Accounting standards-India

AS-1 : Disclosure of Accounting Policies

AS-2 : Valuation of Inventories
AS-3 : Cash Flow Statements
AS-4 : Contingencies and events occuring
after Balance Sheet Date
AS-5 : Net Profit for the period, prior period
items
AS-6 : Depreciation Accounting
AS-7 : Construction Contracts;
AS-9 : Revenue Recognition

AS-10: Accounting for Fixed Assets

AS-11 : 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: Employee Benefits
AS-16: Borrowing Costs:
AS-17: Segmental Reporting

AS-18 : Related Party Transactions

AS-19 : Leases;
AS-20 : Earnings per share;
AS-21 : Consolidated Financial Statements
AS-22 : Accounting for Taxes on Income
AS-23: Accounting for Associates in Consolidated
Financial Statements;
AS-24 : Discontinuing operations
AS=25 : Interim Reporting;
AS-26: Intangible Assets;
AS-27 : Financial Reporting of Investments in Joint
Venture
AS-28 : Impairment of Assets
AS-29 : Provisions, Contingent Liabilities, Contingent
Assets

 International Accounting
Standards(including IFRS) 41 standards
IFRS 1 First-time Adoption of IFRS
IFRS 2 Share-based payments
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets held for sale and
discontinued operations
IFRS 6 Exploration and evaluation of Mineral
Resources
IFRS 7 : Financial Instruments, Disclosure
IFRS8 Operating Segments

AS-1 : Disclosure of Accounting Policies

Fundamental Accounting Assumptions

Areas in Which Differing Accounting
Policies are Encountered:
a) Methods of depreciation, depletion and
amortisation
(b) Treatment of expenditure during
construction
(c) Conversion or translation of foreign
currency items

 (d) Valuation of inventories

(e) Treatment of goodwill
(f) Valuation of investments
(g) Treatment of retirement benefits
(h) Recognition of profit on long-term contracts
(i) Valuation of fixed assets
(j) Treatment of contingent liabilities.
Disclosure should form part of the financial statements.
All significant accounting policies adopted in the
preparation and presentation of financial statements
should be disclosed.
Any change in an accounting policy which has a material
effect should be disclosed. The amount by which any item
in the financial statements is affected by such change
should also be disclosed to the extent ascertainable.

AS-2
Inventories are valued at lower of cost and NRV. Cost
of raw material is computed on a weighted average
method.
Cost for Work in Progress includes raw material
cost,cost of conversion,other costs incurred in
bringing the inventories to their present location and
condition.
Cost for finished goods include material cost,cost of
conversion ,other costs incurred in bringing goods to
their present location and condition and Excise duty
Cost of spares and stores are computed on a
weighted average basis.

 THE COST OF INVENTORIES SHOULD COMPRISE ALL

COSTS OF PURCHASE,
COSTS OF CONVERSION AND
OTHER COSTS INCURRED IN BRINGING THE
INVENTORIES TO THEIR PRESENT LOCATION AND
CONDITION.
Permitted methods of valuation:
FIFO Method
Weighted Average Method
Retail Method
Standard Cost Methods
Specific Cost identification Methods

ACCOUNTING STANDARD 4
CONTINGENCIES AND EVENTS
OCCURRING AFTER THE BALANCE
SHEET DATE

Events which occur between

The Balance Sheet date

&
The date on which the financial
statements are approved

Events Occurring after Balance

Sheet Date =
i) Adjustment to Assets and
Liabilities
ii) or, disclosure

Loss due to bad debt which is confirmed by

insolvency of debtor which occurs after BS
date. The party was showing weak financial
position upto BS date.
Proposed Dividend, even though declared
after the BS date, require adjustment
because of statutory requirements.
Destruction of entire Plant & Machinery.
Going Concern impaired

disclosure
Fall in the market value of
investments
Destruction of Plant & Machinery
Going Concern Assumption not
impaired

ACCOUNTING STANDARD-9
REVENUE RECOGNITION
Recognising revenue arising in the
course of the ordinary activities of the
enterprise
The sale of goods.
The rendering of services.
The use by others of enterprise
resources yielding interest, royalties
and dividends.

