Вы находитесь на странице: 1из 81

DREAMS

Life

is purposeless without dreams. Possess electromagnetic energy. Helps you choose your mission in life. Realization of the mission requires hard work & perseverance.

Bigger Dream Life-long Learning


(Arun Moira)
JRD was a life-long learner. Azim Premji

EXCELLENCE Potential Vs. Performance


(M.Damodaran)

What is Common?

Lakshmi Niwas Mittal Kumar Mangalam Birla Indra Nooyi Osama Bin Laden

SOURCES OF ACCOUNTING REGULATIONS


Companies

Legislation : Companies Act 1956(Companies Amendment Act 2002) Stock Exchange Listing Requirement (SEBI Amendment Act 2002) Accounting Standards

AUDITORS HALL OF SHAME


Arthur

Anderson

Enron,

WorldCom, Global Crossing, Dynegy, Merck


PWC KPMG Ernest

& Young

TYCO, Satyam XEROX AOL

INDIAN GAAP
Consists

of a set of various pronouncements issued by different regulatory authorities


Predominantly controlled by the ICAI

ACCOUNTING STANDARDS
NEEDS To harmonise the diverse accounting policies and practices To achieve uniformity in the presentation of financial statements

ACCOUNTING STANDARD BOARD


To

formulate Accounting Standards To propagate the AS & persuade the concerned parties to adopt To issue guidance notes on AS & give clarification To periodically review the AS

SCOPE & STATUS


ASs

do not override the Law Initial years: ASs are recommendatory 29 Standards are now mandatory, 3 - Recommended

PROCEDURE
ASB

decides a broad area to be standardised Formation of study group Preparation of preliminary draft ASB issues Exposure Draft AS is issued under the authority of ICAI

STANDARD contains
A

statement of concepts & principles relevant to the standard Explanation of terms to be used in Standards Presentation & disclosure requirements relevant thereto Date from which the Standard is proposed to be effective

IASB
Apr,

2001: IASB replaced IASC(1973) IASC issued a total of 68 Exposure Drafts & 41 IAS(1973 to 2001) IASB publishes its standards called IFRS (International Financial Reporting Standards)

IFRS
IFRS 1:First-time adoption of International Financial Reporting Standards 2:Share-based Payments 3:Business Combinations 4:Insurance Contracts 5:Non-current Assets Held for Sale & Discontinued Operations 6:Exploration for & Evaluation of Mineral Assets 7:Financial Instruments : Disclosure 8: Operating Segments

ASB & IASB


Achievements
Failures

IASB
EU

& Australia: Adopted IFRS from 2005 Canada: To replace its GAAP with IFRS from 2011 China & Japan: Undertaken convergence projects with IASB US: FASB & IASB to eliminate differences

USA
FASB
SEC SOX

Act - 2002

Sarbanes Oxly Act, 2002


Public

Company Accounting Oversight Board (PCAOB) established


to oversee audits of public companies that are subject to US security laws to establish auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports 3 of the 5 PCAOB members cannot be and must not be CPA.

Sarbanes Oxly Act, 2002


PCAOB

requires the CEO and CFO of each issuer to certify in each periodic report to the SEC

appropriateness of the financial statements and disclosures that they fairly present, in all material respects, the operational and financial condition of an issuer.

Sarbanes Oxly Act, 2002

PCAOB requires the SEC to conduct a study of off-balance sheet transactions and use of spend-purpose-entities and reports to Congress its recommendations. Section 404: Increases Corporate managements responsibility for assessing its effectiveness of internal control over financial reporting. Regulatory focus of SOX on auditors and corporate management.

Corporate Governance: INDIA


Naresh

Chandra Committee formed immediately upon SOX for amendment of Companies Act. Followed by Narayan Murthy Committee Based on Narayan Murthy Committees recommendation

Revised Clause 49 issued on 29th October, 2004 effective 1.4.2005

Corporate Governance
Mandatory

Provision - Audit Committee Comprising of at least 3 directors and two-third being independent directors. All members shall be financially literate (ability to read financial statements) and at least one member shall have accounting or related financial management expertise (experience in the area or professional qualification).

