Accountingstandardsandconvergencetoifrs Bschoolpresentation 140202050445 Phpapp02

Session on Accounting Standards
& convergence to IFRS
Institute of Management Technology (IMT), Nagpur
Guest Speaker :
Pankaj Vasani
IMT, Nagpur l Sept 5 , 2010
September 5, 2008
CA.Pankaj Vasani
Introduction of the guest faculty
Mr. Pankaj Vasani
is a qualified Chartered
Accountant and Lawyer, specializing in India
and International taxes. He is currently the Head
of Tax at Sapient Corporation Pvt. Ltd. Pankaj
has vast experience and a strong track record in
automotive, beverage, software and service
industry. In his prior assignments, he has
worked with Coca-Cola, Subros Ltd., and also in
an advisory role. He is a master draftsman
having excellent interpretative/ logical reasoning
skills and is very well known in the tax fraternity.
Pankaj has been a frequent contributor and
speaker at various tax seminars/ conferences,
and is also a guest faculty at B-schools.

CA.Pankaj Vasani
History of accounting
Bible and Islamic Quran contains mention about Simple trade accounting.
Luca Pacioli (1445-1517) is to be credited for birth of accountancy
It was because of his mathematical knowledge that double accounting system
was introduced
The First book on accounting in English language was published in London by
John Gouge (or Gough) in 1543 described as A Profitable Treaty called the
instrument
--- It helped us to learn good order of keeping of the famous reconynge, called in
Latin Dare and Habere, In English Debtors and Creditors
Fine art of accounting was present in India even in Vedic times. Rig-Vedas having
references to words Kraya (sale),Vanij (Merchant), Sulka (Price)
As observed by Prof.Max Mueller there is very evidence of highly developed Hindu
Accounting tradition in Arthashatra written by Kautilya around 300 B.C.
CA.Pankaj Vasani
Agenda
Accounting Standards
Convergence of Accounting Standards with IFRS

CA.Pankaj Vasani
Foreword
OBJECTIVE
Financial reporting not an end
AS to bring qualitative improvement in FR
ICAI- leadership role-ASB
Legal recognition by Co Act & SEBI
To harmonize
different
accounting
policies and
practices in use
in a country
Seek to bring
about
uniformity in
accounting
practices
Reduce alternativebound of rationalitycompatibilityinformed decision
At par with IAS. ASI + Guidance note

CA.Pankaj Vasani
Accounting Standard Board

ICAI constituted an Accounting Standards Board (ASB) on 21st April, 1977
Main function of ASB is to formulate accounting standards so that such standards may be
established by the Council of the Institute in India.
ASB takes into consideration the applicable laws, customs, usages and business
environment
The Institute is one of the Members of the International Accounting Standards Committee
(IASC) and has agreed to support the objectives of IASC.
While formulating the Accounting Standards, ASB gives due consideration to International
Accounting Standards, issued by IASC and tries integrate them, to the extent possible, in
the light of the conditions and practices prevailing in India
ASB issues guidance notes on the Accounting Standards and give clarifications on issues
arising therefrom - also reviews the AS at periodical intervals
Established by an
Act
IMT, Nagpur l Sept 5 , 2010of Indian Parliament
The Chartered Accountants Act, 1949
The Institute of Chartered

CA.Pankaj
Accountants of
IndiaVasani
Procedure for issue of AS
Council of the Institute

Determine broad area where AS is needed
Assisted by Study Groups
Considers
draft
Makes
amendment; if
necessary
Hold dialogue with Govt, PSU & industry
Exposure draft prepared- for comments
AS issued under the

authority of Council
Response received - draft finalized

CA.Pankaj Vasani
APPLICABILITY OF ACCOUNTING STANDARDS
ICAI, not being a legislative body, can enforce compliance with its standards only by its
members.
However, Section 211(3A) of the Companies Act requires companies to present their profit and
loss accounts and balance sheets in compliance with the accounting standards
SEBI and the RBI also require compliance with the Accounting Standards issued by the ICAI
Insurance Regulatory and Development Authority (IRDA) (Preparation of Financial Statements
and Auditors Report of Insurance Companies) Regulations, 2000 requires insurance
companies to follow the Accounting Standards issued by the ICAI.
The statutory auditors of every company are required to report whether the AS have been
complied with or not
Accounting Standard and Income Tax Act

Guidance Note on Audit u/s 44AB of Income Tax Act, requires all financial statements prepared under
mercantile system of accounting to comply with all applicable mandatory accounting standards issued by
the Institute.
CA.Pankaj Vasani
Accounting Standards : 1 ~ 32

CA.Pankaj Vasani
ACCOUNTING STANDARDS
AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring after the
Balance Sheet Date
AS 5 Net Profit or Loss for the period, Prior Period
Items and Changes in Accounting Policies
AS 6 Depreciation Accounting
AS 7 Construction Contracts (revised 2002)
AS 8 Accounting for Research and Development
AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets
AS 11 The Effects of Changes in FEx Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 (revised 2005) Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income.
AS 23 Accounting for Investments in Associates in
Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent` Liabilities and Contingent
Assets
AS 30 Financial Instruments: Recognition and
Measurement
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: Disclosures

CA.Pankaj Vasani
ACCOUNTING STANDARD-1
DISCLOSURE OF ACCOUNTING POLICIES
Applicable to: all enterprises since 1-4-93.

