4. Why are we Here- Angeda for the Day????
1.Why “We” prepare reports as per
Standards- Is it mandatory?
(Here “We” Stands= Company, Partnership Firm,
Regulators, HUF and Sole Proprietors)
* Company doesn’t include Banking and Insurance
2. Who are “Users” of these Reports
3. Types of “Standards” & its Framework
4. Be “Aware” about what can be
“Reported”
5. “Good Controls + Audit Mechanism” =
“Organisation Success”
1
2
5
4
3
8. Accounting Event
A transaction or change
recognized on the financial
statements of an accounting
entity
An External transaction
would occur with an outside
party, such as the purchase
or sales of a good.
An Internal transaction is
for adjustment in the
accounts of the financial
statements
ACCTG EVENT
9. • International Accounting Standards Board
• Financial Accounting Standards Board
• Generally Accepted Accounting Principles
• International Financial Reporting Standards
IASB
FASB
GAAP
IFRS
STANDARD-SETTING BODIES
STD SETTING
BODIES
FASB IASB OTHER STDs
GAAP (US) IFRS (OTHERS) INDIA (AS)
10. INDEPENDENT BODY ESTABLISHED IN 1973
ESTABLISHES FINANCIAL ACCOUNTING AND REPORTING STANDARDS
FOR PUBLIC AND PRIVATE COMPANIES THAT FOLLOW GAAP
RECOGNIZED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC),
AICPA
THE FINANCIAL ACCOUNTING FOUNDATION (FAF) SUPPORTS AND
OVERSEES THE FASB.
ESTABLISHED IN 1972, RESPONSIBLE FOR THE OVERSIGHT, ADMIN,
FINANCING & APPOINTMENT OF THE FASB & THE GOVERNMENTAL
ACCOUNTING STANDARDS BOARD (GASB).
FASB
11. GAAP
• Great Depression
• Formulation of SEC
• AIA roped in
• GAAP Conceptualised
• CAP created, GAAP std created
• SEC replaced CAP with FASB
1929
1930
1934
1936
Late 1930s
1973
12. History of GAAP
US
Year 1939
• Accounting standards have historically been set by the American Institute of Certified Public
Accountants (AICPA) subject to U.S. Securities and Exchange Commission (SEC) regulations.[6] The
AICPA first created the Committee on Accounting Procedure in 1939 and replaced that with
the Accounting Principles Board in 1959.
• In 1973, the Accounting Principles Board was replaced by the Financial Accounting Standards
Board (FASB) under the supervision of the Financial Accounting Foundation with the Financial
Accounting Standards Advisory Council serving to advise and provide input on the accounting
standards.
INDIA
1 July 1949
• It was established on 1 July 1949 as a statutory body under the Chartered Accountants Act, 1949
enacted by the Parliament (acting as the provisional Parliament of India) to regulate the profession
of Chartered Accountancy in India
• Further, Institute of Chartered Accountants of India (ICAI) has the responsibility of preparing
the accounting standards and recommend them to NACAS
1
2
15. Country GAAP
China Chinese Accounting Standards (Zhōngguó qǐyè kuàijì zhǔnzé 中
国企业会计准则)
Canada Generally Accepted Accounting Principles
France Generally Accepted Accounting Practice (Plan Comptable
Général)
Germany Generally Accepted Accounting Practice (Grundsätze
ordnungsmäßiger Buchführung)
India Generally Accepted Accounting Practice
Russia Generally Accepted Accounting Practice (RAP)
United Kingdom Generally Accepted Accounting Practice
United States Generally Accepted Accounting Principles
GAAP - FOLLOWERS
16. 16
Current Compliances in the US
The U.S. firms filing reports with the SEC must use U.S.
GAAP.
Foreign issuers filing reports with the SEC can use U.S.
GAAP or the international standards.
The SEC abolished a requirement that non-US
companies with US listings reconcile their financial
reports to US GAAP in 2007.
17. Quiz Time
Q1
All the transactions measurable in the terms of money are recorded in accounts is according to
A. business entity concept
B. going concern concept
C. money measurement concept
D. accounting period concept
Ans C
Q2
While putting the value or price of an entity in financial records the lowest price as a safety measure is
recorded not the current price or current market value. This is known as
A. Business Entity Concept
B. Conservatism
C. Cost Concept
D. Money Measurement Concept
Ans B
18. Quiz Time
Q3
On which assumption are financial statements prepared under Indian GAAP?
Wit reference to Indian GAAP, all the financial statements are prepared in accordance with
the principle of conservatism which interprets that we must 'Anticipate no profits and
provide for all possible losses’.
