Accounts as

Comparative Study of Accounting Standard Issued by ICAI with International Accounting Standard

CHAPTER 1

INTRODUCTION OF INDIAN ACCOUNTING STANDARDS

Introduction:-Accounting Standards establish rules relating to recognition, measurement and disclosures thereby ensuring that all enterprises that follow them are comparable and that their financial statements are true, fair and transparent. High-quality accounting standards are a necessary and important element of a sound capital market system. In public capital markets such as those in the United States. High-quality accounting standards reduce uncertainty and increase overall efficiency and investor’s confidence by requiring that financial report provide decision useful information that is relevant, reliable, comparable and transparent once confined by national borders transactions in today’s capital market often are driven by a demand for and supply of capital that transcends national boundaries. With the increase in cross-border capital is rising and investment transactions comes an increasing demand for a set of high-quality international accounting standards that could be used as a basis for financial reporting worldwide.

“Accounting Standards are written policy documents issues by the expert accounting body or by government or other regulatory body covering the aspects of recognition, measurement, presentation and disclosure of accounting transactions in financial statement.”

What are Accounting Standards:-Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation of financial statements. In layman terms accounting standards are the written documents issued by the expert’s institutes or other regulatory bodies covering various aspects of measurement treatment, presentation and disclosure of accounting transactions.

Who issues Accounting Standards in India:-The institute of chartered Accountants of India (ICAI) reorganizing the need to harmonies the diverse accounting policies and practices at present in use in India constituted accounting standard board (ASB) on April 21, 1977. The main role of ASB is to formulate accounting standards from time to time.

About ICAI:-The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants act 1949. (Act No.XXXXVIII of 1949) for the regulation of the profession of Chartered Accountants in India. During its 61 years of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development maintenance of high accounting, auditing and ethical standards. ICAI now is the second largest accounting body in the whole world.

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Procedure of formulating Accounting Standards in India:-

The institute of Chartered Accountant of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices, constituted an accounting standards boards (ASB) on April 21, 1977. The main function of ASB so that such standards may be mandated by the council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws custom usages and business environment.

ICAI is one of the members of International Accounting Standards Committee (IASC) and has agreed to support the objectives of IASC. ASB will give due consideration to IAS and try to integrate them to the extent possible in light of the considerations and practices prevailing in India.

The accounting standards issued will apply to ‘General Purpose Financial Statement’ this would include balance-sheet, Profit & Loss A/c and other statement and explanatory notes which form part thereof issued for the use of shareholders or members, Creditors, Employees and public at large. The Accounting Standards are intended to apply only to items which are material. The standards are generally expected to apply prospectively unless otherwise stated.

Broadly the following procedure will be adopted for formulating Accounting Standards:-

ASB shall determine the board areas in which accounting standards need to be formulated and the priority in regards to the selection thereof.

In the preparation of the accounting standards ASB will be assisted by study groups constituted to consider specific subjects. In the formation of the study group’s provision will be made for wide participation by the members of ICAI and others.

ASB will also hold a dialogue with the representative of theGovernment, Public sector, Industry and other organizations for ascertaining their views.

Based on the above an exposure draft of the proposed standard will be prepared and issued for comments by members of ICAI and the public at large.

After taking into consideration the comments received the exposure draft will be finalized by the ASB and submitted to the council of ICAI.

The council of ICAI will consider the final draft and if foundnecessary modify the same in consultation with ASB. The accounting standard on the relevant subject will then be issued under the authority of the council.

CHAPTER 2Indian Accounting Standards



Introduction:-

The council of the institute of chartered accountant of India as so far issue 32 (thirty two) accounting standard. Whoever accounting standards 8th on “Accounting for research and development” has been withdraw on consequent to the issuance of accounting standard 26th

“Intangible Assets” thus effectively there are 31st accounting standard at present theaccounting standard issued by the ABC establish which have to becomplied so that the financial statement are prepared in accordance with generally accepted accounting principles.

List of Indian Accounting Standards:-

AS 1 Disclosure of Accounting PrinciplesAS 2 Valuation of InventoriesAS 3 Cash Flow StatementsAS 4 Contingencies and Events Occurring After the

Balance Sheet DateAS 5 Net Profit or Loss for the Period, Prior Period

Items and Changes in Accounting PoliciesAS 6 Depreciation AccountingAS 7(Revised) Construction ContractsAS 8 Accounting for Research and DevelopmentAS 9 Revenue RecognitionAS 10 Accounting for Fixed AssetsAS 11(Revised2003) The Effects Of Changes In Foreign Exchange

RatesAS 12 Accounting for Government GrantsAS 13 Accounting for InvestmentsAS 14 Accounting for AmalgamationsAS 15(Revised 2005) Employee Benefits AS 16 Borrowing CostsAS 17 Segment ReportingAS 18 Related Party DisclosuresAS 19 LeasesAS 20 Earnings Per ShareAS 21 Consolidated Financial StatementsAS 22 Accounting for taxes on incomeAS 23 Accounting for Investments in Associates in

