Accounts as

Comparative Study of Accounting Standard Issued by ICAI with
International Accounting Standard

CHAPTER 1

INTRODUCTION OF INDIAN ACCOUNTING STANDARDS

Introduction:-
Accounting Standards establish rules relating to recognition, measurement and disclosures
thereby ensuring that all enterprises that follow them are comparable and that their financial
statements are true, fair and transparent. High-quality accounting standards are a necessary and
important element of a sound capital market system. In public capital markets such as
those in the United States. High-quality accounting standards reduce uncertainty and
increase overall efficiency and investor‘s confidence by requiring that financial report provide
decision useful information that is relevant, reliable, comparable and transparent once confined
by national borders transactions in today‘s capital market often are driven by a demand
for and supply of capital that transcends national boundaries. With the increase in cross-border
capital is rising and investment transactions comes an increasing demand for a set of high-
quality international accounting standards that could be used as a basis for financial reporting
worldwide.
―Accounting Standards are written policy documents issues by the expert
accounting body or by government or other regulatory body covering
the aspects of recognition, measurement, presentation and disclosure of
accounting transactions in financial statement.‖

What are Accounting Standards:-
Accounting Standards are the statements of code of practice of the regulatory accounting bodies
that are to be observed in the preparation of financial statements. In layman terms accounting
standards are the written documents issued by the expert‘s institutes or other regulatory bodies
covering various aspects of measurement treatment, presentation and disclosure of accounting
transactions.

Who issues Accounting Standards in India:-
The institute of chartered Accountants of India (ICAI) reorganizing
the need to harmonies the diverse accounting policies and practices at present in use in India
constituted accounting standard board (ASB) on April 21, 1977. The main role of ASB is to
formulate accounting standards from time to time.

About ICAI:-
The Institute of Chartered Accountants of India (ICAI) is a
statutory body established under the Chartered Accountants act 1949. (Act No.XXXXVIII of
1949) for the regulation of the profession of Chartered Accountants in India. During its 61 years
of existence, ICAI has achieved recognition as a premier accounting body not only in the country
but also globally, for its contribution in the fields of education, professional

VIVEK COLLEGE OF COMMERCE Page 1


development maintenance of high accounting, auditing and ethical standards. ICAI now is the
second largest accounting body in the whole world.

Procedure of formulating Accounting Standards in India:-

The institute of Chartered Accountant of India (ICAI) recognizing the need to harmonize
the diverse accounting policies and practices, constituted an accounting standards boards (ASB)
on April 21, 1977. The main function of ASB so that such standards may be mandated by the
council of ICAI. While formulating the standards in India, ASB will take into consideration the
applicable laws custom usages and business environment.
ICAI is one of the members of International Accounting Standards Committee (IASC)
and has agreed to support the objectives of IASC. ASB will give due consideration to IAS and
try to integrate them to the extent possible in light of the considerations and practices prevailing
in India.
The accounting standards issued will apply to ‗General Purpose Financial Statement‘ this
would include balance-sheet, Profit & Loss A/c and other statement and explanatory notes which
form part thereof issued for the use of shareholders or members, Creditors, Employees and
public at large. The Accounting Standards are intended to apply only to items which are material.
The standards are generally expected to apply prospectively unless otherwise stated.

Broadly the following procedure will be adopted for formulating Accounting Standards:-

ASB shall determine the board areas in which accounting standards need to be
formulated and the priority in regards to the selection thereof.

In the preparation of the accounting standards ASB will be assisted by study groups
constituted to consider specific subjects. In the formation of the study group‘s provision
will be made for wide participation by the members of ICAI and others.

ASB will also hold a dialogue with the representative of theGovernment, Public sector, In
dustry and other organizations for ascertaining their views.

Based on the above an exposure draft of the proposed standard will be prepared and
issued for comments by members of ICAI and the public at large.

After taking into consideration the comments received the exposure draft will be finalized
by the ASB and submitted to the council of ICAI.

The council of ICAI will consider the final draft and if foundnecessary modify the same
in consultation with ASB. The accounting standard on the relevant subject will then be
issued under the authority of the council.



CHAPTER 2
Indian Accounting Standards

Introduction:-

The council of the institute of chartered accountant of India as so far issue 32 (thirty two)
accounting standard. Whoever accounting standards 8th on ―Accounting for research and
development‖ has been withdraw on consequent to the issuance of accounting standard 26th
―Intangible Assets‖ thus effectively there are 31st accounting standard at present
theaccounting standard issued by the ABC establish which have to becomplied so that the
financial statement are prepared in accordance with generally accepted accounting principles.

List of Indian Accounting Standards:-

AS 1 Disclosure of Accounting Principles
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the
Balance Sheet Date
AS 5 Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies
AS 6 Depreciation Accounting
AS 7(Revised) Construction Contracts
AS 8 Accounting for Research and Development
AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11(Revised2003) The Effects Of Changes In Foreign Exchange
Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15(Revised 2005) Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for taxes on income
AS 23 Accounting for Investments in Associates in
Consolidated Financial Statements



AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent
Assets
AS 30 Financial Instruments: Recognition and
Measurement
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: Disclosures

THE INDIAN ACCOUNTING STANDARDS ADOPTED
The following Indian Accounting Standards are being adopted:

I) Accounting Standard (AS) 1: Disclosure of Accounting Policies
The following the text of the Accounting Standard –I issued by the accounting standard board,
the institute of charted accountant of India on ―disclosure of the accounting policies‖. The
standard deals with the significant accounting policies followed in preparing financial
statements.
(This Accounting Standard includes paragraphs set in type and plain type, which have equal
authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard
should be read in the context of the General Instructions contained in part A of the Annexure to
the Notification.)

