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DISCLOSURE ACCOUNTING STANDARDS AS-1, AS-4, AS-20 AND AS-24

DISCLOSURE ACCOUNTING STANDARDS AS-1, AS-4, AS-20 AND AS-24. CA R.C Thakkar M.Com, LLB, FCA. E-mail : rcthakkarca@gmail.com. Mobile : 9879447009. Plethora of Accounting standards :. Accounting Standards (AS) issued by ICAI.

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DISCLOSURE ACCOUNTING STANDARDS AS-1, AS-4, AS-20 AND AS-24

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  1. DISCLOSURE ACCOUNTING STANDARDSAS-1, AS-4, AS-20 AND AS-24 CA R.C Thakkar M.Com, LLB, FCA E-mail : rcthakkarca@gmail.com Mobile : 9879447009

  2. Plethora of Accounting standards : • Accounting Standards (AS) issued by ICAI. • Accounting Standards notified under Companies Accounting Standard Rules,2006. • International Accounting Standards (IAS) • International Financial Reporting Standards (IFRS) • Converged Indian Accounting Standards (Ind AS) hosted on the website of MCA.

  3. APPLICABILITY OF ACCOUNTING STANDARDS: (ICAI) • All Enterprises classified into Level I, II and III enterprises for the purpose of Applicability of Accounting Standards. • Level I enterprises are required to comply fully with all the accounting standards. • Level II and Level III enterprises are considered as SMEs and they have been given certain relaxations and exemptions from the compliance of certain AS or part thereof.

  4. Level I Enterprises : • Enterprises which fall in any one or more of the following categories, at any time during the accounting period: • (i) Enterprises whose equity or debt securities are listed whether in India or outside India. • (ii) Enterprises, which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard. • (iii) Banks including co-operative banks, Insurance Cos. and Financial institutions. • (iv) Entities whose turnover exceeds Rs.50 Cr. Or Borrowings exceed Rs.10 Cr. in the immediate preceding P.Y.

  5. Level II Enterprises : • (i) All commercial, industrial and business enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 40 lakhs but does not exceed Rs. 50 crores. Turnover does not include ‘other income’. • (ii) All commercial, industrial and business enterprises having borrowings, including public deposits, in excess of Rs. 1 crore but not in excess of Rs. 10 crores at any time during the accounting period. • (iii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

  6. Level III Enterprises : • Enterprises, which are not covered under Level I and Level II, are considered as Level III enterprises. • CERTAIN AS – NOT TO APPLY TO LEVEL II AND LEVEL III ENTERPRISES: • AS-3 CASH FLOW STATEMENTS • AS-17 SEGMENT REPORTING • AS-18 RELATED PARTY DISCLOSURES • AS-21 CONSOLIDATED FINANCIAL STATEMENTS • AS-23 ACCOUNTING FOR INV. IN ASSOCIATES • AS-24 DISCOTINUING OPERATIONS • AS-25 INTERIM FINANCIAL REPORTING • AS-27 FIN. REPORTING OF INTEREST IN JV

  7. Applicability of AS to Companies • Applicability of AS to Companies is governed by Companies’ AS Rules,2006….as amended… • ICAI Classification of Level I, II and III not relevant for Cos. • Certain Exemptions and Relaxations granted to Small & Medium Companies (SMC).

  8. Companies’ AS Rules,2006: • SMC defined in Rule 2(f) : Company which satisfies the following five conditions as at the end of A/c. Period : • (a) Co. whose equity-debt-securities are not listed and not in the process of listing on any Stock Exchange in India/Outside India • (b) Co. which is not a Bank or FI or Insurance Co. • (c) Co.’s turnover excluding other income does not exceed Rs.50 crores in the immediately preceding previous year. • (d) Co. which does not have borrowing (including public deposits) exceeding Rs.10 Crores at any time during the immediately preceding accounting year and, • (e) The Co. is not a holding or subsidiary co. of a Non-SMC Company.

  9. Applicability of as to companies

  10. Applicability of as to companies

  11. Applicability of as to companies

  12. Applicability of as to companies

  13. DISCLOSURE OF ACCOUNTING POLICIES ACCOUNTING STANDARD-1

  14. ACCOUNTING STANDARD-1 • AS-1 is proposed to be revised. • Exposure Draft for Revised AS-1 has been issued and it was open for comments up to September 02, 2013. • The name of the newly Revised AS-1 shall be “Presentation of Financial Statements”. • AS-1 is proposed to be revised in view of the Revised Schedule VI requiring current and non-current classification of assets and liabilities and also due to significant changes in IAS-1. • The scope of Revised AS-1 is much wider and it not only includes Disclosure of A/c. Policies but various aspects of Presentation of Fin. Statements.

