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DHRUV GUPTA 14
NIKITA NIJHAWAN 25
PRASANJEET TEWARI 73
RIDDHI VORA 35
SHIVIKA GUPTA 48
2
PUJA CHANDARAN 61
Acknowledgement
CONTENT
1 Accounting standard –definition
2 Importance of accounting standard and different
Accounting Standard bodies regulating accounting standards in the
world
3 Procedure of issuing accounting standards in India till compliance of
Accounting
Standards
Exposure draft
4 As-1-defination
5) As-1- legal framework as set by ASB (ICAI)
a) Introduction
b) Explanation
c) Nature of accounting policies
d) Areas in which differing accounting policies are encountered
e) Consideration in selection of accounting policies
f) Disclosure of accounting policies
d) Main principles
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Scope
1. An entity shall apply this Standard in preparing and presenting
general purpose financial statements in accordance with
Accounting Standards (ASs).
2. Other ASs set out the recognition, measurement and disclosure
requirements for specific transactions and other events.
3. This Standard does not apply to the structure and content of
condensed interim financial statements prepared in accordance
with AS 25 (Revised 20XX) Interim Financial Reporting. However,
paragraphs 15–35 apply to such financial statements. This
Standard applies equally to all entities, including those that
present consolidated financial statements and those that present
separate financial statements as defined in AS 21 (Revised 20XX)
Consolidated and Separate Financial Statements.
4. This Standard uses terminology that is suitable for profit-oriented
entities,
including public sector business entities. If entities with not-for-
profit activities in the private sector or the public sector apply this
Standard, they may need to amend the descriptions used for
particular line items in the financial statements and for the
financial statements themselves.
5. Similarly, entities that do not have equity as defined in AS 31
(Revised 20XX) Financial Instruments: Presentation (eg some
mutual funds) and entities whose share capital is not equity (eg
some co-operative entities) may need to adapt the financial
statement presentation of members’ or unitholders’ interests.
EXPLANATION
Financial statements (e.g., annual accounts) are internationally
recognised as a “composite whole” with, Balance Sheet, Statement of
Profit and Loss, Notes on accounts, and cash flow picture, as its
constituent elements. Entities governed by the provisions of Companies
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(a) Prudence
Prudence is the inclusion of a degree of caution in the exercise of
judgments needed in making estimates required under conditions of
uncertainty.
By exercising prudence, an enterprise does not recognize profits on the
basis of anticipation. These are recognized only when realized though
not necessarily in cash. However, all known losses are anticipated and
provided for.
For example, in determining the carrying amount of inventory, the profit
margins are ignored and yet, the realizable value if less than cost is
taken cognizance of. First Lessons in Accounting Standards 4
(b) Substance over form
If information is to represent faithfully the transactions or events, it is
essential that they are accounted for and presented in accordance with
their substance and economic reality and not merely their legal form.
For example, where rights and interests in a property stands transferred
while legal documentation for the transfer is yet to be completed, the
transaction should be recorded as a sale in the books of transferor and
acquisition in the books of transferee. While distinguishing an
amalgamation in the nature of merger, from one that of purchase, we do
look at the substance of the transaction (i.e. whether the shareholders
come together in a substantially equal partnership to share risks and
benefits), over its form. Under AS-7(R) Construction Contracts, this
concept of substance over form has been fittingly adopted in the
determination of “what constitutes a single contract” for recognition of
costs and revenues.
(c) Materiality
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• Investment Income
• Borrowing Cost
• Proposed Dividend
• Retirement Benefits
• Lease Rentals (Lease Income)
• Research and Development Costs
• Taxes on income
• Foreign currency translation
• Claims
• Segment Reporting
• Financial and Management
Information Systems
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. There is no single
list of accounting policies which are applicable to all circumstances.
The differing circumstances in which enterprises operate in a situation
of diverse and complex economic activity make alternative accounting
principles and methods of applying those principles acceptable. The
choice of the appropriate accounting principles and the methods of
applying those principles in the specific circumstances of each
enterprise calls for considerable judgment by the management of the
enterprise. The various Standards of the Institute of Chartered
Accountants of India combined with the efforts of government and other
regulatory agencies and progressive managements have reduced in
recent years the number of acceptable alternatives particularly in the
case of corporate enterprises. While continuing efforts in this regard in
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future are likely to reduce the number still further, the availability of
alternative accounting principles and methods of applying those
principles is not likely to be eliminated altogether in view of the
differing circumstances faced by the enterprises.
EXPLANATION
Going concern
1. An entity shall prepare financial statements on a going concern
basis unless management either intends to liquidate the entity or to
cease trading, or has no realistic alternative but to do so.