Consolidated Financial StatementsAS 24 Discontinuing OperationsAS 25 Interim Financial ReportingAS 26 Intangible AssetsAS 27 Financial Reporting of Interests in Joint Ventures



AS 28 Impairment of AssetsAS 29 Provisions, Contingent Liabilities and Contingent

AssetsAS 30 Financial Instruments: Recognition and

MeasurementAS 31 Financial Instruments: PresentationAS 32 Financial Instruments: Disclosures

THE INDIAN ACCOUNTING STANDARDS ADOPTED

The following Indian Accounting Standards are being adopted:

I) Accounting Standard (AS) 1: Disclosure of Accounting PoliciesThe following the text of the Accounting Standard –I issued by the accounting standard board, the institute of charted accountant of India on “disclosure of the accounting policies”. The standard deals with the significant accounting policies followed in preparing financial statements.(This Accounting Standard includes paragraphs set in type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.)

Introduction1. This Standard deals with the disclosure of significant accounting policies followed in

preparing and presenting financial statements

2. The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in the preparation and presentation of the financial statement. The accounting policies followed vary from enterprise to enterprise. Disclosure of significant accounting policies followed is necessary if the view presented is to be properly appreciated.

3. The disclosure of some of the accounting policies followed in the preparation and presentation of the financial statements is required by law in some cases.

4. The Institute of Chartered Accountants of India has, in Standard issued by it, recommended the disclosure of certain accounting policies, e.g., translation policies in respect of foreign currency items.

5. In recent years, a few enterprises in India have adopted the practice of including in their annual reports to shareholders a separate statement of accounting policies followed in preparing and presenting the financial statements.



6. In general, however, accounting policies are not at present regularly and fully disclosed in all financial statements. Many enterprises include in the Notes on the Accounts, descriptions of some of the significant accounting policies. But the nature and degree of disclosure vary considerably between the corporate and the non-corporate sectors and between units in the same sector.

7. Even among the few enterprises that presently include in their annual reports a separate statement of accounting policies, considerable variation exists. The statement of accounting policies forms part of accounts in some cases while in others it is given as supplementary information.

8. The purpose of this Standard is to promote better understanding of financial statements by establishing through an accounting standard the disclosure of significant accounting policies and the manner in which accounting policies are disclosed in the financial statements. Such disclosure would also facilitate a more meaningful comparison between financial statements of different enterprises.

Considerations in the Selection of Accounting PoliciesThe primary consideration in the selection of accounting policies by an enterprise is that the financial statements prepared and presented on the basis of such accounting policies should represent a true and fair view of the state of affairs of the enterprise as at the balance sheet date and of the profit

For this purpose, the major considerations governing the selection and application of accounting policies are:— a. Prudence

In view of the uncertainty attached to future events, profits are not anticipated but recognized only when realized though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.

b. Substance over FormThe accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form.

c. MaterialityFinancial statements should disclose all “material” items, i.e. items the knowledge of which might influence the decisions of the user of the financial statements.

Disclosure of Accounting Policies To ensure proper understanding of financial statements, it is necessary that all significant

accounting policies adopted in the preparation and presentation of financial statements should be disclosed.

Such disclosure should form part of the financial statements.



It would be helpful to the reader of financial statements if they are all disclosed as such in one place instead of being scattered over several statements, schedules and notes.

Any change in an accounting policy which has a material effect should be disclosed. Th amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted.

Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts.

Main Principles 24. All significant accounting policies adopted in the preparation and presentation

of financial statements should be disclosed. 25. The disclosure of the significant accounting policies as such should form part

of the financial statements and the significant accounting policies should normally be disclosed in one place.

26. Any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in later periods should be disclosed. In the case of a change in accounting policies which has a material effect in the current period, the amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated.

27. If the fundamental accounting assumptions, viz. Going Concern, Consistency and Accrual are followed in financial statements, specific disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed.

II) Statements of Accounting Standards (AS 2) Revised Valuation of Inventories

The following is the text of the revised Accounting Standard (AS) 2, 'Valuation of Inventories', issued by the Council of the Institute of Chartered Accountants of India. This revised Standard supersedes Accounting Standard (AS) 2, 'Valuation of Inventories', issued in June, 1981.



The revised standard comes into effect in respect of accounting periods commencing on or after 1.4.1999 and is mandatory in nature.

Objective

A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognized. This Statement deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realizable value.

Scope

1. This Statement should be applied in accounting for inventories other than:

a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Accounting for Construction Contracts);

b) work in progress arising in the ordinary course of business of service providers;

c) shares, debentures and other financial instruments held as stock-in-trade; and

d) producers' inventories of livestock, agricultural and forest products, and Mineral oils, ores and gases to the extent that they are measured at net realizable value in accordance with well established practices in those industries

2. The inventories referred to in paragraph 1 (d) are measured at net realizable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or mineral oils, ores and gases have been extracted and sale is assured under a forward contract or a government guarantee, or when a homogenous market exists and there is a negligible risk of failure to sell. These inventories are excluded from the scope of this Statement.

