The document provides a comprehensive overview of financial accounting, detailing its purpose, definitions, objectives, and the key functions it serves for businesses, such as maintaining records and facilitating decision-making. It discusses the branches of accounting including financial, cost, and management accounting, as well as the differences between bookkeeping and accounting. Furthermore, it highlights the limitations of accounting information and the importance of accounting information systems for both internal and external users.

1. FINANCIAL ACCOUNTING
Module -1
Theoretical frame work of
Financial Accounting

2. Accounting is used by business entities for keeping records of their
monetary or financial transactions.
A businessman who has invested money in his business would like to
know whether his business is making a profit or incurring a loss,
the position of his assets and liabilities and whether his capital in the
business has increased or decreased during a particular period.
NEED OF ACCOUNTING

3. DEFINITION
The definition given by the American Institute of Certified Public Accountants
(‘AICPA’) clearly brings out the meaning of accounting. According to it, accounting
is “the art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events which are, in part at least, of
a financial character and interpreting the results thereof”.

4. THE DEFINITION BRINGS OUT THE FOLLOWING AS
ATTRIBUTES OF ACCOUNTING :
(i) Accounting is an art.
Accounting is classified as an art, as it helps us in attaining our aim of ascertaining
the financial results, that is, operating profit and financial position through analysis
and interpretation of financial data which requires special knowledge, experience
and judgment.

5. (ii) It involves recording, classifying and summarizing.
 Recording means systematically writing down the transactions and events in
account books soon after their occurrence.
 Classifying is the process of grouping transactions or entries of the same type at
one place. This is done by opening accounts in a book called ledger.
 Summarizing involves the preparation of reports and statements from the
classified data (ledger), understandable and useful to management and other
interested parties. This involves preparation of final accounts namely profit and
loss account and balance sheet.

6.  (iii) It records transactions in terms of money. All transactions are recorded in
terms of common measure i.e. money which increases the understanding of the
state of affairs of the business.
 (iv) It records only those transactions and events which are of financial
character. If an event has no financial character then it will not be capable of being
measured in terms of money ; it will not be, therefore, recorded
 (v) It is the art of interpreting the results of operations to determine the financial
position of the enterprise, the progress it has made .

7. OBJECTIVES OF ACCOUNTING
 1. To maintain the systematic records of the business:
 2.To ascertain the profit or loss of the business:
 3. To present the financial position of the business:
 4. To provide the financial information to the various users:
 5.For Decision Making:

8. FUNCTIONS OF ACCOUNTING
 The following are the main functions of accounting:
(i) Keeping Systematic Records: Accounting is done to keep a systematic record
of financial transactions.
(ii) Protecting and Controlling Business Properties: Accounting helps to see
that there is no unauthorized use or disposal of any assets or property
belonging to the firm, because proper records are maintained. Accounting will
furnish information about money due from various persons and money due to
various parties. The firm can see that all amounts due to it are recovered in due
time and that no amount is paid unnecessarily.

9.  (iii) Ascertaining the Operational Profit/Loss: Accounting helps to determine the
results of the activities in a given period, usually a year, i.e. to show how much
profit has been earned or how much loss has been incurred. This is done by
keeping a proper record of revenues and expenses of a particular period and then
matching the revenues with the corresponding costs.
 (iv) Ascertaining the Financial Position of the Business: Balance sheet is
prepared to ascertain the financial position of the firm at the end of a particular
period. It shows the values of the assets and the liabilities of the business entity.

10.  (v) Facilitating Rational Decision Making: Accounting facilitates collection,
analysis and reporting of information at the required point of time to the required
levels of authority in order to facilitate rational decision making.

11. ADVANTAGES OF ACCOUNTING
 The following are the advantages of accounting:
(i) Maintenance of Business Records: All financial transactions are recorded in a
systematic manner in the books of accounts so that there is no need to depend
upon on memory. It is impossible to remember the business transactions which
have grown in size and complexity.
(ii) Preparation of Financial Statements: Proper recording of transactions
facilitates the preparation of financial statements i.e. the trading and profit and
loss account and balance sheet.
(iii) Comparison of Results: Accounting information when properly recorded can
be used to compare the results of one year with those of earlier years so that the
significant changes can be analyzed.