Corporate Governance

At least 4 meetings a year and not more than 4 months shall elapse between 2 meetings. Audit Committee to mandatorily review :

M. D. & A. (Management Discussion & Analysis) of financial conditions and results Statement of significant related party transactions Management letters / letters of internal control weaknesses issued by statutory auditors. Internal audit reports relating to internal control weaknesses Appointment, removal, terms of remuneration of Chief Internal Auditors.

ACCOUNTING STANDARDS

AS-1: DISCLOSURE OF ACCOUNTING POLICIES


PURPOSE To promote better understanding To facilitate meaningful comparison WHY AS-1 Considerable variations exist P/L & state of affairs can be significantly affected by AP

FUNDAMENTAL ACCOUNTING ASSUMPTIONS


Going

concern Consistency Accrual

ACCOUNTING POLICIES
Specific

accounting principles and methods in the preparation & presentation of Fin. Sts. No single list of AP which is applicable to all circumstances

AREAS HAVING DIFFERENT APs


Methods of depreciation, depletion & amortisation Treatment of expenditure during construction Translation of foreign currency items Valuation of Inventories Treatment of Goodwill Valuation of Investment Treatment of retirement benefits Recognition of profit on long-term contracts Valuation of FA Treatment of Contingent liabilities No exhaustive list of APs

CONSIDERATIONS IN THE SELECTION OF APs


Primary

consideration: Fin. Sts. Should represent true and fair view of the state of affairs Other considerations: Prudence Substance over form Materiality

AS-1
24.

All significant accounting policies adopted in the preparation and presentation of Financial Statement should be disclosed.

25.

The Disclosure of significant APs should form part of the Financial Statements and should be disclosed in one place.

26. Any

change in the APs which has a material effect should be disclosed. The amount by which any item in the Financial Statement is affected by such change should be disclosed. Where such amount is not ascertainable wholly or in part, the fact should be disclosed

27.

If the fundamental accounting assumptions (i.e.,3) are followedSpecific disclosure is not required. If not followedThe fact should be disclosed.

AS- 2 Revised
Mandatory: 01.04.1999

VALUATION OF INVENTORIES
OBJECTIVE: Determination of the value at which inventories are carried in the Financial Statement

Inventories are assets


a)

Held for sale in the ordinary course of business. In the process of production for such sale, or In the form of materials or supplies to be consumed in the production process or in the rendering of services.

b)

c)

Inventories encompass:
Goods

purchased and held for resale Computer software held for resale Land and other property held for resale Finished goods, Work-in-progress, Materials, Maintenance Supplies, Consumables & Loose tools.

Inventories do not include


Machinery spares

AS 2 will not apply to:


a)

b)
c) d)

WIP under construction contracts WIP of service provider Shares, debentures and other financial instruments Producer inventories of live stock, agricultural and forest products and mineral oils, ores and gases

MEASUREMENT OF INVENTORIES
Inventories should be valued at the lower of cost and net realisable value

COST
The cost of inventories should comprise (1) Cost of purchase (2) Cost of conversion (3) Other cost incured in bringing the inventories to there present location and condition
Exclusion from the cost of inventory:
Abnormal amounts, Storage cost, administrative overhead, selling & distribution overhead

COST FORMULA
(1)Specific identification of cost Items not ordinarily interchangeable Goods & Services for specific projects (2) FIFO or Weighted Average cost
TECHNIQUES FOR MEASUREMENT OF COST

(1)Standard Cost (2) Retail Method

NET REALISABLE VALUE


(Estimated selling price less Estimated cost of completion) Damaged Wholly or partially obsolete Selling prices have declined Increase in estimated cost of completion

CASH FLOW STATEMENT


AS 3 Revised
Objective: Shows the historical changes in cash and cash equivalents during the period from operating, investing & financing activities.
Cash
C.E. Activities

Benefits
(1) (2) (3) (4) (5) (6)

Shows the ability to generate cash & cash equivalent Shows the need to utilise these cash flows Helps to assess liquidity & solvency Indicate the amount, timing & certainty of future cash flows Shows relationship between profit & net cash flows Useful in checking accuracy of past assessment

Cash Flow Statement


Cash flow from operating activities -----------Cash flow from investing activities -----------Cash flow from financing activities -----------_______________________________________________ Net cash increase (decrease) in cash & cash eq. -----------Cash &cash eq. at the beginning of the period -----------_______________________________________________ Cash & cash eq. at the end of the Period ------------

AS-4: CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE
Deals with:
Contingencies
Events

occurring after the Balance Sheet date

AS-4 does not apply:


Liabilities

of life assurance and general

insurance Obligation under retirement benefit plans Commitments arising from long-term lease contracts

Contingencies refers to Existing

conditions or situation. Result of which is not known on the balance sheet date. Result of which would be known only happening or non-happening of certain events in future. Result may be either gain or loss.

