1Dr. Varadraj Bapat Module 4. Accounting Standards, GAAP,IFRS

2Dr. Varadraj Bapat Accounting Principles For communicating the results of business to outside world, it should be based on certain uniform and scientifically laid down principles or postulates. (termed as Accounting Standards –discussed earlier)

3Dr. Varadraj Bapat Accounting principles mean “those rules of conduct or procedures which are adopted by accountants universally while recording the accounting transactions”. To ensure uniformity, clarity and understanding while recording transactions.

4Dr. Varadraj Bapat Accounting Concepts Means and includes those basic assumptions or conditions upon which the science of accounting is based. Important accounting concepts are : Accounting Concepts Business Entity Concept :– Entity is different from it’s owner for accounting purposes

5Dr. Varadraj Bapat Dual aspect Concept :– Recording simultaneously debits credits- Equities/Capital+ Liabilities = Assets Cost Concept :– Assets are normally recorded basis of historical cost i.e. acquisition cost. Market value immaterial, except on concepts of revaluation.

6Dr. Varadraj Bapat Going Concern Concept :– Always on anticipation that a business will continue for long and will not be liquidated Accounting Period Concept :– Though business continues indefinitely, life of business sub divided into accounting periods (generally of 1 year).

7Dr. Varadraj Bapat Money Measurement Concept :- Those transactions which are expressed in money terms are only recorded. Realisation Concept :- Revenue is recognised only when, sale is made. Exceptions may be on certain businesses such on HP/sale on contract etc.

8Dr. Varadraj Bapat Rupee Value Concept :– Assumptions on constant value of rupee. Accrual Concept :- under this concept, the effects of transactions and other events are recognised on mercantile basis i.e. when they occur (and not as cash received or paid)

9Dr. Varadraj Bapat Consistency :– In order to achieve comparability of the financial statements of a enterprise through time, the accounting policies are followed consistently from the one period to another, a change in an accounting policy is made only in certain exceptional circumstances.

10Dr. Varadraj Bapat Exercise Consider the following data pertaining to L Ltd. Cost of the machinery purchased on 1 st April 2010 Rs. 2,50,000 Installation Charges Rs. 5,000 Market Value as on 31 st 2011 Rs.5,00,000

11Dr. Varadraj Bapat While finalising the annual accounts, if the company values the machinery at Rs. 5,00,000 which of the following concept is violated by L Ltd? Realisation Realisation Cost Cost Accrual Accrual Matching Matching

12Dr. Varadraj Bapat There are three fundamental accounting assumption: Going Concern, Consistency, Accrual. If nothing has been written about fundamental accounting assumption in the financial statement then it is Fundamental Accounting Assumption

13Dr. Varadraj Bapat assumed that they have already been followed in their preparation of financial statements. However, if any of the above mentioned fundamental accounting assumption is not followed then this fact should be disclosed.

14Dr. Varadraj Bapat Accounting Standard Accounting Standard are written policy document issued by expert accounting body or by government or regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting

15Dr. Varadraj Bapat transaction and events in the financial statements. Accounting standards (ASs) provide framework and standard accounting policies so that financial statements of different enterprises become comparable. The Companies Act, 1956, as well as many other statutes in India require that the financial

16Dr. Varadraj Bapat statements of an enterprise should give a true and fair view of its financial position and working results. The Accounting Standards not only prescribe appropriate accounting treatment of complex business transactions but also foster greater transparency and market discipline.

17Dr. Varadraj Bapat Accounting Standard in India The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, constituted the Accounting Standards Board (ASB) on 21st April, 1977, with a view to harmonies the diverse accounting policies and practices in use in India.

18Dr. Varadraj Bapat While formulating accounting standards, the ASB takes into consideration the applicable laws, customs, usages and business environment prevailing in the country. The ASB also gives due consideration to International Financial Reporting Standards

19Dr. Varadraj Bapat (International Financial Reporting Standards-IFRS)/ International Accounting Standards (IASs) issued by IASB and tries to integrate them, to the extent possible, in the light of conditions and practices prevailing in India.

20Dr. Varadraj Bapat : Accounting Standards (AS) need to have: Uniformity Uniformity Rationalization Rationalization Comparability Comparability Transparency Transparency Adaptability in Financial Statements. Adaptability in Financial Statements.

21Dr. Varadraj Bapat IND AS In accordance with India’s assurance to converge with IFRS, the Ministry of Corporate Affairs (MCA) issued a press release on 25 February 2011, notifying the Ind AS (Indian Accounting Standards). Several of the requirements of Ind AS are considerably

22Dr. Varadraj Bapat dissimilar from policies and practices presently followed by Indian companies. Further, while finalising the Ind AS, the Indian standard setters have examined individual IFRS and modified the requirements, wherever necessary, to suit Indian requirements. This has resulted in differences between Ind AS and equivalent requirements under IFRS (referred to as ‘carve outs’).