Definitions

3. The following terms are used in this Statement with the meanings specified:

Inventories are assets:

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or



(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net realizable: value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

III) Statements of Accounting Standards (AS 3) Revised Cash Flow Statements These should be read in the context of the background material which has been set in normal type, and in the context of the 'Preface to the Statements of Accounting Standards'.)The following is the text of the revised Accounting Standard (AS) 3, 'Cash Flow Statements', issued by the Council of the Institute of Chartered Accountants of India. This Standard supersedes Accounting Standard (AS) 3, 'Changes in Financial Position', issued in June, 1981.In the initial years, this accounting standard will be recommendatory in character. During this period, this standard is recommended for use by companies listed on a recognized stock



exchange and other commercial, industrial and business enterprises in the public and private sectors.

Objective

Information about the cash flows of an enterprise is useful in providing users of financialstatements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generation. The Statement deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.

Scope

1. An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented.

2. Users of an enterprise's financial statements are interested in how the enterprise generates and uses cash and cash equivalents. This is the case regardless of the nature of the enterprise's activities and irrespective of whether cash can be viewed as the product of the enterprise, as may be the case with a financial enterprise. Enterprises need cash for essentially the same reasons,

however different their principal revenue-producing activities might be. They need cash to conduct their operations, to pay their obligations, and to provide returns to their investors.

Definitions

The following terms are used in this Statement with the meanings specified:

Cash comprises cash on hand and demand deposits with banks.

Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash flows are inflows and outflows of cash and cash equivalents.

Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.



Financing activities are activities that result in changes in the size and composition of the owners' capital (including preference share capital in the case of a company) and borrowings of the enterprise.

IV) Statements of Accounting Standards (AS 5) Revised

Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

The following is the text of the revised Accounting Standard (AS) 5, 'Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies', issued by the Council of the Institute of Chartered Accountants of India.

This revised standard comes into effect in respect of accounting periods commencing on or after 1.4.1996 and is mandatory in nature. It is clarified that in respect of accounting periodscommencing on a date prior to 1.4.1996, Accounting Standard 5 as originally issued in November, 1982 (and subsequently made mandatory) will apply.



Objective

The objective of this Statement is to prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis. This enhances the comparability of the financial statements of an enterprise over time and with the financial statements of other enterprises. Accordingly, this Statement requires the classification and disclosure of extraordinary and prior period items, and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accounting treatment for changes in accounting estimates and the disclosures to be made in the financial statements regarding changes in accounting policies.

Scope

1. This Statement should be applied by an enterprise in presenting profit or loss from ordinary activities, extraordinary items and prior period items in the statement of profit and loss, in accounting for changes in accounting estimates, and in disclosure of changes in accounting policies.

2. This Statement deals with, among other matters, the disclosure of certain items of net profit or loss for the period. These disclosures are made in addition to any other disclosures required b other Accounting Standards.3. This Statement does not deal with the tax implications of extraordinary items, prior period items, changes in accounting estimates, and changes in accounting policies for which appropriate adjustments will have to be made depending on the circumstances.

Definitions

The following terms are used in this Statement with the meanings specified:

Ordinary activities are any activities which are undertaken by an enterprise as part of itsbusiness and such related activities in which the enterprise engages in furtherance of, incidental to, or arising from, these activities.

Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly.

Prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.



Accounting policies are the specific accounting principles and the methods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements.

Net Profit or Loss for the Period

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.

Normally, all items of income and expense which are recognized in a period are included in the determination of the net profit or loss for the period. This includes extraordinary items and the effects of changes in accounting estimates.

The net profit or loss for the period comprises the following components, each of which should be disclosed on the face of the statement of profit and loss:o profit or loss from ordinary activities; ando extra-ordinary items.

V) Statements of Accounting Standards (AS 6) Revised Depreciation Accounting

The following is the text of the revised Accounting Standard (AS) 6, 'Depreciation Accounting', issued by the Council of the Institute of Chartered Accountants of India.

Introduction

1. This Statement deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply:—

(i) forests, plantations and similar regenerative natural resources;

(ii) wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources;



(iii) expenditure on research and development;

(iv) goodwill;

(v) live stock.

This statement also does not apply to land unless it has a limited useful life for the enterprise.

2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.

Definitions

3. The following terms are used in this Statement with the meanings specified:

Depreciation: is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortisation of assets whose useful life is predetermined.

Depreciable assets: are assets which

(i) are expected to be used during more than one accounting period; and

(ii) have a limited useful life; and

(iii) are held by an enterprise for use in the production or supply of goods andservices, for rental to others, or for administrative purposes and not for the purpose of sale in the ordinary course of business.

Useful life: is either (i) the period over which a depreciable asset is expected to be used by the enterprise; or (ii) the number of production or similar units expected to be obtained from the use of the asset by the enterprise.

