DISCLOSURE ACCOUNTING STANDARDS AS-1, AS-4, AS-20 AND AS-24

CA R.C ThakkarM.Com, LLB, FCA

E-mail : rcthakkarca@gmail.comMobile : 9879447009

PLETHORA OF ACCOUNTING STANDARDS :

Accounting Standards (AS) issued by ICAI.

Accounting Standards notified under Companies Accounting Standard Rules,2006.

International Accounting Standards (IAS)

International Financial Reporting Standards (IFRS)

Converged Indian Accounting Standards (Ind AS) hosted on the website of MCA.

APPLICABILITY OF ACCOUNTING STANDARDS: (ICAI)

All Enterprises classified into Level I, II and III enterprises for the purpose of Applicability of Accounting Standards.

Level I enterprises are required to comply fully with all the accounting standards.

Level II and Level III enterprises are considered as SMEs and they have been given certain relaxations and exemptions from the compliance of certain AS or part thereof.

LEVEL I ENTERPRISES :

Enterprises which fall in any one or more of the following categories, at any time during the accounting period:

(i) Enterprises whose equity or debt securities are listed whether in India or outside India.

(ii) Enterprises, which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard.

(iii) Banks including co-operative banks, Insurance Cos. and Financial institutions.

(iv) Entities whose turnover exceeds Rs.50 Cr. Or Borrowings exceed Rs.10 Cr. in the immediate preceding P.Y.

LEVEL II ENTERPRISES :

(i) All commercial, industrial and business enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 40 lakhs but does not exceed Rs. 50 crores. Turnover does not include ‘other income’.

(ii) All commercial, industrial and business enterprises having borrowings, including public deposits, in excess of Rs. 1 crore but not in excess of Rs. 10 crores at any time during the accounting period.

(iii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

LEVEL III ENTERPRISES :

Enterprises, which are not covered under Level I and Level II, are considered as Level III enterprises.

CERTAIN AS – NOT TO APPLY TO LEVEL II AND LEVEL III ENTERPRISES:

AS-3 CASH FLOW STATEMENTS AS-17 SEGMENT REPORTING AS-18 RELATED PARTY DISCLOSURES AS-21 CONSOLIDATED FINANCIAL STATEMENTS AS-23 ACCOUNTING FOR INV. IN ASSOCIATES AS-24 DISCOTINUING OPERATIONS AS-25 INTERIM FINANCIAL REPORTING AS-27 FIN. REPORTING OF INTEREST IN JV

APPLICABILITY OF AS TO COMPANIES

Applicability of AS to Companies is governed by Companies’ AS Rules,2006….as amended…

ICAI Classification of Level I, II and III not relevant for Cos.

Certain Exemptions and Relaxations granted to Small & Medium Companies (SMC).

COMPANIES’ AS RULES,2006:

SMC defined in Rule 2(f) : Company which satisfies the following five conditions as at the end of A/c. Period :

(a) Co. whose equity-debt-securities are not listed and not in the process of listing on any Stock Exchange in India/Outside India

(b) Co. which is not a Bank or FI or Insurance Co. (c) Co.’s turnover excluding other income does not

exceed Rs.50 crores in the immediately preceding previous year.

(d) Co. which does not have borrowing (including public deposits) exceeding Rs.10 Crores at any time during the immediately preceding accounting year and,

(e) The Co. is not a holding or subsidiary co. of a Non-SMC Company.

APPLICABILITY OF AS TO COMPANIESAccounting Standard

Title of the ASApplicability and

Exemption to SMC

AS - 1 Disclosure of Accounting Policies ALL

AS - 2 Valuation of Inventories ALL

AS - 3 Cash flow StatementsLEVEL-I

AND NON-SMC

AS - 4Contingencies and Events Occurring After the Balance Sheet Date

ALL

AS - 5Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

ALL

AS - 6Depreciation Accounting

ALL

AS - 7 Construction Contracts ALL

APPLICABILITY OF AS TO COMPANIESAccounting Standard

Title of the ASApplicability and

Exemption to SMC

AS – 9 Revenue Recognition ALL

AS – 10 Accounting for Fixed Assets ALL

AS – 11The Effects of Changes in Foreign Exchange Rates

ALL

AS – 12 Accounting for Government Grants ALL

AS – 13 Accounting for Investments ALL

AS – 14 Accounting for Amalgamations ALL

AS - 15

Accounting for Retirement Benefits in the Financial Statements of Employers Employees Benefits (Revised 2005)

ALL PARTIAL

APPLICABLE TO SMC

APPLICABILITY OF AS TO COMPANIESAccounting Standard

Title of the ASApplicability and

Exemption to SMC

AS – 16 Borrowing Costs ALL

AS - 17 Segment ReportingLEVEL-I

AND NON-SMC

AS - 18 Related Party DisclosuresLEVEL-I

AND ALL COS.

AS - 19 LeasesALL AND

PARTIAL TO SMC

AS - 20 Earnings Per Share LEVEL-I AND ALL COS. BUT PARTIAL TO SMC

AS – 21 Consolidated Financial Statements ALL COMPANIES

AS - 22 Accounting for Taxes on Income ALL

APPLICABILITY OF AS TO COMPANIESAccounting Standard

Title of the ASApplicability and

Exemption to SMC

AS - 23Accounting for investments in associates in Consolidated Financial Statements

ALL COS.