Deals with: the disclosure of significant accounting policies followed / method adopted in
preparing and presenting financial statements.
Fundamental accounting assumption:

Going Concern
Consistency
Accrual
Disclosure of AP:
One place
Part of FS
No remedy for wrong or inappropriate
treatment
Any change
Consideration in selection of AP:

Prudence
Substance over form
(actual happening Vs legal form)
Materiality
(information influence- judgment)
Change in AP when:
Reqd by statute
Better/more appropriate presentation
Compliance with AS

CA.Pankaj Vasani
ACCOUNTING STANDARD- 2
VALUATION OF INVENTORIES
Applicability: to all enterprises since 1-4-1999 [originally issued in june-1981]

Deals with: accounting for inventories other than: AS-7, service providers; financial instruments held
as stock-in-trade; and Producers inventories of livestock, agricultural and forest products,
OBJECTIVE:
Method of computation of cost of stock
Determine value of C/stock - at which it
will be shown in BS till it is not sold
and recognized as revenue
Major point of valuation of inventory

Determine cost of inventory
(CP+CoA+ CoC)
Determine NRV of inventory Lower taken
(SP-CP-CoS)
INVENTORY: Inventories are assets

consisting of :
Finished goods
WIP & Raw Material
other stores, spares, raw material &
consumables
DISCLOSURE IN FS
AP adopted for measuring inventory &
Cost Formula used
Classification of inventory like Finished,
WIP & its Carrying cost

CA.Pankaj Vasani
AS-2 and International Accounting Standard (IAS)-2: both are similar
CASH FLOW STATEMENTS
Applicability: Mandatory to Level III enterprises (since 1-4-2004)

Deals with / explains : cash movement under following heads
Cash flow from operating

Cash flow from investing
activities
activities
(sum of these 3 reflect inc/dec in cash & cash equivalent)
Definitions
Operating Activity
Cash: comprises cash on hand

and demand deposits with banks.
(Principal revenue producing

activity)
Cash equivalents:
short term,
highly liquid investments
having maturity of less than 3
months
can readily be convertible into
cash
w/o risk of changes in value
Investing activity
(Acquiring/disposing long
term asset & other
investment)
Financing activity
(result in change in
size/composition of owners
capital/ borrowing of Org
Cash flow from financing

activities
Cash received from sale of

good/service
Cash received from royalty, fee, comm..
Cash payment for goods/services, tax
payment
Cash payment on behalf of employee
Cash received from sale of FA/ITA

Cash payment for acquiring FA & ITA
Cash payment / investment in JV and
other Co.
Cash received from sale of share, issue
of shares
Cash payment for buy back of shares,
interest/dividend payment

CA.Pankaj Vasani
Note: Non-cash Transactions are to be excluded from cash flow statement
CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
Applicability: Mandatory to all enterprises (since 1-4-1998)

Deals with : treatment in financial statements of contingency & events occurring after the balance
sheet date.
Existing condition/situation
Result of which is not know
Result will be know on
happening/non-
Result may be gain/loss
Contingency
E.g.: litigation, claim, obligation etc

Contingency must exist on a B.S date
No contingency- no provision /notes
to a/c
Prudence- contingent loss only
recognized
Events
occurring
after B.S
date
May have favorable/ un- effect

Occurs b/w date on which B.S made
and approved by BOD
Requires either adjustment to
asset/liability or disclosure
E.g.: debtor insolvent, going concern, MV

of investment, dividend etc.
Relate to event existing on BS date

Do not relate to event existing on BS
date
Events which take place after BS but
require adjustment in assets/liability
Event after acceptance of a/c
disclosure in board report
Following information should be provided in disclosure:

the nature of the event;
an estimate of the financial effect, or a statement that such an estimate cannot be CA.Pankaj
made
Vasani
NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES
Applicability: Mandatory to all enterprises (since 1-4-1996)

Deals with : the following
Presenting P&L from ordinary activities, extraordinary items & prior period items in P&L a/c; a
accounting for changes in accounting estimates, and
disclosure of changes in accounting policies.
Ordinary activities
Ordinary activities undertaken by an enterprise as part of its business and related

activities arising due to these activities.
All items of income and expense which are recognized in a period should be included in the
determination of net profit or loss for the period unless an Accounting Standard requires or
permits otherwise.
Prior period item
Material charges or credits that arise in current period as a result of error and
omission in past period
Generally infrequent
Separate disclosure nature and amount- impact
E.g. dep faulty calc or mathematical error
Extraordinary item
Income/exp arising distinct from ordinary activity expected to be infrequent

Vis--vis business ordinarily carried on.- Subjective - Abnormal not necessarily
extraordinary
E.g. Natural disaster, expropriation of asset by state, change in govt fiscal policy, business
segment discontinuance
Part of net P&L for the period separate disclosure size, nature & amount
Accounting estimate
Many FS item cannot be measured with precision but can only be estimated
E.g. provision for debtor/creditor, any liability , useful life of asset etc.
5
Revision of estimate does not bring adjustment
CA.Pankaj Vasani
DEPRECIATION ACCOUNTING
Applicability: to all enterprises since 1-4-1995
Deals with: depreciation accounting and applies to all depreciable assets

Depreciation: a measure of the wearing out, consumption or other loss of value of a
depreciable asset arising from use, efflux, passing of time or obsolescence through
technology and market changes.
Depreciation includes amortization of assets whose useful life is predetermined more than 1
year
No depreciation on land, but applicable on leasehold land
Depreciation as per St. line method:
(Cost scrap value) / estimated
useful life
Depreciation as per WDV:

1-N (Scrap value/ cost)
N = estimated useful life
Note:
Companies Act, under Schedule XIV gives minimum amount of depreciation and not
the maximum
An Organisation can provide more depreciation disclosure- effect reason
Change in method- to be disclosed in notes
Disclosure
Total cost of each class of asset
Totall Sept
depreciation
for the period
IMT, Nagpur
5 , 2010
Accumulated depreciation
Depreciation Method
CA.Pankaj Vasani
CONSTRUCTION CONTRACTS
Applicability: to all enterprises (since 01-04-02)

Deals with: the accounting treatment of revenue and costs associated with construction
contracts
Construction contract:
a contract
specifically negotiated for
construction of an asset or a combination of assets
Types
that are
closely interrelated
or interdependent in terms of their design, technology and function or
of Contract
:
their ultimate purpose or use.
Like
Fixed
contract
price contract:
for construction
in this of
the
bridge,
contractor
building,
agrees
damtoetc
a fixed contract price, or a fixed rate per unit
of output, which in some cases is subject to cost escalation clauses.
Cost plus contract: in this the contractor is reimbursed for allowable or otherwise defined costs,
plus
percentage
of these
or a fixed
Before
the revision
of thiscosts
AS, there
were fee
two methods to determine profit.
Percentage of completion method >> Post revision of AS only this to be used
revenue
recognized
in method
methods used to
methods used to
aggregate amount of
Completed
contract
the period
determine the contract
determine the stage of
costs incurred and
completion of contracts recognised profits
in progress
D
i
s
c
l
o
s
amount of advances
u
received
r IMT, Nagpur l Sept 5 , 2010
e
amount of retentions
gross amount due from

customers
CA.Pankaj Vasani
Accounting for Research and Development
In view of operation of AS 26, this Standard stands withdrawn

