Accounting standards

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Accounting standards

  1. 1. ACCOUNTING STANDARDSAccounting Standards are formulated with a view to harmonize different accounting policies and practices in use in acountry. The objective of Accounting Standards is, therefore, to reduce the accounting alternatives in thepreparation of financial statements within the bounds of rationality, thereby ensuring comparability of financialstatements of different enterprises with a view to provide meaningful information to various users of financialstatements to enable them to make informed economic decisions.Recognizing the need for international harmonization of accounting standards, in 1973, the International AccountingStandards Committee (IASC) was established. It may be mentioned here that the IASC has been reconstituted as theInternational Accounting Standards Board (IASB). The objectives of IASC included promotion of the InternationalAccounting Standards for worldwide acceptance and observance so that the accounting standards in differentcountriesare harmonized. In recent years, need for international harmonization of Accounting Standards followed in differentcountries has grown considerably as the cross-border transfers of capital are becoming increasingly common.The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, constituted the AccountingStandards Board (ASB) on 21st April, 1977, with a view to harmonize the diverse accounting policies and practices inuse in India. After the avowed adoption of liberalization and globalization as the corner stones of Indian economicpolicies inearly ‘90s, and the growing concern about the need of effective corporate governance of late, the AccountingStandards have increasingly assumed importance. While formulating accounting standards, the ASB takes intoconsideration the applicable laws, customs, usages and business environment prevailing in the country. The ASB alsogives due consideration to International Financial Reporting Standards (IFRSs)/ International Accounting Standards(IASs) issued by IASB and tries to integrate them, to the extent possible, in the light of conditions and practicesprevailing in India.Composition of the Accounting Standards BoardThe composition of the ASB is broad-based with a view to ensuring participation of all interest groups in thestandard-setting process. These interest-groups include industry, representatives of various departments ofgovernment and regulatory authorities, financial institutions and academic and professional bodies. Industry isrepresented on the ASB by their apex level associations, viz., Associated Chambers of Commerce & Industry(ASSOCHAM), Confederation of Indian Industries (CII) and Federation of Indian Chambers of Commerce and Industry(FICCI). As regards government departments and regulatory authorities, Reserve Bank of India, Ministry of CompanyAffairs, Comptroller & Auditor General of India, Controller General of Accounts and Central Board of Excise andCustoms are represented on the ASB. Besides these interest-groups, representatives of academic and professionalinstitutions such as Universities, Indian Institutes of Management, Institute of Cost and Works Accountants of Indiaand Institute of Company Secretaries of India are also represented on the ASB. Apart from these interest groups,certain elected members of the Central Council of ICAI are also on the ASB.Compliance with Accounting StandardsAccounting Standards issued by the ICAI have legal recognition through the Companies Act, 1956, whereby everycompany is required to comply with the Accounting Standards and the statutory auditors of every company arerequired to report whether the Accounting Standards have been complied with or not. Also, the InsuranceRegulatory and Development Authority (IRDA) (Preparation of Financial Statements and Auditor’s Report ofInsurance Companies)Regulations, 2000 requires insurance companies to follow the Accounting Standards issued by the ICAI. TheSecurities and Exchange Board of India (SEBI) and the Reserve Bank of India also require compliance with theAccounting Standards issued by the ICAI from time to time.The Accounting Standards-setting ProcessThe accounting standard setting, by its very nature, involves reaching an optimal balance of the requirements offinancial information for various interest-groups having a stake in financial reporting. With a view to reachconsensus, to the extent possible, as to the requirements of the relevant interest-groups and thereby bringing aboutgeneral acceptance of the Accounting Standards among such groups, considerable research, consultations anddiscussions with the representatives of the relevant interest-groups at different stages of standard formulation
  2. 2. becomes necessary. The standard-setting procedure of the ASB, as briefly outlined below, is designed in such a wayso as to ensure such consultation and discussions: Identification of the broad areas by the ASB for formulating the Accounting Standards. Constitution of the study groups by the ASB for preparing the preliminary drafts of theproposed Accounting Standards. Consideration of the preliminary draft prepared by the study group by the ASB and revision,if any, of the draft on the basis of deliberations at the ASB. Circulation of the draft, so revised, among the Council members of the ICAI and 12 specifiedoutside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks’Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India(SEBI), Comptroller and Auditor General of India (C& AG), and Department of CompanyAffairs, for comments. Meeting with the representatives of specified outside bodies to ascertain their views on thedraft of the proposed Accounting Standard. Finalization of the Exposure Draft of the proposed Accounting Standard on the basis ofcomments received and discussion with the representatives of specified outside bodies. Issuance of the Exposure Draft inviting public comments. Consideration of the comments received on the Exposure Draft and finalization of the draftAccounting Standard by the ASB for submission to the Council of the ICAI for itsconsideration and approval for issuance. Consideration of the draft Accounting Standard by the Council of the Institute, and if foundnecessary, modification of the draft in consultation with the ASB. The Accounting Standard, so finalized, is issued under the authority of the Council.The Accounting Standards as given by the ASB are listed below:AS 1 Disclosure of Accounting PoliciesAS 2 Valuation of InventoriesAS 3 Cash Flow StatementsAS 4 Contingencies and Events Occurring after the Balance Sheet DateAS 5 Net Profit or Loss for the Period, Prior Period Items and Changes inAccounting PoliciesAS 6 Depreciation AccountingAS 7 Construction ContractsAS 8 Accounting for Research and Development (Withdrawn pursuant toAS 26 becoming mandatory)AS 9 Revenue RecognitionAS 10 Accounting for Fixed AssetsAS 11 The Effects of Changes in Foreign Exchange RatesAS 12 Accounting for Government GrantsAS 13 Accounting for InvestmentsAS 14 Accounting for AmalgamationsAS 15 Employee BenefitsAS 16 Borrowing CostsAS 17 Segment ReportingAS 18 Related Party DisclosuresAS 19 LeasesAS 20 Earnings Per ShareAS 21 Consolidated Financial StatementsAS 22 Accounting for Taxes on IncomeAS 23 Accounting for Investments in Associates in Consolidated Financial StatementsAS 24 Discontinuing OperationsAS 25 Interim Financial ReportingAS 26 Intangible AssetsAS 27 Financial Reporting of Interests in Joint VenturesAS 28 Impairment of AssetsAS 29 Provisions, Contingent Liabilities and Contingent AssetsAS 30 Financial Instruments: Recognition and Measurement
  3. 3. AS 31 Financial Instruments: PresentationAS 32 Financial Instruments: DisclosuresAn explanation pertaining to each Accounting Standard is given below:AS1 Disclosure Of Accounting Policies:(Issued in 1979 & Mandatory from 1st April, 1991)a) All significant accounting policies adopted in the preparation and presentation of financial statements should bedisclosed.b) The disclosure of the significant accounting policies as such should form part of the financial statements and thesignificant accounting policies should normally be disclosed in one place.c) Any change in the accounting policies which has a material effect in the current period or which is reasonablyexpected to have a material effect in later periods should be disclosed. In the case of a change in accounting policieswhich has a material effect in the current period, the amount by which any item in the financial statements isaffected by such change should also be disclosed to the extent ascertainable. Where such amount is notascertainable, wholly or in part, the fact should be indicated.d) If the fundamental accounting assumptions, viz. Going Concern, Consistency and Accrual are followed in financialstatements, specific disclosure is not required. If a fundamental accounting assumption is not followed, the factshould be disclosed.AS 2 Valuation of Inventories (Originally Issued in June, 1981, Revised & Mandatory from 1st April, 1999)A primary issue in accounting for inventories is the determination of the value at which inventories are carried in thefinancial statements until the related revenues are recognised.This Statement deals with the determination of suchvalue, including the ascertainment of cost of inventories and any write-down thereof to net realizable value.Inventories are assets:(a) held for sale in the ordinary course of business;(b) in the process of production for such sale; or(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs ofcompletion and the estimated costs necessary to make the sale.Measurement of Inventoriesa)Inventories should be valued at the lower of cost and net realizable value.b) The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred inbringing the inventories to their present location and condition.AS 3 Cash Flow Statements(Issued June, 1981, Revised & Effective from 1st April, 1997 &Mandatory from 1st April,2004)Information about the cash flows of an enterprise is useful in providing users of financial statements with a basis toassess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilisethose cash flows. The economic decisions that are taken by users require an evaluation of the ability of an enterpriseto generate cash and cash equivalents and the timing and certainty of their generation. The Statement deals withthe provision of information about the historical changes in cash and cash equivalents of an enterprise by means of acashflow statement which classifies cash flows during the period from operating, investing and financing activities. 1. An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented. 2. The cash flow statement should report cash flows during the periodclassified by operating, investing and financing activities.The following terms are used in this Statement with the meanings specified:Cash comprises cash on hand and demand deposits with banks.Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cashand which are subject to an insignificant risk of changes in value.Cash flows are inflows and outflows of cash and cash equivalents.Operating activities are the principal revenue-producing activities of the enterprise and other activities that are notinvesting or financing activities.Investing activities are the acquisition and disposal of long-term assets and other investments not included in cashequivalents.
