MODULE 1 : INTRODUCTION

 Meaning of Accounting
 Accounting is all about the process that helps
to record, summarize, analyze, and report
 data that concerns financial transactions. 
 Basic Fundamentals of Accounting
 A – Assets
 L – Liabilities
 O E- Owner’s Equity
 This is one of the basic concepts of accounting.
The equation for the same goes like this:
 Assets = Liabilities + Owner’s Equity
 Following are the Few basic objectives of
Accounting
 Maintaining Records
 Profit and Loss
 Utility of Resources
 Estimation of Financial Position
 Helps in Decision Making
Evolution of Accounting: 

 In India Chanakya wrote a manuscript similar

to a financial management book, during the
period of the Mauryan Empire. His book
"Arthashasthra" contains few detailed aspects
of maintaining books of accounts for a
Sovereign State.
 15th Century
 The Italian Luca Pacioli, recognized as The
Father of accounting and bookkeeping was the
first person to publish a work on 
double-entry bookkeeping, and introduced
the field in Italy.
 19th Century
 The first accounting organization was
established in New York in 1887, solidifying
the status of accounting as a profession. It
later became the American Institute of
Certified Public Accountants. Before this,
accountants typically served only a single
client. The advent of the organization
enabled accountants to start serving multiple
individuals and businesses.
 20th Century
 Computer technology revolutionized
accounting, as bookkeeping no longer had to
be done with paper and pencil.
 In 1978, a spreadsheet program known as
VisiCalc helped streamline the accounting
process.
 IBM launched Lotus 1-2-3 in 1983, an updated
version of VisiCalc.
 In 1985, Windows introduced Microsoft Excel,
which replaced Lotus as the standard for
spreadsheets.
 21st Century
 Technology has improved the speed and
security of the accounting process. Today,
computers can process information faster
and more efficiently than humans, and
automatically update reports and balances.
 Mobile banking also allows businesses to
process transactions from a mobile phone or
tablet with the help of a software application.
Accounting as an Information
System
 Accounting Information System (AIS) is a
system which collects, stores and processes
the accounting and financial data.
 This financial data is useful for users of
accounting information system for reporting
the financial information to
Owners/Shareholders, Managers, Prospective
Investors, Creditors, Bankers, and other
Lending Institutions, Government, etc.
 What is Accounting Information System?
 A collection of multiple pieces of equipment
involved in the dissemination of information
is called an information system (IS).
 Hardware, software, computer networks,
information, information system users, and
the system’s housing are all part of an
information system (IS).
 Accounting is a tool to communicate 
financial and other information to
individuals, organizations, governments etc.
about various aspects of business and non-
business entities.
 Accounting Information Systems connects
Information Technology with 
GAAP (Generally Accepted Accounting Princi
ples).
 For example, when a firm approach for a loan
from a bank, it will have to submit details of
its business activities in terms of operating
profit or loss and the financial position.
 Similarly, the stakeholders must have
financial information of business in order to
evaluate the performance of the
management.
 Characteristics of Accounting Information
 Relevance
 Reliability
 Comparability
 Understandability
 Timeliness
 Completeness
Accounting Principles

