A PRESENTATION ON INTERNATIONAL ACCOUNTING STANDARDS

Submitted to: Ms. Vandana JainAsst. Professor

By: Loveneet Kaur and Kamalpreet Kaur

B.Com I A

Definition

An older set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, international accounting standards (IAS) were issued by the Board of the International Accounting Standards Committee (IASC). 

Since 2001, the new set of standards has been known as the international financial reporting standards (IFRS) and has been issued by the International Accounting Standards Board (IASB). 

  

IASC has no authority to require compliance with its accounting standards. However, many countries require the financial statements of publicly-traded companies to be prepared in accordance with IAS. 

 

About the International Accounting Standards Committee (IASC)

• The International Accounting Standards Committee (IASC) was formed in 1973 through an agreement made by professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of America. Additional sponsoring members were added in subsequent years, and in 1982 the sponsoring "members" of the IASC comprised all of the professional accountancy bodies that were members of the International Federation of Accountants. (IFAC).

• From its formation in 1973 until a comprehensive reorganisation in 2000, the structure for setting International Accounting Standards was known as the International Accounting Standards Committee (IASC).

• The International Accounting Standards Committee was essentially the structure, rather than a committee in the traditional sense of a group of people. There was no actual "committee" of that name.

ABOUT THE IASC BOARD

• The standard-setting board of the IASC was known as the IASC Board. The IASC Board had 13 country members and up to 3 additional organisational members who operated on a part-time, volunteer basis. Each member was generally represented by two "representatives" and one "technical advisor". The individuals came from a wide range of backgrounds – accounting practice, business (particularly multinational businesses), financial analysis, accounting education, and national accounting standard-setting. The Board also had a number of observer members (including representatives of IOSCO, FASB, and the European Commission) who participated in the debate but did not vote.

• The IASC Board promulgated a substantial body of Standards, Interpretations, a Conceptual Framework, and other guidance that was adopted directly by many companies and that was looked to by many national accounting standard-setters in developing national accounting standards.

FOUNDATION

• On December 31, 2001, the International Accounting Standards Foundation (IASF) was incorporated as a tax-exempt organization in theU.S States of Delaware. On February 6, 2001, the International Financial Reporting Standards Foundation  was also incorporated as a tax-exempt organization in Delaware.[ The International Accounting Standards Board (IASB) is the parent entity of the IFRS Foundation, an independent accounting standard-setter based in London, England.

• On 1 March 2001, the IASB assumed accounting standard-setting responsibilities from its predecessor body, the International Accounting Standards Committee  (IASC). This was the culmination of a restructuring based on the recommendations of the report Recommendations on Shaping IASC for the Future.

• The IASB structure has the following main features: the IFRS Foundation is an independent organization having two main bodies, the Trustees and the IASB, as well as an IFRS Advisory Council and the IFRS Interpretations Committee (formerly the IFRIC). The IASC Foundation Trustees appoint the IASB members, exercise oversight and raise the funds needed, but the IASB has responsibility for setting International Financial Reporting Standards(international accounting standards).

ELEMENTS OF THE OLD IASC STRUCTURE

Major components of the old IASC structure were: IASC Board  Consultative Group – an advisory body representing a wide

range of international organizations with an interest in accounting Standing Interpretations Committee (SIC) – developed and

invited public comment on interpretations of IASC Standards, subject to final approval by the IASC Board

 Advisory Council – oversight body (despite its name, the Advisory Council functioned more like the Board of Trustees of the current IFRS Foundation)

Steering Committees – expert task forces for individual agenda projects.

INTERNATIONAL ACCOUNTING STANDARDS

• IAS 1: PRESENTATION OF FINANCIAL STATEMENTS • IAS 2: INVENTORIES • IAS 7: CASH FLOW STATEMENTS • IAS 8: ACCOUNTING POLICIES, CHANGES IN

ACCOUNTING ESTIMATES AND ERRORS• IAS 10: EVENTS AFTER THE BALANCE SHEET DATE • IAS 11: CONSTRUCTION CONTRACTS • IAS 12: INCOME TAXES • IAS 14: SEGMENT REPORTING• IAS 15: INFORMATION REFLECTING THE EFFECTS OF

CHANGING PRICES• IAS 16: PROPERTY, PLANT AND EQUIPMENT

• IAS 17: LEASES

• IAS 18: REVENUE

• IAS 19: EMPLOYEE BENEFITS

• 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

• IAS 24: RELATED PARTY DISCLOSURES

• IAS 26: ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS

• IAS 27: CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING FOR INVESTMENTS IN SUBSIDIARIES

