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Chapter IV
Disclosure Requirements of IAS & AS
35
For better understanding I have divided this chapter into two part first part compare
International Accounting Standard with India Accounting Standard, and second part
compare rule & regulation issued in Yemen with rule & regulation issued in India.
First part (International Accounting Standard & India Accounting Standard)
I am going to start this part by comparative study made by The Institute of Chartered
Accountant of India in which they have compare the International Accounting Standard
with India Accounting Standard which I think it will give better idea about this study as it
is fuscous in the manner. And than I will give brief summary of those accounting
standard and their disclosure requirement followed by my observation about them in the
line of the Institute of Chartered Accounting standard of India.
Table (1)
I. Indian Accounting Standards already issued by the Institute of Chartered
Accountants of India (ICAI) corresponding to the International Accounting
Standards/International Financial Reporting Standards
Sl. No
International Accounting Standards
(IASs)/International Financial
Reporting Standards (IFRSs)
Indian Accounting Standards (ASs)
IAS/
IFRS
No.
Title of the Standard AS
No. Title of the Standard
1 IAS 1 Presentation of Financial
Statements
AS
1
Disclosure of Accounting
Policies
2 IAS 2 Inventories AS
2
Valuation of Inventories
3
Corresponding IAS has been
withdrawn since the matter is
now covered by IAS 16 and
IAS 38
AS
6
Depreciation Accounting
4 IAS 7 Cash Flow Statements AS
3
Cash Flow Statements
5 IAS 8 Accounting Policies, Changes AS Net Profit or Loss for the
36
in Accounting Estimates and
Errors
5 Period, Prior Period Items and
Changes in Accounting Policies
6 IAS
10
Events After the Balance
Sheet Date AS
4
Contingencies and Events
Occurring after the Balance
Sheet Date
7 IAS
11
Construction Contracts AS
7
Construction Contracts
8 IAS
12
Income Taxes AS
22
Accounting for Taxes on
Income
9 IAS
14
Segment Reporting AS
17
Segment Reporting
10 IAS
16
Property, Plant and Equipment AS
10
Accounting for Fixed Assets
11 IAS
17
Leases AS
19
Leases
12 IAS
18
Revenue AS
9
Revenue Recognition
13 IAS
19
Employee Benefits
AS
15
Accounting for Retirement
Benefits in the Financial
Statements of Employers
(recently revised and titled as
'Employee Benefits')
14 IAS
20
Accounting for Government
Grants and Disclosure of
Government Assistance
AS
12
Accounting for Government
Grants
15 IAS
21
The Effects of Changes in
Foreign Exchange Rates
AS
11
The Effects of Changes in
Foreign Exchange Rates
16 IAS
23
Borrowing Costs AS
16
Borrowing Costs
17 IAS Related Party Disclosures AS Related Party Disclosures
37
24 18
18 IAS
27
Consolidated and Separate
Financial Statements
AS
21
Consolidated Financial
Statements
19 IAS
28
Investments in Associates AS
23
Accounting for Investments in
Associates in Consolidated
Financial Statements
20 IAS
31
Interests in Joint Ventures AS
27
Financial Reporting of Interests
in Joint Ventures
21 IAS
33
Earnings Per Share AS
20
Earnings Per Share
22 IAS
34
Interim Financial Reporting AS
25
Interim Financial Reporting
23 IAS
36
Impairment of Assets AS
28
Impairment of Assets
24 IAS
37
Provisions, Contingent
Liabilities and Contingent
Assets
AS
29
Provisions, Contingent
Liabilities and Contingent
Assets
25 IAS
38
Intangible Assets AS
26
Intangible Assets
26
Corresponding IAS has been
withdrawn since the matter is
now covered by IAS 32, 39
and 40
AS
13
Accounting for Investments
27 IAS
40
Investment Property -
Dealt with by Accounting
Standard 13
28 IFRS
3
Business Combinations AS
14
Accounting for Amalgamations
29 IFRS
5
Non-current Assets Held for
Sale and Discontinued
Operations
AS
24
Discontinuing Operations
Further, As 10 deals with
accounting for fixed assets
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retired from active use.
Table (2)
II. International Accounting Standard/International Financial Reporting Standard
not considered relevant for issuance of either Accounting Standards or the
Guidance Notes by the ICAI for the reasons indicated.
Sl.
No.
International Accounting Standards
(IASs)/International Financial
Reporting Standards (IFRSs) Reasons
IAS/
IFRS
No.
Title of the Standard
1 IAS
29
Financial Reporting in Hyper-
inflationary Economies
The Institute notes that the hyper-
inflationary conditions do not prevail
in India. Accordingly, the subject is
not considered relevant in the Indian
context.
2 IFRS1
First-time Adoption of
International Financial
Reporting Standards
In India, Indian ASs are being adopted
since last many years and IFRSs are
not being adopted for the first time.
Therefore, the IFRS 1 is not relevant to
India at present.
Table (3)
III. Accounting Standards presently under preparation corresponding to the
International Accounting Standards/International Financial Reporting Standards
Sl.
No.
International Accounting Standards
(IASs)/International Financial
Reporting Standards (IFRSs) Status
IAS/
IFRS
No.
Title of the Standard
39
1 IAS
26
Accounting and Reporting by
Retirement Benefit Plans
Under Preparation
2 IAS
30
Disclosure in Financial
Statements of Banks and
Similar Financial Institutions
Under preparation. At present,
Covered by the Banking regulation
Act, 1949; also certain disclosure
norms have been prescribed by the
Reserve Bank of India.
3 IAS
32
Financial Instruments:
Disclosure and Presentation
Under Preparation
4 IAS
39
Financial Instruments:
Recognition and Measurement
Under Preparation
5 IAS
41
Agriculture Under preparation
6 IFRS
2
Share-based Payment Under preparation. At present,
Employee-share based Payments, are
covered by a Guidance Note issued by
the Institute. Further, some other
pronouncements deal with other share-
based payments, e.g., AS 10,
Accounting for Fixed Assets
7 IFRS
4
Insurance Contracts Under preparation
Table (4)
IV. Reconciliation of Indian Accounting Standards with the International
Accounting Standards/International Financial Reporting Standards
A) International Financial Reporting Standards issued by the International
Accounting Standards Board
Number of International Accounting Standards (IASs) issued by the
International Accounting Standards Committee (IASC) (now
International Accounting Standards Board)
41
40
Number of International Financial Reporting Standards issued by IASB 6
Less: Number of IASs since withdrawn (10)
Add: IAS 4 which has been withdrawn, however, included here for
reconciliation purposes because corresponding Accounting Standards of
the ICAI (i.e. AS 6) is still in force
1
38
B) Accounting Standards (ASs) and other documents issued by the Institute of
Chartered Accountants of India
1 Number of Indian Accounting Standards issued (except AS 8 which is
withdrawn pursuant to AS 26 becoming mandatory)
28
2 IAS/IFRS not relevant in the Indian context 2
3 Guidance Note issued by the ICAI 1
4 Number of Accounting Standards under preparation 7
38
It may be noted that International Accounting Standards nos. 3, 4, 5, 6, 9, 13, 15, 22, 25,
and 35 have already been withdrawn by the International Accounting Standards Board
(IASB). IASB recently issued IFRS 5 and withdrew IAS 35, Discontinuing Operations,
on which AS 24 is based. An Indian Accounting Standard corresponding to IFRS 5 is
under preparation. After the issuance of this Indian AS, AS 24 is proposed to be
withdrawn. Pending the issuance of a comprehensive Accounting Standard on Financial
Instruments, the following pronouncements deal with the accounting for certain types of
financial instruments: (1) AS 13, Accounting for Investments (2) Guidance Note on
Equity Index and Equity Stock Futures and Options (3) Guidance Note on Investments by
Mutual Funds. (4) Guidance Note on Securitization Corresponding to IFRS 6 (effective
2006), Exploration for and Evaluation of Mineral Resources, Guidance Note of the ICAI
titled Accounting for Oil and Gas Producing Activities, has been issued. (An official
pronouncement by the Institute of Chartered Accountants of India)
4.1 IAS 1 Presentation of Financial Statements & AS 1 Disclosure of Accounting
Policies
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4.1.1 IAS 1 Presentation of Financial Statements (Revised 1997)
This revised International Accounting Standard supersedes IAS 1, Disclosure of
Accounting Policies, IAS 5, Information to be Disclosed in Financial Statements, and
IAS 13, Presentation of Current Assets and Current Liabilities, which were approved by
the Board in reformatted versions in 1994. IAS 1 (revised 1997) was approved by the
IASC Board in July 1997 and became effective for financial statements covering periods
beginning on or after 1 July 1998.