Introduction
1. This Standard deals with the disclosure of significant accounting policies followed in
preparing and presenting financial statements

2. The view presented in the financial statements of an enterprise of its state of affairs and
of the profit or loss can be significantly affected by the accounting policies followed in
the preparation and presentation of the financial statement. The accounting
policies followed vary from enterprise to enterprise. Disclosure of significant accounting
policies followed is necessary if the view presented is to be properly appreciated.

3. The disclosure of some of the accounting policies followed in the preparation and
presentation of the financial statements is required by law in some cases.

4. The Institute of Chartered Accountants of India has, in Standard issued by it,
recommended the disclosure of certain accounting policies, e.g., translation policies in
respect of foreign currency items.



5. In recent years, a few enterprises in India have adopted the practice of including in their
annual reports to shareholders a separate statement of accounting policies followed in
preparing and presenting the financial statements.

6. In general, however, accounting policies are not at present regularly and fully disclosed
in all financial statements. Many enterprises include in the Notes on the Accounts,
descriptions of some of the significant accounting policies. But the nature and degree of
disclosure vary considerably between the corporate and the non-corporate sectors and
between units in the same sector.

7. Even among the few enterprises that presently include in their annual reports a separate
statement of accounting policies, considerable variation exists. The statement of
accounting policies forms part of accounts in some cases while in others it is given as
supplementary information.

8. The purpose of this Standard is to promote better understanding of financial statements
by establishing through an accounting standard the disclosure of significant accounting
policies and the manner in which accounting policies are disclosed in the
financial statements. Such disclosure would also facilitate a more meaningful comparison
between financial statements of different enterprises.

Considerations in the Selection of Accounting Policies
The primary consideration in the selection of accounting policies by an enterprise is that the
financial statements prepared and presented on the basis of such accounting policies should
represent a true and fair view of the state of affairs of the enterprise as at the balance sheet date
and of the profit
For this purpose, the major considerations governing the selection and application
of accounting policies are:—
a. Prudence
In view of the uncertainty attached to future events, profits are not anticipated but
recognized only when realized though not necessarily in cash. Provision is made for all
known liabilities and losses even though the amount cannot be determined with certainty
and represents only a best estimate in the light of available information.
b. Substance over Form
The accounting treatment and presentation in financial statements of transactions and
events should be governed by their substance and not merely by the legal form.
c. Materiality
Financial statements should disclose all ―material‖ items, i.e. items the knowledge of
which might influence the decisions of the user of the financial statements.

Disclosure of Accounting Policies



To ensure proper understanding of financial statements, it is necessary that all significant
accounting policies adopted in the preparation and presentation of financial statements
should be disclosed.

Such disclosure should form part of the financial statements.
It would be helpful to the reader of financial statements if they are all disclosed as such in
one place instead of being scattered over several statements, schedules and notes.

Any change in an accounting policy which has a material effect should be disclosed. Th
amount by which any item in the financial statements is affected by such change should
also be disclosed to the extent ascertainable. Where such amount is not ascertainable,
wholly or in part, the fact should be indicated. If a change is made in the accounting
policies which has no material effect on the financial statements for the current period but
which is reasonably expected to have a material effect in later periods, the fact of such
change should be appropriately disclosed in the period in which the change is adopted.

Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappr
opriate treatment of the item in the accounts.

Main Principles
 24. All significant accounting policies adopted in the preparation and presentation
of financial statements should be disclosed.
 25. The disclosure of the significant accounting policies as such should form part
of the financial statements and the significant accounting policies should normally
be disclosed in one place.
 26. Any change in the accounting policies which has a material effect in the
current period or which is reasonably expected to have a material effect in later
periods should be disclosed. In the case of a change in accounting policies which
has a material effect in the current period, the amount by which any item in the
financial statements is affected by such change should also be disclosed to the
extent ascertainable. Where such amount is not ascertainable, wholly or in part,
the fact should be indicated.
 27. If the fundamental accounting assumptions, viz. Going Concern, Consistency
and Accrual are followed in financial statements, specific disclosure is not
required. If a fundamental accounting assumption is not followed, the fact should
be disclosed.



II) Statements of Accounting Standards (AS 2) Revised Valuation of
Inventories
The following is the text of the revised Accounting Standard (AS) 2, 'Valuation of
Inventories', issued by the Council of the Institute of Chartered Accountants of India.
This revised Standard supersedes Accounting Standard (AS) 2, 'Valuation of Inventories',
issued in June, 1981.
The revised standard comes into effect in respect of accounting periods commencing on
or after 1.4.1999 and is mandatory in nature.
Objective
A primary issue in accounting for inventories is the determination of the value at which
inventories are carried in the financial statements until the related revenues are
recognized. This Statement deals with the determination of such value, including the
ascertainment of cost of inventories and any write-down thereof to net realizable value.
Scope
1. This Statement should be applied in accounting for inventories other than:
a) work in progress arising under construction contracts, including directly
related service contracts (see Accounting Standard (AS) 7, Accounting for
Construction Contracts);

b) work in progress arising in the ordinary course of business of service providers;

c) shares, debentures and other financial instruments held as stock-in-trade; and

d) producers' inventories of livestock, agricultural and forest products, and
Mineral oils, ores and gases to the extent that they are measured at net realizable
value in accordance with well established practices in those industries

2. The inventories referred to in paragraph 1 (d) are measured at net realizable value at
certain stages of production. This occurs, for example, when agricultural crops have been
harvested or mineral oils, ores and gases have been extracted and sale is assured under a
forward contract or a government guarantee, or when a homogenous market exists and
there is a negligible risk of failure to sell. These inventories are excluded from the scope
of this Statement.



