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UNDERSTANDING OF ACCOUNTING STANDARDS

AGENDA OF DISCUSSION

y Introduction of Accounting Standards y Objectives of Accounting Standards y Types of Accounting Standards

Introduction
y Written Documents issued by Government or

Regulatory Body
y In India, issued by ICAI on 21st April,1977 y Initiated by Kumar Mangalam Birla, chairman

committee of Corporate Governance for Financial Disclosures

Institute of Chartered Accountants of India
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Council of Institute of Chartered Accountants issues from time-to-time preface to the statements of accounting standards that defines the various aspects of accounting standards. It established an Accounting Standards Board (ASB) on 22nd April, 1977. The function of ASB is to formulate accounting standards, which are then established by the Council of Institute of Chartered Accountants.

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Preface to the Statements of Accounting Standards It defines standards related to following features:       Formation of accounting standards board Objectives and functions of the Accounting Standards Board General purpose financial statements Scope of accounting standards Procedure for issuing an accounting standard Compliance with the accounting standards .

Objectives y Conceive and suggest the area in which accounting standards y y y y y need to be developed Formulate the accounting standard with a view to assist the council of ICAI in evolving and establishing accounting standards in India Considering both International Accounting standard & International Financial Reporting Standard while formulating the standard for India To review at regular intervals from the view point of its acceptance or changed condition. To carry out such other functions relating to accounting standards . To provide time to time interpretation & guidance. and revise the same.

representing Dept of Company¶s affairs on the council of ICAI y Nominee of Central Govt. representing Office of Comptroller & Auditor General of India on the council of ICAI y Nominee of central govt. representing Central Board of Direct Taxes on the council of ICAI y Representative of Institute of Cost & Works Accountant of India y Representative of Institute of Company¶s Secretaries of India y Representative of Industry Association: ASSOCHAM(Associated Chamber of Commerce & Industry) FICCI(Federation of Indian Chamber of Commerce & Industry) CII (Confederation of Indian Industry) .Structure Apart from elected members: y Nominee of Central govt.

) y Representative of Reserve bank of india y Representative of SEBI y Representative of Controller General of Accounts y Representative of Central board of Excise & Custom y Representative of Academic Institution( Universities/ y y y y y IIMs etc.Structure(cont.) Representative of Financial Institution Representative of Eminent Professional Co-opted by ICAI Chairman of the Research Committee Chairman of the Expert Advisory Committee Representative of any other body as considered by ICAI .

Accounting Standards in Different Nations y In India. there are 41 Accounting Standards called as IFRS y Adopted by 8 countries in the world y 70 to 80 countries planning to adhere IFRS . 32 Accounting Standards as ASB y As per International body International Accounting Standard Committee.

AS 30 to AS 32 Initiation 1979 to 1995 2000 to 2007 Later part of 2007 . AS 1 to AS 15 2. AS 16 to AS 29 3.Evolution and Types of AS Accounting Standards 1.

Better comparison analysis 3. Mostly needed w.r. Better understanding of FS 2.t Depreciation y .AS 1-Disclosure of Accounting Policies Specific policies adapted to prepare FS y Should be disclosed at one place Purpose :1.

Work in progress 3.AS 2.Accounting for Inventories Used for computation of Cost of inventories and to show in BS till it is sold Consists of :1. etc y . Finished goods 4. Raw Materials 2. Spares.

freight inwards) Cost of conversion y Determination of Net realisable value y Comparison of cost and net realisable . duties & taxes.Measurements of Inventories y Determination of Cost of Inventories Cost of purchase (Purchase price.

Cash flow from investing activities y . Cash flow from operating activities 2.AS 3. Cash flow from financing activities 3.Cash Flow Statements Incoming and outgoing of cash y Act as barometer to judge surplus and deficit y Explain Cash flow under 3 heads :1.

AS 4. . frauds & errors.Contingencies and events occurring after BS date y For maintaining Provision of Bad debts y Generally uses Conservative concepts of Accounting like Bankruptcy.

Profit and loss of ordinary activities 2.AS 5. prior period items and change in Accounting policies Ascertain certain criteria for certain items y Include income and expenditures of Financial year y Consists of 2 component 1. Profit and loss of extra ordinary activities y .Net profit or loss for the period.

Straight line method ( SLM ) 2.Accounting for Depreciation A non-cash expenditure y Distribution of total cost to its useful life y Occurs due to obsolescence y Different methods of computation 1. Written-down value or diminishing value (WDV) y .AS 6.

Construction Contract y Contract specifically negotiated for construction of Asset or combination of Assets closely inter-related .AS 7.

identify items of cost which comprise R&D costs lays down condition R&D cost may be deferred and requires specific disclosures to be made regarding R&D costs. .AS 8.Accounting for R&D y To deal with treatment of Cost of research and development in the financial statements.

