AMITY BUSINESS SCHOOL, AMITY UNIVERSITY HARYANA

MBA-ACCOUNTING FOR MANAGERS

BATCH 2023-25

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1.Basic Terminology
Entity
An entity means an economic unit that performs economic activities(Tata Steel, Reliance
Industries, Infosys)
Event
An event is a happening of consequence to an entity(use of raw materials for production).
Events other than transactions do not involve exchange of value or resources and not
immediately measurable in monetary value(ex: quarrel between finance manager and
production manager)
Business transaction
A business transaction is an exchange in which each participant receives or sacrifices value(
ex: purchase of raw material for cash or credit). It involves an economic event that relates to a
business entity involving transfer of money or money’s worth
Account
An account is a summary of relevant transactions relating to a particular head
Assets
Assets refer to tangible objects or intangible rights of an enterprise which carry probable
future benefits. In other words, an asset is a resource controlled by the enterprise as a result
of past events and from which future economic benefits are expected to flow to the enterprise
(i) Current assets: assets which are held in the form of cash,or for their conversion into cash
normally within 12 months from the date of the balance sheet(ex: cash in hand, cash at bank,
stock of finished goods, debtors, bills receivables etc)
(ii) Fixed assets: refer to those assets that are held for the purpose of producing or providing
goods or services and those that are not held for resale in the normal course of business.
Fixed assets may be classified into
a) Tangible fixed assets: refer to those fixed assets that have physical existence(ex: land
and building, plant and machinery, furniture etc)
b) Intangible fixed assets: refer to those fixed assets that do not have physical existence(ex:
goodwill, patent, trademarks, copyrights etc)
(iii) Fictitious assets: fictitious assets either represent accumulated losses or deferred revenue
expenses not yet written off till the date of the balance sheet( legal or professional fees, logo
designing cost, printing, registration fees, stamp duty, underwriter fees, discount on issue of
debentures, etc)
Capital
Capital refers to the amount invested in an enterprise by the proprietor. This amount is
increased by the amount of profit and additional capital introduced and is decreased by the
amount of losses incurred and the amount withdrawn. It is also known as owner’s equity or
net assets or net worth. Capital=Assets-liabilities
Drawings
refers to the total amount of cash or goods or any other asset withdrawn by the proprietor
Goods
refer to the items in which the enterprise deals in or things which are bought and sold by
business
Purchases
refers to the total amount of goods obtained by an enterprise for resale or for use in the
production of goods or rendering services in the normal course of business
Sales
refers to the amount for which the goods are sold or services rendered
Stock(inventory or merchandise)
refers to tangible property held for sale in the ordinary course of business or for
consumption in the production of goods or services for sale(stock of raw materials)
Trade debtors
refer to the persons from whom the amounts are due for goods sold or services rendered on
a credit basis(ex: 5 TVs are sold to Mr.Ram @ Rs20,000 each on credit, Mr. is a trade debtor
of the business)
Bills receivables
A bill of exchange is an unconditional order in writing given by the creditor to the debtor to
pay on demand or at a fixed or determinable future time, a certain sum of money to or to the
order of a specified person to the bearer. This bill of exchange is known as bill receivable for
the creditor
Trade receivables
This includes trade debtors and bills receivables