• IAS 28: INVESTMENTS IN ASSOCIATES

• IAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

• IAS 30: DISCLOSURES IN THE FINANCIAL STATEMENTS OF BANKS AND SIMILAR FINANCIAL INSTITUTIONS

• IAS 31: INTERESTS IN JOINT VENTURES • IAS 32: FINANCIAL INSTRUMENTS: PRESENTATION AND

DISCLOSURE • 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 • IAS 38: INTANGIBLE ASSETS • IAS 39: FINANCIAL INSTRUMENTS, RECOGNITION AND

MEASUREMENT• IAS 40: INVESTMENT PROPERTY• IAS 41: AGRICULTURE

100,000 x $1.25 = $125,000

A Short Summary of IAS 1 through IAS 41

The following brief presentation of the individual International Accounting Standards (IAS) should provide easy orientation for anyone who encounters an individual standard in the context of their work or who simply wants to obtain a quick overview. The explanatory texts don't intend to completely describe the complex regulations. Their intent is to foster an initial understanding by providing an introduction to the content of the standards. The standards, IAS 1through IAS 41, which are currently in force, are covered. Those not mentioned are already superseded.

EXPLAINATIONS

• IAS 1: Presentation of Financial Statements

This standard describes the preparation and presentation requirements of financial statements. It defines the requirements which a financial statement has to observe to achieve a fair presentation (i.e. to provide a picture that corresponds to the actual economic conditions). According to IAS a complete financial statement has to contain the following components: a balance sheet, an income statement, a statement showing changes in equity, a cash flow statement and explanatory notes. In the Appendix to IAS 1 an illustrative structure for a financial statement is presented which, unlike the one given in the 4. European Council Directive, is not obligatory is the fair value model.

• IAS 2: Inventories

The accounting treatment of inventories is carried out according to the historical cost system. IAS 2 defines how to determine the costs of purchase and conversion and states that the inventories "should be measured at the lower of cost and net realizable value". In addition, it describes treatments which are permitted for calculating the costs of inventories.

• IAS 7: Cash Flow Statements

The cash flow statement is a required component of an IAS financial statement. IAS 7 explains this requirement by the benefits of cash flow Information which it provides. It defines cash and cash Equivalents and stipulates the rough structure of a cash flow statement. The cash flows are to be differentiated into those obtained from operating, investing and financing activities.

• IAS 8: Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies

This standard is supposed to guarantee that all enterprises present their income statement in a consistent form. It defines ordinary business activities and requires disclosing extraordinary items separately. The disclosure of single items of income and expense is dependent upon how relevant the information is for explaining the performance of the enterprise. In addition, it regulates how to handle fundamental balancing errors from prior accounting periods and under which circumstances changes in the accounting policy are permitted.

• IAS 10: Events After the Balance Sheet Date

If the enterprise receives information after the balance sheet date which leads to an adjustment in the amounts recognized in the financial statement, it has to follow the instructions of this standard. This could, for example, be the bankruptcy of a customer shortly after the balance sheet date, which leads to a retroactive adjustment of the corresponding trade receivable account, or also the discovery of an error or fraud. IAS 10 provides information about which events should be adjusted and which are not.

• IAS 11: Construction Contracts

Construction contracts often span several accounting periods. IAS 11 determines how the revenue and costs of a contract should be recognized and how they should be allocated to the accounting periods.

• IAS 12: Income Taxes

This standard establishes how current taxes for the accounting period and deferred tax liabilities have to be accounted. Deferred taxes arise due to temporary differences between the carrying amount of an asset and its tax base.

• IAS 14: Segment Reporting

To be able to better judge the risks and returns of individual business areas, segment reporting is helpful. IAS 14 distinguishes between business and geographical segments for which separate reports should be given. In addition, the different disclosures for the primary and secondary reporting formats are identified.

• IAS 15: Information Reflecting the Effects of Changing Prices Since no consensus could be reached concerning the application of this standard, it isn't obligatory. The purpose of IAS 15 is to bring clarity about the effects of changing prices on the measurement of balance sheet items. Therefore corresponding disclosures are required, such as the amount of depreciation or cost of sales adjustments.

• IAS 16: Property, Plant and Equipment

This standard determines which assets may be accounted as property, plant and equipment, under which conditions their recognition is carried out, how they are to be measured, and which depreciation method should be chosen. In addition it describes, what the financial statement should disclose.