12.  (iv) Decision Making: Accounting information helps the management to plan its future
activities by preparing budgets and coordination of various activities in different
departments.
 (v) Evidence in Legal Matters: Properly recorded accounting information can be
produced as evidence in a court of law.
 (vi) Provides Information to Interested Parties: Interested parties like owners,
creditors, management, employees, customers, government, etc. can get financial
information about the organisation.
 (vii) Helps in Taxation Matters: Income tax and/sales tax authorities depend for taxation
matter on the accounts maintained by the business.
 (viii) Valuation of Business: When the business is to be sold, the accounting information
can be utilized to determine the proper value of business.

13. LIMITATIONS OF ACCOUNTING
The following are the limitations of accounting
(i) Accounting information is expressed in terms of money: The accountant measures only those
events that are of financial nature i.e. capable of being expressed in terms of money. Non-
monetary items or events which cannot be measured are not recorded in accounting.
(ii) Accounting information is based on estimates: Some accounting data are based on estimates
and some estimates may be inaccurate.
(iii) Accounting information may be biased: Accounting information is not without personal influence
or bias of the accountant. In measuring income, accountant has a choice between different
methods of inventory valuation, deprecation methods, treatment of capital and revenue items etc.
Hence, due to the lack of objectivity income arrived at may not be correct in certain cases.

14. (iv) Fixed assets are recorded at the original cost: The values of fixed assets
change over time and so there may be a great difference between the original cost
and current replacement cost. Balance sheet may not show true and fair view of the
financial position on a particular date.
(v) Accounting can be manipulated: Accounting information may not be used as
the only test of managerial performance as profits can be manipulated or
misrepresented.
(vi) Money as a measurement unit changes in value: The value of money does
not remain stable. Unless price level changes are considered in measurement of
income, the accounting information will not show true financial results.

15. BRANCHES OF ACCOUNTING
 Accounting has three main forms or branches viz. financial accounting, cost accounting
and management accounting.
 (i) Financial Accounting: It is concerned with record-keeping directed towards the
preparation of trial balance, profit and loss account and balance sheet.
 (ii) Cost Accounting: Cost accounting is the process of accounting for costs. It is a
systematic procedure for determining the unit cost of output produced or services
rendered. The main functions of cost accounting are to ascertain the cost of a product and
to help the management in the control of cost.
 (iii) Management Accounting: Management accounting is primarily concerned with the
supply of information which is useful to the management in decision-making,
increasing efficiency of business and maximizing profits

16. BOOK-KEEPING
 Book-keeping is mainly concerned with recording of financial data relating to the
business operations in a significant and orderly manner.
 It is concerned with the permanent record of all transactions in a systematic
manner to show its financial effect on the business.
 It is the science and art of correctly recording in books of account all those
business transactions that result in the transfer of money or money’s worth.
 It is mechanical and repetitive.

17.  This work of book–keeping is of clerical nature and usually entrusted to junior
employees of accounts section of a business house.
 Now-a-days, most of the book-keeping work is done through computers and other
electronic devices.
 The main purpose behind book-keeping is to show correct position regarding
each head of income and expenditure as well as assets and liabilities.
 Further, book-keeping is meant to show the effect of all the transactions made
during the accounting period on the financial position of the business.

18. BOOK-KEEPING AND ACCOUNTING
 Book-keeping and accounting are often used interchangeably but they are different
from each other.
 Accounting is a broader and more analytical subject.
 It includes the design of accounting systems which the book-keepers use,
preparation of financial statements, audits, cost studies, income-tax work and
analysis and interpretation of accounting information for internal and external
end-users as an aid to making business decisions.
 This work requires more skill, experience and imagination. The larger the firm,
the greater is the responsibility of the accountant.
 It can be said that accounting begins where book-keeping ends. Bookkeeping
provides the basis for accounting.

19. DISTINCTION BETWEEN BOOK-KEEPING AND ACCOUNTING

20. ACCOUNTING INFORMATION SYSTEM (AIS)
 What are Accounting Information Systems?
An information system is a formal process for collecting data, processing the
data into information, and distributing that information to users.
The purpose of an accounting information system (AIS) is to collect, store, and
process financial and accounting data and produce informational reports that
managers or other interested parties can use to make business decisions. Although
an AIS can be a manual system, today most accounting information systems are
computer-based.