Trade creditors
 refers to the persons to whom the amounts are due for goods purchased or services rendered
on credit basis(ex: 100 units are purchased at Rs 1000 each from Mr.Shyam on credit,
Mr.Shyam is a trade creditor of the business)
Bills payables
bill of exchange is known as bills payable for the debtors
Trade payables
includes trade creditors and bills payables
Capital expenditure
refers to an expenditure incurred to acquire assets to increase the productivity or earning
capacity(cost of land and building, cost of plant and machinery etc)
Revenue expenditure
refers to expenditure incurred to maintain the productivity or earning capacity of a business,
or to carry out operating activities in the normal course of business(rent of machine, repairs
of buildings, insurance of business etc)
Net profit
refers to the excess of revenue and gains over its related expenses and losses during an
accounting period. This increases owner’s equity.
Gains
refers to increases in equity from incidental transactions of an entity and from all other
transactions and other events and circumstances the entity during the accounting period (ex:
profit on sale of securities is considered as operating gain, profit on sale of fixed asset)
Voucher
refers to documentary evidence in support of a business transaction( ex: in case of cash
purchases, cash memos, and in case of credit purchases, purchase invoices are vouchers).
They act as source documents on the basis of which transactions are recorded in the books of
accounts.
 • Who prepares purchase invoice?
• For an invoice, the seller makes it and sends it to the buyer. Since an invoice details
payments for goods and services, the seller keeps this record and sends it to the buyer
to ensure they receive payment. For a purchase order, the buyer makes it and sends it
to the seller.
Account(in detail)
-somebody’s report or description of something that has happened.
-The arrangement by which a bank, post office, etc. looks after your money for you.
-An account is a summarised record of the relevant transactions relating to a particular head. -
It records not only the amount of transactions but also their effects and directions. For
example, a cash account will show all of the cash received and paid.
Specimen of account:
Dr Sales Account
Cr
Date Particulars JF Amount(Rs) Date Particulars JF Amount(Rs)

2.Types of account and Rules for Debit and Credit

• Real account − It relates assets and liabilities; it does not include people accounts.
They carry forward every year.
Rule for Dr and Cr: Debit what comes in and Credit what goes out
 • Personal account − Connects individuals, firms, and associations accounts.
Rule for Dr and Cr: Debit the receiver and Credit the giver
• Nominal account − Relates all income, expenses, losses and gains accounts
Rule for Dr and Cr: Debit all expenses and losses and Credit all incomes and gains

Book-Keeping Maintenance Systems

• Double-entry bookkeeping is a method of recording transactions where for every
business transaction, an entry is recorded in at least two accounts as a debit or credit.
In a double-entry system, the amounts recorded as debits must be equal to the
amounts recorded as credits
• A single-entry system of bookkeeping is where the transactions of the business affect
only one account, i.e. only one account's value will decrease or increase based on the
transaction amount. Under this system, a cash book is prepared that shows the
payment and receipts of the cash transactions

3.Definition and Meaning of Accounting

“Accounting is an art of recording, classifying and summarizing in a significant manner and
in terms of money, transactions and events which are, in part at least of financial character,
and interpreting the results thereof”.
(American Institute of Certified Public Accountants-1941)
Modern definition
“Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgements and decisions by users of information”.
(American Accounting Association-1966)

meaning
In general Accounting is considered as the language of business throughout the world. In a
simple term the language is the means of communication of ideas or feelings by the use of
conventionalized signs, gestures, marks and articulated vocal sound. It is effectively
employed to communicate the financial performance of business to various interested parties

or stakeholders.

In the same way, the accounting language serves as a means to communicate matters relating
to various aspects of business operations. As the individual business enterprises keep their
accounting records separately, the offer to communicate is essentially from a business
enterprise to various individuals, groups and institutions that are having interest in the
operations and results of that enterprise. Now, although accounting is generally recognised
with the business, trade and profession, the business enterprise is not the only kind of
organisation that makes use of accounting. Legal entities ranging from individual to
governments use and prepare accounting to obtain information on the financial condition and
performance of the entity in question. Just as the business enterprises (like firms, companies,
societies and institutions keep their accounts, so can the nations and even the individual
owners of the business and profession entities.

It is necessary to have a good knowledge of accounting-grammar (in the shape of

construction of accounts, conventions, concepts, postulates, principles, standards etc.) to
interpret accounting information for purposes of communication, reporting, decision making
or appraisal.

4.Process of Accounting
On the basis of the above definition the process of accounting is given:
In order to accomplish its main objective of communicating information to the users,
accounting embraces the following functions:

(i) Identifying: Identifying the business transactions from the source documents.

(ii) Recording: The next function of accounting is to keep asystematic record of all business
transactions. Recording is done in the order of their occurrence. First transactions are
recorded in the book called journal. This journal is again further be divided into several
subsidiary books according to the size and nature of business.

