Accounting Standard 5 on

‘Revised Net Profit or Loss for
the Period, Prior Period Items
and Changes in Accounting
Policies’
and
Accounting Standard 9 on
‘Revenue Recognition’
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• All entities are faced with the alternatives in
adjustment of prior period items and take into
account any changes in the accounting policies at
the time of preparation of their financial
statements and of recognition of revenue as and
when financial statements are prepared.
Adjustment of prior period items and recognition
of revenue are capable of different treatment while
preparing financial statements. AS 5 and AS 9 try
to bring uniformity in these areas.
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Points to be covered in this
session
• During this session we will learn about
treatment of:
•  Prior Period Items and Changes in
Accounting Policies; and
• Recognition of Revenue;

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as an Auditor. the learner will be able to explain various provisions contained in the Accounting Standard –5 and Accounting Standard-9 to the extent that he. will be able to apply these Standards during the audit of Financial Statements.Learning objective • At the end of this session. Financial Audit Auto 4 .

Accounting Standards (AS 5) Revised Net Profit or Loss for the Period. Prior Period Items and Changes in Accounting Policies Financial Audit Auto 5 .

Financial Audit Auto 6 .Accounting Standards 5objective • The objective of this Statement is to prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis.

or arising from.Definitions • Ordinary activities are any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of. Financial Audit Auto 7 . these activities. incidental to.

therefore. Financial Audit Auto 8 . are not expected to recur frequently or regularly.Definitions • Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and.

in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Financial Audit Auto 9 .Definitions • Prior period items are income or expenses. which arise.

Definitions • Accounting policies are the specific accounting principles and the methods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements. Financial Audit Auto 10 .

Financial Audit Auto 11 .Definitions • Ordinary activities are any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of. these activities. or arising from. incidental to.

Net Profit or Loss for the Period • All items of income and expense which are recognized in a period should be included in the determination of net profit or loss for the period unless an Accounting Standard requires or permits otherwise Financial Audit Auto 12 .

Net Profit or Loss for the Period • The net profit or loss for the period comprises the following components. each of which should be disclosed on the face of the statement of profit and loss: a.profit or loss from ordinary activities. and b.extraordinary items Financial Audit Auto 13 .

Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period.Extraordinary Items • 8. Financial Audit Auto 14 . The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived.

Profit or Loss from Ordinary Activities • When items of income and expense within profit or loss from ordinary activities are of such size. Financial Audit Auto 15 . 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.

Financial Audit Auto 16 .Prior Period Items • The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived.

the period of the change. Financial Audit Auto 17 . or b.Changes in Accounting Estimates • The effect of a change in an accounting estimate should be included in the determination of net profit or loss in: a.the period of the change and future periods. if the change affects both. if the change affects the period only.

Changes in Accounting Estimates • The effect of a change in an accounting estimate should be classified using the same classification in the statement of profit and loss as was used previously for the estimate. Financial Audit Auto 18 .

If it is impracticable to quantify the amount. should be disclosed.Changes in Accounting Estimates • The nature and amount of a change in an accounting estimate which has a material effect in the current period. this fact should be disclosed. or which is expected to have a material effect in subsequent periods. Financial Audit Auto 19 .

Financial Audit Auto 20 .Changes in Accounting Policies • A change in an accounting policy should be made only if the adoption of a different accounting policy is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate presentation of the financial statements of the enterprise.

wholly or in part.Changes in Accounting Policies • Any change in an accounting policy. such change. Financial Audit Auto 21 . and the adjustments resulting from. should be shown in the financial statements of the period in which such change is made. the fact of such change should be appropriately disclosed in the period in which the change is adopted. to reflect the effect of such change. the fact should be indicated. which has a material effect. if material. should be disclosed. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods. Where the effect of such change is not ascertainable. The impact of.

contained in that Accounting Standard.Changes in Accounting Policies • A change in accounting policy consequent upon the adoption of an Accounting Standard should be accounted for in accordance with the specific transitional provisions. if any. disclosures required by this Statement should be made unless the transitional provisions of any other Accounting Standard require alternative disclosures in this regard Financial Audit Auto 22 . However.

Accounting Standards (AS 9) Revenue Recognition Financial Audit Auto 23 .

• the rendering of services. and • the use by others of enterprise resources yielding interest. royalties and dividends. Financial Audit Auto 24 .Accounting Standards (AS 9) Revenue Recognition • This Statement deals with the bases for recognition of 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 the ordinary activities of the enterprise from • the sale of goods.

Revenue arising from hire-purchase. Financial Audit Auto 25 . Revenue of insurance companies arising from insurance contracts. Revenue arising from government grants and other similar subsidies. • ii. • iv. Revenue arising from construction contracts. lease agreements.Accounting Standards (AS 9) Revenue Recognition • This Statement does not deal with the following aspects of revenue recognition to which special considerations apply: • i. • iii.

• Iv. Revenue arising from government grants and other similar subsidies. lease agreements. • ii. Revenue arising from hire-purchase. Financial Audit Auto 26 . • iii.items not included within the definition of ‘revenue’ • i. Revenue of insurance companies arising from insurance contracts. Revenue arising from construction contracts.

receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods.Definitions • 1. Revenue is measured by the charges made to customers or clients for goods supplied and services rendered to them and by the charges and rewards arising from the use of resources by them.1 Revenue is the gross inflow of cash. Financial Audit Auto 27 . from the rendering of services. royalties and dividends. and from the use by others of enterprise resources yielding interest.

which recognizes revenue in the statement of profit and loss only when the rendering of services under a contract is completed or substantially completed. Financial Audit Auto 28 .Definitions • Completed service contract method is a method of accounting.

1 Proportionate completion method is a method of accounting. which recognizes revenue in the statement of profit and loss proportionately with the degree of completion of services under a contract.Definitions • 1. Financial Audit Auto 29 .

and • the use by others of enterprise resources yielding interest. The Statement is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from • the sale of goods. royalties and dividends. • the rendering of services.Accounting Standards (AS 9) Revenue Recognition • This Statement deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. Financial Audit Auto 30 .

Accounting Standards (AS 9) Revenue Recognition • This Statement deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. royalties and dividends. and • the use by others of enterprise resources yielding interest. The Statement is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from • the sale of goods. Financial Audit Auto 31 . • the rendering of services.