Final Paper 1: Financial Reporting Chapter 1 Unit 1

CA. Sarthak Jain

Introduction

What are Accounting Standards?

What are the objectives of Accounting Standards?

Who issues Accounting Standards in India?

What is the duty of Statutory Auditor for Compliance with Accounting

Standards?

How many Accounting Standards have been prescribed? Are these applicable
to all companies irrespective of its size?

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Accounting Standards

IND AS

International Financial Reporting Standards (IFRS)

Generally Accepted Accounting Principles (Eg. US GAAPs)

Accounting Standard Interpretations

Guidance Notes

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Lets try to understand, how to
account for:
Purchase of Land
Purchase of Building alongwith Land
Construction of Building on Rented Land
Construction of Road within Building Premises
Construction of Road on Public Land
Discount received on purchase of fixed assets at
the time of purchase / subsequent to purchase
Accounting for sale of fixed asset beyond book
value / beyond original cost

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To prescribe requirements for:

Recognition;
Measurement;
Presentation and
Disclosure of monetary transactions

Accounting Standards or
Financial Reporting Standards

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ASB of ICAI
Council Members and Nominee of Central Government and associate
bodies
Study Groups First Draft

Discussed with trade and regulatory bodies

Exposure Draft

Comments of Exposure Draft

Council of ICAI approves the draft

Final AS issued

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Entities not complying with AS while
preparing financial statements shall face:
Modification in Auditors report and
Statutory Penalties, if applicable (Eg. Companies Act,
Insurance Regulatory and Development Authority Act,
etc)

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Accounting Standards are
applicable on all
business, commercial and industrial;
reporting enterprises;
preparing general purpose financial
statements

However, AS have a classified

applicability

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SME Classification

Levelwise classification of enterprises

Level I / II / III

SMC Classification

Small and Medium Companies classification

Level I / II / III
Companies (Accounting Standard) Rules 2006

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LISTING
Enterprises whose equity or debt securities are listed / to be listed whether in India
or outside India.

TURNOVER
Enterprises whose turnover for the immediately preceding accounting period on the
basis of audited financial statements exceeds Rs. 50 Crores

BORROWINGS
Enterprises having borrowings, including public deposits, in excess of Rs. 10 crores at
any time during the preceeding accounting period.

NATURE OF BUSINESS
Banks including co-operative banks, Financial Institutions, Enterprises carrying on
insurance business

GROUP ENTITITES
Holding and subsidiary enterprises of any one of the above at any time during the
accounting period.
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LISTING

Enterprises whose
equity or debt securities are
listed / to be listed whether
in India or outside India.

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TURNOVER

Enterprises whose
turnover
for the immediately preceding
accounting period
on the basis of financial statements
exceeds > Rs 50Crores

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BORROWINGS

Enterprises having borrowings, including

public deposits,
in > Rs. 10 crores
at any time during the immediately preceding
accounting period.

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NATURE OF BUSINESS

Banks including co-operative banks,

Financial Institutions,
Enterprises carrying on insurance
business

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GROUP ENTITITES

Holding and subsidiary enterprises

of any one of the above at any time
during the accounting period.

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No. Particulars Applicability

1 Disclosure of Accounting Policies I, II, III

2 Valuation of Inventories I, II, III

3 Cash Flow Statements I

Contingencies and Events Occurring After the Balance

4 I, II, III
Sheet Date

Net Profit or Loss for the period, Prior period Items and
5 I, II, III
Changes in Accounting Policies.

6 Depreciation Accounting I, II, III

7 Construction Contracts I, II, III

Accounting for Research and Development (withdrawn

8 w.e.f. 01.04.2004 for all levels of enterprises and AS 26 is As withdrawn
applicable)

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9 Revenue recognition I, II, III

10 Accounting for Fixed Assets I, II, III

11 Effect of Changes in Foreign Exchange Rate I, II, III

12 Accounting for Government Grants I, II, III

13 Accounting for Investments I, II, III

14 Accounting for Amalgamations I, II, III

Accounting for Retirement Benefits in the

15 I, II, III
Financial Statements of Employers

16 Borrowing Costs I, II, III

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17 Segment Reporting II-with modification
III- with modification

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 I
18 Related Party Disclosures II-with modification
III- with modification

I
19 Leases II-with modification
III- with modification

I
20 Earning Per Share II-with modification
III- with modification

21 Consolidated Financial Statements I

22 Accounting for Taxes on Income I,II,III

Accounting for Investments in Associates in

23 I
Consolidated Financial Statements

24 Discontinuing Operations I

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25 Interim Financial Reporting I

26 Intangible Assets I,II,III

I-with clarification
Financial Reporting of Interests in Joint
27 II-with clarification
Ventures
III-with clarification

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28 Impairment of Assets II-with modification
III-with modification

Provisions, Contingent Liabilities and

29 I
Contingent Asset

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2
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 XYZ Ltd., with a turnover of Rs. 35 crores and
maximum borrowings of Rs. 10 crores during the
previous year, wants to avail the exemptions
available in adoption of Accounting Standards
applicable to companies for the year ended
31.3.2012. Advise the management on the
exemptions that are available as per the
Companies (AS) Rules, 2006.
If XYZ is a partnership firm is there any other
exemptions additionally available.
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 XYZ Ltd. is a small and medium sized enterprise (SME) company as per Companies (AS)
Rules, 2006. The following relaxations and exemptions are available.
1. AS 3 Cash Flow Statements is not mandatory.
2. AS 17 Segment Reporting is not mandatory.
3. SMEs are exempt from some paragraphs of AS 19 Leases.
4. SMEs are exempt from disclosures of diluted EPS (both including and excluding
extraordinary items).
5. SMEs are allowed to measure the value in use on the basis of reasonable estimate
thereof instead of computing the value in use by present value technique under AS 28
Impairment of Assets.
6. SMEs are exempt from disclosure requirements of paragraphs 66 and 67of AS 29
Provisions , Contingent Liabilities and Contingent Assets.
7. SMEs are exempt from certain requirements of AS 15 Employee Benefits.
8. Accounting Standards 21, 23, 27 are not applicable to SMEs.
If XYZ is not a company, it will be treated as a level III enterprise instead of level II
enterprise; XYZ Ltd. will be exempt from requirements of AS 18 Related Party
Disclosures and AS 24 Discontinuing Operations.

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 Write short note of NACAS

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 NACAS: Under Section 210 A of the Companies
Act 1956, the Central Government, by notification,
has constituted a committee to advise the Central
Government on the formulation of accounting
policies and accounting standards for adoption by
companies or class of companies specified under
the Act. Based on the recommendations of
NACAS, the Central Government has notified AS
1 to AS 7 and AS 9 to AS 29 in Dec. 2006 in the
form of Companies (Accounting Standards) Rules,
2006.

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 AS are salt of accounting
ICAI ASB prescribes AS and till now 32
accounting standards have been issued
Auditor has to check compliance of AS while
conducting audit of general purpose FS
All business, commercial and industrial reporting
enterprise have to comply with AS
AS applicability is classified, with entities with
more stakeholders required to comply with more
AS

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GOOD LUCK &
Thank You

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