Depreciable amount: of a depreciable asset is its historical cost, or other amount substituted for historical cost in the financial statements, less the estimated residual value.



VI) Statements of Accounting Standards (AS 7) Accounting for Construction Contracts

The following is the text of the Accounting Standard (AS) 7 issued by the Institute of Chartered Accountants of India on 'Accounting for Construction Contracts'. The Standard deals with accounting for construction contracts in the financial statements of contractors.

In the initial years, this accounting standard will be recommendatory in character. During this period, this standard is recommended for use by companies listed on a recognized stock exchange and other large commercial, industrial and business enterprises in the public and private sectors.

Introduction

1. This Statement deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts (hereafter referred to as 'contractors'). The Statement also applies to enterprises undertaking construction activities of the type dealt with in this Statement not as contractors but on their own



account as a venture of a commercial nature where the enterprise has entered into agreements for sale.

2. The feature which characterizes a construction contract dealt with in this Statement is the fact that the date at which the contract is secured and the date when the contract activity is completed fall into different accounting periods. The specific duration of the contract performance is not used as a distinguishing feature of a construction contract. Accounting for such contracts is essentially a process of measuring the results of relatively long-term events and allocating those results to relatively short-term accounting periods.

3. For the purposes of this Statement, a construction contract is a contract for the construction of an asset or of a combination of assets which together constitute a single project. Examples of activity covered by such contracts include the construction of bridges, dams, ships, buildings and complex pieces of equipment.

4. Contracts for the provision of services come within the scope of this Statement to the extent that they are directly related to a contract for the construction of an asset. Examples of suchservice contracts are contracts for the services of project managers and architects and for technical engineering services related to the construction of an asset.

Explanation

5. The principal problem relating to accounting for construction contracts is the allocation of revenues and related costs to accounting periods over the duration of the contract.

Indian Accounting Standards:-AS 9: Revenue Recognition:-

Introduction

This statement was issued by ICAI in the year 1985 & the Initial years it was recommendatory for only level I enterprises & but was made mandatory for enterprise in India from April 01, 1993.

Revenue

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of the goods, from the rendering of the services, & from the use by others of enterprises resources yielding interest, royalties & dividend. Revenue ismeasured by the charges made to customers or clients for goods supplied &services rendered to them & by the charges & rewards arising from the use of resources by them. In an agency relationship, the revenue is the amount of commission & not the gross inflow of cash, receivable or other consideration.



This statement dose not deals with the following aspects of revenuerecognition to which special consideration apply:

I. Revenue arising from construction contracts;

II. Revenue arising from hire-purchase, lease agreements;

III. Revenue arising from government grants & other similar subsidies;

IV. Revenue of insurance companies arising from insurance contracts.

Examples of items not included within definition of “revenue” for the purpose of this statement are:

I. Realized gains resulting from the disposal of, & unrealized gainsresulting from the holding of, non-current assets. E.g. appreciation in the value of fixed assets.

II. Unrealized holding gain resulting from the change in value of currentassets, & the natural increases in herds & agricultural & forest products;

III. Realized or unrealized gains resulting from changes in foreignexchange rates & adjustments arising on the translation of foreign currency financial statements;

IV. Realized gain resulting from the discharged of an obligation at less than its carrying amount;

V. Unrealized gains resulting from the restatement of the carryingamount of an obligation;



AS 10: Accounting for Fixed Assets:-

Introduction

The standard deals with the disclosure of the status of the fixed assets in terms of value. The standard dose not takes consideration the specialized aspects of accounting for fixed assets reflected with the effects of price escalations but applies to financial statements on historical cost basis. It is important to note that after introduction of AS 16; 19 & 26, provision relating to respective AS are held withdrawn & the rest in mandatory from the accounting year 01/04/2000. an entity should disclose (i) the gross & net book values of fixed assets at beginning and end of an accounting period showing additions, disposals, acquisitions & other movement, (ii) expenditure incurred on account of fixed assets in the course of construction or acquisition, (iii) revalued amounts substituted for historical cost of fixed assets with the method applied in computing revalued amount.

This statement does not deal with the accounting for the following item to which special considerations apply:

I. Forests, plantations & similar regenerative natural resources.



II. Wasting assets including mineral rights, expenditure of the exploration for an extraction of minerals, oil, natural gas & similar non-regenerative resources.

III. Expenditure on real estate development and

IV. Live stock.

Identification of fixed assets:

Fixed assets are assets held with the intention of being used for the purpose for the producing or providing goods or services & is not held for sale in the normal course of business.Stand-by equipment & servicing equipment are normally capitalized. Machinery spares are change to the profit & loss statement as and when consumed. However, if such spare can be used only in connection with an item of fixed assets, it may be appropriate to allocate the total cost on a systematic basic over a period not exceeding the useful life of principal item.