 Accounting principles are the rules and

guidelines that companies must follow when
reporting financial data.
 The Financial Accounting Standards Board
 (FASB) issues a standardized set of
accounting principles in the U.S. referred to
as generally accepted accounting principles
 (GAAP).
 Generally accepted accounting principles
 (GAAP) refer to a common set of accounting
principles, standards, and procedures issued
by the Financial Accounting Standards Board
 (FASB).
 Public companies in the United States must
follow GAAP when their accountants compile
their financial statements.
 The most common accounting principle
frameworks used are IFRS, UK GAAP, and US
GAAP.
 ( IFRS : International Financial Reporting
Standards – they set common rules so that
financial statements can be consistent,
transparent and comparable around the
world. )
 Accounting principles ensure that companies
follow certain standards of recording how
economic events should be recognized,
recorded, and presented.
 External stakeholders (for example investors,
banks, agencies etc.) rely on these principles
to trust that a company is providing accurate
and relevant information in their financial
statements.
Examples of accounting
principles
 The following are a few accounting principles:
 1. Going Concern principle: The concept that
assumes a business will continue to exist and
operate in the foreseeable future, and not
liquidate.
  2. Conservatism: This concept allows
accountants to anticipate future losses,
rather than future gains.
 3. The consistency principle : It states that
once you decide on an accounting method or
principle to use in your business, you need to
stick with and follow this method throughout
your accounting periods.
 4. Matching Principle: This definition
demands that the income be compared with
its corresponding expenditure for a given
period to display the true benefit for that
time.
 5. Accrual Accounting Basis: This concept
demands that both revenue and expenditure
be recorded in the actual time incurred, and
not when cash or cash equivalent has been
received/spent.
 6. Accounting Period: This concept means
that a company's accounting process will be
completed within a certain period that is
typically a financial year or a calendar year. 
 7.  ECONOMIC ENTITY PRINCIPLE
 The business is considered a separate entity,
so the activities of a business must be kept
separate from the financial activities of its
business owners.
 8. Full Disclosure Principle : Any important
information that may impact the reader’s
understanding of a business’s financial
statements should be disclosed or included
alongside to the statement.
 Accounting Principles in India
 In India, financial statements are prepared
based on accounting principles provided by
the Institute of Indian Chartered Accountants
(ICAI) and the legislation set out in the
relevant applicable acts (for example, all
companies shall compulsorily follow Schedule
III to Companies Act, 2013).
 The ICAI also publishes guidance notes on
various topics from time to time to assist in
the accounting process and provide
clarification. Although the basic accounting
principles do not explicitly form a part of
accounting standards and related rules, they
are believed to be generally practised and
expected.
Accounting Standards

 Accounting Standards are written policy

documents issued by expert accounting body
or by the government or other regulatory
body covering the aspects of recognition,
measurement, treatment, presentation, and
disclosure of accounting transactions in
financial statements
Accounting Standards

 Accounting standards are the written

statements consisting of rules and guidelines,
issued by the accounting institutions, for the
preparation of uniform and consistent
financial statements and also for other
disclosures affecting the different users of
accounting information.
 Accounting standards lay down the terms and
conditions of accounting policies and
practices by way of codes, guidelines and
adjustments for making the interpretation of
the items appearing in the financial
statements easy and even in their treatment
in the books of account.
Nature of Accounting
Standards:
 (i) Serve as a guide to the accountants:
 Accounting standards serve the accountants
as a guide in the accounting process. They
provide basis on which accounts are
prepared. For example, they provide the
method of valuation of inventories.
 (ii) Act as a dictator:
 Accounting standards act as a dictator in the
field of accounting. Like a dictator, in some
areas accountants have no choice of their
own but to opt for practices other than those
stated in the accounting standards. For
example, Cash Flow Statement should be
prepared in the format prescribed by
accounting standard.
 (iii) Serve as a service provider:
 Accounting standards comprise the scope of
accounting by defining certain terms,
presenting the accounting issues, specifying
standards, explaining numerous disclosures
and implementation date. Thus, accounting
standards are descriptive in nature and serve
as a service provider.
 (iv) Act as a harmonizer:
 Accounting standards are not biased and bring
uniformity in accounting methods. They remove
the effect of diverse accounting practices and
policies. On many occasions, accounting
standards develop and provide solutions to
specific accounting issues. It is thus clear that
whenever there is any conflict on accounting
issues, accounting standards act as harmonizer
and facilitate solutions for accountants.
Objectives of Accounting
Standards:
 In earlier days, accounting was just used for
recording business transactions of financial
nature. Its main emphasis now lies on
providing accounting information in the
process of decision making.
 For the following purposes, accounting
standards are needed:
 (i) For bringing uniformity in accounting
methods:
 Accounting standards are required to bring
uniformity in accounting methods by
proposing standard treatments to the
accounting issue. For example, AS-6(Revised)
states the methods for depreciation
accounting.
 (ii) For improving the reliability of the
financial statements:
 Accounting is a language of business. There are
many users of the information provided by
accountants who take various decisions relating
to their field just on the basis of information
contained in financial statements. In this
connection, it is necessary that the financial
statements should show true and fair view of
the business concern. Accounting standards
when used give a sense of faith and reliability to
various users.
 (iii) Simplify the accounting information:
 Accounting standards prevent the users from
reaching any misleading conclusions and
make the financial data simpler for everyone.
For example, AS-3 (Revised) clearly classifies
the flows of cash in terms of ‘operating
activities’, ‘investing activities’ and ‘financing
activities’.
 (iv) Prevents frauds and manipulations:
 Accounting standards prevent manipulation
of data by the management and others. By
codifying the accounting methods, frauds
and manipulations can be minimized.
 (v) Helps auditors:
 Accounting standards lay down the terms and
conditions for accounting policies and
practices by way of codes, guidelines and
adjustments for making and interpreting the
items appearing in the financial statements.
Thus, these terms, policies and guidelines etc.
become the basis for auditing the books of
accounts.
Evolution

