SHIVAJIUNIVERSITY,KOLHAPURCENTREFORDISTANCEEDUCATIONAdvancedAccountancyPaper
- IM.Com.Part-ISemester-I(From Academic Year 2013-14)H IK
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Unit 1Introduction to Accounting Standards Meaning, objectives and
need of Accounting Standards, Introduction to IFRS, Distinction
between Indian GAAPs and IFRS. Objectives : After studying this
unit you should be able
1.Tounderstandthemeaning,objectivesandneedoftheAccounting
Standards. 2.To understand the concept and meaning of IFRS and
various IFRS 3.To understand the difference between Indian GAAPs
and IFRS Structure : 1.1Introduction to Accounting Standards.
1.2Meaning of Accounting Standards 1.3Objective and Need of
Accounting Standards 1.4Advantages of Accounting Standards
1.5Limitations of Accounting Standards 1.6Steps involved in setting
of Accounting Standards 1.7List of Accounting Standards
1.8Applicability of Accounting Standards 1.9Accounting Standards
Board (ASB) 1.10National Advisory Committee on Accounting Standards
(NACS) 1.11International Financial Reporting Standards (IFRS)
1.12Generally Accepted Accounting Principles (GAAPs)
1.13Distinction between Indian GAAPs and IFRs 1.14Summary 1.15Key
Terms 1.16Self Assessment Questions 1.17Further Readings
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1.1 INTRODUCTION TO ACCOUNTING
STANDARDSTheAccountingStandardsBoard(ASB)oftheInstituteofChartered
AccountantsofIndia('ICAI')wasconstitutedon21April,1977,toformulate
AccountingStandardsapplicabletoIndianenterprises.Initially,theAccounting
StandardswererecommendatoryinnatureandgraduallytheAccounting
Standardsweremademandatory.[ThelegalrecognitiontotheAccounting
StandardswasaccordedforthecompaniesintheCompaniesAct,1956,by
introductionofSection211(3C)throughtheCompanies(Amendment)Act,1999,
TheGovernmentofIndia,MinistryofCompanyAffairs(nowMinistryofCorporate
Affairs) notified Accounting Standards in Companies (Accounting
Standards) Rules,
2006byNotificationNo.G.S.R.739(E),dated7December,2006,prescribing
AccountingStandards1to7and9to29asissuedbyICAI.Italsoissued
Companies(AccountingStandards)AmendmentRules,2008bynotificationno.
G.S.R.No.212(E),dated27March,2008makingsomemodificationsinexisting
rulessoastoharmonizethemwithaccountingstandardsissuedbyICAI].These
standards are applicable to preparation of generalpurpose financial
statements for
accountingperiodscommencingonorafter7thDecember,2006.Itmaybe
mentionedthattheAccountingStandardsnotifiedbytheGovernmentarevirtually
identicalwiththeAccountingStandards,readwiththeAccountingStandards
Interpretations, issued by ICAI. 1.2 MEANING OF ACCOUNTING
STANDARDS -
AccountingStandardsarewrittenpolicydocumentsissuedbyexpert
accounting body or Government orother regulatory body. Accounting
Standards in India are issued by the ICAI and prescribed by Central
Government in consultation
withtheNationalAdvisoryCommitteeonAccountingStandards(NACASs).The
NACASisconstitutedundersection210A(1)oftheCompaniesAct,1956.
AccountingStandardsarethewrittenpolicydocumentscoveringtheaspectsof
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recognition,measurement,treatment,preparationanddisclosureofaccounting
transactionsinthefinancialstatements.TheAccountingStandardsaredevisedto
furnish useful information of financial statements to its users.
1.3 OBJECTIVE AND NEED OF ACCOUNTING STANDARDS
1.Tostandardizedifferentaccountingpoliciesandpracticesinorderto
eliminate, to the possible extent the non-comparability of
financial statements and to improve the reliability of the
financial statements.
2.Toprovidestandardaccountingpolicies,valuationnormsanddisclosure
requirements. 3.To bring uniformity in recording the transactions
and preparation of financial statements.
4.Toeliminateconfusionaboutinformationpresentedthroughthefinancial
statements. 5.To bring constancy in accounting and presentation of
financial results.
TheInstituteofCharteredAccountantsofIndia,recognizingtheneedto
harmonise the diverse accounting policies and practices,
constituted an ASB on 1st April, 1977. This board has been
formulating the Accounting Standards applicable to
Indianenterprises.Initially,theAccountingStandardswererecommendatoryin
natureandgraduallytheAccountingStandardsweremademandatory.These
standards are applicable to preparation of general purpose
financial statements.