CA.Pankaj Vasani
REVENUE RECOGNITION

Deals with: the bases for recognition of revenue
Revenue: the gross inflow of cash, receivables or other consideration arising in the course of the
ordinary activities of an enterprise from
a. the sale of goods,
b. the rendering of services and
c. the use by others of enterprise resources yielding interest, royalties and dividends
Revenue recognition in case of rendering of Services:
when service is performed & no significant
uncertainty exists Performance is measured either:
Completed service contract method: recognizes
revenue only when the rendering of services under a
contract is completed or substantially completed, or
Proportionate completion method: recognizes
revenue proportionately with the degree of
Revenue
recognition
in case
of: a contract.
completion
of services
under
Consignment sale when agent sells
Interest- when accrued
Advertisement when displayed to public
Dividend: when Co. declares or individual has right
IMT,
Nagpur l Sept
to receive
etc5 , 2010
Revenue recognition in case of Sale of

Goods:
property in the goods has been
transferred to the buyer for a
consideration, Or
significant risks and rewards of
ownership has been transferred to
the buyer; and
seller retains no effective control of
ownership of the goods transferred;
and
Uncertainty
- Provision
Postponed
no significant
uncertainty exists
- disclosure
regarding the amount of the
consideration.
CA.Pankaj Vasani
ACCOUNTING FOR FIXED ASSET

Deals with: accounting for FA
Fixed Assets: is an asset which is:

Expected to be used for more than 1 accounting period
Not held for sale in normal course of business
Self made asset only direct cost
recorded
Held with the intention of production of good or rendering of
service no profit margin
Asset exchanged: 3 scenarios
Gross book value:
- Not similar asset FMV of asset
given up
historical cost .When this amount is shown net of
accumulated depreciation, it is termed as net book
- Similar asset- FMVof asset
value
acquired/given
or WDV
- Shares issued FMV of share/asset
whichever higher
Fair market value:
the price that would be agreed to in an open and
Valuation
of FAmarket
in special
cases:
unrestricted
between
knowledgeable and
Gain/loss on sale of FA- generally
willing
Hire Purchase
cost price
parties dealing
at arm's length who are fully
recognized in PnL
informed
and
are
not
under
any
compulsion
to
Jointly held asset- Prorata cost
FeX fluctuation adjusted in cost of
transact
Acquired at consolidated price valuers value
FA
Dividend: when Co. declares or individual has right
Improvement cost capitalised
to receive etc
Repair debit to PnL
CA.Pankaj Vasani
ACCOUNTING FOR EFFECT OF CHANGES IN FOREIGN EXCHANGE RATE
Deals in:
accounting for transaction in foreign currency
translating the FS of foreign branch
Reporting currency: currency of country where FS are prepared

Foreign currency: currency other than reporting
currency
TRANSLATION
OF FS OF FOREIGN BRANCHES
Average rate: mean of exchange rate during
the
period
fortnight,
etc) inventories
Revenue items,(week,
except
openingmonth
and closing
Closing rate: Exchange rate at BS date and depreciation- average rates.
Forwards rate: agreed exchange rate b/w
2 partiesinventories
for exchange
of 2 at
currencies
at a specified
Opening
rate
the commencement
of the
date in a foreign currency shouldaccounting
Afuture
transaction
be recordedperiod.
Closing
in the reporting currency by applying to the
foreigninventories, Monetary items, - closing rate or
realisable
value.
currency amount the exchange rate between
the
reporting currency and the foreign currency
at monetary
the date items - rate prevalent at the date of the
Non
of the transaction.
transaction.
Fixed TO
assets- rate prevalent at the date of the transaction
CHANGES IN EXCHANGE RATE SUBSEQUENT
Contingent Liabilities- closing rate, translation does not
INITIAL RECOGNITION
result in any exchange difference
Adjusted to the carrying amount of the fixed assets.
In case the fixed assets are revalued the necessary
adjustments should be given effect to the revalued
asset
CA.Pankaj Vasani
ACCOUNTING FOR GOVERNMENT GRANTS
Applicability: Mandatory for all enterprises with respect from 01/04/1994
Government Grants are :

assistance by government
in cash or kind
for past or future compliance with certain conditions
Government Grants should be recognized where
Government grants may be received in
following ways:
Grants related to acquisition of fixed
assets
Government
Grants related
to revenue
grants
can be accounted either
by
using capital
or bycontribution
using
Grants
relatedapproach
to promoters
income
Grantsapproach
related to compensation for
Capital
approach: The grant is treated as
expenses
part of shareholders funds.
Income approach: The grant is taken to
income over one or more periods to match
Contingency related to Govt. Grant
them with the related costs
A contingency related to Govt. grant
receivable and refundable should be treated
in accordance with AS-4.
there is reasonable assurance that :

the enterprise will comply with the conditions
attached to them; and
the grants will be received.
Amount of Grant:
Monetary Grant: Amount earned should be the
value of grant.
Non- Monetary Grant:
++ Where grants are given at concessional rate,
then such assets are accounted for at their
acquisition cost.
++ Where grants are given free of cost, then such
Disclosures:
assets are recorded at nominal value
The accounting policy adopted

The nature and extent of govt. grants
recognized in the financial statements
CA.Pankaj Vasani
ACCOUNTING FOR INVESTMENT
Applicability: mandatory to all enterprises (since 01-04-93)

