CERTIFICATE This is to certify that project work report titled “A Project Report on Comparative Study of Accounting Standard Issued by ICAI with International Accounting Standard” submitted by Mr. XXX is a benefited student of this college . The work of project is a partial fulfillment of the requirement for the Master Degree in Commerce affiliated to University of Pune, during the Academic Year 2010-2011. To the best of my knowledge this is original work. Place: - Date: - 1
Transcript
CERTIFICATE
This is to certify that project work report titled “A Project Report on
Comparative Study of Accounting Standard Issued by ICAI with
International Accounting Standard” submitted by Mr. XXX is a
benefited student of this college .
The work of project is a partial fulfillment of the requirement for the
Master Degree in Commerce affiliated to University of Pune, during the
Academic Year 2010-2011.
To the best of my knowledge this is original work.
Place: -
Date: -
Project Guide
Principle
(Name)
(Name)
Internal Examiner
Date:-
1
Acknowledgement
Through this acknowledgment, I take the opportunity to
express my sincere thanks to various teachers, friends and
colleagues for their guidance and assistance through which this
project work is completed.
At first I express my gratitude towards XXX – principle of
XXX and vice-principle – Shri. XXX for their teaching and
guidance of this subject research Methodology and Project Work
and inspiring all students in our class for this project work.
I also express my sincere thanks to Shri. XXX for providing
guidance for this particular project work.
I also thanks to my friends for making me aware from time to
time and guiding me for completing this project in time.
I am also thankful to administrative staff members in college
office for their co-operation.
Name: - XXX
(M.Com II)
Research Candidate
2
TABLE OF CONTENT
A Project Report on Comparative Study of Accounting Standard Issued
by ICAI with International Accounting Standard
SR. No. TOPIC PAGE NO.
1
INTRODUCTION OF INDIAN ACCOUNTING
STANDARDS
Introduction
What are Accounting Standards
Who Issues Accounting Standards in
India
About ICAI
Process of formulating Accounting
Standards in India
1 to 3
2
INDIAN ACCOUNTING STANDARDS
Introduction
List of Indian Accounting Standards 4 to 12
3
INTERNATIONAL ACCOUNTING
STANDARDS
Introduction
About International Accounting
Standard Board
13 to 14
4INTERNATIONAL ACCOUNTING
STANDARDS 15 to 19
5
Comparative Study In Indian Accounting
Standards and International Accounting
Standards & Conclusion
20 to 24
6 Balance Sheet of Infosys Technology Systems and Comments.
24 to 26
7 Bibliography27
3
A
Project Report on
“A Project Report on Comparative Study of Accounting Standard Issued by ICAI with International Accounting Standard”
A Report Submitted in Partial Fulfillment of the Requirement of
M.Com part – II
UNDER THE GUIDANCE OF
Prof. XXX
SUBMITTED BY
Mr. XXX
Roll No. XXX Mo No. XXX
THROUGH
XXX COLLEGE OF COMMERCE, PUNE
(2010-2011)
4
Introduction:-
Accounting Standards establish rules relating to recognition, measurement and disclosures thereby ensuring that all enterprises that follow them are comparable and that their financial statements are true, fair and transparent. High-quality accounting standards are a necessary and important element of a sound capital market system. In public capital markets such as those in the United States. High-quality accounting standards reduce uncertainty and increase overall efficiency and investor’s confidence by requiring that financial report provide decision useful information that is relevant, reliable, comparable and transparent once confined by national borders transactions in today’s capital market often are driven by a demand for and supply of capital that transcends national boundaries. With the increase in cross-border capital rising and investment transactions comes an increasing demand for a set of high-quality international accounting standards that could be used as a basis for financial reporting worldwide.
“Accounting Standards are written policy documents issues by the expert accounting body or by government or other regulatory body covering the aspects of recognition, measurement, presentation and disclosure of accounting transactions in financial statement.”
What are Accounting Standards:-
Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation of financial statements. In layman terms accounting standards are the written documents issued by the expert’s institutes or other regulatory bodies covering various aspects of measurement treatment, presentation and disclosure of accounting transactions.
Who issues Accounting Standards in India:-
The institute of chartered Accountants of India (ICAI) reorganizing the need to harmonies the diverse accounting policies and practices at present in use in India constituted accounting standard board (ASB) on April 21, 1977. The main role of ASB is to formulate accounting standards from time to time.