(iii) Classifying: Classification refers to the process of analysing and grouping the recorded
data in one place on the basis of their nature to get the instant information. The book where
the classification is done is called Ledger.

(iv) Summarising: Summarising refers to the preparation and presentation of classified data
in a useful form to the users of accounting information. In this process the financial statement
are prepared which are:

(a) Profit & Loss Account

(b) Balance Sheet

(c) Cash Flow Statement

(v) Analysing: The accounting information which are presented by financial statements
may not be easily understandable to everyone. So this requires the simplification of the data
from financial statements. Therefore analysing refers to the process of simplification of the
data presented in financial statements to make the users easily understandable.

(vi) Interpreting: Interpreting in the process of explaining the meaning and significance of
the simplified data established by the analysis. Interpretation helps the users to take correct
decisions on the basis of the information available.

(vii) Communicating: The results obtained from the summarised, analysed and interpreted
information are communicated to the interested group of users.

5.Need and Importance of Accounting

The objective doing every business whether large or small is to earn profit. In a business, the
businessman receives money from certain sources like sale of goods, interest on bank
deposits etc. He also spends money on certain items like purchase of goods, salary, rent,
electricity, insurance etc. These activities help in carrying out the operation of the business.
At the year end, the businessman would like to know the progress of his business. A large
number of business transactions take place, because of which it is not possible to recall by the
businessman with his memory as to how the money had been earned and spent. But, if the
business man notes down his incomes and expenditures, he can readily get the required
information. Thus, the details of the business transactions have to be recorded in a clear and
 systematic manner to get answers easily and accurately for the following questions at any
time the businessman likes:

 What are the revenues and expenses?

 What is the result of the business transactions?
 Is business making any profit?
 Am I making or losing money from my business?
 How much amount is receivable from customers to whom goods have been sold on credit?
 How much amount is payable to suppliers on account of credit purchases?
 How much is owed to the business?
 How much do the business owe to others?
 Should I put more money in my business or sell it and go into another business?
 How can I change the way I operate to make more profit?

All the above and several other questions are answered with the help of accounting. The need
for recording business transactions in a clear and systematic manner is the basis which gives
rise to Accounting.

Financial Reporting:

Several reporting frameworks, most notably Generally Accepted Accounting Principles

(GAAP), International Financial Reporting Standards (IFRS), etc. mandates a specific
manner in which the financial transactions of a business organization must be reported and
aggregated in the financial statements. This results in the preparation of Statement of Profit
and Loss, Balance Sheet, Statement of Cash Flows along with the supporting disclosures.

6.Methods of Accounting
Generally, there are two main methods of recording financial transactions in the books of
accounts:-

1. Cash system: Under this system of accounting, financial transactions are not recorded in
the books until the related cash amount is actually received or paid. This system does not
make a complete record of financial transactions as it does not record credit transactions and
does not provide a true picture of profit and loss at a point in time.

2. Accrual system: Under this system of accounting, financial transactions are recorded in
the books of accounts as and when it accrues during the period. This system gives a complete
picture of financial transactions entered during the period as it makes record of all the
transactions entered during the period irrespective of cash received or paid.

7.Accounting principles:
Accounting principles are divided into: Accounting concepts and Accounting
conventions.

Accounting Concepts
1. Separate Business entity concept: While accounting for a business organization, we
make a clear distinction in between the business and the owner. All the business transactions
are recorded from viewpoint of the business rather than from the viewpoint of the owner. The
proprietor is considered to be a creditor of the entity to the extent of capital bought by him.

2. Double Entry concept: Every financial transaction requires two aspects of accounting to
be recorded for example if a firm sells goods worth Rs. 5,000 this transaction involves two
aspects. One is reduction in stock worth Rs 5,000 and other receipts of Rs. 5,000 cash. The
record of these two aspects of a single transaction is termed as a double-entry system.
According to this rule, the total amount debited will always match total amount credited. The
fundamental accounting equation to above rule is:-
Assets = Liabilities + Owners Equity

3. Going concern concept: Accounting assumes that business will continue to operate for a
longer period of time in future. In other words, it is assumed that neither there is any intention
nor necessity to curtail the business operations of entity. It is on this basis that financial
statements of a business entity are prepared and referring to which investors agree upon their
decision to invest in the business.

