PRESENTATIONPRESENTATIONONON

UNDERSTANDING OF ACCOUNTING UNDERSTANDING OF ACCOUNTING STANDARDS & IFRSSTANDARDS & IFRS

By:- Group No. 12By:- Group No. 12Members : Jitesh Kumar, Prateek Agarwal, Ram Members : Jitesh Kumar, Prateek Agarwal, Ram Nandan Singh, Satish Biradar, Sakshi Zutshi, Nandan Singh, Satish Biradar, Sakshi Zutshi, Sumeet Sharma, Umang Arora, Piyush Sumeet Sharma, Umang Arora, Piyush Bahatkar, Priyanka Rana, Heena Shekhawat, Bahatkar, Priyanka Rana, Heena Shekhawat, Prajit Dhagat, Parveen Gulia, Rohit HedaPrajit Dhagat, Parveen Gulia, Rohit HedaPromesh Chouriwar and Rakesh Kumar SinghPromesh Chouriwar and Rakesh Kumar Singh

AGENDA OF DISCUSSIONAGENDA OF DISCUSSION Introduction of Accounting StandardsIntroduction of Accounting Standards Objectives of Accounting StandardsObjectives of Accounting Standards Types of Accounting StandardsTypes of Accounting Standards

IntroductionIntroduction Written Documents issued by Written Documents issued by

Government or Regulatory BodyGovernment or Regulatory Body In India, issued by ICAI on 21In India, issued by ICAI on 21stst April,1977 April,1977 Initiated by Kumar Mangalam Birla, Initiated by Kumar Mangalam Birla,

chairman committee of Corporate chairman committee of Corporate Governance for Financial DisclosuresGovernance for Financial Disclosures

Also initiated by Chair person of NACASAlso initiated by Chair person of NACAS

Objectives Objectives Standardise the diverse Accounting PoliciesStandardise the diverse Accounting Policies Add the reliability to the Financial StatementAdd the reliability to the Financial Statement Eradicate baffling variation in treatment of Eradicate baffling variation in treatment of

accounting aspectsaccounting aspects Facilitate inter-firm and intra-firm comparisonFacilitate inter-firm and intra-firm comparison

Accounting Standards in Accounting Standards in Different NationsDifferent Nations

In India, 32 Accounting Standards as IAS In India, 32 Accounting Standards as IAS under NACASunder NACAS

As per International, there are 41 Accounting As per International, there are 41 Accounting Standards called as IFRSStandards called as IFRS

Adopted by 8 countries in the worldAdopted by 8 countries in the world 70 to 80 countries planning to adhere IFRS70 to 80 countries planning to adhere IFRS Clause 50 added to the listing agreement Clause 50 added to the listing agreement

mandatorymandatory

Evolution and Types of Evolution and Types of ASAS

Accounting StandardsAccounting Standards InitiationInitiation

1. AS 1 to AS 151. AS 1 to AS 15 1979 to 19951979 to 1995

2. AS 16 to AS 292. AS 16 to AS 29 2000 to 20072000 to 2007

3. AS 30 to AS 323. AS 30 to AS 32 Later part of 2007Later part of 2007

AS 1-Disclosure of AS 1-Disclosure of Accounting PoliciesAccounting Policies

Specific policies adapted to prepare FSSpecific policies adapted to prepare FS Should be disclosed at one placeShould be disclosed at one place

Purpose :-Purpose :-

1.1. Better understanding of FSBetter understanding of FS

2.2. Better comparison analysisBetter comparison analysis

3.3. Mostly needed w.r.t DepreciationMostly needed w.r.t Depreciation

AS 2- Accounting for AS 2- Accounting for InventoriesInventories

Used for computation of Cost of Used for computation of Cost of inventories and to show in BS till it is soldinventories and to show in BS till it is sold

Consists of :-Consists of :-

1.1. Raw MaterialsRaw Materials

2.2. Work in progressWork in progress

3.3. Finished goodsFinished goods

4.4. Spares, etcSpares, etc

Measurements of Measurements of InventoriesInventories

Determination of Cost of InventoriesDetermination of Cost of Inventories

Cost of purchase (Purchase price, Cost of purchase (Purchase price, dutiesduties

& taxes, freight inwards)& taxes, freight inwards)

Cost of conversionCost of conversion Determination of Net realisable valueDetermination of Net realisable value Comparison of cost and net realisableComparison of cost and net realisable

AS 3- Cash Flow AS 3- Cash Flow StatementsStatements

Incoming and outgoing of cashIncoming and outgoing of cash Act as barometer to judge surplus and Act as barometer to judge surplus and

deficitdeficit Explain Cash flow under 3 heads :-Explain Cash flow under 3 heads :-

1.1. Cash flow from operating activitiesCash flow from operating activities

2.2. Cash flow from financing activitiesCash flow from financing activities

3.3. Cash flow from investing activitiesCash flow from investing activities

AS 4- Contingencies and AS 4- Contingencies and events occurring after BS events occurring after BS datedate

For maintaining Provision of Bad debtsFor maintaining Provision of Bad debts Generally uses Conservative concepts of Generally uses Conservative concepts of

Accounting like Bankruptcy, frauds & Accounting like Bankruptcy, frauds & errors.errors.