1.4ADVANTAGESOFACCOUNTINGSTANDARDS-thesettingofaccounting standards
have following advantages.
1.Thestandardreducesoreliminatesconfusingvariationintheaccounting
treatment used to prepare financial statements.
2.Accountingstandardsmayevencallfordisclosureofcertaininformation
which, may not be required by law. Such information might be useful
for the general public, investors and creditors.
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3.Itenablescomparisonoffinancialstatementsofdifferentcompanies
national and/or multi-national. 1.5 LIMITATIONS OF ACCOUNTING
STANDARDS-1.Theremaybetrendtowardsrigidityandawayfromflexibilityinapplying
accounting standards.
2.Differenceinaccountingstandardsacrossthecountries
makesitdifficultto compare accounting statements of companies
situated in different
countries.3.Theaccountingstandardsmaynotoverridethelaw.Therefore,the
accounting standards are to set as permitted by law. 1.6 STEPS
INVOLVED IN SETTING OF ACCOUNTING STANDARDS
Broadly,thefollowingstepsareadoptedinformulatingAccounting
Standards-
1.ToDeterminetheArea-InthefirstinstancetheASBdeterminesthe area in
which the accounting standard needs to be formulated. 2.Formation
of Study Group- A study group is constituted to assist ASB in
formulation of Accounting Standard. The group consists of members
of ICAIandotherexperts.Thegroupprepareprimarydraftofthe accounting
standards.
3.HolddialogueandConsiderViews-TheASBholdsdialoguewiththe
representativesofGovernment,publicsectorundertakings,industries and
other organizations to consider their views in regards to formation
of accounting standards.
4.PreparationofDraft-Onthebasisoftheworkofthestudygroupand
viewsofvariousexpertsreferredtoabove,adraftofproposed
accountingstandardisprepared.Thedraftincludesthefollowingbasic
points.
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a.Astatementofconceptsandfundamentalaccountingprinciples relating
to the standard. b. Definitions of the terms used in the standard.
c.The manner in which the accounting principles have been applied
for formulating the standard.
d.Thepreparationanddisclosurerequirementsincomplyingwith the
standard. e.The class of enterprises to which the standard will
apply. f.Date from which the standard will be effective.
5.IssueofDraftforComments-Thedraftofproposedaccounting
standardisissuedforcommentsbythemembersoftheICAIandthe
publicatlarge.Generally,thedraftisissuedtothebodieslikeFICCI, CLB,
C & AG, ICWAI, ICSI, CBDT etc. 6.Finalisation of the Draft-
After considering the comments received from the members of the
institute, different bodies and the public, the draft of the
proposed accounting standard is finalized byASB. This final draft
is sent to the Council of the ICAI.
7.IssueofAccountingStandard-TheCounciloftheinstituteconsiders the
final draft of the proposed standard. If need be, the draft is
modified in consultation with ASB. Then the standard is issued
under the authority of the Council.
AtpresenttheICAIhasissued32AccountingStandards(ASs).However,
AS-8onResearchandDevelopmentiswithdrawntoincludeinAS-26on
Intangible Assets. Thus, effectively there are 31Accounting
Standards at present,
outofwhich,AS-30,31and32arerecommendatory.Followingisthelistof
Accounting Standards.
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Table 1: LIST OF ACCOUNTING STANDARDS AND DATE OF APPLICATION AS.
No. Accounting Standard Datefromwhich made mandatory1Disclosure of
Accounting Policies1.4.1983 2Valuation of Inventories
(Revised)1.4.1999 3Cash Flow Statement (Revised)1.4.2001
4ContingenciesandEventsOccurringafterthe Balance Sheet Date
1.4.1998 5NetProfit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies (Revised) 1.4.1996 6Depreciation
Accounting (Revised)1.4.1995 7Construction Contract
(Revised)1.4.2002 8Research & DevelopmentIncluded in AS 26
9Revenue Recognition1.4.1993 10Accounting for Fixed Assets1.4.1993
11The Effects of Changes in Foreign Exchange Rates (Revised)
1.4.2004 12Accounting for Government Grants1.4.1994 13Accounting
for Investments1.4.1995 14Accounting for Amalgamations1.4.1995
15Employees Benefits1.4.2006 16Borrowing Costs1.4.2000 17Segment
Reporting1.4.2001 18Related Party Disclosures1.4.2001
19Leases1.4.2001 20Earnings Per Share1.4.2001 21Consolidated
Financial Statements1.4.2001 22Accounting for Taxes on
Income1.4.2006 23AccountingforinvestmentsinAssociatesin
Consolidated Financial Statements 1.4.2002 24Discontinuing
Operations1.4.2004 25Interim Financial Statements1.4.2002
26Intangible Assets1.4.2003 27Financial Reporting of Interests in
Joint Ventures1.4.2002 28Impairment of Assets 1.4.2008 29Provision,
Contingent liabilities and Contingent Assets 1.4.2004 30Financial
Instruments: Recognition and Measurement (Recommendatory) 1.4.2009
31Financial Instruments: Presentation (Recommendatory) 1.4.2009
32Financial Instruments : Disclosure (Recommendatory) 1.4.2009
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1.8Applicability of Accounting Standards For the purpose
ofapplicability of accounting standards, enterprisesare classified
into three categories. -Level I enterprises -Level-II enterprises
-Level III enterprises 1.8.1Level-IEnterprises: Theenterpriseswhich
fallinanyoneor moreofthe following categories are classified as
level-I enterprises. a.Enterprises whose equity or debt securities
are listed or in the process of listing either in India or outside
India.