  4. 4. Financing activities are activities that result in changes in the size and composition of the owners’ capital (includingpreference share capital in the case of a company) and borrowings of the enterprise.AS 4 Contingencies and Events Occurring after the Balance Sheet Date(Originally issued November, 1982 &Commencement & Effective 1st April, 1995)The following terms are used in this Statement with the meanings specified:a) A contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known ordetermined only on the occurrence, or non-occurrence, of one or more uncertain future events.b) Events occurring after the balance sheet date are those significant events, both favourable and unfavourable, thatoccur between the balance sheet date and the date on which the financial statements are approved by the Board ofDirectors in the case of a company, and, by the corresponding approving authority in the case of any other entity.ContingenciesThe amount of a contingent loss should be provided for by a charge in the statement of profit and loss if:(a) it is probable that future events will confirm that, after taking into account any related probable recovery, anasset has been impaired or a liability has been incurred as at the balance sheet date, and(b) a reasonable estimate of the amount of the resulting loss can be made.Events Occurring after the Balance Sheet DateAssets and liabilities should be adjusted for events occurring after the balance sheet date that provide additionalevidence to assist the estimation of amounts relating to conditions existing at the balance sheet date or that indicatethat the fundamental accounting assumption of going concern is not appropriate.AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (Originally issuedNovember, 1982, Commencing & Mandatory from 1st April, 1996)The objective of this Statement is to prescribe the classification and disclosure of certain items in the statement ofprofit and loss so that all enterprises prepare and present such a statement on a uniform basis. This enhances thecomparability of the financial statements of an enterprise over time and with the financial statements of otherenterprises. Accordingly, this Statement requires the classification and disclosure of extraordinary and prior perioditems, and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accountingtreatment for changes in accounting estimates and the disclosures to be made in the financial statements regardingchanges in accounting policies.AS 6 Depreciation Accounting (Originally Issued in November, 1982, Commencing & Mandatory from 1st April, 1995)The depreciable amount of a depreciable asset should be allocated on a systematic basis to each accounting periodduring the useful life of the asset. The depreciation method selected should be applied consistently from period toperiod. A change from one method of providing depreciation to another should be made only if the adoption of thenewmethod is required by statute or for compliance with an accounting standard or if it is considered that the changewould result in a more appropriate preparation or presentation of the financial statements of the enterprise.Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising fromuse, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as tocharge a fair proportion of the depreciable amount in each accounting period during the expected useful life of theasset. Depreciation includes amortisation of assets whose useful life is predetermined.Depreciable assets are assets which(i) are expected to be used during more than one accounting period; and(ii) have a limited useful life; and(iii) are held by an enterprise for use in the production or supply of goods and services, for rental to others, or foradministrative purposes and not for the purpose of sale in the ordinary course ofbusiness.Useful life is either (i) the period over which a depreciable asset is expected to be used by the enterprise; or (ii) thenumber of production or similar units expected to be obtained from the use of the asset by the enterprise.Depreciable amount of a depreciable asset is its historical cost, or other amount substituted for historical cost in thefinancial statements, less the estimated residual value.AS 7 Construction Contracts (Originally Issued in December, 1983, Commencement & Mandatory from 1 st April,2003)
  5. 5. The objective of this Statement is to prescribe the accounting treatment of revenue and costs associated withconstruction contracts. Because of the nature of the activity undertaken in construction contracts, the date at whichthe contract activity is entered into and the date when the activity is completed usually fall into different accountingperiods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenueand contract costs to the accounting periods in which construction work is performed. This Statement uses therecognition criteria established in the Framework for the Preparation and Presentation of Financial Statements todetermine when contract revenue and contract costs should be recognized as revenue and expenses in thestatement of profit and loss. It also provides practical guidance on the application of these criteria.A construction contract is a contract specifically negotiated for the construction of an asset or a combination ofassets that are closely interrelated or interdependent in terms of their design, technology and function or theirultimate purpose or use.AS 8 Accounting for Research and Development (Withdrawn pursuant to AS 26 becoming mandatory) (Revised in2002)Accounting Standard (AS) 8, Accounting for Research and Development, is withdrawn from the date of AS 26,Intangible Assets, becoming mandatory for respective enterprises.AS 9 Revenue Recognition ( Issued in 1985, Mandatory from 1st April, 1991)Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit andloss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement betweenthe parties involved in the transaction.Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activitiesof an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterpriseresources yielding interest, royalties and dividends.Revenue from sales or service transactions should be recognized.Revenue arising from the use by others of enterprise resources yielding interest, royalties and dividends.The use by others of such enterprise resources gives rise to:(i) interest—charges for the use of cash resources or amounts due to the enterprise;(ii) royalties—charges for the use of such assets as know-how, patents, trademarks and copyrights;(iii) dividends—rewards from the holding of investments in shares.AS 10 Accounting for Fixed Assets (Issued in 1985, Effective & Mandatory from 1st April, 1991)Financial statements disclose certain information relating to fixed assets. In many enterprises these assets aregrouped into various categories, such as land, buildings, plant and machinery, vehicles, furniture and fittings,goodwill, patents, trademarks and designs. This statement deals with accounting forsuch fixed assets. Fixed assetsoften comprise a significant portion of the total assets of an enterprise, and therefore are important in thepresentation of financial position. Furthermore, the determination of whether an expenditure represents an asset oran expense can have a material effect on an enterprise’s reported results of operations.Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods orservices and is not held for sale in the normal course of business.AS 11 The Effects of Changes in Foreign Exchange Rates(Originally Issued in 1989An enterprise may carry on activities involving foreign exchange in two ways. It may have transactions in foreigncurrencies or it may have foreign operations. In order to include foreign currency transactions and foreignoperations in the financial statements of an enterprise, transactions must be expressed in the enterprise’s reportingcurrency and the financial statements of foreign operations must be translated into the enterprise’s reportingcurrency.This Statement should be applied:(a) in accounting for transactions in foreign currencies; and(b) in translating the financial statements of foreign operations.Foreign currency is a currency other than the reporting currency of an enterprise.Reporting currency is the currency used in presenting the financial statements.Foreign operation is a subsidiary , associate , joint venture or branch of the reporting enterprise, the activities ofwhich are based or conducted in a country other than the country of the reporting enterprise.