Definitions
3. The following terms are used in this Statement with the meanings specified:
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 of completion and the estimated costs necessary to make the sale.



III) Statements of Accounting Standards (AS 3) Revised Cash Flow
Statements
These should be read in the context of the background material which has been set in normal
type, and in the context of the 'Preface to the Statements of Accounting Standards'.)The
following is the text of the revised Accounting Standard (AS) 3, 'Cash Flow Statements',
issued by the Council of the Institute of Chartered Accountants of India. This Standard
supersedes Accounting Standard (AS) 3, 'Changes in Financial Position', issued in June, 1981.
In the initial years, this accounting standard will be recommendatory in character. During
this period, this standard is recommended for use by companies listed on a recognized stock
exchange and other commercial, industrial and business enterprises in the public and private
sectors.

Objective

Information about the cash flows of an enterprise is useful in providing users of financialstateme
nts with a basis to assess the ability of the enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilise those cash flows. The economic decisions that are taken by
users require an evaluation of the ability of an enterprise to generate cash and cash equivalents
and the timing and certainty of their generation. The Statement deals with the provision of
information about the historical changes in cash and cash equivalents of an enterprise by means
of a cash flow statement which classifies cash flows during the period from operating, investing
and financing activities.

Scope

1. An enterprise should prepare a cash flow statement and should present it for each period
for which financial statements are presented.

2. Users of an enterprise's financial statements are interested in how the enterprise generates
and uses cash and cash equivalents. This is the case regardless of the nature of the
enterprise's activities and irrespective of whether cash can be viewed as the product of the
enterprise, as may be the case with a financial enterprise. Enterprises need cash for
essentially the same reasons,
however different their principal revenue-producing activities might be. They need cash to
conduct their operations, to pay their obligations, and to provide returns to their investors.

Definitions



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 cash and 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 not investing or financing activities.
Investing activities are the acquisition and disposal of long-term assets and other investments
not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the
owners' capital (including preference share capital in the case of a company) and borrowings of
the enterprise.



IV) Statements of Accounting Standards (AS 5) Revised

Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies
The following is the text of the revised Accounting Standard (AS) 5, 'Net Profit or Loss for
the Period, Prior Period Items and Changes in Accounting Policies', issued by the Council of
the Institute of Chartered Accountants of India.
This revised standard comes into effect in respect of accounting periods commencing on or
after 1.4.1996 and is mandatory in nature. It is clarified that in respect of accounting periodsc
ommencing on a date prior to 1.4.1996, Accounting Standard 5 as originally issued in Novem
ber, 1982 (and subsequently made mandatory) will apply.

Objective
The objective of this Statement is to prescribe the classification and disclosure of certain
items in the statement of profit and loss so that all enterprises prepare and present such a
statement on a uniform basis. This enhances the comparability of the financial statements of
an enterprise over time and with the financial statements of other enterprises. Accordingly,
this Statement requires the classification and disclosure of extraordinary and prior period
items, and the disclosure of certain items within profit or loss from ordinary activities. It also
specifies the accounting treatment for changes in accounting estimates and the disclosures to
be made in the financial statements regarding changes in accounting policies.

Scope
1. This Statement should be applied by an enterprise in presenting profit or loss from
ordinary activities, extraordinary items and prior period items in the statement of profit and
loss, in accounting for changes in accounting estimates, and in disclosure of changes in
accounting policies.
2. This Statement deals with, among other matters, the disclosure of certain items of net
profit or loss for the period. These disclosures are made in addition to any other disclosures
required b other Accounting Standards.3. This Statement does not deal with the tax
implications of extraordinary items, prior period items, changes in accounting estimates, and
changes in accounting policies for which appropriate adjustments will have to be made
depending on the circumstances.



Definitions
The following terms are used in this Statement with the meanings specified:
Ordinary activities are any activities which are undertaken by an enterprise as part of
itsbusiness and such related activities in which the enterprise engages in furtherance of,
incidental to, or arising from, these activities.
Extraordinary items are income or expenses that arise from events or transactions that are
clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected
to recur frequently or regularly.
Prior period items are income or expenses which arise in the current period as a result
of errors or omissions in the preparation of the financial statements of one or more prior
periods.
Accounting policies are the specific accounting principles and the methods of applying
those principles adopted by an enterprise in the preparation and presentation of financial
statements.

Net Profit or Loss for the Period
 All items of income and expense which are recognized in a period should be included
in the determination of net profit or loss for the period unless an Accounting Standard
requires or permits otherwise.
 Normally, all items of income and expense which are recognized in a period are
included in the determination of the net profit or loss for the period. This includes
extraordinary items and the effects of changes in accounting estimates.
 The net profit or loss for the period comprises the following components, each of
which should be disclosed on the face of the statement of profit and loss:
o profit or loss from ordinary activities; and
o extra-ordinary items.



