ACCOUNTING

STANDARDS
BY
Dr.K.MYILSWAMY
ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE
KONGUNADU ARTS AND SCIENCE
COLLEGE,
COIMBATORE - 29

06/26/2024 1
 UNIT - V

Accounting standards- meaning- concept-

need-objectives- details of Indian accounting
standards- International accounting
standards- list of International accounting
standards-Generally Accepted Accounting
Principles(GAPP)- meaning- principles- GAPP
Vs IFRS.(theory aspects only)

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 ACCOUNTING STANDARDS
 Accounting is Universally accepted as “ the
language of business”.
 The language must convey the same meaning to
all of its users.
 Accounting Standards provide a frame work for
the preparation of financial statements.
 So that credible financial statements of the
highest quality can be produced.

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 Objectives of Accounting Standards
To make accounting principles used in India at
par with internationally recognized standards.
To adopt a uniform set of accounting
principles for financial reporting.
To create a single recognized framework of the
accounting system.
To make international companies understand
Indian accounting practices.
To ensure transparency in the financial
statements of companies.
 To expand the scope of doing business globally.
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 Need for Accounting Standards

Uniformity
Common principles
Structured frame work
Consistency
Comparability
Boundaries

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 FORMATION OF ACCOUNTING
STANDARDS BOARD (ASB)
 The Institute of Chartered Accountants of India (ICAI)
constituted Accounting Standard Board (ASB) on 21st April
1977.
 It consist of members of the council and representatives of
Industry, Banks, Company Law Board, Central Board of
Direct Taxes, Comptroller and Audit General of India and
SEBI
 The ASB has to formulate standards after taking into
consideration the applicable laws, customs, usages and
business environment.

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 BENEFITS OF ACCOUNTING STANDARDS

Attains Uniformity in Accounting

Improves Reliability of Financial Statements
Prevents Frauds and Accounting Manipulations
Assists Auditors
Comparability
Determining Managerial Accountability

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 LIMITATIONS OF ACCOUNTING STANDARDS

 Accounting standard makes choice between

different alternate accounting treatments
difficult to apply.
 It is rigidly followed and fails to extend
flexibility in applying accounting standards.
 Accounting standard cannot override the
statue. The standards are required to be
farmed within the ambit of prevailing status.

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 PROCEDURE FOR FORMULATION AND ISSUING
ACCOUNTING STANDARDS
 Accounting Standards Board (ASB) determines the
broad areas in which Accounting standards need to be
formulated.
 In the preparation of AS , ASB will be assisted by study
groups constituted to consider specific subjects.
 In the formation of Study Groups, provision will be
made for wide participation by the members of the
Institute
 The draft of the proposed standard will include
objectives, scope of the standard , Definition of the
special terms used, recognition and measurement
principles and finally presentation and disclosure
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requirements
 Continued ……
 ASB will consider the preliminary draft prepared by
the Study Group and if any revision of the draft is
required , ASB will make the same or refer the same to
Study Group.
 The Exposure Draft of the proposed standard will be
issued for comments by the members of the Institute
and the public.
 The Exposure Draft will be sent to Specific bodies like
Stock exchanges and other interested groups etc.,
 After taking into the consideration the comments
received, the draft of the proposed Standard will be
finalised by the ASB and submitted to council of the
ICAI.
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 Continued…..

 The Council of the ICAI will consider the final

draft of the proposed Standard, and if found
necessary, modify the same in the consultation
with the ASB.
 The Accounting Standard on the relevant
subject will then be issued by the ICAI

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 APPLICABILITY OF ACCOUNTING
STANDARDS

• The enterprises are classified and labeled as Level I,

Level II and Level III companies.
• Based on this classification and the category in which
they fall the Accounting standards are applicable to the
enterprises.

