A PRESENTATION ON
INTERNATIONAL
ACCOUNTING STANDARDS
Submitted to:
Ms. Vandana Jain
Asst. Professor
By: Loveneet Kaur and
Kamalpreet Kaur
B.Com I A
Definition
An older set of standards stating how particular types of transactions
and other events should be reflected in financial statements. In the
past, international accounting standards (IAS) were issued by the
Board of the International Accounting Standards Committee
(IASC).
Since 2001, the new set of standards has been known as the
international financial reporting standards (IFRS) and has been
issued by the International Accounting Standards Board (IASB).
IASC has no authority to require compliance with its accounting
standards. However, many countries require the financial
statements of publicly-traded companies to be prepared in
accordance with IAS.
About the International Accounting
Standards Committee (IASC)
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The International Accounting Standards Committee (IASC) was formed in
1973 through an agreement made by professional accountancy bodies
from Australia, Canada, France, Germany, Japan, Mexico, the
Netherlands, the United Kingdom and Ireland, and the United States of
America. Additional sponsoring members were added in subsequent
years, and in 1982 the sponsoring "members" of the IASC comprised all of
the professional accountancy bodies that were members of
the International Federation of Accountants. (IFAC).
From its formation in 1973 until a comprehensive reorganisation in 2000,
the structure for setting International Accounting Standards was known as
the International Accounting Standards Committee (IASC).
The International Accounting Standards Committee was essentially the
structure, rather than a committee in the traditional sense of a group of
people. There was no actual "committee" of that name.
ABOUT THE IASC BOARD
• The standard-setting board of the IASC was known as the IASC
Board. The IASC Board had 13 country members and up to 3
additional organisational members who operated on a part-time,
volunteer basis. Each member was generally represented by two
"representatives" and one "technical advisor". The individuals came
from a wide range of backgrounds – accounting practice, business
(particularly multinational businesses), financial analysis, accounting
education, and national accounting standard-setting. The Board also
had a number of observer members (including representatives of
IOSCO, FASB, and the European Commission) who participated in
the debate but did not vote.
• The IASC Board promulgated a substantial body of Standards,
Interpretations, a Conceptual Framework, and other guidance that
was adopted directly by many companies and that was looked to by
many national accounting standard-setters in developing national
accounting standards.
FOUNDATION
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On December 31, 2001, the International Accounting Standards Foundation
(IASF) was incorporated as a tax-exempt organization in theU.S
States of Delaware. On February 6, 2001, the International Financial Reporting
Standards Foundation was also incorporated as a tax-exempt organization in
Delaware.[ The International Accounting Standards Board (IASB) is the parent
entity of the IFRS Foundation, an independent accounting standard-setter based
in London, England.
On 1 March 2001, the IASB assumed accounting standard-setting
responsibilities from its predecessor body, the International Accounting
Standards Committee (IASC). This was the culmination of a restructuring based
on the recommendations of the report Recommendations on Shaping IASC for
the Future.
The IASB structure has the following main features: the IFRS Foundation is an
independent organization having two main bodies, the Trustees and the IASB,
as well as an IFRS Advisory Council and the IFRS Interpretations Committee
(formerly the IFRIC). The IASC Foundation Trustees appoint the IASB
members, exercise oversight and raise the funds needed, but the IASB has
responsibility for setting International Financial Reporting
Standards(international accounting standards).
ELEMENTS OF THE OLD IASC
STRUCTURE
Major components of the old IASC structure were:
 IASC Board
 Consultative Group – an advisory body representing a wide
range of international organizations with an interest in accounting
 Standing Interpretations Committee (SIC) – developed and
invited public comment on interpretations of IASC Standards,
subject to final approval by the IASC Board
 Advisory Council – oversight body (despite its name, the
Advisory Council functioned more like the Board of Trustees of the
current IFRS Foundation)
 Steering Committees – expert task forces for individual agenda
projects.