Deals with: Accounting for investments in the financial statements of enterprises and
related disclosure requirements
INVESTMENTS
are assets held by an enterprise
for earning income
by way of dividends, interest, and rentals, for capital
appreciation, or for other benefits to the investing enterprise.
CARRYING
OF INVESTMENTS
Assets heldAMOUNT
as stock-in-trade
are not investments
Current Investments - At Lower of cost or fair value.
Long term investments - At Cost.
INVESTMENTS TYPE:
Long term investment
Short term investment
DISCLOSURE
Classification of investments,
Accounting policies used
Amounts included in PnL for
interest, dividends, rentals
Realisability of investments
or the remittance of income
and proceeds of disposal
Any reduction in the carrying amount should be

charged to the profit and loss statement
However, in case of a permanent decline, provision
DISPOSAL OF INVESTMENT
for diminution shall be made
When any investments is sold, the difference between the carrying amount and net sale
proceeds should be charged or credited to the profit and loss statement
In case of partial disposal, the carrying amount to be allocated to that part is to be determined
IMT,
Nagpur
l Sept
, 2010
on
the
basis
of 5the
average carrying amount of the total holding of the investment
CA.Pankaj Vasani
ACCOUNTING FOR AMALGAMATION
Deals with:
Accounting for amalgamations
Treatment of any resultant goodwill or reserves
It does not deal with acquisition by one company of another company in consideration
for payment in cash or by issue of shares
TYPES OF AMALGAMATION
NATURE OF MERGER
- Pooling of interest method
NATURE OF PURCHASE
- Purchase method
POOLING OF INTEREST METHOD

The assets, liabilities and reserves are recorded at their
existing carrying amounts
Uniform set of accounting policies is adopted
The difference between the share capital issued and the share
capital of the transferor company should be adjusted in
reserves.
IMT,
Nagpur l Sept 5 , 2010
PURCHASE METHOD
The assets & liabilities are
recorded either at existing
carrying values or by
allocating the consideration
on the basis of Fair values
on the date of
amalgamation.
The reserves of the
transferor company, other
than the statutory reserves,
should not be included in
the financial statements of
the transferee company
CA.Pankaj Vasani
ACCOUNTING FOR RETIREMENT BENEFIT
Deals with: the accounting treatment of the cost of the retirement benefits in the financial
statements of employers
Retirement benefit schemes are:

Legal contractual arrangement
Where employer provides benefit to
employee
On leaving service, retirement or at
death
Liability arises at the due date for
the payment of liability
These benefits do not accrue at the

time of death, resignation etc
Retirement Benefits consists of :

1. Provident Fund
2. Superannuation / Pension (20 years)
3. Gratuity (5 yrs)
4. Leave Encashment Benefit (leave not taken ~
cash)
5. Other Retirement Benefits
There are 3 stages of payment of
expense
Expense arise
Enforceable claim against the Co.
Payment of expense
Disclosure:
Method by which retirement benefit costs for the period have been defined
When accounting is made as per actuarial valuation, date on which such valuation
was conducted
CA.Pankaj Vasani
BORROWING COST
Applicability: mandatory to all enterprises
Deals with: whether the cost of borrowing should be included in cost of asset or
not
BORROWING COST
Interest
and commitment charges on bank & other short term
Borrowing costs are interest and
other costs
borrowings
incurred by an enterprise in connection
with the
Amortisation of discounts or premiums relating to borrowings
borrowing of funds
Amortisation of ancillary costs incurred in connection with the
arrangement
of borrowings
Qualifying asset is an asset that necessarily
takes
a
Finance
substantial period of time to get ready
for itscharges
intendedof assets acquired under finance leases or
under
other
use or sale E.g. construction process,
patent
etcsimilar arrangements
RECOGNITION
Exchange differences arising from foreign currency
Capitalize borrowing costs that areborrowings
directly attributable
to the
to the extent
that they are regarded as an
acquisition, construction or production
of a qualifying
asset
adjustment
to interest
costs
These should be capitalized only if:
++ it is probable that they will result in future economic benefits to
the enterprise and
DISCLOSURE
++ costs can be measured
reliably
The
policy adopted for borrowing costs.
++ other borrowing costs to
be accounting
expensed off.
The amount of borrowing costs capitalised during
the period
CA.Pankaj Vasani
SEGMENT REPORTING
Deals with: Reporting financial information about:

Different types of products and services an enterprise produces, and
Different geographical areas in which it operates.
APPLICABILITY:
BUSINESS SEGMENT is a distinguishable component of an enterprise
Accounting period commencing on or after April 1, 2001 in respect of
enterprises:
that is engaged in providing an individual product or service or
following
a group of related
products
services
and
LISTED ENTERPRISES
or those
whichorare
in the process
of Listing
that
is subject
to risks and
returns
that50
are
different from those of other
Enterprises
with
annual turnover
more
than Rs.
crores
business segments.
GEOGRAPHICAL SEGMENT is a distinguishable component of an
enterprise
BENEFIT TO USERS
that is engaged
in performance
providing products
or services within a particular
Better understanding
of the
of the enterprise;
economic
and
Assess the
risks andenvironment
returns of the
enterprise.
that
is subject
to risks about
and returns
that are different from those of
Make more
informed
judgments
the enterprise
components operating in other economic environments

CA.Pankaj Vasani
RELATED PARTY DISCLOSURE
Applicability: Mandatory for all enterprises with respect from 01/04/2004

Deals with: Related party relationships; and transactions between a reporting enterprise and its
related parties.
RELATIONSHIP COVERED
RELATED PARTY: Ability to Control of another enterprise (parent);
Control ; or
Control by another enterprise (subsidiary);
Exercise significant influence in making
Under common control (fellow subsidiary);
financial and/or operating decisions
Associates/ joint ventures/ co-venturer;
Investor in respect of which the enterprise
CONTROLNOT RELATED PARTY
SIGNIFICANT
INFLUENCE
is an associate;
Ownership,
Two
directly
companies
or indirectly,
simply of
because
more they have
Participation
a director in
in financial
and/or
operating
Individuals
owning,
directly
or indirectly,
than 50% of
common.
the voting power
policypower
decisions
notthem
control;
voting
that but
gives
control or
Control ofAcomposition
single customer,
of board
supplier,
of
franchise/ distributor
significant
May be gained
by - and their relatives;
influence
directors
a company
of
Providers
of finance, trade unions, public
utilities,
Share
ownership
government
Key
management
personnel and their
A substantial
departments
interest inand
voting
government
power (20%
agencies in
the
course
of their
relatives
Statute;
and
or more) normal dealing
agreement
Assumed to exist in case of holding of
20% or more voting power directly or
indirectly.