4. Matching concept: This concept states that the revenues and expenses must be recorded at
the same time at which they are incurred. In general, we match the revenues with the
expenses incurred during the accounting period. Broadly speaking, income earned during a
period can be measured only when it is compared with the related expenses incurred. On the
basis of this concept several adjustments are made for prepaid expenses, accrued incomes,
etc. while preparing financial of a period.

Accounting Conventions

• convention denotes circumstances or traditions which guide the accountants while

preparing the accounting statements.
• It refers to a statement or rule of practice which by common consent, express or
implied, is employed in the solutions of a given class of problem or guide behavior of
a certain kind of situation
• Thus debit on the left-hand and credit on the right hand side of an account is an
example of convention
• Accounting Conventions are the customs and traditions, followed by accountants as
guidelines in preparing accounting statements.

1) Convention of Conservatism
‘Playing safe’ is the main idea underlying this convention. In the initial stages of
accounting, not actual profits, but, even anticipated profits have been recorded. But,
the anticipated profits have not materialized. This has shaken the confidence in
accounting. In consequence, Accounting has started to follow the rule “anticipate no
profit and provide for all possible losses”.

For example, the closing stock is valued at cost price or market price, whichever is
lower. The effect of the above is that in case, the market price comes down, then the
‘anticipated loss’ is to be provided for. But, if the market price goes up, then the
‘anticipated profits’ are to be ignored. When the lower of the two is taken into account
 for the valuation of closing stock, no anticipated profit is booked, but all possible loss
is taken care of.
•

Basically, the concept says that whenever there are two equally acceptable methods,
the one, which is more conservative, will be accepted. When a judgment is based on
general estimates, if there is a dilemma as to which is correct, the most conservative
estimate will be accepted. When there is a probability of getting profit or loss, profit
will be ignored, but the loss will be taken into account.

2) Convention of Materiality
The materiality convention of accounting states that the business should include only
the important or relevant facts in the financial statements.

Material facts refer to any information if excluded or misreported in the financial

statements that could influence the decision of the users of such financial statements.

Thus, if excluding or misreporting certain information impacts the decision of the

users of the financial statements, such information is material in nature.

Likewise, if excluding or misreporting certain information does not influence the

decisions of the users of such statements, such information is not material or
immaterial in nature.

For Example - If information related to capital, stock, or sales is excluded or

misreported could influence the decision of users of such information, and this
information is material in nature.

On the other hand, information related to clubbing of pens, pencils, stick notes, etc.
under different heads (stationary) is not of material nature.

Therefore, items of material nature are recorded in detail separately under their
respective heads. However, items that are immaterial in nature are clubbed together
under different accounting heads.

3) Convention of Disclosure
The Convention of disclosure requires that all material and relevant facts concerning
financial statements should be fully disclosed. Full disclosure means that there should
be full, fair, and adequate disclosure of accounting information. Adequate means a
sufficient set of information to be disclosed. Fair indicates an equitable treatment of
users. Full refers to the complete and detailed presentation of information. Thus, the
convention of disclosure suggests that every financial statement should fully disclose
all relevant information.

4) Convention of Consistency
Convention of consistency implies that the basis followed in different accounting
periods should be the same. It also signifies that the accounting practices and methods
should remain consistent from one accounting year to another. For example - If a
particular method of depreciation is adopted for a particular fixed asset, the same
method should be followed for that assets year after year.
 8.Objectives of Accounting
The objectives of accounting are being discussed below:


