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V P Palanichamy CMA – US Accounting Standards (AS) INTRODUCTION - ACCOUNTING STANDARDS Accounting Standards are written policy documents issued by expert accounting body or by the government or other regulatory body covering the aspects of reco...

V P Palanichamy CMA – US Accounting Standards (AS) INTRODUCTION - ACCOUNTING STANDARDS Accounting Standards are written policy documents issued by expert accounting body or by the government or other regulatory body covering the aspects of recognition, measurement, presentation, and disclosure of accounting transactions in financial statements. This point may be explained as under: Recognition of transactions and other events: Recognition is the process of incorporating an item in the Balance Sheet and statement of Profit and Loss. It involves the depiction of an item in words and by a monetary amount and inclusion of that amount in the totals of the Balance Sheet and Statement of Profit and Loss. The Accounting standards tell us which items to recognize in the Balance sheet and which ones in the Statement of Profit and Loss. Measurement of the transactions and other events: Accounting standards also provide guidance as to what monetary amount should be allocated to the transaction and events i.e. these help in the measurement or quantification of the items of transactions and events. For example, Accounting Standard (AS) 10 ‘Property, Plant and Equipment’ provides that for the initial recognition of an item of PPE, the costs of the items to be considered are (a) Purchase price less trade discount and rebates; (b) Non-refundable purchase taxes; (c) Import duties; (d) Directly attributable cost to bring the asset in the location and condition for operation as intended by the management. Presentation of transactions and other events: Accounting Standards also deal with the manner of presentation of transactions and other events in the Balance Sheet and Statement of Profit and Loss. For Example, paragraphs 8 to 17 of Accounting Standard 3 ‘Cash Flow Statements’ deal with the manner of presentation of operating activities, investing and financing activities in the cash flow statement. Disclosure of transactions and other events: Accounting standards also deal with the manner of disclosure of transactions and other events in the financial statements. For example, paragraph 37 of the AS 10 provides that in the financial statements, gross and net carrying amounts of the items of PPE at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements should be disclosed separately. It may be noted that almost all the Accounting Standards deal with recognition, measurement, presentation and disclosure of transactions and other events in the Financial Statements.  NEED OF ACCOUNTING STANDARD The accounting standards seek to describe the accounting principles, valuation techniques and the methods of applying these accounting principles in the preparation and presentation of the financial statements so that they represent a true and fair view of the financial position and financial performance of the enterprise. The ostensible purpose of the standards setting bodies is to promote the dissemination of the timely and useful financial information to the users. The need of Accounting Standards may be enumerated as under: Improvement of credibility and reliability of financial statements: The accounting standards create an environment of confidence among the users of accounting information by providing a uniform structure of uniform guidelines which provide credibility and reliability to the accounting information. In this way, the financial statements present a true and fair view of the financial position and financial performance of an entity. Comparability of financial Statements made easy: The value of the accounting information is enhanced if the same may be compared in the same line of business activity. But, the comparability is possible only if the same accounting standards are used in the preparation of the financial statements of the different enterprises in the same industry. It is a positive step to protect the interests of the users of the accounting information. Benefits to the accountants and auditors: The accounting standards provide a basis for the uniform accounting principles. Due to this reason, there is a less possibility of frauds being committed by the accountant. There is more transparency in the accounting information. Since the accounting profession follows the accounting standards without any exception, they are helpful not only to the accounting entity but also to the accountants and the auditors. Any type of misinformation can lead to a strict action against the accountants and the auditors. Additional disclosures: There are certain areas where the important information is not required to be disclosed by the law. The accounting standards require the disclosure of such matters such as the method of depreciation and the change in the method of depreciation which help the users of the financial statements to take important financial decision. Evaluation of the managerial ability: Accounting standards are useful in measuring the efficiency of the management regarding profitability, liquidity, solvency and other general areas of progress of the enterprise. In the absence of Accounting Standards, it would be difficult to evaluate the managerial efficiency because there is no basis to compare the financial statements of one enterprise with those of another. Each enterprise would evolve its own rules and standards to suit its own purpose and users would, therefore, not be able to get a true and fair view of the functioning of the enterprise. Helpful to the Government: The Government officials would find the financial information useful for economic planning, market analysis and tax collection if the financial statements are based on the established accounting standards. LIST OF ACCOUNTING STANDARDS ISSUED BY ICAI The Institute of Chartered Accountants of India has, so far, issued 32 Accounting Standards. However, the Accounting Standard 8 “Accounting for Research and Development” was withdrawn subsequent to the issuance of Accounting Standard 26 “Intangible Assets” and the Accounting Standard 6 “Depreciation Accounting” was withdrawn subsequent to the issuance of revised Accounting Standard 10 “Property, Plant and Equipment” including the matters related to depreciation accounting for the old AS 10 “Accounting for Fixed Assets”. The Accounting Standards 30, 31 and 32 related to “Financial Instruments” have been withdrawn by the ICAI in the year 2016. Thus, effectively, there are only 27 Accounting Standards at present. Bharadwaj Institute www.bharadwajinstitute.com EP-CA&FM V P Palanichamy CMA – US Accounting Standards (AS) AS 1 Disclosure of Accounting Policies AS 2 Valuation of Inventories (Revised) AS 3 Cash Flow Statements AS 4 Contingencies and Events Occurring After Balance Sheet Date (Revised) AS 5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting Policies AS 7 Construction Contracts AS 9 Revenue Recognition AS 10 Property, Plant and Equipment (Revised) AS 11 The Effects of Changes in Foreign Exchange Rates AS 12 Government Grants AS 13 Accounting for Investments (Revised) AS 14 Accounting for Amalgamations (Revised) AS 15 Employee Benefits AS 16 Borrowing Costs AS 17 Segment Reporting AS 18 Related Party Disclosures AS 19 Leases AS 20 Earnings per Share AS 21 Consolidated Financial Statements (Revised) AS 22 Accounting for Taxes on Income AS 23 Accounting for Investments in Associates 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 (Revised)