CONDITIONS:
The property in goods is transferred for a price.
All significant risks and rewards have been
transferred and no effective control is retained.
No significant uncertainty exists regarding the
amount of consideration.
It is reasonable to expect ultimate collection of
consideration.

Service is recognised either on completed

service or proportionate completion method.

No, significant uncertainty exists regarding

amount of consideration.

It is reasonable to expect ultimate collection

of consideration.

When recognition of revenue is postponed due

to the effect of uncertainties, an enterprise
should disclose the circumstances in which
revenue recognition has been postponed.

AS-11-ACCOUNTING FOR THE EFFECTS OF

CHANGES IN FOREIGN EXCHANGE RATES.

ACCOUNTING FOR TRANSACTIONS

IN FOREIGN CURRENCIES.
TRANSLATING THE FINANCIAL
STATEMENTS OF FOREIGN
OPERATIONS

DOES NOT APPLY ON CASH FLOW

STATEMENTS
DOES NOT DEAL WITH EXCHANGE
DIFFERENCES RELATING TO INTEREST
ON FOREIGN CURRENCY BORROWINGS
Issues:
WHICH EXCHANGE RATE TO USE.
FINANCIAL EFFECT OF CHANGES IN
EXCHANGE RATES.

AS PER EXCHANGE RATE AT THE

DATE OF TRANSACTION .
AVERAGE RATE IF NOT TOO MUCH
FLUCTUATION.

 MONETARY ITEMS

TO BE RESTATED AT CLOSING
RATE

FOREIGN CURRENCY NOTES

BALANCE IN FOREIGN
CURRENCY BANK A/CS
RECEIVABLES/ PAYABLES
FOREIGN CURRENCY LOANS

NON MONETARY ITEM h AT HISTORICAL COST - RATE OF DATE OF

TRANSACTION

h AT FAIR MARKET - AT CLOSING RATE VALUE

Example
TRANSACTION
CLOSING
DATE @ 53/DATE@ 65/PURCHASES DR.$1000 53,000
65,000 INVENTORY
TO PAYABLE $ 1000 53,000
65,000

PROFIT & LOSS A/C

PURCHASES
65,000

53,000

VALUE OF
CLOSING STOCK

EXCHANGE
FLUCTUATION

12,000

BALANCE SHEET
PAYABLES
65,000

65,000

CLOSING
STOCK

IFRS AN OVERVIEW

APPLYING
INTERNATIONAL FINANCIAL REPORTING STANDARDS

To encourage the development of IFRS as

a uniform global standard through which
all global companies will communicate
with their stakeholders , not a divergent
set of standards applied differently in
every nation.
Adoption or convergence is no longer a
debate . Convergence may be the last
option if a nation is constrained by very
divergent economic reasons.

Learning Objective : Creating general awareness about

IFRSs
IAS -1 Presentation of Financial Statements is a
foundation standard that explains basic accounting and
financial reporting principles and style of presentation.
A complete set of Financial Statements comprise of :
A Statement of Financial Position as at the end of the
year;
A Statement of Comprehensive Income for the period;
A Statement of Changes in Equity for the period;
A Statement of Cash Flows for the period;
Notes comprising of a summary of significant accounting
policies and other explanatory information ;
A statement of financial position as at the beginning of
the earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when
it reclassifies items in its financial statements. [ Para 10,
IAS-1]

IFRS based financial statements are

presented on the basis of IFRSs which
comprise of :
International Financial Reporting Standards
International Accounting Standards and
Interpretations originated by the International
Financial Reporting Interpretations
Committee( IFRIC) and the former Standing
Interpretations Committee ( SIC).

IFRSs> 8 +..in numbers

IASs> 38 +in numbers
IFRIC= ABOUT 17 + IN NUMBER
IFRIC 13 Customer Loyalty
Programmes: Guides on accounting
for award credit granted to the
customers by an entity.

 SIC : Standard interpretation..11+ in number

10 Government Assistance No Specific Relation
to Operating Activities :Explains accounting
treatment of Government Grants directed to
encourage operation in a particular industry or
grant to start a business in undeveloped areas
but not linked to operating activities.
SIC 32 Intangible Assets Website Costs
=Explains accounting treatment of web site
development costs.