 To maintain systematic records of Business: The main objective of accounting is to record
the business Transactions of financial nature in a very systematic way by following some
specified principles. These records should be done in such a way that the required information
related to business could be provided at a glance.
 To Calculate Operational Results (i.e. Profit or loss): One of the important objective of the
accounting is to find out the result of the operations performed by the business during particular
period i.e. accounting year. Income statement (Trading and Profit & Loss Account) are
prepared to know the result of the operations of the business i.e. Profit or Loss. The operational
result also helps in evaluating the performance of the business.
 To show the financial position of business: Accounting helps in knowing the financial
strength and weakness of a business on a particular date. The resources (Assets) and the
obligation (Liability) are being shown through the preparation of position statement (Balance
Sheet) which helps in evaluating the financial position of the business. The preparation of
position statement is possible only through systematic recording of transactions.
 To make information available to various users: Accounting makes available the required
information related to business to various users both internal as well as external to the business.
Owners want to know the operational result i.e. profit or loss, Bank and creditors want to know
the financial soundness, Employees are interested in knowing increased wages, Govt. authority
is interested in levying tax etc. All users can have the required information through accounting.
Overview of Objectives of Accounting

Objectives Modus Operandi

To maintain systematic records of business Journal, Ledger, Trial Balance

To calculate operational results Manufacturing, Trading, Profit & Loss Account

Accou
nting
To show the financial position of business Balance Sheet

To make information available to various

Financial Reports
users
9.ACCOUNTING CYCLE
The accounting cycle is a series of steps used by an accounting department to document and report a
company's financial transactions. The cycle follows financial transactions from when they occur to
how they affect financial documents. The accounting cycle happens every accounting period or
reporting period for which financial documents are prepared.

Accounting Cycle comprises the sequence of accounting processes. It begins with the analysis and
the journalising of transactions and ends with the post-closing trial balance

Accounting cycle is a complete sequence of accounting process, that begins with the
recording of business transactions and ends with the preparation of final accounts.

JOURNAL
Journal is derived from the French word ‘jour’ which means a day. Journal therefore,
a daily record of business transactions. Journal is a book of prime entry because
transaction is first written in the Journal from which it is posted to the ledger at a
convenient time.

The journal is a chronological record of transactions entered into by a business.

Transactions are first recorded in the journal.
The journal entry for a transaction consists of the date of the transactions, the
individual accounts and the related amounted to be debited and credited and a brief
explanation of the transaction.
Journal
Date particulars L.F No. Dr. Amount Cr. Amount
 LEDGER
Journal records all transactions separately and date wise. The transactions pertaining
to a particular person, asset, expense or income are recorded at different places in the
journal as they occur on different dates. Hence journal fails to bring the similar
transactions together at one place. Thus, to have a consolidated view of the similar
transactions different accounts are prepared in the ledger.
A ledger account may be defined as a summary statement of all the transactions
relating to a person, asset, expense or income which have been taken place during a
given period of time and shows their net effect.
Posting is the process of transferring information in the journal to the ledger. Each
amount listed on the debit column is entered on the debit side of the appropriate
account in the ledger, and each amount listed on the credit column is entered on the
credit side of the appropriate account in the ledger.
Ledger
Dr Ex: cash account Cr
Date particulars JF Rs Date particulars JF Rs

TRIAL BALANCE
At the end of the year or at any other time, the balances of all the ledger accounts are
extracted are written up in a statement known as Trial Balance and finally totaled up
to see if the total of debit balances is equal to the total credit balances.
A Trial balance is a list of accounts and their balances at a given time, and is used to
verify the equality of debits and credits in the ledger. When the total of debit balances
equals the total of credit balances, the ledger is said to be ‘in balance’
Trial Balance
Name of the account Dr. Balance(Rs) Cr. Balance(Rs)
xxx xxx
xxx xxx
Total xxx xxx

10.Users of Accounting Information

The information provided by Accounting are being used by both inside the organisation as
well as outside the organisation. On the basis of the user there are two group of users of

accounting information : internal users and external users.

 Internal users are management, owners, employees, trade unions etc. External users are
creditors, investors, banks and other lending institutions, present and potential investors,
Government, tax authorities, regulatory agencies and researchers.