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APPLICABILITY OF ACCOUNTING STANDARDS

ENTITIES

CORPORATE NON - CORPORATE ENTITIES LIKE

PARTNERSHIP FIRM ETC.,

SMALL AND
MEDIUM SIZED LEVEL I LEVEL II LEVEL III
COMPANIES NON – SMC’s
(SMC’s)

All AS
All AS needs needs Few AS Few AS
Few AS to be exemp exemp
exempted to be
complied compli ted ted
ed

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 SMALL AND MEDIUM SIZED COMPANIES
(SMC’c)
• Whose equity or debt securities are not listed or
not in the process of listing of any stock exchanges,
whether in India or Outside India;
• Which is not bank , financial institutions or an
insurance company;
• Whose turnover does not exceed Rs.50 crore in the
immediately preceding accounting year.
• Which does not have borrows ( including public
deposit) in excess of Rs.10 Crore at any time during
the preceding accounting year; and
• Which is not a holding or subsidiary company of a
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 CONTINUED…..

• A Company shall qualify as an SMC, if all

the conditions mentioned are satisfied at
the end of the relevant accounting period.
• Full exempted Ass.: AS 3, AS17, AS21, AS23
and AS27
• Limited exemption: AS15, AS19, AS20,
AS28, AS29 and AS25

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 NON - SMCs

• Corporate entities which are not SMCs are

considered as Non - SMCs

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 LEVEL I ENTERPRISES
• Enterprises whose equity or debt securities are listed
whether in India or outside India , Enterprises which are
in the process of listing their equity or debt securities.
• Banks including co-operative banks, Insurance
Companies and Financial institutions
• All commercial, industrial and business reporting
enterprises, whose turnover not including ‘other
income’ for the immediately preceding accounting
period on the basis of audited financial statements
exceeds Rs. 50 crore.

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• All commercial, industrial and business reporting
enterprises having borrowings, including public
deposits, in excess of Rs. 10 crores at any time during
the accounting period.
• Holding and subsidiary enterprises of any one of the
above at any time during the accounting period

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 LEVEL II ENTERPRISES
• All commercial, industrial and business reporting
enterprises, whose turnover (excluding ‘other income’) for
the immediately preceding accounting period on the basis of
audited financial statements is greater than Rs. 1 Crore but
less than Rs. 50 crore
• All commercial, industrial and business reporting
enterprises having borrowings, including public deposits, is
greater Rs. 1 crore but less than Rs. 10 crores at any time
during the accounting period
• Holding and subsidiary enterprises of any one of the above at
any time during the accounting period

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 LEVEL III ENTERPRISES

Enterprises which do not fall under

Level I and Level II, are considered
as Level III enterprises

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 List of ICAI’s Mandatory 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 Balance Sheet Date
• AS
5 Net profit or Loss for the period, Prior Period Items and Changes in Acc
ounting Policies
• AS 7 Construction Contracts
• AS 9 Revenue Recognition
• AS 10 Property, Plant and Equipment
• AS 11 The Effects of Changes in Foreign Exchange Rates
• AS 12 Government Grants

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 continued…
• AS 13 Accounting for Investments
• AS 14 Accounting for Amalgamations
• AS 15 Employee Benefits
• 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

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 continued…

• AS 23 Accounting for Investments in Associates

• 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

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 Changes and highlights..

• ICAI has withdrawn the AS 8 on Accounting for

Research and Development.
• ICAI
Amends AS 2, AS 4, AS 10, AS 13, AS 14, AS 21, AS 2
9
• ICAI withdraws AS 6.
• ICAI
withdraws its Announcement on Treatment of exch
ange differences under AS 11
• Companies
(Accounting Standards) Amendment Rules, 2018 not24
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 List of ICAI’s Non-Mandatory Accounting
Standards (AS 30~32)

• ‘AS 30- Financial Instruments: Recognition and

Measurement’
• ‘AS 31- Financial Instruments: Presentation’,
• ‘AS 32- Financial Instruments: Disclosures’
stands withdrawn.

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 INDIAN ACCOUNTING
STANDARDS
Indian Accounting Standard (abbreviated as Ind-AS) is
the Accounting standard adopted by companies in
India and issued under the supervision of Accounting
Standards Board (ASB)
The Ind AS are named and numbered in the same way
as the International Financial Reporting Standards
(IFRS).
National Advisory Committee on Accounting Standards
(NACAS) recommend these standards to the Ministry
of Corporate Affairs (MCA).