CA.Pankaj Vasani
ACCOUNTING FOR LEASE
Applicability: leases commencing on and from 1st April 2001

Deals with: accounting policies & disclosures for lessees & lessors
Lease : A lease is
an agreement, whereby
the lessor conveys to the lessee
in return for a payment or series of payments
the right to use an asset for an agreed period of time
CLASSIFICATION OF LEASES
Finance lease is a lease that transfers substantially
allOF
theFINANCE
risks andLEASE
rewards incident to
EXAMPLE
ownership of an asset. Title may or may not
transferred
eventually
Ownershipbe
transferred
by end of lease term.
Lease
Operating lease is a lease other than a finance
leasecontains bargain purchase option.
Lease term for major part of assets economic
life.
Classification depends on substance of the transaction rather than the form of the contract
Present value of minimum lease payments
Accounting for finance lease
amounts
to these
at least
substantial
all ofhave
assets
Basic criteria providing guidance in determining
whether
risks
and rewards
been
Accounting for operating lease
fair
value.
transferred
Sale and buy back transaction
Leased asset of specialized nature that only
lessee can use without major modifications
being made
CA.Pankaj Vasani
EARNING PER SHARE
Applicability: Mandatory w.e.f. 1.04.2001 in respect of Cos listed in India

Objective: Comparability enhancement
Different enterprises, same period
Different periods, same enterprise
An enterprise should present BASIC & DILUTED EPS on the face of the statement of profit and loss
account for each class of equity shares that has a different right to share in the net profit for the
period.
EPS to be
calculated
& presented
even inSHARE
case of SPLIT
losses.etc
BONUS
ISSUE,
SHARE
SPLIT, REVERSE
RIGHTS ISSUE
Basic EPS
= Net profit/loss for the period attributable to equity shareholders
/ Weighted Average No. of Equity Shares
Diluted EPS=
Adjusted Net profit/loss for the period attributable to equity shareholders.

/ Weighted Average No. of (Equity Shares + Dilutive Potential Equity Shares)

CA.Pankaj Vasani
CONSOLIDATED FINANCIAL STATEMENT

Deals with: principles and procedures for preparation and presentation of consolidated financial
statements
APPLICABLE TO FOLLOWING ENTERPRISES

Group of enterprises under the control of a parent
Investments in subsidiaries
EXCLUDED CASES
Amalgamations
Investments in associates
Investments in joint ventures
COMPOSITION
CONSOLIDATION
OF CONSOLIDATED
PROCEDURES
FINANCIAL STATEMENTS
Consolidated balance sheet,
BASIC
PROCEDURE:
statements of the parent and its subsidiaries should be combined
Consolidated
statement
of profitThe
andfinancial
loss,
on a ONE-TO-ONE BASIS by grouping together the like items of assets, liabilities, income and
Notes, additional
statements and explanatory material that
expenses.
outline an essential part thereof
OTHER PROCEDURE
NOTE: Consolidated
statements
are presented,
The holdingfinancial
company
should eliminate
its cost to
of investment in each of its subsidiaries
the extent possible, in the same format as adopted by the
parent for Ifitscost
separate
financial>statements
of investment
holdings share in equity --------- GOODWILL
If cost of investment < holdings share in equity ---------- CAPITAL RESERVE

CA.Pankaj Vasani
ACCOUNTING FOR TAXES ON INCOME

Seeks to: redress the distortions caused by traditional method of accounting for income-taxes by
requiring the adoption of deferred tax accounting in respect of timing differences
CURRENT TAX
The amount that is expected
to be paid to the taxation
Differences between the two are on account of:
authorities.
ACCOUNTING
INCOME (LOSS)
Permanent Differences
are the differences between taxable income and accounting income for a
Netperiod
profit or
loss
for a period
per profit
andnot
loss
statement.
that
originate
in oneas
period
and do
reverse
subsequently.
DTA/DTL: At the tax rates and
Examples:
tax laws that have been
TAXABLE
INCOME
(TAX LOSS)
Expenditure
disallowed
as per Income Tax Act (Forever)
enacted at the balance sheet
Income
(loss)
for a period
determined
in accordance
withinthe
Excess
expenditure
allowed
by Income
Tax Act, 1961
respect of Scientific
Expenditure
date.
tax laws
Accounting income and taxable income for a period are seldom
the same
Timing Differences are the differences between taxable income and accounting income for a
period that originate in one period and are capable of reversal in one or more subsequent periods.
Examples:
Depreciation rate/method different as per Accounts and Income tax Calculation
Expenditure of the nature mentioned in Section 43B (e.g. sales tax charged in account on accrual
basis but not paid; such sales tax will be an allowable expenditure in the year of payment and a
disallowable expenditure in the year in which accrued)
CA.Pankaj Vasani
ACCOUNTING FOR CONSOLIDATED FINANCIAL STATEMENT

Deals with: to set out principles and procedures for recognizing, in the consolidated financial
statements, the effects of the investments in associates on the financial position and operating
results of a group.
Consolidated financial statements are the financial statements of a group presented as those of a single
enterprise

CA.Pankaj Vasani
DISCONTINUING OPERATION
Covers: discontinuing operation and not discontinued operation
DICONTINUING OPERATION is a component of an enterprise:

