S20: Accounting Standards and Disclosure Requirements

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S20 Accounting Standards and Disclosure
Requirements
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Session Objective

• 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

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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 PL A/c
• Restriction on rights of ownership, reliability
  of investments, remittance, etc.

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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.

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AS-15Employee Benefits

• Required to prescribe the accounting and
  disclosure for employee benefit. An enterprise
  to recognize
• A liability when an employee has provided service
  in exchange for which employee benefits to be
  paid in the future and
• 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

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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

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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/geograph
  ical details
• Some disclosures are recommendatory

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AS-18Related Party Disclosures

• Applicable for transactions between the reporting
  enterprise and its related parties
• Disclosures include
• Relations pertaining to control
• Exact details about the relationships

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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

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AS-20Earnings Per Share (EPS)

• Used to assess the profitability of an enterprise
• The A.S. deals with determination and
  presentation of the same
• Disclosures include
• EPS details of each class of share on face of PL
  a/c
• Also in case of extraordinary item/class of share

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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

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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