V) Statements of Accounting Standards (AS 6) Revised Depreciation
Accounting

The following is the text of the revised Accounting Standard (AS) 6, 'Depreciation
Accounting', issued by the Council of the Institute of Chartered Accountants of India.
Introduction
1. This Statement deals with depreciation accounting and applies to all depreciable assets,
except the following items to which special considerations apply:—
(i) forests, plantations and similar regenerative natural resources;
(ii) wasting assets including expenditure on the exploration for and extraction
of minerals, oils, natural gas and similar non-regenerative resources;
(iii) expenditure on research and development;
(iv) goodwill;
(v) live stock.
This statement also does not apply to land unless it has a limited useful life for the enterprise.
2. Different accounting policies for depreciation are adopted by different enterprises.
Disclosure of accounting policies for depreciation followed by an enterprise is necessary
to appreciate the view presented in the financial statements of the enterprise.

Definitions
3. The following terms are used in this Statement with the meanings specified:

Depreciation: is a measure of the wearing out, consumption or other loss of value of a
depreciable asset arising from use, effluxion of time or obsolescence through
technology and market changes. Depreciation is allocated so as to charge a fair
proportion of the depreciable amount in each accounting period during the expected
useful life of the asset. 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
andservices, for rental to others, or for administrative purposes and not for the
purpose of sale in the ordinary course of business.

Useful life: is either (i) the period over which a depreciable asset is expected to be
used by the enterprise; or (ii) the number 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 the financial statements, less the estimated residual
value.



VI) Statements of Accounting Standards (AS 7) Accounting for
Construction Contracts

The following is the text of the Accounting Standard (AS) 7 issued by the Institute of
Chartered Accountants of India on 'Accounting for Construction Contracts'. The Standard
deals with accounting for construction contracts in the financial statements of contractors.
In the initial years, this accounting standard will be recommendatory in character. During
this period, this standard is recommended for use by companies listed on a recognized stock
exchange and other large commercial, industrial and business enterprises in the public and
private sectors.

Introduction
1. This Statement deals with accounting for construction contracts in the financial
statements of enterprises undertaking such contracts (hereafter referred to as
'contractors'). The Statement also applies to enterprises undertaking construction
activities of the type dealt with in this Statement not as contractors but on their own
account as a venture of a commercial nature where the enterprise has entered into
agreements for sale.
2. The feature which characterizes a construction contract dealt with in this Statement is the
fact that the date at which the contract is secured and the date when the contract activity
is completed fall into different accounting periods. The specific duration of the contract
performance is not used as a distinguishing feature of a construction contract. Accounting
for such contracts is essentially a process of measuring the results of relatively long-term
events and allocating those results to relatively short-term accounting periods.
3. For the purposes of this Statement, a construction contract is a contract for the
construction of an asset or of a combination of assets which together constitute a single
project. Examples of activity covered by such contracts include the construction of
bridges, dams, ships, buildings and complex pieces of equipment.
4. Contracts for the provision of services come within the scope of this Statement to the
extent that they are directly related to a contract for the construction of an asset.
Examples of
suchservice contracts are contracts for the services of project managers and architects and
for technical engineering services related to the construction of an asset.

Explanation
5. The principal problem relating to accounting for construction contracts is the allocation
of revenues and related costs to accounting periods over the duration of the contract.



Indian Accounting Standards:-AS 9: Revenue Recognition:-
Introduction

This statement was issued by ICAI in the year 1985 & the Initial years
it was recommendatory for only level I enterprises & but was made mandatory for enterprise in
India from April 01, 1993.

Revenue

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of
the ordinary activities of an enterprise from the sale of the goods, from the rendering of the
services, & from the use by others
of enterprises resources yielding interest, royalties & dividend. Revenue ismeasured by the
charges made to customers or clients for goods supplied &services rendered to them & by the
charges & rewards arising from the use of resources by them. In an agency relationship, the
revenue is the amount
of commission & not the gross inflow of cash, receivable or other consideration.
This statement dose not deals with the following aspects of revenuerecognition to which special
consideration apply:

I. Revenue arising from construction contracts;

II. Revenue arising from hire-purchase, lease agreements;

III. Revenue arising from government grants & other similar subsidies;

IV. Revenue of insurance companies arising from insurance contracts.



Examples of items not included within definition of ―revenue‖ for the purpose of this statement
are:

I. Realized gains resulting from the disposal of, & unrealized gainsresulting from the
holding of, non-current assets. E.g. appreciation in the value of fixed assets.

II. Unrealized holding gain resulting from the change in value of
currentassets, & the natural increases in herds & agricultural & forest products;

III. Realized or unrealized gains resulting from changes in foreignexchange rates &
adjustments arising on the translation of foreign currency financial statements;

IV. Realized gain resulting from the discharged of an obligation at less than its carrying
amount;

V. Unrealized gains resulting from the restatement of the carryingamount of an
obligation;



AS 10: Accounting for Fixed Assets:-
Introduction

The standard deals with the disclosure of the status of the fixed assets in terms of value. The
standard dose not takes consideration the specialized aspects of accounting for fixed assets
reflected with the effects of price escalations but applies to financial statements on historical cost
basis. It is important to note that after introduction of AS 16; 19 & 26, provision relating to
respective AS are held withdrawn & the rest in mandatory from the accounting year 01/04/2000.
an entity should disclose (i) the gross & net book values of fixed assets at beginning and end of
an accounting period showing additions, disposals, acquisitions & other movement, (ii)
expenditure incurred on account of fixed assets in the course of construction or acquisition, (iii)
revalued amounts substituted for historical cost of fixed assets with the method applied in
computing revalued amount.