AS 5- Net profit or loss for AS 5- Net profit or loss for the period, prior period the period, prior period items and change in items and change in Accounting policiesAccounting policies Ascertain certain criteria for certain itemsAscertain certain criteria for certain items Include income and expenditures of Include income and expenditures of

Financial yearFinancial year Consists of 2 componentConsists of 2 component

1.1. Profit and loss of ordinary activitiesProfit and loss of ordinary activities

2.2. Profit and loss of extra ordinary activities Profit and loss of extra ordinary activities

AS 6- Accounting for AS 6- Accounting for DepreciationDepreciation

A non-cash expenditureA non-cash expenditure Distribution of total cost to its useful lifeDistribution of total cost to its useful life Occurs due to obsolescenceOccurs due to obsolescence Different methods of computationDifferent methods of computation

1.1. Straight line method ( SLM )Straight line method ( SLM )

2.2. Written-down value or diminishing value Written-down value or diminishing value (WDV)(WDV)

AS 7- Construction AS 7- Construction ContractContract

Contract specifically negotiated for Contract specifically negotiated for construction of Asset or combination of construction of Asset or combination of Assets closely inter-relatedAssets closely inter-related

AS 8- Accounting for R&DAS 8- Accounting for R&D To deal with treatment of Cost of To deal with treatment of Cost of

research and development in the research and development in the financial statements, identify items of financial statements, identify items of cost which comprise R&D costs lays cost which comprise R&D costs lays down condition R&D cost may be down condition R&D cost may be deferred and requires specific deferred and requires specific disclosures to be made regarding R&D disclosures to be made regarding R&D costs.costs.

AS 9- Revenue AS 9- Revenue RecognitionRecognition

Means gross inflow of cash and other Means gross inflow of cash and other consideration like arising out of :-consideration like arising out of :-

1.1. Sale of goodsSale of goods

2.2. Rendering servicesRendering services

3.3. Use of enterprise resources by other Use of enterprise resources by other yielding interest, dividend and royalities.yielding interest, dividend and royalities.

AS 10- Accounting for AS 10- Accounting for Fixed AssetsFixed Assets

Called as Cash generating AssetsCalled as Cash generating Assets Expected to used for more than a Expected to used for more than a

Accounting period like land, building, Accounting period like land, building, P/M, etcP/M, etc

Shown at either Historical or Revalued Shown at either Historical or Revalued valuevalue

AS 11- Effect of change in AS 11- Effect of change in FOREX RatesFOREX Rates

Classification for Accounting treatment:-Classification for Accounting treatment:-1.1. Category I: Foreign currency transactions:Category I: Foreign currency transactions: a) buying and selling of goods or servicesa) buying and selling of goods or services b) lending and borrowing in foreign currencyb) lending and borrowing in foreign currency c) Acquisition and disposition of assetsc) Acquisition and disposition of assets2.2. Category II: Foreign operations:Category II: Foreign operations: a) Foreign brancha) Foreign branch b) Joint ventureb) Joint venture c) Foreign Subsidiaryc) Foreign Subsidiary3.3. Category III: Foreign Exchange contracts:Category III: Foreign Exchange contracts: a) For managing Risk/hedginga) For managing Risk/hedging b) For trading and Speculationb) For trading and Speculation

AS 12- Accounting for AS 12- Accounting for Govt. GrantsGovt. Grants

Assistance provided by Govt. in cash or Assistance provided by Govt. in cash or in kind likein kind like

1.1. Grants of Assets like P/M, Land,etcGrants of Assets like P/M, Land,etc

2.2. Grants related to depreciable FAGrants related to depreciable FA

3.3. Tax exemptions in notified areaTax exemptions in notified area

AS 13- Accounting for AS 13- Accounting for InvestmentsInvestments

Assets held for earning incomes like dividend, Assets held for earning incomes like dividend, interest, rental for capital appreciation, etcinterest, rental for capital appreciation, etc

It involves:-It involves:-1.1. Classification of InvestmentClassification of Investment2.2. Cost of InvestmentCost of Investment3.3. Valuation of InvestmentValuation of Investment4.4. Reclassification of InvestmentReclassification of Investment5.5. Disposal of InvestmentDisposal of Investment6.6. Disclosure of Investment in FSDisclosure of Investment in FS

AS 14- Accounting for AS 14- Accounting for AmalgamationAmalgamation

Section 391 to 394 of Companies Act, 1956 Section 391 to 394 of Companies Act, 1956 governs the provision of amalgamation.governs the provision of amalgamation.