INTERNATIONAL ACCOUNTING
STANDARDS
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IAS 1: PRESENTATION OF FINANCIAL STATEMENTS
IAS 2: INVENTORIES
IAS 7: CASH FLOW STATEMENTS
IAS 8: ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS
IAS 10: EVENTS AFTER THE BALANCE SHEET DATE
IAS 11: CONSTRUCTION CONTRACTS
IAS 12: INCOME TAXES
IAS 14: SEGMENT REPORTING
IAS 15: INFORMATION REFLECTING THE EFFECTS OF
CHANGING PRICES
IAS 16: PROPERTY, PLANT AND EQUIPMENT
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IAS 17: LEASES
IAS 18: REVENUE
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 22: BUSINESS COMBINATIONS
IAS 23: BORROWING COSTS
IAS 24: RELATED PARTY DISCLOSURES
IAS 26: ACCOUNTING AND REPORTING BY RETIREMENT
BENEFIT PLANS
IAS 27: CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOUNTING FOR INVESTMENTS IN SUBSIDIARIES
IAS 28: INVESTMENTS IN ASSOCIATES
IAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY
ECONOMIES
• IAS 30: DISCLOSURES IN THE FINANCIAL STATEMENTS
OF BANKS AND SIMILAR FINANCIAL INSTITUTIONS
• IAS 31: INTERESTS IN JOINT VENTURES
• IAS 32: FINANCIAL INSTRUMENTS: PRESENTATION AND
DISCLOSURE
• IAS 33: EARNINGS PER SHARE
• IAS 34: INTERIM FINANCIAL REPORTING
• IAS 35: DISCONTINUING OPERATIONS
• IAS 36: IMPAIRMENT OF ASSETS
• 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
A Short Summary of IAS 1
through IAS 41
The following brief presentation of the individual
International Accounting Standards (IAS) should
provide easy orientation for anyone who encounters an
individual standard in the context of their work or who
simply wants to obtain a quick overview. The
explanatory texts don't intend to completely describe
the complex regulations. Their intent is to foster an
initial understanding by providing an introduction to the
content of the standards. The standards, IAS 1through
IAS 41, which are currently in force, are covered.
Those not mentioned are already superseded.
100,000
x $1.25 = $125,000
EXPLAINATIONS
• IAS 1: Presentation of Financial Statements
This standard describes the preparation and presentation
requirements of financial statements. It defines the
requirements which a financial statement has to observe to
achieve a fair presentation (i.e. to provide a picture that
corresponds to the actual economic conditions). According to
IAS a complete financial statement has to contain the following
components: a balance sheet, an income statement, a
statement showing changes in equity, a cash flow statement
and explanatory notes. In the Appendix to IAS 1 an illustrative
structure for a financial statement is presented which, unlike
the one given in the 4. European Council Directive, is not
obligatory is the fair value model.
• IAS 2: Inventories
The accounting treatment of inventories is carried out
according to the historical cost system. IAS 2 defines
how to determine the costs of purchase and conversion
and states that the inventories "should be measured at
the lower of cost and net realizable value". In addition, it
describes treatments which are permitted for calculating
the costs of inventories.
• IAS 7: Cash Flow Statements
The cash flow statement is a required component of an
IAS financial statement. IAS 7 explains this requirement
by the benefits of cash flow Information which it
provides. It defines cash and cash Equivalents and
stipulates the rough structure of a cash flow statement.
The cash flows are to be differentiated into those
obtained from operating, investing and financing
activities.
• IAS 8: Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies
This standard is supposed to guarantee that all enterprises present
their income statement in a consistent form. It defines ordinary
business activities and requires disclosing extraordinary items
separately. The disclosure of single items of income and expense is
dependent upon how relevant the information is for explaining the
performance of the enterprise. In addition, it regulates how to handle
fundamental balancing errors from prior accounting periods and under
which circumstances changes in the accounting policy are permitted.
• IAS 10: Events After the Balance Sheet Date
If the enterprise receives information after the balance sheet date
which leads to an adjustment in the amounts recognized in the
financial statement, it has to follow the instructions of this standard.