21. USERS OF ACCOUNTING INFORMATION:
There are two types of persons interested in financial statements: (1) Internal users,
and (2) External users.
1. Internal Users: These are: (a) Shareholders, (b) Management, and (c) Trade
unions employees, etc.
(a) Shareholders are interested to know the welfare of the business. They can
know the operational results through such financial statements and the financial
position of the business.
(b) Management is interested to take important decisions relating to fixing up the
selling prices and making future policies.
(c) Trade unions and employees are interested to know the operational results
because their bonus etc. is dependent on the profit earned by the business.
Financial statements also help in their negotiations for wages/salaries.

22.  (a) Investors: They are interested to know the earning capacity of business which
can be known through financial statements. They can also know the financial soundness
of the business through financial statements.
 (b) Creditors, Lenders of Money etc.: The creditors and lenders of money etc. can
also know the financial soundness through financial statement. They have to see two
things (i) Regularity of income and (ii) solvency of the business so that their
investment is risk free.
 (c) Government: Government is interested to formulate laws to regulate business
activities and also law relating to taxation etc. Financial statements help while computing
National Income statistics etc.
 (g) Researchers: Accounting data are also used by the research scholars in their
research in accounting theory as well as business affairs and practices

23.  (d) Taxation authorities: Financial statements provide information relating to
operational results as well as financial position of the business. Tax authorities
decide the amount of tax as per financial statement. It is very useful to other
taxation authorities such as sales tax etc.
 (e) Stock Exchanges are meant for dealing in share/securities. Purchase and
sale of such shares and securities are possible through stock exchanges which
provide financial information about each company which is listed with them.
 (f) Consumer: Consumer is interested in information on the continued existence
of the business and thus probability of the continued supply of the products, parts
and after sale services. They ensure continuous existence of a business,
especially in case of durable products which require after sales service and spare
parts.

24. CHARACTERISTICS OF ACCOUNTING INFORMATION:
 Relevance: The information should be relevant in order to influence the economic
decisions of users by helping them to evaluate the events at all times. Accounting
information has a bearing on decision making by helping investors, creditors and other
users to evaluate past and future events.
 Reliability: Reliability relates to the confidence in the accounting information in the
sense that the information must faithfully represent what it intends to present; it must
be factual. Information should be free from material errors and bias. The key aspects
of reliability are faithful representation, substance over form, neutrality, prudence and
completeness.
 Comparability: Accounting information of an enterprise is useful when it is
comparable with similar information for the same enterprise in other periods of time
and similar information regarding other enterprises at the same time. Thus, the
information should be presented in a consistent manner over time and consistent

25.  Understandability: Information should be readily understandable by users
who are expected to have a reasonable knowledge of business, economics and
accounting and a willingness to study the information with reasonable diligence.
 Timeliness: The more quickly the information is communicated or provided to
the users, the more likely it is to influence their decisions. Hence, for prompt
decision-making accounting information should be made available at
appropriate time without delays.
 Cost-benefit: The accounting information must be useful to most of the people
who want to use it and preparation of that useful information must not be a
costly and time consuming process.

26.  Verifiability: Verifiability ensures the truthfulness of the recorded transactions,
which can be checked by persons other than the accountant himself.
 Neutrality: Accounting information is neutral in the sense that it should be free
from bias and it should not favor one group over another. Neutrality is significant
especially for the external users of accounting information.
 Completeness: Completeness means that all material information that is
necessary to investors, creditors or other users for assessing the financial
position and operating results of the organization has been disclosed in the
financial statements.

27. BASIS OF ACCOUNTING
 This deals with the timing of the revenue recognition, i.e. when should the revenue
be recognized in the books of accounts. There are two approaches to this dilemma –
cash basis of accounting and accrual basis of accounting. Let us take a brief
look at both.
 Cash System of Accounting:
 It is a system in which accounting entries are made only when cash is received or
paid.
 No entry is made when a payment or receipt is merely due.
 In other words, it is a system of accounting in which revenues and costs and
assets and liabilities are reflected in the accounts in the period in which actual
payments or actual receipts are made in cash.

28. It may not treat any revenue to have been earned or even
sales to have taken place unless cash is actually paid by
customers. It has no relevance whether the receipts pertain to
previous period or future period.
Similarly, expenses are restricted to the actual payments in
cash during the current year and it is immaterial whether the
payments have been made for previous period or future period.