(a) that the enterprise, pursuant to a single plan, is:
- disposing of substantially in its entirety (example demerger)
- disposing
of piecemeal (selling and settling assets and liabilities one by one)
EXAMPLE:
- terminating
through
abandonment;
and out of a product line or class of service;
gradual
or evolutionary
phasing
NOT DICONTINUING
OPERATION
(b) Thatrepresents
a separate
major
line of
business
or geographical
area of
and
discontinuing,
even
if
relatively
abruptly,
several
products within
anoperations;
ongoing line
Planned change in product
line
of business;
(c) That can
be distinguished operationally and for financial reporting purposes.
Abrupt/unplaned change in product line
shifting of some production or marketing activities for a particular line of
business from one location to another;
closing of a facility to achieve productivity improvements or other cost savings;
Selling shares of subsidiary whose activities are similar to those of the parent or
other subsidiaries. (In case of Consolidated Financial Statements)

CA.Pankaj Vasani
INTERIM FINANCIAL REPORTING

Deals with: reporting for period < 1 year. Clause 41 of listing agreement provides to publish
financial result on quarterly basis
Timely
Interim
period
is ainterim
financial
reporting
periodimproves
shorter than
full financial
year. creditors, and
and
reliable
financial
reporting
the a
ability
of investors,
others to understand an enterprise's capacity to generate earnings and cash flows, its financial
condition
Interim financial
report means a financial report containing either a complete set of
and liquidity
financial statements or a set of condensed financial statements (as described in this
Statement) for an interim period
During the first year of operations of an enterprise, its annual financial reporting period
may be shorter than a financial year. In such a case, that shorter period is not considered
as an interim period
Minimum Components of an Interim Financial Report
A.
condensed balance sheet;
B.
condensed statement of profit and loss;
C.
condensed cash flow statement; and
D.
selected explanatory notes

CA.Pankaj Vasani
INTANGIBLE ASSET

Deals with: accounting for intangible assets that are not dealt with specifically in another
Accounting Standard
An intangible asset is an identifiable non-monetary asset, without physical substance, held

for use in the production or supply of goods or services, for rental to others, or for administrative
purposes.
An asset is a resource:
A. controlled by an enterprise as a result of past events; and
B. from which future economic benefits are expected to flow to the enterprise.
Monetary assets are money held and assets to be received in fixed or determinable amounts of
money.
Non-monetary assets are assets other than monetary assets.
Research is original and planned investigation undertaken with the prospect of gaining
new scientific or technical knowledge and understanding.
Development : Converts result of research into marketable product
CA.Pankaj Vasani
FINANCIAL REPORTING OF INTEREST IN JOINT VENTURE
Scope:
Applicable in accounting for
interests in joint ventures and

reporting of joint venture assets, liabilities, income and expenses in the financial statements
of venturers and investors
A joint venture is a contractual arrangement whereby two or more parties undertake an

economic activity, which is subject to joint control
OFa JV
A venturer is FORMS
a party to
joint venture and has joint control over that joint venture.
jointly controlled operations,
controlled
An investor in ajointly
joint venture
is aassets,
party toand
a joint venture and does not have joint control
over that joint venture.
jointly controlled entities.
Proportionate consolidation is a method of accounting and reporting whereby a venturer's
share of each of the assets, liabilities, income and expenses of a jointly controlled entity is
reported as separate line items in the venturer's financial statements.

CA.Pankaj Vasani
IMPAIRMENT OF ASSET
OBJECTIVE
To identify the assets which are sick / unhealthy
To ensure that enterprise assets are carried at not more than their recoverable amount
If carrying
amount
< = Recoverable
amount
:
Treatment
of impairment
loss:
AS-28 applies
to all assets
other than
Asset is not impaired
1. Inventories(AS-2)
An impairment loss should be recognized against the revaluation reserve, if any, and balance,
2. Assets arising from construction contract (AS-7)
if any,If as
an expense
in the
P/Lassets/Investments(AS-13)
A/c
carrying
amount
> Recoverable
amount :
3. Financial
Asset is impaired
4. Deferred tax assets(AS-22)
Impairment loss for a Cash Generating Unit should be allocated in the following order
Goodwill, if any.
Impairment Loss = Carrying Amount Recoverable Amount
Balance, if any, to individual assets in proportion to their carrying cost

CA.Pankaj Vasani
PROVISION, CONTINGENT LIABILTY AND CONTINGENT ASSET
PROVISION:
CONTINGENT LIABILITY:
A provision
is a liability
which
can be measured
CONTINGENT
ASSETS:
A contingent
liability only
is: by using
a substantial degree of estimation.
A possible obligation that arises from past events and;
A contingent assets is: existence of which will be confirmed by the occurrence or non
Treatment
: A provision
be recognized
when:events not wholly within the control of the
a possible
assetshould occurrence
of future
An
enterprise
hasfrom
a present
obligation
enterpriseas a result of past
that arises
past events
event
existence of which will be confirmed only by the occurrence or non-occurrence of one or
It is probable
that an outflow
of resources embodying
more uncertain
future
events
Treatment:
economic benefits will be required to settle the obligation;
not wholly within the control
of the enterprise.
An enterprise
should not recognize a contingent liability. It
and
should be disclosed in financial statements unless the possibility
A reliable estimate can be made
of the amount
of the
of outflow
is remote.
Treatment:
obligation.
(Prudence) - An enterprise should not recognize a contingent asset. An enterprise should not
be disclosed in financial statements.
It may be disclosed in the report of approving authority, where an inflow is probable

CA.Pankaj Vasani
Financial Instruments: Recognition and Measurement
Financial Instruments: Presentation
Financial Instruments: Disclosures

CA.Pankaj Vasani
Financial instruments
Embedded
Derivatives
Derivatives
AS 30, 31, 32
Hedging

CA.Pankaj Vasani
Financial instruments
AS 30
AS 31
AS 32
Recognition
and
derecognizing
Measurement
of
Derivatives
and
of
financial
hedge
financial
instruments
accounting
Presentation
Disclosure
instruments

CA.Pankaj Vasani
Market trends as reflected in AS 30, 31 and 32

Key principles of the Standards
Harmonisation of markets
Increased complexity
Detailed disclosures
All derivatives are

Most financial
recognized on the assets measured
balance sheet
at fair value
Use of fair values
Reduction of options
Measurement of the hedging

instrument is the basis for
hedge accounting

CA.Pankaj Vasani
Convergence of Accounting Standards
with IFRS
Why, When, What & How