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About ICAI:-
The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants act 1949.(Act No.XXXXVIII of 1949) for the regulation of the profession of Chartered Accountants in India. During its 61 years of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development maintenance of high accounting, auditing and ethical standards. ICAI now is the second largest accounting body in the whole world.
Procedure of formulating Accounting Standards in India:-
The institute of Chartered Accountant of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices, constituted an accounting standards boards (ASB) on April 21, 1977. The main faction of ASB so that such standards may be mandated by the council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws custom usages and business environment. ICAI is one of the members of International Accounting Standards Committee (IASC) and has agreed to support the objectives of IASC. ASB will give due consideration to IAS and try to integrate them to the extent possible in light of the considerations and practices pre-vailing in India.
The accounting standards issued will apply to ‘General Purpose Financial Statement’ this would include balance-sheet, Profit & Loss A/c and other statement and explanatory notes which form part thereof issued for the use of shareholders or members, Creditors, Employees and public at large. The Accounting Standards are intended to apply only to items which are material. The standards are generally expected to apply prospectively unless otherwise stated.
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Broadly the following procedure will be adopted for formulating Accounting Standards:-
ASB shall determine the board areas in which accounting standards need to be formulated and the priority in regards to the selection thereof.
In the preparation of the accounting standards ASB will be assisted by study groups constituted to consider specific subjects. In the formation of the study groups provision will be made for wide participation by the members of ICAI and others.
ASB will also hold a dialogue with the representative of the Government, Public sector, Industry and other organizations for ascertaining their views.
Based on the above an exposure draft of the proposed standard will be prepared and issued for comments by members of ICAI and the public at large.
After taking into consideration the comments received the exposure draft will be finalized by the ASB and submitted to the council of ICAI.
The council of ICAI will consider the final draft and if found necessary modify the same in consultation with ASB. The accounting standard on the relevant subject will then be issued under the authority of the council.
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Indian Accounting Standards:-
Introduction:-
The council of the institute of chartered accountant of India as so far issue 32 (thirty two) accounting standard. Whoever accounting standards 8th on “Accounting for research and development” has been withdraw on consequent to the issuance of accounting standard 26th “Intangible Assets” thus effectively there are 31st accounting standard at present the accounting standard issued by the ABC establish which have to be complied so that the financial statement are prepared in accordance with generally accepted accounting principles.
List of Indian Accounting Standards:-
AS 1Disclosure of Accounting Principles
AS 2Valuation of Inventories
AS 3Cash Flow Statements
AS 4Contingencies and Events Occurring After the Balance Sheet Date
AS 5Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
AS 6Depreciation Accounting
AS 7 (Revised)
Construction Contracts
AS 8Accounting for Research and Development
AS 9Revenue Recognition
AS 10Accounting for Fixed Assets
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AS 11 (Revised 2003)
The Effects Of Changes In Foreign Exchange Rates
AS 12Accounting for Government Grants
AS 13Accounting for Investments
AS 14Accounting for Amalgamations
AS 15(Revised 2005)
Employee Benefits [click here for related announcement]
AS 16Borrowing Costs
AS 17Segment Reporting
AS 18Related Party Disclosures
AS 19Leases
AS 20Earnings Per Share
AS 21Consolidated Financial Statements
AS 22Accounting for taxes on income
AS 23Accounting for Investments in Associates in Consolidated Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets
AS 30 Financial Instruments: Recognition and Measurement
AS 31 Financial Instruments: Presentation
AS 32 Financial Instruments: Disclosures
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Indian Accounting Standards:-
AS 9: Revenue Recognition:-
Introduction
This statement was issued by ICAI in the year 1985 & the Initial years it was recommendatory for only level I enterprises & but was made mandatory for enterprise in India from april 01, 1993.
Revenue
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of the goods, from the rendering of the services, & from the use by others of enterprises resources yielding interest, royalties & dividend. Revenue is measured by the charges made to customers or clients for goods supplied & services rendered to them & by the charges & rewards arising from the use of resources by them. In an agency relationship, the revenue is the amount of commission & not the gross inflow of cash, receivable or other consideration.
This statement dose not deals with the following aspects of revenue recognition to which special consideration apply:
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I. Revenue arising from construction contracts;
II. Revenue arising from hire-purchase, lease agreements;
III. Revenue arising from government grants & other similar subsidies;
IV. Revenue of insurance companies arising from insurance contracts.
Examples of items not included within definition of “revenue” for the purpose of this statement are:
I. Realized gains resulting from the disposal of, & unrealized gains resulting from the holding of, non-current assets. E.g. appreciation in the value of fixed assets.