The objective of IAS 1 (revised 1997) is to prescribe 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. IAS 1
sets out the overall framework and responsibilities for the presentation of financial
statements, guidelines for their structure and minimum requirements for the content of
the financial statements. Standards for recognizing, measuring, and disclosing specific
transactions are addressed in other Standards and Interpretations.
The objective of general purpose financial statements is to provide information about the
financial position, financial performance, and cash flows of an entity that is useful to a
wide range of users in making economic decisions. To meet that objective, financial
statements provide information about an entity's:
Assets.
Liabilities.
Equity.
Income and expenses, including gains and losses.
Other changes in equity.
Cash flows.
That information, along with other information in the notes, assists users of financial
statements in predicting the entity's future cash flows and, in particular, their timing and
certainty.
A complete set of financial statements should include:
- a balance sheet,
- income statement,
- a statement of changes in equity showing either:
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all changes in equity, or
changes in equity other than those arising from transactions with equity
holders acting in their capacity as equity holders;
- cash flow statement, and
- notes, comprising a summary of accounting policies and other explanatory
notes.
Reports that are presented outside of the financial statements -- including financial
reviews by management, environmental reports, and value added statements -- are
outside the scope of IFRSs.
4.1.1.1 Information to be presented on the Face of the Balance Sheet
As a minimum, the face of the balance sheet should include line items which present the
following amounts:
(a) Property, plant and equipment;
(b) Intangible assets;
(c) Financial assets (excluding amounts shown under (d), (f) and (g));
(d) Investments accounted for using the equity method;
(e) Inventories;
(f) Trade and other receivables;
(g) Cash and cash equivalents;
(h) Trade and other payables;
(i) tax liabilities and assets as required by IAS 12, Income Taxes;
(j) Provisions;
(k) Non-current interest-bearing liabilities;
(l) Minority interest; and
(m) Issued capital and reserves.
Additional line items, headings and sub-totals should be presented on the face of the
balance sheet when an International Accounting Standard requires it, or when such
presentation is necessary to present fairly the enterprises financial position.
An enterprise should disclose the following, either on the face of the balance sheet or in
the notes:
(a) For each class of share capital:
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(i) The number of shares authorized;
(ii) The number of shares issued and fully paid, and issued but not fully paid;
(iii) par value per share, or that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the beginning and at the end
of the year;
(v) The rights, preferences and restrictions attaching to that class including restrictions on
the distribution of dividends and the repayment of capital;
(vi) Shares in the enterprise held by the enterprise itself or by subsidiaries or associates of
the enterprise; and
(vii) Shares reserved for issuance under options and sales contracts, including the terms
and amounts;
(b) A description of the nature and purpose of each reserve within owners equity;
(c) The amount of dividends that were proposed or declared after the balance sheet date
but before the financial statements were authorized for issue; and
(d) the amount of any cumulative preference dividends not recognized.
An enterprise without share capital, such as a partnership, should disclose information
equivalent to that required above, showing movements during the period in each category
of equity interest and the rights, preferences and restrictions attaching to each category of
equity interest.
4.1.1.2 Information to be Presented on the Face of the Income Statement
As a minimum, the face of the income statement should include line items which present
the following amounts:
(a) Revenue;
(b) The results of operating activities;
(c) Finance costs;
(d) Share of profits and losses of associates and joint ventures accounted for using the
equity method;
(e) Tax expense;
(f) Profit or loss from ordinary activities;
(g) Extraordinary items;
(h) Minority interest; and
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(i) Net profit or loss for the period.
Additional line items, headings and sub-totals should be presented on the face of the
income statement when required by an International Accounting Standard, or when such
presentation is necessary to present fairly the enterprises financial performance.
An enterprise should present, either on the face of the income statement or in the notes to
the income statement, an analysis of expenses using a classification based on either the
nature of expenses or their function within the enterprise.
Enterprises classifying expenses by function should disclose additional information on
the nature of expenses, including depreciation and amortization expense and staff costs.
An enterprise should disclose, either on the face of the income statement or in the notes,
the amount of dividends per share, declared or proposed, for the period covered by the
financial statements.
4.1.1.3 Presentation of Cash Flow Statement
Cash flow information is useful in providing users of financial statements with a basis to
assess the ability of the enterprise to generate cash and cash equivalents and the needs of
the enterprise to utilize those cash flows.
4.1.1.4 Presentation of Statement of Change in Equity
An enterprise should present, as a separate component of its financial statements, a
statement showing:
(a) The net profit or loss for the period;
(b) Each item of income and expense, gain or loss which, as required by other Standards,
is recognized directly in equity, and the total of these items; and
(c) The cumulative effect of changes in accounting policy and the correction of
fundamental errors dealt with under the Benchmark treatments in IAS 8.
In addition, an enterprise should present, either within this statement or in the notes:
(d) Capital transactions with owners and distributions to owners;
(e) The balance of accumulated profit or loss at the beginning of the period and at the
balance sheet date, and the movements for the period; and
(f) A reconciliation between the carrying amount of each class of equity capital, share
premium and each reserve at the beginning and the end of the period, separately
disclosing each movement.
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4.1.1.5 Notes to the Financial Statements
The notes to the financial statements of an enterprise should:
(a) Present information about the basis of preparation of the financial statements and the
specific accounting policies selected and applied for significant transactions and events;
(b) Disclose the information required by International Accounting Standards that is not
presented elsewhere in the financial statements; and
(c) Provide additional information which is not presented on the face of the financial
statements but that is necessary for a fair presentation.
Notes to the financial statements should be presented in a systematic manner. Each item
on the face of the balance sheet, income statement and cash flow statement should be
cross-referenced to any related information in the notes.
4.1.1.6 Presentation of Accounting Policies
The accounting policies section of the notes to the financial statements should describe
the following:
(a) The measurement basis (or bases) used in preparing the financial statements;
(b) Each specific accounting policy that is necessary for a proper understanding of the
financial statements.
4.1.1.7 Other Disclosures
An enterprise should disclose the following if not disclosed elsewhere in information
published with the financial statements:
(a) The domicile and legal form of the enterprise, its country of incorporation and the
address of the registered office (or principal place of business, if different from the
registered office);
(b) A description of the nature of the enterprises operations and its principal activities;
(c) The name of the parent enterprise and the ultimate parent enterprise of the group; and
(d) Either the number of employees at the end of the period or the average for the period.