This statement does not deal with the accounting for the following item to which special
considerations apply:

I. Forests, plantations & similar regenerative natural resources.

II. Wasting assets including mineral rights, expenditure of the exploration for an
extraction of minerals, oil, natural gas & similar non-regenerative resources.

III. Expenditure on real estate development and

IV. Live stock.

Identification of fixed assets:

Fixed assets are assets held with the intention of being used for the purpose for the producing or
providing goods or services & is not held for sale in the normal course of business.
Stand-by equipment & servicing equipment are
normally capitalized. Machinery spares are change to the profit & loss statement as and when
consumed. However, if such spare can be used only in connection with an item of fixed assets, it
may be appropriate to allocate the total cost on a systematic basic over a period not exceeding
the useful life of principal item.



AS 12: Accounting For Government Grants
Introduction

The standard comes in to effect in respect of accounting periods commencing on or after
01/04/1992 & will be recommendatory in nature for an initial period of 2 years. Accounting
standard 12 deals with accounting for government‘s grants for specifies that the government
grants should not be recognized until there reasonable assurance that the enterprise willcompany
comply with the conditions attached to them, and the grant will be
received. The standard also describes the treatment of non-monetary government grants;
presentation of grants related to specific fixed assets, related to revenue, related to promoters,
contributions; treatment for refund of governments grants etc. the enterprises are required to
disclose (i) the accounting policy adopted for government grants including the methods
of presentation in the financial statements; (ii) the nature & extent of government grants recogni
zed in the financial statement including non-monetary grants of assets given either at a
concessional rate or free of cost.

This statement does not deal with:

I. The special problem arising in accounting for government grants in financial
statements reflection the effects of changing prices or in supplementary information
of a similar nature.
II. Government assistance other than in the form of government grants
III. Government participation in the ownership of the enterprises.

The receipt of the government grant by an enterprise is significant
or preparation of the financial statement for 2 reasons. Firstly, if a government grant has
been received an appropriate method of accounting therefore is necessary. Secondly, it is
desirable to give an indication of the extent to which the enterprises has benefited from
such grants during the reporting period. This facilitates comparison on an enterprises
financial statement with those prior periods & with those of other enterprise.

Accounting treatment of government grants To broad approaches may be followed for the
accounting treatment Of government grants: the capital approach under which grand is treated as
part of share holder funds, and income approach under which a grand is taken to incomes over
one or more period. Those in support of capital approach argue as follows:

I. Many governments‘ grants are in the nature of promoter‘s contribution that is they are
given by way of contribution toward sits total capital outlay ordinarily expected in the
case of such a grants.
II. They are not earned but represent an incentive provided by government without
related costs.



Arguments in support of the income approaches are as follows:

I. As a income tax & other taxes are charges against income, it is logical to
deal also with government grants, which are an extension of fiscal policies, in
the profit & loss statement.
II. In case grants are credited to share holder‘s fund, no correlation is done
between the accounting treatment of the grants & the accounting treatment of
the expenditure to which grant relates.



AS 18: Related Party Disclosures
Introduction
This standard comes into effect in respect of accounting period commencing on or after
01/04/2001 & is mandatory in nature. The standard prescribes the
requirement for disclosure of related party relationship & transaction between the reporting
enterprise & its related party. The requirements of the standard apply to the statement of each
reporting enterprises as also to consolidate financial statement presented by a holding company.
Since the standers is more subjective, particularly with respect to identification
of related parties [through provision related to related party concept are given under section
297/299/301 of the companies act 1956 and section 40A (2)(b)of the income tax act 1961],
obtaining corroborative evidence becomes very
difficult for the auditors. Thus successful implementation of AS 18 is
depended upon how transparent the management is and how vigilant the auditors are.

Objective The objective of this statement is to established requirement for disclosure of:
I. Related party relationship &
II. Transaction between reporting enterprise & it related parties.

Scope

This statement should be applied in reporting related party relationship
&transaction between reporting enterprises & its related parties. The requirement of this
statement applied to the financial statement of each reporting enterprises as also to
consolidate financial statement presented by a holding company.

This statement deals only with related party relationship describe (a) to (e) below:

a. Enterprises that directly, or indirectly through one or moreintermediaries, control, or
are controlled by, or are under common control with the reporting enterprise (this inc
ludeholding company, subsidiaries & fellow subsidiaries).

b. Associated & joint venture reporting enterprise & the investing party or venture in
respect of which the reporting enterprise is an associate or a joint venture.

c. Individual owning, directly or indirectly, an interest in thevoting power of the
reporting enterprises that give them control or significant influence over the
enterprises, and relatives of any such individual.

d. Key management personnel & relative of such personnel &

e. Enterprise over which any person describes in c or d is able to exercise significant
influence. This includes enterprises owned by director or major shareholders of the
reporting shareholder of the reporting enterprises & enterprises that have a member
of key management, with reporting enterprise.



CHAPTER 3
International Accounting Standards
Introduction:-

Accounting is a language of business communicates the financial result of an enterprise to the
various interested parties by means of financial statements exhibiting true and fair view of its
state of affairs as also of working result. Like any of other language, accounting has its own set
of rules, which have been developed by accounting bodies. These rules
cannot be absolutely rigid. These rules, accordingly, do provide a reasonable
flexibility in line with the economic environment, social needs, legal requirements and
technological development. These however, do not apply that accounting principles and parties
can be applied arbitrarily. Accounting principles have to operate within the bonds of rationality.
This could, perhaps, be considered as a genesis for setting the accounting standards.

