Accounting Standards 28 December 2011 Nishita Singhal

What are Accounting Standards Why Accounting Standards Accounting Standards in India Legal Provisions National Advisory Committee on AS Companies (Accounting Standards) Rules, 2006 Applicability of AS for Companies International Accounting Standards Convergence with IFRS Current Scenario Procedure of issue of AS by ICAI

What are Accounting Standard Accounting Standards (ASs) are written policy documents issued by expert accounting body or by government or any other regulatory body. Issuance Accounting Standards covers the aspects of recognition, measurements, treatment, presentation and disclosure of accounting transactions in the financial statements. Coverage

Why Accounting Standard To harmonise different accounting policies and practices in used in a country. To reduce the accounting alternatives in the preparation of financial statements To ensure comparability of financial statements of different enterprises To call for disclosures beyond that required by the law.

Accounting Standards in India

Compliance without Compromise

Section 211 (3A): ‘ Every profit and loss account and balance sheet of the company shall comply with the accounting standards’ Section 211 (3B): ‘ Where the P & L a/c & B/S of the company do not comply with the AS, such companies shall disclose in its P & L a/c & B/S, the following:- a) the deviation from the AS; b) the reasons for such deviation; and c) the financial effect, if any, arising due to such deviation’ Section 211 (3C): ‘For the purposes of this section, the expression “accounting standards” means the standards of accounting recommended by the ICAI, constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the CG in consultation with the National Advisory Committee on Accounting Standards established u/s 210A(1) Section 227(3)(d) ‘whether, in his opinion, the P & L a/c & B/S comply with the accounting standards referred to Sec 211 (3C) 217 (2AA)(i) of the Companies Act, 1956, prescribes that the Board’s report should include a Directors’ Responsibility Statement indicating therein that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures. Companies Act 1956

NACAS (National Advisory Committee on Accounting Standards) Constituted in 1999 u/s 210A of Companies Act 1956 Role: To ‘Advise’ Central Govt. on formulation of and laying down of AS for companies. Reviews and clears AS’s of ICAI for notification by MCA under Co. Act 1956

Companies (Accounting Standards) Rules 2006 These AS are called notified accounting standards and are reproduction of standards issued by the ICAI Of the 32 Accounting Standards issued by the ICAI, 29 (1 to 7) and (9 to 29) have been notified by the Central Government

Applicability of Notified Accounting Standards for Companies Applicable to all companies except SMCs SMCs: Equity is not listed in India or outside india Not a bank, financial institution or insurance company Turnover< 50crores Public Deposits < 10Crores Should not be a holding company of Non SMC

Procedure of issue of AS by ICAI

List of Accounting Standards AS 1 Disclosure of Accounting Policies AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events Occurring after the Balance Sheet Date AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies AS 6 Depreciation Accounting AS 7 Construction Contracts AS 8 Accounting for Research and Development (Withdrawn pursuant to AS 26 becoming mandatory) AS 9 Revenue Recognition AS 10 Accounting for Fixed Assets AS 11 The Effects of Changes in Foreign Exchange Rates AS 12 Accounting for Government Grants AS 13 Accounting for Investments AS 14 Accounting for Amalgamations AS 15 Employee Benefits

Contd... AS 16 Borrowing Costs AS 17 Segment Reporting AS 18 Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions, Contingent Liabilities and Contingent Assets AS 30 Financial Instruments: Recognition and Measurement AS 31 Financial Instruments: Presentation AS 32 Financial Instruments: Disclosures

FS Finance Bill Event 11 December International Accounting Standards

International framework for AS Constitution of “the International Accounting Standards Committee (IASC)” in 1973 by developed economies. Accounting Standards issued were known as IAS. Emergence of country level GAAPs e.g. UK GAAP, US GAAP, Indian GAAP and so on. Around the year 2000, the international fraternity decided to revise the whole international framework IASC renamed as ‘International Accounting Standards Board (IASB)’ on April 1, New standards to be issued as ‘International Financial Reporting Standards (IFRS)’.

IFRS includes: 9 - International Financial Reporting Standards (IFRS) 29 - International Accounting Standards (IAS) those which are still valid 16 - Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) And 11 - Interpretations issued by the Standing Interpretation Committee (SIC).

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Convergence with IFRS in India The Central Government decided to adopt ‘IFRS’ as new framework. To facilitate convergence a core group was constituted by Ministry of Corporate Affairs (MCA) in September 2009 comprising of officials from MCA, Ministry of Finance, ICAI, SEBI, RBI, IRDA, C&AG, PFRDA, Industry representatives and other experts.

On the recommendations of Core group, the MCA announced the approach and timelines for convergence.

Approach for Convergence Two separate sets of Accounting Standards under Section 211(3C) of the Companies Act, (SMC). First set would comprise the Indian Accounting Standards, which are converged with the IFRS and shall be applicable to the specified class of companies in a phased manner. First set would comprise the Indian Accounting Standards, which are converged with the IFRS and shall be applicable to the specified class of companies in a phased manner. Second set would comprise the existing Indian Accounting Standards and would be applicable to other companies, including Small and Medium Companies Second set would comprise the existing Indian Accounting Standards and would be applicable to other companies, including Small and Medium Companies

Timelines for companies Three phases First phase 1/04/2011 First phase 1/04/2011 Second phase 1/04/2013 Third phase 1/04/2014

Current Scenario

All existing Accounting Standards are being revised and converged with corresponding IAS/IFRS. New standards to be called Ind AS. The MCA has notified convergence of 35 Indian Accounting Standards with IFRS on February 25, The date of implementation of these Ind AS is yet to be notified. The MCA has notified the revised Schedule VI applicable from 1 st April 2011—is compatible with Ind AS 1 and IAS 1.

Questions ?

NISHITA SINGHAL AEO, ICSI