1dr. varadraj bapat module 4. accounting standards, gaap,ifrs
TRANSCRIPT
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Module 4.
Accounting Standards, GAAP,IFRS
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Accounting Principles• For communicating the results of
business to outside world, it should be based on certain uniform and scientifically laid down principles or postulates. (termed as Accounting Standards –discussed earlier)
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•Accounting principles mean “those rules of conduct or procedures which are adopted by accountants universally while recording the accounting transactions”.•To ensure uniformity, clarity and understanding while recording transactions.
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Accounting Concepts Means and includes those basic assumptions or conditions upon which the science of accounting is based.
Important accounting concepts are :
Accounting Concepts
Business Entity Concept :– Entityis different from it’s owner for accounting purposes
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Dual aspect Concept :– Recording simultaneously debits credits- Equities/Capital+ Liabilities =
AssetsCost Concept :– Assets are normally
recorded basis of historical cost i.e. acquisition cost. Market value immaterial, except on concepts of revaluation.
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Going Concern Concept :– Always on anticipation that a business will continue for long and will not be liquidated Accounting Period Concept :– Though business continues indefinitely, life of business sub divided into accounting periods (generally of 1 year).
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Money Measurement Concept :- Those transactions which are expressed in money terms are only recorded. Realisation Concept :- Revenue is recognised only when, sale is made. Exceptions may be on certain businesses such on HP/sale on contract etc.
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Rupee Value Concept :– Assumptions on constant value of rupee.Accrual Concept :- under this concept, the effects of transactions and other events are recognised on mercantile basis i.e. when they occur (and not as cash received or paid)
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Consistency :– In order to achieve comparability of the financial statements of a enterprise through time, the accounting policies are followed consistently from the one period to another, a change in an accounting policy is made only in certain exceptional circumstances.
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Exercise
Consider the following data Consider the following data pertaining to L Ltd.pertaining to L Ltd.
Cost of the machinery purchased Cost of the machinery purchased on 1on 1stst April 2010 Rs. 2,50,000 April 2010 Rs. 2,50,000
Installation Charges Rs. 5,000Installation Charges Rs. 5,000
Market Value as on 31Market Value as on 31stst 2011 2011 Rs.5,00,000Rs.5,00,000
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While finalising the annual While finalising the annual accounts, if the company values accounts, if the company values the machinery at Rs. 5,00,000 the machinery at Rs. 5,00,000 which of the following concept is which of the following concept is violated by L Ltd?violated by L Ltd?
RealisationRealisation CostCost AccrualAccrual MatchingMatching
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There are three fundamental accounting assumption:
Going Concern, Consistency, Accrual.
If nothing has been written about fundamental accounting assumption in the financial statement then it is
Fundamental Accounting Assumption
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assumed that they have already been followed in their preparation of financial statements. However, if any of the above mentioned fundamental accounting assumption is not followed then this fact should be disclosed.
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Accounting Standard
Accounting Standard are written policy document issued by expert accounting body or by government or regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting
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transaction and events in the financial statements.
Accounting standards (ASs) provide framework and standard accounting policies so that financial statements of different enterprises become comparable.
The Companies Act, 1956, as well as many other statutes in India require that the financial
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statements of an enterprise should give a true and fair view of its financial position and working results.
The Accounting Standards not only prescribe appropriate accounting treatment of complex business transactions but also foster greater transparency and market discipline.
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Accounting Standard in India
The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, constituted the Accounting Standards Board (ASB) on 21st April, 1977, with a view to harmonies the diverse accounting policies and practices in use in India.
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While formulating accounting standards, the ASB takes into consideration the applicable laws, customs, usages and business environment prevailing in the country.
The ASB also gives due consideration to International Financial Reporting Standards
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(International Financial Reporting Standards-IFRS)/ International Accounting Standards (IASs) issued by IASB and tries to integrate them, to the extent possible, in the light of conditions and practices prevailing in India.
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Accounting Standards (AS) need to have::
UniformityUniformity RationalizationRationalization ComparabilityComparability Transparency Transparency Adaptability in Financial Adaptability in Financial
Statements.Statements.
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IND AS
In accordance with India’s assurance to converge with IFRS, the Ministry of Corporate Affairs (MCA) issued a press release on 25 February 2011, notifying the Ind AS (Indian Accounting Standards).
