Module 4.

Accounting Standards,
GAAP,IFRS

Dr. Varadraj Bapat 1

Accounting Principles
• For communicating the results of
business to outside world, it
should be based on certain
uniform and scientifically laid
down principles or postulates.
(termed as Accounting Standards
–discussed earlier)

Dr. Varadraj Bapat 2

•Accounting principles mean
“those rules of conduct or
procedures which are adopted
by accountants universally
while recording the accounting
transactions”.
•To ensure uniformity, clarity
and understanding while
recording transactions.
Dr. Varadraj Bapat 3
Accounting Concepts
Accounting Concepts Means and
includes those basic assumptions or
conditions upon which the science of
accounting is based.
Important accounting concepts are :

Business Entity Concept :– Entity

is different from it’s owner for
accounting purposes
Dr. Varadraj Bapat 4
Dual aspect Concept :– Recording
simultaneously debits credits-
Equities/Capital+ Liabilities =
Assets
Cost Concept :– Assets are normally
recorded basis of historical cost i.e.
acquisition cost. Market value
immaterial, except on concepts of
revaluation.
Dr. Varadraj Bapat 5
Going Concern Concept :– Always
on anticipation that a business will
continue for long and will not be
liquidated
Accounting Period Concept :–
Though business continues
indefinitely, life of business sub
divided into accounting periods
(generally of 1 year).
Dr. Varadraj Bapat 6
Money Measurement Concept :-
Those transactions which are
expressed in money terms are only
recorded.
Realisation Concept :- Revenue is
recognised only when, sale is made.
Exceptions may be on certain
businesses such on HP/sale on
contract etc.
Dr. Varadraj Bapat 7
Rupee Value Concept :–
Assumptions on constant value of
rupee.
Accrual Concept :- under this
concept, the effects of transactions
and other events are recognised on
mercantile basis i.e. when they
occur (and not as cash received or
paid)
Dr. Varadraj Bapat 8
Consistency :–
In order to achieve comparability of
the financial statements of a
enterprise through time, the
accounting policies are followed
consistently from the one period to
another, a change in an accounting
policy is made only in certain
exceptional circumstances.
Dr. Varadraj Bapat 9
Exercise
Consider the following data
pertaining to L Ltd.
Cost of the machinery purchased
on 1st April 2010 Rs. 2,50,000
Installation Charges Rs. 5,000
Market Value as on 31st 2011
Rs.5,00,000

Dr. Varadraj Bapat 10

 While finalising the annual
accounts, if the company values
the machinery at Rs. 5,00,000
which of the following concept is
violated by L Ltd?
 Realisation

 Cost

 Accrual

 Matching

Dr. Varadraj Bapat 11

Fundamental Accounting
Assumption
There are three fundamental
accounting assumption:
Going Concern, Consistency,
Accrual.
If nothing has been written about
fundamental accounting assumption
in the financial statement then it is
Dr. Varadraj Bapat 12
assumed that they have already
been followed in their preparation
of financial statements.
However, if any of the above
mentioned fundamental
accounting assumption is not
followed then this fact should be
disclosed.

Dr. Varadraj Bapat 13

 Accounting Standard
 Accounting Standard are written
policy document issued by expert
accounting body or by
government or regulatory body
covering the aspects of
recognition, treatment,
measurement, presentation and
disclosure of accounting
Dr. Varadraj Bapat 14
 transaction and events in the
financial statements.
 Accounting standards (ASs)
provide framework and standard
accounting policies so that
financial statements of different
enterprises become comparable.
 The Companies Act, 1956, as well
as many other statutes in India
require that the financial

Dr. Varadraj Bapat 15

 statements of an enterprise
should give a true and fair view
of its financial position and
working results.
 The Accounting Standards not
only prescribe appropriate
accounting treatment of complex
business transactions but also
foster greater transparency and
market discipline.
Dr. Varadraj Bapat 16
 Accounting Standard in
India
 The Institute of Chartered
Accountants of India (ICAI) being
a member body of the IASC,
constituted the Accounting
Standards Board (ASB) on 21st
April, 1977, with a view to
harmonies the diverse accounting
policies and practices in use in
India. Dr. Varadraj Bapat 17
While formulating accounting
standards, the ASB takes into
consideration the applicable laws,
customs, usages and business
environment prevailing in the
country.
 The ASB also gives due
consideration to International
Financial Reporting Standards

Dr. Varadraj Bapat 18

(International Financial Reporting
Standards-IFRS)/ International
Accounting Standards (IASs)
issued by IASB and tries to
integrate them, to the extent
possible, in the light of conditions
and practices prevailing in India.

Dr. Varadraj Bapat 19

 Accounting Standards
(AS) need to have:
 Uniformity
 Rationalization

 Comparability

 Transparency

 Adaptability in Financial
Statements.

Dr. Varadraj Bapat 20

 IND AS
 In accordance with India’s
assurance to converge with
IFRS, the Ministry of Corporate
Affairs (MCA) issued a press
release on 25 February 2011,
notifying the Ind AS (Indian
Accounting Standards).
 Several of the requirements of
Ind AS are considerably
Dr. Varadraj Bapat 21
dissimilar from policies and
practices presently followed by
Indian companies. Further, while
finalising the Ind AS, the Indian
standard setters have examined
individual IFRS and modified the
requirements, wherever
necessary, to suit Indian
requirements. This has resulted in
differences between Ind AS and
equivalent requirements under
IFRS (referred to as ‘carve outs’).
Dr. Varadraj Bapat 22
 IND AS
 Ind AS 101: First-time Adoption
of Indian Accounting Standards
 Ind AS 102: Share based
Payment
 Ind AS 103: Business
Combinations
 Ind AS 104: Insurance Contracts

