MANAGEMENT ACCOUNTING

FINC001
Financial Reporting
Framework
Unit 1
Framework
• “a basic structure underlying a system, concept, or
text.”
• The purpose of framework is to provide the essential
guidance and structure for performing particular task.
• Financial reporting framework will consist of relevant
laws and rules to be followed while preparing financial
statements.
Presentation of financial
statements
• Presentation of financial statements for companies is
guided by the Companies Act 2013.
• Relevant sections of Companies Act defines that
financial statements should present the true and fair
view of the state of affairs of the company.
• The Companies Act, 2013 has also listed down the
statements to be presented as the part of the financial
Statements of the company.
Components of financial
Statement
• a balance sheet as at the end of the financial year;
• a profit and loss account or income and expenditure
account for not for profit organisation for the financial
year;
• cash flow statement for the financial year
• statement of changes in equity
• notes to accounts
Components of Financial
Statement
• Companies Act, 2013 further requires that Board of
Directors should approve the financial statements
including consolidated financial statement, if any before
signing them on behalf of board. Board of Directors are
also required to prepare and present a report with the
financial statements which should include the following
details:
• the extract of the annual return
• number of Board meetings
• Directors’ Responsibility Statement;
Few Basic Terms
• Standalone financial statements: Financial
statements prepared for a single entity are called as
standalone financial statements.
• Consolidated financial statements: Financial
statements prepared for a group of entities re called as
consolidated financial statements.
• Board of Directors: Shareholders elect group of
individuals amongst themselves to represent for the
decisions and day to day working of the company. This
group of induvial is called as board of directors.
Quiz
Financial statements prepared for a single entity are
called as -----------------.
a)Stand alone financial statements
b) Consolidated financial statements
c)Annual return
d)None of these
Format as per Revised Schedule
III of Companies Act 2013
• Revised Schedule III of Companies Act 2013 has
prescribed the detailed format and set of guidelines for
the preparation of Balance Sheet and Profit and Loss
Account.
Balance Sheet Format
Figures as at the end of Figures as at the end of the
Particulars Note no
current reporting period previous reporting period
I. EQUITY AND LIABILITIES
     
(1) Shareholders’ funds
(a)Share capital
(b) Reserves and surplus      
(c)Money received against share warrants

(2) Share application money pending

allotment
(3) Non-current liabilities
(a)Long-term borrowings
(b)Deferred tax liabilities (Net)
(c)Other Long term liabilities
(d) Long-term provisions

(4) Current liabilities

(a)Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
TOTAL
Balance Sheet Format
Figures as at the end of Figures as at the end of the
Particulars Note no
current reporting period previous reporting period
Ii. ASSETS
     
Non-current assets
(a) Fixed Assets: Tangible, Intangible.
Capital work in progress, Intangible assets      
under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances

(e) Other non-current assets

(2) Current assets

(a)Current investments
(b)Inventories
(c)Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets

TOTAL
 Profit and Loss Format
Figures as at the end of current Figures as at the end of the
Particulars Note no
reporting period previous reporting period
I. Revenue from operations      
II. Other income      
III. Total Revenue (I + II)      
IV. Expenses:      
Cost of materials consumed      
Purchases of Stock-in-Trade      
Changes in inventories of finished goods      
work-in-progress and Stock-in-Trade      
Employee benefits expense Finance costs      
Depreciation and amortisation expense      
Other expenses      
Total expenses      
V. Profit before exceptional and extraordinary items
     
and tax (III - IV)
VI. Exceptional items      
VII. Profit before extraordinary items and tax (V - VI)      
VIII. Extraordinary items      
IX. Profit before tax (VII- VIII)      
 Profit and Loss Format
Figures as at the end of current Figures as at the end of the
Particulars Note no
reporting period previous reporting period
X. Tax expense:      
(1) Current tax      
(2) Deferred tax      
XI. Profit (Loss) for the period from 
     
continuing operations (VII-VIII)
XII. Profit/(loss) from discontinuing
     
operations
XIII. Tax expense of discontinuing
     
operations
XIV. Profit/(loss) from Discontinuing
     
operations (after tax) (XII-XIII)
XV. Profit (Loss) for the period (XI + XIV)      
XVI. Earnings per equity share:      
(1) Basic      
(2) Diluted      
Quiz
Under which head of the profit and loss account do we
show interest income for finance companies?
a)Revenue from operations
b)Other income
c)Administrative expenses
d)Any of these
Major Elements as per Revised
Schedule III of Companies Act
2013
• Depending upon the turnover of the company, the
figures appearing in the financial statements may be
rounded off as given below:—
Turnover Rounding off

less than one hundred nearest hundreds, thousands,

crore rupees lakhs
or millions, or decimals thereof.

