Accounting Standards

Accounting Standards Objective

To standardize diverse accounting

practices with a view to eliminate,
incomparability of information
contained in the financial statements
of various enterprises and that users
of financial statements can make
well-informed decisions.
 Accounting Standards

Definition
Pronouncements by the premier accounting body of
the country relating to various aspects of
recognition, measurement, presentation and
disclosure of accounting transactions and events
• Accounting Standards are
mandatory in nature
• Adequate disclosure is required
for any deviation
 Accounting Standard cont.

• Indian Accounting Standard

• US GAAP
• International Accounting Standard
 Accounting Standards (ASs)
• AS 1 Disclosure of Accounting Policies
• AS 2 Valuation of Inventories
• AS 3 Cash Flow Statements
• AS 4 Contingencies and Events Occurring after the Balance
Sheet Date
• AS 5 Net Profit or Loss for the period,Prior Period Items
and Changes in Accounting Policies
• AS 6 Depreciation Accounting
• AS 7 Construction Contracts (revised 2002)
• AS 7 Accounting for Construction contracts
• AS 8 Accounting for Research and Development
• AS 9 Revenue Recognition
• AS 10 Accounting for Fixed Assets
AS 11 The Effects of Changes in Foreign Exchange Rates
(Revised 2003),
AS 11 Accounting for the Effects of Changes in Foreign
Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Accounting for Retirement Benefits in the Financial
Statement of Employers
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18, Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for taxes on income.
AS 23 Accounting for Investments in Associates in
Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent
Assets
 International Accounting Standard/International Financial Reporting Standard
not considered relevant for issuance of by the ICAI

1. IAS 29 Financial The Institute notes that the

Reporting hyper-inflationary conditions
in Hyper- do not prevail in India.
inflationary Accordingly, the subject is not
Economies considered relevant in the
Indian context.
2. IFRS1 First-time In India, Indian ASs are being
Adoption of adopted since last many
Internation years and IFRSs are not
al Financial being adopted for the first
Reporting time. Therefore, the IFRS 1 is
Standards not relevant to India at
present.
 Disclosure of Accounting Policies
(AS 1)
Fundamental Accounting Assumptions are
usually not specifically stated
Disclosure is necessary if they are not followed.
The fundamental accounting assumptions are:-
a. Going Concern
b. Consistency
c. Accrual
 Nature of Accounting Policies

The accounting policies refer to the specific

accounting principles and the methods of applying
those principles adopted by the enterprise in the
preparation and presentation of financial statements.
Examples of the areas in which different accounting policies may be adopted by different enterprises.

Methods of depreciation, Valuation of investments

depletion and amortization
Treatment of retirement
Treatment of expenditure during benefits
construction
Recognition of profit on
Conversion or translation of long-term contracts
foreign currency items
Valuation of fixed assets
Valuation of inventories
Treatment of contingent
Treatment of goodwill liabilities.
 Considerations in the Selection of
Accounting Policies

– Financial statements should represent a true

and fair view of the state of affairs of the
enterprise as at the balance sheet date and of
the profit or loss for the period ended on that
date.
Considerations in the Selection of
Accounting Policies
The major considerations governing selection and application
of accounting policies are:-
a. Prudence In view of the uncertainty attached to future
events, profits are not anticipated but recognized only when
realized though not necessarily in cash. Provision is made for
all known liabilities and losses even though the amount cannot
be determined with certainty and represents only a best estimate
in the light of available information.
b. Substance over Form The accounting treatment and
presentation in financial statements of transactions and events
should be governed by their substance and not merely by the
legal form.
c. Materiality Financial statements should disclose all
"material" items, i.e. items the knowledge of which might
influence the decisions of the user of the financial statements.
 Considerations in the Selection of Accounting
Policies

• Disclosure of Accounting Policies. To ensure

proper understanding of financial statements, it is
necessary that all significant accounting policies
adopted in the preparation and presentation of
financial statements should be disclosed.
Considerations in the Selection of Accounting
Policies
Any change in an accounting policy which has a
material effect should be disclosed. The amount by
which any item in the financial statements is
affected by such change should also be disclosed to
the extent ascertainable. Where such amount is not
ascertainable, wholly or in part, the fact should be
indicated. 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, the fact of such change
should be appropriately disclosed in the period in
which the change is adopted.
 Considerations in the Selection of
Accounting Policies

Disclosure of accounting policies or of

changes therein cannot remedy a
wrong or inappropriate treatment of
the item in the accounts.
 Valuation of Inventories (AS 2)
• Determination of the value (and any write down thereof to net
realizable value) at which inventories are carried in the financial
statements until the related revenues are recognized.

• Inventories are assets:

held for sale in the ordinary course of business;

in the process of production for such sale; or

in the form of materials or supplies to be consumed in the

production process or in the rendering of services.

• Net realisable value is the estimated selling price in the

ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
• Inventories should be valued at the lower of cost
and net realisable value.