29.  Cash basis of accounting is incompatible with the matching principle of income
determination.
 Hence, the financial statements prepared under this system do not present a true
and fair view of operating results and financial position of the organization.
However, cash system of accounting is suitable in the following cases:
 (i) Where the organization is very small or in the case of individuals, where it is
difficult to allocate small amounts between accounting periods; and

30.  (ii) Where credit transactions are almost negligible and collections are
uncertain
e.g. accounting in case of professionals i.e. doctors, lawyers, firms of
chartered accountants/company secretaries.
But while recording expenses, they take into account the outstanding expenses also.
In such a case, the financial statement prepared by them for determination of
their income is termed as Receipts and Expenditure Account.

31. ACCRUAL SYSTEM OF ACCOUNTING:
 This is also known as mercantile system of accounting. It is a system in which
transactions are recorded on the basis of amounts having become due for
payment or receipt.
 Accrual basis of accounting attempts to record the financial effects of the
transactions, events, and circumstances of an enterprise in the period in which
they occur rather than recording them in period(s) in which cash is received or
paid by the enterprise.

32.  The purpose of accrual basis accounting is to relate the revenue earned to cost
incurred so that reported net income measures an enterprise’s performance
during a period instead of merely listing its cash receipts and payments.
 Accrual basis of accounting recognizes assets, liabilities or components of
revenues and expenses received or paid in cash in past and expected to be
received or paid in cash in the future.

33.  The following are the essential features of accrual basis:
 Revenue is recognized as it is earned irrespective of whether cash is received or
not;
 Costs are matched against revenues on the basis of relevant time period to
determine periodic income, and

34. :
METHODS OR SYSTEMS OF ACCOUNTING
Business transactions are recorded in two different ways.
1. Single Entry 2. Double Entry
 Single Entry: It is incomplete system of recording business transactions. The business
organization maintains only cash book and personal accounts of debtors and
creditors. So the complete recording of transactions cannot be made and trail balance
cannot be prepared.
 Double Entry: It this system every business transaction is having a twofold effect of
benefits giving and benefit receiving aspects. The recording is made on the basis of both
these aspects. Double Entry is an accounting system that records the effects of
transactions and other events in at least two accounts with equal debits and credits.

35.  The modern system of book keeping is based on the double entry system.
Therefore, we are discussing this system only. The father of this system is the
Luca Pacioli. He gave the details of this system in his book “De Compute Set
Scripturise” in Italy in 1494 A.D.
 As per this system every transaction of the business has double
aspects/double effect. Therefore, every transaction must be recorded at two
places or accounts. If in a transaction someone is a giver, some other will be
a receiver.

36. Steps involved in Double entry system
(a) Preparation of Journal
(b) Preparation of Ledger
(c) Trial Balance preparation
(d) Preparation of Final Account

37. Importance of Double Entry System
The following are the most important advantages of the system:
1. Complete record of transactions
2. Ascertainment of profit or loss
3. Mathematical check on accuracy
4. Check for fraud
5. Ascertainment and knowledge of financial position of the
business
6. Possibility of full control over business
7. Easy accessibility of information
8. Possibility of comparative study
9. Reliable information

38. PRINCIPLES OF ACCOUNTING
 The word ‘Principle’ has been differently viewed by different schools of thought.
The American Institute of Certified Public Accountants (AICPA) has viewed the
word ‘principle’ as a general law of rule adopted or professed as a guide to
action; a settled ground or basis of conduct of practice”
 Accounting principles have been defined as “those rules of conduct or
procedure which are adopted by the accountants universally while
recording the accounting transactions.”

39. (GAAP):
Accounting principles are those rules of actions on the basis
of which the transactions of the business are recorded,
classified and summarized. If the financial statements are not
prepared on the basis of these principles, there will be low
acceptability and difficulty to understand them, and the
comparison will be impossible and unreliable.