Several of the requirements of Ind AS are considerably
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dissimilar from policies and practices presently followed by Indian companies. Further, while finalising the Ind AS, the Indian standard setters have examined individual IFRS and modified the requirements, wherever necessary, to suit Indian requirements. This has resulted in differences between Ind AS and equivalent requirements under IFRS (referred to as ‘carve outs’).
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IND AS
Ind AS 101: First-time Adoption of Indian Accounting Standards
Ind AS 102: Share based Payment
Ind AS 103: Business Combinations
Ind AS 104: Insurance Contracts
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Ind AS 105: Non current Assets Held for Sale and Discontinued Operations
Ind AS 106: Exploration for and Evaluation of Mineral Resources
Ind AS 107: Financial Instruments: Disclosures
Ind AS 108: Operating Segments Ind AS 1: Presentation of
Financial Statements
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Ind AS 2: Inventories Ind AS 7: Statement of Cash
Flows Ind AS 8: Accounting Policies,
Changes in Accounting Estimates and Errors
Ind AS 10: Events after the Reporting Period
Ind AS 11: Construction Contracts
Ind AS 12: Income Taxes
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Ind AS 16: Property, Plant and Equipment
Ind AS 17: Leases Ind AS 18: Revenue Ind AS 19: Employee Benefits Ind AS 20: Accounting for
Government Grants and Disclosure of Government Assistance
Ind AS 21: The Effects of Changes in Foreign Exchange Rates
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Ind AS 23: Borrowing Costs Ind AS 24: Related Party
Disclosures Ind AS 27: Consolidated and
Separate Financial Statements Ind AS 28: Investments in
Associates Ind AS 29: Financial Reporting in
Hyperinflationary Economies Ind AS 31: Interests in Joint
Ventures
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Ind AS 32: Financial Instruments: Presentation
Ind AS 33: Earnings per Share Ind AS 34: Interim Financial
Reporting Ind AS 36: Impairment of Assets Ind AS 37: Provisions, Contingent
Liabilities and Contingent Assets
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Ind AS 38: Intangible Assets Ind AS 39: Financial Instruments:
Recognition and Measurement Ind AS 40: Investment Property
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International Accounting Standards Committee (IASC) was constituted in 1973 to formulate accounting standards.
Barring Canada, Japan and US all countries have accepted these standards.
International Accounting Standards (IAS)
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To give proper direction and interpretations Standards Interpretations Committee was formed in 1997.
IASB was constituted in 2001 to prescribe norms for treatment of several items on preparation and presentation of Financial statements.
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ISAB adopted all 41 standards ISAB adopted all 41 standards issued by IASC.issued by IASC.
The US Financial Accounting The US Financial Accounting Standards Board (FASB) and IASB Standards Board (FASB) and IASB
are in process of eliminating differing in some standards.
IASB publishes its Standards in a series of pronouncements called
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International Financial Reporting Standards (IFRSs). It has also adopted the body of Standards issued by the Board of the International Accounting Standards Committee (IASC).
Those pronouncements are designated "International Accounting Standards" (IASs).
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IASs:
IAS 1IAS 1 Presentation of Financial Presentation of Financial Statements Statements
IAS 2IAS 2 Inventories Inventories IAS 7IAS 7 Cash Flow Statements Cash Flow Statements IAS 8IAS 8 Accounting Policies, Accounting Policies,
Changes in Accounting Estimates Changes in Accounting Estimates and Errors and Errors
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IAS 10 Events After the Balance Sheet Date
IAS 11 Construction Contracts IAS 12 Income Taxes IAS 16 Property, Plant and
Equipment IAS 17 Leases IAS 18 Revenue
IASs:
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IASs:
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 23 Borrowing Costs
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IASs: 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 IAS 29 Financial Reporting in
Hyperinflationary Economies
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IASs:
IAS 31 Interests in Joint Ventures IAS 32 Financial Instruments:
Presentation IAS 33 Earnings per Share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets
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IASs:
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
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To avoid confusion and to achieve uniformity, accounting process is applied within the conceptual framework of ‘Generally Accepted Accounting Principle’ (GAAPs)
The Financial Statements of entity cannot be said to be showing a true and fair view, unless these Financial Statements have been drawn up on GAAP.
GAAP
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GAAP’s consist of four components.
-The requirements of law-The judgments of various courts of law-Pronouncement of the governing body from time to time.-Requirements of regulatory authority SEBI
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GAAPs are the backbone of the accounting information system, without which whole system cannot even stand erectly.
GAPPs and Accounting Standard are considered as the theory base of accounting.