AS 9. Use of enterprise resources by other yielding interest. Sale of goods 2. y . Rendering services 3. dividend and royalities.Revenue Recognition Means gross inflow of cash and other consideration like arising out of :1.

Accounting for Fixed Assets y Called as Cash generating Assets y Expected to used for more than a Accounting period like land. building. P/M.AS 10. etc y Shown at either Historical or Revalued value .

Category III: Foreign Exchange contracts: a) For managing Risk/hedging b) For trading and Speculation y 1. Category II: Foreign operations: a) Foreign branch b) Joint venture c) Foreign Subsidiary 3. .Effect of change in FOREX Rates Classification for Accounting treatment:Category I: Foreign currency transactions: a) buying and selling of goods or services b) lending and borrowing in foreign currency c) Acquisition and disposition of assets 2.AS 11.

in cash or in kind like 1.Accounting for Govt. Grants related to depreciable FA 3.AS 12.etc 2. Grants Assistance provided by Govt. Land. Tax exemptions in notified area y . Grants of Assets like P/M.

4. interest.AS 13. 2. 5. Assets held for earning incomes like dividend.Accounting for Investments y y 1. 3. 6. etc It involves:Classification of Investment Cost of Investment Valuation of Investment Reclassification of Investment Disposal of Investment Disclosure of Investment in FS . rental for capital appreciation.

1956 governs the provision of amalgamation. Section 391 to 394 of Companies Act. Disclosures: Names and nature of amalgamating companies Effective date of amalgamation Method of Accounting used Particulars of scheme sanctioned under a statute .AS 14. 4. 2. 3.Accounting for Amalgamation y y 1.

insurance companies in exchange of services rendered.Employees Benefits y All forms of consideration given by enterprise directly to the employees or their spouses. to other such as trust.AS 15. . children or other dependants.

AS 16. . installed FA to make it useable and saleable.Borrowing Costs y Interest and cost incurred by an enterprise in connection to the borrowed funds. y Availed for acquiring building.

Segment Reporting It consists of 2 segment:1. y . Business segment 2.AS 17. Geographical segment y Information and different risk and return reporting.

2. Related party are those party that controls or significantly influence the management or operating policies of the company during reporting period Disclosure: Related party relationship Transactions between a reporting enterprises and its related parties. Volume of transactions Amt written off in the period in respect of debts . 3.Related party disclosure y y 1. 4.AS 18.

Accounting for Leases Agreement between Lessor And Lessee y Two types of leases: 1. Operating lease 2. Finance lease y Different from Sale y Classification to be made at the inception y .AS 19.

AS 20.Earning per share y Earning capacity of the firm y Assessing market price for share y AS gives computational methodology for determination and presentation of EPS y 2 types of EPS .

Consolidated Balance Sheet Accounting for Parent and Subsidiary company in single entity y Disclosure:1. Nature of relation whether direct or indirect y . List of all subsidiaries 2.AS 21. Proportion of ownership interest 3.

Current tax 2.Accounting for taxes and income Tax accounted for period in which are accounted y It should be accrued and not liability to pay y Deals in 2 measurements:1.AS 22. Deferred tax y .

.Accounting for investments in Associates in CFS y Objectives to set out principles and procedures for recognizing the investment associates in CFS of the investors. so that effect of investments in associates on financial position of group is indicated.AS 23.

Discontinuing operations y Establishes principles for reporting information about discontinuing operations y Covers discontinuing operations rather than discontinued operation .AS 24.

e 3 months y Clause 41 says publish financial results on quarterly basis y Objective is to provide frequently and timely assessment .AS 25-Interim Financial Reporting (IFR) y Reporting for less than a year i.

Without physical substance y .Intangible Assets No physical existence y Can not be seen or even touched y 3 featured as per AS 1. Identifiable 2. Non-monetary assets 3.AS 26.

Financial Reporting of interest in Joint Venture y What is joint venture? y Three types of JV in case of Financial reporting .AS 27.

Impairment of Assets y Weakening of Assets value y Occurs when carrying cost more than recoverable amt y Carrying cost = Cost of assets ±Accumulated Depreciation .AS 28.

contingent liabilities and assets y Provisions:- It is a Liability Settlement should result in outflow Liability is result of obligating event y Contingent liabilities:- Obligation arises of past event Existence confirmed when actually occurred of uncertain future y Contingent Asset Same as Contingent liability .AS 29.Provision.

Financial Instruments y AS 30 ± Financial Instrument: Recognition and Measurement y AS 31 ± Financial Instrument: Presentation y AS 32 ± Financial Instrument: Disclosures .

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