II. Unrealized holding gain resulting from the change in value of current assets, & the natural increases in herds & agricultural & forest products;
III. Realized or unrealized gains resulting from changes in foreign exchange rates & adjustments arising on the translation of foreign currency financial statements;
IV. Realized gain resulting from the discharged of an obligation at less than its carrying amount;
V. Unrealized gains resulting from the restatement of the carrying amount of an obligation;
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AS 10: Accounting for Fixed Assets:-
Introduction
The standard deals with the disclosure of the status of the fixed assets in terms of value. The standard dose not takes consideration the specialized aspects of accounting for fixed assets reflected with the effects of price escalations but applies to financial statements on historical cost basis. It is important to note that after introduction of AS 16; 19 & 26, provision relating to respective AS are held withdrawn & the rest in mandatory from the accounting year 01/04/2000. an entity should disclose (i) the gross & net book values of fixed assets at beginning and end of an accounting period showing additions, disposals, acquisitions & other movement, (ii) expenditure incurred on account of fixed assets in the course of construction or acquisition, (iii) revalued amounts substituted for historical cost of fixed assets with the method applied in computing revalued amount.
This statement dose not deal with the accounting for the following item to which special considerations apply:
I. Forests, plantations & similar regenerative natural resources.II. Wasting assets including mineral rights, expenditure of the
exploration for an extraction of minerals, oil, natural gas & similar non-regenerative resources.
III. Expenditure on real estate development and
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IV. Live stock.
Identification of fixed assets:
Fixed assets are assets held with the intention of being used for the purpose for the producing or providing goods or services & is not held for sale in the normal course of business. Stand-by equipment & servicing equipment are normally capitalized. Machinery spares are change to the profit & loss statement as and when consumed. However, if such spare can be used only in connection with an item of fixed assets, it may be appropriate to allocate the total cost on a systematic basic over a period not exceeding the useful life of principal item.
AS 12: Accounting For Government Grants
Introduction
The standard comes in to effect in respect of accounting periods commencing on or after 01/04/1992 & will be recommendatory in nature for an initial period of 2 years. Accounting standard 12 deals with accounting for government’s grants for specifies that the government grants should not be recognized until there reasonable assurance that the enterprise will company comply with the conditions attached to them, and the grant will be received. The standard also describes the treatment of non-monetary government grants; presentation of grants related to specific fixed assets, related to revenue, related to promoters, contributions; treatment for refund of governments grants etc. the enterprises are required to disclose (i) the accounting policy adopted for government grants including the methods of presentation in the financial statements; (ii) the nature & extent of government grants recognized in the financial statement including non-monetary grants of assets given either at a concessional rate or free of cost.
This statement does not deal with:
I. The special problem arising in accounting for government grants in financial statements reflection the effects of changing prices or in supplementary information of a similar nature.
II. Government assistance other than in the form of government grants
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III. Government participation in the ownership of the enterprises.
The receipt of the government grant by an enterprise is significant for preparation of the financial statement for 2 reasons. Firstly, if a government grant has been received an appropriate method of accounting therefore is necessary. Secondly, it is desirable to give an indication of the extent to which the enterprises has benefited from such grants during the reporting period. This facilitates comparison on an enterprises financial statement with those prior periods & with those of other enterprise.
Accounting treatment of government grants
To broad approaches may be followed for the accounting treatmentOf government grants: the capital approach under which grand is treated as part of share holder funds, and income approach under which a grand is taken to incomes over one or more period.
Those in support of capital approach argue as follows:
I. Many governments’ grants are in the nature of promoter’s contribution that is they are given by way of contribution towards its total capital outlay ordinarily expected in the case of such a grants.
II. They are not earned but represent an incentive provided by government without related costs.
Arguments in support of the income approaches are as follows:
I. As a income tax & other taxes are charges against income, it is logical to deal also with government grants, which are an extension of fiscal polices, in the profit & loss statement.
II. In case grants are credited to share holder’s fund, no correlation is done between the accounting treatment of the grants & the accounting treatment of the expenditure to which grant relates.