 Owners: The owners use the accounting information to know the operating result and financial
position of the business.
 Creditors and Lenders: Creditors and lenders use the information to determine the repayment
capacity when becomes due. In other words they use it for judging the creditworthiness of the
business.
 Managers: The Managers use the information to operate and manage the business in an
efficient manner.
 Customers: The customer uses the information to know the stability and profitability of the
business. As the functioning of the business also have impact on the supply of goods in the
market.
 Government: To know the earnings in order to assess authorities the tax liabilities of the
business.
 Regulators: To evaluate the business operation under the regulatory legislation.
 Investors: The existing investor who has already investment in the business use the information
to know the position, progress and prosperity of the business in order to ensure the safety of
their investment. Whereas the prospective investors use it to make decision about whether to
invest in the business or not.
 Employees and Trade Unions: The employees and trade unions use the information to check
the earning capacity of the business to relate it to their remuneration and bonus.

11. Branches of Accounting

 The Accounting has three main branches which are

(a) Financial Accounting,

(b) Cost Accounting, and

(c) Management Accounting.

1 Financial Accounting

Financial accounting is concerned with recording of transactions in the books of account of a

business in such a way that the financial statements could be prepared at the end a period.
The preparation of financial statements helps in knowing the operating result and the
financial position of the business. The financial accounting also provides financial
information which are required by the management of the organisation as well as other
external users associated with the business.

2 Cost Accounting

Cost accounting is concerned with the collection, classification and ascertainment of the cost
of production or job undertaken by a business. The main objective of this accounting is to
ascertain the cost of various products produced by the business enterprise and help in fixing
the price of the products. The cost accounting also helps in controlling the costs of the
organisation.

3 Management Accounting

Management Accounting is related to the use of accounting data collected with the help of
financial accounting and cost accounting for the purpose of management of the business
organisation efficiently. It helps the management in the process of policy formulation,
planning, control and decision making by the management.

12. Functions, advantages and limitations of Accounting

 Systematic Records: The most important function of accounting is to record systematically the
business transaction of financial nature in a business enterprise. The transactions are recorded
on daily basis in Journal, classified through posting them into Ledger and summarized through
preparing financial statements – income statement and the balance sheet.
 Communicating the information to the interested parties: Another important function of
accounting is to communicate financial information in respect of operating results (Profit or
Loss) and financial position (Assets and Liabilities) to the interested parties as per the
requirements.
 Meeting Legal Requirements: The business enterprises have to comply with various
provisions of various laws like the Companies Act, Income-tax Act, etc. These compliance
require the submission of various statements like income tax returns, annual financial
statements etc. Accounting helps through systematic recording and reporting in meeting these
compliances.
 Helps in Managerial Decision Making: To make a correct decision it is required the updated
and correct information. Accounting provides the required information to the management on
time through systematic recording which helps in taking important decisions regarding
business.
 Forecasting: Accounting helps in providing past data which are helpful in forecasting future
performance and financial position of the business enterprise.

Advantages of Accounting
1. Systematic and Complete record of Business: Now a days the transactions occurs in
business are always in large number and very much complex in nature. Accounting records
all these transactions of financial nature in a very systematic process.

2. Helps in ascertaining the operational result of the business: The systematic recording
of transactions in accounting helps the business in knowing the result of the
business i.e. Profit or loss in an accounting year.

3. Helps to ascertain the financial Position: Accounting provides information about the
financial position through preparation of Balance sheet showing the Assets and Liabilities.

4. Legal Compliance: Accounting helps the business to comply with the legal requirements.
For example: to comply with the requirements as per Income-tax Act, 1961.

5. Provides information to users: Accounting provides required information to various users

as per their requirements to make decisions in relation to the business for an Govt.
Authorities, Employees, Conditions, banks, owners etc. Whom it provides the information.

6. Helps in preventing and detecting fraud: The systematic recording of transactions helps
the business in detecting and preventing frauds through internal check.

7. Helps to settle tax liability: Accountings helps in the assessment of Tax liability which is
very much helpful in settlement of Tax liabilities of the business.

8. Helps management: Accountings helps management by providing required data and

information of the business which are very much important in decision making. It also works
as a basis for future planning about the business.