X Ltd. sold its building to Mini Ltd. for Rs 60 lakhs on 30.09-2016 and gave possession of the
property to Mini Ltd. However, documentation and legal formalities are pending. Due to this,
the company has not recorded the sale and has shown the amount received as an advance. The
book value of the building is RS 25 lakhs as on 31st March, 2017. Do you agree with this
treatment?
Ans
Principles of prudence, substance over form and materiality should be looked into, to ensure
true and fair consideration in a transaction. In the given case, the economic reality and
substance of the transaction is that the rights and beneficial interest in the property has been
transferred although legal title has not been transferred. Hence, X Ltd. should record the
sale and recognize the profit of Rs 35 lakhs in its financial statements for the year
ended 31st March, 2017; value of building should be removed from the balance
sheet. Therefore, the treatment given by the company is not correct.
19. Quiz Time
Question 4
Night Ltd. sells beer to customers. Some of the customers consume the beer in the bars run
by Night Limited. While leaving the bars, the consumers leave the empty bottles in the bars
and the company takes possession of these empty bottles. The company has laid down a
detailed internal record procedure for accounting for these empty bottles which are sold by
the company by calling for tenders. Keeping this in view:
(i) Decide whether the inventory of empty bottles is an asset of the company;
(ii) If so, whether the inventory of empty bottles existing as on the date of Balance Sheet is
to be considered as inventories of the company and valued as per AS 2 or to be treated
as scrap and shown at realizable value with corresponding credit to ‘Other Income’?
Answer (i) Tangible objects or intangible rights carrying probable future benefits, owned by an
enterprise are called assets.
Night Ltd. sells these empty bottles by calling tenders. It means further benefits are accrued
on its sale. Therefore, empty bottles are assets for the company.
(ii) As per AS 2 “Valuation of Inventories”, inventories are assets held for sale in the ordinary
course of business. Inventory of empty bottles existing on the Balance Sheet date is the
inventory and Night Ltd. has detailed controlled recording and accounting procedure which
duly signify its materiality. Hence inventory of empty bottles cannot be considered as scrap
and should be valued as inventory in accordance with AS 2.
20. INDIAN FINANCIAL REPORTING SYSTEM
In order to maintain uniformity and enable inter and intra firm comparison, the
disclosure requirements are governed by :
1. SEBI Requirements
2. The Companies Act, 2013
1. SEBI Requirements
Under section 3 of SEBI Act 1992, with statutory powers for :
•Protecting the interests of investors
•Promoting the development of the securities market and
•Regulating these securities market
Some important requirements are as follows:
•Dispatch of a copy of the complete & full annual report to the shareholders (Clause32).
•Disclosure of Cash Flow Statement (Clause32).
•Disclosure of material developments and price sensitive information (Clause36).
•Compliance with Takeover Code (Clause40B).
Oversee the Interest of
Investors at Macro Level
21. INDIAN FINANCIAL REPORTING SYSTEM
2. Companies Act 2013 Requirements
a) As per section 2 (40) of the Companies Act,2013, the Financial statements of the company should
include:-
•A Balance sheet
•A profit and Loss account
•Cash flow statement
•A statement of changes in equity , if applicable
•Any explanatory note
b)The MCA (Ministry of Corporate Affairs) on 6 April 2016, amended Schedule III to the Companies Act 2013
, the amendment divides Schedule III into two parts:
• Division I – whose financial statements are required to comply with the current accounting standards
•Division II – whose financial statements are drawn up in compliance with Ind AS.
The following is and overview of the Division II of the Schedule III:
•It is applicable to every company to which Ind AS apply in preparation of its financial statements.
•When a company is required to prepare consolidated financial statements
Requirement set up by
Co’s Act’2013
22. Application of Standards
Which Standards
To Apply
For different Industries
How Legislation is
formed the GAAP
and see the
regulating
authority
STEP 02
See the
Jurisdiction in
which Company
Exists
STEP 01
Apply the
Standards
STEP 03
Report the
Standards
FINAL
24. Lets Evaluate
2
4
Q1
XYZ LTD company is registered in India having
offices outside India didn’t comply with Indian
reporting standards.
Is XYZ made default?
Ans:
Q2. A company XYZ LTD is dealing in
manufacturing of Cars as a Final Product. Co.
purchased Engines to manufacture their
production and recoded expense as Current
Asset. Is the reporting correct?
Ans:
26. Need for convergence towards
Global Standards
• International Accounting Standards
(IAS)/International Financial Reporting Standards
(IFRS) (collectively referred to as IFRS), issued by
International Accounting Standards Board (IASB)
in 1973 are now widely recognised as Global
Accounting Standards.
• More than 170 countries and reporting
jurisdictions currently require or permit the use
of or have a policy of convergence/adoption of
IFRS.