4.1.2 AS 1 Disclosure of Accounting Policies
This standard deals with the disclosure of significant accounting policies followed in
preparing and presenting financial statements. The accounting policies refer to the
specific accounting principles and the methods of applying those principles adopted by
the enterprise in the preparation and presentation of financial statements. There is no
46
single list of accounting policies which are applicable to all circumstances. The differing
circumstances in which enterprises operate in a situation of diverse and complex
economic activity make alternative accounting principles and methods of applying those
principles acceptable. The view presented in the financial statements of an enterprise of
its state of affairs and of the profit or loss can be significantly affected by the accounting
policies followed in the preparation and presentation of the financial statements. The
accounting policies followed vary from enterprise to enterprise. Disclosure of significant
accounting policies followed is necessary if the view presented is to be properly
appreciated.
4.1.2.1 Disclosure of All significant accounting policies
All significant accounting policies adopted in the preparation and presentation of
financial statements should be disclosed.
4.1.2.2 Disclose accounting policies in one place
The disclosure of the significant accounting policies as such should form part of the
financial statements and the significant accounting policies should normally be disclosed
in one place.
4.1.2.3 Disclosure of change in the accounting policies
Any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be
disclosed. In the case of a change in accounting policies which has a material effect in the
current period, the amount by which any item in the financial statements is affected by
such change should also be disclosed to the extent ascertainable. Where such amount is
not ascertainable, wholly or in part, the fact should be indicated.
4.1.2.4 Disclosure If a fundamental accounting assumption is not followed
If the fundamental accounting assumptions, viz. Going Concern, Consistency and
Accrual are followed in financial statements, specific disclosure is not required. If a
fundamental accounting assumption is not followed, the fact should be disclosed.
4.1.3 Observation
First we have to know that in respect of International Accounting Standard this standard
supersedes IAS 1, Disclosure of Accounting Policies, IAS 5, Information to be Disclosed
in Financial Statements, and IAS 13, Presentation of Current Assets and Current
47
Liabilities, but in respect of India Accounting Standard there were no change which mean
that this IAS will have more requirement than India AS which is covered by an other
India AS. So the different or less disclosure requirement of India AS because of this
reason.
4.2 IAS 2 Inventories & AS 2 Valuation of Inventories
4.2.1 IAS 2 Inventories (Revised 1993)
This Standard prescribes the accounting treatment for inventories under the historical cost
system. A primary issue in accounting for inventories is the amount of cost to be
recognized as an asset and carried forward until the related revenues are recognized. This
Standard provides practical guidance on the determination of cost and its subsequent
recognition as an expense, including any write-down to net realizable value. It also
provides guidance on the cost formulas that are used to assign costs to inventories.
This Standard should be applied in financial statements prepared in the context of the
historical cost system in accounting for inventories other than:
(a) Work in progress arising under construction contracts, including directly related
service contracts (see IAS 11, Construction Contracts);
(b) Financial instruments; and
(c) Producers' inventories of livestock, agricultural and forest products, and mineral ores,
and agricultural produce to the extent that they are measured at net realizable value in
accordance with well established practices in certain industries.
(d) Biological assets related to agricultural activity (see IAS 41, Agriculture).
Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production process or in the
rendering of services.
Net realizable value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the sale.
Inventories should be measured at the lower of cost and net realizable value.
The cost of inventories should comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
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4.2.1.1 Disclose the accounting policies adopted in measuring inventories
The accounting policies adopted in measuring inventories, including the cost formula
used
4.2.1.2 Disclose the total carrying amount of inventories
The financial statements should disclose:
(a) The total carrying amount of inventories and the carrying amount in classifications
appropriate to the enterprise;
(b) The carrying amount of inventories carried at net realizable value;
(c) The amount of any reversal of any write-down that is recognized as income in the
period;
(d) The circumstances or events that led to the reversal of a write-down of inventories.
4.2.1.3 Disclose the carrying amount of inventories pledged as security for liabilities
The carrying amount of inventories pledged as security for liabilities should be disclosed.
4.2.1.4 Other disclosure
i- When the cost of inventories is determined using the LIFO formula in accordance with
the allowed alternative treatment, the financial statements should disclose the difference
between the amount of inventories as shown in the balance sheet and either:
(a) The lower of the amount arrived at and net realizable value; or
(b) The lower of current cost at the balance sheet date and net realizable value.
ii- The financial statements should disclose either:
(a) The cost of inventories recognized as an expense during the period; or
(b) The operating costs, applicable to revenues, recognized as an expense during the
period, classified by their nature.
4.2.2 AS 2 Valuation of Inventories
A primary issue in accounting for inventories is the determination of the value at which
inventories are carried in the financial statements until the related revenues are
recognized. This Statement deals with the determination of such value, including the
ascertainment of cost of inventories and any write-down thereof to net realizable value.
This standard not deals with shares, debentures and other financial instruments held as
stock-in-trade.
49
4.2.2.1 Disclosure of accounting policies
The accounting policies adopted in measuring inventories, including the cost formula
used.
4.2.2.2 Disclosure of carrying amount of inventories
The total carrying amount of inventories and its classification appropriate to the
enterprise.
4.2.2.3 Disclosure of Information about different classifications of inventories
Information about the carrying amounts held in different classifications of inventories
and the extent of the changes in these assets is useful to financial statement users.
Common classifications of inventories are raw materials and components, work in
progress, finished goods, stores and spares, and loose tools.
4.2.3 Observation
In this accounting standard I have noted that it is mostly the same except that IAS has
require Disclose the carrying amount of inventories pledged as security for liabilities
which India AS did not required but I think this is because it is covered by other AS even
in my opinion it should be like IAS.
4.3 AS 6 Depreciation Accounting & Corresponding IAS
4.3.1 Corresponding IAS has been withdrawn since the matter is now covered by
IAS 16 and IAS 38
4.3.2 AS 6 Depreciation Accounting
This Standard deals with depreciation accounting and applies to all depreciable assets,
except the following items to which special considerations apply:-
i- Forests, plantations and similar regenerative natural resources;
ii- wasting assets including expenditure on the exploration for and extraction of minerals,
oils, natural gas and similar non-regenerative resources;
iii- expenditure on research and development;
iv- goodwill;
v- Live Stock.
4.3.2.1 Disclosure of historical cost or revalued cost
The historical cost or other amount substituted for historical cost of each class of
depreciable assets should be disclosed.
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4.3.2.2 Disclosure in respect of the amount of depreciation
Total depreciation for the period for each class of assets; and the related accumulated
depreciation should be disclosed.
4.3.2.3 Disclose the depreciation accounting policies
The following information should also be disclosed in the financial statements along with
the disclosure of other accounting policies:
i- depreciation methods used; and
ii- depreciation rates or the useful lives of the assets, if they are different from the
principal rates specified in the statute governing the enterprise.
4.3.2.4 Disclosure where the depreciable assets are revalued
In case the revaluation has a material effect on the amount of depreciation, the same
should be disclosed separately in the year in which revaluation is carried out.
4.3.3 Observation
In respect of this standard IAS has been withdrawn since the matter is now covered by
IAS 16 and IAS 38 and even this standard withdrawn but the disclosure requirement of
IAS and India AS mostly the same.
4.4 IAS 7 Cash Flow Statements & AS 3 Cash Flow Statements
4.4.1 IAS 7 Cash Flow Statements (Revised 1992)
This revised International Accounting Standard supersedes IAS 7, Statement of Changes
in Financial Position, approved by the Board in October 1977. The revised Standard
became effective for financial statements covering periods beginning on or after 1
January 1994.
The objective of IAS 7 is to require the presentation of information about the historical
changes in cash and cash equivalents of an enterprise by means of a cash flow statement
which classifies cash flows during the period according to operating, investing and
financing activities.
All enterprises that prepare financial statements in conformity with IAS are required to
present a cash flow statement.
The cash flow statement analyses changes in cash and cash equivalents during a period.