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 CONTINUED…

MCA has to spell out the accounting

standards applicable for companies in India.
As on date MCA has notified 39 Ind AS. This
shall be applied to the companies of financial
year 2015-16 voluntarily and from 2016-17
on a mandatory basis.

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 BACKGROUND TO IND AS

 Ind AS the new set of accounting standards

was notified by the Ministry of Corporate
Affairs (MCA) on February 19, 2015.
 The application of Ind AS is based on the
listing status and net worth of a company.

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 SPECIFIED CLASS OF COMPANIES

 (a)Whose equity and/or debt securities are

listed or are in the process of listing company
stock exchange in India or Outside India or
 (b) Companies other than those covered in (a)
above, having net worth of Rs. 500 crore or more
 (c)Holding, Subsidiary, Joint Venture or associate
companies covered under (a) or (b) above

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 VOLUNTARY ADOPTION

Companies can voluntarily adopt Ind AS for

accounting periods beginning on or after 1
April 2015 with comparatives for period
ending 31 March 2015 or thereafter.
However, once they have chosen this path,
they cannot switch back.

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 MANDATORY APPLICABILITY
Phase I
Ind AS will be mandatorily applicable to the following companies
for periods beginning on or after 1 April 2016, with comparatives
for the period ending 31 March 2016 or thereafter:
Companies whose equity and/or debt securities
are listed or are in the process of listing on any
stock exchange in India or outside India and
having net worth of 500 crore INR or more.
Companies having net worth of 500 crore INR
or more other than those covered above.
Holding, subsidiary, joint venture or associate
companies of companies covered above
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 CONTINUED….
PHASE II
Ind AS will be mandatorily applicable to the following companies for
periods beginning on or after 1 April 2017, with comparatives for the
period ending 31 March 2017 or thereafter:
 Companies whose equity and/or debt securities are listed or are in
the process of being listed on any stock exchange in India or
outside India and having net worth of less than rupees 500 Crore.
 Unlisted companies other than those covered in Phase I and Phase
II whose net worth are more than 250 crore INR but less than 500
crore INR.
 The Companies not covered under the Ind AS notification, would
continue to apply with existing accounting standards under
Companies (Accounting Standard) Rules, 2006.

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LIST OF INDIAN ACCOUNITNG STANDARDS
 Ind AS 101 First-time adoption of Ind AS
 Ind AS 102 Share Based Payment
 Ind AS 103 Business Combination
 Ind AS 104 Insurance Contract
 Ind AS 105 Non-Current Assets Held for Sale &
Discontinued Operations
 Ind AS 106 Exploration for and Evaluation of
Mineral Resources

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 CONTINUED….
 Ind AS 107 Financial Instruments: Disclosures
 Ind AS 108 Operating Segments
 Ind AS 109 Financial Instruments
 Ind AS 110 Consolidated Financial Statements
 Ind AS 111 Joint Arrangements
 Ind AS 112 Disclosure of Interests in Other Entities
 Ind AS 113 Fair Value Measurement
 Ind AS 114 Regulatory Deferral Accounts

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 continued…
 Ind AS 115 Revenue from Contracts with
Customers(Applicable from April 2018)
 Ind AS 116 Leases (Applicable from April
2019)
 Ind AS 1 Presentation of Financial Statements
 Ind AS 2 Inventories Accounting
 Ind AS 7 & in only AS 3 Statement of Cash
Flows
 Ind AS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
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 continued…
 Ind AS 10 Events occurring after Reporting Period
 Ind AS 11 Construction Contracts (Omitted by the
Companies (Ind AS) Amendment Rules, 2018)
 Ind AS 12 Income Taxes
 Ind AS 16 Property, Plant and Equipment
 Ind AS 17 Leases (Omitted by the Companies
(Indian Accounting Standards) Amendment
Rules,2019)
 Ind AS 18 Revenue (Omitted by the Companies
(Indian AS) Amendment Rules, 2018)
 Ind AS 19 Employee Benefits
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 Continued…
 Ind AS 20 Accounting for Government Grants and
Disclosure of Government Assistance
 Ind AS 21 Effects of Changes in Foreign Exchange Rates
 Ind AS 23 Borrowing Costs
 Ind AS 24 Related Party Disclosures
 Ind AS 27 Separate Financial Statements
 Ind AS 28 Investments in Associates & Joint Ventures
 Ind AS 29 Financial Reporting in Hyper inflationary
Economies