27. INDIAN SCENARIO
• The institute of Chartered Accountants of
India, recognizing the need to harmonize the
diverse accounting policies and practices,
constituted at Accounting Standard Board
(ASB) on 21st April, 1977.
• Initiated by Kumar Mangalam Birla, chairman
committee of Corporate Governance for
Financial Disclosures
30. INDIAN STD STETTING BODIES
RBI
• FOR REGULATION & SUPERVISION OF BANKS AND FIN
INSTITUTIONS, MONEY, FOREIGN EXCHANGE AND
GOVT SECURITIES MARKET
• TO PROTECT INTEREST OF INVESTORS IN SECURITIES
AND TO PROMOTE , REGULATE SECURITIES MARKET
SEBI
• PROTECTING THE INTERESTS OF THE POLICY HOLDERS, TO
REGULATE, PROMOTE AND ENSURE ORDERLYGROWTH
IRDA
• LEGAL FRAMEWORK FOR INCORPORATION FUNCTIONING OF
COMPANIES, SURVEILLANCE OVER CORPORATE SECTOR TO
ENSURE FINANCIAL HEALTH & COMPLIANCE WITH STATUTORY
PROVISIONS, PRESCRIBING COST AUDIT RULES AND
APPOINTMENT OF COST AUDITORS, INVESTIGATION OF
COMPLAINTS, COORDINATION WITH OTHER REGULATORY
BODIES
MINISTRY
OF
CORPORA
TE
AFFAIRS
31. Accounting Standards in India
The ICAI, established Accounting Standards
Board (ASB) in 1977, to issue Accounting
Standards (AS) in India
• Initially, AS were mandatory for members of the ICAI
acting as auditors
• In the year 1999, the Companies Act 1956, was
amended to make AS mandatory to companies
• In 2006, Central Government notified 28 Accounting
Standards, as recommended by ICAI under Companies
(Accounting Standards) Rules 2006 with
recommendation of NACAS.31
32. Compliance with Accounting
Standards issued by ICAI
Sub Section(3A) to section 211 of Companies Act, 1956
requires that every Profit/Loss Account and Balance Sheet
shall comply with the Accounting Standards.
Currently:The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies Act 2013, have been formulated keeping
the Indian economic & legal environment in view and with a view to converge with IFRS Standards, as issued by and copyright of which is held by the IFRS Foundation.
'Accounting Standards' means the standard of accounting
recommended by the ICAI and prescribed by the Central
Government in consultation with the National Advisory
Committee on Accounting Standards(NACAS) constituted
under section 210(1) of companies Act, 1956.
40. Financial Statement Release
Information Presented
1 Summarized financial data key figures covering a period of 5 or 10 years.
2 Management's discussion
and analysis (MD&A)
an honest and detailed analysis of the company's
financial condition and operating results; must read for
any serious financial statement user.
3 Management's report on
internal control
statements that describe management's responsibility
for ensuring adequate internal control over financial
reporting and that report on the effectiveness of these
controls during the year.
4 Auditor's report the auditor's conclusion about whether GAAP was
followed (and, for public companies, whether internal
controls were effective).
5 Comparative financial
statements
a multi-year presentation of the four basic statements.
6 Financial statement notes further informaton abou the financial statements; crucial
to understanding the financial statement data.
7 Recent stock price data brief summary of highs and lows during the year.
8 Unaudited quarterly data condensed summary of each quarter's results.
9 Directors and officers a list of who's overseeing and running the company.
Name of Financial Section
42. DO YOU KNOW
Q1.
As on date MCA has notified how many standards ?
Ans 1.
41 Ind AS. This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on
a mandatory basis.
Q2
IS IndAs applicable for Banking and Insurance companies?
Ans: No
Based on the international consensus, the regulators will separately notify the date of implementation of Ind-AS for the
banks, insurance companies etc.
Q3 XYZ LTD is having 2 subsidiaries and 1 Associate. 1 Subsidiary and 1 Associate skips to adopt IndAs since they
don’t have much business or revenue. Can these companies make their own decision in deciding which standard
to adopt.
Ans:
No Once IndAs is applicable for Holding company others had to follow.
4
2
46. Quick Recap
01 02
03
04
05
Understanding Need of Co.
Giving users the true picture by
providing uniform set of accounts to
compare and draw meaningful
conclusion
Reporting
What all needs to be reported?
Components which make reporting
crucial
Why To Report
Primarily no.1 requirement set by
SEBI and Company’ Act
Limtations of Reporting
Difficult to understand with so many
reporting requirements.
Fraud and Audit Meansures
Develop mechanism to detect
Errors and Fraud. Stay Compliant