Cash and cash equivalents comprise cash on hand and demand deposits, together with
short-term, highly liquid investments that are readily convertible to a known amount of
51
cash and that are subject to an insignificant risk of changes in value. Guidance notes
indicate that an investment normally meets the definition of a cash equivalent when it has
a maturity of three months or less from the date of acquisition. Equity investments are
normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares
acquired within three months of their specified redemption date). Bank overdrafts which
are repayable on demand and which form an integral part of an enterprise's cash
management are also included as a component of cash and cash equivalents.
Cash flows must be analyzed between operating, investing and financing activities.
operating activities are the main revenue-producing activities of the enterprise that are not
investing or financing activities, so operating cash flows include cash received from
customers and cash paid to suppliers and employees.
Investing activities are the acquisition and disposal of long-term assets and other
investments that are not considered to be cash equivalents.
Financing activities are activities that alter the equity capital and borrowing structure of
the enterprise.
Interest and dividends received and paid may be classified as operating, investing, or
financing cash flows, provided that they are classified consistently from period to period.
Cash flows arising from taxes on income are normally classified as operating, unless they
can be specifically identified with financing or investing activities. For operating cash
flows, the direct method of presentation is encouraged, but the indirect method is
acceptable.
4.4.1.1 Present Cash Flow Statements
An enterprise should prepare a cash flow statement in accordance with the requirements
of this Standard and should present it as an integral part of its financial statements for
each period for which financial statements are presented.
4.4.1.2 Present cash flow arising from each operating, investing and financing
activities separately
The cash flow statement should report cash flows during the period classified by
operating, investing and financing activities.
52
4.4.1.3 Cash flows arising from activities of a financial institution reported on a net
basis
Cash flows arising from the following operating, investing or financing activities may be
reported on a net basis:
a- cash receipts and payments on behalf of customers when the cash flows reflect the
activities of the customer rather than those of the enterprise; and
b- cash receipts and payments for items in which the turnover is quick, the amounts are
large, and the maturities are short.
4.4.1.4 Disclose the method used to report cash flows from operating activities
An enterprise should report cash flows from operating activities using either:
a- the direct method, whereby major classes of gross cash receipts and gross cash
payments are disclosed; or
b- the indirect method, whereby net profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or accruals of past or future operating
cash receipts or payments, and items of income or expense associated with investing or
financing cash flows.
4.4.1.5 Other disclosure requirements
Cash flows from following transactions should also be disclosed separately either paid or
received: Foreign Currency Cash Flows, Extraordinary Items, Interest and Dividends,
Taxes on Income, Investments in Subsidiaries, Associates and Joint Ventures,
Components of Cash and Cash Equivalents, and the amount of significant cash and cash
equivalent balances held by the enterprise that are not available for use by it.
4.4.2 AS 3 Cash Flow Statements
The Standard deals with the provision of information about the historical changes in cash
and cash equivalents of an enterprise by means of a cash flow statement which classifies
cash flows during the period from operating, investing and financing activities.
4.4.2.1 Present Cash Flow Statements
An enterprise should prepare a cash flow statement in accordance with the requirements
of this Standard and should present it as an integral part of its financial statements for
each period for which financial statements are presented.
53
4.4.2.2 Present cash flow arising from each operating, investing and financing
activities separately
The cash flow statement should report cash flows during the period classified by
operating, investing and financing activities.
4.4.2.3 Cash flows arising from activities of a financial institution reported on a net
basis
Cash flows arising from the following operating, investing or financing activities may be
reported on a net basis:
a- cash receipts and payments on behalf of customers when the cash flows reflect the
activities of the customer rather than those of the enterprise; and
b- cash receipts and payments for items in which the turnover is quick, the amounts are
large, and the maturities are short.
4.4.2.4 Disclose the method used to report cash flows from operating activities
An enterprise should report cash flows from operating activities using either:
a- the direct method, whereby major classes of gross cash receipts and gross cash
payments are disclosed; or
b- the indirect method, whereby net profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or accruals of past or future operating
cash receipts or payments, and items of income or expense associated with investing or
financing cash flows.
4.4.2.5 Other disclosure requirements
Cash flows from following transactions should also be disclosed separately either paid or
received: Foreign Currency Cash Flows, Extraordinary Items, Interest and Dividends,
Taxes on Income, Investments in Subsidiaries, Associates and Joint Ventures,
Components of Cash and Cash Equivalents, and the amount of significant cash and cash
equivalent balances held by the enterprise that are not available for use by it.
4.4.3 Observation
I have observed the same disclosure requirements by both IAS & India AS.
4.5 IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in
Accounting Policies & AS 5 Net Profit or Loss for the Period, Prior Period Items
and Changes in Accounting Policies
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4.5.1 IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in
Accounting Policies (Revised 1993)
The objective of this Standard is to prescribe the classification, disclosure and accounting
treatment of certain items in the income statement so that all enterprises prepare and
present an income statement on a consistent basis. This enhances comparability both with
the enterprise's financial statements of previous periods and with the financial statements
of other enterprises.
Accordingly, this Standard requires the classification and disclosure of extraordinary
items and the disclosure of certain items within profit or loss from ordinary activities. It
also specifies the accounting treatment for changes in accounting estimates, changes in
accounting policies and the correction of fundamental errors.
This Standard should be applied in presenting profit or loss from ordinary activities and
extraordinary items in the income statement and in accounting for changes in accounting
estimates, fundamental errors and changes in accounting policies.
Extraordinary items are income or expenses that arise from events or transactions that are
clearly distinct from the ordinary activities of the enterprise and therefore are not
expected to recur frequently or regularly.
Ordinary activities are any activities which are undertaken by an enterprise as part of its
business and such related activities in which the enterprise engages in furtherance of,
incidental to, or arising from these activities.
Fundamental errors are errors discovered in the current period that are of such
significance that the financial statements of one or more prior periods can no longer be
considered to have been reliable at the date of their issue.
Accounting policies are the specific principles, bases, conventions, rules and practices
adopted by an enterprise in preparing and presenting financial statements.
4.5.1.1 Disclosure related to: Net Profit or Loss for the Period
The net profit or loss for the period comprises the following components, each of which
should be disclosed on the face of the income statement:
(a) profit or loss from ordinary activities; and
(b) extraordinary items.
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When items of income and expense within profit or loss from ordinary activities are of
such size, nature or incidence that their disclosure is relevant to explain the performance
of the enterprise for the period, the nature and amount of such items should be disclosed
separately.
4.5.1.2 Disclosure of Extraordinary Items
The nature and the amount of each extraordinary item should be separately disclosed.
4.5.1.3 Disclosure related to: Changes in Accounting Estimates
The effect of a change in an accounting estimate should be included in the determination
of net profit or loss in:
(a) the period of the change, if the change affects the period only; or
(b) the period of the change and future periods, if the change affects both.
The nature and amount of a change in an accounting estimate that has a material effect in
the current period or which is expected to have a material effect in subsequent periods
should be disclosed. If it is impracticable to quantify the amount, this fact should be
disclosed.
4.5.1.4 Disclosure related to: Fundamental Errors
An enterprise should disclose the following:
(a) The nature of the fundamental error;
(b) The amount of the correction for the current period and for each prior period
presented;
(c) The amount of the correction relating to periods prior to those included in the
comparative information; and
(d) The fact that comparative information has been restated or that it is impracticable to
do so.
4.5.1.5 Disclosure related to: Changes in Accounting Policies
When a change in accounting policy has a material effect on the current period or any
prior period presented, or may have a material effect in subsequent periods, an enterprise
should disclose the following:
(a) The reasons for the change;
(b) The amount of the adjustment for the current period and for each period presented;
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(c) The amount of the adjustment relating to periods prior to those included in the
comparative information; and
(d) The fact that comparative information has been restated or that it is impracticable to
do so.