40. Therefore, the accountants recommend that there should be
common concepts and conventions of accounting so that the
above difficulties and problems may not occur. These common
concepts and conventions of accounting have become the basic
accounting concepts and conventions as these are commonly
accepted by the body of the professional accountants all over the
world to prepare the financial statements, therefore, they are
termed as Generally Accepted Accounting Principles (GAAP)

41. Classification of Accounting Principles
Accounting principles are broadly classified into three
categories, these are:
Basic Assumptions
Basic Principles (Concepts)
Modifying Principles (Conventions)

43. VALUES
 There are four different values in the business practices that should be followed
or recorded in the system of accounting:
 1. Original Value: It is the value of the asset only at the moment of purchase or
acquisition.
 2. Book Value: It is the value of the asset maintained in the books of the
account. The book value of the asset could be computed as follows:
Book Value = Gross (Original) value of the asset – Accumulated
depreciation
 3. Realizable Value: Value at which the assets are realized.
 4. Present Value: Market value of the asset.

44. ACCOUNTING STANDARDS - INTRODUCTION
 At the international level the International Accounting Standard
Committee (IASC) has issued the International Standards.
 In this committee, there are leading professional bodies of UK,
USA, Australia, France and Canada.
 India is also a member of this committee.
 India has also prepared its own accounting standards, which are
prepared by the Institute of Chartered Accountants of India
(ICAI).

45. MEANING OF ACCOUNTING STANDARDS:
 Accounting standards are the written statements consisting of rules and
guidelines, issued by the accounting institutions, for the preparation of
uniform and consistent financial statements and also for other
disclosures affecting the different users of accounting information.
 Accounting standards lay down the terms and conditions of accounting
policies and practices by way of codes, guidelines and adjustments for
making the interpretation of the items appearing in the financial
statements.

46. NATURE/ FEATURES / CHARACTERISTICS OF ACCOUNTING
STANDARDS:
(i) Serve as a guide to the accountants:
Accounting standards serve the accountants as a guide in the
accounting process. They provide basis on which accounts are
prepared. For example, they provide the method of valuation of
inventories.
(ii) Act as a dictator:
Accounting standards act as a dictator in the field of accounting.
Like a dictator, in some areas accountants have no choice of their
own but to opt for practices other than those stated in the accounting
standards. For example, Cash Flow Statement should be prepared in
the format prescribed by accounting standard.

47. CONTINUED…..
(iii) Serve as a service provider:
Accounting standards comprise the scope of accounting by defining certain
terms, presenting the accounting issues, specifying standards, explaining
numerous disclosures and implementation date. Thus, accounting standards are
descriptive in nature and serve as a service provider.
(iv) Act as a harmonizer:
Accounting standards are not biased and bring uniformity in accounting
methods. They remove the effect of diverse accounting practices and policies.
On many occasions, accounting standards develop and provide solutions to
specific accounting issues. It is thus clear that whenever there is any conflict on
accounting issues, accounting standards act as harmonizer and facilitate
solutions for accountants.

48. OBJECTIVES OF ACCOUNTING STANDARDS:
 (i) To bring uniformity in accounting methods:
Accounting standards are required to bring uniformity in
accounting methods by proposing standard treatments to the accounting
issue. For example, AS-6(Revised) states the methods for depreciation
accounting.
 (ii) For improving the reliability of the financial statements:
Accounting is a language of business. There are many users of
the information provided by accountants who take various decisions
relating to their field just on the basis of information contained in
financial statements. In this connection, it is necessary that the financial
statements should show true and fair view of the business concern.
Accounting standards when used give a sense of faith and reliability to
various users.

49. CONTINUED
 (iii) Simplify the accounting information:
Accounting standards prevent the users from reaching any misleading
conclusions and make the financial data simpler for everyone. For example,
AS-3 (Revised) clearly classifies the flows of cash in terms of ‘operating
activities’, ‘investing activities’ and ‘financing activities’.
 (iv) Prevents frauds and manipulations:
Accounting standards prevent manipulation of data by the management
and others. By codifying the accounting methods, frauds and manipulations can
be minimized.
 (v) Helps auditors:
Accounting standards lay down the terms and conditions for accounting
policies and practices by way of codes, guidelines and adjustments for making
and interpreting the items appearing in the financial statements. Thus, these
terms, policies and guidelines etc. become the basis for auditing the books of
accounts.