b.Banksincludingco-operativebanks,financialinstitutionsorentitiescarryingan
insurance business.
c.Allcommercial,industrialandbusinessreportingenterprises,whoseturnover
(excludingotherincome)exceedsRs.50croreinimmediatelypreceding
accounting year. d.All commercial, industrial and business
reporting enterprises having borrowings,
includingpublicdeposit,inexcessofRs.10croreatanytimeduringthe
accounting year.
e.Holdingsubsidiaryenterprisesofanyoneoftheaboveatanytimeduringthe
accounting period. All AS from 1-29 are applicable in full to these
enterprises. 1.8.2Level II Enterprises :The enterprises which are
not level-I enterprises but
fallinanyoneormoreofthefollowingcategoriesareclassifiedaslevel-II
enterprises. a.All commercial industrial and business reporting
enterprises whose turnover for immediately preceding accounting
period on the basis of audited financial
statementsexceedsRs.40lakhsbutdoesnotexceedRs.50crores (excluding
other incomes).
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b.Allcommercial,industrialandbusinessreportingenterpriseshaving
borrowings,includingpublicdeposits,inexcessofRs1crorebutdoesnot
exceed Rs 10 Crore at any time during the accounting period.
c.Holdingandsubsidiaryenterprisesofanyoneoftheaboveatanytime during
the accounting period. AS 3 and 17 are fully exemptedAS 15,19, 20,
28, 29 are partly exempted,AS 21,23, 25, 27 are not applicable due
to legal reason.All other are fully applicable
1.8.3LevelIIIEnterprises:theenterpriseswhicharenotcoveredunderlevel-Iand
Level-II are considered as level-III enterprises. Applicability of
accounting standards to these enterprises is as under- AS 03, 17,
18, 24 are fully exemptedAS 15, 19, 20, 28, 29 are partly
exemptedAS 21, 23, 25 & 27 are not applicable due to legal
reasonsAll other are applicable in full. 1.9Accounting Standards
Board (ASB)
TheAccountingStandardsBoardofICAIwasestablishedon21stApril,
1977.ThisBoardhaslodgedwiththeresponsibilitytoestablishAccounting
Standards applicable to Indian enterprises. The ASB gave adequate
representation
toalltheinterestedparties.Atpresentthereare48memberontheAccounting
Standard Board, representing different parties. Following is the
composition of ASB. 1.9.1Composition of ASB : a)Members of the
council of Institute of Chartered Accountants of India.
b)Representatives of a.Industry bCompany law board cCBDT dCAG
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eCentral Board of Excise and Customs fFICCI gASSOCHAM hCII iICWAI
(Presently named as the Institute of Cost Accountants ICAI) jRBI
kIDBI lSEBI mIIM nUGS and oICSI 1.10National Advisory Committee on
Accounting Standards
(NACAS)InadditiontoICAI,NACASalsoissuestheaccountingstandardsinIndia.
TheinterpretationsgivenbyNACASareasexplanation.NACASisacommittee
constitutedbyCentralGovernment(undersection210A(1)ofCompaniesAct,
1956)onformulationofAccountingStandardsandPoliciesforadoptionof
companies or class ofcompanies specified. 1.10.1CONSTITUTION OF
NACASa)AChairpersonwhoshallbepersonofwellversedinaccountancy,
finance, business administration, business law, ethics and
governance. b)One member from ICAI, from ICWA, from ICSI
c)OnerepresentativeofCentralGovernment,RBI