Limitations of Accounting

1. Does not consider qualitative information: Accounting records only the transactions of
financial nature. It does not take into consideration any qualitative information though it, may
be very important for the success of the business. For example, competency of employees,
Govt. policy, competitions in the market etc.

2. Biasness: Accounting is not free from biasness. Accountants have to be biased in the
treatment of some items in the business as regarding the treatment they have to apply their
personnel judgment.
3. Ignores Price level changes: In the position statement (Balance Sheet) the assets are
shown at historical cost though the actual value in the market might be different. Therefore,
the balance sheet fails to show the real picture of the business.

4. Window dressing: Sometimes the management may try to show the inflated or deflated
figures of Profit, assets, liabilities etc. Due to which the financial statement might fail to show
the true and fair view of the business.

13.Accounting Standards & IFRS

Accounting Standard is a written statement issued from time to time by institutions of the
accounting profession or intuitions established expressly for this purpose. Accounting
standards suggest the rules for recognition, measurement, treatment, presentation and
disclosure of accounting transactions in the financial statements of an organization. The
accounting standards help to improve the credibility and reliability of financial statements. It
benefits to accountants, auditors, investors etc.

The Institute of Chartered Accountant of India (ICAI), a premier accounting body in the
country, recognizing the need to harmonise the diverse accounting policies and practices,
established Accounting Standard Board (ASB) in April 1977, which has the responsibility of
preparing accounting standards. The ASB comprises the representatives from industries, the
Central Board of Direct Taxes (CBDT), The Company Law Board (CLB), The Comptroller
and Auditor General of India (CAGI) and other parties who are concerned with the
accounting standards such as practicing chartered accountants. The Board determines the
areas in which the accounting standards are required. It has made efforts to formulate high
quality Accounting Standards which fall in line with the international and national
expectations.

Objectives of Accounting Standards

The basic objective of accounting standards is to maintain uniformity and harmonise the
diverse accounting policies and practices. In addition to this there are several objectives
which are given below.
1. To harmonise the diverse accounting policies and practices followed by various
companies
2. To maintain uniformity in the presentation of financial statements
3. To maintain transparency in the accounting and financial statements
4. To maintain reliability and acceptability of accounting
5. To facilitate inter-firm and intra-firm comparision in finding out true and fair picture
of a business

Benefits of Accounting Standards

Keeping accounting records and preparing financial statements in accordance with
accounting standards yields the following benefits.
 1. Accounting standards eliminate all variations in the accounting treatment
2. It enables inter-firm and intra-firm comparison of financial results
3. It promotes transparency in business transactions
4. It protects the investors from business frauds and gains investors’ confidence in the
business
5. It ensures corporate accountability and managerial effectiveness

Accounting Standards
India has two sets of accounting standards – 1. Existing Accounting Standards under
Companies (Accounting Standard) Rules, 2006 (AS) and 2. IFRS Converged Indian
Accounting Standards (Ind AS). The Ind AS are named and numbered in the same way as
the corresponding IFRS. As on date the ASB has issued 32 accounting standards and the
Ministry of Corporate Affairs notified 35 IFRS converged IndAS. The list of existing
Accounting Standards and IFRS converged Indian Accounting Standards is given below.

List of Indian Accounting Standards (AS)

Sl. No. AS Title of AS

1. AS-1 Disclosure of Accounting Policies
2. AS-2 Valuation of Inventories

3. AS-3 Cash flow Statements

4. AS-4 Contingencies and Events Occurring After the Balance Sheet

Date

5. AS-5 Net Profit or Los for the Period, Prior Period Items and Changes
in Accounting Policies

6. A-6 Depreciation Accounting

7. AS-7 Accounting for Construction Contracts

8. AS-8 Accounting for Research and Development
(Now withdrawn and included in AS-26)
9. AS-9 Revenue Recognition
10. AS-10 Accounting for Fixed Assets
11. A-11 Accounting for the Effects of Changes in Foreign Exchange
 Rates

