S20: Accounting Standards and
Disclosure Requirements
Session Objective
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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
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Why?
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To establish rules relating to recognition,
measurement and disclosures for true, fair,
transparent and comparable financial statements
What?
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Set of pronouncement by various regulatory
authorities
Different Accounting Standards
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Formulated by Accounting Standard Boards
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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
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ICAI Accounting standards are followed by all
the Companies in India including PSUs.
These standards are mostly mandatory for the
Companies
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Disclosures may vary from Company to Company,
depending on their declared accounting policies and
subject to the mandatory Accounting Standards.
AS-1
Disclosures of Accounting Policies
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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-2
Valuation of inventories
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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
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the accounting policies adopted in measuring inventories
(including cost formula used)
Totally carrying amount of inventories with appropriate
classification
AS-3
Cash Flow Statements
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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
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Cash flows during the period
Classified by operating, investing and financing
activities
AS-4
Contingencies and Events occurring after
B/S date
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Events that occur between the balance sheet
date and the date of approval by the Board of
Director/corresponding authority.
2 types of events
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Adjusting those providing further evidence of
conditions on B/S date
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Adjustments need to be made in the assets and liabilities
Non-adjusting indicative
subsequent to B/S date
of
events
arising
AS-5
Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies
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To prescribe the classification and disclosure of
certain items in the statement of profit and loss
Disclosure include
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Distinct depiction of prior
heads
items under relevant
AS-6
Depreciation Accounting
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Various disclosures required are:
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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-7
Construction Contracts
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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:
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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-9
Revenue Recognition
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Recognition of revenue from
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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
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Postponement of revenue recognition apart from significant
accounting policies
AS-10
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Not applicable in case of forests, livestock,
plantations, minerals, real estate development
Disclosures include
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Gross/net value of fixed assets at the beginning and
end of accounting period with detailed workings
Revaluations, if any
AS-11
Effects of Changes in Forex Rates
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Recognition of exchange gains losses
Treatment of foreign operations
Forward
exchange
contracts
trading/speculation
Disclosure requirements
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for
Amount of exchange differences included in net
profit/loss for the period
Accumulation and reconciliation of net exchange
differences
AS-12
Accounting for Government Grants
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Includes subsidies,
drawbacks
Two approaches
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cash
incentives,
duty
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-13
Accounting for Investments
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To harmonise the accounting of various kinds of
investments
Disclosure requirements include:
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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-14
Accounting for Amalgamations
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For amalgamations and resultant goodwill and
reserves
Disclosures include
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All details of amalgamating companies and
amalgamation procedure including sanctions,
treatment of shares, value of assets, etc.
AS-15
Employee 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
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All details and accounting policies pertaining to defined benefit plans
Actuarial gains/losses
Reconciliation of balances,
Returns on plan assets
Past service costs
AS-16
Borrowing Costs
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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
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Accounting policy for borrowing costs
Amount of borrowing costs capitalised
AS-17
Segment Reporting
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Information regarding different types of operational
products and services of an entity
Disclosure is required
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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-18
Related Party Disclosures
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Applicable for transactions between
reporting enterprise and it’s related parties
Disclosures include
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Relations pertaining to control
Exact details about the relationships
the
AS-19
Leases
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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-20:Earnings Per Share (EPS)
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Used to assess the profitability of an enterprise
The A.S. deals with determination and
presentation of the same
Disclosures include
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EPS details of each class of share on face of P&L
a/c
Also in case of extraordinary item/class of share
AS-21
Consolidated Financial Statements
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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:
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Resources, obligations and results of the group as an
entity
Other Accounting Standards (not
discussed)
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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