Disclosures:Disclosures:

1.1. Names and nature of amalgamating Names and nature of amalgamating companiescompanies

2.2. Effective date of amalgamationEffective date of amalgamation

3.3. Method of Accounting usedMethod of Accounting used

4.4. Particulars of scheme sanctioned under a Particulars of scheme sanctioned under a statutestatute

AS 15- Employees AS 15- Employees BenefitsBenefits

All forms of consideration given by All forms of consideration given by enterprise directly to the employees or enterprise directly to the employees or their spouses, children or other their spouses, children or other dependants, to other such as trust, dependants, to other such as trust, insurance companies in exchange of insurance companies in exchange of services rendered.services rendered.

AS 16- Borrowing CostsAS 16- Borrowing Costs Interest and cost incurred by an Interest and cost incurred by an

enterprise in connection to the borrowed enterprise in connection to the borrowed funds.funds.

Availed for acquiring building, installed Availed for acquiring building, installed FA to make it useable and saleable.FA to make it useable and saleable.

AS 17- Segment AS 17- Segment ReportingReporting

It consists of 2 segment:-It consists of 2 segment:-

1.1. Business segmentBusiness segment

2.2. Geographical segmentGeographical segment Information and different risk and return Information and different risk and return

reporting.reporting.

AS 18- Related party AS 18- Related party disclosuredisclosure

Related party are those party that controls or Related party are those party that controls or significantly influence the management or significantly influence the management or operating policies of the company during operating policies of the company during reporting periodreporting period

Disclosure:Disclosure:1.1. Related party relationshipRelated party relationship2.2. Transactions between a reporting enterprises Transactions between a reporting enterprises

and its related parties.and its related parties.3.3. Volume of transactionsVolume of transactions4.4. Amt written off in the period in respect of debtsAmt written off in the period in respect of debts

AS 19- Accounting for AS 19- Accounting for LeasesLeases

Agreement between Lessor And LesseeAgreement between Lessor And Lessee Two types of leases:Two types of leases:

1.1. Operating leaseOperating lease

2.2. Finance leaseFinance lease Different from SaleDifferent from Sale Classification to be made at the Classification to be made at the

inceptioninception

AS 20- Earning per shareAS 20- Earning per share Earning capacity of the firmEarning capacity of the firm Assessing market price for shareAssessing market price for share AS gives computational methodology for AS gives computational methodology for

determination and presentation of EPSdetermination and presentation of EPS 2 types of EPS2 types of EPS

AS 21- Consolidated AS 21- Consolidated Balance SheetBalance Sheet

Accounting for Parent and Subsidiary Accounting for Parent and Subsidiary company in single entitycompany in single entity

Disclosure:-Disclosure:-

1.1. List of all subsidiariesList of all subsidiaries

2.2. Proportion of ownership interestProportion of ownership interest

3.3. Nature of relation whether direct or Nature of relation whether direct or indirectindirect

AS 22- Accounting for AS 22- Accounting for taxes and incometaxes and income

Tax accounted for period in which are Tax accounted for period in which are accountedaccounted

It should be accrued and not liability to It should be accrued and not liability to paypay

Deals in 2 measurements:-Deals in 2 measurements:-

1.1. Current taxCurrent tax

2.2. Deferred taxDeferred tax

AS 23- Accounting for AS 23- Accounting for investments in Associates in investments in Associates in CFS CFS

Objectives to set out principles and Objectives to set out principles and procedures for recognizing the procedures for recognizing the investment associates in CFS of the investment associates in CFS of the investors, so that effect of investments in investors, so that effect of investments in associates on financial position of group associates on financial position of group is indicated. is indicated.