4.5.2 AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies
This Standard should be applied by an enterprise in presenting profit or loss from
ordinary activities, extraordinary items and prior period items in the statement of profit
and loss, in accounting for changes in accounting estimates, and in disclosure of changes
in accounting policies.
4.5.2.1 Disclosure of net profit or loss for the period
All items of income and expense which are recognized in a period should be included in
the determination of net profit or loss for the period unless an Accounting Standard
requires or permits otherwise.
4.5.2.2 Disclosure of extraordinary Items
Extraordinary items should be disclosed in the statement of profit and loss as a part of net
profit or loss for the period. The nature and the amount of each extraordinary item should
be separately disclosed in the statement of profit and loss in a manner that its impact on
current profit or loss can be perceived.
4.5.2.3 Disclosure of Prior Period Items
The nature and amount of prior period items should be separately disclosed in the
statement of profit and loss in a manner that their impact on the current profit or loss can
be perceived.
3.5.2.4 Disclosure of Changes in Accounting Estimates
The effect of a change in an accounting estimate should be included in the determination
of net profit or loss in: the period of the change, if the change affects the period only; or
the period of the change and future periods, if the change affects both.
4.5.2.5 Disclosure of Changes in Accounting Policies
Any change in an accounting policy which has a material effect should be disclosed. The
impact of, and the adjustments resulting from, such change, if material, should be shown
in the financial statements of the period in which such change is made, to reflect the
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effect of such change. Where the effect of such change is not ascertainable, wholly or in
part, the fact should be indicated.
4.5.3 Observation
In this accounting standard also I noted the same treatments and disclosure requirements
of IAS & India AS.
4.6 IAS 10 Events After the Balance Sheet Date & Contingencies and Events
Occurring After the Balance Sheet Date
4.6.1 IAS 10 Events After the Balance Sheet Date (revised 1999)
The objective of this Standard is to prescribe:
(a) When an enterprise should adjust its financial statements for events after the balance
sheet date; and
(b) The disclosures that an enterprise should give about the date when the financial
statements were authorized for issue and about events after the balance sheet date.
This Standard also requires that an enterprise should not prepare its financial statements
on a going concern basis if events after the balance sheet date indicate that the going
concern assumption is not appropriate.
Events after the balance sheet date are those events, both favorable and unfavorable, that
occur between the balance sheet date and the date when the financial statements are
authorized for issue. Two types of events can be identified:
(a) Those that provide evidence of conditions that existed at the balance sheet date
(adjusting events after the balance sheet date);
(b) Those that is indicative of conditions that arose after the balance sheet date (non-
adjusting events after the balance sheet date).
An enterprise should adjust the amounts recognized in its financial statements to reflect
adjusting events after the balance sheet date.
An enterprise should not adjust the amounts recognized in its financial statements to
reflect non-adjusting events after the balance sheet date.
If dividends to holders of equity instruments (as defined in IAS 32, Financial
Instruments: Disclosure and Presentation) are proposed or declared after the balance
sheet date, an enterprise should not recognize those dividends as a liability at the balance
sheet date.
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An enterprise should not prepare its financial statements on a going concern basis if
management determines after the balance sheet date either that it intends to liquidate the
enterprise or to cease trading, or that it has no realistic alternative but to do so.
4.6.1.1 Disclosure of the Date of Authorization for issue Financial Statements
An enterprise should disclose the date when the financial statements were authorized for
issue and who gave that authorization. If the enterprises owners or others have the power
to amend the financial statements after issuance, the enterprise should disclose that fact.
4.6.1.2 Disclosure of Adjusting Events after the Balance Sheet Date
If an enterprise receives information after the balance sheet date about conditions that
existed at the balance sheet date, the enterprise should update disclosures that relate to
these conditions, in the light of the new information.
4.6.1.3 Disclosure of the Nature of Non-Adjusting Events After the Balance Sheet
Date
Where non-adjusting events after the balance sheet date are of such importance that non-
disclosure would affect the ability of the users of the financial statements to make proper
evaluations and decisions, an enterprise should disclose the following information for
each significant category of non-adjusting event after the balance sheet date:
(a) The nature of the event; and
(b) An estimate of its financial effect or a statement that such an estimate cannot be
made.
4.6.1.4 Disclosure of Dividend
IAS 1, Presentation of Financial Statements, requires an enterprise to disclose the amount
of dividends that were proposed or declared after the balance sheet date but before the
financial statements were authorized for issue. IAS 1 permits an enterprise to make this
disclosure either:
(a) on the face of the balance sheet as a separate component of equity; or
(b) in the notes to the financial statements.
4.6.2 AS 4 Contingencies and Events Occurring After the Balance Sheet Date
This Standard deals with the treatment in financial statements of
a- contingencies, and
b- events occurring after the balance sheet date.
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The following subjects, which may result in contingencies, are excluded from the scope
of this Statement in view of special considerations applicable to them:
a- liabilities of life assurance and general insurance enterprises arising from policies
issued;
b- obligations under retirement benefit plans; and
c- commitments arising from long-term lease contracts.
A contingency is a condition or situation, the ultimate outcome of which, gain or loss,
will be known or determined only on the occurrence, or nonoccurrence, of one or more
uncertain future events.
Events occurring after the balance sheet date are those significant events, both favorable
and unfavorable, that occur between the balance sheet date and the date on which the
financial statements are approved by the Board of Directors in the case of a company,
and, by the corresponding approving authority in the case of any other entity.
Two types of events can be identified:
a- those which provide further evidence of conditions that existed at the balance sheet
date; and
b- those which are indicative of conditions that arose subsequent to the balance sheet
date.
4.6.2.1 Disclosure of contingent loss in the profit or loss statement
The amount of a contingent loss should be provided for by a charge in the statement of
profit and loss if:
a- it is probable that future events will confirm that, after taking into account any related
probable recovery, an asset has been impaired or a liability has been incurred as at the
balance sheet date, and
b- a reasonable estimate of the amount of the resulting loss can be made.
4.6.2.2 Disclosure of contingent loss in the note of financial statements
If a contingent loss is not provided for, its nature and an estimate of its financial effect are
generally disclosed by way of note unless the possibility of a loss is remote (other than
the circumstances mentioned in first requirement). If a reliable estimate of the financial
effect cannot be made, this fact is disclosed.
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4.6.2.3 Disclosure of events occurring after the balance sheet date
When the events occurring after the balance sheet date are disclosed in the report of the
approving authority, the information given comprises the nature of the events and an
estimate of their financial effects or a statement that such an estimate cannot be made.
4.6.3 Observation
Here I have realized that in respect of contingencies which covered by India AS the IAS
have covered it in IAS 37 Provision, Contingent Liabilities and Contingent Assets. But
for the events after the balance sheet both IAS & India AS have same disclosure
requirements except the Date of Authorization for issue Financial Statements & dividend
disclosure requirements which India AS did not required which will make miss
information needed by the users.
4.7 IAS 11 Construction Contracts & AS 7 Construction Contracts
4.7.1 IAS 11 Construction Contracts (Revised 1993)
This Standard prescribes the accounting treatment of revenue and costs associated with
construction contracts. Because of the nature of the activity undertaken in construction
contracts, the date at which the contract activity is entered into and the date when the
activity is completed usually fall into different accounting periods. Therefore, the primary
issue in accounting for construction contracts is the allocation of contract revenue and
contract costs to the accounting periods in which construction work is performed. This
Standard uses the recognition criteria established in the Framework for the Preparation
and Presentation of Financial Statements to determine when contract revenue and
contract costs should be recognized as revenue and expenses in the income statement. It
also provides practical guidance on the application of these criteria.