AS - 24 Discontinuing OperationsLEVEL I - AND

ALL COMPANIES

AS – 25 Interim Financial Reporting ALL

AS - 26 Intangible Assets ALL

AS - 27 Financial Reporting of Interests in Joint Ventures ALL

AS - 28 Impairment of AssetsALL BUT

PARTIAL TO SMC

AS - 29 Provisions, Contingent Liabilities and Contingent Assets

ALL BUT PARTIAL TO SMC

ACCOUNTING STANDARD-1

DISCLOSURE OF ACCOUNTING POLICIES

ACCOUNTING STANDARD-1 AS-1 is proposed to be revised. Exposure Draft for Revised AS-1 has been issued

and it was open for comments up to September 02, 2013.

The name of the newly Revised AS-1 shall be “Presentation of Financial Statements”.

AS-1 is proposed to be revised in view of the Revised Schedule VI requiring current and non-current classification of assets and liabilities and also due to significant changes in IAS-1.

The scope of Revised AS-1 is much wider and it not only includes Disclosure of A/c. Policies but various aspects of Presentation of Fin. Statements.

AS-1 DISCLOSURE OF A/C. POLICIES

It deals with the disclosure of significant accounting policies adopted in the preparation and presentation of financial statements.

The view presented in the financial statements of an enterprise of its financial position and its profit or loss can largely be impacted by the accounting policies followed in the preparation and presentation of its financial statements.

The accounting policies followed may vary from enterprise to enterprise and from year to year.

AS-1 INTRODUCTION (CONTD.)

Disclosure of Significant Accounting Policies is necessary if the view presented by the financial statements is to be properly appreciated and understood.

Disclosure of Some of the Accounting Policies

is required by law e.g. AS-2 Valuation of Inventories.

ICAI also recommends the Disclosure of certain Accounting Policies like Translation of Policies in respect of Foreign Currency Transactions.

AS-1 INTRODUCTION (CONTD.) The nature and degree of Disclosure of

Accounting Policies may vary considerably between the Corporate and Non-Corporate Sector and between the units in the Same Sector.

Many enterprises include in the Notes on the Accounts the descriptions of some of the accounting policies.

The purpose of this Standard is to promote better understanding of financial statements by encouraging the proper disclosure of significant accounting policies followed in their preparation.

It would also facilitate more meaningful comparison of financial statements of different enterprise.

AS-1 DISCLOSURE OF A/C.POLICIES :

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.

AS-1 DISCLOSURE OF A/C.POLICIES :

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.

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

AS-1 DISCLOSURE OF A/C.POLICIES :

16. 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 or loss for the period ended on that date.

17. Major considerations governing the selection and application of accounting policies are:—

(a) Prudence e.g. Collectability of Receivables (b) Substance over Form e.g Hire Purchase and, (c) Materiality.

AS-1 DISCLOSURE OF A/C.POLICIES :

14. The following are examples of the areas in which different accounting policies may be adopted by different enterprises :

(a) Methods of depreciation, depletion and amortisation (b) Treatment of expenditure during construction period (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.

15. The above list of examples is not intended to be exhaustive.

ACCOUNTING STANDARD-4

CONTINGENCIES AND EVENTS OCCURING AFTER

BALANCE SHEET DATE

CONTINGENCIES

  A Contingency is a condition or situation, the

ultimate outcome of which, gain or loss, will be known or determined only on the occurrence, or non-occurrence, of one or more uncertain future events.

However now contingencies are no more dealt with by Accounting Standard – 4 after coming into force of Accounting Standard – 29 on Provisions, Contingent Liabilities and Contingent Assets (except provision for Bad & Doubtful Debts).

EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

This are events, favourable or

unfovourable which occur between

The Balance Sheet date

&

The date on which the financial

statements are approved by the

approving authority.

Events Occurring after Balance Sheet Date

Events provide further evidence of

circumstances & conditions existing on

balance sheet date.

Adjusting Event

Events do not provide any further evidence of

circumstances & conditions existing on balance sheet date.

Non Adjusting Event

EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

These events require the restatement of

financial statements.

Examples:-

Insolvency of debtors,

Judgment of pending law suite,

Retrospective changes in government

regulation,

Proposed Dividend (proposed or declared after

the Balance Sheet Date)

ADJUSTING EVENTS

These events are non-adjusting in nature & hence financial statement should not be restated.

If it is material then disclosure should be provided in notes to account

&

If it is a routine event then even disclosure is not required.

Examples:- Loss caused by fire or theft, Decline in Market Value of Investments, Fluctuations in exchange rate, Prospective changes in government regulations, Mergers, Demergers, Discontinuing operations or any other form of corporate restructuring.

NON-ADJUSTING EVENTS

Events occurring after the balance sheet date should not be so significant that the fundamental accounting assumption of going concern becomes invalid……. In such a situation, the assets & liabilities should be restated at their liquidation value.