This could, for example, be the bankruptcy of a customer shortly after
the balance sheet date, which leads to a retroactive adjustment of the
corresponding trade receivable account, or also the discovery of an
error or fraud. IAS 10 provides information about which events should
be adjusted and which are not.
• IAS 11: Construction Contracts
Construction contracts often span several accounting periods. IAS
11 determines how the revenue and costs of a contract should be
recognized and how they should be allocated to the accounting
periods.
• IAS 12: Income Taxes
This standard establishes how current taxes for the accounting
period and deferred tax liabilities have to be accounted. Deferred
taxes arise due to temporary differences between the carrying
amount of an asset and its tax base.
• IAS 14: Segment Reporting
To be able to better judge the risks and returns of individual
business areas, segment reporting is helpful. IAS 14 distinguishes
between business and geographical segments for which separate
reports should be given. In addition, the different disclosures for the
primary and secondary reporting formats are identified.
• IAS 15: Information Reflecting the Effects of Changing Prices
Since no consensus could be reached concerning the application of this
standard, it isn't obligatory. The purpose of IAS 15 is to bring clarity
about the effects of changing prices on the measurement of balance
sheet items. Therefore corresponding disclosures are required, such as
the amount of depreciation or cost of sales adjustments.
• IAS 16: Property, Plant and Equipment
This standard determines which assets may be accounted as property,
plant and equipment, under which conditions their recognition is carried
out, how they are to be measured, and which depreciation method
should be chosen. In addition it describes, what the financial statement
should disclose.
• IAS 17: Leases
IAS 17 distinguishes between finance and operating leases. The
respective assignment has considerable consequences for the way in
which the leased asset is balanced. In addition, it establishes how to
deal with any excess of sales proceeds and leaseback transactions.
• IAS 18: Revenue
The date at which revenue is recognized is important for the accurate
determination of the enterprise's success. According to IAS 18 the
revenue should be recognized "when it is probable that future
economic benefits will flow to the enterprise and these benefits can
be measured reliably". There are requirements for the measurement
of revenue, for the identification of the transactions and for
recognizing revenue from different business activities.
• IAS 19: Employee Benefits
Employees receive various benefits: salaries and wages,
supplementary payments, pensions, specific leaves, termination and
equity compensation benefits. IAS 19 standardizes the recognition
and measurement of all short-term and long-term employee benefits
as well as post-term employment benefits. The treatment of
obligations resulting from retirement benefits are of increasing
importance.
• IAS 20: Accounting for Government Grants and Disclosure of
Government Assistance
If an enterprise receives direct government grants, then, according to
the standard, these are to be recognized as income and assigned to the
accounting periods in which they are intended to provide compensation
for corresponding expenses by the enterprise.
• IAS 21: The Effects of Changes in Foreign Exchange Rates
Business transactions in foreign currencies carry the risk of fluctuations
in the exchange rate. IAS 21 regulates the initial recognition of a foreign
currency transaction and the subsequent reportage, particularly the
determination of the correct exchange rate that applies to later balance
sheet dates. Furthermore it determines how to deal with exchange
differences.
• IAS 22: Business Combinations
A business combination can occur either in the form of an acquisition of
an enterprise or a uniting of interests. IAS 22 establishes the procedure
for preparing a financial statement according to these two forms. For
example, it determines that the purchase method should be applied in
accounting for an acquisition and that goodwill should be amortised on a
systematic basis over its useful life.
• IAS 23: Borrowing Costs
Interest charges and other costs which arise in connection with the
borrowing of funds are recognized under IAS 23 as an expense. The
capitalization of borrowed funds as part of the acquisition or production
costs of so-called "qualifying assets" is alternatively permitted.
"Qualifying assets" are those which take a substantial period of time for
the conversion into a serviceable or marketable condition.
• IAS 24: Related Party Disclosures
Related enterprises or individuals which exert a significant influence or
even control over the reporting enterprise could have an effect on its
financial position and operating results. For example, they could carry
out transactions with the enterprise which a third party wouldn't do. IAS
24 requires detailed information about links to related enterprises and
persons, provided that there exists control. If business was carried out
between related parties, the type of transaction and the nature of the
related party relationship should be disclosed.