Dr. Varadraj Bapat 23

 Ind AS 105: Non current Assets
Held for Sale and Discontinued
Operations
 Ind AS 106: Exploration for and
Evaluation of Mineral Resources
 Ind AS 107: Financial
Instruments: Disclosures
 Ind AS 108: Operating
Segments
 Ind AS 1: Presentation of
Financial Statements
Dr. Varadraj Bapat 24
 Ind AS 2: Inventories
 Ind AS 7: Statement of Cash
Flows
 Ind AS 8: Accounting Policies,
Changes in Accounting Estimates
and Errors
 Ind AS 10: Events after the
Reporting Period
 Ind AS 11: Construction
Contracts
 Ind AS 12: Income Taxes

Dr. Varadraj Bapat 25

 Ind AS 16: Property, Plant and
Equipment
 Ind AS 17: Leases
 Ind AS 18: Revenue
 Ind AS 19: Employee Benefits
 Ind AS 20: Accounting for
Government Grants and
Disclosure of Government
Assistance
 Ind AS 21: The Effects of
Changes in Foreign Exchange
Rates
Dr. Varadraj Bapat 26
 Ind AS 23: Borrowing Costs
 Ind AS 24: Related Party
Disclosures
 Ind AS 27: Consolidated and
Separate Financial Statements
 Ind AS 28: Investments in
Associates
 Ind AS 29: Financial Reporting in
Hyperinflationary Economies
 Ind AS 31: Interests in Joint
Ventures
Dr. Varadraj Bapat 27
 Ind AS 32: Financial
Instruments: Presentation
 Ind AS 33: Earnings per Share
 Ind AS 34: Interim Financial
Reporting
 Ind AS 36: Impairment of
Assets
 Ind AS 37: Provisions,
Contingent Liabilities and
Contingent Assets

Dr. Varadraj Bapat 28

 Ind AS 38: Intangible Assets
 Ind AS 39: Financial
Instruments: Recognition and
Measurement
 Ind AS 40: Investment Property

Dr. Varadraj Bapat 29

International Accounting
Standards (IAS)
 International Accounting
Standards Committee (IASC) was
constituted in 1973 to formulate
accounting standards.
 Barring Canada, Japan and US all
countries have accepted these
standards.

Dr. Varadraj Bapat 30

 To give proper direction and
interpretations Standards
Interpretations Committee was
formed in 1997.
 IASB was constituted in 2001 to
prescribe norms for treatment of
several items on preparation and
presentation of Financial
statements.
Dr. Varadraj Bapat 31
 ISAB adopted all 41 standards
issued by IASC.
 The US Financial Accounting
Standards Board (FASB) and
IASB are in process of
eliminating differing in some
standards.
 IASB publishes its Standards in a
series of pronouncements called
Dr. Varadraj Bapat 32
 International Financial Reporting
Standards (IFRSs). It has also
adopted the body of Standards
issued by the Board of the
International Accounting
Standards Committee (IASC).
 Those pronouncements are
designated "International
Accounting Standards" (IASs).

Dr. Varadraj Bapat 33

 IASs:
 IAS 1 Presentation of Financial
Statements
 IAS 2 Inventories

 IAS 7 Cash Flow Statements

 IAS 8 Accounting Policies,

Changes in Accounting Estimates
and Errors

Dr. Varadraj Bapat 34

 IASs:
 IAS 10 Events After the Balance
Sheet Date
 IAS 11 Construction Contracts

 IAS 12 Income Taxes

 IAS 16 Property, Plant and

Equipment
 IAS 17 Leases

 IAS 18 Revenue
Dr. Varadraj Bapat 35
 IASs:
 IAS 19 Employee Benefits
 IAS 20 Accounting for
Government Grants and
Disclosure of Government
Assistance
 IAS 21 The Effects of Changes
in Foreign Exchange Rates
 IAS 23 Borrowing Costs
Dr. Varadraj Bapat 36
 IASs:
 IAS 24 Related Party Disclosures
 IAS 26 Accounting and Reporting
by Retirement Benefit Plans
 IAS 27 Consolidated and
Separate Financial Statements
 IAS 28 Investments in Associates

 IAS 29 Financial Reporting in

Hyperinflationary Economies
Dr. Varadraj Bapat 37
 IASs:
 IAS 31 Interests in Joint Ventures
 IAS 32 Financial Instruments:
Presentation
 IAS 33 Earnings per Share

 IAS 34 Interim Financial

Reporting
 IAS 36 Impairment of Assets

Dr. Varadraj Bapat 38

 IASs:
 IAS 37 Provisions, Contingent
Liabilities and Contingent Assets
 IAS 38 Intangible Assets

 IAS 39 Financial Instruments:

Recognition and Measurement
 IAS 40 Investment Property

 IAS 41 Agriculture

Dr. Varadraj Bapat 39

GAAP
 To avoid confusion and to achieve
uniformity, accounting process is
applied within the conceptual
framework of ‘Generally Accepted
Accounting Principle’ (GAAPs)
 The Financial Statements of entity
cannot be said to be showing a
true and fair view, unless these
Financial Statements have been
drawn up on GAAP.

Dr. Varadraj Bapat 40

GAAP’s consist of four components.
-The requirements of law
-The judgments of various courts
of law
-Pronouncement of the governing
body from time to time.
-Requirements of regulatory
authority SEBI

Dr. Varadraj Bapat 41

 GAAPs are the backbone of the
accounting information system,
without which whole system
cannot even stand erectly.
 GAPPs and Accounting Standard
are considered as the theory
base of accounting.

Dr. Varadraj Bapat 42