23Dr. Varadraj Bapat IND AS   Ind AS 101: First-time Adoption of Indian Accounting Standards   Ind AS 102: Share based Payment   Ind AS 103: Business Combinations   Ind AS 104: Insurance Contracts

24Dr. Varadraj Bapat   Ind AS 105: Non current Assets Held for Sale and Discontinued Operations   Ind AS 106: Exploration for and Evaluation of Mineral Resources   Ind AS 107: Financial Instruments: Disclosures   Ind AS 108: Operating Segments   Ind AS 1: Presentation of Financial Statements

25Dr. Varadraj Bapat   Ind AS 2: Inventories   Ind AS 7: Statement of Cash Flows   Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors   Ind AS 10: Events after the Reporting Period   Ind AS 11: Construction Contracts   Ind AS 12: Income Taxes

26Dr. Varadraj Bapat   Ind AS 16: Property, Plant and Equipment   Ind AS 17: Leases   Ind AS 18: Revenue   Ind AS 19: Employee Benefits   Ind AS 20: Accounting for Government Grants and Disclosure of Government Assistance   Ind AS 21: The Effects of Changes in Foreign Exchange Rates

27Dr. Varadraj Bapat   Ind AS 23: Borrowing Costs   Ind AS 24: Related Party Disclosures   Ind AS 27: Consolidated and Separate Financial Statements   Ind AS 28: Investments in Associates   Ind AS 29: Financial Reporting in Hyperinflationary Economies   Ind AS 31: Interests in Joint Ventures

28Dr. Varadraj Bapat   Ind AS 32: Financial Instruments: Presentation   Ind AS 33: Earnings per Share   Ind AS 34: Interim Financial Reporting   Ind AS 36: Impairment of Assets   Ind AS 37: Provisions, Contingent Liabilities and Contingent Assets

29Dr. Varadraj Bapat   Ind AS 38: Intangible Assets   Ind AS 39: Financial Instruments: Recognition and Measurement   Ind AS 40: Investment Property

30Dr. Varadraj Bapat International Accounting Standards Committee (IASC) was constituted in 1973 to formulate accounting standards. Barring Canada, Japan and US all countries have accepted these standards. International Accounting Standards (IAS)

31Dr. Varadraj Bapat To give proper direction and interpretations Standards Interpretations Committee was formed in IASB was constituted in 2001 to prescribe norms for treatment of several items on preparation and presentation of Financial statements.

32Dr. Varadraj Bapat ISAB adopted all 41 standards issued by IASC. ISAB adopted all 41 standards issued by IASC. The US Financial Accounting Standards Board (FASB) and IASB The US Financial Accounting Standards Board (FASB) and IASB are in process of eliminating differing in some standards. IASB publishes its Standards in a series of pronouncements called

33Dr. Varadraj Bapat International Financial Reporting Standards (IFRSs). It has also adopted the body of Standards issued by the Board of the International Accounting Standards Committee (IASC). Those pronouncements are designated "International Accounting Standards" (IASs).

34Dr. Varadraj Bapat IASs: IAS 1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements IAS 1 IAS 1 IAS 2 Inventories IAS 2 Inventories IAS 2 IAS 2 IAS 7 Cash Flow Statements IAS 7 Cash Flow Statements IAS 7 IAS 7 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 8 IAS 8

35Dr. Varadraj Bapat IAS 10 Events After the Balance Sheet Date IAS 10 IAS 11 Construction Contracts IAS 11 IAS 12 Income Taxes IAS 12 IAS 16 Property, Plant and Equipment IAS 16 IAS 17 Leases IAS 17 IAS 18 Revenue IAS 18 IASs:

36Dr. Varadraj Bapat IASs: IAS 19 Employee Benefits IAS 19 IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 20 IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 21 IAS 23 Borrowing Costs IAS 23

37Dr. Varadraj Bapat IASs: IAS 24 Related Party Disclosures IAS 24 IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 26 IAS 27 Consolidated and Separate Financial Statements IAS 27 IAS 28 Investments in Associates IAS 28 IAS 29 Financial Reporting in Hyperinflationary Economies IAS 29

38Dr. Varadraj Bapat IASs: IAS 31 Interests in Joint Ventures IAS 31 IAS 32 Financial Instruments: Presentation IAS 32 IAS 33 Earnings per Share IAS 33 IAS 34 Interim Financial Reporting IAS 34 IAS 36 Impairment of Assets IAS 36

39Dr. Varadraj Bapat IASs: IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 37 IAS 38 Intangible Assets IAS 38 IAS 39 Financial Instruments: Recognition and Measurement IAS 39 IAS 40 Investment Property IAS 40 IAS 41 Agriculture IAS 41

40Dr. Varadraj Bapat To avoid confusion and to achieve uniformity, accounting process is applied within the conceptual framework of ‘Generally Accepted Accounting Principle’ (GAAPs) The Financial Statements of entity cannot be said to be showing a true and fair view, unless these Financial Statements have been drawn up on GAAP. GAAP

41Dr. Varadraj Bapat GAAP’s consist of four components. -The requirements of law -The judgments of various courts of law -Pronouncement of the governing body from time to time. -Requirements of regulatory authority SEBI

42Dr. Varadraj Bapat GAAPs are the backbone of the accounting information system, without which whole system cannot even stand erectly. GAPPs and Accounting Standard are considered as the theory base of accounting.