CA.Pankaj Vasani
IFRS - International Financial Reporting Standards

International Financial Reporting Standards (IFRS) are:
principles-based
IASB is based in London
Standards, Interpretations and Framework (SIF)
adopted
by the
International
Accounting
Standard
Board
Its overall
objective
is to create
a sound
foundation
for(IASB).
future accounting
International
Reporting Standards
standards
thatFinancial
are principles-based,
internallycomprise:
consistent and internationally
International
Financial
Reporting
Standards that
(IFRS)standards
The converged.
principle-based
standards
have
distinct advantage
the transactions can not
issued
after
be manipulated
easily
to2001
achieve a particular accounting
International
Accounting
Standards
(IAS)standards
issued
The IASB
and the US
FASB (the
boards) are
undertaking the
project jointly
before
2001
IFRSs lay down
treatments
based on the economic substance of various events and
Interpretations
originated
from the International Financial
transactions
rather than their
legal form.
Reporting Interpretations Committee (IFRIC)issued after 2001
Standing
before 2001being
The application
of thisInterpretations
approach mayCommittee
result into (SIC)issued
events and transactions
for the Preparation
and Presentation
of Financial
presentedinFramework
a manner different
from their legal
form.
Statements
To illustrate, as per IAS 32, preference shares that provide for mandatory redemption
by the issuer are presented as a liability

CA.Pankaj Vasani
IFRS Structure
IAS 1(2007) Presentation of Financial Statements
IAS 26 Accounting and Reporting by Retirement

Benefit Plans
IAS 2 Inventories
The
term IFRSs
currently
comprises
of:
IFRS
1 First-time
Adoption
of International
Financial
Reporting
Standards
IAS 27(2008)
Consolidated
and Separate Financial
IAS 7 Statement of Cash Flows
9 IFRSs, 29Payment
IASs (originally 41), 18Statements
IFRIC and 11 SIC interpretations, plus
IFRS>>
2 Share-based
IAS 8 Accounting Policies, Changes in Accounting
IAS 28 Investments in Associates
the
Framework
Estimates
and Errors Combinations
IFRS 3 Business
IAS 29 Financial
Reporting
in Hyperinflationary
There
standards
and major projects
for which
exposure
drafts are
IAS 10
Eventsare
after15
thenew
Reporting
Period
Economies
IFRS
4 Insurance Contracts
issued
IAS 11 Construction Contracts
IAS 31 Interests in Joint Ventures
IFRS
5
Non-current
Assets
Held
for
Sale
and
Discontinued
Operations
Final
SME
standard
have
been
issued
in
July 2009.
IAS 12 Income Taxes
IAS 32 Financial Instruments: Presentation
IFRS
6 Exploration
forEquipment
andare
Evaluation
of Mineral for
Resources
8 existing
standards
being amended
which exposure drafts are issued
IAS
16
Property,
Plant
and
IAS 33 Earnings per Share
IAS
17 Leases
IFRS
7 Financial
Instruments: Disclosures
IAS 18 Revenue
IFRS 8 Operating Segments
IAS 19 Employee Benefits
IFRS 9 Financial Instruments - Assets
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
IAS 24 Related Party Disclosures

IAS 34 Interim Financial Reporting

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
CA.Pankaj Vasani
Non-financial Disclosures
The Framework recognizes financial statements do not provide all the information
required for decisions
To achieve, the objective the financial reports may include additional information in
the form of non-financial disclosures - that is useful to a wide range of users in
making economic decisions

Such disclosures are usually contained in Management Report
To deal with the aspect, the IASB is developing a separate IFRS on Management
Commentary
Recently, a discussion paper on the subject has been issued

CA.Pankaj Vasani
The Global Move Towards IFRS
Canada
2009/11
Europe
2005
United States
(2014/15/16?)
China
2007
Japan
(2016)
India
2011
Brazil
2010
Chile
2009
South Africa
2005
Australia
2005
Current or anticipated requirement

or option to use IFRS (or equivalent)
CA.Pankaj Vasani
IFRS Adoption
Approximately 100 countries have

adopted or are in the process of
adoption
China
Similar to IFRS
(effective for
listed entities
2007)
Status of adoption by some

countries which compete with
India for capital allocation:
Brazil
2010
Russia
Currently
applicable for
banks.
South Korea
2011
USA
2014/15/16
UK
2005
Nepal
2011 (as per

action plan
released)
CA.Pankaj Vasani
IFRS Adoptioncontd.
BIGGEST STAMP OF APPROVAL
Securities and Exchange Commission (SEC), United States of America
have permitted Foreign Private Issuers to file IFRS compliant financial
statements (as promulgated by the IASB) without reconciliation to US GAAP
SEC has issued a proposed roadmap to assess whether US domestic
registrants should be permitted to use IFRS

CA.Pankaj Vasani
Convergence of Accounting Standards
What is Convergence ?
Convergence means eliminating the differences between Indian
GAAP and IFRS
and/or
aligning Indian GAAP more closely to IFRS
and/or
may be even adopting IFRS as it is.

CA.Pankaj Vasani
WHY IFRS
To bring uniformity in reporting systems globally
ICAI has decided to implement IFRS in India.
Indian companies are listed on overseas stock exchanges and have to recast their
to beof
compliant
withAffairs
GAAP requirements
of those countries
accounts
The Ministry
Corporate
has also announced
its
commitment to convergence to IFRS by 2011.
Foreign companies having subsidiaries in India are having to recast their accounts to
meet Indian & overseas reporting requirements which are different
Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more
comfortable with compatible accounting standards

CA.Pankaj Vasani
Convergence Project in India

In October 2007, ICAI issued concept paper giving the approach and
roadmap for convergence
Various study groups have been formed
The convergence exercise will be taken up in phases - listed and bigger
companies initially, smaller public companies thereafter, and eventually all
private companies/SMEs
The ministry of Company affairs has appointed two working groups, headed
by Mr. Y.H. Malegam and Mr. Mohandas Pai to finalise the roadmap to IFRS
convergence.
SEBI Committee on Disclosures and Accounting Standards (SCODA) is the
standing Committee - Voluntary adoption of International Financial Reporting
Standards (IFRS) by listed entities having overseas subsidiaries or by all
listed entities.