one hundred crore rupees nearest lakhs, millions or crores, or

or more decimals thereof.
Major Elements as per Revised
Schedule III of Companies Act
2013
• Revenue from operations should include the disclosure
of revenue from sale of products, services and other
operating revenues and deduction of excise duty.
• For finance company, revenue from operations would
consist of income from interest and other financial
services.
•  Other income should include interest income (for non-
finance company), dividend income, gain/loss on sale of
investments and other non-operating income
Other Legal Requirements of
Companies Act 2013
Statuary audit and internal audit

Directors Responsibility statement

Submission of financial statements to stock

exchange

Applicability of Accounting Standards

Management Discussion and Analysis

Statutory Audit and Internal
Audit
• All companies registered under Companies Act, 2013
are required to get Statutory Audit done by a practising
Chartered Accountant.
• All the listed companies are required to appoint an
internal auditor. Specified unlisted public companies are
required to appoint internal auditor.
• Private companies with turnover of 200 crores or more
or outstanding loans or borrowings from banks or public
financial institutions exceeding one hundred crore
rupees are required to appoint internal auditor. 
Directors Responsibility
Statement
• Directors responsibility statement is prepared to give
an assurance from directors that relevant accountant
standards and policies have been followed in the
preparation of the annual accounts.
• Further assurance is being provided related
maintenance of accounts and compliance as per
provisions of Companies Act, internal control and the
adoption of going concern principle while preparation of
annual accounts. 
Submission of Financial
Statements to Stock Exchange
• Listed companies are required to submit financial
statements to stock exchange as per the listing
agreements issued by Securities and Exchange Board of
India (SEBI)
• Financial statements should be submitted within 45
days from the end of each quarter except for 60 days in
case of last quarter.
Applicability of Accounting
Standards
• Companies Act 2013 requires that financial statements
of companies shall comply with the accounting
standards.
• Accounting standards means standards as prescribed by
the Central Government and as recommended by
Institute of Chartered Accountants of India.
• If the financial statements of a company do not comply
with the accounting standards, the same should be
disclosed with the quantification of financial impact.
Management Discussion and
Analysis Report
Management Discussion and Analysis Reports generally
include the discussions around:
Industry structure and developments
Opportunities and threats to business
Performance as per business segments or product lines
Areas of risks and for the business
Availability and adequacy of internal control systems
Financial performance of business
Major changes in human resources and industrial relations
Accounting Standards
• Accounting is done within the specified framework as
set by the regulatory authority of the respective
country. This specified framework is called ‘Accounting
Standards’.
• For India the regulatory authority is Institute of
Chartered Accountants of India (ICAI).
Accounting Standards
• Accounting Standards are the guides the manner of
proper application of a particular accounting principle in
the preparation and presentation of the financial
statements.
• The purpose of issuing Accounting Standards is to bring
uniformity in accounting practices across the country.
The basic objective of Accounting Standards is to
ensure standardization in preparation and presentation
of financial statements.
Scope and Functions of
Accounting Standards Board
• Accounting Standards are formulated and issued by the
ASB, taking into consideration the needs of the
business, laws and customs of the country.
Process of Issuing Accounting
Standards
Identification of broad   Consultation with   preparation of first
areas study groups draft

Revised draft for

Preparation of
  delibration to various   Feedback on first draft
exposure draft
agencies

Feedback on exposure finalisation of

draft   standard
International Financial
Reporting Standards (IFRS)
IFRS comprises:
•International Financial Reporting Standards issued after
2001
•International Accounting Standards issued before 2001
•Interpretations originated from the International
Financial Reporting Interpretations Committee (IFRIC)-
issued after 2001
•Interpretations issued by Standing Interpretation
Committee (SIC)- issued after 2001
Need and Rationale of IFRS

• Institute of Chartered Accountants of India (ICAI)

expressed that adoption of IFRS will be beneficial for
listed entities, as it will reduce the cost of preparing two
sets of financial statements and savings in cost of
capital, for Indian companies raising capital abroad.
• Implementation of IFRS is a challenging task and
various issues like conflicting regulatory and legal
framework, preparedness of industry and accounting
professionals for the same and many more needs to be
addressed.
Introduction of Ind AS in India

• ICAI intends to implement the IFRS with some

modifications, these modified standards are called as
IndAS.
• IndAS are a new set of accounting standards which are
based on IFRS principles, designed in accordance with
IFRS but tailored to suit Indian purpose.
• Indian companies with specified minimum net worth
and other requirements have been mandatorily
preparing financial statements as per Ind As since 2016
in a phased manner.
Quiz
IndAS are a set of accounting standards designed in
accordance with -------- ,but tailored to suit Indian
purpose.
a)IFRS
b)US GAAP
c)Indian Laws
d)International Laws