in India or outside India;
2. which is not a bank, financial institution or an insurance company;
3. whose turnover (excluding other income) did not exceed rupees fifty crore in the
immediately preceding accounting year;
4. which does not have borrowings (including public deposits) in excess of rupees ten
crore at any time during the immediately preceding accounting year; and
5. which is not a holding or subsidiary company of a company that is not a small-and
medium-sized company.

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ENTERPRISES TO WHICH THE ACCOUNTING
STANDARDS APPLY
1. Commercial, industrial or business activities, whether or not profit oriented and
even if established for charitable or religious purposes
2. however, do not apply to enterprises solely carrying on the activities, which are
not of commercial, industrial or business nature
3. Even if a very small proportion of the activities of commercial nature, AS will
apply

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AS 1 Disclosures of Accounting Policies AS 22 Accounting for Taxes on Income
AS 2 Valuation of Inventories AS 24 Discontinuing Operations
AS 4 Contingencies and Events Occurring After the AS 25 Interim financial Reporting
Balance Sheet Date AS 26 Intangible Assets
AS 5 Net Profit or Loss for the Period, Prior Period Items AS 27 Financial Reporting of Interest in Joint Venture
and Changes in Accounting Policies
AS 28 Impairment of Assets
AS 6 *Depreciation Accounting AS 29 Provisions, Contingent Liabilities & Contingent Assets.
AS 7 Construction Contracts (revised 2002) AS 30 *Financial Instruments: Recognition and Measurement
AS 9 Revenue Recognition AS 31 *Financial Instruments: Presentation
AS 10 Accounting for PPE AS 32 *Financial Instruments: Disclosures
AS 11 The Effects of Changes in Foreign Exchange Rates
(revised 2003)
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 16 Borrowing Costs
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 EPS
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INDIAN ACCOUNTING STANDARDS
(GLOBAL STANDARDS)
1. Convergence towards Global Standards
2. Transparency of financial statements
3. Comparability of financial statements
4. Enhanced Disclosure requirements

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 NEED FOR CONVERGENCE TOWARDS GLOBAL
STANDARDS
1. Each country has its own set of rules and reg. for accounting and financial reporting
2. when an enterprise wants to raise capital from the markets of other country
3. In turn will require understand the differences between the rules governing financial
reporting in the foreign country as compared to its own country
4. Hence, translation and re-instatements are important in a world that is rapidly
globalising
5. International analysts and investors would like to compare financial statements based
on similar accounting standards
6. Also a strong need was felt by legislation to bring about uniformity, rationalization,
comparability, transparency and adaptability in F.S.
7. For free flow of global investment and achieves benefits for all capital market
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INTERNATIONAL FINANCIAL REPORTING
STANDARDS
• To achieving convergence towards global reporting, a London based group
(IASB) responsible for developing International Accounting Standards, was
established in June, 1973.
• IASB publishes its Standards in a series of pronouncements called
International Financial Reporting Standards (IFRS). However, IASB has not
rejected the standards issued by the ISAC. Those pronouncements continue
to be designated as “International Accounting Standards” (IAS).
• The term IFRS comprises IFRS issued by IASB; IAS issued by International
Accounting Standards Committee (IASC); Interpretations issued by the
Standard Interpretations Committee (SIC) and the IFRS Interpretations
Committee of the IASB.
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BENEFITS OF CONVERGENCE WITH IFRS
1. The Economy: benefits the economy by increasing growth of its
international business. It facilitates maintenance of orderly and efficient
capital markets and also helps to increase the capital formation and
thereby economic growth
2. Investors: Investors want the information that is more relevant, reliable,
timely and comparable across the jurisdictions. Financial statements
prepared using a common set of accounting standards help investors better
understand investment opportunities as opposed to financial statements
prepared using a different set of national accounting standards
3. The Industry: The industry is able to raise capital from foreign markets at
lower cost if it can create confidence in the minds of foreign investors that
their financial statements comply with globally accepted accounting
standards FOR VIDEO LECTURES CALL 8888 545 545
DEVELOPMENT IN INDIAN ACCOUNTING
STANDARDS (IND AS)
• ICAI initiated the process of moving towards IFRS in 2006 with a view to
enhance acceptability and transparency of the financial information
• The Government of India in consultation with the ICAI decided to converge
and not to adopt IFRSs issued by the IASB
• While formulating IFRS converged Indian Accounting Standards (Ind AS)
certain changes have been made considering the economic environment of
the country