• IAS 17: Leases

IAS 17 distinguishes between finance and operating leases. The respective assignment has considerable consequences for the way in which the leased asset is balanced. In addition, it establishes how to deal with any excess of sales proceeds and leaseback transactions.

• IAS 18: Revenue

The date at which revenue is recognized is important for the accurate determination of the enterprise's success. According to IAS 18 the revenue should be recognized "when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably". There are requirements for the measurement of revenue, for the identification of the transactions and for recognizing revenue from different business activities.

• IAS 19: Employee Benefits

Employees receive various benefits: salaries and wages, supplementary payments, pensions, specific leaves, termination and equity compensation benefits. IAS 19 standardizes the recognition and measurement of all short-term and long-term employee benefits as well as post-term employment benefits. The treatment of obligations resulting from retirement benefits are of increasing importance.

• IAS 20: Accounting for Government Grants and Disclosure of Government Assistance

If an enterprise receives direct government grants, then, according to the standard, these are to be recognized as income and assigned to the accounting periods in which they are intended to provide compensation for corresponding expenses by the enterprise.

• IAS 21: The Effects of Changes in Foreign Exchange Rates

Business transactions in foreign currencies carry the risk of fluctuations in the exchange rate. IAS 21 regulates the initial recognition of a foreign currency transaction and the subsequent reportage, particularly the determination of the correct exchange rate that applies to later balance sheet dates. Furthermore it determines how to deal with exchange differences.

• IAS 22: Business Combinations

A business combination can occur either in the form of an acquisition of an enterprise or a uniting of interests. IAS 22 establishes the procedure for preparing a financial statement according to these two forms. For example, it determines that the purchase method should be applied in accounting for an acquisition and that goodwill should be amortised on a systematic basis over its useful life.

• IAS 23: Borrowing Costs

Interest charges and other costs which arise in connection with the borrowing of funds are recognized under IAS 23 as an expense. The capitalization of borrowed funds as part of the acquisition or production costs of so-called "qualifying assets" is alternatively permitted. "Qualifying assets" are those which take a substantial period of time for the conversion into a serviceable or marketable condition.

• IAS 24: Related Party Disclosures

Related enterprises or individuals which exert a significant influence or even control over the reporting enterprise could have an effect on its financial position and operating results. For example, they could carry out transactions with the enterprise which a third party wouldn't do. IAS 24 requires detailed information about links to related enterprises and persons, provided that there exists control. If business was carried out between related parties, the type of transaction and the nature of the related party relationship should be disclosed.

• IAS 26: Accounting and Reporting by Retirement Benefit Plans

If the employer guarantees retirement benefits, then their balancing under IAS 26 is dependent upon whether the retirement benefit plan is a defined contribution plan (usually a pension fund) or a defined benefit plan. The latter is processed via funds or provisions for pension fund liabilities. Accounting and disclosure requirements for retirement benefit plans are specified in this standard.

• IAS 27: Consolidated Financial Statements and Accounting for Investments in Subsidiaries

According to IAS 27 all domestic and foreign subsidiaries are in principle to be included in the consolidated financial statement of the parent company, unless the subsidiary is solely held for the purpose of subsequent disposal or it is significantly impaired by severe long-term restrictions in its ability for funds transfer to the parent. IAS 27 also establishes the procedures regarding consolidation.

• IAS 28: Accounting for Investments in Associates

If the reporting enterprise has significant influence in, but not control over, another enterprise, then it is considered an associate. IAS 28 requires the equity method be applied in balancing such enterprises. The investment in these enterprises should be recorded at cost and, thereafter, to be adjusted for the change in the investor's share of the profit or losses.

• IAS 29: Financial Reporting in Hyperinflationary Economies

Without the necessary adjustments, the reporting in hyperinflationary economies can be misleading due to a severe loss in purchasing power. IAS 29 characterizes the concept of "hyperinflationary economies" and establishes that the measuring unit has to reflect the price levels, respectively the purchasing power at the balance sheet date. So the historical costs are to be adjusted to the current costs at the balance sheet date.

• IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions

Due to their economic significance and the special character of their business operation, specific requirements exist for the financial statements of banks. That's why in this standard - amongst other issues - a detailed breakdown of the income statement is required with regard to the interest, dividend income, fee and commission income and expense, gains less losses arising from dealing securities, investment securities and foreign currencies. The listing of the assets and liabilities, reflecting their relative liquidity, is characteristic for a bank balance sheet. Also of great importance are the instructions for stating the contingencies and risks of banking.