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AS 18: Related Party Disclosures
Introduction
This standard comes into effect in respect of accounting period commencing on a after 01/04/2001 & is mandatory in nature. The standard prescribes the requirement for disclosure of related party relationship & transaction between the reporting enterprise & its related party. The requirements of the standard apply to the statement of each reporting enterprises as also to consolidate financial statement presented by a holding company. Since the standers is more subjective, particularly with respect to identification of related parties [through provision related to related party concept are given under section 297/299/301 of the companies act 1956 and section 40A (2)(b) of the income tax act 1961], obtaining corroborative evidence becomes very difficult for the auditors. Thus successful implementation of AS 18 is depend upon how transparent the management is an how vigilant the auditors are.
ObjectiveThe objective of this statement is to established requirement for disclosure of:
I. Related party relationship &II. Transaction between reporting enterprise & it related parties.
Scope
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This statement should be applied in reporting related party relationship & transaction between reporting enterprises & its related parties. The requirement of this statement applied to the financial statement of each reporting enterprises as also to consolidate financial statement presented by a holding company.
This statement deals only with related party relationship describe (a) to (e) below:
a. Enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with the reporting enterprise (this include holding company, subsidiaries & fellow subsidiaries).
b. Associated & joint venture reporting enterprise & the investing party or venture in respect of which the reporting enterprise is an associate or a joint venture.
c. Individual owning, directly or indirectly, an interest in the voting power of the reporting enterprises that give them control or significant influence over the enterprises, and relatives of any such individual.
d. Key management personnel & relative of such personnel &e. Enterprise over which any person describes in c or d is able to
exercise significant influence. This includes enterprises owned by director or major shareholders of the reporting shareholder of the reporting enterprises & enterprises that have a member of key management, with reporting enterprise.
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International Accounting Standards:-
Introduction:-
Accounting is a language of business communicates the financial result of an enterprise to the various interested parties by means of financial statements exhibiting true and fair view of its state of affairs as also of working result. Like any of other language, accounting has its own set of rules, which have been developed by accounting bodies. These rules cannot be absolutely rigid. These rules, accordingly, do provide a reasonable flexibility in line with the economic environment, social needs, legal requirements and technological development. These how ever, do not emply that accounting principles and parties can be applied arbitrarily.Accounting principles have to operate with in the bonds of rationality. This could, perhaps, be considered as a genesis for setting the accounting standards.
Accounting Standards are written policy document issued expert accounting body or by government or other regulatory body covering the aspects recognition, measurement, presentation and disclosure of accounting transaction in financial statement. The ostensible purpose of the standard setting bodies is to promote the dissemination of timely and useful financial information to investors and certain other parties having an interest in the company’s economic performance. The accounting standard reduces the accounting alternative in the preparation of financial statement within the
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bond of rationality, thereby ensuring comparability of financial statement of different enterprises.
The accounting standards deals with the issue ofi. Recognition of events and transactions in the financial statements,
ii. Measurement these transaction and events,iii. Presentation of these transactions and events in the financial
statement in a manner that is meaningful and understandable to the reader, and
iv. The disclosure requirements which should be there enable the public at large and the potentational investors in particular, to get an insight in to what these financial statement are trying to reflect and there by the facilitating them to take prudent and informed business decisions.
International Accounting Standard Board:-
With a view of achieving this objective, the London based group mainly the international committee (IASC), responsible for developing international accounting standard was established in June 1973. it is presently known as international accounting standard board, the IASC comprises the professional accounting bodies of over 75 countries(including the ICAI). Primarily, the IASC was established, in the public interest to formulate and publish, international standard to be followed in the presentation of audited financial statement. The member of IASC have undertaken responsibility to support the standards promulgated by IASC and to promulgate those standard in there respective countries.
Between 1973 & 2001, the IASC released international accounting standard. Between 1997 & 1999, the IASC restructured there organization, which resulted in formation of IASB. These changes came in to effect on 1st
April 2001 subsequently, IASB issued statement about current and future standards: IASB publishes standards in a series of pronouncements, called international financial, reporting standards (IFRS). However, IASB has not rejected the standards issued by the ISAC those pronouncements continue to be designated as an “international Accounting standard” (IAS). The IASB approved IASB resolution on IASC standards and there in April 2001, in which it’s conform the status of all IASC standards and SIC interpretations in effect as on 1st April 2001.
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IAS-18: Revenue
IAS 18 on Revenue is applicable for periods beginning on or after 1st
Jan 1995
IAS 18 prescribes accounting treatment for revenue arising from: The sale of goods: The rendering of services; & The use by others of entity assets yielding interest royalties &
dividend
It excludes the treatment of revenue arising from transaction covered by other standards or amount collected on behalf of third parties (e.g. Vat).
