ACCOUNTING STANDARDS

Accounting standards are the written

statements consisting of rules and guidelines,
issued by the accounting institutions, for the
preparation of uniform and consistent
financial statements and also for other
disclosures affecting the different users of
accounting information.
 The Institute of Chartered
FORMATION Accountants of India, recognizing
OF THE the need to harmonies the diverse
ACCOUNTING
accounting policies and practices at
STANDARDS
BOARD IN present in use in India, constituted
INDIA an Accounting Standards Board
(ASB) on 21st April, 1977.
 FUNCTION OF THE ACCOUNTING
STANDARDS BOARD
 The main function of ASB is to
formulate accounting standards so that
such standards may be established by
the Council of the Institute in India.
 While formulating the accounting
standards, ASB will take into
consideration the applicable laws,
customs, usages and business
environment.
 PROCEDURE FOR ISSUING
ACCOUNTING STANDARDS
 ASB shall determine the broad areas in which
AS need to be formulated.
 ASB will be assisted by Study Groups
 ASB will also hold a discuss with the
representatives of the Government, Public
Sector Undertakings, Industry and other
Organizations.
 After that, the draft will be submitted by ASB to
the Council of ICAI.
 Finally, the council of ICAI will consider the final
draft and will then issue the Accounting Standard.
A mandatory accounting standard, if not
followed, requires the auditors, who are
members of ICAI, to qualify their audit reports,
failing which they will be guilty of professional COMPLIANCE OF
misconduct. Both the SEBI and Companies Act
ACCOUNTING
require auditors to qualify the audit reports
that do not conform to mandatory accounting STANDARD
standards.
Entities whose equity or debt
Banks (including co-operative
securities are listed or are in
banks), financial institutions
the process of listing on any
or entities carrying on
stock exchange, whether in
insurance business.
India or outside India.