  6. 6. AS 12 Accounting for Government Grants (Originally Issued in 1991, Effective from 1st April, 1992, Mandatory from1st April, 1994)This Statement deals with accounting for government grants. Government grants are sometimes called by othernames such as subsidies, cash incentives, duty drawbacks, etc. The receipt of government grants by an enterprise issignificant for preparation of the financial statements for two reasons. Firstly, if a government grant has beenreceived, an appropriate method of accounting therefor is necessary. Secondly, it is desirable to give an indication ofthe extent towhich the enterprise has benefited from such grant during the reporting period. This facilitates comparison of anenterprise’s financial statements with those of prior periods and with those of other enterprises.Government refers to government, government agencies and similar bodies whether local, national or international.Government grants are assistance by government in cash or kind to an enterprise for past or future compliance withcertain conditions. They exclude those forms of government assistance which cannot reasonably have a value placedupon them and transactions with government which cannot be distinguished from the normal trading transactionsof the enterprise.AS 13 Accounting for Investments (Originally Issued in 1993, Mandatory from 1st April, 1995)This Statement deals with accounting for investments in the financial statements of enterprises and relateddisclosure requirements. An enterprise should disclose current investments and long term investments distinctly inits financial statements. The cost of an investment should include acquisition charges such as brokerage, fees andduties. An enterprise holding investment properties should account for them as long term investments.Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, forcapital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not‘investments’.A current investment is an investment that is by its nature readily realizable and is intended to be held for not morethan one year from the date on which such investment is made.A long term investment is an investment other than a current investment.AS 14 Accounting for Amalgamations (Issued in 1994, Effective & Mandatory from 1st April, 1995)This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves.This statement is directed principally to companies although some of its requirements also apply to financialstatements of other enterprises.An amalgamation may be either –(a) an amalgamation in the nature of merger, or(b) an amalgamation in the nature of purchase.Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statutewhich may be applicable to companies.AS 15 Employee Benefits ( Originally Issued in 1995, Revised in 2005, Effective & Mandatory from December 7,2005The objective of this Statement is to prescribe the accounting and disclosure for employee benefits. The Statementrequires an enterprise to recognize:(a) a liability when an employee has provided service in exchange for 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 inexchange for employee benefits.This Statement should be applied by an employer in accounting for all employee benefits, except employee share-based payments .This Statement does not deal with accounting and reporting by employee benefit plans.Employee benefits are all forms of consideration given by an enterprise in exchange for service rendered byemployees.AS 16 Borrowing Costs (Effective & Mandatory from 1st April, 2000)The objective of this Statement is to prescribe the accounting treatment for borrowing costs.This Statement should be applied in accounting for borrowing costs.This Statement does not deal with the actual or imputed cost of owners’ equity, including preference share capitalnot classified as a liability.Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. Itmay include interest and commitment charges on bank borrowings and other short-term and long-term borrowings.
  7. 7. AS 17 Segment Reporting ( Effective from 1st April, 2001, Mandatory from 1st April, 2004)The objective of this Statement is to establish principles for reporting financial information, about the different typesof products and services an enterprise produces and the different geographical areas in which it operates. Suchinformation helps users of financial statements:(a) better understand the performance of the enterprise;(b) better assess the risks and returns of the enterprise; and(c) make more informed judgments about the enterprise as a whole.Many enterprises provide groups of products and services or operate in geographical areas that are subject todiffering rates of profitability, opportunities for growth, future prospects, and risks. Information about differenttypes of products and services of an enterprise and its operations in different geographical areas - often calledsegment information - is relevant to assessing the risks and returns of a diversified or multi-locational enterprise butmay not be determinable from the aggregated data. Therefore, reporting of segment information is widely regardedas necessary for meeting theneeds of users of financial statements.This Statement should be applied in presenting general purpose financial statements.The requirements of this Statement are also applicable in case of consolidated financial statements. An enterprise should comply with the requirements of this Statement fully and not selectively.AS 18 Related Party Disclosures ( Effective from 1st April, 2001, Mandatory from 1st April, 2004)The objective of this Statement is to establish requirements for disclosure of:(a) related party relationships; and(b) transactions between a reporting enterprise and its related partiesThis Statement should be applied in reporting related party relationships and transactions between a reportingenterprise and its related parties. The requirements of this Statement apply to the financial statements of eachreporting enterprise as also to consolidated financial statements presented by a holding company.Related party - parties are considered to be related if at any time during the reporting period one party has theability to control the other party or exercise significant influence over the other party in making financial and/oroperating decisions.AS 19 Leases (Commencement & Mandatory from 1st April, 2001)The objective of this Statement is to prescribe, for lessees and lessors, the appropriate accounting policies anddisclosures in relation to finance leases and operating leases.This Statement should be applied in accounting for all leases other than:(a) lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral rights;(b)licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents &copyrights; and(c) lease agreements to use lands.This Statement applies to agreements that transfer the right to use assets even though substantial services by thelessor may be called for in connection with the operation or maintenance of such assets. On the other hand, thisStatement does not apply to agreements that are contracts for services that do not transfer the right to use assetsfrom one contracting party to the other.A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments theright to use an asset for an agreed period of time.AS 20 Earnings Per Share (Commencement & Mandatory from 1st April, 2001)The objective of this Statement is to prescribe principles for the determination and presentation of earnings pershare which will improve comparison of performance among different enterprises for the same period and amongdifferent accounting periods for the same enterprise. The focus of this Statement is on the denominator of theearnings per share calculation. Even though earnings per share data has limitations because of different accountingpolicies used for determining ‘earnings’, a consistently determined denominator enhances the quality of financialreporting.This Statement should be applied by enterprises whose equity shares or potential equity shares are listed on arecognized stock exchange in India. An enterprise which has neither equity shares nor potential equity shares whichare so listed but which discloses earnings per share should calculate and disclose earnings per share in accordancewith thisStatement.An equity share is a share other than a preference share.
  8. 8. AS 21 Consolidated Financial Statements (Commencement from 1st April, 2001)The objective of this Statement is to lay down principles and procedures for preparation and presentation ofconsolidated financial statements. Consolidated financial statements are presented by a parent (also known asholding enterprise) to provide financial information about the economic activities of its group. These statements areintended to present financial information about a parent and its subsidiary(ies) as a single economic entity to showthe economic resources controlled by the group, the obligations of the group and results the group achieves with itsresources.This Statement should be applied in the preparation and presentation of consolidated financial statements for agroup of enterprises under the control of a parent. This Statement should also be applied in accounting for investments in subsidiaries in the separate financialstatements of a parent.A subsidiary is an enterprise that is controlled by another enterprise (known as the parent).A parent is an enterprise that has one or more subsidiaries.Consolidated financial statements are the financial statements of a group presented as those of a single enterprise.AS 22 Accounting for Taxes on Income ( Effective from 1st April, 2001)The objective of this Statement is to prescribe accounting treatment for taxes on income. Taxes on income is one ofthe significant items in the statement of profit and loss of an enterprise. In accordance with the matching concept,taxes on income are accrued in the same period as the revenue and expenses to which they relate. Matching of suchtaxes against revenue for a period poses special problems arising from the fact that in a number of cases, taxableincome may be significantly different from the accounting income. This divergence between taxable income andaccounting income arises due to two main reasons. Firstly, there are differences between items of revenue andexpenses as appearing in the statement of profit and loss and the items which are considered as revenue, expensesor deductions for tax purposes. Secondly, there are differences between the amount in respect of a particular itemof revenue or expense as recognised in the statement of profit and loss and the corresponding amount which isrecognised for the computation oftaxable income.This Statement should be applied in accounting for taxes on income. This includes the determination of the amountof the expense or saving related to taxes on income in respect of an accounting period and the disclosure of such anamount in the financial statements.For the purposes of this Statement, taxes on income include all domestic and foreign taxes which are based ontaxable income.Accounting income (loss) is the net profit or loss for a period, as reported in the statement of profit and loss, beforededucting income tax expense or adding income tax saving.Taxable income (tax loss) is the amount of the income (loss) for a period, determined in accordance with the taxlaws, based upon which income tax payable (recoverable) is determined.AS 23 Accounting for Investments in Associates in Consolidated Financial Statements (Issued in 2001, Effective from1st, April, 2002)The objective of this Statement is to set out principles and procedures for recognising, in the consolidated financialstatements, the effects of the investments in associates on the financial position and operating results of a group.This Statement should be applied in accounting for investments in associates in the preparation and presentation ofconsolidated financial statements by an investor.This Statement does not deal with accounting for investments in associates in the preparation and presentation ofseparate financial statements by an investorAn associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor ajoint venture of the investor.Consolidated financial statements are the financial statements of a group presented as those of a single enterprise.AS 24 Discontinuing Operations (Issued in 2002, Mandatory from 1st April, 2004)The objective of this Statement is to establish principles for reporting information about discontinuing operations,thereby enhancing the ability of users of financial statements to make projections of an enterprises cash flows,earnings-generating capacity, and financial position by segregating information about discontinuing operations frominformation about continuing operations.This Statement applies to all discontinuing operations of an enterprise.