• Cost of Inventories
The cost of inventories should comprise all costs
of purchase, costs of conversion and other costs
incurred in bringing the inventories to their
present location and condition
•
• The financial statements should disclose:
the accounting policies adopted in measuring
inventories, including the cost formula used; and

the total carrying amount of inventories and its

classification appropriate to the enterprise
 Cash Flow Statements
(AS 3)
The ability of the enterprise to generate cash and
cash equivalents and the needs of the enterprise
to utilize those cash flows are provided in the
cash flow statement.
The cash flow statement classifies cash flows
during the period as operating, investing and
financing activities.
 Contingencies and Events occurring after
the Balance Sheet date (AS 4)
A contingency is a condition or situation, the ultimate outcome of which, gain or
loss, will be known or determined only on the occurrence, or nonoccurrence, of
one or more uncertain future events.

Events occurring after the balance sheet date are those significant events, both
favourable and unfavourable, that occur between the balance sheet date and the
date on which the financial statements are approved by the approving authority

Two types of events can be identified:

those which provide further evidence of conditions that existed at the balance
sheet date
those which are indicative of conditions that arose subsequent to the balance
sheet date.
• Provisions for contingencies are not made in
respect of general or unspecified business risks
since they do not relate to conditions or situations
existing at the balance sheet date.
• The amount of a contingent loss should be provided for by a
charge in the statement of profit and loss if:
it is probable that future events will confirm that, after taking
into account any related probable recovery, an asset has been
impaired or a liability has been incurred as at the balance sheet
date, and
a reasonable estimate of the amount of the resulting loss can be
made.

• The existence of a contingent loss should be disclosed in the

financial statements if either of the conditions mentioned above
is not met, unless the possibility of a loss is remote.

• Contingent gains should not be recognized in the financial

statements
 Events Occurring after the Balance Sheet Date

Assets and liabilities should be adjusted for events occurring

after the balance sheet date that provide additional evidence
to assist the estimation of amounts relating to conditions
existing at the balance sheet date or that indicate that the
fundamental accounting assumption of going concern (i.e., the
continuance of existence or substratum of the enterprise) is
not appropriate. Dividends stated to be in respect of the
period covered by the financial statements, which are
proposed or declared by the enterprise after the balance sheet
date but before approval of the financial statements, should be
adjusted.

Disclosure should be made in the report of the approving

authority of those events occurring after the balance sheet
date that represent material changes and commitments
affecting the financial position of the enterprise. Disclosure
Disclosure
If disclosure of contingencies is required, the following
information should be provided:
the nature of the contingency;
the uncertainties which may affect the future
outcome;
an estimate of the financial effect, or a statement that
such an estimate cannot be made.
If disclosure of events occurring after the balance sheet
date in the report of the approving authority is
required, the following information should be
provided:
the nature of the event;
an estimate of the financial effect, or a statement that
such an estimate cannot be made.
 Net Profit or Loss for the period, Prior Period
items and Changes in Accounting Policies (AS 5)
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. This enhances the comparability of the financial
statements of an enterprise over time and with the financial
statements of other enterprises. Accordingly, this Statement
requires the classification and disclosure of extraordinary and
prior period items, and the disclosure of certain items within profit
or loss from ordinary activities. It also specifies the accounting
treatment for changes in accounting estimates and the disclosures
to be made in the financial statements regarding changes in
accounting policies.
 Depreciation Accounting (AS 6)
Depreciation has a significant effect in determining and
presenting the financial position and results of
operations of an enterprise. Depreciation is charged in
each accounting period by reference to the extent of the
depreciable amount, irrespective of an increase in the
market value of the assets.

Assessment of depreciation and the amount to be charged in

respect thereof in an accounting period are usually
based on the following three factors:
i. historical cost
ii. expected useful life of the depreciable asset; and
iii. estimated residual value of the depreciable asset
 Construction Contracts (AS 7)
The objective of this Statement is to prescribe the
accounting treatment of revenue and costs associated
with construction contracts. The primary issue in
accounting for construction contracts is the allocation of
contract revenue and contract costs to the accounting
periods in which construction work is performed. This
Statement uses the recognition criteria established in the
Framework for the Preparation and Presentation of
Financial Statements to determine when contract revenue
and contract costs should be recognized as revenue and
expenses in the statement of profit and loss.
 Requirements of SEBI
Clause 32 of Listing agreement:
Annual report (including Cash Flow Statements and
Consolidated Statements) to be provided to all
shareholders and to member of the exchange on
application
The Company will make disclosures in compliance with
the Accounting Standards on Related Party Disclosures
in its annual report
Disclosure of loans/ advances and investments in its own
shares by the listed companies, their subsidiaries,
associates and so on
 Requirements of SEBI
Clause 41 of the Listing Agreement
Furnish Unaudited quarterly financial results
Furnish segment-wise revenue, results and
capital employed
Clause 50 of the Listing Agreement
The company will mandatorially comply with
all the Accounting Standards issued by
ICAI