• IAS 26: Accounting and Reporting by Retirement Benefit Plans
If the employer guarantees retirement benefits, then their balancing
under IAS 26 is dependent upon whether the retirement benefit plan is
a defined contribution plan (usually a pension fund) or a defined benefit
plan. The latter is processed via funds or provisions for pension fund
liabilities. Accounting and disclosure requirements for retirement
benefit plans are specified in this standard.
• IAS 27: Consolidated Financial Statements and Accounting for
Investments in Subsidiaries
According to IAS 27 all domestic and foreign subsidiaries are in
principle to be included in the consolidated financial statement of the
parent company, unless the subsidiary is solely held for the purpose of
subsequent disposal or it is significantly impaired by severe long-term
restrictions in its ability for funds transfer to the parent. IAS 27 also
establishes the procedures regarding consolidation.
• IAS 28: Accounting for Investments in Associates
If the reporting enterprise has significant influence in, but not control
over, another enterprise, then it is considered an associate. IAS 28
requires the equity method be applied in balancing such enterprises.
The investment in these enterprises should be recorded at cost and,
thereafter, to be adjusted for the change in the investor's share of the
profit or losses.
• IAS 29: Financial Reporting in Hyperinflationary Economies
Without the necessary adjustments, the reporting in hyperinflationary
economies can be misleading due to a severe loss in purchasing
power. IAS 29 characterizes the concept of "hyperinflationary
economies" and establishes that the measuring unit has to reflect the
price levels, respectively the purchasing power at the balance sheet
date. So the historical costs are to be adjusted to the current costs at
the balance sheet date.
• IAS 30: Disclosures in the Financial Statements of Banks and
Similar Financial Institutions
Due to their economic significance and the special character of their
business operation, specific requirements exist for the financial
statements of banks. That's why in this standard - amongst other issues a detailed breakdown of the income statement is required with regard to
the interest, dividend income, fee and commission income and expense,
gains less losses arising from dealing securities, investment securities
and foreign currencies. The listing of the assets and liabilities, reflecting
their relative liquidity, is characteristic for a bank balance sheet. Also of
great importance are the instructions for stating the contingencies and
risks of banking.
• IAS 31: Financial Reporting of Interests in Joint Ventures
Joint ventures are jointly controlled operations, enterprises or assets. IAS
31 stipulates that jointly controlled entities should be reported by
proportionate consolidation (the equity method is, however, permitted as
an alternative).
• IAS 32: Financial Instruments: Disclosure and Presentation
A financial instrument is defined by IAS 32 as a contract which both
gives rise to a financial asset of one enterprise and a financial liability or
an equity instrument of the other. These can be both traditional primary
financial instruments, such as bonds, or also derivative financial
instruments, such as interest rate or currency swaps. Derivative
instruments are frequently undertaken to protect the business activities
against currency or interest rate risks; however, they can also serve as
speculation. IAS 32 standardizes the presentation and the disclosure of
the financial instruments. Additionally detailed information is required
concerning interest rate and credit risks as well as the risk management
policies of the enterprise.
• IAS 33: Earnings Per Share
An important figure for enterprises, whose shares are traded publicly, is
the measurement EPS, by which the performance of the enterprise can
be compared with other enterprises. Undiluted, basic earnings (the net
profit or loss after deducting preference dividends attributable to ordinary
shareholders) are distinguished from diluted earnings (the net profit or
loss adjusted for the effects of all potential ordinary shares).
• IAS 34: Interim Financial Reporting
The interim financial report provides timely information within the
accounting period, particularly for the investors, creditors etc. IAS 34
doesn't mandate interim reports, but merely requires that such reports by
enterprises conform to IAS. Therefore an interim financial report should,
at a minimum, include a condensed balance sheet, income statement,
change in equity statement, cash flow statement and selected
explanatory notes. Furthermore it is stipulated that in the interim financial
report the same accounting practices and treatments should be
employed as are found in the annual financial statement.
