ACCOUNTING STANDARDS

BY H JAYAPAL
 BACK GROUND

Every profession develops a

body of knowledge consisting
of principles, which are
considered as standard to be
attained. Accounting is no
exception.

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 PREVIEW
INTRODUCTION
AIM
NEED FOR ACCOUNTING STANDARDS
BASIS
SCENARIO
• INTERNATIONAL
• NATIONAL
AS & IND AS
CONCLUSION
 AIM

TO GIVE AN OVERVIEW ON
ACCOUNTING STANDARDS

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 OBJECTIVE OF ACCTG STDS

Standardize 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 comparison

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 ACCTG EVENT

A transaction or change
recognized on the financial
statements of an accounting
entity

Accounting Event

An External transaction An Internal transaction is

would occur with an outside for adjustment in the
party, such as the purchase accounts of the financial
or sales of a good. statements
 STANDARD-SETTING BODIES

•national
/international org
ACCOUNTING •that have been
STANDARD delegated
SETTING responsibility
BODY
•for setting GAAP
•by statute in a
country /jurisdiction
 STANDARD-SETTING BODIES

STD SETTING
BODIES

FASB IASB OTHER STDs

GAAP (US) IFRS (OTHERS) EG INDIA (AS)

IASB • International Accounting Standards Board
FASB • Financial Accounting Standards Board
GAAP • Generally Accepted Accounting Principles
IFRS • International Financial Reporting Standards
 FASB

INDEPENDENT BODY ESTABLISHED IN 1973

ESTABLISHES FINANCIAL ACCOUNTING AND REPORTING STANDARDS

FOR PUBLIC AND PRIVATE COMPANIES THAT FOLLOW GAAP

RECOGNIZED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC),

AICPA

THE FINANCIAL ACCOUNTING FOUNDATION (FAF) SUPPORTS AND

OVERSEES THE FASB.
ESTABLISHED IN 1972, RESPONSIBLE FOR THE OVERSIGHT, ADMIN,
FINANCING & APPOINTMENT OF THE FASB & THE GOVERNMENTAL
ACCOUNTING STANDARDS BOARD (GASB).
 GAAP

1929 • Great Depression

1930 • Formulation of SEC

1934 • AIA roped in

1936 • GAAP Conceptualised

Late 1930s • CAP created, GAAP std created

1973 • SEC replaced CAP with FASB

FASB - STRUCTURE
 GAAP

PRINCIPLES

GAAP

CONSTRAINTS ASSUMPTIONS
 GAAP - ASSUMPTIONS
the intent of a activities of a business
business to continue BUSINESS must be kept separate
from the activities of
operations into the ENTITY the business owner.
foreseeable future

GOING MONETARY
Assumptions
CONCERN UNIT

only activities that can

be expressed in dollar
business activities can
amounts can be
be reported in distinct included in accounting
time intervals PERIODICITY records.
 GAAP - PRINCIPLES
revenue be reported money that was paid for
on the income HISTORICAL an item when purchased
and is not changed to
statement in the COST account for inflation
period in which it is
earned

REVENUE MATCHING
RECOGNITION PRINCIPLES
PRINCIPLE

Use accrual form of

that all information accounting & match
that is relative to the FULL business income to
business be reported business expenses in a
DISCLOSURE given time period
 GAAP - CONSTRAINTS
financial statements
measure of of an organization be
importance of a OBJECTIVITY based on solid
misstatement in evidence.
accounting records

MATERIALITY CONSTRAINTS CONSISTENCY

potential expenses & Once an accounting

liabilities recognized principle is adopted,
immediately, but continue to follow it
potential revenue not consistently in
CONSERVATISM future accounting perio
recognized until actually
received ds
 GAAP - FOLLOWERS
Country GAAP
China Chinese Accounting Standards (Zhōngguó qǐyè kuàijì zhǔnzé 中
国企业会计准则)
Canada Generally Accepted Accounting Principles
France Generally Accepted Accounting Practice (Plan Comptable
Général)
Germany Generally Accepted Accounting Practice (Grundsätze
ordnungsmäßiger Buchführung)
India Generally Accepted Accounting Practice
Russia Generally Accepted Accounting Practice (RAP)
United Kingdom Generally Accepted Accounting Practice
United States Generally Accepted Accounting Principles
ORG INVOLVED IN STD SETTING
 THE FASB STANDARDS-SETTING PROCESS

1. Identify current investor issues

2. Draft issue agenda & hold public meetings

3. Publish Exposure Draft for investor commentary

4. Propose new standards and invite business feedback

5. Weigh all public responses and revise accordingly

Accounting Standards Codification

6. Announce final revisions to the ASC

IFRS
 Need for convergence towards
Global Standards

• International Accounting Standards

(IAS)/International Financial Reporting Standards
(IFRS) (collectively referred to as IFRS), issued by
International Accounting Standards Board (IASB)
in 1973 are now widely recognised as Global
Accounting Standards.
• More than 130 countries and reporting
jurisdictions currently require or permit the use
of or have a policy of convergence/adoption of
IFRS.