  9. 9. The requirements related to cash flow statement contained in this Statement are applicable where an enterpriseprepares and presents a cash flow statement.A discontinuing operation is a component of an enterprise:(a) that the enterprise, pursuant to a single plan, is:(i) disposing of substantially in its entirety, such as by selling the component in a single transaction or by demerger orspin-off of ownership of the component to the enterprises shareholders; or(ii) disposing of piecemeal, such as by selling off the components assets and settling its liabilities individually; or(iii) terminating through abandonment; and(b) that represents a separate major line of business or geographical area of operations; and(c) that can be distinguished operationally and for financial reporting purposes.AS 25 Interim Financial Reporting (Effective from 1st April, 2002)The objective of this Statement is to prescribe the minimum content of an interim financial report and to prescribethe principles for recognition and measurement in a complete or condensed financial statements for an interimperiod. Timely and reliable interim financial reporting improves the ability of investors, creditors, and others tounderstand an enterprises capacity to generate earnings and cash flows, its financial condition and liquidity.This Statement does not mandate which enterprises should be required to present interim financial reports, howfrequently, or how soon after the end of an interim period. If an enterprise is required or elects to prepare andpresent an interim financial report, it should comply with this Statement.Interim period is a financial reporting period shorter than a full financial year.Interim financial report means a financial report containing either acomplete set of financial statements or a set ofcondensed financial statements (as described in this Statement) for an interim period.During the first year of operations of an enterprise, its annual financial reporting period may be shorter than afinancial year. In such a case, that shorter period is not considered as an interim period.AS 26 Intangible Assets (Effective & Mandatory from 1st April, 2003)The objective of this Statement is to prescribe the accounting treatment for intangible assets that are not dealt withspecifically in another Accounting Standard. This Statement requires an enterprise to recognize an intangible asset if,and only if, certain criteria are met. The Statement also specifies how to measure the carrying amount of intangibleassets and requires certain disclosures about intangible assets.Enterprises frequently expend resources, or incur liabilities, on the acquisition, development, maintenance orenhancement of intangible resources such as scientific or technical knowledge, design and implementation of newprocesses or systems, licences, intellectual property, market knowledge and trademarks (including brand names andpublishing titles). Common examples of items encompassed by these broad headings are computer software,patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas,franchises,customer or supplier relationships, customer loyalty, market share and marketing rights. Goodwill is anotherexample of an item of intangible nature which either arises on acquisition or is internally generated.An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the productionor supply of goods or services, for rental to others, or for administrative purposes.An asset is a resource:(a) controlled by an enterprise as a result of past events; and(b) from which future economic benefits are expected to flow to the enterprise.AS 27 Financial Reporting of Interests in Joint Ventures (Effective & Mandatory from 1st April, 2002)The objective of this Statement is to set out principles and procedures for accounting for interests in joint venturesand reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers andinvestors.This Statement should be applied in accounting for interests in joint ventures and the reporting of joint ventureassets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of thestructures or forms under which the joint venture activities take place.A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which issubject to joint control.
  10. 10. A venturer is a party to a joint venture and has joint control over thatjoint venture.An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.AS 28 Impairment of Assets (Issued in 2002, Effective & Mandatory from 1st April, 2004)The objective of this Statement is to prescribe the procedures that an enterprise applies to ensure that its assets arecarried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if itscarrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset isdescribed as impaired and this Statement requires the enterprise to recognise an impairment loss. This Statementalso specifies when an enterprise should reverse an impairment loss and it prescribes certain disclosures forimpaired assets.The Standard doesn’t apply to assets arising from or included in AS2, AS7, AS13, AS22.Recoverable amount is the higher of an asset’s net selling price and its value in use.Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an assetand from its disposal at the end of its useful life.AS 29 Provisions, Contingent Liabilities and Contingent Assets(Issued in 2003, Effective & Mandatory from 1st April,2004)The objective of this Statement is to ensure that appropriate recognition criteria and measurement bases are appliedto provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financialstatements to enable users to understand their nature, timing and amount. The objective of this Statement is also tolay down appropriate accounting for contingent assets.This Statement should be applied in accounting for provisions and contingent liabilities and in dealing withcontingent assets, except:(a) those resulting from financial instruments that are carried at fair value;(b) those resulting from executory contracts, except where the contract is onerous ;(c) those arising in insurance enterprises from contracts with policy-holders; and(d) those covered by another Accounting Standard.A provision is a liability which can be measured only by using a substantial degree of estimation.A contingent liability is:(a) a possible obligation that arises from past events and the existence of which will be confirmed only by theoccurrenceor non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or(b) a present obligation that arises from past events but is not recognised because:(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle theobligation;(ii) a reliable estimate of the amount of the obligation cannot be made.A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only bythe occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of theenterprise.AS 30 Financial Instruments: Recognition and Measurement (Effective from 1 April, 2009, Mandatory from 1st April,2011The objective of this Standard is to establish principles for recognising and measuring financial assets, financialliabilities and some contracts to buy or sell non-financial items. Requirements for presenting information aboutfinancial instruments are in Accounting Standard (AS) 31, Financial Instruments: Presentation. Requirements fordisclosing information about financial instruments are in Accounting Standard (AS) 32, Financial Instruments:Disclosures.This Standard should not applied to:Those interests in subsidiaries, associates and joint ventures that are accounted for under AS 21, AS 23 or AS 27.This Standard should be applied to those contracts to buy or sell a non-financial item that can be settled net in cashor another financial instrument, or by exchanging financial instruments, as if the contracts were financialinstruments, with the exception of contracts that were entered into and continue to be held for the purpose of thereceipt or delivery of a nonfinancial item in accordance with the entitys expected purchase, sale or usagerequirements.AS 31 Financial Instruments: Presentation(Effective from 1st April, 2009, Mandatory from 1stApril, 2011)
  11. 11. The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity andfor offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from theperspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of relatedinterest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should beoffset.This Standard should not applied to:Those interests in subsidiaries, associates and joint ventures that are accounted for under AS 21, AS 23 or AS 27.This Standard should be applied to those contracts to buy or sell a non-financial item that can be settled net in cashor another financial instrument, or by exchanging financial instruments, as if the contracts were financialinstruments, with the exception of contracts that were entered into and continue to be held for the purpose of thereceipt or delivery of a nonfinancial item in accordance with the entity’s expected purchase, sale or usagerequirements.A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equityinstrument of another entity.A financial asset is any asset that is:(a) cash;(b) an equity instrument of another entity;(c) a contractual rightAS 32 Financial Instruments: Disclosures (Effective from 1st April, 2009, Mandatory from 1st April, 2011)The objective of this Standard is to require entities to provide disclosures in their financial statements that enableusers to evaluate:(a) the significance of financial instruments for the entity’s financial position and performance; and(b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the periodand at the reporting date, and how the entity manages those risks. The principles in this Accounting Standard complement the principles for recognising, measuring and presentingfinancial assets and financial liabilities in Accounting Standard (AS) 30, Financial Instruments: Recognition andMeasurement and Accounting Standard (AS) 31, Financial Instruments: Presentation.This Standard should not applied to:Those interests in subsidiaries, associates and joint ventures that are accounted for under AS 21, AS 23 or AS 27.This Accounting Standard applies to recognised and unrecognised financial instruments. Recognised financialinstruments include financial assets and financial liabilities that are within the scope of AS 30. Unrecognised financialinstruments include some financial instruments that, although outside the scope of AS 30, are within the scope ofthis Accounting Standard (such as some loan commitments).In 1973, the International Accounting Standards Committee (IASC) was established. It may be mentioned here thatthe IASC has been reconstituted as the International Accounting Standards Board (IASB). The objectives of IASCincluded promotion of the International Accounting Standards for worldwide acceptance and observance so that theaccounting standards in different countries are harmonized. In recent years, need for international harmonization ofAccounting Standards followed in different countries has grown considerably as the cross-border transfers of capitalare becoming increasingly common.International Accounting Standards (IASs) were issued by the IASC from 1973 to 2000. The IASB replaced the IASC in2001. Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs withnew International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topicsfor which there was no previous IAS. Through committees, both the IASC and the IASB also have issuedInterpretations of Standards.IASBs Objectives (a) to develop, in the public interest, a single set of high quality, understandable and enforceable global accountingstandards that require high quality, transparent and comparable information in financial statements and otherfinancial reporting to help participants in the worlds capital markets and other users make economic decisions;(b) to promote the use and rigorous application of those standards; and