An event occurs after balance sheet date and also after the approval of financial statements then such an event can neither be reflected in financial statements nor in notes to accounts. However such an event if material… then it should be disclosed in directors report.

EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

AS-4 has been revised & its title has been changed simply to “Events Occurring After The Balance Sheet Date”.

A major change between existing AS-4 & revised AS-4 is in the treatment of Proposed Dividend. Existing AS-4 considers proposed dividend as an adjusting event while revised AS-4 considers it to be a non adjusting event.

However revised AS-4 is still not notified under the companies act. Hence company has to follow existing AS-4.

LATEST DEVELOPMENTS

ACCOUNTING STANDARD-20

EARNINGS PER SHARE

AS-20 EARNINGS PER SHARE

AS-20 came into effect in respect of accounting periods starting from 01.04.2001 and is mandatory in nature.

Limited Revision has been made to this standard in 2004. Para 48 and 51 relating to disclosure requirements have been revised in 2004.

Presently, limited revision to the Standard is proposed. Exposure Draft relating to the limited revision to the standard has been published by ICAI in May,2013.

AS- 20 EARNINGS PER SHARE Objective of the AS :

To prescribe principles for determination and presentation of EPS which will improve comparison of performance among different enterprises or different accounting periods.

Scope and Applicability : The Standard applies to all enterprises whose equity shares or potential equity shares are listed on a recognized stock exchange in India.The Standard also applies to all the companies whether their equity shares are listed or not.

AS-20 EPS PRESENTATION An Enterprise should present basic and

diluted EPS on the face of the Profit & Loss Statement for each class of equity shares.

An Enterprise should present basic and diluted EPS with equal prominence for all the periods.

AS requires the Enterprise to disclose basic and diluted EPS even if the amounts disclosed are negative i.e. Net Loss per Share.

In consolidated financial statements, the information relating to basic and diluted EPS should be presented on the basis of consolidated information.

BASIC AND DILUTED EARNINGS PER SHARE

Basic Earnings Per Share :

Net Profit / Loss for the Period Attributable to Equity Share Holders (After Tax and Pref. Dividend)

= -------------------------------------------------------- Weighted Average Number of Shares outstanding during the Period (to be adjusted for further issue, bonus, rights

etc.)

BASIC AND DILUTED EARNINGS PER SHARE

Diluted Earnings Per Share :

Net Profit / Loss for the Period Attributable to Equity Share Holders (After adjustment of Diluted Earnings)

= -------------------------------------------------------- Weighted Average Number of Equity

Shares outstanding during the Period (to be adjusted for potential equity shares

Assuming conversion of debt in to equity etc.)

ACCOUNTING STANDARD-24

DISCONTINUING OPERATIONS

Purpose: To establish principles of reporting information about Discontinuing Operations

MEANING OF DISCONTINUING OPERATIONS

Discontinuing operations is a distinguishable

component* of an enterprise representing a

major line** of business or geographical area

of operations, which pursuant to a single

plan*** is to be disposed off entirely or

substantially by way of sale or demerger or

change in ownership or piecemeal sale or by

way abandonment.

*Distinguishable Component- By distinguishable it means it must have an

identity separate from other components of an enterprise. This is necessary to provide operating & financial information.

**Major line- AS-24 is silent on what constitutes a major

line of business or geographical area of operations. Hence, 10% criteria for identifying reportable segment as described in AS-17 can be applied under AS-24.

***Single Plan- Single plan reflects single mindedness on

the part of the enterprise to discontinue an operation.

An enterprises is required to provide disclosure for

discontinuing operations whenever the financial

statements are prepared after the occurrence of Initial

Disclosure Event(IDE).

IDE is earlier of:-

Enterprise enters into a binding contract of sale.

OR

Board of director or similar approving authority

approves a formal plan for discontinuance & makes an

announcement of it.

INITIAL DISCLOSURE EVENT

A) NARRATIVE DISCLOSURES

Followings details should be provided:-

g Description of discontinuing operations.

g Source & nature of initial disclosure event.

g Estimated time period for completion &

disposal of discontinuing operations.

g Name of the party with whom binding contract

of sale has been entered into & negotiated price

(if applicable).

DISCLOSURE REQUIREMENTS OF AS-24

B) QUANTITATIVE DISCLOSURES

Disclosure shall be provided for discontinuing operation as well as continuing operation so that the impact of discontinuing operation measured easily.

PARTICULARS DISCONTINUING OPERATIONS

(`)

CONTINUING OPERATIONS

(`)

TOTAL(`)

Balance Sheet Items

Assets xxxx xxxx xxxx

Liabilities xxxx xxxx xxxx

P & L Items

Revenue xxxx xxxx xxxx

Less: Expenses xxxx xxxx xxxx

Profit Before Tax(PBT)

xxxx xxxx xxxx

Less: Tax xxxx xxxx xxxx

Profit After Tax (PAT)

xxxx xxxx xxxx

DISCLOSURE REQUIREMENTS OF AS-24

CA R.C ThakkarM.Com, LLB, FCA

E-mail : rcthakkarca@gmail.comMobile : 9879447009

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