AS 12: Accounting For Government Grants

Introduction

The standard comes in to effect in respect of accounting periods commencing on or after 01/04/1992 & will be recommendatory in nature for an initial period of 2 years. Accounting standard 12 deals with accounting for government’s grants for specifies that the government grants should not be recognized until there reasonable assurance that the enterprise willcompany comply with the conditions attached to them, and the grant will be received. The standard also describes the treatment of non-monetary government grants; presentation of grants related to specific fixed assets, related to revenue, related to promoters, contributions; treatment for refund of governments grants etc. the enterprises are required to disclose (i) the accounting policy adopted for government grants including the methods of presentation in the financial statements; (ii) the nature & extent of government grants recognized in the financial statement including non-monetary grants of assets given either at a concessional rate or free of cost.

This statement does not deal with:

I. The special problem arising in accounting for government grants in financial statements reflection the effects of changing prices or in supplementary information of a similar nature.



II. Government assistance other than in the form of government grantsIII. Government participation in the ownership of the enterprises.

The receipt of the government grant by an enterprise is significant or preparation of the financial statement for 2 reasons. Firstly, if a government grant has been received an appropriate method of accounting therefore is necessary. Secondly, it is desirable to give an indication of the extent to which the enterprises has benefited from such grants during the reporting period. This facilitates comparison on an enterprises financial statement with those prior periods & with those of other enterprise.

Accounting treatment of government grants To broad approaches may be followed for the accounting treatment Of government grants: the capital approach under which grand is treated as part of share holder funds, and income approach under which a grand is taken to incomes over one or more period. Those in support of capital approach argue as follows:

I. Many governments’ grants are in the nature of promoter’s contribution that is they are given by way of contribution toward sits total capital outlay ordinarily expected in the case of such a grants.

II. They are not earned but represent an incentive provided by government without related costs.

Arguments in support of the income approaches are as follows:

I. As a income tax & other taxes are charges against income, it is logical to deal also with government grants, which are an extension of fiscal policies, in the profit & loss statement.

II. In case grants are credited to share holder’s fund, no correlation is done between the accounting treatment of the grants & the accounting treatment of the expenditure to which grant relates.



AS 18: Related Party Disclosures

IntroductionThis standard comes into effect in respect of accounting period commencing on or after 01/04/2001 & is mandatory in nature. The standard prescribes the requirement for disclosure of related party relationship & transaction between the reporting enterprise & its related party. The requirements of the standard apply to the statement of each reporting enterprises as also to consolidate financial statement presented by a holding company. Since the standers is more subjective, particularly with respect to identification of related parties [through provision related to related party concept are given under section 297/299/301 of the companies act 1956 and section 40A (2)(b)of the income tax act 1961], obtaining corroborative evidence becomes very difficult for the auditors. Thus successful implementation of AS 18 is depended upon how transparent the management is and how vigilant the auditors are.

Objective The objective of this statement is to established requirement for disclosure of:I. Related party relationship &II. Transaction between reporting enterprise & it related parties.

Scope

This statement should be applied in reporting related party relationship &transaction between reporting enterprises & its related parties. The requirement of this statement applied to the financial statement of each reporting enterprises as also to consolidate financial statement presented by a holding company.



This statement deals only with related party relationship describe (a) to (e) below:

a. Enterprises that directly, or indirectly through one or moreintermediaries, control, or are controlled by, or are under common control with the reporting enterprise (this includeholding company, subsidiaries & fellow subsidiaries).

b. Associated & joint venture reporting enterprise & the investing party or venture in respect of which the reporting enterprise is an associate or a joint venture.

c. Individual owning, directly or indirectly, an interest in thevoting power of the reporting enterprises that give them control or significant influence over the enterprises, and relatives of any such individual.

d. Key management personnel & relative of such personnel &

e. Enterprise over which any person describes in c or d is able to exercise significant influence. This includes enterprises owned by director or major shareholders of the reporting shareholder of the reporting enterprises & enterprises that have a member of key management, with reporting enterprise.

CHAPTER 3International Accounting Standards

Introduction:-

Accounting is a language of business communicates the financial result of an enterprise to the various interested parties by means of financial statements exhibiting true and fair view of its state of affairs as also of working result. Like any of other language, accounting has its own set of rules, which have been developed by accounting bodies. These rules cannot be absolutely rigid. These rules, accordingly, do provide a reasonable flexibility in line with the economic environment, social needs, legal requirements and technological development. These however, do not apply that accounting principles and parties can be applied arbitrarily. Accounting principles have to operate within the bonds of rationality. This could, perhaps, be considered as a genesis for setting the accounting standards.

Accounting Standards are written policy document issued expert accounting body or by government or other regulatory body covering the aspects recognition, measurement, presentation and disclosure of accounting transaction in financial statement. The ostensible purpose of the standard setting bodies is to promote the dissemination of timely and useful financial information to investors and certain other parties having an interest in the company’s economic performance. The accounting standard reduces the accounting alternative in the preparation of financial statement within the bond of rationality, thereby ensuring comparability of financial statement of different enterprises.