  15. It deals with the disclosure of significant accounting policies adopted in the preparation and presentation of financial statements. The view presented in the financial statements of an enterprise of its financial position and its profit or loss can largely be impacted by the accounting policies followed in the preparation and presentation of its financial statements. The accounting policies followed may vary from enterprise to enterprise and from year to year. AS-1 Disclosure of A/c. Policies

  16. Disclosure of Significant Accounting Policies is necessary if the view presented by the financial statements is to be properly appreciated and understood. Disclosure of Some of the Accounting Policies is required by law e.g. AS-2Valuation of Inventories. ICAI also recommends the Disclosure of certain Accounting Policies like Translation of Policies in respect of Foreign Currency Transactions. AS-1 Introduction (Contd.)

  17. The nature and degree of Disclosure of Accounting Policies may vary considerably between the Corporate and Non-Corporate Sector and between the units in the Same Sector. Many enterprises include in the Notes on the Accounts the descriptions of some of the accounting policies. The purpose of this Standard is to promote better understanding of financial statements by encouraging the proper disclosure of significant accounting policies followed in their preparation. It would also facilitate more meaningful comparison of financial statements of different enterprise. AS-1 Introduction (Contd.)

  18. 24. All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. 25. 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. 26. 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. AS-1 Disclosure of A/c.Policies :

  19. 27. 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. 23. Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts. AS-1 Disclosure of A/c.Policies :

  20. 16. The primary consideration in the selection of accounting policies by an enterprise is that the financial statements prepared and presented on the basis of such accounting policies should represent a true and fair view of the state of affairs of the enterprise as at the balance sheet date and of the profit or loss for the period ended on that date. 17. Major considerations governing the selection and application of accounting policies are:— (a) Prudence e.g. Collectability of Receivables (b) Substance over Form e.g Hire Purchase and, (c) Materiality. AS-1 Disclosure of A/c.Policies :

  21. 14. The following are examples of the areas in which different accounting policies may be adopted by different enterprises : (a) Methods of depreciation, depletion and amortisation (b) Treatment of expenditure during construction period (c) Conversion or translation of foreign currency items (d) Valuation of inventories (e) Treatment of goodwill (f) Valuation of investments (g) Treatment of retirement benefits (h) Recognition of profit on long-term contracts (i) Valuation of fixed assets (j) Treatment of contingent liabilities. 15. The above list of examples is not intended to be exhaustive. AS-1 Disclosure of A/c.Policies :

  22. CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEET DATE ACCOUNTING STANDARD-4

  23. CONTINGENCIES • 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 non-occurrence, of one or more uncertain future events. • However now contingencies are no more dealt with by Accounting Standard – 4 after coming into force of Accounting Standard – 29 on Provisions, Contingent Liabilities and Contingent Assets (except provision for Bad & Doubtful Debts).

  24. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE • This are events, favourable or unfovourable which occur between The Balance Sheet date & The date on which the financial statements are approved by the approving authority.

  25. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

  26. ADJUSTING EVENTS • These events require the restatement of financial statements. • Examples:- • Insolvency of debtors, • Judgment of pending law suite, • Retrospective changes in government regulation, • Proposed Dividend (proposed or declared after the Balance Sheet Date)

  27. NON-ADJUSTING EVENTS • These events are non-adjusting in nature & hence financial statement should not be restated. • If it is material then disclosure should be provided in notes to account & If it is a routine event then even disclosure is not required. • Examples:- Loss caused by fire or theft, Decline in Market Value of Investments, Fluctuations in exchange rate, Prospective changes in government regulations, Mergers, Demergers, Discontinuing operations or any other form of corporate restructuring.

  28. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE • Events occurring after the balance sheet date should not be so significant that the fundamental accounting assumption of going concern becomes invalid……. In such a situation, the assets & liabilities should be restated at their liquidation value. • An event occurs after balance sheet date and also after the approval of financial statements then such an event can neither be reflected in financial statements nor in notes to accounts. However such an event if material… then it should be disclosed in directors report.