All commercial, industrial and

All commercial, industrial and
business reporting entities
business reporting entities,
having borrowings (including
whose turnover (excluding
public deposits) in excess of
other income) exceeds rupees
rupee ten crore at any time
fifty crore in the immediately
during the immediately
preceding accounting year.
preceding accounting year.
1. GAAP stands for:
(a) Governmental Accepted Accounting Principles
(b) Generally Accepted Accounting Principles
(c) Governmental Adopted Accounting Principles
(d) Generally Adopted Accounting Principles
2. Observance of nonadherence to the accounting
standards. Policies and practices is the duty of ___.
A. Treasurer
B. Company Secretary
C. Finance Director
D. Auditor
3. Accounting Standards in India are issued by ___
A. Central Government
B. State Government
C. Reserve Bank of India
D. Institute of Chartered Accountants of India
4. ASB stands for ____
A. Accounting Standards Board
B. Auditing Standard Board
C. Accounting Standard Bureau
D. Asian Standard Board
5. In India accounting standards are issued by the
Accounting Standards Board under the:
A. FICCI
B. Council of the ICAI
C. ICWA
D. Auditor and Controller General of India
ACCOUNTING STANDARDS
AS 1 - Disclosure of Accounting Policies:
• This Standard deals with the disclosure of significant accounting policies which are
followed in preparing & presenting financial statements.
• The purpose of this standard is to promote a better understanding of the financial
statements by such a disclosure.
• Compliance of AS-1 helps in facilitating comparison between the financial statements
of two different enterprises.
• Any change in the accounting policies that has a material effect period should be
disclosed. If the fundamental accounting assumptions, viz., going concern, consistency
and accrual, are followed in the financial statements, specific disclosure is not
required. If a fundamental accounting assumption is not followed, the fact should be
disclosed.
AS 2 Valuation of Inventories:
This Standard deals with the determination of value at which inventories are
carried in the financial statements, including the ascertainment of cost of
inventories and any write-down thereof to net realisable value.
The Standard was originally issued in June 1981.
It states that inventories are to be valued at a lower of cost or net realisable
value. Weighted average cost or first in first out (FIFO) methods is permitted in
cases where goods are ordinarily interchangeable. This standard is not applied
to: (a) Work in progress arising under construction contracts (b) Work in
progress of service providers (c) Shares, debentures, etc., held as stock-in-trade
(d) Inventories of livestock, agricultural and forest products.
AS 3 Cash Flow Statements:
The standard deals with the preparation of a cash flow statement and
its presentation along with the financial statements. It represents the
cash flows during the year. It includes Cash equivalents which are
short-term(3 Months) high liquid investments that are readily
convertible into a known amount of cash. The Accounting Standard 3
requires the cash flows to be classified into three heads:
(a) Operating activities (b) Investing activities (c) Financing
activities
 AS 4 Contingencies and Events Occurring After Balance Sheet Date:
• IT deals with the treatment of contingencies & events occurring after
the balance sheet date. Events occurring after the balance sheet date are
those that occur between the balance sheet date & the date on which the
financial statements are approved by the Board of the company.
• This accounting standard is mandatory.
• Contingencies are events whose outcomes will be known only on their
occurrence, e.g. a case in the High Court, penalty proceedings.
• The standard sets down, that contingencies must be provided if the loss
due to these can be reasonably estimated.
Accounting treatment of contingent losses - If it is likely that a contingency
will result in a loss to the enterprise, then it is prudent to make a provision for
that loss.
Accounting treatment of contingent gains:- Contingent gains are not
recognized. However, when the realization of a gain is virtually certain, then
this gain is not a contingency and hence, accounting for the gain is
appropriate.
5. Accounting Standard – 5 (Revised)
• It is mandatory. It deals with the treatment in the financial statements of a prior
period & extraordinary items & changes in accounting policies.
• Prior period items are incomes or expenses that arise in the accounts of current
year because of a mistake or omission in the preparation of the financial
statement of one or more prior periods.
• Extraordinary items They are incomes or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the enterprise
and therefore, are not expected to recur frequently or regularly.
• A change in the accounting policy shall be made only if the change is required by
statute or standard or for appropriate presentation and any such change should
be reported.
Change in an accounting policy should be made only if the adoption of a
different accounting policy is required:
• by statute
• for compliance with an accounting standard
• if it is considered that, the change would result in a more appropriate
presentation of the financial statements of the enterprise.
AS 7 Construction Contracts: -
• It deals with the accounting for construction contracts its accounting exceeds a
single year in most cases. It has 2 methods of accounting:-
✓ Percentage of completion method
✓ Completed contract method
• It is applicable on the financial statements of contractors.
• Types of contracts:-
• Fixed price - the contractor agrees to a fixed contract price+ cost escalation.
• Cost-plus - defined costs, + percentage of these costs or a fixed fee.
Accounting Standard – 9
It deals with the basis for the recognition of revenue
It also states the amount of income to be credited to the profit and loss account.
This standard does not deal with:
(a) Revenue arising from construction contracts
(b) Revenue arising from hire purchase, lease agreements
(c) Revenue arising from government grants & other similar subsidies
(d) Revenue of insurance companies arising from insurance contracts.
AS 11 The Effects of Changes in Foreign Exchange Rates:
AS 11 lays down principles of accounting for foreign currency
transactions and foreign operations, i.e., which exchange rate to use
and how to recognise in the financial statements the financial effect
of changes in exchange rates.
AS 12 Government Grants: This Standard deals with
accounting for government grants. Government grants
are sometimes called by other names such as subsidies,
cash incentives, duty drawbacks, etc.

AS 13 Accounting for Investments: This Standard deals

with accounting for investments in the financial
statements of enterprises and related disclosure
requirements.
AS 14 Accounting for Amalgamations: This Standard deals
with accounting for amalgamations and the treatment of any
resultant goodwill or reserves.

AS 15 Employee Benefits: The objective of this Standard is to

prescribe the accounting treatment and disclosure for
employee benefits in the books of employer except employee
share-based payments. It does not deal with accounting and
reporting by employee benefit plans.
AS 16 Borrowing Costs: This Standard should be applied in
accounting for borrowing costs. This Standard does not deal with
the actual or imputed cost of owners’ equity, including preference
share capital not classified as a liability.