• IAS 35: Discontinuing Operations
This standard describes how to balance an enterprise's operations which
are intended to be disposed of or discontinued.
• IAS 36: Impairment of Assets
An asset is regarded as impaired if its carrying amount exceeds the
amount which could be recovered through use or sale of the asset. IAS
36 stipulates how the impairment is identified and how the impairment
loss is to be recognized and measured. If an impairment loss decreases
or no longer exists it is mandatory to carry out a reversal of an
impairment loss.
• IAS 37: Provisions, Contingent Liabilities and Contingent Assets
Under IAS 37 provisions are liabilities which are uncertain with regard to
their timing or amount. IAS 37 defines under which circumstances
provisions have to be recognized and to what amount they have to be
balanced. Contingent liabilities and contingent assets should not be
recognized. However, details regarding these can be required, provided
that the realization of contingent liabilities or assets is probable.
• IAS 38: Intangible Assets
Every enterprise is in possession of intangible assets, such as patents,
licenses, computer software, copyrights, trademarks, customer lists or
supplier relationships. Provided that an intangible asset is clearly
identifiable and the enterprise has control over it, it is required to be
accounted according to IAS 38 if it is probable that a future economic
benefit will flow to the enterprise from the asset and its costs can be
reliably measured. The asset should be "allocated on a systematic basis
over the best estimate of its useful life".
• IAS 39: Financial Instruments, Recognition and Measurement
IAS 39 amends IAS 32 particularly with instructions related to so-called
"derivatives". These are, e.g. swaps, option contracts, futures, forwards
or complex, hybrid financial instruments which frequently serve for
speculation purposes. IAS 39 regulates the recognition and
measurement of these instruments. The distinctive feature of the
relatively new IAS 39 is the subsequent measurement of financial assets
at their fair values.
• IAS 40: Investment Property
IAS 40 should be applied in the recognition, measurement and
disclosure of investment property. This can be land or a building or a
part of a building held to earn rentals or for capital appreciation rather
than for the purposes of other business processes. This standard
provides the possibility to choose between to models, the fair value
model and the cost model.
• IAS 41: Agriculture
This standard concerns accounting of biological assets, agricultural
produce at the point of harvest and governmental grants related to a
biological asset. Basis for recognition and measurement of biological
assets is the fair value model.
COMPLIANCE WITH
ACCOUNTING STANDARDS
• These are mandatory and this implies that while discharging their
attest functions, it will be duty of the members of the institute to
examine whether the Accounting Standard is complied with in the
presentation of financial statements covered by their audits. In the
event of any deviation from the Accounting Standards, it will be
their duty to make adequate disclosures in their audit repots so
that the users of financial statements may be aware of such
deviations.
• Ensuring compliance with the Accounting Standards while
preparing the financial statements is the responsibility of the
management of the enterprise.
• Financial statements cannot be describes as complying with the
Accounting Standards unless they comply with all the
requirements of each applicable Standard.
PROCEDURE FOR ISSUING
ACCOUNTING STANDARD
• The ASB determines the board areas in which Accounting Standards
need to be formulated and the priority in regard to the selection thereof.
• In the preparation of Accounting Standards, the ASB will be assisted by
Study Groups constituted to consider specific subjects. In the formation
of Study Groups, provisions will be made for wide participation by the
members of the Institute and others.
• The draft of the proposed standard will normally include the following:
– Objective of the standard,
– Scope of the standard,
– Definitions of the terms used in the standard,
– Recognition and measurement principles, wherever applicable,
– Presentation and disclosure requirements.
• The ASB will consider the preliminary draft prepared by the Study Group
and if any revision of the draft is required on the basis of deliberation, the
ASB will make the same or refer the same to the Study Groups.