This Standard should be applied in accounting for construction contracts in the financial
statements of contractors.
A construction contract is a contract specifically negotiated for the construction of an
asset or a combination of assets that are closely interrelated or interdependent in terms of
their design, technology and function or their ultimate purpose or use.
A fixed price contract is a construction contract in which the contractor agrees to a fixed
contract price, or a fixed rate per unit of output, which in some cases is subject to cost
escalation clauses.
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A cost plus contract is a construction contract in which the contractor is reimbursed for
allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee.
4.7.1.1 Disclosure of contract revenue
An enterprise should disclose:
a- the amount of contract revenue recognized as revenue in the period;
b- the methods used to determine the contract revenue recognized in the period;
c- the methods used to determine the stage of completion of contracts in progress.
4.7.1.2 Disclosure for contracts in progress
An enterprise should disclose the following for contracts in progress at the reporting date:
a- the aggregate amount of costs incurred and recognized profits (less recognized
losses) up to the reporting date;
b- the amount of advances received; and
c- the amount of retentions
4.7.1.3 Disclosure of contract assets and liability
An enterprise should present:
a- the gross amount due from customers for contract work as an asset;
b- the gross amount due to customers for contract work as a liability.
4.7.2 AS 7 Construction Contracts
The primary issue in accounting for construction contracts is the allocation of contract
revenue and contract costs to the accounting periods in which construction work is
performed. The objective of this Statement is to prescribe the accounting treatment of
revenue and costs associated with construction contracts. Because of the nature of the
activity undertaken in construction contracts, the date at which the contract activity is
entered into and the date when the activity is completed usually fall into different
accounting periods.
4.7.2.1 Disclosure of contract revenue
An enterprise should disclose:
a- the amount of contract revenue recognized as revenue in the period;
b- the methods used to determine the contract revenue recognized in the period;
c- the methods used to determine the stage of completion of contracts in progress.
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4.7.2.2 Disclosure for contracts in progress
An enterprise should disclose the following for contracts in progress at the reporting date:
a- the aggregate amount of costs incurred and recognized profits (less recognized
losses) up to the reporting date;
b- the amount of advances received; and
c- the amount of retentions
4.7.2.3 Disclosure of contract assets and liability
An enterprise should present:
a- the gross amount due from customers for contract work as an asset;
b- the gross amount due to customers for contract work as a liability.
4.7.3 Observation
In respect of Construction Contract I have noted the same accounting treatments and
disclosure requirements by both IAS & India AS.
4.8 IAS 12 Income Taxes & AS 22 Accounting for Taxes on Income
4.8.1 IAS 12 Income Taxes (Revised 2000)
The objective of this Standard is to prescribe the accounting treatment for income taxes.
The principal issue in accounting for income taxes is how to account for the current and
future tax consequences of:
(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are
recognized in an enterprise's balance sheet; and
(b) transactions and other events of the current period that are recognized in an
enterprise's financial statements.
It is inherent in the recognition of an asset or liability that the reporting enterprise expects
to recover or settle the carrying amount of that asset or liability. If it is probable that
recovery or settlement of that carrying amount will make future tax payments larger
(smaller) than they would be if such recovery or settlement were to have no tax
consequences, this Standard requires an enterprise to recognize a deferred tax liability
(deferred tax asset), with certain limited exceptions.
This Standard requires an enterprise to account for the tax consequences of transactions
and other events in the same way that it accounts for the transactions and other events
themselves.
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Thus, for transactions and other events recognized in the income statement, any related
tax effects are also recognized in the income statement. For transactions and other events
recognized directly in equity, any related tax effects are also recognized directly in
equity.
This Standard also deals with the recognition of deferred tax assets arising from unused
tax losses or unused tax credits, the presentation of income taxes in the financial
statements and the disclosure of information relating to income taxes.
This Standard should be applied in accounting for income taxes.
For the purposes of this Standard, income taxes include all domestic and foreign taxes
which are based on taxable profits. Income taxes also include taxes, such as withholding
taxes, which are payable by a subsidiary, associate or joint venture on distributions to the
reporting enterprise.
This Standard does not deal with the methods of accounting for government grants.
Deferred tax liabilities are the amounts of income taxes payable in future periods in
respect of taxable temporary differences.
Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of:
(a) deductible temporary differences;
(b) the carry forward of unused tax losses; and
(c) the carry forward of unused tax credits.
Temporary differences are differences between the carrying amount of an asset or
liability in the balance sheet and its tax base. Temporary differences may be either:
(a) taxable temporary differences, which are temporary differences that will result in
taxable amounts in determining taxable profit (tax loss) of future periods when the
carrying amount of the asset or liability is recovered or settled; (b) deductible temporary
differences, which are temporary differences that will result in amounts that are
deductible in determining taxable profit (tax loss) of future periods when the carrying
amount of the asset or liability is recovered or settled.
A deferred tax liability should be recognized for all taxable temporary differences, unless
the deferred tax liability arises from:
(a) goodwill for which amortization is not deductible for tax purposes; or
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(b) the initial recognition of an asset or liability in a transaction which:
(i) is not a business combination; and
(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax
loss).
However, for taxable temporary differences associated with investments in subsidiaries,
branches and associates, and interests in joint ventures, a deferred tax liability should be
recognized. A deferred tax asset should be recognized for all deductible temporary
differences to the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilized, unless the deferred tax asset
arises from:
(a) negative goodwill which is treated as deferred income in accordance with IAS 22,
Business Combinations; or
(b) the initial recognition of an asset or liability in a transaction which:
(i) is not a business combination; and
(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax
loss). However, for deductible temporary differences associated with investments in
subsidiaries, branches and associates, and interests in joint ventures, a deferred tax asset
should be recognized. Deferred tax assets and liabilities should not be discounted.
4.8.1.1 Separate disclosure of the major components of tax expense (income)
Components of tax expense (income) may include:
(a) current tax expense (income);
(b) any adjustments recognized in the period for current tax of prior periods;
(c) the amount of deferred tax expense (income) relating to the origination and reversal of
temporary differences;
(d) the amount of deferred tax expense (income) relating to changes in tax rates or the
imposition of new taxes;
(e) the amount of the benefit arising from a previously unrecognized tax loss, tax credit or
temporary difference of a prior period that is used to reduce current tax expense;
(f) the amount of the benefit from a previously unrecognized tax loss, tax credit or
temporary difference of a prior period that is used to reduce deferred tax expense;
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(g) deferred tax expense arising from the write-down, or reversal of a previous write-
down, of a deferred tax asset.
(h) the amount of tax expense (income) relating to those changes in accounting policies
and fundamental errors which are included in the determination of net profit or loss for
the period in accordance with the allowed alternative treatment in IAS 8, Net Profit or
Loss for the Period, Fundamental Errors and Changes in Accounting Policies.
4.8.1.2 Separate disclosure of the aggregate current and deferred tax assets and
liability
The following should also be disclosed separately:
(a) the aggregate current and deferred tax relating to items that are charged or credited to
equity;
(b) tax expense (income) relating to extraordinary items recognized during the period;
(c) an explanation of the relationship between tax expense (income) and accounting profit
in either or both of the following forms:
(i) a numerical reconciliation between tax expense (income) and the product of
accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on
which the applicable tax rate(s) is (are) computed; or
(ii) a numerical reconciliation between the average effective tax rate and the applicable
tax rate, disclosing also the basis on which the applicable tax rate is computed;
(d) an explanation of changes in the applicable tax rate(s) compared to the previous
accounting period;
(e) the amount (and expiry date, if any) of deductible temporary differences, unused tax
losses, and unused tax credits for which no deferred tax asset is Recognized in the
balance sheet;
(f) the aggregate amount of temporary differences associated with investments in
subsidiaries, branches and associates and interests in joint ventures, for which deferred
tax liabilities have not been recognized;
(g) in respect of each type of temporary difference, and in respect of each type of unused
tax losses and unused tax credits:
(i) the amount of the deferred tax assets and liabilities recognized in the balance sheet for
each period presented;
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(ii) the amount of the deferred tax income or expense recognized in the income statement,
if this is not apparent from the changes in the amounts recognized in the balance sheet;
and
(h) in respect of discontinued operations, the tax expense relating to:
(i) the gain or loss on discontinuance; and
(ii) the profit or loss from the ordinary activities of the discontinued operation for the
period, together with the corresponding amounts for each prior period presented.