The accounting standards deals with the issue of

i. Recognition of events and transactions in the financial statements,



ii. Measurement these transaction and events,

iii. Presentation of these transactions and events in the financial statement in a manner that is meaningful and understandable to the reader, and

iv. The disclosure requirements which should be there enable the public at large and the

potential investors in particular, to get an insight in to what these financial statement are trying to reflect and there by the facilitating them to take prudent and informed business decisions.

International Accounting Standard Board:-

With a view of achieving this objective, the London based groupmainly the international committee (IASC), responsible for developinginternational accounting standard was established in June 1973. it is presently known as international accounting standard board, the IASCcomprises the professional accounting bodies of over 75 countries(including the ICAI). Primarily, the IASC was established, in the public interest toformulate and publish, international standard to be followed in the presentation of audited financial statement. The member of IASC haveundertaken responsibility to support the standards promulgated by IASC and to promulgate those standard in their respective countries.

Between 1973 & 2001, the IASC released international accounting standard. Between 1997 & 1999, the IASC restructured there organization, which resulted in formation of IASB. These changes came in to effect on 1st April 2001 subsequently, IASB issued statement about current and future standards: IASB publishes standards in a series of pronouncements, called international financial, reporting standards (IFRS). However, IASB has not rejected the standards issued by the ISAC those pronouncements continue to be designated as an “international Accounting standard” (IAS). The IASB approved IASB resolution on IASC standards and there in April 2001, in which it’s conform the status of all IASC standards and SIC interpretations in effect as on 1st April 2001.



IAS-18: Revenue

IAS 18 on Revenue is applicable for periods beginning on or after 1st Jan 1995

IAS 18 prescribes accounting treatment for revenue arising from: The sale of goods: The rendering of services; & The use by others of entity assets yielding interest royalties & dividend.

It excludes the treatment of revenue arising from transaction covered by other standards or amount collected on behalf of third parties (e.g. Vat).

Summary

Revenue is measured at the fare value of the consideration received or receivable. The consideration is usually in cash. If the inflow of cash is significant deferred, & there is below-market rate of interest or no interest, the fare value of consideration is determined by discounting expected future receipts. If dissimilar goods or services are exchanged (as in barter transaction) revenue is fare value of the goods or services or received or, if this is not reliably measurable, the fare value of goods or services given up.

Revenue should measure at the fair value of the consideration received: Trade discount & value rebates are deducted to determine fair value. However, payment

discounts non-deductible. The amount of revenue can be measured reliably; The costs of transaction can be measured reliably; Significant risks & rewards of ownership are transferred to the buyer; The seller has no continuing managerial involvement or control over the goods; It is probable that economic benefits will flow to the seller; and



Interest revenue should be recognized on time proportion basis using the effective interest. Royalties should be recognized on an accruals basis in accordance with the substance of the relevant agreement. Dividend revenue should be recognized when the share holder right to received the dividend is established.

IAS-16: Property, Plant and Equipment:-

IAS 16 on property, plant & equipment was issued in December 2003 & is applicable to annual accounting period beginning on or after 1st Jan 2005.

IAS 16 prescribed the accounting treatment for property, plant & equipment unless another standard requires or permit a different account treatment. For e.g. IFRS, 5 on noncurrent assets held for sale & discontinued operations applies to property, plant & equipment classified as held for sale.

Summary

Property plant & equipment is initially recognized at historical cost.Subsequent to initial recognition, property, plant & equipment are carried either at:

Cost less accumulated depreciation & any accumulated impairment loss, or Revalued amount less subsequent accumulated depreciation and any accumulated

impairment loss. The revalued amount is the fare value is at the date of revaluation.

The choice of measurement is applied consistently to an entire class of property, plant & equipment. Any revaluation increase in such assetscredited directly to the revaluation surplus in equity, unless it reverses are valuation decrease previously recognized in profit in loss. Any revaluation decrease is recognized in profit or loss. However the subsequent revaluation decrease is debited directly to the revaluation surplus in equity to the extent of the credit balance in revaluation surplus is respect of that asset.

The gain or loss on derecognizing of an item of property, plant & equipment is the difference between the net disposal proceeds, if any, and the carrying amount of the item. It is included in profit or loss.



IAS: 20- Accounting for government grants and disclosure of government assistance:-

IAS 20 on “accounting for government grants & disclosure of government assistance” was issued in April 1983 & was reformatted in the year 1994. It came in to effect for annual periods beginning or after 1 January 1984.

The objective of IAS 20 is to be prescribing the accounting for, and disclosure of, grants & other form of government assistance. However, IAS20 does not covered government assistance that is provided in the form of benefit helpful in determines taxable income.

Summary:

A government grant is recognized only when enterprise will comply with any condition attached to the grants received. The grant is recognized as an income, over the period, to match them with the related cost for, which they are intended compensate, on a systematic basis, & should not be credited directly to equity.

Non monitory grants are usually accounted for at fair value. Although recording both the assets & grants at a nominal amount is also permitted. A grant receivable as a compensation for cost already incurred or for immediate financial supportwith no future related cost, should be recognized as an income in the period in which it is receivable.