 Recognizing the need to synchronise the

various accounting policies and practices, the
Institute of Chartered Accountants of India
(ICAI) constituted the Accounting Standards
Board (ASB) in April 1977.
 Accounting standards in India are issued by
the ICAI and notified by the Union Ministry of
Corporate Affairs.
 At present, “Indian Accounting Standards”
(Indian AS), a set of standards evolved under
the Companies (Accounting Standards) Rules,
2006, is in force.
 The new accounting standards are expected
to improve India’s place in global rankings in
corporate governance and transparency in
financial reporting.
Issues in Accounting
Standards Setting Process in
India
 Even though the Accounting Standards Board
in India ostensibly represents a wide interest
group, the ultimate say in finalising the
standards vests with the Council of the
Institute of Chartered Accountants of India,
so that the standards end up representing
only dominant interest group, namely, the
accounting profession.
 The deliberations of the Accounting
Standards Board in India are kept
confidential, while else where in the world
such deliberations are open to public
observation.
ASB

 ASB stands for:

 Accounting Standard Board
Composition of ASB

 The composition of the ASB is fairly broad-

based and ensures participation of all
interest-groups in the standard setting
process. Apart from the elected members of
the Council of the ICAI nominated on the
ASB, the following are represented on the
ASB:
 (i) Nominee of the Central Government
representing the Department of Company Affairs
on the Council of the ICAI
 (ii) Nominee of the Central Government
representing the Office of the Comptroller and
Auditor General of India on the Council of the ICAI
 (iii) Nominee of the Central Government
representing the Central Board of Direct Taxes on
the Council of the ICAI
 (iv) Representative of the Institute of Cost and
Works Accountants of India
 (v) Representative of the Institute of Company
Secretaries of India
 (vi) Representative of Reserve Bank of India
 (vii) Representative of Securities and Exchange
Board of India
 (xiii) Representative of Controller General of
Accounts
 (ix) Representative of Central Board of Excise and
Customs
 (x) Representative of Financial Institutions
 xi. Representatives of Academic Institutions
(1 from Universities and 1 from Indian
Institutes of Management)
 (xii. ) Eminent professionals co-opted by the
ICAI (they may be in practice or in industry,
government, education, etc.)
 (xiii) Representative(s) of any other body, as
considered appropriate by the ICAI
Scope and Functions of ASB:

