accounting standards and disclosure requirements
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Accounting Standards and Disclosure Requirements
Session Objectives
To give a brief about the different accounting standards to the participants including the Government Accounting Standards being developed by GASAB;
To discuss the major Accounting Standards of ICAI;
To explain the disclosure requirements in Financial Management
Introduction
Why? To establish rules relating to
recognition, measurement and disclosures for true, fair, transparent and comparable financial statements
What? Set of pronouncement by various
regulatory authorities
Different Accounting Standards Formulated by Accounting Standard
Boards International Accounting Standards by US
Securities & Exchange Commission Australian Accounting Standards by AASB Accounting Standards by ASB, Financial
Reporting Council, UK Indian Accounting Standards formulated by ICAI Indian Government Accounting Standards by
GASAB
Accounting Standards followed in India
ICAI Accounting standards are followed by all the Companies in India including PSUs.
These standards are mostly mandatory for the Companies Disclosures may vary from Company to
Company, depending on their declared accounting policies and subject to the mandatory Accounting Standards.
AS-1Disclosures of Accounting Policies
Disclosures of specific accounting principles and methods of their application in preparation and presentation of financial statements.
Should form part of the financial statements and be disclosed at one place
AS-2Valuation of inventories
Applicable to accounting of inventories other than WIP, stock-in-trade, inventories of livestock, agriculture, forest products and minerals
Inventories are valued at cost or net reliable value whichever is lower; Overheads are absorbed
Financial statements should disclose the accounting policies adopted in measuring
inventories (including cost formula used) Totally carrying amount of inventories with
appropriate classification
AS-3Cash Flow Statements
Enables users to evaluate changes in net assets of an enterprise and its financial structure as well as to effect the amounts and timings of cash flow
Should report Cash flows during the period Classified by operating, investing and
financing activities
AS-4Contingencies and Events occurring after B/S date
Events that occur between the balance sheet date and the date of approval by the Board of Director/corresponding authority.
2 types of events Adjusting those providing further evidence of
conditions on B/S date Adjustments need to be made in the assets and
liabilities Non-adjusting indicative of events arising
subsequent to B/S date
AS-5Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
To prescribe the classification and disclosure of certain items in the statement of profit and loss
Disclosure include Distinct depiction of prior items
under relevant heads
AS-6Depreciation Accounting
Various disclosures required are: Historical/analogous cost for each class
for depreciable asset Total Depreciation for the period for
each class of asset Related accumulated deprecation Depreciation methods Depreciation and written down
values/lives
AS-7Construction Contracts Arises because formulation of a construction
contract and its execution usually fall in different accounting periods
Exception of AS-2 as profit on inventories is recognized in case of construction contracts
Disclosure requirements include: Amount of contract revenue recognizable for the period Methods used to determine the same, Methods used to determine the stage of completion of the
contract Aggregate amount of net profits till date, advances
received, retentions, Balance amounts due to be shown as assets/liabilities
AS-9Revenue Recognition
Recognition of revenue from Sale of goods Rendering of services Interest, royalty, dividend from resources
Not applicable in case of construction, lease-purchase, insurance contracts, government grants and such subsidies;
Disclosure must include Postponement of revenue recognition apart
from significant accounting policies
AS-10
Not applicable in case of forests, livestock, plantations, minerals, real estate development
Disclosures include Gross/net value of fixed assets at the
beginning and end of accounting period with detailed workings
Revaluations, if any
AS-11Effects of Changes in Forex Rates
Recognition of exchange gains losses Treatment of foreign operations Forward exchange contracts for
trading/speculation Disclosure requirements
Amount of exchange differences included in net profit/loss for the period
Accumulation and reconciliation of net exchange differences
AS-12Accounting for Government Grants
Includes subsidies, cash incentives, duty drawbacks
Two approaches Capital approach as part of shareholders’
funds Income approach-Taken into income Disclosure requirements include the
nature and extent of grants recognized in the financial statements and the policy thereto.
AS-13Accounting for Investments
To harmonise the accounting of various kinds of investments
Disclosure requirements include: Carrying amount of investments and
aggregate value of quoted and unquoted investments and accounting policy thereto
Classification of investments Amounts included in P&L A/c Restriction on rights of ownership, reliability
of investments, remittance, etc.
AS-14Accounting for Amalgamations
For amalgamations and resultant goodwill and reserves
Disclosures include All details of amalgamating
companies and amalgamation procedure including sanctions, treatment of shares, value of assets, etc.
AS-15Employee Benefits Required to prescribe the accounting and disclosure
for employee benefit. An enterprise to recognize:(a) A liability when an employee has provided service in
exchange for which employee benefits to be paid in the future; and
(b) An expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.
Disclosure of All details and accounting policies pertaining to defined
benefit plans Actuarial gains/losses Reconciliation of balances, Returns on plan assets Past service costs
AS-16Borrowing Costs
For accounting for borrowing costs including interest, commitment charges, amortisation of discounts etc., finance charges, exchange differences in r/o foreign currency borrowings
Financial Statements to disclose Accounting policy for borrowing costs Amount of borrowing costs capitalised
AS-17Segment Reporting Information regarding different types of
operational products and services of an entity
Disclosure is required Only for reportable segments whose financial
indicators are 10% or more than those of the entire entity
Detailed break up of all indicators Any changes in segmental accounting policies Information on types of
products/services/geographical details Some disclosures are recommendatory
AS-18Related Party Disclosures
Applicable for transactions between the reporting enterprise and it’s related parties
Disclosures include Relations pertaining to control Exact details about the relationships
AS-19Leases
For all assets are leased. Includes Operational Lease, Finance Lease and ‘Sale and Leaseback’
Disclosure requirements to be made by both lessor and lessee
The gross carrying amount Depreciation details Loss and profit details Lease details
AS-20Earnings Per Share (EPS)
Used to assess the profitability of an enterprise
The A.S. deals with determination and presenation of the same
Disclosures include EPS details of each class of share on
face of P&L a/c Also in case of extraordinary
item/class of share
AS-21Consolidated Financial Statements
Applicable for a group of Companies under a common parent
Lays down principles and procedures for preparation and presentation of a consolidated financial statement for the group as a whole to show: Resources, obligations and results of
the group as an entity
Other Accounting Standards (not discussed)
AS22: Accounting for deferred Taxes on Income AS23: Accounting for Investments in Associates AS24: Discontinuing Operations AS25: Interim Financial Reporting AS26: Intangible Assets AS27: Financial Reporting of Interests in Joint
Ventures AS28: Impairment of Assets AS29: Provisions, Contingent Liabilities and
Contingent Assets
Assignment
A7_S20
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