A grant relating to assets may be presented as deferred income or by deducting the grant from the assets carrying amount. A grant relating to income may be reported separately as other income or deducted from the related expenses.

If grant become repayable it should be deferred income or by deducting the grant from assets carrying amount. Where the original grants related to income, the repayment should be applied dealt with as an expenses where the original grants related to an assets, the repayment



should be treated as increasing the carrying amount of the assets or reducing the deferred income balance. The cumulative deprecation which would have been charged had the grant not been received should be charged as an expense.

The government grants do not include government assistance whose value cannot be reasonably measured, such as technical or marketing advice.

IAS 24 Related Party Disclosure:

IAS 24 on “Related Party Disclosure” was issued in dec 2003 & isapplicable for annual periods beginning on or after 1st Jan 2005.

IAS 24 specifies the disclosure necessary to draw attention to the possibilities that the financial position & financial performance of an entity may have been affected by the existence of the related party and by transaction and outstanding balance with such related parties.

Summary:

A party is related to an entity if it:

Has joint control over the entity: Has significant influence over the entity; Directly or indirectly, controls, is control by or is under common control with, the entity; Is a close member of the family of any individual who controls, has significant influence

or joint control over, the entity; Is a member of key management personnel of the entity of its parent; Is a joint venture in which the entity is venture; Is an associates of entity; Is an entity that is controlled, jointly controlled or significantlyinfluenced by, or for

which significant voting power in such entity resides with, any of the key management personnel;

Is a post-employment benefits plan for the benefit of employees of the entity, or of any of its related parties;

Examples of the kinds of transactions that are disclosed if they are with are lasted party:



Purchase or sale of goods. Rendering or receiving of services. Purchase or sale of properties or other assets. Lease. Transfer under license agreements. Transfer of research and development. Transfer under finance agreements(including loans & equitycontribution in cash or in

kind) Settlement of liabilities on behalf of the entity or by the entity on behalf of another party. Provision of guarantee of collateral.

A related party transaction is a transfer of resources, services or obligations between related parties, regardless whether price is charged.

CHAPTER 5Comparative Study

Indian Accounting Standards International Accounting Standards

Presentation And Disclosures

There is no separate standard for disclosure.For companies, format and disclosure requirements are set out under schedule VI of the companies act.No such requirement under Indian GAAP.

AS 5 specifically requires disclosure of certain items as extra-ordinary items.

Under Indian GAPP, this is typically spread over several captions such as share capital, reserve & surplus, P& L debit balance, etc

IAS-1 prescribes minimum structure of financial statements and contains guidance on disclosures.

IAS-1 requires disclosure of critical judgments made by management in applying accounting policies.

IAS-1 prohibits any items to be disclosed as extra-ordinary items.

IAS-1 requires a “statement of changes in equity” which comprises all transactions with equity holders.

Revenue Recognition

AS-9 allows completed service contract method or proportionate completion method.

In case of revenue from rendering of services, IAS-18 allows only



AS-9 requires interest income to be recognized on a time proportion basis.

percentage of completion method.

IAS-18 requires effective interest method to be followed for interest income recognition.

No guidance on barter transactions.

AS-9 permits recognition when the goods are manufactured, identified and ready for delivery in such cases.

No specific guidance in the standards.

Deals with accounting of barter transactions.

Under IAS-18, payments received in advance for goods yet to be manufactured or third party sales cannot be recognized as revenue until such goods are delivered to the buyer.

For multiple elementcontracts, the standard broadly requires that eachelement is fair valued and recognized when the underlying service is performed.

Fixed Assets and Depreciation

AS-10 recommends but does not force component accounting.

Depreciation is based onhigher of useful life or schedule XIV rates. In practice most companies use schedule XIV rates.

Major repair and over haul expenditure are expensed.

IAS-16 mandates component accounting.

Depreciation is based on useful life.

Major repairs and over haul expenditure are capitalized as if it is a separate component.

Under IAS-16, if subsequent costs are incurred for replacement of a part of an item of fixed asset, such costs are required to be capitalized



AS-10 provides that only that expenditure which increases the future benefits from the existing assets beyond its previously assessed standard of performance is included in the gross book value. e.g. an increase in a capacity.

AS-6 requires retrospectively re-computation of depreciation and any excess or deficit on such re-computation is required to be adjusted in the period in which such change is effected. AS6 considers this as change in accounting policy.

Estimates of residual value are not updated.

No need to update revaluation regulatory.

Depreciation on revaluation portion cannot be recoupedout of revaluation reserveand will have to be charged to the P&L account.

No guidance in the standard. However, guidance note on oil and gas issued by ICAI requires capitalization of site restoration cost.

and simultaneously there placed part has to be de-capitalized.

In case of change in method of depreciation, IAS-16 requires effect to be given prospectively. Change in method of depreciation is treated as change in accounting estimate under IAS-16.

Estimates of residual value needs to be updated.

Revaluation is an allowedalternative treatmenthowever; revaluation willhave to be done regularly.