  12. 12. (c) in fulfilling the objectives associated with (a) and (b), to take account of, as appropriate, the special needs of smalland medium-sized entities and emerging economies; and(d) to bring about convergence of national accounting standards and International Accounting Standards andInternational Financial Reporting Standards to high quality solutions.The following standards are issued by IASC:IAS 1: Presentation of Financial Statements.IAS 2: InventoriesIAS 3: Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977. Superseded in 1989 by IAS 27and IAS 28IAS 4: Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of which were issued orrevised in 1998IAS 5: Information to Be Disclosed in Financial Statements Originally issued October 1976, effective 1 January 1997.Superseded by IAS 1 in 1997IAS 6: Accounting Responses to Changing Prices Superseded by IAS 15, which was withdrawn December 2003IAS 7: Cash Flow StatementsIAS 8: Accounting Policies, Changes in Accounting Estimates and ErrorsIAS 9: Accounting for Research and Development Activities – Superseded by IAS 38 effective 1.7.99IAS 10: Events After the Balance Sheet DateIAS 11: Construction ContractsIAS 12: Income TaxesIAS 13: Presentation of Current Assets and Current Liabilities – Superseded by IAS 1.IAS 14: Segment Reporting (superseded by IFRS 8 on 1 January 2008)IAS 15: Information Reflecting the Effects of Changing Prices – Withdrawn December 2003IAS 16: Property, Plant and EquipmentIAS 17: LeasesIAS 18: RevenueIAS 19: Employee BenefitsIAS 20: Accounting for Government Grants and Disclosure of Government AssistanceIAS 21: The Effects of Changes in Foreign Exchange RatesIAS 22:Business Combinations – Superseded by IFRS 3 effective 31 March 2004IAS 23: Borrowing CostsIAS 24: Related Party DisclosuresIAS 25: Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001IAS 26: Accounting and Reporting by Retirement Benefit PlansIAS 27: Consolidated Financial StatementsIAS 28: Investments in AssociatesIAS 29: Financial Reporting in Hyperinflationary EconomiesIAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions – Superseded by IFRS 7effective 2007IAS 31: Interests in Joint VenturesIAS 32: Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments:Disclosures, and no longer in IAS 32)IAS 33: Earnings Per ShareIAS 34: Interim Financial ReportingIAS 35: Discontinuing Operations – Superseded by IFRS 5 effective 2005IAS 36: Impairment of AssetsIAS 37: Provisions, Contingent Liabilities and Contingent AssetsIAS 38: Intangible AssetsIAS 39: Financial Instruments: Recognition and MeasurementIAS 40: Investment PropertyIAS 41: AgricultureIAS 1: Presentation of Financial Statements( Last Amended on 16 June, 2011, Effective from 1st July, 2012)The objective of general purpose financial statements is to provide information about the financial position, financialperformance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To
  13. 13. meet that objective, financial statements provide information about an entitys assets, liabilities, equity, income andexpenses, including gains and losses, contributions by and distributions to owners, cash flows.Applies to all general purpose financial statements based on International Financial Reporting Standards.Generalpurpose financial statements are those intended to serve users who are not in a position to require financial reportstailored to their particular information needs.IAS 2: Inventories ( Last Amended in 2003, Effective from 1st July, 2005)The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determiningthe cost of inventories and for subsequently recognising an expense, including any write-down to net realisablevalue. It also provides guidance on the cost formulas that are used to assign costs to inventories.Inventories include assets held for sale in the ordinary course of business (finished goods), assets in the productionprocess for sale in the ordinary course of business (work in process), and materials and supplies that are consumedin production (raw materials).Inventories are required to be stated at the lower of cost and net realisable value (NRV).IAS 3 Consolidated Financial Statements – Originally issued 1976, effective 1 Jan 1977. Superseded in 1989 by IAS 27and IAS 28IAS 4 Depreciation Accounting – Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of which were issued orrevised in 1998IAS 5 Information to Be Disclosed in Financial Statements – Originally issued October 1976, effective 1 January1997. Superseded by IAS 1 in 1997IAS 6 Accounting Responses to Changing Prices – Superseded by IAS 15, which was withdrawn December 2003IAS 7: Cash Flow Statements (Revised in April, 2009, Effective from 1st January,2010)The objective of IAS 7 is to require the presentation of information about the historical changes in cash and cashequivalents of an entity by means of a statement of cash flows, which classifies cash flows during the periodaccording to operating, investing, and financing activities.All entities that prepare financial statements in conformity with IFRSs are required to present a statement of cashflows.The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash and cashequivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments thatare readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value.Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has amaturity of three months or less from the date of acquisition. Equity investments are normally excluded, unless theyare in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemptiondate). Bank overdrafts which are repayable on demand and which form an integral part of an entitys cashmanagement are also included as a component of cash and cash equivalents.IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors(Revised in 2003, Effective from 1st January,2005)The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, togetherwith the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates andcorrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financialstatements, and the comparability of those financial statements over time and with the financial statements of otherentities.Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity inpreparing and presenting financial statements.A change in accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense,resulting from reassessing the expected future benefits and obligations associated with that asset or liability.IAS 9: Accounting for Research and Development Activities – Superseded by IAS 38 effective 1.7.99IAS 10: Events After the Balance Sheet Date ( Revised in 2003, Effective from 1st January, 2005)The objective of this Standard is to prescribe:
  14. 14. (a) when an entity should adjust its financial statements for events after the reporting period; and(b) the disclosures that an entity should give about the date when the financial statements were authorised for issueand about events after the reporting period.Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the endof the reporting period and the date that the financial statements are authorised for issue.Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at theend of the reporting period, including an event that indicates that the going concern assumption in relation to thewhole or part of the enterprise is not appropriate.Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end ofthe reporting period.IAS 11: Construction Contracts (Revised in 1993, Effective from 1st January, 1995)The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated withconstruction contracts. Because of the nature of the activity undertaken in construction contracts, the date at whichthe contract activity is entered into and the date when the activity is completed usually fall into different accountingperiods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenueand contract costs to the accounting periods in which construction work is performed.A construction contract is a contract specifically negotiated for the construction of an asset or a group of interrelatedassets.IAS 12: Income Taxes ( Revised in December, 2010, Effective from 1st January, 2012)The objective of this Standard is to prescribe the accounting treatment for income taxes. For the purposes of thisStandard, income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes alsoinclude taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint venture ondistributions to the reporting entity.IAS 13: Presentation of Current Assets and Current Liabilities – Superseded by IAS 1IAS 14: Segment Reporting (superseded by IFRS 8 on 1 January 2009)IAS 15: Information Reflecting the Effects of Changing Prices – Withdrawn December 2003IAS 16: Property, Plant and Equipment( Revised in May, 2008, Effective from 1st January, 2009)The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so thatusers of the financial statements can discern information about an entity’s investment in its property, plant andequipment and the changes in such investment. The principal issues in accounting for property, plant and equipmentare the recognition of the assets, the determination of their carrying amounts and the depreciation charges andimpairment losses to be recognised in relation to them.IAS 17: Leases(Revision in April, 2009, Effective from 1st January, 2010)The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies anddisclosure to apply in relation to leases. The classification of leases adopted in this Standard is based on the extent towhich risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. A lease is classifiedas a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified asan operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.IAS 17 applies to all leases other than lease agreements for minerals, oil, natural gas, and similar regenerativeresources and licensing agreements for films, videos, plays, manuscripts, patents, copyrights, and similar items.A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The leasepayment and the sale price are usually interdependent because they are negotiated as a package. The accountingtreatment of a sale and leaseback transaction depends upon the type of lease involved.IAS 18: Revenue(Revised and Effective from 16th April, 2009)The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognized whenit is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. This