12. AS-12 Accounting for Governments Grants

13. AS-13 Accounting for Investments
14. AS-14 Accounting for Amalgamations
15. AS-15 Accounting for Retirement Benefits in the Financial Statements
of Employers
16. AS-16 Borrowing Costs
17. AS-17 Segment Reporting
18. AS-18 Related Party Disclosures
19. AS-19 Leases
20. AS-20 Earnings Per Share
21. AS-21 Consolidated Financial Statements
22. AS-22 Accounting for Taxes on Income
23. AS-23 Accounting for Investments in Associates in Consolidated
Financial statements
24. AS-24 Discounting Operations
25. AS-25 Interim Financial Reporting
26. AS-26 Intangible Assets
27. AS-27 Financial Reporting of Interests in Joint Ventures
28. AS-28 Impairment of Assets
29. AS-29 Provisions, Contingent Liabilities and Contingent Assets
30. AS-30 Financial Instruments: Recognition and measurement
31. AS-31 Financial Instruments: Presentation
32. AS-32 Financial Instruments: Disclosures

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

Meaning and Introduction of IFRS: The IFRS issued after 2001 is a new name for
International Accounting Standards issued before 2001. IFRS are the basic standards or
written statements of accounting practice to be observed in the presentation of audited
accounts and financial statements to promote their worldwide acceptance and observance.

Prior to 2001, the International Accounting Standards Committee (IASC) was responsible for
setting International accounting standards. On February 6, 2001, the International Financial
Reporting Standards Foundation was incorporated as an independent tax-exempt organization
in Delaware. The IFRS Foundation in turn formed the bodies like International Accounting
Standards Board (IASB), IFRS Advisory Council and the IFRS Interpretations Committee
(i.e. IFRIC). With the formation of IASB at London on 1 st April 2001 as a successor to the
IASC, the responsibility of setting the standards is shifted from IASC to IASB. The IASB
has set the following International Accounting Standards and IFRS.

Adoption of IFRS in India: With the liberalization and globalization most of the countries
are globalizing their operations. In view of this, the discussion on convergence of national
accounting standards with IFRS has increased significantly. Because the adoption of IFRS
benefit the investors, companies having global operations and other users of financial
statements, by reducing the costs of comparing alternative investments and increasing the
quality of information. IFRS are used in many parts of the world, including the European
Union, India, Hong Kong, Australia, Malaysia, Pakistan, South Africa, Singapore and Turkey
so on. The ICAI, based on recommendations of IFRS Task Force, made the IFRS applicable
to Indian companies in the phased manner as shown below.

* If the financial year of a company commences at a date other than 1 April, then it shall
prepare its opening balance sheet at the commencement of immediately following financial
year.

Thus, the adoption of IFRS is made mandatory in India for financial statements for the
periods beginning from 1st April 2011 for all listed companies with paid up capital of
Rs.1000 crore. This will be done by revising existing accounting standards to make them
compatible with IFRS. RBI also stated that financial statements of banks need to be IFRS-
compliant for periods beginning on or after 1 April 2011

Benefits of adopting IFRS

The liberlised policies of a country prompted the companies to operate across the globe. The
companies operating across the border direly in need of commonly accepted and understood
financial reporting standards. Following are some of the benefits of adopting IFRS.

1. It maintains transparency in reporting and which in turn helps in attracting cross

border investment with lower cost of capital and greater liquidity
2. It helps to save time and cost of preparing financial statements according to different
standards.
3. The companies preparing their financial statements using IFRS can be compared
easily and more accurately
4. It enhance brand value of the company using IFRS
 5. It avoids multiple reporting with different standards, particularly for cross border
companies.
6. It reflects true value of acquisitions
7. It enables improved access to international capital markets

Challenges in adopting IFRS

Though there are several benefits of adopting IFRS, it has certain challenges which need to
be addressed. These challenges are:

1. Shortage of skilled resources poses a difficulty in implementing IFRS

2. Some of the standards are not tax-compliant of a country
3. The day to day business issues such as tax planning, performance indicators, mergers
and acquisitions, etc. made adoption of IFRS very difficult.
4. Regulatory acceptance has become a hurdle in adoption of IFRS by a company