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WHAT ARE INDIAN ACCOUNTING STANDARDS
(IND AS)?
o Indian Accounting Standards (Ind-AS) are the;
o IFRS converged standards issued by the Central Government of India;
o under the supervision and control of Accounting Standards Board (ASB) of
ICAI and
o in consultation with National Advisory Committee on Accounting Standards
(NACAS)
o NACAS recommend these standards to the MCA.
o MCA has to spell out the standards (AS) applicable for companies in India.
o The Ind AS are named and numbered in the same way as the corresponding
IFRS
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GOVERNMENT OF INDIA - COMMITMENT
TO IFRS CONVERGED IND AS
Initially Ind AS were expected to be implemented from the year 2011
But due to certain issues MCA decided to postpone the date of implementation
In July 2014, the Finance Minister of India (Shri Arun Jaitely ji) announced an urgency to
converge the existing accounting standards with IFRS
Then, various steps have been taken to facilitate the implementation of IFRS-converged Indian
Accounting Standards (Ind AS).
MCA issued revised roadmap of implementation of Ind AS for companies other than Banking
companies, Insurance Companies and NBFCs and Indian Accounting Standards (Ind AS).
As per the Notification, Ind AS converged with IFRS shall be implemented on voluntary basis
from 1st April, 2015 and mandatory from 1st April, 2016.
Later on, in 2016 MCA notified roadmap for NBFC announcing implementation date for Ind
AS. Similarly, Banking and Insurance regulatory authority have issued separate roadmaps for
implementation of Ind AS for Banking and Insurance companies respectively FOR VIDEO LECTURES CALL 8888 545 545
• IAS-1-Presentation of Financial Statements • IAS-26- Accounting and reporting by retirement benefit plans

• IAS-2- Inventories • IAS-27- Consolidated and Separate Financial Statements

• IAS-7- Cash Flow Statements • IAS-28- Investment in Associates

• IAS-8- Accounting Policies, Change in Accounting estimates and Errors • IAS-29- Financial Reporting in Hyperinflationary Conditions

• IAS-10- Events after balance sheet date • IAS-31- Interest in Joint Ventures

• IAS-11- Construction Contracts • IAS-32- Financial Instruments- Presentation

• IAS-12- Income Taxes • IAS-33- Earning Per Share

• IAS-16-Property, Plant and Equipments • IAS-34- Interim Financial Reporting

• IAS-17- Leases • IAS-36- Impairment of Assets

• IAS-18- Revenue • IAS-37- Provisions, Contingent Liabilities and Contingent Assets

• IAS-19- Employee Benefits • IAS-38- Intangible Assets

• IAs-20-Accounting for Govt Grant and Disclosure of Govt. Assistance • IAS-39- Financial Instruments: Recognition and Measurement

• IAS-21- Effect of Changes in Forex Rates • IAS-40-Investment Property

• IAS-23-Borrowing Costs • IAS-41- Agriculture

• IAS-24- Related Party Disclosures

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1. X LTD. PURCHASED GOODS AT THE COST OF RS. 40 LAKHS IN OCTOBER, 2018. TILL MARCH,
2019, 75% OF THE STOCKS WERE SOLD. THE COMPANY WANTS TO DISCLOSE CLOSING STOCK AT
RS. 10 LAKHS. THE EXPECTED SALE VALUE IS RS. 11 LAKHS AND A COMMISSION AT 10% ON SALE
IS PAYABLE TO THE AGENT. WHAT IS THE CORRECT CLOSING STOCK TO BE DISCLOSED AS AT
31.3.2019 AS PER AS-2?
(A) 1.0 Lakhs
(B) 9.9 Lakhs
(C) 11 lakhs
(D) 12 lakhs

