Accounting Standards and Disclosure Requirements

Session Objectives To give a brief about the different accounting standards to the participants including the Government Accounting Standards being developed by GASAB; To discuss the major Accounting Standards of ICAI; To explain the disclosure requirements in Financial Management

Introduction Why? To establish rules relating to recognition, measurement and disclosures for true, fair, transparent and comparable financial statements What? Set of pronouncement by various regulatory authorities

Different Accounting Standards Formulated by Accounting Standard Boards International Accounting Standards by US Securities & Exchange Commission Australian Accounting Standards by AASB Accounting Standards by ASB, Financial Reporting Council, UK Indian Accounting Standards formulated by ICAI Indian Government Accounting Standards by GASAB

Accounting Standards followed in India ICAI Accounting standards are followed by all the Companies in India including PSUs. These standards are mostly mandatory for the Companies Disclosures may vary from Company to Company, depending on their declared accounting policies and subject to the mandatory Accounting Standards.

AS-1 Disclosures of Accounting Policies Disclosures of specific accounting principles and methods of their application in preparation and presentation of financial statements. Should form part of the financial statements and be disclosed at one place

AS-2 Valuation of inventories Applicable to accounting of inventories other than WIP, stock-in-trade, inventories of livestock, agriculture, forest products and minerals Inventories are valued at cost or net reliable value whichever is lower; Overheads are absorbed Financial statements should disclose the accounting policies adopted in measuring inventories (including cost formula used) Totally carrying amount of inventories with appropriate classification

AS-3 Cash Flow Statements Enables users to evaluate changes in net assets of an enterprise and its financial structure as well as to effect the amounts and timings of cash flow Should report Cash flows during the period Classified by operating, investing and financing activities

AS-4 Contingencies and Events occurring after B/S date Events that occur between the balance sheet date and the date of approval by the Board of Director/corresponding authority. 2 types of events Adjusting those providing further evidence of conditions on B/S date Adjustments need to be made in the assets and liabilities Non-adjusting indicative of events arising subsequent to B/S date

AS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies To prescribe the classification and disclosure of certain items in the statement of profit and loss Disclosure include Distinct depiction of prior items under relevant heads

AS-6 Depreciation Accounting Various disclosures required are: Historical/analogous cost for each class for depreciable asset Total Depreciation for the period for each class of asset Related accumulated deprecation Depreciation methods Depreciation and written down values/lives

AS-7 Construction Contracts Arises because formulation of a construction contract and its execution usually fall in different accounting periods Exception of AS-2 as profit on inventories is recognized in case of construction contracts Disclosure requirements include: Amount of contract revenue recognizable for the period Methods used to determine the same, Methods used to determine the stage of completion of the contract Aggregate amount of net profits till date, advances received, retentions, Balance amounts due to be shown as assets/liabilities

AS-9 Revenue Recognition Recognition of revenue from Sale of goods Rendering of services Interest, royalty, dividend from resources Not applicable in case of construction, lease- purchase, insurance contracts, government grants and such subsidies; Disclosure must include Postponement of revenue recognition apart from significant accounting policies

AS-10 Not applicable in case of forests, livestock, plantations, minerals, real estate development Disclosures include Gross/net value of fixed assets at the beginning and end of accounting period with detailed workings Revaluations, if any

AS-11 Effects of Changes in Forex Rates Recognition of exchange gains losses Treatment of foreign operations Forward exchange contracts for trading/speculation Disclosure requirements Amount of exchange differences included in net profit/loss for the period Accumulation and reconciliation of net exchange differences

AS-12 Accounting for Government Grants Includes subsidies, cash incentives, duty drawbacks Two approaches Capital approach as part of shareholders’ funds Income approach-Taken into income Disclosure requirements include the nature and extent of grants recognized in the financial statements and the policy thereto.

AS-13 Accounting for Investments To harmonise the accounting of various kinds of investments Disclosure requirements include: Carrying amount of investments and aggregate value of quoted and unquoted investments and accounting policy thereto Classification of investments Amounts included in P&L A/c Restriction on rights of ownership, reliability of investments, remittance, etc.

AS-14 Accounting for Amalgamations For amalgamations and resultant goodwill and reserves Disclosures include All details of amalgamating companies and amalgamation procedure including sanctions, treatment of shares, value of assets, etc.

AS-15 Employee Benefits Required to prescribe the accounting and disclosure for employee benefit. An enterprise to recognize: (a) A liability when an employee has provided service in exchange for which employee benefits to be paid in the future; and (b) An expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. Disclosure of All details and accounting policies pertaining to defined benefit plans Actuarial gains/losses Reconciliation of balances, Returns on plan assets Past service costs

AS-16 Borrowing Costs For accounting for borrowing costs including interest, commitment charges, amortisation of discounts etc., finance charges, exchange differences in r/o foreign currency borrowings Financial Statements to disclose Accounting policy for borrowing costs Amount of borrowing costs capitalised

AS-17 Segment Reporting Information regarding different types of operational products and services of an entity Disclosure is required Only for reportable segments whose financial indicators are 10% or more than those of the entire entity Detailed break up of all indicators Any changes in segmental accounting policies Information on types of products/services/geographical details Some disclosures are recommendatory

AS-18 Related Party Disclosures Applicable for transactions between the reporting enterprise and it’s related parties Disclosures include Relations pertaining to control Exact details about the relationships

AS-19 Leases For all assets are leased. Includes Operational Lease, Finance Lease and ‘Sale and Leaseback’ Disclosure requirements to be made by both lessor and lessee The gross carrying amount Depreciation details Loss and profit details Lease details

AS-20 Earnings Per Share (EPS) Used to assess the profitability of an enterprise The A.S. deals with determination and presenation of the same Disclosures include EPS details of each class of share on face of P&L a/c Also in case of extraordinary item/class of share

AS-21 Consolidated Financial Statements Applicable for a group of Companies under a common parent Lays down principles and procedures for preparation and presentation of a consolidated financial statement for the group as a whole to show: Resources, obligations and results of the group as an entity

Other Accounting Standards (not discussed) AS22: Accounting for deferred Taxes on Income AS23: Accounting for Investments in Associates AS24: Discontinuing Operations AS25: Interim Financial Reporting AS26: Intangible Assets AS27: Financial Reporting of Interests in Joint Ventures AS28: Impairment of Assets AS29: Provisions, Contingent Liabilities and Contingent Assets

Assignment A7_S20