Summary
Revenue is measured at the fare value of the consideration received or receivable. The consideration usually in cash. If the inflow of cash is significant deferred, & there is below-market rate of interest or no interest, the fare value of consideration is determined by discounting expected future receipts. If dissimilar goods or services are exchanged (as in barter transaction) revenue is fare value of the goods or services or received or, if this is not reliably measurable, the fare value of goods or services given up.
Revenue should measure at the fair value of the consideration received:
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Trade discount & value rebates are deducted to determine fair value. How ever, payment discounts non-deductible.
The amount of revenue can be measured reliably; The costs of transaction can be measured reliably; Significant risks & rewards of ownership are transferred to the buyer; The seller has no continuing managerial involvement or control over
the goods; It is probable that economic benefits will flow to the seller; and
Interest revenue should be recognized on time proportion basis using the effective interest. Royalties should be recognized on an accruals basis in accordance with the substance of the relevant agreement. Dividend revenue should be recognized when the share holder right to received the dividend is established.IAS-16: Property, Plant and Equipment:-
IAS 16 on property, plant & equipment was issued in December 2003 & is applicable to annual accounting period beginning on or after 1st Jan 2005.
IAS 16 prescribed the accounting treatment for property, plant & equipment unless another standard requires or permit a different account treatment. For e.g. IFRS, 5 on non current assets held for sale & discontinued operations applies to property, plant & equipment classified as held for sale.
SummaryProperty plant & equipment is initially recognized at historical cost. Subsequent to initial recognition, property, plant & equipment are carried either at:
Cost less accumulated deprecation & any accumulated impairment loss, or
Revalued amount less subsequent accumulated deprecation and any accumulated impairment loss. The revalued amount is the fare value is at the date of revaluation.
The choice of measurement is applied consistently to an entire class of property, plant & equipment. Any revaluation increase in such assets credited directly to the revaluation surplus in equity, unless it reverses a revaluation decrease previously recognized in profit in loss. Any revaluation decrease is recognized in profit or loss. However the subsequent revaluation
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decrease is debited directly to the revaluation surplus in equity to the extent of the credit balance in revaluation surplus is respect of that asset.
The gain or loss on derecognizing of an item of property, plant & equipment is the difference between the net disposal proceeds, if any, and the carrying amount of the item. It is included in profit or loss.
IAS: 20- Accounting for government grants and disclosure of government assistance:-
IAS 20 on “accounting for government grants & disclosure of government assistance” was issued in April 1983 & was reformatted in the year 1994. it came in to effect for annual periods beginning or after 1 January 1984.
The objective of IAS 20 is to be prescribing the accounting for, and disclosure of, grants & other form of government assistance. How ever, IAS 20 dose not covered government assistance that is provided in the form of benefit helpful in determine taxable income.
Summary:A government grant is recognized only when enterprise will comply
with any condition attached to the grants received. The grant is recognized as a income, over the period, to match them with the related cost for, which they are intended compensate, on a systematic basis, & should not be credited directly to equity.
Non monitory grants are usually accounted for at fair value. Although recording both the assets & grants at a nominal amount is also permitted.A grant receivable as a compensation for cost already incurred or for immediate financial support, with no future related cost, should be recognized as a income in the period in which it is receivable.
A grant relating to assets may be presented as deferred income or by deducting the grant from the assets carrying amount. A grant relating to
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income may be reported separately as other income or deducted from the related expenses.
If a grant become repayable it should be deferred income or by deducting the grant from assets carrying amount. Where the original grants related to income, the repayment should be applied dealt with as an expenses where the original grants related to an assets, the repayment should be treated as increasing the carrying amount of the assets or reducing the deferred income balance. The cumulative deprecation which would have been charged had the grant not been received should be charged as an expense. The government grants do not include government assistance whose value can not be reasonably measured, such as technical or marketing advice.
IAS 24 Related Party Disclosure:
IAS 24 on “Related Party Disclosure” was issued in dec 2003 & is applicable for annual periods beginning on or after 1st jan 2005.
IAS 24 specifies the disclosure necessary to draw attention to the possibilities that the financial position & financial performance of an entity may have been affected by the existence of the related party and by transaction and outstanding balance with such related parties.