AS 24- Discontinuing AS 24- Discontinuing operationsoperations

Establishes principles for reporting Establishes principles for reporting information about discontinuing information about discontinuing operationsoperations

Covers discontinuing operations rather Covers discontinuing operations rather than discontinued operationthan discontinued operation

AS 25-Interim Financial AS 25-Interim Financial Reporting (IFR)Reporting (IFR)

Reporting for less than a year i.e 3 Reporting for less than a year i.e 3 monthsmonths

Clause 41 says publish financial results Clause 41 says publish financial results on quarterly basison quarterly basis

Objective is to provide frequently and Objective is to provide frequently and timely assessment timely assessment

AS 26- Intangible AssetsAS 26- Intangible Assets No physical existenceNo physical existence Can not be seen or even touchedCan not be seen or even touched 3 featured as per AS3 featured as per AS

1.1. IdentifiableIdentifiable

2.2. Non-monetary assetsNon-monetary assets

3.3. Without physical substanceWithout physical substance

AS 27- Financial Reporting AS 27- Financial Reporting of interest in Joint Ventureof interest in Joint Venture

What is joint venture?What is joint venture? Three types of JV in case of Financial Three types of JV in case of Financial

reportingreporting

AS 28- Impairment of AS 28- Impairment of AssetsAssets

Weakening of Assets valueWeakening of Assets value Occurs when carrying cost more than Occurs when carrying cost more than

recoverable amtrecoverable amt Carrying cost = Cost of assets –Carrying cost = Cost of assets –

AccumulatedAccumulated

Depreciation Depreciation

AS 29- Provision, contingent AS 29- Provision, contingent liabilities and assetsliabilities and assets

Provisions:-Provisions:- It is a LiabilityIt is a Liability Settlement should result in outflowSettlement should result in outflow Liability is result of obligating eventLiability is result of obligating event Contingent liabilities:-Contingent liabilities:- Obligation arises of past eventObligation arises of past event Existence confirmed when actually occurred of Existence confirmed when actually occurred of

uncertain futureuncertain future Contingent AssetContingent Asset Same as Contingent liability Same as Contingent liability

Financial InstrumentsFinancial Instruments AS 30 – Recognition and MeasurementAS 30 – Recognition and Measurement AS 31 – PresentationAS 31 – Presentation AS 32 – DisclosuresAS 32 – Disclosures Has not been made mandatory (expected Has not been made mandatory (expected

in 2009)in 2009)

IFRS in INDIA2009‐11

Time of transition

International Financial Reporting Standards

Why, When, What & How

WHY IFRS ? India is one of the over 100 countries that have or are

moving towards IFRS (International Financial Reporting Standards) convergence with a view to bringing about a uniformity in reporting systems globally, enabling businesses, finances and funds to access more opportunities.

Foreign Direct Investors (FDI), overseas financial institutional investors (FII) are more comfortable with compatible accounting standards and companies accessing overseas funds feel the need for recast of accounts in keeping with globally accepted standards.

ICAI has decided to implement IFRS in India. The Ministry of Corporate Affairs has also announced its commitment to convergence to IFRS by 2011.

IFRS ‐ WHOM APPLICABLE ? Compliance with IFRS in India is restricted to ‘Public

Entities’ which includethose companies & entities listed on any stock exchange or have raised money from the public, or have a substantial public interest, or public sector companies. IFRS in India would cover the following public interest entities in the first phase.

Listed companies Banks, insurance companies, mutual funds, and financial

institutions Turnover in preceding year > INR 1 billion Borrowing in preceding year > INR 250 million Holding or subsidiary of the above

IFRS is not applicable to SME’s as of now.

IMPACT OF IFRS IFRS implementation affects several areas of the

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

This fundamental and pervasive nature of impact of IFRS, makes it imperative that sufficient planning and thought is given to this aspect and choices made at the transition stage itself, as they determine the effect on the company and its operations.

A detailed analysis of all aspects of impact and change as well as all legal documentation and communication becomes necessary.

IFRS – THE PAIN AREAS IFRS is itself a moving target, with changes being

introduced continually, refining the provisions and adding more areas for disclosures.

The IFRS implementation requires a multi‐disciplinary approach and is the responsibility of the management.

There is a lack of awareness and understanding of the requirements and implications of IFRS transition and compliance.

IFRS requires aligning business practices and policies to the reporting requirements (including retrospective ones)

Training the organizational components will be a huge task.

SKILLSETS FOR IFRS :

We bring together a useful combination of skill sets required to address the issues arising out of IFRS transition & compliance :

Accounting

• Understand of IFRS requirements

• Understanding of accounting systems, issues & training

IFRS CONVERSIONIFRS CONVERSION

The conversion methodology suggested below puts a strong emphasis on planning, study, preparation for transition, evaluation, training and embedding the change.

IFRS in INDIA 2011

The countdown has begun …….

THANK YOUTHANK YOU