International Financial Reporting

Standards
IFRS 1 First Time
Adoption of
International Financial
Reporting Standards
IFRS 2 Share - based
Payment
IFRS 3 Business
Combinations
IFRS 4 Insurance
Contracts

IFRS 5 Non current

Assets Held for Sale
and Discontinuing
Operations
IFRS 6 Exploration for
and Evaluation of
Mineral Resources
IFRS 7 Financial
Instruments :
Disclosures
IFRS 8 Operating
Segment

International Accounting
Standards
IAS 1 Presentation of
Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash
Flows
IAS 8 Accounting
Policies, Changes in
Accounting Estimates
and Errors
IAS 10 Events after the
Reporting Period
IAS 11 Construction
Contracts

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

International Accounting
Standards
IAS 29 Financial
IAS 23 Borrowing
Costs
IAS 24 Related Party
Disclosures
IAS 26 Accounting and
Reporting by
Retirement Benefit
Plans
IAS 27 Consolidated
and Separate Financial
Statements
IAS 28 Investments in
Associates

Reporting in
Hyperinflationary
Economies
IAS 31 Interests in
Joint Ventures
IAS 32 Financial
Instruments :
Presentation
IAS 33 Earnings per
Share
IAS 34 Interim
Financial Reporting

International Accounting
Standards
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

International Valuation Standards

International Valuation Standards Committee
( IVSC) has issued :
International Valuation Standards ( IVS 1-3)
International Valuation Applications (IVA 1-3) and
Guidance Notes ( GN 1-15)

In the context of fair value

measurement , these standards have
relevance.

Fair value measurement

Fair value is the amount for which an
asset could be exchanged or a liability
settled between knowledgeable, willing
parties in an arms length transaction
Fair value has been introduced in IFRS
as
A means of putting a value on an
incomplete transaction
A measurement attribute for subsequent
measurement in a number of significant
standards

Fair value measurement

Fair value is the amount for which an
asset could be exchanged or a liability
settled between knowledgeable, willing
parties in an arms length transaction
Fair value has been introduced in IFRS
as
A means of putting a value on an
incomplete transaction
A measurement attribute for subsequent
measurement in a number of significant
standards

The IASBs mixed-attribute

model
In IFRS, fair value accounting has come to
complement historical cost accounting in
several domains
Main fair value requirements:
IFRS 3 Business Combinations
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
IAS 39 Financial Instruments: Recognition and
Measurement
IAS 40 Investment Property
IAS 41 Agriculture

CORE PRINCIPLES
IDENTIFY THE PARTICULAR ASSET/LIABILITY
THAT IS THE SUBJECT OF MEASUREMENT
VALUATION PREMISE FOR AN ASSET-ITS
HIGHEST & BEST USE
MOST ADVANTAGEOUS MARKET orderly
transaction(transaction costs are included for
identifying advant. Market and not for fair value)
APPROPRIATE MEASAUREMENT MECHANISMCONSIDERING THE AVAILABLE DATA

 In-use and in-exchange valuation

premises
- Financial assets.in-exchange
value.for other assets..both
methods are allowed.
FAIR VALUE OF LIABILITIES-MARKET
PRICE OR NPV
VALUATION TECHNIQUES

Basic Financial Instruments

Related standards
IAS 32, IAS 39 and IFRS 7
IFRS financial statement disclosures-IFRS 1
IN THE USA
FAS 115 Accounting for Certain Investments in Debt and Equity Securities
FAS 130 Reporting Comprehensive Income
FAS 133 and 138 Accounting for Derivative Instruments and Hedging
Activities
FAS 140 and 156 Accounting for the Transfer and Servicing of Financial
Assets and Extinguishment of Financial Liabilities
FAS 150 Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity
FAS 155 Accounting for Certain Hybrid Financial Instruments
FAS 157 Fair Value Measurements
FAS 159 The Fair Value Option for Financial Assets and Financial Liabilities
37

 The framework for accounting for financial

instruments is laid out in three standards as
follows:
IAS 32, which deals with presentation from
the perspective of the issuer (only)
IAS 39, which deals with measurement and
recognition of financial assets and financial
liabilities
IFRS 7, which deals with disclosures
IAS 1 deals with financial statement
presentation (including comprehensive income)
38