Summery:
A party is related to an entity if it:
Has joint control over the entity: Has significant influence over the entity; Directly or indirectly, controls, is control by or is under common
control with, the entity; Is a close member of the family of any individual who controls, has
significant influence or joint control over, the entity; Is a member of key management personnel of the entity of its parent; Is a joint venture in which the entity is venture; Is an associates of entity; Is an entity that is controlled, jointly controlled or significantly
influenced by, or for which significant voting power in such entity resides with, any of the key management personnel;
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Is a post-employment benefits plan for the benefit of employees of the entity, or of any of its related parties.
Examples of the kinds of transactions that are disclosed if they are with a related party:
Purchase or sale of goods. Rendering or receiving of services. Purchase or sale of properties or other assets. Lease. Transfer under license agreements. Transfer of research and development. Transfer under finance agreements(including loans & equity
contribution in cash or in kind) Settlement of liabilities on behalf of the entity or by the entity on
behalf of another party. Provision of guarantee of collateral.
A related party transaction is a transfer of resources, services or obligations between related parties, regardless whether price is charged.
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Comparative Study:-
Indian Accounting Standards
International Accounting Standards
Presentation And Disclosures
There is no separate standard for disclosure. For companies, format and disclosure requirements are set out under schedule VI of the companies act.No such requirement under Indian GAAP.
AS 5 specifically requires disclosure of certain items as extra-ordinary items.
Under Indian GAPP, this is typically spread over several captions such as share capital, reserve & surplus, P & L debit balance, etc.
IAS-1 prescribes minimum structure of financial statements and contains guidance on disclosures.
IAS-1 requires disclosure of critical judgments made by management in applying accounting policies.
IAS-1 prohibits any items to be disclosed as extra-ordinary items.
IAS-1 requires a “statement of changes in equity” which comprises all transactions with equity holders.
Revenue AS-9 allows completed In case of revenue from
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Recognition service contract method or proportionate completion method.
AS-9 requires interest income to be recognized on a time proportion basis.
No guidance on barter transactions.
AS-9 permits recognition when the goods are manufactured, identified and ready for delivery in such cases.
No specific guidance in the standards.
rendering of services, IAS-18 allows only percentage of completion method.
IAS-18 requires effective interest method to be followed for interest income recognition.
Deals with accounting of barter transactions.
Under IAS-18, payments received in advance for goods yet to be manufactured or third party sales cannot be recognized as revenue until such goods are delivered to the buyer.
For multiple element contracts, the standard broadly requires that each element is fair valued and recognized when the underlying service is performed.
Fixed Assets and Depreciation
AS-10 recommends but does not force component accounting.
Depreciation is based on higher of useful life or schedule XIV rates. In practice most companies use schedule XIV rates.
IAS-16 mandates component accounting.
Depreciation is based on useful life.
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Major repair and overhaul expenditure are expensed.
AS-10 provides that only that expenditure which increases the future benefits from the existing assets beyond its previously assessed standard of performance is included in the gross book value.e.g. an increase in capacity.
AS-6 requires retrospectively recomputation of depreciation and any excess or deficit on such recomputation is required to be adjusted in the period in which such change is effected. AS-6 considers this as change in accounting policy. Estimates of residual value are not updated.
No need to update revaluation regulatory.
Depreciation on revaluation portion cannot be recouped out of revaluation reserve and will have to be changed to the P&L account.
Major repairs and overhaul expenditure are capitalized as if it is a separate component.
Under IAS-16, if subsequent costs are incurred for replacement of a part of an item of fixed asset, such costs are required to be capitalized and simultaneously the replaced part has to be de-capitalized.
In case of change in method of depreciation, IAS-16 requires effect to be given prospectively. Change in method of depreciation is treated as change in accounting estimate under IAS-16.
Estimates of residual value needs to be updated.
Revaluation is an allowed alternative treatment however; revaluation will have to be done regularly.
Depreciation on revaluation portion can be recouped out of revaluation reserve.
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No guidance in the standard. However, guidance note on oil and gas issued by ICAI requires capitalization of site restoration cost.
Provision on site-restoration and dismantling is mandatory.
Government Grants
AS-12 requires accounting at acquisition cost.
AS-12 requires enterprises to compute depreciation prospectively as a result of which the revised book value is provided over the residual useful life.
AS-12 has no such disclosure requirement.
In case of non-monitory assets acquired at nominal rate, IAS-20 permits accounting either at fair value or at acquisition cost.
In respect of grant related to a specific fixed assets becoming refundable, IAS-20 requires retrospective re-computation of depreciation and prescribes charging off the deficit in the period in which such grant becomes refundable.