 (1) Main function of ASB is to formulate

accounting standards.
 (2) While formulation of standards ASB has to
consider applicable laws, customs, social and
business environment.
 (3) ASB has to persuade the accounting
professionals and preparers of financial
statements to adopt them.
 (4) ASB has to issue guidance notes on
accounting standards.
 (5) To review all accounting standards from
time to time.
Procedure for Formulation of
Accounting Standards
 Let us take a brief look at the procedure
setting process that the ASB follows
 First, the ASB will identify areas where the
formulation of accounting standards may be
needed
 Then the ASB will constitute study groups
and panels to discuss and study the topic at
hand. Such panels will prepare a draft of the
standards. The draft normally includes the
definition of important terms, the objective
of the standard, its scope, measurement
principles and the representation of said data
in the financial statements.
 The ASB then carries out deliberations of the
said draft of the standard. If necessary changes
and revisions are made.
 Then this preliminary draft is circulated to all
concerned authorities. This will generally
include the members of the ICAI, and any other
concerned authority like the Department of
Company Affairs (DCA), the SEBI, the CBDT,
Standing Conference of Public Enterprises
(SCPE), Comptroller and Auditor General of
India etc. These members and departments are
invited to give their comments.
 Then the ASB arranges meetings with these
representatives to discuss their views and
concerns about the draft and its provisions
 The exposure draft is then finalized and
presented to the public for their review and
comments
 The comments by the public on the exposure
draft will be reviewed. Then a final draft will
be prepared for the review and consideration
of the ICAI
 The Council of the ICAI will then review and
consider the final draft of the standard. If
necessary they may suggest a few
modifications.
 Finally, the Accounting Standard is issued.
Need for Uniform Global
Accounting Standards
 They serve as a coordinating device, saving time
and effort, just as the rules of the road speed up
traffic and reduce accidents;
 Public policy should be made through a well-
defined, transparent process with clear
outcomes; and
 They make auditing easier and are useful to
auditors in their negotiations with their clients.
 Uniform accounting standards produce
uniform financial reporting.
 Accounting standards refer to the accounting
methods used in an accounting system like the
IFRS.
 Financial reporting refers to the representation
of financial information, in order to be uniform
the financial reporting must be based on a fixed
set of rules, involve complete objectivity and no
bias.
 The IFRS (
International financial reporting standards)
has indeed helped the uniformity of financial
reporting.
IFRS

 IFRS : International Financial Reporting

Standards – they set common rules so that
financial statements can be consistent,
transparent and comparable around the
world.
IFRS

 The International Financial Reporting

Standards (IFRS) are accounting standards
that are issued by the 
International Accounting Standards Board (IA
SB)
 with the objective of providing a common
accounting language to increase
transparency in the presentation of financial
information.
 The International Accounting Standards
Board (IASB), is an independent body formed
in 2001 with the sole responsibility of
establishing the International Financial
Reporting Standards (IFRS).
 IASB is based in London. It has also provided
the ‘Conceptual Framework for Financial
Reporting’ issued in September 2010 which
provides a conceptual understanding and the
basis of the accounting practices under IFRS.
 International Financial Reporting Standards (IFRS) set
common rules so that financial statements can be
consistent, transparent, and comparable around the
world.
 IFRS are issued by the International Accounting
Standards Board (IASB).
 They specify how companies must maintain and
report their accounts, defining types of transactions,
and other events with financial impact.
 IFRS were established to create a common
accounting language so that businesses and their
financial statements can be consistent and reliable
from company to company and country to country.
The convergence of
accounting standards 
 The convergence of accounting
standards refers to the goal of establishing a
single set of accounting standards that will
be used internationally. 
 Convergence in some form has been taking
place for several decades, and efforts today
include projects that aim to reduce the
differences between accounting standards.
Indian Accounting Standard

 Indian Accounting Standard (abbreviated as Ind-AS) is

the Accounting standard adopted by companies in India
and issued under the supervision of Accounting Standards
Board (ASB) which was constituted as a body in the year
1977.
 ASB is a committee under 
Institute of Chartered Accountants of India (ICAI) which
consists of representatives from government department,
academicians, other professional bodies viz. ICAI,
representatives from CII, FICCI, etc.
 ICAI is an independent body formed under an act of
parliament.
 The Ind AS are named and numbered in the same way
as the International Financial Reporting Standards
 (IFRS). 
 National Financial Reporting Authority (NFRA)
recommend these standards to the 
Ministry of Corporate Affairs (MCA). MCA has to spell
out the accounting standards applicable for
companies in India. As on date MCA has notified 41
Ind AS. This shall be applied to the companies of
financial year 2015-16 voluntarily and from 2016-17 on
a mandatory basis.
Applicability