Accounting Standards are written policy document issued expert accounting body or by
government or other regulatory body covering the aspects recognition, measurement,
presentation and disclosure of accounting transaction in financial statement. The ostensible
purpose of the standard setting bodies is to promote the dissemination of timely and useful
financial information to investors and certain other parties having an interest in the
company‘s economic performance. The accounting standard reduces the accounting alternative
in the preparation of financial statement within the bond of rationality, thereby ensuring
comparability of financial statement of different enterprises.

The accounting standards deals with the issue of

i. Recognition of events and transactions in the financial statements,

ii. Measurement these transaction and events,

iii. Presentation of these transactions and events in the financial statement in a manner
that is meaningful and understandable to the reader, and

iv. The disclosure requirements which should be there enable the public at large and the
potential investors in particular, to get an insight in to what these financial statement
are trying to reflect and there by the facilitating them to take prudent and informed
business decisions.



International Accounting Standard Board:-

With a view of achieving this objective, the London based
groupmainly the international committee (IASC), responsible for developinginternational accoun
ting standard was established in June 1973. it is presently known as international accounting stan
dard board, the IASCcomprises the professional accounting bodies of over 75
countries(including the ICAI). Primarily, the IASC was established, in the public interest
toformulate and publish, international standard to be followed in the presentation of audited finan
cial statement. The member of IASC haveundertaken responsibility to support the standards
promulgated by IASC and to promulgate those standard in their respective countries.
Between 1973 & 2001, the IASC released international accounting
standard. Between 1997 & 1999, the IASC restructured there organization, which resulted in
formation of IASB. These changes came in to effect on 1st April 2001 subsequently, IASB issued
statement about current and future standards: IASB publishes standards in a series of
pronouncements, called international financial, reporting standards (IFRS). However, IASB has
not rejected the standards issued by the ISAC those pronouncements continue to be designated as
an ―international Accounting standard‖ (IAS). The IASB approved IASB resolution on IASC
standards and there in April 2001, in which it‘s conform the status of all IASC standards and
SIC interpretations in effect as on 1st April 2001.



IAS-18: Revenue
IAS 18 on Revenue is applicable for periods beginning on or after 1st Jan 1995

IAS 18 prescribes accounting treatment for revenue arising from:
The sale of goods:
The rendering of services; &
The use by others of entity assets yielding interest royalties & dividend.

It excludes the treatment of revenue arising from transaction covered by other standards or
amount collected on behalf of third parties (e.g. Vat).

Summary

Revenue is measured at the fare value of the consideration received or receivable. The
consideration is usually in cash. If the inflow of cash is significant deferred, & there is below-
market rate of interest or no interest, the fare value of consideration is determined by discounting
expected future receipts. If dissimilar goods or services are exchanged (as in barter transaction)
revenue is fare value of the goods or services or received or, if this is not reliably measurable, the
fare value of goods or services given up.

Revenue should measure at the fair value of the consideration received:
Trade discount & value rebates are deducted to determine fair value. However, payment
discounts non-deductible.
The amount of revenue can be measured reliably;
The costs of transaction can be measured reliably;
Significant risks & rewards of ownership are transferred to the buyer;
The seller has no continuing managerial involvement or control over the goods;
It is probable that economic benefits will flow to the seller; and

Interest revenue should be recognized on time proportion basis using the effective interest.
Royalties should be recognized on an accruals basis in accordance with the substance of the
relevant agreement. Dividend revenue should be recognized when the share holder right to
received the dividend is established.



IAS-16: Property, Plant and Equipment:-
IAS 16 on property, plant & equipment was issued in December 2003 & is applicable to annual
accounting period beginning on or after 1st Jan 2005.

IAS 16 prescribed the accounting treatment for property, plant & equipment unless another
standard requires or permit a different account treatment. For e.g. IFRS, 5 on noncurrent assets
held for sale & discontinued operations applies to property, plant & equipment classified as held
for sale.

Summary

Property plant & equipment is initially recognized at historical cost.Subsequent to initial
recognition, property, plant & equipment are carried either at:

Cost less accumulated depreciation & any accumulated impairment loss, or
Revalued amount less subsequent accumulated depreciation and any accumulated
impairment loss. The revalued amount is the fare value is at the date of revaluation.

The choice of measurement is applied consistently to an entire class
of property, plant & equipment. Any revaluation increase in such assetscredited directly to the
revaluation surplus in equity, unless it reverses are valuation decrease previously recognized in
profit in loss. Any revaluation decrease is recognized in profit or loss. However the subsequent
revaluation decrease is debited directly to the revaluation surplus in equity to the extent of the
credit balance in revaluation surplus is respect of that asset.

The gain or loss on derecognizing of an item of property, plant & equipment is the difference
between the net disposal proceeds, if any, and the carrying amount of the item. It is included in
profit or loss.



IAS: 20- Accounting for government grants and disclosure of government
assistance:-
IAS 20 on ―accounting for government grants & disclosure of government assistance‖ was
issued in April 1983 & was reformatted in the year 1994. It came in to effect for annual periods
beginning or after 1 January 1984.

The objective of IAS 20 is to be prescribing the accounting for, and disclosure of, grants
& other form of government assistance. However, IAS20 does not covered government
assistance that is provided in the form of benefit helpful in determines taxable income.