IAS-20 requires separate disclosure of unfulfilled conditions and other contingencies if grant has been recognized.
Related Party Disclosures
AS-18 does not include this relationship.
AS-18 read with ASI-23 requires disclosure of remuneration paid to key management persons but does not mandate category-
The definition of related party under IAS-24 includes post employment benefit plans of the enterprise or of any other entity, which is related party of the enterprises.
IAS-24 requires compensation to KMPs to be disclosed category-wise including share-based payments.
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wise disclosures.
AS-18 provides exemption from disclosure in such cases.
AS-18 includes control over composition of board of directors in the definition of “control”.
No such disclosure requirement is contained in AS-18.
AS-18 prescribes a rebuttable presumption of significant influence if 20% or more of the voting power held by any party.
Transactions between state controlled enterprises are not required to be disclosed under AS-18.
No concession is provided under IAS-24 where disclosure of information would conflict with the duties of confidentiality in terms of statute or regulating authority. The definition of “control” under IAS-24 is restrictive on the count that it does not include control over composition of board of directors.
IAS-24 requires disclosure of terms and conditions of outstanding items pertaining to related parties.
IAS-24 does not prescribe a rebuttable presumption of significant influence.
No exemption.
Conclusion:
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There are significant difference between Indian Accounting Standard and International Accounting Standard. However, both the countries are planning to implement IFRS to cope up with these differences.
Comments on Balance Sheet of Infosys Technology Systems:
1) INCOME STATEMENT
Each framework requires prominent presentation of an income statement as a primary statement.
Format
IFRS: There is no prescribed format for the income statement. The entity should select a method of presenting its expenses by either function or nature; this can either be, as is encouraged, on the face of the income statement, or in the notes. Additional disclosure of expenses by nature is required if functional presentation is used. IFRS requires, as a minimum, presentation of the following items on the face of the income statement:
1. revenue;2. finance costs;3. share of post-tax results of associates and joint ventures accounted for
using the equity4. method;5. tax expense;6. post-tax gain or loss attributable to the results and to remeasurement
of discontinued operations;7. Profit or loss for the period.
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The portion of profit or loss attributable to the minority interest and to the parent entity is separately disclosed on the face of the income statement as allocations of profit or loss for the period. An entity that discloses an operating result should include all items of an operating nature, including those that occur irregularly or infrequently or are unusual in amount.
Indian GAAP: Presentation in one of two formats. Either:
1. a single-step format where all expenses are classified by function and are deducted from total income to give income before tax;
2. a multiple-step format where cost of sales is deducted from sales to show gross profit, and other income and expense are then presented to give income before tax. SEC regulations require registrants to categorise expenses by their function. Amounts attributable to the minority interest are presented as a component of net income or loss.
IFRS: The total of income and expense recognised in the period comprises net income. The following income and expense items are recognised directly in equity:
1. fair value gains/(losses) on land and buildings, intangible assets, available-for-sale investments and certain financial instruments;
2. foreign exchange translation differences;3. the cumulative effect of changes in accounting policy;4. changes in fair values of certain financial instruments if designated as
cash flow hedges, net of tax, and cash flow hedges reclassified to income and/or the relevant hedged asset/liability; and
5. actuarial gains and losses on defined benefit plans recognised directly in equity (if the entity elects the option available under IAS 19, Employee Benefits, relating to actuarial gains and losses).
Indian GAAP: Similar to IFRS, except that revaluations of land and buildings and intangible assets are prohibited under US GAAP. Actuarial gains and losses (when amortised out of accumulated other comprehensive income) are recognised through the income statement.
2) Statement of changes in share (stock) holders’ equity
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IFRS: Presented as a primary statement unless a SoRIE is presented as a primary statement. Supplemental equity information is presented in the notes when a SoRIE is presented (see discussion under ‘Presentation’ above). In addition to the items required to be in a SoRIE, it should show capital transactions with owners, the movement in accumulated profit and a reconciliation of all other components of equity. Certain items are permitted to be disclosed in the notes rather than in the primary statement.
Indian GAAP: Similar to IFRS, except that US GAAP does not have a SoRIE, and SEC rules permit the statement to be presented either as a primary statement or in the notes.
Bibliography
Indian Accounting Standards and GAAP -Dolphy D’Souza.
Financial Reporting Volume 1. -The institute of Chartered Accountant’s of India.