(i) the amount of income tax consequences of dividends to shareholders of the enterprise
that were proposed or declared before the financial statements were authorized for issue,
but are not recognized as a liability in the financial statements.
4.8.1.3 Disclose the amount of a deferred tax asset and the nature of the evidence
supporting its recognition
An enterprise should disclose the amount of a deferred tax asset and the nature of the
evidence supporting its recognition, when:
(a) the utilization of the deferred tax asset is dependent on future taxable profits in excess
of the profits arising from the reversal of existing taxable temporary differences; and
(b) the enterprise has suffered a loss in either the current or preceding period in the tax
jurisdiction to which the deferred tax asset relates.
4.8.1.4 Disclose the nature of the potential income tax result from the payment of
dividends
In some jurisdictions, income taxes are payable at a higher or lower rate if part or all of
the net profit or retained earnings is paid out as a dividend to shareholders of the
enterprise. In some other jurisdictions, income taxes may be refundable or payable if part
or all of the net profit or retained earnings is paid out as a dividend to shareholders of the
enterprise. In these circumstances, current and deferred tax assets and liabilities are
measured at the tax rate applicable to undistributed profits. In the circumstances
described above, an enterprise should disclose the nature of the potential income tax
consequences that would result from the payment of dividends to its shareholders. In
addition, the enterprise should disclose the amounts of the potential income tax
consequences practicably determinable and whether there are any potential income tax
consequences not practicably determinable.
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4.8.2 AS 22 Accounting for Taxes on Income
This Standard should be applied in accounting for taxes on income. This includes the
determination of the amount of the expense or saving related to taxes on income in
respect of an accounting period and the disclosure of such an amount in the financial
statements.
For the purposes of this Standard, taxes on income include all domestic and foreign taxes
which are based on taxable income. This Statement does not specify when, or how, an
enterprise should account for taxes that are payable on distribution of dividends and other
distributions made by the enterprise.
Deferred tax is the tax effect of timing differences.
Timing differences are the differences between taxable income and accounting income
for a period that originate in one period and are capable of reversal in one or more
subsequent periods.
Permanent differences are the differences between taxable income and accounting
income for a period that originate in one period and do not reverse subsequently.
Where an enterprise has unabsorbed depreciation or carry forward of losses under tax
laws, deferred tax assets should be recognized only to the extent that there is virtual
certainty supported by convincing evidence4 that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
Current tax should be measured at the amount expected to be paid to (recovered from) the
taxation authorities, using the applicable tax rates and tax laws. Deferred tax assets and
liabilities should be measured using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date.
The carrying amount of deferred tax assets should be reviewed at each balance sheet date.
An enterprise should write-down the carrying amount of a deferred tax asset to the extent
that it is no longer reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which deferred tax asset can be
realized. Any such write-down may be reversed to the extent that it becomes reasonably
certain or virtually certain, as the case may be, that sufficient future taxable income will
be available.
An enterprise should offset assets and liabilities representing current tax if the enterprise:
http://www.icai.org/icairoot/resources/accounting_standards_as22.html#4#4
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a. has a legally enforceable right to set off the recognized amounts; and
b. intends to settle the asset and the liability on a net basis.
An enterprise should offset deferred tax assets and deferred tax liabilities if:
a. the enterprise has a legally enforceable right to set off assets against liabilities
representing current tax; and
b. the deferred tax assets and the deferred tax liabilities relate to taxes on income
levied by the same governing taxation laws.
4.8.2.1 Disclosure of Deferred tax assets and liabilities separately
Deferred tax assets and liabilities should be distinguished from assets and liabilities
representing current tax for the period. Deferred tax assets and liabilities should be
disclosed under a separate heading in the balance sheet of the enterprise, separately from
current assets and current liabilities.
4.8.2.2 Disclosure of The break-up of deferred tax assets and deferred tax liabilities
The break-up of deferred tax assets and deferred tax liabilities into major components of
the respective balances should be disclosed in the notes to accounts.
4.8.2.3 Disclose the nature of the evidence supporting the recognition of deferred tax
assets
The nature of the evidence supporting the recognition of deferred tax assets should be
disclosed, if an enterprise has unabsorbed depreciation or carry forward of losses under
tax laws.
4.8.3 Observation
My observation for this standard is as follow, except the IAS required in addition to other
requirements require the enterprise to disclose the nature of the potential income tax
result from the payment of dividends which will be useful for the users of the financial
statements, both IAS & India AS disclosure requirements are the same.
4.9 IAS 14 Segment Reporting & AS 17 Segment Reporting
4.9.1 IAS 14 Segment Reporting (Revised 1997)
This Standard establish principles for reporting financial information by segment
information about the different types of products and services an enterprise produces and
the different geographical areas in which it operatesto help users of financial
statements:
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(a) better understand the enterprises past performance;
(b) better assess the enterprises risks and returns; and
(c) make more informed judgments about the enterprise as a whole.
Many enterprises provide groups of products and services or operate in geographical
areas that are subject to differing rates of profitability, opportunities for growth, future
prospects, and risks.
Information about an enterprises different types of products and services and its
operations in different geographical areasoften called segment informationis relevant
to assessing the risks and returns of a diversified or multinational enterprise but may not
be determinable from the aggregated data. Therefore, segment information is widely
regarded as necessary to meeting the needs of users of financial statements.
This Standard should be applied by enterprises whose equity or debt securities are
publicly traded and by enterprises that are in the process of issuing equity or debt
securities in public securities markets.
A business segment is a distinguishable component of an enterprise that is engaged in
providing an individual product or service or a group of related products or services and
that is subject to risks and returns that are different from those of other business
segments. Factors that should be considered in determining whether products and
services are related include:
(a) the nature of the products or services;
(b) the nature of the production processes;
(c) the type or class of customer for the products or services;
(d) the methods used to distribute the products or provide the services; and
(e) if applicable, the nature of the regulatory environment, for example, banking,
insurance, or public utilities.
A geographical segment is a distinguishable component of an enterprise that is engaged
in providing products or services within a particular economic environment and that is
subject to risks and returns that are different from those of components operating in other
economic environments. Factors that should be considered in identifying geographical
segments include:
(a) similarity of economic and political conditions;
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(b) relationships between operations in different geographical areas;
(c) proximity of operations;
(d) special risks associated with operations in a particular area;
(e) exchange control regulations; and
(f) the underlying currency risks.
A reportable segment is a business segment or a geographical segment identified based
on the foregoing definitions for which segment information is required to be disclosed by
this Standard.
Segment revenue is revenue reported in the enterprises income statement that is directly
attributable to a segment and the relevant portion of enterprise revenue that can be
allocated on a reasonable basis to a segment, whether from sales to external customers or
from transactions with other segments of the same enterprise. Segment revenue does not
include:
(a) extraordinary items;
(b) interest or dividend income, including interest earned on advances or loans to other
segments, unless the segments operations are primarily of a financial nature; or
(c) gains on sales of investments or gains on extinguishment of debt unless the segments
operations are primarily of a financial nature.