  15. 15. Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised.It also provides practical guidance on the application of these criteria.Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinaryactivities of an entity when those inflows result in increases in equity, other than increases relating tocontributions from equity participants.This Standard shall be applied in accounting for revenue arising from the following transactions and events:(a) the sale of goods;(b) the rendering of services; and(c) the use by others of entity assets yielding interest, royalties and dividends.IAS 19: Employee Benefits ( Revised in June 2011, Effective from 1st January, 2013)Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees.The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standardrequires an entity to recognise:(a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and(b) an expense when the entity consumes the economic benefit arising from service provided by an employee inexchange for employee benefits.IAS 19 applies to (among other kinds of employee benefits): wages and salaries compensated absences (paid vacation and sick leave) profit sharing plans bonuses medical and life insurance benefits during employment housing benefits free or subsidised goods or services given to employees pension benefits post-employment medical and life insurance benefits long-service or sabbatical leave jubilee benefits deferred compensation programs termination benefits.Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settledwithin twelve months after the end of the period in which the employees render the related service.Post-employment benefits are employee benefits (other than termination benefits) which are payable after thecompletion of employment.IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (Revised in May, 2008,Effective from 1st January, 2009)This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure ofother forms of government assistance. However, it does not cover government assistance that is provided in theform of benefits in determining taxable income. It does not cover government grants covered by IAS 41 Agriculture,either. [IAS 20.2] The benefit of a government loan at a below-market rate of interest is treated as a governmentgrant. [IAS 20.10A]Government grants are assistance by government in the form of transfers of resources to an entity in return for pastor future compliance with certain conditions relating to the operating activities of the entity.Government assistance is action by government designed to provide an economic benefit specific to an entity orrange of entities qualifying under certain criteria.IAS 21: The Effects of Changes in Foreign Exchange Rates (Revised in January, 2008, 1st July, 2009)An entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may haveforeign operations. In addition, an entity may present its financial statements in a foreign currency. The objective ofthis Standard is to prescribe how to include foreign currency transactions and foreign operations in the financialstatements of an entity and how to translate financial statements into a presentation currency. The principal issuesare which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financialstatements.
  16. 16. Functional currency is the currency of the primary economic environment in which the entity operates. The primaryeconomic environment in which an entity operates is normally the one in which it primarily generates and expendscash.Foreign currency is a currency other than the functional currency of the entity. Spot exchange rate is the exchangerate for immediate delivery.Exchange difference is the difference resulting from translating a given number of units of one currency into anothercurrency at different exchange rates.Net investment in a foreign operation is the amount of the reporting entity’s interest in the net assets of thatoperation.IAS 22:Business Combinations – Superseded by IFRS 3 effective 31 March 2004IAS 23: Borrowing Costs (Revised in May, 2008, Effective from 1st January, 2009)The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs. Borrowing costs includeinterest on bank overdrafts and borrowings, amortisation of discounts or premiums on borrowings, finance chargeson finance leases and exchange differences on foreign currency borrowings where they are regarded as anadjustment to interest costs.Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset formpart of the cost of that asset. Other borrowing costs are recognised as an expense.Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.IAS 24: Related Party DisclosuresThe objective of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary todraw attention to the possibility that its financial position and profit or loss may have been affected by the existenceof related parties and by transactions and outstanding balances with such parties.A related party transaction is a transfer of resources, services or obligations between related parties, regardlessof whether a price is charged.IAS 25: Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001IAS 26: Accounting and Reporting by Retirement Benefit PlansThis Standard shall be applied in the financial statements of retirement benefit plans where such financialstatements are prepared.Retirement benefit plans are arrangements whereby an entity provides benefits for employees on or aftertermination of service (either in the form of an annual income or as a lump sum) when such benefits, or thecontributions towards them, can be determined or estimated in advance of retirement from the provisions of adocument or from the entitys practices.Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefitsare determined by contributions to a fund together with investment earnings thereon. The financial statements of adefined contribution plan shall contain a statement of net assets available forbenefits and a description of the funding policy.Defined benefit plans are retirement benefit plans under which amounts to be paid as retirement benefits aredetermined by reference to a formula usually based on employees’ earnings and/or years of service.IAS 27: Consolidated Financial StatementsThe objective of IAS 27 is to enhance the relevance, reliability and comparability of the information that a parententity provides in its separate financial statements and in its consolidated financial statements for a group of entitiesunder its control.Consolidated financial statements are the financial statements of a group presented as those of a single economicentity. A group is a parent and all its subsidiaries. A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by anotherentity (known as the parent). Control is the power to govern the financial and operating policies of an entity so as toobtain benefits from its activities.
  17. 17. IAS 28: Investments in AssociatesThis Standard shall be applied in accounting for investments in associates. However, it does not apply to investmentsin associates held by:(a) venture capital organisations, or(b) mutual funds, unit trusts and similar entities including investment-linked insurance funds that upon initialrecognition are designated as at fair value through profit or loss or are classified as held for trading and accountedfor in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Such investments shall bemeasured at fair value in accordance with IAS 39, with changes in fair value recognised in profit or loss in the periodof the change.Significant influence is the power to participate in the financial and operating policy decisions of the investee but isnot control or joint control over those policies.IAS 29: Financial Reporting in Hyperinflationary EconomiesThis Standard shall be applied to the financial statements, including the consolidated financial statements, of anyentity whose functional currency is the currency of a hyperinflationary economy.The financial statements of anentity whose functional currency is the currency of a hyperinflationary economy shall be stated in terms of themeasuring unit current at the end of the reporting period.The restatement of financial statements in accordance with this Standard requires the use of a general price indexthat reflects changes in general purchasing power. It is preferable that all entities that report in the currency of thesame economy use the same index.When an economy ceases to be hyperinflationary and an entity discontinues the preparation and presentation offinancial statements prepared in accordance with this Standard, it shall treat the amounts expressed in themeasuring unit current at the end of the previous reporting period as the basis for the carrying amounts in itssubsequent financial statements.IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions – Superseded by IFRS 7effective 2007IAS 31: Interests in Joint VenturesThis Standard shall be applied in accounting for interests in joint ventures and the reporting of joint venture assets,liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures orforms under which the joint venture activities take place. However, it does not apply to venturers’ interests in jointlycontrolled entities held by:(a) venture capital organisations, or(b) mutual funds, unit trusts and similar entities including investment-linked insurance funds that upon initialrecognition are designated as at fair value through profit or loss or are classified as held for trading and accountedfor in accordance with IAS 39 Financial Instruments: Recognition and Measurement.A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that issubject to joint control.A venturer is a party to a joint venture and has joint control over that joint venture.IAS 32: Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments:Disclosures, and no longer in IAS 32)The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity andfor offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from theperspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of relatedinterest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should beoffset.A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equityinstrument of another entity.An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all ofits liabilities.IAS 33: Earnings Per ShareThe objective of this Standard is to prescribe principles for the determination and presentation of earnings per share,so as to improve performance comparisons between different entities in the same reporting period and between