CA.Pankaj Vasani
Convergence Project in Indiacontd.

On
January
22, 2010
: MCA has
released Road Map for convergence with
IFRS
in India
Phase
I - 1st
2011
IFRS
in India
Phase
II April,
- 1st April,
2013
IFRS For large Companies
The following
categories of companies
will having
convertatheir
opening
balance Rs.
listed or
net worth
exceeding
The
On companies,
April 5, 2010whether
: Amendment
to not,
listing
Agreement
provides
the option of
sheets
in
compliance
with
the
notified
accounting
standards
which
are
500
croresofbut
not exceeding
Rs. 1,000
croresStandards (IFRS)
adoption
International
Financial
Reporting
by listed
convergent with IFRS. These companies are:entities having subsidiaries while declaring Consolidated results/financial
statementswhich are part of NSE Nifty 50
a. Companies
Standalone
results
will
beofas
per -the
existing
Indian GAAP
b. Companies
which
are
part
BSE
Sensex
30
IFRS in India Phase III - 1st April, 2014
c. Companies
whose shares
or other
securities
on stock
Listed companies
which have
a net
worth ofare
Rs.listed
500 crores
or less
exchanges outside India
d. Companies, whether listed or not, which have a net worth in excess of
Rs.1,000 crores

CA.Pankaj Vasani
Convergence with IFRSs in India

While formulating ASs, ICAI comply IFRSs as far as possible
The Preface to the Statements of Accounting Standards, issued by the
ICAI, recognizes the same
While formulating ASs, the ICAI makes changes from IFRSs only in those
cases where these are unavoidable, particularly, considering legal and/ or
regulatory framework prevailing in the country

CA.Pankaj Vasani
IFRS THE GREY AREAS

While IFRS compliance date has been declared by the ICAI, there are several
areas which are still not in consonance with such implementation and several
accounting standards and statutes will need amendment.
Full & unreserved compliance with IFRS is the objective. However, not many
entities are aware about the significance or ramifications thereof, which may lead
to a rush for compliance later with some undesirable consequences.
The onus will be on the management to comply with the requirements and the
auditors will only have to comment on whether the management has properly
complied with the norms or not.

CA.Pankaj Vasani
IFRS THE PLAIN AREAS

IFRS is itself a moving target, with changes being introduced continually
There are not many trained resources to effect the requisite change.
There is a lack of awareness and understanding of the requirements and
implications of IFRS transition and compliance
Communicating the change and managing the transition properly attains
importance in this regard.
Training the organizational components will be a huge task.

CA.Pankaj Vasani
IFRS IMPACT
IFRS implementation affects several

areas of the business entity, such as:
presentation of accounts,
accounting policies and
procedures,
the way legal documents are
drafted,
the way the entity looks at its
assets and their usage,
Its communications with its
stakeholders and also
the way it conducts its business.

CA.Pankaj Vasani
Steps for transition

Parallel run and test
systems
Implement business
decisions
Train staff
Design and implement
systems
Plan the
implementation
Think of business
issues
Scope the
impact
CA.Pankaj Vasani
IFRC & DIRECT TAX CODE (DTC)

CA.Pankaj Vasani
Thank you!
OPEN HOUSE ASK ME!

CA.Pankaj Vasani

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Session on Accounting Standards

& convergence to IFRS

Institute of Management Technology (IMT), Nagpur

Introduction of the guest faculty

Mr. Pankaj Vasani

IMT, Nagpur l Sept 5 , 2010

IMT, Nagpur l Sept 5 , 2010

AS to bring qualitative improvement in FR

ICAI- leadership role-ASB

Legal recognition by Co Act & SEBI

Reduce alternativebound of rationalitycompatibilityinformed decision

At par with IAS. ASI + Guidance note

IMT, Nagpur l Sept 5 , 2010

Accounting Standard Board

The Institute of Chartered

Procedure for issue of AS

Council of the Institute

Assisted by Study Groups

Hold dialogue with Govt, PSU & industry

Exposure draft prepared- for comments

AS issued under the

IMT, Nagpur l Sept 5 , 2010

APPLICABILITY OF ACCOUNTING STANDARDS

Accounting Standard and Income Tax Act

IMT, Nagpur l Sept 5 , 2010

IMT, Nagpur l Sept 5 , 2010

Applicable to: all enterprises since 1-4-93.

Fundamental accounting assumption:

Consideration in selection of AP:

IMT, Nagpur l Sept 5 , 2010

Applicability: to all enterprises since 1-4-1999 [originally issued in june-1981]

Major point of valuation of inventory

INVENTORY: Inventories are assets

IMT, Nagpur l Sept 5 , 2010

Applicability: Mandatory to Level III enterprises (since 1-4-2004)

Cash flow from operating

Cash: comprises cash on hand

(Principal revenue producing

Cash flow from financing

Cash received from sale of

Cash received from sale of FA/ITA

IMT, Nagpur l Sept 5 , 2010

Note: Non-cash Transactions are to be excluded from cash flow statement

Applicability: Mandatory to all enterprises (since 1-4-1998)

E.g.: litigation, claim, obligation etc

May have favorable/ un- effect

E.g.: debtor insolvent, going concern, MV

Relate to event existing on BS date

Following information should be provided in disclosure:

Applicability: Mandatory to all enterprises (since 1-4-1996)

Ordinary activities undertaken by an enterprise as part of its business and related

Prior period item

Income/exp arising distinct from ordinary activity expected to be infrequent

IMT, Nagpur l Sept 5 , 2010

Applicability: to all enterprises since 1-4-1995

Deals with: depreciation accounting and applies to all depreciable assets

Depreciation as per WDV:

Applicability: to all enterprises (since 01-04-02)

gross amount due from

In view of operation of AS 26, this Standard stands withdrawn

IMT, Nagpur l Sept 5 , 2010

Applicability: to all enterprises (since 01-04-93)

Revenue recognition in case of Sale of

ACCOUNTING FOR FIXED ASSET