Segment expense is expense resulting from the operating activities of a segment that is
directly attributable to the segment and the relevant portion of an expense that can be
allocated on a reasonable basis to the segment, including expenses relating to sales to
external customers and expenses relating to transactions with other segments of the same
enterprise. Segment expense does not include:
(a) extraordinary items;
(b) interest, including interest incurred on advances or loans from other segments, unless
the segments operations are primarily of a financial nature;
(c) losses on sales of investments or losses on extinguishment of debt unless the
segments operations are primarily of a financial nature;
(d) an enterprises share of losses of associates, joint ventures, or other investments
accounted for under the equity method;
(e) income tax expense; or
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(f) general administrative expenses, head-office expenses, and other expenses that arise at
the enterprise level and relate to the enterprise as a whole.
However, costs are sometimes incurred at the enterprise level on behalf of a segment.
Such costs are segment expenses if they relate to the segments operating activities and
they can be directly attributed or allocated to the segment on a reasonable basis.
4.9.1.1 Disclosure in case of Primary Reporting Format
The following disclosure requirements should be applied to each reportable segment
based on an enterprises primary reporting format.
a. An enterprise should disclose segment revenue for each reportable segment. Segment
revenue from sales to external customers and segment revenue from transactions with
other segments should be separately reported.
b. An enterprise should disclose segment result for each reportable segment.
c. An enterprise should disclose the total carrying amount of segment assets for each
reportable segment.
d. An enterprise should disclose segment liabilities for each reportable segment.
e. An enterprise should disclose the total cost incurred during the period to acquire
segment assets that are expected to be used during more than one period (property, plant,
equipment, and intangible assets) for each reportable segment. While this sometimes is
referred to as capital additions or capital expenditure, the measurement required by this
principle should be on an accrual basis, not a cash basis.
f. An enterprise should disclose the total amount of expense included in segment result
for depreciation and amortization of segment assets for the period for each reportable
segment.
g. An enterprise is encouraged, but not required to disclose the nature and amount of any
items of segment revenue and segment expense that are of such size, nature, or incidence
that their disclosure is relevant to explain the performance of each reportable segment for
the period.
h. An enterprise should disclose, for each reportable segment, the total amount of
significant non-cash expenses, other than depreciation and amortization for which
separate disclosure is required by paragraph 58, that were included in segment expense
and, therefore, deducted in measuring segment result.
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i. An enterprise that provides the segment cash flow disclosures that are encouraged by
IAS 7 need not also disclose depreciation and amortization expense or non-cash
expenses.
j. An enterprise should disclose, for each reportable segment, the aggregate of the
enterprises share of the net profit or loss of associates, joint ventures, or other
investments accounted for under the equity method if substantially all of those associates
operations are within that single segment.
k. If an enterprises aggregate share of the net profit or loss of associates, joint ventures,
or other investments accounted for under the equity method is disclosed by reportable
segment, the aggregate investments in those associates and joint ventures should also be
disclosed by reportable segment.
l. An enterprise should present reconciliation between the information disclosed for
reportable segments and the aggregated information in the consolidated or enterprise
financial statements. In presenting the reconciliation, segment revenue should be
reconciled to enterprise revenue from external customers (including disclosure of the
amount of enterprise revenue from external customers not included in any segments
revenue); segment result should be reconciled to a comparable measure of enterprise
operating profit or loss as well as to enterprise net profit or loss; segment assets should be
reconciled to enterprise assets; and segment liabilities should be reconciled to enterprise
liabilities.
4.9.1.2 Disclosure in case of Secondary Segment Information
The disclosure requirements to be applied to each reportable segment based on an
enterprises secondary reporting format, as follows:
a. If an enterprises primary format for reporting segment information is business
segments, it should also report the following information:
(i) segment revenue from external customers by geographical area based on the
geographical location of its customers, for each geographical segment whose revenue
from sales to external customers is 10 per cent or more of total enterprise revenue from
sales to all external customers;
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(ii) the total carrying amount of segment assets by geographical location of assets, for
each geographical segment whose segment assets are 10 per cent or more of the total
assets of all geographical segments; and
(iii) the total cost incurred during the period to acquire segment assets that are expected
to be used during more than one period (property, plant, equipment, and intangible assets)
by geographical location of assets, for each geographical segment whose segment assets
are 10 per cent or more of the total assets of all geographical segments.
b. If an enterprises primary format for reporting segment information is geographical
segments (whether based on location of assets or location of customers), it should also
report the following segment information for each business segment whose revenue from
sales to external customers is 10 per cent or more of total enterprise revenue from sales to
all external customers or whose segment assets are 10 per cent or more of the total assets
of all business segments:
(i) segment revenue from external customers;
(ii) the total carrying amount of segment assets; and
(iii) the total cost incurred during the period to acquire segment assets that are expected
to be used during more than one period (property, plant, equipment, and intangible
assets).
c. If an enterprises primary format for reporting segment information is geographical
segments that are based on location of assets, and if the location of its customers is
different from the location of its assets, then the enterprise should also report revenue
from sales to external customers for each customer-based geographical segment whose
revenue from sales to external customers is 10 per cent or more of total enterprise
revenue from sales to all external customers.
d. If an enterprises primary format for reporting segment information is geographical
segments that are based on location of customers, and if the enterprises assets are located
in different geographical areas from its customers, then the enterprise should also report
the following segment information for each asset-based geographical segment whose
revenue from sales to external customers or segment assets are 10 per cent or more of
related consolidated or total enterprise amounts:
(i) the total carrying amount of segment assets by geographical location of the assets; and
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(ii) the total cost incurred during the period to acquire segment assets that are expected to
be used during more than one period (property, plant, equipment, and intangible assets)
by location of the assets.
4.9.1.3 Other Disclosures
Other Disclosure Matters:
a. If a business segment or geographical segment for which information is reported to the
board of directors and chief executive officer is not a reportable segment because it earns
a majority of its revenue from sales to other segments, but nonetheless its revenue from
sales to external customers is 10 per cent or more of total enterprise revenue from sales to
all external customers, the enterprise should disclose that fact and the amounts of revenue
from (a) sales to external customers and (b) internal sales to other segments.
b. In measuring and reporting segment revenue from transactions with other segments,
inter-segment transfers should be measured on the basis that the enterprise actually used
to price those transfers. The basis of pricing inter-segment transfers and any change
therein should be disclosed in the financial statements.
c. Changes in accounting policies adopted for segment reporting that have a material
effect on segment information should be disclosed, and prior period segment information
presented for comparative purposes should be restated unless it is impracticable to do so.
Such disclosure should include a description of the nature of the change, the reasons for
the change, the fact that comparative information has been restated or that it is
impracticable to do so, and the financial effect of the change, if it is reasonably
determinable. If an enterprise changes the identification of its segments and it does not
restate prior period segment information on the new basis because it is impracticable to
do so, then for the purpose of comparison the enterprise should report segment data for
both the old and the new bases of segmentation in the year in which it changes the
identification of its segments.
4.9.2 AS 17 Segment Reporting
The objective of this Statement is to establish principles for reporting financial
information, about the different types of products and services an enterprise produces and
the different geographical areas in which it operates.
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A business segment is a distinguishable component of an enterprise that is engaged in
providing an individual product or service or a group of related products or services and
that is subject to risks and returns that are different from those of other business
segments.
A geographical segment is a distinguishable component of an enterprise that is engaged
in providing products or services within a particular economic environment and that is
subject to risks and returns that are different from those of components operating in other
economic environments.
A reportable segment is a business segment or a geographical segment identifie