Summary:

A government grant is recognized only when enterprise will comply with any condition
attached to the grants received. The grant is recognized as an income, over the period, to match
them with the related cost for, which
they are intended compensate, on a systematic basis, & should not be credited directly to equity.

Non monitory grants are usually accounted for at fair value. Although recording both the
assets & grants at a nominal amount is also permitted.
A grant receivable as a compensation for cost already incurred or for immediate financial support
with no future related cost, should be recognized as an income in the period in which it is
receivable.

A grant relating to assets may be presented as deferred income or by deducting the grant
from the assets carrying amount. A grant relating to income may be reported separately as other
income or deducted from the related expenses.

If grant become repayable it should be deferred income or by deducting the grant from
assets carrying amount. Where the original grants related to income, the repayment should be
applied dealt with as an expenses where the original grants related to an assets, the repayment
should be treated as increasing the carrying amount of the assets or reducing the deferred income
balance. The cumulative deprecation which would have been charged had the grant not been
received should be charged as an expense.

The government grants do not include government assistance whose value cannot be
reasonably measured, such as technical or marketing advice.



IAS 24 Related Party Disclosure:
IAS 24 on ―Related Party Disclosure‖ was issued in dec 2003 & isapplicable for annual periods
beginning on or after 1st Jan 2005.

IAS 24 specifies the disclosure necessary to draw attention to the possibilities that the financial
position & financial performance of an entity
may have been affected by the existence of the related party and by transaction and outstanding
balance with such related parties.

Summary:

A party is related to an entity if it:

Has joint control over the entity:
Has significant influence over the entity;
Directly or indirectly, controls, is control by or is under common control with, the entity;
Is a close member of the family of any individual who controls, has significant influence
or joint control over, the entity;
Is a member of key management personnel of the entity of its parent;
Is a joint venture in which the entity is venture;
Is an associates of entity;
Is an entity that is controlled, jointly controlled or significantlyinfluenced by, or for
which significant voting power in such entity resides with, any of the key management
personnel;
Is a post-employment benefits plan for the benefit of employees of the entity, or of any of
its related parties;

Examples of the kinds of transactions that are disclosed if they are with are lasted party:

Purchase or sale of goods.
Rendering or receiving of services.
Purchase or sale of properties or other assets.
Lease.
Transfer under license agreements.
Transfer of research and development.
Transfer under finance agreements(including loans & equitycontribution in cash or in
kind)
Settlement of liabilities on behalf of the entity or by the entity on behalf of another party.
Provision of guarantee of collateral.



A related party transaction is a transfer of resources, services or obligations between related
parties, regardless whether price is charged.

CHAPTER 5
Comparative Study
Indian Accounting Standards International
Accounting Standards
Presentation There is no separate standard for disclosure. IAS-1 prescribes
And For companies, format and minimum
Disclosures disclosure requirements are set out under schedule structure of financial
VI of the companies act. statements and contains
No such requirement under Indian GAAP. guidance on disclosures.

AS 5 specifically requires disclosure of certain IAS-
items as extra-ordinary items. 1 requires disclosure of
critical judgments
Under Indian GAPP, this is typically spread over made by management in
several captions such as share capital, reserve & applying accounting
surplus, P& L debit balance, etc policies.

IAS-
1 prohibits any items
to be disclosed as extra-
ordinary items.

IAS-1 requires a
―statement
of changes in equity‖
which comprises all
transactions with equity
holders.

Revenue AS-9 allows completed In case of revenue from
Recognition service contract method or proportionate completion rendering of services,
method. IAS-18 allows only
percentage of
AS-9 requires interest income to be recognized on a completion method.
time proportion basis.
IAS-
18 requires effective
interest method to be
followed for interest



income recognition.

No guidance on barter tran Deals with accounting of barter
sactions. transactions.

AS-9 permits recognition Under IAS-18, payments
when the goods are received in advance for goods yet to b
manufactured, identified e manufactured or third party sales
and cannot be recognized as revenue until
ready for delivery in such such goods are delivered to the buyer.
cases.
For multiple elementcontracts, the stan
No specific guidance in the dard broadly requires that eachelement
standards. is fair valued and recognized when the
underlying service is performed.
Fixed Assets AS-10 recommends but IAS-16 mandates component
and does not force component accounting.
Depreciation accounting.
Depreciation is based on useful life.

Depreciation is based onhi Major repairs and over haul
gher of useful life or sched expenditure are capitalized
ule XIV rates. In practice as if it is a separate component.
most companies use
schedule XIV rates. Under IAS-16, if subsequent costs are
incurred for replacement of a part of
Major repair and over haul an item of fixed asset, such costs are
expenditure are expensed. required to be capitalized
and simultaneously there placed part
AS-10 provides that only has to be de-capitalized.
that
expenditure which increase In case of change in
s the future benefits from method of depreciation, IAS-16



the requires effect to be
existing assets beyond its given prospectively.
previously assessed Change in method of depreciation is tr
standard of performance is eated as change in accounting estimate
included in the gross book under IAS-16.
value. e.g. an increase in a
capacity. Estimates of residual value needs to be
updated.
AS-6 requires
retrospectively re- Revaluation is an allowedalternative tr
computation of depreciatio eatmenthowever; revaluation willhave
n and any excess to be done regularly.
or deficit on such re-
computation is required Depreciation on revaluation portion
to be adjusted in the period can be recouped out of revaluation
in which such change is reserve.
effected. AS6 considers thi
s
as change in accounting po Provision on site-restoration and
licy. dismantling is mandatory.