50. PROCEDURE FOR FORMULATION OF ACCOUNTING STANDARDS
 1. Determination of the need of an AS
First, the Accounting Standard Board determines the broad areas in which
accounting standards needs to be formulated.
 2. Constituting Study Group
Study Group will be constituted consisting the members of the Institute of
Chartered Accountants of India. The motive behind constitution of this group is to
assist the accounting Standard Board in its activities.
 3. Drafting the Standard
The Study Group Prepares draft of the proposed Standard. The proposed draft
enlists the following areas
a) Objective of the standard.
b) Scope of the Standard.
c) Definitions of the terms used in the standard
d) Recognition & Measurement Principles
e) Presentation & Disclosure requirements.

51. CONTINUED …
 4.Analyzing the Draft
ASB in this stage considers the Preliminary draft prepared by the Study
Group. In case anything needs to be revised than Accounting Standard Board
takes the following steps.
a. ASB makes the revision
b. ASB refers the same to the study Group
 5. Circulation of the Draft
In this step the ASB circulates the AS draft to the council members of
the Institute of Chartered Accountants of India and the following specifies
bodies for their comments.
 a. The Institute of Works & Cost Accountants of India
 b. The Institute of Company Secretaries of India.
 c. Ministry of company affairs.

52. CONTINUED…
 d. Comptroller & Auditor General of India
 e. Central Board of Direct Taxes
 f. Standing Committee of Public Enterprises
 g. Reserve Bank of India
 h. India Banks Association
 i. Securities & Exchange Board of India
 j. Associated Chamber of Commerce & Industry, Confederation of Indian Industry
and Federation of Indian chambers of commerce & Industry
 k. Any other body considered relevant by the ASB
 6. Holding Discussion and Finalizing Exposure Draft
ASB holds meeting with the representatives of above mentioned bodies for the
purpose of determining their views on the Draft Accounting Standard. Based on
analyses of the discussion & ASB finalizes the exposure draft of proposed accounting
standards.

53. CONTINUED…
 7. Circulation the exposure Draft
The exposure Draft of the proposed standards is issued for comments the
members of the ICAI and the public.
 8. Finalizing the exposure draft
Based on the comments received, the ASB finalizes the draft of the proposed
standards. It then submits the same to the council of the ICAI.
 9. Modifying & Issuing the Accounting Standard.
The council of the ICAI considers the finalized draft standard and if necessary
modifies the same in consultation with the ASB. The ICAI then issues the Accounting
Standard after modification if any on the relevant subject.

54. INTERNATIONAL ACCOUNTING STANDARDS
 • The International Accounting Standard Board (IASB) was formulated
and began in operations in 2001.
 • The objective of IASB is as follows
 • “Committed to developing, in public interest, a single set of high
quality, global accounting standards that require transparent and
comparable information in general purpose financial statements”

55. STRUCTURE OF IASB
 The IASB is selected, overseen and funded by the International
Accounting Standards Committee
 (IASC) Foundation, consisting of 22 trustees. The responsibility of the
trustees, besides others include,
 Appointment of members of the IASB and Standards Advisory Council
and the IFRIC
 Monitoring the IASB’s effectiveness and adherence to its due process
and consultation procedures
 Establishing and maintaining appropriate financing arrangement
 Approve of the budget for the IASC Foundation and
 Responsibility for constitution changes.

56. LIST OF INTERNATIONAL ACCOUNTING STANDARDS
 IAS 1 Presentation of Financial Statements
 IAS 2 Inventories
 IAS 3 Consolidated Financial Statements
 IAS 4 Depreciation Accounting
 IAS 5 Information to be Disclosed in Financial Statements
 IAS 6 Accounting Responses to Changing Prices
 IAS 7 Statement of Cash Flows
 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
 IAS 9 Accounting for Research and Development Activities
 IAS 10 Events After the Reporting Period
 IAS 11 Construction Contracts
 IAS 12 Income Taxes
 IAS 13 Presentation of Current Assets and Current Liabilities

57. CONTINUED
 IAS 14 Segment Reporting
 IAS 15 Information reflecting the Effects of Changing Prices
 IAS 16 Property; Plant and Equipment
 IAS 17 Leases
 IAS 18 Revenue
 IAS 19 Employee Benefits
 IAS 20 Accounting for Government Grants and Disclosure of government assistance
 IAS 21 The Effects of Changes in Foreign Exchange Rates
 IAS 22 Business Combinations
 IAS 23 Borrowing Costs
 IAS 24 Related Party Disclosures
 IAS 25 Accounting for Investments
 IAS 26 Accounting and Reporting by Retirement Benefit Plans
 IAS 27 Separate Financial Statements
 IAS 28 Investments in Associates and Joint Ventures
 IAS 29 Financial Reporting in Hyperinflationary Economies