According to IAS 32.11,

A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity

The majority of items on the balance sheets of many

companies are financial instruments

Some exceptions are:

Inventories
Prepaids
Property, plant, and equipment

39

40

Financial assets, liabilities, and equity instruments are defined

in IAS 32

A financial asset is
(a) cash
(b) an equity instrument (of another entity) or
(c) a contractual right to receive cash (or another financial asset)
or to exchange financial assets or financial liabilities under
conditions that are potentially favorable

An equity instrument is a contract that represents a residual

interest in the net assets of the company

A financial liability is basically a contractual obligation to

deliver cash (or another financial asset) or to exchange financial
assets or financial liabilities under conditions 41
that are potentially

Recognition and
Derecognition
INITIAL RECOGNITION

Financial instruments should be recognized when the entity

becomes a party to the contract

When financial instruments are initially recognized, they must be

classified as one of the following (which are defined in IAS 39.9):
1.
2.
3.
4.

Financial assets at fair value through profit or loss (FVTPL)

Held to maturity investments (HTM)
Loans and receivables
Available for sale financial assets (AFS)

The classification is important because it dictates how the

asset/liability will be measured going forward and where the profits
and losses will be booked
42

Recognition and
Derecognition
Financial Assets at Fair Value through Profit or Loss
(FVTPL)

Under IAS 39.9, FVTPL assets/liabilities are either held for

trading (HFT) or designated as FVTPL by the entity

Instruments may be classified as HFT if they:

Are acquired with the intent to sell or repurchase in the near
term,
Are part of a portfolio of instruments that are managed
together to
maximize profits, or
Are derivatives (other than financial guarantee contracts or
designated
and effective hedging instruments)

43

In other words, the instruments are traded for profit

IFRS 3 BUSINESS
COMBINATIONS

 The objective of this IFRS is to specify the

financial reporting by an entity when it
undertakes a business combination.
A business combination is the bringing
together of separate entities or businesses
into one reporting entity. The result of nearly
all business combinations is that one entity,
the acquirer, obtains control of one or more
other businesses, the acquiree. If an entity
obtains control of one or more other entities
that are not businesses, the bringing
together of those entities is not a business
combination.

Core principle
An acquirer of a business recognises the assets acquired
and liabilities assumed at their acquisition-date fair values
and discloses information that enables users to evaluate the
nature and financial effects of the acquisition.
The IFRS requires the acquirer to disclose information that
enables users of its financial statements to evaluate the
nature and financial effect of business combinations that
occurred during the current reporting period or after the
reporting date but before the financial statements are
authorised for issue. After a business combination, the
acquirer must disclose any adjustments recognised in the
current reporting period that relate to business
combinations that occurred in the current or previous
reporting periods.

Objective
The objective of this IFRS is to improve the relevance,
reliability and comparability of the information that a
reporting entity provides in its financial statements about a
business combination and its effects. To accomplish that,
this IFRS establishes principles and requirements for how
the acquirer:
(a) recognises and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree;
(b) recognises and measures the goodwill acquired in the
business combination or a gain from a bargain purchase;
and
(c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and
financial effects of the business combination.

Scope
This IFRS applies to a transaction or other event that meets the
definition of a business combination. This IFRS does not apply to:
(a) the formation of a joint venture.
(b) the acquisition of an asset or a group of assets that does not
constitute a business.
In such cases the acquirer shall identify and recognise the
individual identifiable assets acquired (including those assets that
meet the definition of, and recognition criteria for, intangible
assets in IAS 38 Intangible Assets) and liabilities assumed. The
cost of the group shall be allocated to the individual identifiable
assets and liabilities on the basis of their relative fair values at the
date of purchase. Such a transaction or event does not give rise to
goodwill.
(c) a combination of entities or businesses under common control

Identifying a business
combination
An entity shall determine whether a
transaction or other event is a business
combination by applying the definition in
this IFRS, which requires that the assets
acquired and liabilities assumed constitute a
business. If the assets acquired are not a
business, the reporting entity shall account
for the transaction or other event as an
asset acquisition. If goodwill is present in
transferred set of activities and Assets, the
transferred set shall be presumed as
business combination