Examples of Contingencies:
Collectibility

of recoverable/debtors Litigation, claims and assessments for recovery of assets.

Events after Balance Sheet date:


Events

which occur between the balance sheet date and date on which financial statements are approved by competent authority. The events are significant event and may be favourable and unfavourable.

DISCLOSURE
If

material contingent loss is not provided for, its nature and an estimate of financial effect should be disclosed by way of note. If estimate of financial effect can not be made, the fact should be disclosed.

AS 5-Net profit or loss for the


period, prior period items & change in accounting policies
OBJECTIVE:
To prescribe the criteria for certain items in the P&L

a/c to enhance comparability To suggest the accounting treatment & presentations of the items not relating to the period. To deal with the change in accounting policy, accounting estimates & extraordinary items

COMPONENTS OF NET PROFIT


P&L

from ordinary activities Extraordinary items To be disclosed on the face of statement of P&L account

DISCLOSE SEPARATELY : If Relevant


Write down of inventory to NRV or reversal of such write down Restructuring cost Profit or loss on disposal of F.A. Profit or loss on disposal of long term investment Litigation settlements Reversal of provisions

EXTRAORDINARY ITEMS
Clearly

distinct from ordinary activities Not occurring frequently or regularly Nature and amount : Disclosed separately in P&L account

PRIOR PERIOD ITEM


Incomes

or expenses arising in current period as a result of error or omission in the preparation of Financial Statements of one or more prior periods Nature and amount : Disclosed separately in P&L Ex. Salary A/C Dr. Prior period expense (Salary) Dr. To Bank A/C Note: Payment of prior period expense by court order

CHANGE IN ACCOUNTING ESTIMATES

Estimation of provision of sundry debtors Estimation of provision for any liability Computing income tax provision Estimating the useful life of F.A.

To classify as ordinary & extraordinary & disclose the effect

CHANGES IN ACCOUNTING POLICIES


For

compliance of accounting standards For compliance of statute or law For better and appropriate presentation of the Financial Statement.
Disclose the effect of the change in A.P.

ACCOUNTING STANDARD - 6 DEPRECIATION ACCOUNTING

1.
2. 3. 4.

5.

Applies to all depreciable assets except: Forests, plantations and similar regenerative natural resources. Wasting assets: minerals, oils, natural gas and similar non-generative resources. Expenditure on R & D. Goodwill Live stock It also does not apply to land unless it has a limited useful life for the organisation.

Why AS for Depreciation Accounting?


DEPRECIATION: A measure of the wearing out, consumption or other loss of value arising from use, effluxion of time or obsolescence through technology and market changes.

DEPRECIABLE ASSETS are assets which: 1. are used during more than one accounting period. 2. have a limited useful life. 3. are held for use in the production or supply of goods and services.

i. ii.

USEFUL LIFE The period over which a depreciable asset is expected to be used, or The number of production or similar units expected to be obtained for the asset. DEPRECIABLE AMOUNT Historical cost or other amount substituted for historical cost Less the estimated residual value.

AMOUNT OF DEPRECIATION

Based on: i. Historical cost or other amount substituted. ii. Expected useful life. iii. Estimated residual value

HISTORICAL COST
Represents

its money outlay for acquisition, installation & commissioning as well as for additions to or improvement thereof. H.C. may undergo changes arising as a result of increase or decrease in long term liability on account of exchange fluctuations, price adjustments, changes in duties or similar factors.

The

quantum of depreciation to be provided in an accounting period involves the exercise of judgement by mgt. in the light of technical, commercial, accounting and legal requirements and may need periodical review.
estimate of useful life may be

Original

revised.

METHODS Straight line method Reducing balance method The Companies Act 1956 lays down the rates of depreciation for various assets.