 Companies shall follow Ind AS either

Voluntarily or Mandatorily. Once a company
follows Indian AS, either mandatorily or
voluntarily, it can't revert to old method of
Accounting.
Phases of adoption
 IND AS shall be adopted by specific classes of
companies based on their Net worth and listing status.
Let’s see the each of the phases in detail below:
 Phase I
 Mandatory applicability of IND AS to all companies
from 1st April 2016, provided:  
 It is a listed or unlisted company
 Its Net worth is greater than or equal to Rs. 500 crores*
 *Net worth shall be checked for the previous three
Financial Years (2013-14, 2014-15, and 2015-16).  
 Phase II
 Mandatory applicability of IND AS to all
companies from 1st April 2017, provided:
 It is a listed company or is in the process of being
listed (as on 31.03.2016)
 Its Net worth is greater than or equal to Rs. 250
crores but less than Rs. 500 crores (for any of the
below mentioned periods).
 Net worth shall be checked for the previous four
Financial Years (2013-14, 2014-15, 2015-16, and
2016-17)
 Phase III
 Mandatory applicability of IND AS to all
Banks, NBFCs, and Insurance companies from
1st April 2018, whose:
 Net worth is more than or equal to INR 500
crore’s with effect from 1st April 2018.
 Phase IV
 All NBFCs whose Net worth is more than or
equal to INR 250 crores but less than INR 500
crores shall have IND AS mandatorily
applicable to them  with effect from 1st April
2019.
 Net Worth is the total of Paid-up share Capital
and all reserves out of profit & securities
premium account, after deducting
accumulated losses, deferred expenditure,
and miscellaneous expenditure not written
off.
 Ind AS 101First-time adoption of Ind AS
 Ind AS 102Share Based payments
 Ind AS 103Business Combination
 Ind AS 104Insurance Contracts
 Ind AS 105Non-Current Assets Held for Sale
and Discontinued Operations
 Ind AS 106Exploration for and Evaluation of
Mineral Resources
 Ind AS 107Financial Instruments: Disclosures
 Ind AS 108Operating Segments
 Ind AS 109Financial Instruments
 Ind AS 110Consolidated Financial Statements
 Ind AS 111Joint Arrangements
 Ind AS 112Disclosure of Interests in Other
Entities
 Ind AS 113Fair Value Measurement
 Ind AS 114Regulatory Deferral Accounts
 Ind AS 115
Revenue from Contracts with Customers
 Ind AS 1Presentation of Financial Statements
 Ind AS 2Inventories Accounting
 Ind AS 7Statement of Cash Flows
 Ind AS 8Accounting Policies, Changes in
Accounting Estimates and Errors
 Ind AS 10Events after Reporting Period
 Ind AS 11Construction Contracts
 Ind AS 12Income Taxes
 Ind AS 16Property, Plant and Equipment
 Ind AS 17Leases
 Ind AS 18Revenue
 Ind AS 19Employee Benefits
 Ind AS 20Accounting for Government Grants
and Disclosure of Government Assistance
 Ind AS 21The Effects of Changes in Foreign
Exchange Rates
 Ind AS 23Borrowing Costs
 Ind AS 24Related Party Disclosures
 Ind
 AS 27Separate Financial Statements
 IndAS 28Investments in Associates and Joint
Ventures
 Ind AS 29Financial Reporting in
Hyperinflationary Economies
 Ind AS 32Financial Instruments: Presentation
 Ind AS 33Earnings per Share
 Ind AS 34Interim Financial Reporting
 Ind AS 36Impairment of Assets
 Ind AS 37Provisions, Contingent Liabilities
and Contingent Assets
 Ind AS 38Intangible Assets
 Ind AS 40Investment Property
 Ind AS 41Agriculture
Differences between US GAAP
and Indian GAAP 