AS 17 Segment Reporting: The objective of this Standard is to

establish principles for reporting financial information, about the
different types of segments/ products and services an enterprise
produces and the different geographical areas in which it operates.
AS 18 Related Party Disclosures: This Standard should be
applied in reporting related party relationships and
transactions between a reporting enterprise and its related
parties. The requirements of this Standard apply to the
financial statements of each reporting enterprise and to
consolidated financial statements presented by a holding
company.
AS 19 Leases: The objective of this Standard is to prescribe,
for lessees and lessors, the appropriate accounting policies
and disclosures in relation to finance leases and operating
leases.
AS 10 prescribes the accounting treatment, recognition, measurement, and
disclosure requirements for fixed assets in the financial statements of an entity.
Fixed assets are long-term assets held for use in the production or supply of goods
and services.
Recognition: Fixed assets are recognized in the books of accounts when they are
acquired and are expected to provide future economic benefits to the entity.
Measurement: Fixed assets are initially recorded at their acquisition cost,
including all costs directly attributable to bringing the asset to its working
condition for its intended use.
Subsequent Measurement: After initial recognition, fixed assets are measured at
cost less accumulated depreciation.
Depreciation: Depreciation is the systematic allocation of the cost of a fixed
asset over its useful life. AS 10 provides guidance on calculating and recording
depreciation.
Disposal: Gains or losses arising from the disposal of fixed assets are recognized
in the profit and loss statement.
Disclosure: AS 10 requires adequate disclosure of information related to fixed
assets in the financial statements, including the accounting policies adopted
and the carrying amount of each significant class of fixed assets.
AS 20 - Earnings Per Share
AS 21 - Consolidated Financial Statements (revised 2016)
AS 22 - Accounting for Taxes on Income
AS 23 - Accounting 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
  International Financial Reporting Standards,
commonly called IFRS, are accounting
standards issued by the IFRS Foundation & the
INTERNATIONAL International Accounting Standards Board.
 Accounting activities are regulated in different
FINANCIAL set of accounting rules and regulations in
different countries.
REPORTING  This restricts uniformity and comparability of
financial statements. IFRS helps in global
STANDARDS harmonization.
 Hence, IFRS promotes global standards for
each of business growth.
 IFRS is a set of accounting standards for
reporting different types of business transactions
and events in the financial statements.
 The objective is to facilitate international
comparisons for true and fair valuation of a
business enterprise.
 To narrow down the gap in the presentation of
corporate financial statements, the Ministry of
Corporate Affairs, Government of India has
opted for the convergence of Indian Accounting
Standards with IFRSs for bringing uniformity,
comparability, transparency, rationalization and
adaptability in the field of accounting.
1. What is the objective of formulation and practicing of
Accounting Standards?
A. To harmonies diverse accounting policies and
practices
B. To regulate accounting practices
C. To frame accounting policies of the companies
D. To standardize accounts of companies and firms
2. AS-1 relates to
A. Cash Flow Statement
B. Segment reporting
C. Disclosure of accounting policies
D. Revenue recognition
3. Segment reporting is covered under which of the
following Accounting Standards?
A. AS 1
B. AS 12
C. AS 17
D. AS 22
4. The main function of Accounting Standards Board is to
formulate accounting standards so that the _____ of ICAI may
mandate such standards.
A. Board
B. Council
C. Department
D. Any of the above
5. Which among the following gives mandate to the auditor to qualify the
audit report in case the organization fails to comply with Accounting
Standards?
i. SEBI
ii. RBI
iii. Companies Act
iv. Banking Regulation Act
A. Only ii
B. Both i and iii
C. Only ii & iv
D. D. All of the above are users
6. An organization has adopted different accounting policies with
respect to Valuation of Inventories, Treatment of Goodwill, Valuation of
Investment. The disclosure of these significant accounting policies in
financial statement is covered under which Accounting Standard?
A. AS - 1
B. AS - 2
C. AS - 3
D. AS - 4
7. _____ are the accounting rules used to prepare financial statements
for the publicly traded companies and many private companies in
United States?
A. Ind - AS
B. IFRS
C. GAAP
D. All of these
8. The accounting period of a firm closes on Mar 31 every year. Neither it
did pay the rent of Rs. 30000 relating to the last month of the year and nor
accounted for in the books. It violated which of the following:
A. cost concept
B. matching concept
C. accounting period concept
D. dual aspect concept
9. Match List-I with List-II:
List-I (Ind AS) List-II (Topic)
(a) Ind AS 1 I. Income Taxes
(b) Ind AS 12 II. Related Party Disclosures
(c) Ind AS 24 III. Intangible Assets
(d) Ind AS 38 IV. Presentation of Financial Statements
10. In which of the following circumstances change in accounting policy
can be adopted?
i. If required by the statue
ii. Compliance with an Accounting standard
iii. Better presentation of financial statements
iv. For settlement of any litigation
A. Only ii
B. Both ii and iv
C. i, ii and iii
D. All the above
11. Match List I with List-II
12. Which Accounting Standard and Ind AS talks about
Depreciation?
A. AS – 6 and Ind AS – 16
B. AS – 10 and Ind AS -6
C. AS - 10 and Ind AS – 16
D. None of these
13. Which among the following Financial Statements is/are not
prepared as per Accrual System of Accounting?
A. Balance Sheet
B. Trading & Profit & Loss Account
C. Cash Flow Statement
D. None of these