ACCOUNTING

STANDARDS
P.GURU PRASAD
FACULTY MEMBER
ACADEMIC COORDINATOR
 ACCOUNTING STANDARDS
 The term standard denotes a
discipline, which provides both
guidelines and yardstick for
evaluation. As guidelines, they
provide uniform practices and
common techniques.
 ACCOUNTING STANDARDS
 Accounting bodies throughout the

world are striving to achieve a

reasonable degree of uniformity in
the accounting policies by
prescribing certain accounting
standards with respect to collection
and presentation of accounting
information
 ACCOUNTING STANDARDS
 To formulate the accounting standards, they
established a committee called the
international accounting standards committee
(IASC) in 1973.
 Accounting bodies of most of the countries,
including Institute of Chartered Accountants
of India ( ICAI ) are the members of this body
and these members have resolved to conform
to the standards developed by IASC
 The objective of the committee
 Formulating , publishing, and promoting
the use of the accounting standards world
wide.
 To work for improvement and
harmonization of regulating accounting
standards and procedures relating to
financial statements
 The importance of A.S
 Globalization of the economy has led to
Indian companies expanding their
operations across the borders and this
calls for uniformity in accounts of their
facilities located in different countries.
 Foreign investors would give more
weight -age to the accounts of those
companies which are based on IAS
 Accounting Standards Board of
India (ASB)
 Recognizing the need to harmonize the diverse
accounting polices and practices prevalent in
India , the ICAI constituted ASB on April 21st
1977. the standards are intended to apply only to
items which are material. Also the A.S cannot
and do not override the local regulations which
govern the preparation and presentation of
financial statements in our country
 Auditors Duties
 In case the company does not conform to
any of the mandatory accounting
standards, the auditor will have to qualify
his report by justifying his deviation. In
case he fails to do so the ICAI can take
disciplinary action against him on the
ground of professional misconduct
 29 Accounting Standards
 The accounting standards board has
in line with the international
standards, issued twenty nine
standards to be followed by its
members, while auditing the accounts
of companies. The important
standards discussed in our course
book
 Differing accounting policies
 Methods of Depreciation, Depletion and
Amortization.
 Valuation of Inventories
 Treatment of Good will
 Valuation of Investments
 Treatment of Retirement Benefits
 Valuation of Fixed Assets
 Treatment of Contingent Liabilities
the above list of differing accounting polices
are not exhaustive .
 AS-1 – Disclosure of Accounting
Policies
 To ensure proper understanding of
financial statements, it is necessary
that all significant accounting
policies adopted in the preparation
and presentation of financial
statements should be disclosed.
 AS-1 – Disclosure of Accounting
Policies
 Any change in an accounting policy which has
a material effect on current and future periods
should be disclosed.
 For this purpose, the major considerations
governing the selection and application of
accounting policies are:
 Prudence
 Substance over form
 Materiality.
 AS-1 – Disclosure of Accounting
Policies
 prudence: in view of the uncertainty attached
to future events, profits are not anticipated but
recognized only when realized though not
necessarily in cash. Provision is made for all
known liabilities and losses even though the
amount cannot be determined with certainty
and represents only a best estimate in the light
of available information
 AS-1 – Disclosure of Accounting
Policies
 Substance over Form: the accounting
treatment and presentation in financial
statements of transactions and events should
be governed by their substance and not merely
by the legal form
 AS-1 – Disclosure of Accounting
Policies
 Materiality: financial statements should
disclose all “material” items, i.e. items the
knowledge of which might influence the
decisions of the user of the financial
statements.
 AS-1 – Disclosure of Accounting
Policies
 If the fundamental accounting assumption like
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
 Companies Amendment Act,1999
 Realizing the importance of accounting
standards, the companies amendment
act,1999 has inserted sub-
sec(3A),(3B),(3C) in the section 311,
which provides that every company has
to follow the accounting standards as
issued by the ICAI
 AS-1 – Disclosure of Accounting
Policies
 Since the accounting polices adopted could
vastly differ from company to company and
even year to year in respect of the same
company, AS-1, by forcing the disclosure of
accounting policies ensures that the users of
the financial statements would be able to do a
meaningful comparison of such statements and
draw proper conclusion from them
 AS-1 – Disclosure of Accounting
Policies
 Disclosure:- to ensure proper understanding of
financial statements, it is necessary that all
significant accounting policies adopted in the
preparation and prevention of financial
statements should be disclosed.
 Accounting standard - 4
 AS – 4 deals with the treatment in financial
statements of contingencies and events occurring
after the balance sheet date.
 However it does not cover certain contingencies such
as liabilities of life assurance and general insurance
enterprises arising from the policies issued,
obligations under retirement benefit plans, and
commitments arising from long term lease contracts
in view of special considerations applicable to them
 Accounting standard - 4
 The accounting treatment of a contingent loss
is determined by the expected outcome of the
contingency. If it is likely that a contingency
will result in a loss to the enterprise, then it is
prudent to provide for that loss in the financial
statements.
 Accounting standard - 4
 Contingent gains are not recognized in
financial statements since their recognition
may result in the recognition of revenue,
which may never be realized.
 A substantial legal claim against/in favor of
the enterprise may represent a contingency.
 Disclosure:- If a reliable estimate of the
financial effect cannot be made, this fact is
disclosed.
 Events occurring after the balance
sheet date
 Adjustments to assets and liabilities are
required for events occurring after the balance
sheet date that provide additional information
materially affecting the determination of the
amounts relating to conditions existing at the
balance sheet date.
 For example, an adjustment may be made for a
loss on a trade receivable account, which is
confirmed by the insolvency of a customer,
which occurs after the balance sheet date
 Events occurring after the balance
sheet date
 Adjustments to assets and liabilities are not
appropriate for events occurring after the
balance sheet date, if such events do not relate
to conditions existing at the balance sheet date.
 An example is the decline in market value of
investments between the balance sheet date on
which the financial statements are approved.
 Events occurring after the balance
sheet date
 There are events , which , although they take
place after the balance sheet date, are
sometimes reflected, in the financial
statements because of statutory requirements
or because of their special nature.
 Such items include the amount of dividend
proposed or declared by the enterprise after the
balance sheet date in respect of the period
covered by the financial statements
 Events occurring after the balance
sheet date
 Events occurring after the balance sheet date may
indicate that the enterprise ceases to be a going
concern. Worsening in operating results and financial
position, or unusual changes affecting the existence
or substratum of the enterprise after the balance sheet
date (e.g., destruction of a major production plant by
a fire after the balance sheet date) may indicate a need
to consider whether it is proper to use the
fundamental accounting assumption of going concern
in the preparation of the financial statements
 Events occurring after the balance
sheet date
 Disclosure :- 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 effects or a
statement that such an estimate cannot be
made.
 Thank you
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