58. CONTINUED
 IAS 30 Disclosures in the financial statements of Banks and Similar
Financial Institutions
 IAS 31 Interests in Joint Ventures
 IAS 32 Financial Instruments: Presentation
 IAS 33 Earnings Per Share
 IAS 34 Interim Financial Reporting
 IAS 35 Discontinuing Operations
 IAS 36 Impairment of Assets
 IAS 37 Provisions, contingent Liabilities and Contingent Assets
 IAS 38 Intangible Assets
 IAS 39 Financial Instruments: Recognition and Measurement
 IAS 40 Investment Property
 IAS 41 Agriculture

59. IFRS
 International financial reporting standard (IFRS) is a set of accounting
standards developed by independent, non – for – profit organization
called the international accounting standards board (IASB)
 International financial reporting standards (IFRS) are a set of
international accounting standards stating how particular types of
transactions and other events should be reported in financial
statements.
 IFRS are established in order to have a common accounting
language, so business and accounts can be understood from
company to company and country to country.

60. OBJECTIVES OF IFRS
 The principle objectives of IFRS are as follows:
 1. To develop, in the public interest, a single set of high quality,
understandable, adoptable and globally accepted IFRS based upon
clearly expressed principles.
 2. To promote the use and difficult in application of those standards.
 3. To facilitate for the adoption of IFRS.
 4. To bring aboit convergence of national accounting standards,
International accounting standards & IFRS to high quality solutions.

61. ROADMAP FOR IMPLEMENTATION OF IFRS IN INDIA
 Voluntary adoption • Mandatory adoption
 Companies Can voluntarily adopt Indian AS for accounting periods
beginning on or after 1 April 2015 with comparatives for period ending
31st March 2015 or thereafter.
 • However, once they have chosen this path, they cannot switch back.
 Indian AS will be mandatorily applicable to the following companies for
periods beginning on or after 1st April 2016, with comparatives for the
period ending 31st march 2016 or thereafter:

62. CONTINUED
 Companies whose equity and/ or debt securities are listed or are in
the process of listing on any stock exchange in India or outside India
and having net worth of 500 crore INR or more.
 Companies having net worth of 500 crore INR or more other than
those covered above.
 Holding, subsidiary, Joint venture or associate companies of
companies covered above.

63. CONTINUED
 Indian AS will be mandatorily applicable to the following companies for
periods beginning on or after 1 April 2017, with comparatives for the
period ending 31st March 2017 or thereafter:
 Companies whose equity and/or debt securities are listed or are in the
process of being listed on any stock exchange in India or outside India
and having net worth of less than rupees 500 crore.
 Unlisted companies other than those covered in Phase I and Phase II
whose net worth are more than 250 crore INR but less than 500 crore
INR.
 Holding, Subsidiary, Joint venture or associate companies of above
companies.

64. MERITS OF IFRS
 By adopting IFRS, business can present its financial statements on
the same basis as its foreign competitors, making comparisons easier.
 In addition, companies with subsidiaries in countries that require or
permit IFRS may be able to use one accounting language.
 Companies also may need to convert to IFRS is they are the
subsidiary of a foreign company they must use IFRS, or if they have
any foreign investor they must use IFRS.
 Companies may also get benefit by using IFRS if they wish to raise
capital abroad.
 Reduces time and cost
 It gives the qualitative information
 Pools the capital outside the country .

65. LIMITATIONS
 In spite of a belief by some of the inevitability of the global acceptance of
IFRS, others believe that U.S GAAP is the gold standard, and that a certain
level of quality will be lost with full acceptance of IFRS.
 Further, certain U.S issuers without significant customers or operations
outside the United States may resist IFRS because they may not have a
market incentive to prepare IFRS financial statements.
 They may believe that the significant costs associated with adopting IFRS
balance the benefits.
 Requires much time and cost
 Huge Transaction costs
 The market valuation concepts may be a challenge in quite a few situations.
 Not being rule based, it may develop challenges at certain stages of
implementation.
 First time adoption needs to be planned relatively in advance.

66. Thank You