ACCOUNTING STANDARDS

ACCOUNTING STANDARDS P.GURU PRASAD FACULTY MEMBER  ACADEMIC ACADEMIC ACADEMI C COORDINATOR  COORDINA COORDINATOR  TOR 

ACCOUNTING STANDARDS

The term standard denotes a discipline, which provides both guidelines and yardstick for  evaluation. As guidelines, they   provide uniform practices and common techniques.

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ACCOUNTING STANDARDS

Accounting bodies throughout the world are striving to achieve a reasonable degree of uniformity in the accounting policies by   prescribing certain accounting standards with respect to collection and presentation of accounting information

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ACCOUNTING STANDARDS 

To formulate the accounting standards, they established a committee called the international accounting standards committee (IASC) in 1973.

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Accounting bodies of most of the countries, including Institute of Chartered Accountants of India ( ICAI ) are the members of this body and these members have resolved to conform to the standards developed by IASC

The objective of the committee 

Formulating , publishing, and promoting the use of the accounting standards world wide.

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To work for improvement and harmonization of regulating accounting standards and procedures relating to financial statements

The importance of A.S 

Globalization of the economy has led to Indian companies expanding their  operations across the borders and this calls for uniformity in accounts of their  facilities located in different countries.

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Foreign investors would give more weight -age to the accounts of those companies which are based on IAS

Accounting Standards Board of  India (ASB) 

Recognizing the need to harmonize the diverse accounting polices and practices prevalent in India , the ICAI constituted ASB on April 21st 1977. the standards are intended to apply only to items which are material. Also the A.S cannot canno and do not override the local regulations which govern the preparation and presentation o financial statements in our country

Auditors Duties 

In case the company does not conform to any of the mandatory accounting standards, the auditor will have to qualify his report by justifying his deviation. In case he fails to do so the ICAI can take disciplinary action against him on the ground of professional misconduct

29 Accounting Standards The accounting standards board has in line with the international standards, issued twenty nine standards to be followed by its members, while auditing the accounts of companies. The important importan standards discussed in our course  book 

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Differing accounting policies 

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Methods of Depreciation, Depletion and Amortization. Valuation of Inventories Treatment of Good will Valuation of Investments Treatment of Retirement Benefits Valuation of Fixed Assets Treatment of Contingent Liabilities the above list of differing accounting polices are not exhaustive .

AS-1 – Disclosure of Accounting Policies

To ensure proper understanding of  financial statements, it is necessary that all significant accounting   policies adopted in the preparation and presentation of financial statements statements should be disclosed.

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AS-1 – Disclosure of Accounting Policies 

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Any change in an accounting policy which has a material effect on current and future periods should be disclosed. For this purpose, the major considerations governing the selection and application of  accounting policies are: Prudence Substance over form Materiality.

AS-1 – Disclosure of Accounting Policies 

 prudence: in view of the uncertainty attached to future events, profits are not anticipated but recognized only when realized though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information

AS-1 – Disclosure of Accounting Policies 

  Substance over Form : the accounting treatment and presentation in financial statements of transactions and events should  be governed by their substance and not merely  by the legal form

AS-1 – Disclosure of Accounting Policies 

 Materiality: financial statements should disclose all “material” items, i.e. items the knowledge of which might influence the decisions of the user of the financial statements.

AS-1 – Disclosure of Accounting Policies 

If the fundamental accounting assumption like Going Concern, Consistency and Accrual  are followed in financial statements, specific disclosure is not required.

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If a fundamental accounting assumption is not followed , the fact should be disclosed

Companies Amendment Act,1999 

Realizing the importance of accounting standards, the companies amendment act,1999 has inserted subsec(3A),(3B),(3C) in the section 311, which provides that every company has to follow the accounting standards as issued by the ICAI

AS-1 – Disclosure of Accounting Policies 

Since the accounting polices adopted could vastly differ from company to company and even year to year in respect of the same company, AS-1, by forcing the disclosure o accounting policies ensures that the users o the financial statements would be able to do a meaningful comparison of such statements and draw proper conclusion from them

AS-1 – Disclosure of Accounting Policies 

 Disclosure:- to ensure proper understanding of  financial statements, it is necessary that all significant accounting policies adopted in the  preparation and prevention of financial statements should be disclosed.

Accounting standard - 4 

AS – 4 deals with the treatment in financial statements of contingencies and events occurring after the balance sheet date.

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However it does not cover  certain contingencies such as liabilities of life assurance and general insurance enterprises arising from the policies issued, obligations under retirement benefit plans, and commitments arising from long term lease contracts in view of special considerations applicable to them

Accounting standard - 4 

The accounting treatment of a contingent loss is determined by the expected outcome of the contingency. If it is likely that a contingency will result in a loss to the enterprise, then it is  prudent to provide for that loss in the financial statements.

Accounting standard - 4 

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Contingent gains are not recognized in financial statements since their recognition may result in the recognition of revenue, which may never be realized. A substantial legal claim against/in favor of  the enterprise may represent a contingency.  Disclosure:- If a reliable estimate of the financial effect cannot be made, this fact is disclosed.

Events occurring after the balance sheet date 

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Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the  balance sheet date. For example, an adjustment may be made for a loss on a trade receivable account, which is confirmed by the insolvency of a customer, which occurs after the balance sheet date

Events occurring after the balance sheet date 

Adjustments to assets and liabilities are not appropriate for events occurring after the  balance sheet date, if such events do not relate to conditions existing at the balance sheet date.

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An example is the decline in market value of  investments between the balance sheet date on which the financial statements are approved.

Events occurring after the balance sheet date 

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There are events , which , although they take   place after the balance sheet date, are sometimes reflected, in the financial statements because of statutory requirements or because of their special nature. Such items include the amount of dividend  proposed or declared by the enterprise after the   balance sheet date in respect of the period covered by the financial statements

Events occurring after the balance sheet date 

Events occurring after the balance sheet date may indicate that the enterprise ceases to be a going concern. Worsening in operating results and and financial  position, or unusual changes affecting the existence or substratum of the enterprise after the balance balance sheet sheet date (e.g., destruction of a major production plant by a fire after the balance sheet date) may indicate a need to consider whether it is proper to use the fundamentall accounting assumption of going concern fundamenta in the preparation of the financial statements

Events occurring after the balance sheet date 

 Disclosure :- when the events occurring after  the balance sheet date are disclosed in the report of the approving authority, the information given comprises the nature of the events and an estimate of their effects or a statement that such an estimate cannot be made.

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