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2. NET PROFIT FOR YEAR = RS. 2,00,00,000
NUMBER OF EQUITY SHARES OUTSTANDING ARE 40,00,000.
NUMBER OF 11% CONVERTIBLE DEBENTURES OF RS. 100 EACH = 50,000 (E ACH DEBENTURE IS CONVERTIBLE INTO 8
EQUITY SHARES)
TAX RATE = 30%
DILUTED EPS = ?

(A) Rs. 5.63 per share

(B) Rs. 3.63 per share
(C) Rs. 4.63 per share
(D) Rs. 5.83 per share

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3. HM LTD. HAD 12,00,000 EQUITY SHARES ON1.4.2012. IT EARNED A PROFIT OF RS. 30,00,000 DURING THE YEAR
2015-2016. THE FAIR VALUE OF SHARE IS RS. 25. THE COMPANY HAS GI VEN SHARE OPTION TO ITS EMPLOYEES OF
2,00,000 EQUITY SHARES AT AN OPTION PRICE OF RS. 15. CALCULATE DILUTED EPS.

(A) Rs. 2.43 per share

(B) Rs. 2.50 per share
(C) Rs. 2.34 per share
(D) Rs. 2,23 per share

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4. X LTD. SUPPLIES FOLLOWING INFORMATION: NET PROFIT FOR THE YEAR 201 8: RS. 20,00,000 NET PROFIT FOR THE
YEAR 2019: RS. 30,00,000 NO. OF SHARES OUTSTANDING PRIOR TO RIGH T ISSUE: 10,00,000 SHARES
RIGHT ISSUE: ONE NEW SHARE FOR EACH FOUR OUTSTANDING IE. 2,50,000 SHARES.
RIGHT ISSUE PRICE: RS. 20
LAST DATE OF EXERCISE RIGHTS: 31.3.2019.
FAIR VALUE OF ONE EQUITY SHARE IMMEDIATELY PRIOR TO EXERCISE OF RIGHTS ON 31.3.2019: RS. 25 BASIC EPS = ?

(A) Rs..2.34 per share

(B) Rs. 2.83 per share
(C) Rs. 2.50 per share
(D) Rs. 2.77 per share

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5. DETAILS OF SHARES OF XM LTD. ARE GIVEN BELOW. WEIGHTED AVERAGE NUMBER OF EQUITY SHARES
1.4.2018 Balance of shares 4,80,000
31.8.2018 Shares issued 3,60,000
1.2.2019 Shares bought back 1,80,000
31.3.2019 Balance of shares 6,60,000
(A) 6,60,000 shares
(B) 6,40,000 shares
(C) 6,20,000 shares
(D) 6,30,000 shares

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 ROAD MAP FOR THE APPLICATION OF
IND. AS BY MCA
Phase 1: Mandatory for accounting periods beginning on or after 1st April 2016
(A)
Companies whose equity and/or debt securities are listed
Companies who are in the process of listing on any stock exchange in India or outside India
Companies having a net worth of Rs. 500 Crore or more.
(B)
Unlisted companies having a net worth of Rs. 500 Crore or more.
(C)
Holding, subsidiary, joint venture or associate companies of companies covered in (A) and
Comparative information required for the period ending 31st March 2016 or thereafter. The roadmap does
not mention the net worth criteria for holding, subsidiary, joint venture or associate companies covered in (C)
above. Accordingly, it appears that even smaller sized companies in this category will get covered in Phase
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 …..ROAD MAP FOR THE APPLICATION OF IND.
AS BY MCA
Phase 2: Mandatory for accounting periods beginning on or after 1st April 2017
(D)
Companies whose equity and / or debt securities are listed
Companies who are in the process of listing on any stock exchange in India or outside India
Companies having a net worth greater than or equals to 250 crores but less than Rs. 500 Crore.
(E)
Unlisted companies having a net worth of Rs. 250 Crore or more but less than Rs. 500 Crore and not
covered in any of the other categories.
(F)
Holding, subsidiary, joint venture or associate companies of companies covered in (D) and (E)