DISCLOSURE
The

depreciation methods used. The total depreciation for each class of assets. The gross amount of each class of asset The accumulated depreciation. Revaluation of depreciable asset. Change in the method of depreciation

AS (Paragraphs 20-29)
20. The depreciable amount should be allocated on a systematic basis to each accounting period during the useful life. 21. The depreciation method selected should be applied consistently from period to period. A change in method should be made only if: The adoption of new method is required by statute. For compliance with an accounting standard. Change would result in a more appropriate preparation or presentation of financial statistics. Retrospective recomputation of depreciation Deficiency/Surplus adjusted in St. of profit and loss.

22. Useful life should be estimated after considering: i. Expected physical wear and tear. ii. Obsolescence iii. Legal or other limits on the use of the asset.
23. Useful lives may be reviewed periodically. The unamortized depreciable amount should be charged over the revised remaining useful life.

24. Any addition or extension should be depreciated over the remaining useful life of that asset. 25. Change in H.C.: Due to exchange fluctuation price adjustments, changes in duties etc. Depreciation on revised amount should be provided prospectively over the residual useful life.

26.

Revaluation of asset: Depreciation on revalued amount. Disclosed separately if revaluation has material effect on the amount of depreciation.

27. If the asset is disposed of, discarded, demolished or destroyed, the net surplus of deficiency; if material , should be disclosed.

28. Disclose: i. H.C. or other amount substituted for H.C. ii. Depreciation for the period for each class. iii. The related accumulated depreciation.
29. Disclose: along with other accounting policies i. Depreciation methods used ii. Depreciation rates or the useful lives if they are different from statute.

ACOUNTING FOR FIXED ASSETS (AS-10)


This statement does not deal with: i. Forest plantations & similar regenerative natural resources. ii. Wasting assets iii. Expenditure on real estate development iv. Livestock Applies to Financial statements prepared on H.C. basis.

FIXED ASSET: Definition


Fixed

asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. (para 6.1)

GROSS

BOOK VALUE of a fixed asset is its historical cost or other amount substituted for historical cost. BOOK VALUE: Net of accumulated depreciation

NET

WHY THIS STANDARD? Expenditure: An asset or an expense An enterprise may decide to expense an item which could otherwise have been included as fixed assets, because the amount of the expenditure is not material.

COMPONENTS OF COST

Purchase price including import duties & other non-refundable taxes or levies & any directly attributable cost.

i. ii.

iii.
iv.

Examples Site preparation Initial delivery & handling costs Installation cost Professional fees

AS (Paragraphs 18-39)
18. Items included under F.A. : Para 6.1 19. Gross Book Value: Historical cost or Revaluation. 20. Cost of a F.A. : Purchase price Attributable cost Financing cost up to completion of F.A.

21. Cost of a Self-constructed F.A.: Direct costs Attributable costs


22. F.A. acquired in exchange for another F.A. Recorded at fair market value or, net book value Adjusted for balancing payment/receipt. FMV: Price agreed to in an open and unrestricted market between knowledgeable & willing parties.

23. Subsequent expenditures Added if they increase future benefits. 24. Material items retired from active use & held for disposal Stated at the lower of their net book value & net realizable value: Shown separately.
25. F.A. eliminated from Financial Statements: On disposal or no further benefit is expected from its use.

26. Losses arising from retirement or, gains or losses arising from disposal: Recognised in P & L A/C.
27. Revaluation of F.A. An entire class of assets to be revalued or, systematic selection of assets for revaluation. Basis of selection should be disclosed. 28. Revaluation of a class of assets Net book value Recoverable amount

29. F.A. revalued upwards Accumulated depreciation not credited to P & L A/C
30. Increase in net book value on revaluation Credited to Revaluation Reserve P/L: Increase decrease on previous revaluation Decrease in net book value on revaluation - Charged to P/L - Charged to Revaluation Reserve: if previously increased

31. F.A. at revaluation: Para 23,24 &25 applicable.


32. Disposal of revalued F.A.: - Difference charged or credited to P/L - Revaluation Reserve: If loss relates to previous increase & RR is not utilised

33. F.A. on hire purchase: At cash value Shown in Balance Sheet with narration.
34. Joint ownership of F.A. Proportion of original cost, accumulated depreciation & written down value: Shown in Balance Sheet

Вам также может понравиться