  18. 18. different reporting periods for the same entity. The focus of this Standard is on the denominator of the earnings pershare calculation. This Standard shall be applied by entities whose ordinary shares or potential ordinary shares arepublicly traded and by entities that are in the process of issuing ordinary shares or potential ordinary shares in publicmarkets. An entity that discloses earnings per share shall calculate and disclose earnings per share in accordancewith this Standard.An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinaryshares.IAS 34: Interim Financial ReportingThe objective of this Standard is to prescribe the minimum content of an interim financial report and to prescribe theprinciples for recognition and measurement in complete or condensed financial statements for an interim period.Timely and reliable interim financial reporting improves the ability of investors, creditors, and others to understandan entity’s capacity to generate earnings and cash flows and its financial condition and liquidity. This Standardapplies if an entity is required or elects to publish an interim financial report in accordance with InternationalFinancial Reporting Standards.Interim financial report means a financial report containing either a complete set of financial statements (asdescribed in IAS 1 Presentation of Financial Statements (as revised in 2007)) or a set of condensed financialstatements (as described in this Standard) for an interim period. Interim periodis a financial reporting period shorter than a full financial year.IAS 35: Discontinuing Operations – Superseded by IFRS 5 effective 2005IAS 36: Impairment of AssetsThe objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets arecarried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if itscarrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset isdescribed as impaired and the Standard requires the entity to recognise an impairment loss. The Standard alsospecifies when an entity should reverse an impairment loss and prescribes disclosures.The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell andits value in use.A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largelyindependent of the cash inflows from other assets or groups of assets.Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’slength transaction between knowledgeable, willing parties, less the costs of disposal.Value in use is the present value of the future cash flows expected to be derived from an asset or cash generatingunit.IAS 37: Provisions, Contingent Liabilities and Contingent AssetsThe objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are appliedto provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes toenable users to understand their nature, timing and amount.A provision is a liability of uncertain timing or amount.A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed onlyby the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of theentity.A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by theoccurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.IAS 38: Intangible AssetsThe objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt withspecifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if,specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets andrequires specified disclosures about intangible assets.An intangible asset is an identifiable non-monetary asset without physical substance.IAS 39: Financial Instruments: Recognition and Measurement
  19. 19. The objective of this Standard is to establish principles for recognising and measuring financial assets, financialliabilities and some contracts to buy or sell non-financial items. Requirements for presenting information aboutfinancial instruments are in IAS 32 Financial Instruments: Presentation. Requirements for disclosing informationabout financial instruments are in IFRS 7 Financial Instruments: Disclosures.This Standard classifies financial instruments into the following four categories:• A financial asset or financial liability at fair value through profit or loss• Held-to-maturity investments• Loans and receivables• Available-for-sale financial assets.IAS 40: Investment PropertyThe objective of this Standard is to prescribe the accounting treatment for investment property and relateddisclosure requirements.Investment property is property (land or a building—or part of a building—or both) held (by the owner or bythe lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:(a) use in the production or supply of goods or services or for administrative purposes; or(b) sale in the ordinary course of business.An investment property shall be measured initially at its cost. Transaction costs shall be included in the initialmeasurement.IAS 41: AgricultureThe objective of this Standard is to prescribe the accounting treatment and disclosures related to agriculturalactivity.Agricultural activity is the management by an entity of the biological transformation and harvest of biological assetsfor sale or for conversion into agricultural produce or into additional biological assets.Biological transformation comprises the processes of growth, degeneration, production, and procreation that causequalitative or quantitative changes in a biological asset.A biological asset is a living animal or plant.Agricultural produce is the harvested product of the entity’s biological assets.Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.It may be noted that International Accounting Standards nos. 3, 4, 5, 6, 9, 13, 15, 22, 25, 30 and 35 have alreadybeen withdrawn by the International Accounting Standards Board (IASB).Differences Between International Accounting Standards & Accounting Standards Pertaining To India:IAS 1: Presentation of Financial StatementsAS 1: Disclosure of Accounting PoliciesAS 1 is based on the pre-revised IAS 1. AS 1 is presently under revision to bring it in line with the current IAS 1. TheExposure Draft of the revised AS 1 is being finalised on the basis of the comments received on its limited exposureamongst the specified outside bodies. The major differences between IAS 1 and the draft revised AS 1 are discussedhereinafter.1. Unlike IAS 1, the draft of revised AS 1 does not provide any option with regard to the presentation of ‘Statementof Changes in Equity’. It requires statement showing all changes in the equity to be presented.2. Unlike IAS 1, the draft of revised AS 1 does not provide any option with regard to additional disclosures regardingshare capital, e.g., number of shares authorised, issued, fully paid, etc. and regarding nature and purpose ofreserves, etc., to be made on the face of the balance sheet or in the notes.IAS 2:InventoriesAS 2:Valuation of InventoriesAS 2 is based on IAS 2 (revised 1993). IAS 2 has been revised in 2003 as a part of the IASB’s improvement project.Major differences between AS 2 and IAS 2 (revised 2003) are as follows:
  20. 20. 1. IAS 2 specifically deals with costs of inventories of an enterprise providing services. However, keeping in view thelevel of understanding that was prevailing in the country regarding the treatment of inventories of an enterpriseproviding services at the time of last revision of AS 2, the same are excluded from the scope of AS 2.2. Keeping in view the level of preparedness in the country at the time of last revision of AS 2, AS 2 requires lesserdisclosures as compared to IAS 2.IAS 7:Cash Flow StatementsAS 3:Cash Flow StatementsAS 3 is based on the current IAS 7. The major differences between IAS 7 and AS 3 are as below:1. In case of enterprises other than financial enterprises, unlike IAS 7, AS 3 does not provide any option with regardto classification of interest paid. It requires interest paid to be classified as financing cash flows.2. In case of enterprises other than financial enterprises, AS 3 does not provide any option with regard toclassification of interest and dividend received. It requires interest and dividend received to be classified as investingcash flows.3. AS 3 also does not provide any option regarding classification of dividend paid. It requires dividend paid to beclassified as financing cash flows.IAS 10:Events After the Balance Sheet DateAS 4:Contingencies and Events Occurring after the Balance Sheet DateAS 4 is based on the pre-revised IAS 10 which dealt with the Contingencies as well as the Events Occurring After theBalance Sheet Date. Recently, on the lines of IAS 37, the ICAI has issued AS 29. Pursuant to the issuance of 29, theportion of AS 4 dealing with the Contingencies, except to the extent of impairment of assets not covered by otheraccounting standards, stands superseded. AS 4 now deals with the Events After the Balance Sheet Date. AS 4 ispresently under revision to bring it in line with the corresponding IAS 10.1. As per IAS 10, proposed dividend is a non-adjusting event. However, as per the Indian law governing companies,provision for proposed dividend is required to be made, probably as a measure of greater accountability of thecompany concerned towards investors in respect of payment of dividend. While attempts are made, from time totime, at various levels, to persuade the Government for changes in law; it is a time-consuming process.2. As per IAS 10, non-adjusting events, which are material, are required to be disclosed in the financial statements.However as per AS 4, such disclosures are required to be made in the report of the approving authority and not inthe financial statements.IAS 12:Income TaxesAS 22:Accounting for Taxes on IncomeKeeping in view the level of preparedness in the country at the time of issuance of AS 22, AS 22 was based on theIncome Statement Approach.ICAI is revising AS 22 to bring it in line with IAS 12.IAS 14:Segment ReportingAS 17:Segment ReportingAS 17 is based on the current IAS 14. The major differences between IAS 14 and AS 17 are described hereinafter.