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 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
 OBJECTIVES OF IFRS

The main difference between

Stands for Generally Accepted Accounting Principles
accrual and cash basis accounting is the
timing of when revenue and expenses
They are the standard framework of guidelines for
are accounting
financial recognized.
Include the standards, conventions & rules that
The cash
accountants method
follow accounts
in recording, for revenue
summarizing and in
only whenofthe
the preparation money
financial is received and for
statements
Manyexpenses
businesses
onlychoose
when totheopt out of
money GAAP
is paid
practices as they operate on a cash basis, as
out.
opposed to an accrual basis
Difference between IFRS and
GAAP
 GAAP IFRS

Generally Accepted International Financial Reporting

Stands for
Accounting Principles Standards
Universal financial accounting method
Standard guidelines and
that lets international businesses to
Introduction structure for typical
understand each other and work
financial accounting
together
Around 120 countries, including the
Used in United States
European Union
Balance sheet, income
Required
statement, statement of Balance sheet, income statement,
documents in
comprehensive income, changes in equity, cash flow statement,
financial
changes in equity, cash footnotes
statements
flow statement, footnotes
The U.S. GAAP framework The IFRS framework defines an asset as
Definition of an
defines an asset as a a resource from which future economic
asset
future economic benefit benefit will flow to the company
 INDIAN SCENARIO

• The institute of Chartered Accountants of

India, recognizing the need to harmonize the
diverse accounting policies and practices,
constituted at Accounting Standard Board
(ASB) on 21st April, 1977.
• Initiated by Kumar Mangalam Birla, chairman
committee of Corporate Governance for
Financial Disclosures
 INDIAN STD STETTING BODIES

THEY ARE NATIONAL REGULATORS

HAVING AUTHORITY TO SET AND
IMPLEMENT REGULATORY RULES IN
FIN SECTOR
 INDIAN STD STETTING BODIES
• FOR REGULATION & SUPERVISION OF BANKS AND FIN
RBI
INSTITUTIONS, MONEY, FOREIGN EXCHANGE AND
GOVT SECURITIES MARKET
• TO PROTECT INTEREST OF INVESTORS IN SECURITIES
SEBI
AND TO PROMOTE , REGULATE SECURITIES MARKET

• PROTECTING THE INTERESTS OF THE POLICY HOLDERS, TO

IRDA REGULATE, PROMOTE AND ENSURE ORDERLY GROWTH

• LEGAL FRAMEWORK FOR INCORPORATION FUNCTIONING OF

MINISTRY COMPANIES, SURVEILLANCE OVER CORPORATE SECTOR TO
OF ENSURE FINANCIAL HEALTH & COMPLIANCE WITH STATUTORY
CORPORA PROVISIONS, PRESCRIBING COST AUDIT RULES AND
TE APPOINTMENT OF COST AUDITORS, INVESTIGATION OF
AFFAIRS COMPLAINTS, COORDINATION WITH OTHER REGULATORY
BODIES
 INDIAN STD STETTING BODIES

STANDING COMMITTEE
• SET UP IN DEC 1999
• TASK TO MONITOR DEVELOPMENTS IN GLOBAL STDS
• CREATE FINANCIAL ARCHITECHTURE
• WRT APPLICABILITY TO INDIAN FINANCIAL SYSTEM

ADVISORY GROUPS
• ROLE TO ASSIST STANDING COMMITTEE
• EMINENTS & EXPERTS PANEL
• TACKLES SPECIFIC TOPIC
 CONTROLLING BODIES

NACAS
• ADVISES THE CENTRAL GOVERNMENT ON THE FORMULATION AND LAYING
DOWN OF ACCOUNTING POLICY AND ACCOUNTING STANDARDS FOR
ADOPTION BY COMPANIES

MEMBERS
• CHAIRPERSON (PERSON OF EMINENCE)
• 1 X REP OF ICAI
• 1 X ICWA
• 1 X CSI
• 1 X GOVT, RBI CAG, TAX DEPT
• ACADEMICIA
• REPS OF CHAMBERS OF COMMERCE & INDUSTRY
• 1 x SEBI
 Accounting Standards in India