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 Continued…
 Ind AS 32 Financial Instruments: Presentation
 Ind AS 33 Earnings per Share
 Ind AS 34 Interim Financial Reporting
 Ind AS 36 Impairment of Assets
 Ind AS 37 Provisions, Contingent Liabilities and
Contingent Assets
 Ind AS 38 Intangible Assets
 Ind AS 40 Investment Property
 Ind AS 41 Agriculture

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International Accounting Standards
 International Accounting Standards (IAS) are a
set of rules for financial statements that were
replaced in 2001 by International Financial
Reporting Standards (IFRS) and have
subsequently been adopted by most major
financial markets around the world.
 Both sets of standards were issued by the
International Accounting Standards Board
(IASB), an independent body based in London.

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International Accounting Standards
 The United States does not follow IFRS.
 Instead, the U.S. Securities & Exchange
Commission requires public companies in the
U.S. to follow Generally Accepted Accounting
Standards (GAAP).
 China and Japan also declined to adopt IFRS.

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List of International Accounting Standards
 IAS 1 – Presentation of Financial Statements
 IAS 2 – Inventories
 IAS 3 – Consolidated Financial Statements
 IAS 4 – Depreciation Accounting
 IAS 5 – Information to Be Disclosed in Financial
Statements
 IAS 6 – Accounting Responses to Changing Prices
 IAS 7 – Statement of Cash Flows
 IAS 8 – Accounting Policies, Changes in Accounting
Estimates and Errors

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List of International Accounting Standards
 IAS 9 – Accounting for Research and Development
Activities
 IAS 10 – Events After the Reporting Period
 IAS 11 – Construction Contracts
 IAS 12 – Income Taxes
 IAS 13 – Presentation of Current Assets and Current
Liabilities
 IAS 14 – Segment Reporting
 IAS 15 – Information Reflecting the Effects of Changing
Prices
 IAS 16 – Property , Plant and Equipt

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List of International Accounting Standards
 IAS 17 – Leases
 IAS 18 – Revenue
 IAS 19 – Employee Benefits (1998) Superseded by IAS 19 (2011)
effective 1 January 2013
 IAS 19 – Employee Benefits (2011)
 IAS 20 – Accounting for Government Grants and Disclosure of
Government Assistance
 IAS 21 – The Effects of Changes in Foreign Exchange Rates
 IAS 22 – Business Combinations
 IAS 23 – Borrowing Costs

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List of International Accounting Standards
 IAS 24 – Related Party Disclosures
 IAS 25 – Accounting for Investments
 IAS 26 – Accounting and Reporting by Retirement Benefit
Plans
 IAS 27 – Separate Financial Statements (2011)
 IAS 27 – Consolidated and Separate Financial Statements
Superseded by IFRS 10, IFRS 12 and IAS 27 (2011)
 IAS 28 – Investments in Associates and Joint Ventures (2011)
 IAS 28 – Investments in Associates
 IAS 29 – Financial Reporting in Hyperinflationary Economies

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List of International Accounting Standards
 IAS 30 – Disclosures in the Financial Statements of Banks
and Similar Financial Institutions
 IAS 31 – Interests In Joint Ventures
 IAS 32 – Financial Instruments: Presentation
 IAS 33 – Earnings Per Share
 IAS 34 – Interim Financial Reporting
 IAS 35 – Discontinuing Operations
 IAS 36 – Impairment of Assets
 IAS 37 – Provisions , Contingent Liabilities and Contingent
Assets