2. When management is aware, in making its assessment, of material
uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going
concern, the entity shall disclose those uncertainties.
3. When an entity does not prepare financial statements on a going
concern basis, it shall disclose that fact, together with the basis on
which it prepared the financial statements and the reason why the
entity is not regarded as a going concern.
4. In assessing whether the going concern assumption is appropriate,
5. management takes into account all available information about the
future, which is at least, but is not limited to, 12months from the
end of the reporting period.
6. When an entity has a history of profitable operations and ready
access to financial resources, the entity may reach a conclusion
that the going concern basis of accounting is appropriate without
detailed analysis.
7. In other cases, management may need to consider a wide range of
factors relating to current and expected profitability, debt
repayment schedules and potential sources of replacement
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financing before it can satisfy itself that the going concern basis is
appropriate.
Accrual basis of accounting
An entity shall prepare its financial statements, except for cash flow
information, using the accrual basis of accounting.
When the accrual basis of accounting is used, an entity recognizes items
as assets, liabilities, equity, income and expenses (the elements of
financial statements).
Consistency
It is assumed that accounting policies are consistent from one period to
another.
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.
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unnerved India Inc but also the market regulator Securities and
Exchange Board of India (SEBI). Following open admission of guilt by
Raju, the Corporate Affairs Ministry worked on three fronts to save the
IT company, bring the guilty to books and streamlining regulations to
prevent recurrence of such frauds in future.
LESSONS FROM SATYAM
These agencies SEBI, CII looked into specific aspects of the fraud,
especially the role of the company’s auditor Price Waterhouse. To check
recurrence of such
wrongdoings in future, the Ministry put in place early warning system
and initiated steps to modify the draft Companies Bill to give statutory
teeth to the its
investigating arm SFIO.The companies bill, reintroduced in parliament
in August, seeks, among other things, promotion of shareholders’
democracy with protection of rights of minority shareholders,
responsible self-regulation with adequate disclosure and accountability
and lesser government control over internal corporate processes. It also
proposes to make it mandatory for listed companies to have 33 per cent
independent directors, while defining clearly their roles and
responsibilities. The government is also planning to bring out a
voluntary corporate governance code based on the recommendations of
industry chambers like CII and FICCI. The recommendations of a CII
task force headed by Naresh Chandra, includes recommendations on a
variety of corporate governance issues like the roles and responsibilities
of independent directors, auditors, regulatory agencies, besides
institutional investors and the press. The report has also suggested
setting up of a recommendation committee for fixing the remuneration
of the company board, separation of the office of Chairman and CEO,
certificate of independence for independent directors, an institution of
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mechanism for whistle blowers and a cap at 10 per cent on the revenues
coming from a single client to an audit firm.
IAS1(IFRS) AND APB22(US GAAP)
IAS1- This Standard prescribes the basis for presentation of general
purpose financial statements to ensure
comparability both with the entity’s financial statements of previous
periods and with the financial statements
of other entities. It sets out overall requirements for the presentation of
financial statements, guidelines for their
structure and minimum requirements for their content.
A complete set of financial statements comprises:
(a) a statement of financial position as at the end of the period;
(b) a statement of comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and
other explanatory information; and
(f) a statement of financial position as at the beginning of the earliest
comparative period when an entity
applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial
statements, or when it reclassifies items in its financial statements.
APB22- Disclosure of accounting policies should identify and describe
the accounting principles followed by the reporting entity and the
methods of
statements to be followed by
respective enterprises. To make the
revised AS 1 acceptable to the law
makers/ regulators, the ASB has
decided to give detailed formats for
financial statements for companies in
an Appendix. In the Appendix, mainly
additional disclosures as compared to
IAS 1 are proposed to be given.
Conceptual Differences
Applicability
ICAI is of the view that IFRS to be adopted for public interest entities
such listed Co, Banking Companies, Insurance entities and large size
entities from the Accounting period beginning on or after April 2011.
The view is further strengthened by convergence process being initiated
by Ministry of Corporate Affairs.For this purpose, public interest
entities are the entities falling under the Categorylevel 1 as defined by
ICAI except that turnover should exceed Rs 100 Crs (Instead of Rs 50
Crs) and borrowing should exceed Rs 25 Crs (instead of Rs 10Crs)
Even if listed company does not fulfill the above criteria for level 1
enterprises, the application of IFRS is mandatory. Early adoption of
IFRS is encouraged but it should be the adoption of all IFRS and should
not be on selective basis. For other entities, IFRS are not mandatory but
recommendatory.
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Bibliography
www.icai.org
www.fasb.org
www.frc.org
www.ifrs.com
www.aicpa.org
www.rbi.org
www.icaew.com