• The ASB will circulate the draft of the Accounting Standard to the
Council members of the ICAI and the following specified bodies for their
comments:
– Department of Company Affairs (DCA)
– Comptroller and Auditor General of India (C&AG)
– Central Board of Direct Taxes (CBDT)
– The Institute of Cost and Works Accountants of India (ICWAI)
– The Institute of Company Secretaries of India (ICSI)
– Associated Chambers of Commerce and Industry (ASSOCHM)
Confederation of Indian Industry (CII) and Federation of Indian
Chambers of Commerce and Industry (FICCI)
– Reserve Bank of India (RBI)
– Securities Exchange Board of India (SEBI)
– Standing Conference of Public Enterprises (SCOPE)
– Indian Bank’s Association (IBA)
– Any other body considered relevant by the ASB keeping in view the
nature of Accounting Standard
• The ASB will hold meeting with the representative of specified bodies
to ascertain their view on the draft of the proposed Accounting Standard
. On the basis of comments received and discussions with the
representatives of specified bodies, the ASB will finalize the Exposure
Draft of the proposed Accounting Standard.
• The Exposure Draft of the proposed Accounting Standard will be issued
for comments by the members of the Institute and Public. The
Exposure Draft will be specifically be sent to specified bodies (as listed
above), stock exchanges, and other interest groups, as appropriate.
• After taking into consideration the comments received, the draft of the
proposed standard will be finalized by the ASB and submitted to the
council of ICAI.
• The council of ICAI will consider the final draft of the proposed
Standard, and if found necessary, modify the same in consultation with
the ASB. The Accounting Standard on the relevant subject will then be
issued by ICAI.
• For substantive revision of an Accounting Standard, the procedure
followed for formulation of new Accounting Standard, as detailed
above, will be followed.
• Subsequent to issuance of an Accounting Standard, some
aspects may acquire revision which are not substantive in
nature. For this purpose, the ICAI my make limited revision to an
Accounting Standard. The procedure followed for the limited
revision will substantially be the same as that to be followed for
the formulation of an Accounting Standard, ensuring that
sufficient opportunity is given to various interest groups and
general public to react to the proposal for limited revision.
Objective
This Standard prescribes the basis for presentation of
general purpose financial statements to ensure
comparability both with the entity’s financial
statements of previous periods and with the financial
statements of other entities. It sets out overall
requirements for the presentation of financial
statements, guidelines for their structure and minimum
requirements for their content.
Scope
• Efforts will be made to issue Accounting
Standards which are in conformity with the
provisions of the applicable laws, customs,
usages and business environment.
• The Accounting Standards by their very
nature cannot and donor override the local
regulations which govern the preparation
and the presentation of financial statements
in the country.
• The Accounting Standards are intended to
apply only to items which are material.
1
= $1.60
1$ = 110
SIGNIFICANCE
• To ensure enterprises provide information which are clear,
consistent, reliable and also comparable.
• To reduce the opportunity of creative accounting.
• Promote uniformity as differences among financial statements
of different enterprises will be minimized due to the similarity in
accounting practices adopted by these enterprises.
• Act as control mechanism from the influence of directors.
• Users also may perceive that the financial statements are free
from errors.
• To facilitate uniform preparation and reporting of general
purpose financial statements published annually for the benefit
of various users of such statements.
• Raise the standards of audit itself in its tasks of reporting
financial statements.
BENEFITS
• Provide the profession with a manual of useful working rules
and guideline.
• Force improvements in the quality of the works of the
accountant.
• Strengthen the accountant resistance against pressure from
directors to perform tasks which lie outside the boundaries of
ethical standards.
• Ensure that users get more complete and clearer information
on consistent basis.
• Help comparison between financial statements.
• Minimizes bias, ambiguity and misinterpretation.
DISADVANTAGES
• Costly in term of time and money to produce.
• Standards make work routine and difficult to change which
lead to rigidity in practices.
• Quality of work of the accountants are restricted as standards
allow little room for professional discretion.
• Official acceptance reduces the accountant’s strength to resist
the application of inappropriate standards when the directors
wish to follow.
• Users are likely to think that the financial statements produced
using accounting standards are perfect.
• Standard stifle creativity and if developed from political
pressure they may influenced professional thought.
THANK YOU AND HAVE A
WONDERFUL DAY