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List of International Accounting Standards
 IAS 38 – Intangible Assets
 IAS 39 – Financial Instruments: Recognition and
Measurement Superseded by IFRS 9 where IFRS 9 is applied
 IAS 40 – Investment Property
 IAS 41 – Agriculture

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 Generally Accepted Accounting Principles (GAAP)
 The generally accepted accounting principles (GAAP) are a
set of accounting rules, standards, and procedures issued
and frequently revised by the
Financial Accounting Standards Board (FASB).
 Public companies in the U.S. must follow GAAP when their
accountants compile their financial statements.
 GAAP is also widely used in governmental accounting.
 GAAP is a combination of authoritative standards set by
policy boards and the commonly accepted ways of recording
and reporting accounting information. GAAP covers such
topics as revenue recognition, balance sheet classification,
and materiality.

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 Generally Accepted Accounting Principles (GAAP)
 The ultimate goal of GAAP is to ensure that a company's
financial statements are complete, consistent, and
comparable.
 This makes it easier for investors to analyze and extract
useful information from financial statements, including
trend data over a period of time.
 It also facilitates the comparison of financial information
across different companies.
 In other countries, the equivalent to GAAP in the U.S. is the
International Financial Reporting Standards (IFRS). IFRS is
currently used in 168 jurisdictions around the world.

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 Principles of GAAP
 THE PRINCIPLE OF REGULARITY
 The principle of regularity dictates that your business must
use standard, prevalent accounting practices.
 When adhering to the GAAP principles, you cannot choose
alternative accounting methods to create and maintain your
financial statements.
 The Principle Of Sincerity
 This emphasizes your commitment to doing a sincere,
objective accounting practice. The accounting team strives
to accurately and transparently depict your company's
financial position without hiding any details.

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 Principles of GAAP
 THE PRINCIPLE OF CONSISTENCY
 This principle indicates the importance of using consistent
procedures. Your accounting team must commit to using the
same standard practices for all reporting.
 Maintaining consistency helps to prevent errors and build a
standardized accounting procedure. If your accounting team
decides to switch to another reporting process, you must
fully disclose the reasons for the change.

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 Principles of GAAP
 THE PRINCIPLE OF PERMANENCE OF METHODS
 This principle is related to the principle of consistency.
 It requires that the procedures you use in financial
reporting are consistent and provide a coherent picture of
the business.
 This consistent and standardized reporting allows for
comparing your business to others in your industry.

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 Principles of GAAP
 THE PRINCIPLE OF NON-COMPENSATION
 The accountant promises to disclose complete and actual
accounting details, including the positives and negatives.
 The accounting team remains objective without trying to
compensate for the negatives.
 Debts are maintained separately from assets, and expenses
are kept separate from revenues.

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 Principles of GAAP
 THE PRINCIPLE OF PRUDENCE
 "Prudence" means good judgment, wisdom, and common
sense. In GAAP, the principle of prudence demonstrates fact-
based financial data representation.
 Your reports should be grounded and cautious without
being speculative. You must avoid embellishing them to
make them look impressive and let the numbers talk.

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 Principles of GAAP
 THE PRINCIPLE OF CONTINUITY
 When creating financial reports, you should work with the
assumption that the business will continue to operate in the
long run.
 Asset valuations should always be determined by historical
prices rather than disposable value.

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 Principles of GAAP
 THE PRINCIPLE OF PERIODICITY
 According to this principle, each financial entry should
denote only one period.
 If the entry is for several accounting periods, like an annual
subscription payment, the revenue should be split and
recorded accordingly.
 This practice of splitting revenues across different periods
is known as revenue recognition.

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 Principles of GAAP
 THE PRINCIPLE OF MATERIALITY AND GOOD FAITH
 Also known as the principle of full disclosure requirements,
this principle states that all significant information that
influences financial decisions must be disclosed.
 This principle ensures that investors, C-suite executives, and
other stakeholders can access accurate financial
information about the company.

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 Principles of GAAP
 THE PRINCIPLE OF UTMOST GOOD FAITH
 All parties involved in preparing and presenting financial
statements should act with integrity and honesty.
 They should not knowingly mislead investors and other
users of the prepared financial reports.

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