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DISTINGUISH BETWEEN: IFRS & IGAAP
Points IFRS
First time adoption Full retrospective application of IFRS to Profit &
Loss A/ c and Balance Sheet.
Reconciliation of Profit & Loss A/c and Balance
Sheet in respect of last year reported numbers
under previous GAAP.
Components of Comprises of Balance Sheet, Profit & Loss A/c,
Financial Statements Cash Flow Statement, changes in equity and
accounting policy and notes to Accounts
IGAAP
No needs to prepare reconciliation on first time
adoption
Comprises of Balance Sheet, Profit and Loss A/c.
Cash Flow Statement (if applicable), and Notes
to Accounts.

Balance Sheet No particular format, a current/non-current As per Format Prescribed in Schedule to the
presentation of assets and liabilities is used. Companies Act for Companies, adherence to
Banking Regulation for Banks etc.

Income No particular format prescribed As per Format Prescribed in to the Companies

Statement (IAS-1) Act (AS-1).

Cash Flow Mandatory for all entities (IAS-7) Level 3 entities are exempted (AS-3)
Statements

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…… DISTINGUISH BETWEEN: IFRS & IGAAP
Points IFRS IGAAP
Dividends Liability to be recognized in the period when Recognized as an appropriation against the
dividend is declared. (IAS-10) profit, and recorded as liability at BS date even
if declared subsequent to reporting period but
before the approval of Financial statements (AS-
4)
Cost of major Recognized in carrying amount of the assets (IAS- Expensed off. Only expenses which increase the
repairs and overhaul 16). FEB are to be capitalized (AS-10).
expenditure on fixed
assets

Revaluation Revaluation (if done) to be updated periodically so No specific requirement for revaluation.
that carrying amount does not differ from fair Revaluation can be done on systematic basis like
value at the end period. Revaluation to be done for one location leaving aside the assets of other
for entire class of assets (IAS-16). location (AS-10).

Change in the Considered as a change in accounting estimate. To Considered as change in accounting policy,
method of Be applied prospectively. (IAS-16 and IAS 8) retrospective computation and excess or deficit is
depreciation adjusted in same period. Required to be disclosed
(AS-6)
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…… DISTINGUISH BETWEEN: IFRS & IGAAP
Points IFRS IGAAP

Earnings Per Share Disclosure to be made in only consolidated Disclosure of EPS in both consolidated and separate
financials of the parent Co. (IAS-33) financials. (AS-20)

Intangible Intangible assets can have Ind.efinite useful life There is no concept of Indefinite useful life. Assets
Assets and hence such assets are tested for impairment have definite life, (usually 10 years)
and not amortized.

Reporting Requires the measurement of profit using the Schedule to the Companies Act specifies Indian
Currency functional currency. Entities may, however, present Rupees as the reporting currency. (AS-11)
financial statements in a different currency. (IAS-
21)

Key Includes Executive as well as non-executive Excludes non-executive directors.

Management directors (IAS-24) (AS-18)
Personnel
(KMP)

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…… DISTINGUISH BETWEEN: IFRS & IGAAP
Points IFRS IGAAP

Compensation to Disclosure to be made for total compensation such AS-18 does not require the break-up of
KMP as short term employee benefits and post- compensation cost.
employment benefits.

Fringe Benefits Tax Included as part of related expense (fringe Disclosed as a separate item after profit before tax
benefit) which gives rise to incurrence of the tax. on the face of the income statement.

Uniform Prepared using uniform accounting policies across Policies may differ due to impracticability. (AS-21)
Accounting all entities in a group. (IAS-27)
Policies

Disclosure of Prohibits such disclosure (IAS-1). No such term in Disclosure to be made in notes (AS-5)
extraordinary items IFRS

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