  29. LATEST DEVELOPMENTS • AS-4 has been revised & its title has been changed simply to “Events Occurring After The Balance Sheet Date”. • A major change between existing AS-4 & revised AS-4 is in the treatment of Proposed Dividend. Existing AS-4 considers proposed dividend as an adjusting event while revised AS-4 considers it to be a non adjusting event. • However revised AS-4 is still not notified under the companies act. Hence company has to follow existing AS-4.

  30. EARNINGS PER SHARE ACCOUNTING STANDARD-20

  31. AS-20 earnings per share • AS-20 came into effect in respect of accounting periods starting from 01.04.2001 and is mandatory in nature. • Limited Revision has been made to this standard in 2004. Para 48 and 51 relating to disclosure requirements have been revised in 2004. • Presently, limited revision to the Standard is proposed. Exposure Draft relating to the limited revision to the standard has been published by ICAI in May,2013.

  32. AS- 20 earnings per share • Objective of the AS : To prescribe principles for determination and presentation of EPS which will improve comparison of performance among different enterprises or different accounting periods. • Scope and Applicability : The Standard applies to all enterprises whose equity shares or potential equity shares are listed on a recognized stock exchange in India. The Standard also applies to all the companies whether their equity shares are listed or not.

  33. AS-20 EPS presentation • An Enterprise should present basic and diluted EPS on the face of the Profit & Loss Statement for each class of equity shares. • An Enterprise should present basic and diluted EPS with equal prominence for all the periods. • AS requires the Enterprise to disclose basic and diluted EPS even if the amounts disclosed are negative i.e. Net Loss per Share. • In consolidated financial statements, the information relating to basic and diluted EPS should be presented on the basis of consolidated information.

  34. Basic and Diluted Earnings Per Share • Basic Earnings Per Share : Net Profit / Loss for the Period Attributable to Equity Share Holders (After Tax and Pref. Dividend) • = -------------------------------------------------------- Weighted Average Number of Shares outstanding during the Period (to be adjusted for further issue, bonus, rights etc.)

  35. Basic and Diluted Earnings Per Share • Diluted Earnings Per Share : Net Profit / Loss for the Period Attributable to Equity Share Holders (After adjustment of Diluted Earnings) • = -------------------------------------------------------- Weighted Average Number of Equity Shares outstanding during the Period (to be adjusted for potential equity shares Assuming conversion of debt in to equity etc.)

  36. ACCOUNTINGSTANDARD-24 DISCONTINUING OPERATIONS Purpose: To establish principles of reporting information about Discontinuing Operations

  37. MEANING OF DISCONTINUING OPERATIONS • Discontinuing operations is a distinguishable component* of an enterprise representing a major line** of business or geographical area of operations, which pursuant to a single plan*** is to be disposed off entirely or substantially by way of sale or demerger or change in ownership or piecemeal sale or by way abandonment.

  38. *Distinguishable Component- By distinguishable it means it must have an identity separate from other components of an enterprise. This is necessary to provide operating & financial information. **Major line- AS-24 is silent on what constitutes a major line of business or geographical area of operations. Hence, 10% criteria for identifying reportable segment as described in AS-17 can be applied under AS-24. ***Single Plan- Single plan reflects single mindedness on the part of the enterprise to discontinue an operation.

  39. INITIAL DISCLOSURE EVENT • An enterprises is required to provide disclosure for discontinuing operations whenever the financial statements are prepared after the occurrence of Initial Disclosure Event(IDE). IDE is earlier of:- • Enterprise enters into a binding contract of sale. OR • Board of director or similar approving authority approves a formal plan for discontinuance & makes an announcement of it.

  40. DISCLOSURE REQUIREMENTS OF AS-24 A) NARRATIVE DISCLOSURES Followings details should be provided:- gDescription of discontinuing operations. gSource & nature of initial disclosure event. gEstimated time period for completion & disposal of discontinuing operations. gName of the party with whom binding contract of sale has been entered into & negotiated price (if applicable).

  41. DISCLOSURE REQUIREMENTS OF AS-24 B) QUANTITATIVE DISCLOSURES Disclosure shall be provided for discontinuing operation as well as continuing operation so that the impact of discontinuing operation measured easily.

  42. THANK YOU CA R.C Thakkar M.Com, LLB, FCA E-mail : rcthakkarca@gmail.com Mobile : 9879447009

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