PRESENTATION ON

UNDERSTANDING OF ACCOUNTING STANDARDS & IFRS By:By:- Group No. 12 Members : Jitesh Kumar, Prateek Agarwal, Ram Nandan Singh, Satish Biradar, Sakshi Zutshi, Sumeet Sharma, Umang Arora, Piyush Bahatkar, Priyanka Rana, Heena Shekhawat, Prajit Dhagat, Parveen Gulia, Rohit Heda Promesh Chouriwar and Rakesh Kumar Singh

AGENDA OF DISCUSSION
 Introduction of Accounting Standards  Objectives of Accounting Standards  Types of Accounting Standards

Introduction
 Written Documents issued by Government or Regulatory Body  In India, issued by ICAI on 21st April,1977  Initiated by Kumar Mangalam Birla, chairman committee of Corporate Governance for Financial Disclosures  Also initiated by Chair person of NACAS

Objectives
 Standardise the diverse Accounting Policies  Add the reliability to the Financial Statement  Eradicate baffling variation in treatment of accounting aspects  Facilitate inter-firm and intra-firm interintracomparison

Accounting Standards in Different Nations

 In India, 32 Accounting Standards as IAS under NACAS  As per International, there are 41 Accounting Standards called as IFRS  Adopted by 8 countries in the world  70 to 80 countries planning to adhere IFRS  Clause 50 added to the listing agreement mandatory

Evolution and Types of AS

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

AS 1-Disclosure of 1Accounting Policies

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

AS 2- Accounting for 2Inventories

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

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

AS 3- Cash Flow 3Statements

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

AS 4- Contingencies and 4events occurring after BS date

 For maintaining Provision of Bad debts  Generally uses Conservative concepts of Accounting like Bankruptcy, frauds & errors.

the period, prior period items and change in Accounting policies

 Ascertain certain criteria for certain items  Include income and expenditures of Financial year  Consists of 2 component 1. Profit and loss of ordinary activities 2. Profit and loss of extra ordinary activities

AS 6- Accounting for 6Depreciation

    1. 2.
A non-cash expenditure nonDistribution of total cost to its useful life Occurs due to obsolescence Different methods of computation Straight line method ( SLM ) WrittenWritten-down value or diminishing value (WDV)

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

AS 8- Accounting for R&D 8 To deal with treatment of Cost of research and development in the financial statements, 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 9- Revenue 9Recognition
 Means gross inflow of cash and other consideration like arising out of ::1. Sale of goods 2. Rendering services 3. Use of enterprise resources by other yielding interest, dividend and royalities.

AS 10- Accounting for 10Fixed Assets

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

AS 11- Effect of change in 11FOREX Rates

Classification for Accounting treatment: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. Category II: Foreign operations: a) Foreign branch b) Joint venture c) Foreign Subsidiary 3. Category III: Foreign Exchange contracts: a) For managing Risk/hedging b) For trading and Speculation  1.

AS 12- Accounting for 12Govt. Grants

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

AS 13- Accounting for 13Investments

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

AS 14- Accounting for 14Amalgamation

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

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

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

AS 17- Segment Reporting 17 1. 2. 

It consists of 2 segment:segment:Business segment Geographical segment Information and different risk and return reporting.

AS 18- Related party 18disclosure

 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

 1. 2. 3. 4.

AS 19- Accounting for 19Leases

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

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

AS 21- Consolidated 21Balance Sheet

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

AS 22- Accounting for 22taxes and income

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

AS 23- Accounting for 23investments in Associates in CFS

 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 24- Discontinuing 24operations

 Establishes principles for reporting information about discontinuing operations  Covers discontinuing operations rather than discontinued operation

AS 25-Interim Financial 25Reporting (IFR)

 Reporting for less than a year i.e 3 months  Clause 41 says publish financial results on quarterly basis  Objective is to provide frequently and timely assessment

AS 26- Intangible Assets 26   1. 2. 3.

No physical existence Can not be seen or even touched 3 featured as per AS Identifiable NonNon-monetary assets Without physical substance

AS 27- Financial Reporting of 27interest in Joint Venture

 What is joint venture?  Three types of JV in case of Financial reporting

AS 28- Impairment of 28Assets

 Weakening of Assets value  Occurs when carrying cost more than recoverable amt  Carrying cost = Cost of assets Accumulated
Depreciation

AS 29- Provision, contingent 29liabilities and assets

 Provisions:Provisions:It is a Liability Settlement should result in outflow Liability is result of obligating event  Contingent liabilities:liabilities:Obligation arises of past event Existence confirmed when actually occurred of uncertain future  Contingent Asset Same as Contingent liability

Financial Instruments
   
AS 30 Recognition and Measurement AS 31 Presentation AS 32 Disclosures Has not been made mandatory (expected in 2009)

IFRS in INDIA 2009 11

Time of transition
International Financial Reporting Standards Why, When, What & How

WHY IFRS ?
India is one of the over 100 countries that have or are moving towards IFRS (International Financial Reporting Standards) convergence with a view to bringing about a uniformity in reporting systems globally, enabling businesses, finances and funds to access more opportunities. Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more comfortable with compatible accounting standards and companies accessing overseas funds feel the need for recast of accounts in keeping with globally accepted standards. ICAI has decided to implement IFRS in India. The Ministry of Corporate Affairs has also announced its commitment to convergence to IFRS by 2011.

IFRS WHOM APPLICABLE ?

Compliance with IFRS in India is restricted to Public Entities which includethose companies & entities listed on any stock exchange or have raised money from the public, or have a substantial public interest, or public sector companies. IFRS in India would cover the following public interest entities in the first phase.
 Listed companies  Banks, insurance companies, mutual funds, and financial institutions  Turnover in preceding year > INR 1 billion  Borrowing in preceding year > INR 250 million  Holding or subsidiary of the above

IFRS is not applicable to SMEs as of now.

IMPACT OF IFRS
IFRS implementation affects several areas of the business entity, such as presentation of accounts, the accounting policies and procedures, the way legal documents are drafted, the way the entity looks at its assets and their usage, as well as the its communications with its stakeholders and also the way it conducts its business. This fundamental and pervasive nature of impact of IFRS, makes it imperative that sufficient planning and thought is given to this aspect and choices made at the transition stage itself, as they determine the effect on the company and its operations. A detailed analysis of all aspects of impact and change as well as all legal documentation and communication becomes necessary.

IFRS THE PAIN AREAS

 IFRS is itself a moving target, with changes being introduced continually, refining the provisions and adding more areas for disclosures.  The IFRS implementation requires a multi disciplinary approach and is the responsibility of the management.  There is a lack of awareness and understanding of the requirements and implications of IFRS transition and compliance.  IFRS requires aligning business practices and policies to the reporting requirements (including retrospective ones)  Training the organizational components will be a huge task.

SKILLSETS FOR IFRS :

We bring together a useful combination of skill sets required to address the issues arising out of IFRS transition & compliance : Accounting Understand of IFRS requirements Understanding of accounting systems, issues & training

IFRS CONVERSION
The conversion methodology suggested below puts a strong emphasis on planning, study, preparation for transition, evaluation, training and embedding the change.

IFRS in INDIA 2011

The countdown has begun .

THANK YOU