 1. Meaning :
 Indian GAAP means generally accepted
accounting principles in India from time to
time.
 US GAAP :
 The Generally Accepted Accounting Principles
 in the US (US GAAP) refer to the accounting
rules used in United States to organize,
present, and report financial statements for
an assortment of entities which include
privately held and publicly traded companies,
non-profit organizations, and governments.
The term is confined to the US and is,
therefore, generally abbreviated as US GAAP.
  2.  Underlying assumptions: Under Indian
GAAP, Financial statements are prepared in
accordance with the principle of conservatism
which basically means “Anticipate no profits
and provide for all possible losses”. Under US
GAAP conservatism is not considered, if it
leads to deliberate and consistent
understatements.
  3. Format/ Presentation of financial statements:
Under Indian GAAP, financial statements are
prepared in accordance with the presentation
requirements of Schedule VI to the Companies Act,
1956( old provision) . But as per the new provisions,
FS has to be prepared as per Schedule III and also
revised Schedule VI of Companies Act 2013.
 On the other hand , financial statements prepared
as per US GAAP are not required to be prepared
under any specific format as long as they comply
with the disclosure requirements of US  GAAP.
 4. Cash flow statement: Under Indian GAAP (AS 3) ,
inclusion of Cash Flow statement in financial
statements is mandatory only for  companies whose
share are listed on recognized stock exchanges and
Certain enterprises  whose turnover for the
accounting period exceeds Rs. 50 crore’s. Thus ,
unlisted companies escape the burden of
providing  cash flow statements as part of their
financial statements. On the other hand, US GAAP
(SFAS 95) mandates furnishing of cash flow
statements for 3  years – current year and
2  immediate preceding years irrespective of whether
the company is listed or not .
 5. Extraordinary items, prior period items
and changes in accounting
policies: Under  Indian GAAP( AS 5) ,
extraordinary items, prior period items and
changes in accounting policies are disclosed
without netting off for tax effects . Under US
GAAP (SFAS 16) adjustments for tax effects
are required to be made while reporting the
Prior period Items.
 6.  Investments: Under Indian GAAP (AS 13),
Investments are classified as Current and
Long term. These are to be further
classified Government or Trust securities
,Shares, debentures or bonds Investment
properties Others-specifying nature.
 Under US GAAP ( SFAS 115) ,  Investments
are required to be segregated in 3 categories
i.e. held to Maturity Security ( Primarily Debt
Security) , Trading Security and Available for
sales Security and should be further
segregated as Current or Non current on
Individual basis
 7. Consolidation of subsidiary companies:
Under Indian GAAP (AS 21), Consolidation of
Accounts of subsidiary companies  is not
mandatory. AS 21 is mandatory if an
enterprise presents consolidated financial
statements.
 Under US GAAP (SFAS  94),Consolidation of
results of Subsidiary Companies  is
mandatory.
 8. Expenditure during Construction Period: As
per the Indian GAAP (Guidance note on
‘Treatment of expenditure during construction
period' ) , all incidental expenditure on
Construction of Assets during Project stage  are
accumulated and allocated to the cost of asset on
completion of the project.
 Contrary to this, under the US GAAP (SFAS 7) ,
such  expenditure are  divided into two heads –
direct and indirect. While, Direct expenditure is
accumulated and allocated to the cost of asset,
indirect expenditure are charged to revenue.
 9. Prudence vs. rules : The Institute of
Chartered Accountants of India (ICAI)  has
been structuring Accounting Standards based
on the International Accounting Standards
( IAS) , which employ concepts and
`prudence' as the principle in contrast to the
US GAAP, which are  "rule oriented", detailed
and complex. 
 10.   Preoperative expenses: Under Indian
GAAP, (Guidance Note 34 - Treatment of
Expenditure during Construction Period),
direct Revenue expenditure during
construction period like
Preliminary  Expenses, Project related
expenditure are allowed to be Capitalised.
 Under US GAAP ( SFAS 7)  , the concept of
preoperative expenses itself doesn’t exist.