Estimates of residual value
are not updated.

No need to update
revaluation regulatory.

Depreciation on revaluatio
n portion cannot be recoup
edout of revaluation reserv
eand will have to be
charged to the P&L
account.

No guidance in the
standard.
However, guidance note on
oil and gas issued by ICAI
requires capitalization of
site restoration cost.



Government AS-12 requires accounting In case of non-monitory assets
Grants at acquisition cost. acquired at nominal rate, IAS-
20 permits
AS-12 requires enterprises accounting either at fair value or at
to acquisition cost.
compute depreciation pros
pectively as a result of whi In respect of grant related
ch the revised book value to a specific fixed assets becoming
is provided over the refundable, IAS-
residual useful life. 20 requires retrospective re-
computation of depreciation and
AS-12 has no such prescribes charging off the deficit in
disclosure requirement. the period in which such grant
becomes refundable.

IAS-20 requires separate
disclosure of unfulfilled
conditions and other contingencies if
grant has been recognized.

Related Party AS-18 does not include The definition of related party under I
Disclosures this relationship. AS-24 includes post
employment benefit plans of the
enterprise or of any

AS-18 read with ASI-23 other entity, which is related party of
requires disclosure of remu the enterprises.
neration paid to key
management persons but IAS-24 requires
does not mandate category- compensation to KMPs to be disclosed
wise disclosures. category-wise including share-
based payments.
AS-18 provides exemption
from disclosure in such No concession is provided under IAS-
cases. 24 where disclosure of information
would conflict with the duties of
AS-18 includes control confidentiality in
over composition of board terms of statute or regulating
of directors in the authority.
definition of ―control‖.
The definition of ―control‖ under IAS-
No such disclosure 24 is restrictive on the count that it
requirement is contained in does not
AS-18. include control over composition of
board of directors.


AS-18 prescribes a
rebuttable presumption of s IAS-24 requires disclosure of terms
ignificant influence if 20% and conditions
or more of the voting of outstanding items pertaining to
power held by any party. related parties.

Transactions between state IAS-24 does not prescribe are but
controlled enterprises are table presumption of significant
not required to be disclosed influence.
under AS-18.
No exemption.

Conclusion:
There are significant difference between Indian Accounting Standard
and International Accounting Standard. However, both the countries are planning to implement
IFRS to cope up with these differences.



Comments on Balance Sheet of Infosys Technology Systems:
1) INCOME STATEMENT

Each framework requires prominent presentation of an income statement as a primary statement.

Format

IFRS: There is no prescribed format for the income statement. The entity should select a method
of presenting its expenses by either function or nature; this can either be, as is encouraged, on the
face of the income statement, or in the notes. Additional disclosure of expenses by nature is
required if functional presentation is used. IFRS requires, as a minimum, presentation of the
following items on the face of the income statement:

1. Revenue;

2. Finance costs;

3. Share of post-tax results of associates and joint ventures accounted for using the equity

4. Method;

5. Tax expense;

6. Post-tax gain or loss attributable to the results and to re-measurement of discontinued
operations;

7. Profit or loss for the period.

The portion of profit or loss attributable to the minority interest and to the parent entity is
separately disclosed on the face of the income statement as allocations of profit or loss for the
period. An entity that discloses an operating result should include all items of an operating
nature, including those that occur irregularly or infrequently or are unusual in amount.

Indian GAAP: Presentation in one of two formats. Either:

1. A single-step format where all expenses are classified by function and are deducted from
total income to give income before tax;

2. A multiple-step format where cost of sales is deducted from sales to show gross profit,
and other income and expense are then presented to give income before tax. SEC
regulations require registrant‘s to categories expenses by their function. Amounts
attributable to the minority interest are presented as a component of net income or loss.



IFRS:

The total of income and expense recognized in the period comprises net income. The following
income and expense items are recognized directly in equity:

1. fair value gains/(losses) on land and buildings, intangible assets, available-for-sale
investments and certain financial instruments;
2. foreign exchange translation differences;
3. the cumulative effect of changes in accounting policy;
4. changes in fair values of certain financial instruments if designated as cash flow hedges,
net of tax, and cash flow hedges reclassified to income and/or the relevant hedged
asset/liability; and
5. actuarial gains and losses on defined benefit plans recognized directly in equity (if the
entity elects the option available under IAS 19,Employee Benefits, relating to actuarial
gains and losses).

Indian GAAP:
Similar to IFRS, except that revaluations of land and buildings and intangible assets are
prohibited under US GAAP. Actuarial gains and losses (when amortized out of accumulated
other comprehensive income) are recognized through the income statement

2) Statement of changes in share (stock) holders’ equity

IFRS:
Presented as a primary statement unless a SoRIE is presented as a primary statement.
Supplemental equity information is presented in the notes when a SoRIE is presented (see
discussion under ‗Presentation‘ above). In addition to the items required to be in a SoRIE,
it should show capital transactions with owners, the movement in accumulated profit and are
conciliation of all other components of equity. Certain items are permitted to be disclosed in the
notes rather than in the primary statement.

Indian GAAP:
Similar to IFRS, except that US GAAP does not have a SoRIE, and SEC rules permit the
statement to be presented either as a primary statement or in the notes.



Bibliography

•Financial Reporting Volume 1.-The institute of Chartered Accountant’sof India.

•WWW.IRFS,COM

•WWW.ICAI.Org


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