Accounting Standards and Disclosure Requirements

Session Objectives

To give a brief about the different accounting standards to the participants including the Government Accounting Standards being developed by GASAB;

To discuss the major Accounting Standards of ICAI;

To explain the disclosure requirements in Financial Management

Introduction

Why? To establish rules relating to

recognition, measurement and disclosures for true, fair, transparent and comparable financial statements

What? Set of pronouncement by various

regulatory authorities

Different Accounting Standards Formulated by Accounting Standard

Boards International Accounting Standards by US

Securities & Exchange Commission Australian Accounting Standards by AASB Accounting Standards by ASB, Financial

Reporting Council, UK Indian Accounting Standards formulated by ICAI Indian Government Accounting Standards by

GASAB

Accounting Standards followed in India

ICAI Accounting standards are followed by all the Companies in India including PSUs.

These standards are mostly mandatory for the Companies Disclosures may vary from Company to

Company, depending on their declared accounting policies and subject to the mandatory Accounting Standards.

AS-1Disclosures of Accounting Policies

Disclosures of specific accounting principles and methods of their application in preparation and presentation of financial statements.

Should form part of the financial statements and be disclosed at one place

AS-2Valuation of inventories

Applicable to accounting of inventories other than WIP, stock-in-trade, inventories of livestock, agriculture, forest products and minerals

Inventories are valued at cost or net reliable value whichever is lower; Overheads are absorbed

Financial statements should disclose the accounting policies adopted in measuring

inventories (including cost formula used) Totally carrying amount of inventories with

appropriate classification

AS-3Cash Flow Statements

Enables users to evaluate changes in net assets of an enterprise and its financial structure as well as to effect the amounts and timings of cash flow

Should report Cash flows during the period Classified by operating, investing and

financing activities

AS-4Contingencies and Events occurring after B/S date

Events that occur between the balance sheet date and the date of approval by the Board of Director/corresponding authority.

2 types of events Adjusting those providing further evidence of

conditions on B/S date Adjustments need to be made in the assets and

liabilities Non-adjusting indicative of events arising

subsequent to B/S date

AS-5Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

To prescribe the classification and disclosure of certain items in the statement of profit and loss

Disclosure include Distinct depiction of prior items

under relevant heads

AS-6Depreciation Accounting

Various disclosures required are: Historical/analogous cost for each class

for depreciable asset Total Depreciation for the period for

each class of asset Related accumulated deprecation Depreciation methods Depreciation and written down

values/lives

AS-7Construction Contracts Arises because formulation of a construction

contract and its execution usually fall in different accounting periods

Exception of AS-2 as profit on inventories is recognized in case of construction contracts

Disclosure requirements include: Amount of contract revenue recognizable for the period Methods used to determine the same, Methods used to determine the stage of completion of the

contract Aggregate amount of net profits till date, advances

received, retentions, Balance amounts due to be shown as assets/liabilities

AS-9Revenue Recognition

Recognition of revenue from Sale of goods Rendering of services Interest, royalty, dividend from resources

Not applicable in case of construction, lease-purchase, insurance contracts, government grants and such subsidies;

Disclosure must include Postponement of revenue recognition apart

from significant accounting policies

AS-10

Not applicable in case of forests, livestock, plantations, minerals, real estate development

Disclosures include Gross/net value of fixed assets at the

beginning and end of accounting period with detailed workings

Revaluations, if any

AS-11Effects of Changes in Forex Rates

Recognition of exchange gains losses Treatment of foreign operations Forward exchange contracts for

trading/speculation Disclosure requirements

Amount of exchange differences included in net profit/loss for the period

Accumulation and reconciliation of net exchange differences

AS-12Accounting for Government Grants

Includes subsidies, cash incentives, duty drawbacks

Two approaches Capital approach as part of shareholders’

funds Income approach-Taken into income Disclosure requirements include the

nature and extent of grants recognized in the financial statements and the policy thereto.

AS-13Accounting for Investments

To harmonise the accounting of various kinds of investments

Disclosure requirements include: Carrying amount of investments and

aggregate value of quoted and unquoted investments and accounting policy thereto

Classification of investments Amounts included in P&L A/c Restriction on rights of ownership, reliability

of investments, remittance, etc.

AS-14Accounting for Amalgamations

For amalgamations and resultant goodwill and reserves

Disclosures include All details of amalgamating

companies and amalgamation procedure including sanctions, treatment of shares, value of assets, etc.

AS-15Employee Benefits Required to prescribe the accounting and disclosure

for employee benefit. An enterprise to recognize:(a) A liability when an employee has provided service in

exchange for which employee benefits to be paid in the future; and

(b) An expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.

Disclosure of All details and accounting policies pertaining to defined

benefit plans Actuarial gains/losses Reconciliation of balances, Returns on plan assets Past service costs

AS-16Borrowing Costs

For accounting for borrowing costs including interest, commitment charges, amortisation of discounts etc., finance charges, exchange differences in r/o foreign currency borrowings

Financial Statements to disclose Accounting policy for borrowing costs Amount of borrowing costs capitalised

AS-17Segment Reporting Information regarding different types of

operational products and services of an entity

Disclosure is required Only for reportable segments whose financial

indicators are 10% or more than those of the entire entity

Detailed break up of all indicators Any changes in segmental accounting policies Information on types of

products/services/geographical details Some disclosures are recommendatory

AS-18Related Party Disclosures

Applicable for transactions between the reporting enterprise and it’s related parties

Disclosures include Relations pertaining to control Exact details about the relationships

AS-19Leases

For all assets are leased. Includes Operational Lease, Finance Lease and ‘Sale and Leaseback’

Disclosure requirements to be made by both lessor and lessee

The gross carrying amount Depreciation details Loss and profit details Lease details

AS-20Earnings Per Share (EPS)

Used to assess the profitability of an enterprise

The A.S. deals with determination and presenation of the same

Disclosures include EPS details of each class of share on

face of P&L a/c Also in case of extraordinary

item/class of share

AS-21Consolidated Financial Statements

Applicable for a group of Companies under a common parent

Lays down principles and procedures for preparation and presentation of a consolidated financial statement for the group as a whole to show: Resources, obligations and results of

the group as an entity

Other Accounting Standards (not discussed)

AS22: Accounting for deferred Taxes on Income AS23: Accounting for Investments in Associates AS24: Discontinuing Operations AS25: Interim Financial Reporting AS26: Intangible Assets AS27: Financial Reporting of Interests in Joint

Ventures AS28: Impairment of Assets AS29: Provisions, Contingent Liabilities and

Contingent Assets

Assignment

A7_S20