  21. 21. 1. IAS 14 prescribes certain additional disclosure requirements regarding enterprise’s share of profit or loss ofassociates and joint ventures and regarding restatement of prior year information, etc. At the time of issuance of AS17, there were no Accounting Standards in India dealing with accounting for investments in associates and jointventures, etc. Accordingly, these disclosures are not specifically covered in AS 17.2. As per IAS 14, for a segment to qualify as a reportable segment, it is required for it to earn the majority of itsrevenue from external customers in addition to meeting the 10% threshold criteria of revenue, operating results ortotal assets required in AS 17.IAS 16:Property, Plant and EquipmentAS 10:Accounting for Fixed Assets1. In India, the law governing the companies prescribes minimum rates of depreciation. Keeping this in view, therevised AS 10 recognises that depreciation rates prescribed by the statute would be the minimum rates ofdepreciation.Conceptual differences2. As per IAS 16, all servicing equipments, whether major or minor, except servicing equipments which can be usedonly in connection with an item of property, plant and equipment, are carried as inventory and recognised in thestatement of profit and loss, when consumed. Servicing equipments that can be used only in connection with anitem of property, plant and equipment are accounted for as property, plant and equipment. Keeping in view thenature of servicing equipments as separate assets, draft of the AS 10 (revised) requires all servicing equipments to betreated as property, plant and equipment.IAS 17:LeasesAS 19:LeasesAS 19 is based on IAS 17 (revised 1997). IAS 17 has been revised in 2004. The major differences between IAS 17 andAS 19(revised 2004) are described hereinafter.1. Keeping in view the peculiar land lease practices in the country, lease agreements to use lands are specificallyexcluded from the scope of AS 19 whereas IAS 17 does not contain this exclusion.2. IAS 17 specifically provides that the Standard shall not be applied as the basis of measurement for:(a) property held by lessees that is accounted for as investment property;(b) investment property provided by lessors under operating leases;(c) biological assets held by lessees under finance leases; or(d) biological assets provided by lessors under operating leasesIAS 19:Employee BenefitsAS 15:Employee BenefitsAS 15 is based on the current IAS 19. The major differences between IAS 19 and AS 15 are described hereinafter.Difference due to removal of alternatives1. Unlike IAS 19, AS 15 does not provide any option with regard to recognition of actuarial gains and losses. Itrequires such gains and losses to be recognised immediately in the statement of profit and loss.Conceptual Difference2. Regarding recognition of termination benefits as a liability, it is felt that merely on the basis of a detailed formalplan, it would not be appropriate to recognise a provision since a liability cannot be considered to be crystallised atthis stage. Accordingly, AS 15 provides criteria for recognition of a provision for liability in respect of terminationbenefits on the basis of the general criteria for recognition of provision as per AS 29, Provisions, Contingent Liabilitiesand Contingent Assets (corresponding to IAS 37).It may be noted that the IASB has recently issued an Exposure Draft of the proposed Amendments to IAS 19 wherebythe criteria regarding recognition of termination benefits as a liability are proposed to be amended. The ExposureDraft proposes that voluntary termination benefits should be recognised when employees accept the entity’s offerof those benefits. We, in our comments on the Exposure Draft, have pointed out that in a country such as India,such a requirement would give erroneous results since the schemes generally have the following characteristics interms of the steps involved in implementing the scheme:
  22. 22. (i) Announcement of the scheme by an employer, which is considered as an ‘invitation to offer’ to the employeesrather than the offer to the employees for voluntary termination of their services.(ii) Employees tender their applications under the scheme. This does not confer any right to the employees underthe scheme to claim termination benefits. In other words, tendering of application by an employee is considered asan ‘offer’ in response to ‘invitation to offer’, rather than acceptance of the offer by the employee.(iii) The acceptance of the offer made by the employees as per (ii) above by the management.Keeping in view the above, we have suggested that as per the above scheme, liabilities with regard to voluntarytermination benefits should be recognized at the time when the management accepts the offer of the employeesrather than at the time the employees tender their applications in response to the ‘invitation to offer’ made by themanagement.IAS 20:Accounting for Government Grants and Disclosure of Government AssistanceAS 12:Accounting for Government GrantsAS 12 is being revised to bring it in line with IAS 20.The Exposure Draft of the proposed revised AS 12 has been issued for public commentsThere is no major difference between the Exposure Draft of the standard and IAS 20.IAS 21:The Effects of Changes in Foreign Exchange RatesAS 11:The Effects of Changes in Foreign Exchange Rates1. AS 11 is based on the integral and non-integral foreign operations approach, i.e., the approach which wasfollowed in the earlier IAS 21 (revised 1993).2. The current IAS 21, which is based on ‘Functional Currency’ approach, gives similar results as that under pre-revised IAS 21, which was based on integral /non-integral foreign operations approach. Accordingly, there are nosignificant differences between IAS 21 and AS 11.3. The current AS 11 has recently become effective, i.e., from 1-4-2004. It is felt that some experience should begained before shifting to the current IAS 21.IAS 24:Related Party DisclosuresAS 18:Related Party DisclosuresAS 18 is based on IAS 24 (reformatted 1994) and following are the major differences between the two.1. According to AS 18, as notified by the Government, a non-executive director of a company should not beconsidered as a key management person by virtue of merely his being a director unless he has the authority andresponsibility for planning, directing and controlling the activities of the reporting enterprise. However, IAS 24provides for including non-executive director in key management personnel.2. In AS 18 the term ‘relative’ is defined as “the spouse, son, daughter, brother, sister, father and mother whomay be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise”whereas the comparable concept in IAS 36 is that of ‘close members of the family of an individual’ who are “thosefamily members who may be expected to influence, or be influenced by, that individual in their dealings with theentity. They may include:(a) the individual’s domestic partner and children;(b) children of the individual’s domestic partner; and(c) dependants of the individual or the individual’s domestic partner.”IAS 27:Consolidated and Separate Financial StatementsAS 21:Consolidated Financial StatementsAS 21 is based on IAS 27 (revised 2000). Revisions made to IAS 27 /IAS 27 R are being looked into by the ASB of theICAI.1. Keeping in view the requirements of the law governing the companies, AS 21 defines control as ownership ofmore than one-half of the voting power of an enterprise or as control over the composition of the governing body ofan enterprise so as to obtain economic benefits. This definition is different from IAS 27, which defines control as“the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities”.Conceptual Differences
  23. 23. 2. AS 21, at present, makes reference to AS 13, Accounting for Investments, with regard to the accounting for aninvestment in a subsidiary in the separate financial statements. On the issuance of the proposed AccountingStandard 30 on ‘Financial Instruments: Recognition and Measurement’, AS 13 would stand withdrawn. Keeping thisin view, the Exposure Draft for the limited revision to AS 21, which has recently been issued, proposes to includeaccounting for investment in subsidiary in the separate financial statements in AS 21.IAS 27 provides the following two options with regard to accounting for an investment in a subsidiary:(i) at cost; or(ii) in accordance with IAS 39.When an investment in a subsidiary is accounted for in accordance with IAS 39, the same is included in the ‘availablefor sale’ category.IAS 31:Interests in Joint VenturesAS 27:Financial Reporting of Interests in Joint VenturesAS 27 is based on the IAS 31 (revised 2000). Revisions made to IAS 31 are being looked into by the ASB of the ICAI.Difference due to removal of alternatives1.Unlike IAS 31, AS 27 does not provide any option for accounting of interests in jointly controlled entities in theconsolidated financial statements of the venturer. It requires proportionate consolidation to be followed andventurer’s share of each of the assets, liabilities, income and expenses of a jointly controlled entity to be reported asseparate line items.IAS 33:Earnings Per ShareAS 20:Earnings Per ShareAS 20 is based on the IAS 33 (issued 1997). Revisions made to IAS 33 are being looked into by the ASB of the ICAI.Differences due to level of preparedness1. As per IAS 33 revised, basic and diluted amounts per share for the discontinued operation are required to bedisclosed. However AS 20 does not require such disclosures.2. IAS 33 revised requires the disclosure of antidilutive instruments also which is not required by AS 20.IAS 34:Interim Financial ReportingAS 25:Interim Financial Reporting1. In India, at present, the statement of changes in equity is not presented in the annual financial statements since,as per the law, this information is required to disclosed partly in the profit and loss account below the line and partlyin the balance sheet and schedules thereto. Keeping this in view, unlike IAS 34, AS 25 presently does not requirepresentation of the condensed statement of changes in equity. However as a result of proposed revision to AS 1,limited revision to AS 25 has also been proposed, which requires to present the condensed statement of changes inequity as part of condensed financial statements and limited exposure for the same has been made.2. Keeping in view the legal and regulatory requirements prevailing in India, AS 25 provides that in case a statute or aregulator requires an enterprise to prepare and present interim information in a different form and/or contents,then that format has to be followed. However, the recognition and measurement principles as laid down in AS 25have to be applied in respect of such information.IAS 36:Impairment of AssetsAS 28:Impairment of AssetsAS 28 is based on the IAS 36 (issued 1998). At the time of issuance of AS 28, there was no major difference betweenAS 28 and IAS 36.IASB, pursuant to its project on Business Combinations, has made certain changes in IAS 36 which are clarificatory innature and/or relate to the Intangible Assets having indefinite life.

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