Depreciation on revaluation portion can be recouped out of revaluation reserve.

Provision on site-restoration and dismantling is mandatory.



Government Grants

AS-12 requires accounting at acquisition cost.

AS-12 requires enterprises to compute depreciation prospectively as a result of which the revised book value is provided over the residual useful life.

AS-12 has no such disclosure requirement.

In case of non-monitory assets acquired at nominal rate, IAS-20 permits accounting either at fair value or at acquisition cost.

In respect of grant related to a specific fixed assets becoming refundable, IAS-20 requires retrospective re-computation of depreciation and prescribes charging off the deficit in the period in which such grant becomes refundable.

IAS-20 requires separate disclosure of unfulfilled conditions and other contingencies if grant has been recognized.

Related Party Disclosures

AS-18 does not include this relationship.

AS-18 read with ASI-23 requires disclosure of remuneration paid to key management persons but does not mandate category-wise disclosures.

AS-18 provides exemption from disclosure in such cases.

AS-18 includes control over composition of board of directors in the definition of “control”.

No such disclosure requirement is contained inAS-18.

AS-18 prescribes a

The definition of related party under IAS-24 includes post employment benefit plans of the enterprise or of any

other entity, which is related party of the enterprises.

IAS-24 requires compensation to KMPs to be disclosed category-wise including share-based payments.

No concession is provided under IAS-24 where disclosure of information would conflict with the duties of confidentiality in terms of statute or regulating authority.

The definition of “control” under IAS-24 is restrictive on the count that it does not include control over composition ofboard of directors.



rebuttable presumption of significant influence if 20% or more of the voting power held by any party.

Transactions between state controlled enterprises are not required to be disclosed under AS-18.

IAS-24 requires disclosure of terms and conditions of outstanding items pertaining to related parties.

IAS-24 does not prescribe are but table presumption of significant influence.

No exemption.

Conclusion:There are significant difference between Indian Accounting Standard

and International Accounting Standard. However, both the countries are planning to implement IFRS to cope up with these differences.

Comments on Balance Sheet of Infosys Technology Systems:



1) INCOME STATEMENT

Each framework requires prominent presentation of an income statement as a primary statement.

Format

IFRS: There is no prescribed format for the income statement. The entity should select a method of presenting its expenses by either function or nature; this can either be, as is encouraged, on the face of the income statement, or in the notes. Additional disclosure of expenses by nature is required if functional presentation is used. IFRS requires, as a minimum, presentation of the following items on the face of the income statement:

1. Revenue;

2. Finance costs;

3. Share of post-tax results of associates and joint ventures accounted for using the equity

4. Method;

5. Tax expense;

6. Post-tax gain or loss attributable to the results and to re-measurement of discontinued operations;

7. Profit or loss for the period.

The portion of profit or loss attributable to the minority interest and to the parent entity is separately disclosed on the face of the income statement as allocations of profit or loss for the period. An entity that discloses an operating result should include all items of an operating nature, including those that occur irregularly or infrequently or are unusual in amount.

Indian GAAP: Presentation in one of two formats. Either:

1. A single-step format where all expenses are classified by function and are deducted from total income to give income before tax;

2. A multiple-step format where cost of sales is deducted from sales to show gross profit, and other income and expense are then presented to give income before tax. SEC regulations require registrant’s to categories expenses by their function. Amounts attributable to the minority interest are presented as a component of net income or loss.

IFRS:



The total of income and expense recognized in the period comprises net income. The following income and expense items are recognized directly in equity:

1. fair value gains/(losses) on land and buildings, intangible assets, available-for-sale investments and certain financial instruments;

2. foreign exchange translation differences;3. the cumulative effect of changes in accounting policy;4. changes in fair values of certain financial instruments if designated as cash flow hedges,

net of tax, and cash flow hedges reclassified to income and/or the relevant hedged asset/liability; and

5. actuarial gains and losses on defined benefit plans recognized directly in equity (if the entity elects the option available under IAS 19,Employee Benefits, relating to actuarial gains and losses).

Indian GAAP:Similar to IFRS, except that revaluations of land and buildings and intangible assets are prohibited under US GAAP. Actuarial gains and losses (when amortized out of accumulated other comprehensive income) are recognized through the income statement

2) Statement of changes in share (stock) holders’ equity

IFRS:Presented as a primary statement unless a SoRIE is presented as a primary statement. Supplemental equity information is presented in the notes when a SoRIE is presented (see discussion under ‘Presentation’ above). In addition to the items required to be in a SoRIE, it should show capital transactions with owners, the movement in accumulated profit and are conciliation of all other components of equity. Certain items are permitted to be disclosed in the notes rather than in the primary statement.

Indian GAAP:Similar to IFRS, except that US GAAP does not have a SoRIE, and SEC rules permit the statement to be presented either as a primary statement or in the notes.

Bibliography



•Financial Reporting Volume 1.-The institute of Chartered Accountant’sof India.

•WWW.IRFS,COM

•WWW.ICAI.Org


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