The ICAI, established Accounting Standards

Board (ASB) in 1977, to issue Accounting
Standards (AS) in India
• Initially, AS were mandatory for members of the ICAI
acting as auditors
• In the year 1999, the Companies Act 1956, was
amended to make AS mandatory to companies
• In 2006, Central Government notified 28 Accounting
Standards, as recommended by ICAI under Companies
(Accounting Standards) Rules 2006 with
31 recommendation of NACAS.
 Compliance with Accounting
Standards issued by ICAI

Sub Section(3A) to section 211 of Companies Act, 1956

requires that every Profit/Loss Account and Balance Sheet
shall comply with the Accounting Standards.

'Accounting Standards' means the standard of accounting

recommended by the ICAI and prescribed by the Central
Government in consultation with the National Advisory
Committee on Accounting Standards(NACAS) constituted
under section 210(1) of companies Act, 1956.
 ACCTG STDS

31 Acctg Stds
EVOLUTION AND TYPES OF AS

Accounting Initiation
standards
1. AS 1 to 15 1979 to 1995
2. AS 16 to 29 2000 to 2007
3 AS 30 to 31 Later part of 2007
 ACCTG STDS

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.
 ACCTG STDS

AS 6.Depreciation accounting.

AS 7.Construction Contracts.

AS 8.Revenue Recognition.

AS 9.Accounting For Fixed Assets

AS 10.The Effect of Changes In FOREX Rates.

AS 11.Accounting For Government Grants.

AS 12.Accounting For Investments.

 ACCTG STDS

AS 13. Accounting For Amalgamation

AS 14.Employee Benefits.

AS 15.Borrowing Cost.

AS 16. Segment Reporting.

AS 17. Related Party Disclosures.

AS 18. Accounting For Leases.

AS 19. Earning Per Share.

 ACCTG STDS

AS 20. Consolidated Financial Statement.

AS 21. Accounting For Taxes on Income.

AS 22. Accounting for Investment in associates in

Consolidated Financial Statement.

AS 23. Discontinuing Operation.

AS 24. Interim Financial Reporting.

AS 25. Intangible assets.

 ACCTG STDS

AS 26.Financial Reporting on Interest in joint Ventures.

AS 27. Impairment Of assets.

AS 28.Provisions, Contingent, liabilities and Contingent

assets.

AS 29. Financial instrument.

AS 30. Financial Instrument: presentation.

AS 31. Financial Instruments, Disclosures and Limited

revision to accounting standards.
 PRESNET STATUS

GOVERNMENT HAS DECIDED TO CONVERGE AND NOT TO

ADOPT IFRS ISSUED BY IASB.

THE ICAI HAS FORMULATED IFRS-CONVERGED STANDARDS,

KNOWN AS INDIAN ACCOUNTING STANDARDS (IND AS),
WHICH HAVE BEEN NOTIFIED BY THE MCA UNDER
COMPANIES (INDIAN ACCOUNTING STANDARDS) RULES,
2015 VIDE NOTIFICATION DATED FEBRUARY 16, 2015,
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 Roadmap for Implementation on Ind
ASs

41
 Roadmap for Implementation on Ind
ASs (Contd.)

Phase I
1st April 2015 or thereafter: Voluntary Basis for
all companies
1st April 2016: Mandatory Basis
• Companies listed on Stock Exchange having net
worth > Rs. 500 Crore
• Unlisted Companies having net worth > Rs. 500
Crore
• Parent, Subsidiary, Associate and J. V of Above

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 Roadmap for Implementation on Ind
ASs (Contd.)
Phase II 1st April 2017 (Mandatory basis)
• All Listed Companies not covered in Phase I
• Unlisted Companies having net worth Rs. 500
Crore > Rs. 250 crore
• Parent, Subsidiary, Associate and J. V of Above
– Other companies will continue to follow existing AS
– Roadmap for banks, NBFCs and insurance companies
still to be decided
• Banks, Insurance Companies, MBFC’s, RRB’s not yet
covered in Phase I and Phase II. Roadmap is yet to
be notified.

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 Understanding Ind AS from AS

• Ind AS are based more on substance over form

• Sale of Goods on Extended Credit Terms, i.e.,
goods sold on terms extending more than
normal credit period.
– Financing element inbuilt in price is segregated and
considered as ‘interest’ income.
– Say, goods normally sold at price at Rs. 100 for 3
months credit
• If sold for Rs. 110 for 15 months credit: Rs. 10 considered as
‘interest’ income
• This has VAT and TDS implications

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JAI HIND