accounting standards an overview

Accounting Standards-An Overview

To standardize accounting methods and procedures.

To lay down principles for preparation and presentation.

To establish benchmark for evaluating the quality of financial statements prepared by the enterprise.

To ensure the users of financial statements get creditable financial information.

To attain international levels in the related areas

OBJECTIVES

Accounting Standards and The Companies Act, 1956Section 211 sub sections (3 A), (3 B) and (3 C) inserted by the Companies Amendment Act, 1999 w.e.f. 31.10.1998:

(3A) every P & L Account and Balance Sheet shall comply with accounting standards,

(3 B) deviations, if any, to be disclosed with reasons and financial effect of deviation,

(3 C) "accounting standards" means standards of accounting recommended by ICAI or as may be prescribed by Central Govt. in consultation with National Advisory Committee on Accounting Standards.

LEGAL STATUS

Section 217 sub section (2AA) inserted by the Companies Amendment Act, 2000 w.e.f. 13.12.2000:

(2AA) The Board's report shall also include a Directors' Responsibility Statement indicating therein (1) that in preparation of annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departure.

Section 227 sub section (3)(d) inserted by the Finance Act, 1999 w.e.f. 31.10.1998:

(3)(d) the auditor's report shall also state whether, in his opinion, the P & L Account and the Balance Sheet comply with accounting standards referred in section 211 (3C),

(4) where answer to (3)(d) is negative or with qualification, it shall also state the reasons thereof.

LEGAL STATUS

AS-1 DISCLOSURE OF ACCOUNTING POLICIES

AS-2 VALUATION OF INVENTORIES AS-3 CASH FLOW STATEMENTS AS-4 CONTINGECIES AND EVENTS

OCCURING AFTER THE BALANCE SHEET DATE

AS-5 NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES

LIST OF ACCOUNTING STANDARDS

AS-6 DEPRECIATION ACCOUNTING AS-7 ACCOUNTING FOR CONSTRUCTION

CONTRACTS AS-8 ACCOUNTING FOR RESEARCH AND

DEVELOPMENT AS-9 REVENUE RECOGNITION AS-10 ACCOUNTING FOR FIXED ASSETS


AS-11 ACCOUNTING FOR 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 ACCOUNTING FOR RETIREMENT

BENEFITS IN THE FINANCIAL STATEMENTS OF EMPLOYERS

AS-16 BORROWING COSTS


AS - 17 SEGMENT REPORTING AS - 18 RELATED PARTY DISCLOSURES AS - 19 LEASES AS - 20 EARNING PER SHARE AS - 21 CONSOLIDATED FINANCIAL

STATEMENTS AS - 22 ACCOUNTING FOR TAXES ON

INCOME

RECENTLY ISSUED ACCOUNTING STANDARDS WITH DETAILS

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 VENTURE


AS – 28 IMPAIRMENT OF ASSETSAS – 29 PROVISIONS, CONTINGENT

LIABILITIES AND CONTINGENT ASSETSAS – 30 FINANCIAL

INSTRUMENTS:RECOGNITION AND MEASUREMENT

AS – 31 FINANCIAL INSTRUMENTS:PRESENTATION

AS – 32 FINANCIAL INSTRUMENTS:DISCLOSURES


ObjectiveStatements are presented by a parent (holding enterprise ) -

to provide financial information about the economic activities of its group

to show economic resources controlled, the obligations of and results achieved by the group.

Accounting Standard lays down principles and procedures for preparation and presentation of consolidated financial statements

AS-21 CONSOLIDATED FINANCIAL STATEMENTS

Should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent.

Should also be applied in accounting for investments in subsidiaries in a separate financial statements of a parent.

Does not deal with methods of accounting for amalgamations, accounting for investments in associates and joint ventures

Scope

A parent which presents consolidated statements should :

Present these statements in addition to its separate financial statements.

Consolidate all subsidiaries, domestic as well as foreign.

A subsidiary should be excluded when control is temporary or when it operates under severe long term restriction.

Disclose the reason for not including the subsidiary

Scope of Consolidated Financial Statements

A subsidiary is an enterprises that is controlled by another enterprise known as the parent.

A group is a parent and its subsidiaries. Control means the ownership of more than

half of the voting power of an enterprise or control of the composition of BOD so as to obtain economic benefits from its activities

Consolidated Financial Statements are the financial statements of a group presented as those of a single enterprise.

Definitions

To be combined on line to line basis. Cost to the parent of its investment in each

subsidiary and the parent's portion of equity of each subsidiary to be eliminated,

The excess or deficiency to be treated as Goodwill / Capital Reserve

Intra group balances, intra group transactions and resulting unrealized profits and losses to be eliminated in full (unrealized losses should not be eliminated if cost cannot be recovered)

Consolidated Procedures

The financial statements should be drawn up to the same reporting date. If not practicable, difference should not be more than six months.

Minority interest in net income of the consolidated subsidiary to be adjusted against the group income

Minority interest in net assets to be presented separately from liabilities and the equity of the parent's shareholders.If minority's share of loss exceeds the minority interest in the equity of the subsidiary, such excess is to be adjusted against majority interest.


Subsequently, in case of profits in future, all such profits are allocated to the majority interest, unless previous losses absorbed by the majority are recovered.

Parent's share of profits in subsidiary, should be adjusted for Preference Dividend, whether declared or not on Preference Shares of subsidiary held outside the group.


On disposal of subsidiary, the difference between proceeds from disposal and carrying amount of net assets is treated as profit / loss on disposal in consolidated financial statements.

Investment to be recorded as per AS-13 in individual financial statement of parent from the date it ceases to be a subsidiary

Other Points

List of all subsidiaries including name, country of incorporation, proportion of ownership interest and voting power held.

Nature of relationship between the parent and a subsidiary, if the parent does not own more than half of the voting power of the subsidiary.

Effect of the acquisition or disposal of subsidiaries on the financial position at the reporting date.

Name of the subsidiaries of which reporting dates are different from that of parent's and the difference in reporting dates.

Disclosures

If it is not practicable to use uniform accounting policies, the fact together with the proportion of such items in consolidated financial statements to which different accounting policies apply should be disclosed.

If a member uses different accounting policies, for reasons other than those stated above, appropriate adjustments should be made in consolidated financial statements.

Accounting policies used should be disclosed

accounting standards an overview

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