• IAS 31: Financial Reporting of Interests in Joint Ventures

Joint ventures are jointly controlled operations, enterprises or assets. IAS 31 stipulates that jointly controlled entities should be reported by proportionate consolidation (the equity method is, however, permitted as an alternative).

• IAS 32: Financial Instruments: Disclosure and Presentation

A financial instrument is defined by IAS 32 as a contract which both gives rise to a financial asset of one enterprise and a financial liability or an equity instrument of the other. These can be both traditional primary financial instruments, such as bonds, or also derivative financial instruments, such as interest rate or currency swaps. Derivative instruments are frequently undertaken to protect the business activities against currency or interest rate risks; however, they can also serve as speculation. IAS 32 standardizes the presentation and the disclosure of the financial instruments. Additionally detailed information is required concerning interest rate and credit risks as well as the risk management policies of the enterprise.

• IAS 33: Earnings Per Share

An important figure for enterprises, whose shares are traded publicly, is the measurement EPS, by which the performance of the enterprise can be compared with other enterprises. Undiluted, basic earnings (the net profit or loss after deducting preference dividends attributable to ordinary shareholders) are distinguished from diluted earnings (the net profit or loss adjusted for the effects of all potential ordinary shares).

• IAS 34: Interim Financial Reporting

The interim financial report provides timely information within the accounting period, particularly for the investors, creditors etc. IAS 34 doesn't mandate interim reports, but merely requires that such reports by enterprises conform to IAS. Therefore an interim financial report should, at a minimum, include a condensed balance sheet, income statement, change in equity statement, cash flow statement and selected explanatory notes. Furthermore it is stipulated that in the interim financial report the same accounting practices and treatments should be employed as are found in the annual financial statement.

• IAS 35: Discontinuing Operations

This standard describes how to balance an enterprise's operations which are intended to be disposed of or discontinued.

• IAS 36: Impairment of Assets

An asset is regarded as impaired if its carrying amount exceeds the amount which could be recovered through use or sale of the asset. IAS 36 stipulates how the impairment is identified and how the impairment loss is to be recognized and measured. If an impairment loss decreases or no longer exists it is mandatory to carry out a reversal of an impairment loss.

• IAS 37: Provisions, Contingent Liabilities and Contingent Assets

Under IAS 37 provisions are liabilities which are uncertain with regard to their timing or amount. IAS 37 defines under which circumstances provisions have to be recognized and to what amount they have to be balanced. Contingent liabilities and contingent assets should not be recognized. However, details regarding these can be required, provided that the realization of contingent liabilities or assets is probable.

• IAS 38: Intangible Assets

Every enterprise is in possession of intangible assets, such as patents, licenses, computer software, copyrights, trademarks, customer lists or supplier relationships. Provided that an intangible asset is clearly identifiable and the enterprise has control over it, it is required to be accounted according to IAS 38 if it is probable that a future economic benefit will flow to the enterprise from the asset and its costs can be reliably measured. The asset should be "allocated on a systematic basis over the best estimate of its useful life".

• IAS 39: Financial Instruments, Recognition and Measurement

IAS 39 amends IAS 32 particularly with instructions related to so-called "derivatives". These are, e.g. swaps, option contracts, futures, forwards or complex, hybrid financial instruments which frequently serve for speculation purposes. IAS 39 regulates the recognition and measurement of these instruments. The distinctive feature of the relatively new IAS 39 is the subsequent measurement of financial assets at their fair values.

• IAS 40: Investment Property

IAS 40 should be applied in the recognition, measurement and disclosure of investment property. This can be land or a building or a part of a building held to earn rentals or for capital appreciation rather than for the purposes of other business processes. This standard provides the possibility to choose between to models, the fair value model and the cost model.

• IAS 41: Agriculture

This standard concerns accounting of biological assets, agricultural produce at the point of harvest and governmental grants related to a biological asset. Basis for recognition and measurement of biological assets is the fair value model.

• These are mandatory and this implies that while discharging their attest functions, it will be duty of the members of the institute to examine whether the Accounting Standard is complied with in the presentation of financial statements covered by their audits. In the event of any deviation from the Accounting Standards, it will be their duty to make adequate disclosures in their audit repots so that the users of financial statements may be aware of such deviations.

• Ensuring compliance with the Accounting Standards while preparing the financial statements is the responsibility of the management of the enterprise.

• Financial statements cannot be describes as complying with the Accounting Standards unless they comply with all the requirements of each applicable Standard.

COMPLIANCE WITH ACCOUNTING STANDARDS

PROCEDURE FOR ISSUING ACCOUNTING STANDARD

• The ASB determines the board areas in which Accounting Standards need to be formulated and the priority in regard to the selection thereof.

• In the preparation of Accounting Standards, the ASB will be assisted by Study Groups constituted to consider specific subjects. In the formation of Study Groups, provisions will be made for wide participation by the members of the Institute and others.

• The draft of the proposed standard will normally include the following:– Objective of the standard,– Scope of the standard,– Definitions of the terms used in the standard,– Recognition and measurement principles, wherever applicable,– Presentation and disclosure requirements.• The ASB will consider the preliminary draft prepared by the Study Group and if

any revision of the draft is required on the basis of deliberation, the ASB will make the same or refer the same to the Study Groups.

• The ASB will circulate the draft of the Accounting Standard to the Council members of the ICAI and the following specified bodies for their comments:– Department of Company Affairs (DCA)– Comptroller and Auditor General of India (C&AG)– Central Board of Direct Taxes (CBDT)– The Institute of Cost and Works Accountants of India (ICWAI)– The Institute of Company Secretaries of India (ICSI)– Associated Chambers of Commerce and Industry (ASSOCHM)

Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI)

– Reserve Bank of India (RBI)– Securities Exchange Board of India (SEBI)– Standing Conference of Public Enterprises (SCOPE)– Indian Bank’s Association (IBA)– Any other body considered relevant by the ASB keeping in view the

nature of Accounting Standard

• The ASB will hold meeting with the representative of specified bodies to ascertain their view on the draft of the proposed Accounting Standard . On the basis of comments received and discussions with the representatives of specified bodies, the ASB will finalize the Exposure Draft of the proposed Accounting Standard.

• The Exposure Draft of the proposed Accounting Standard will be issued for comments by the members of the Institute and Public. The Exposure Draft will be specifically be sent to specified bodies (as listed above), stock exchanges, and other interest groups, as appropriate.

• After taking into consideration the comments received, the draft of the proposed standard will be finalized by the ASB and submitted to the council of ICAI.

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

• For substantive revision of an Accounting Standard, the procedure followed for formulation of new Accounting Standard, as detailed above, will be followed.

• Subsequent to issuance of an Accounting Standard, some aspects may acquire revision which are not substantive in nature. For this purpose, the ICAI my make limited revision to an Accounting Standard. The procedure followed for the limited revision will substantially be the same as that to be followed for the formulation of an Accounting Standard, ensuring that sufficient opportunity is given to various interest groups and general public to react to the proposal for limited revision.

Objective

This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial

statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

1

1$ = 110

= $1.60

Scope

• Efforts will be made to issue Accounting Standards which are in conformity with the provisions of the applicable laws, customs, usages and business environment.

• The Accounting Standards by their very nature cannot and donor override the local regulations which govern the preparation and the presentation of financial statements in the country.

• The Accounting Standards are intended to apply only to items which are material.

SIGNIFICANCE

• To ensure enterprises provide information which are clear, consistent, reliable and also comparable.

• To reduce the opportunity of creative accounting.• Promote uniformity as differences among financial statements

of different enterprises will be minimized due to the similarity in accounting practices adopted by these enterprises.

• Act as control mechanism from the influence of directors.• Users also may perceive that the financial statements are free

from errors.• To facilitate uniform preparation and reporting of general

purpose financial statements published annually for the benefit of various users of such statements.

• Raise the standards of audit itself in its tasks of reporting financial statements.

BENEFITS

• Provide the profession with a manual of useful working rules and guideline.

• Force improvements in the quality of the works of the accountant.

• Strengthen the accountant resistance against pressure from directors to perform tasks which lie outside the boundaries of ethical standards.

• Ensure that users get more complete and clearer information on consistent basis.

• Help comparison between financial statements.• Minimizes bias, ambiguity and misinterpretation.

DISADVANTAGES

• Costly in term of time and money to produce.• Standards make work routine and difficult to change which

lead to rigidity in practices.• Quality of work of the accountants are restricted as standards

allow little room for professional discretion.• Official acceptance reduces the accountant’s strength to resist

the application of inappropriate standards when the directors wish to follow.

• Users are likely to think that the financial statements produced using accounting standards are perfect.

• Standard stifle creativity and if developed from political pressure they may influenced professional thought.

THANK YOU AND HAVE A WONDERFUL DAY