Chapter IV Disclosure Requirements of IAS & AS 34
For better understanding I have divided this chapter into two part first part compare International Accounting Standard with India Accounting Standard, and second part compare rule & regulation issued in Yemen with rule & regulation issued in India. First part (International Accounting Standard & India Accounting Standard) I am going to start this part by comparative study made by The Institute of Chartered Accountant of India in which they have compare the International Accounting Standard with India Accounting Standard which I think it will give better idea about this study as it is fuscous in the manner. And than I will give brief summary of those accounting standard and their disclosure requirement followed by my observation about them in the line of the Institute of Chartered Accounting standard of India. Table (1) I. Indian Accounting Standards already issued by the Institute of Chartered Accountants of India (ICAI) corresponding to the International Accounting Standards/International Financial Reporting Standards International Accounting Standards (IASs)/International Financial Indian Accounting Standards (ASs) Reporting Standards (IFRSs) Sl. No IAS/ AS IFRS Title of the Standard Title of the Standard No. No. 1 IAS 1 Presentation of Financial AS Disclosure of Accounting Statements 1 Policies 2 IAS 2 Inventories AS Valuation of Inventories 2 Corresponding IAS has been Depreciation Accounting 3 withdrawn since the matter is AS now covered by IAS 16 and 6 IAS 38 4 IAS 7 Cash Flow Statements AS Cash Flow Statements 3 5 IAS 8 Accounting Policies, Changes AS Net Profit or Loss for the 35
in Accounting Estimates and Errors 5 Period, Prior Period Items and Changes in Accounting Policies 6 Events After the Balance Contingencies and Events IAS AS Sheet Date Occurring after the Balance 10 4 Sheet Date 7 IAS Construction Contracts AS Construction Contracts 11 7 8 IAS Income Taxes AS Accounting for Taxes on 12 22 Income 9 IAS Segment Reporting AS Segment Reporting 14 17 10 IAS Property, Plant and Equipment AS Accounting for Fixed Assets 16 10 11 IAS Leases AS Leases 17 19 12 IAS Revenue AS Revenue Recognition 18 9 Employee Benefits Accounting for Retirement 13 Benefits in the Financial IAS AS Statements of Employers 19 15 (recently revised and titled as 'Employee Benefits') 14 Accounting for Government Accounting for Government IAS AS Grants and Disclosure of Grants 20 12 Government Assistance 15 IAS The Effects of Changes in AS The Effects of Changes in 21 Foreign Exchange Rates 11 Foreign Exchange Rates 16 IAS Borrowing Costs AS Borrowing Costs 23 16 17 IAS Related Party Disclosures AS Related Party Disclosures 36
18 19 20 21 22 23 24 25 26 27 28 29 24 18 IAS Consolidated and Separate AS 27 Financial Statements 21 IAS Investments in Associates AS 28 23 IAS Interests in Joint Ventures AS 31 27 IAS Earnings Per Share AS 33 20 IAS Interim Financial Reporting AS 34 25 IAS Impairment of Assets AS 36 28 Provisions, Contingent IAS AS Liabilities and Contingent 37 29 Assets IAS Intangible Assets AS 38 26 Corresponding IAS has been withdrawn since the matter is AS now covered by IAS 32, 39 13 and 40 IAS Investment Property 40 - IFRS Business Combinations AS 3 14 Non-current Assets Held for IFRS AS Sale and Discontinued 5 24 Operations Consolidated Financial Statements Accounting for Investments in Associates in Consolidated Financial Statements Financial Reporting of Interests in Joint Ventures Earnings Per Share Interim Financial Reporting Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Accounting for Investments Dealt with by Accounting Standard 13 Accounting for Amalgamations Discontinuing Operations Further, As 10 deals with accounting for fixed assets 37
retired from active use. Table (2) II. International Accounting Standard/International Financial Reporting Standard not considered relevant for issuance of either Accounting Standards or the Guidance Notes by the ICAI for the reasons indicated. International Accounting Standards (IASs)/International Financial Sl. Reporting Standards (IFRSs) No. IAS/ Reasons IFRS Title of the Standard No. Financial Reporting in Hyperinflationary The Institute notes that the hyper- 1 Economies inflationary conditions do not prevail IAS in India. Accordingly, the subject is 29 not considered relevant in the Indian context. First-time Adoption of In India, Indian ASs are being adopted International Financial since last many years and IFRSs are 2 IFRS1 Reporting Standards not being adopted for the first time. Therefore, the IFRS 1 is not relevant to India at present. Table (3) III. Accounting Standards presently under preparation corresponding to the International Accounting Standards/International Financial Reporting Standards International Accounting Standards (IASs)/International Financial Sl. Reporting Standards (IFRSs) No. IAS/ Status IFRS Title of the Standard No. 38
IAS 1 26 IAS 2 30 IAS 3 32 IAS 4 39 IAS 5 41 IFRS 6 2 IFRS 7 4 Table (4) Accounting and Reporting by Under Preparation Retirement Benefit Plans Disclosure in Financial Under preparation. At present, Statements of Banks and Covered by the Banking regulation Similar Financial Institutions Act, 1949; also certain disclosure norms have been prescribed by the Reserve Bank of India. Financial Instruments: Under Preparation Disclosure and Presentation Financial Instruments: Under Preparation Recognition and Measurement Agriculture Under preparation Share-based Payment Under preparation. At present, Employee-share based Payments, are covered by a Guidance Note issued by the Institute. Further, some other pronouncements deal with other sharebased payments, e.g., AS 10, Accounting for Fixed Assets Insurance Contracts Under preparation IV. Reconciliation of Indian Accounting Standards with the International Accounting Standards/International Financial Reporting Standards International Financial Reporting Standards issued by the International A) Accounting Standards Board Number of International Accounting Standards (IASs) issued by the 41 International Accounting Standards Committee (IASC) (now International Accounting Standards Board) 39
Number of International Financial Reporting Standards issued by IASB 6 Less: Number of IASs since withdrawn (10) Add: IAS 4 which has been withdrawn, however, included here for 1 reconciliation purposes because corresponding Accounting Standards of the ICAI (i.e. AS 6) is still in force 38 B) Accounting Standards (ASs) and other documents issued by the Institute of Chartered Accountants of India 1 Number of Indian Accounting Standards issued (except AS 8 which is 28 withdrawn pursuant to AS 26 becoming mandatory) 2 IAS/IFRS not relevant in the Indian context 2 3 Guidance Note issued by the ICAI 1 4 Number of Accounting Standards under preparation 7 38 It may be noted that International Accounting Standards nos. 3, 4, 5, 6, 9, 13, 15, 22, 25, and 35 have already been withdrawn by the International Accounting Standards Board (IASB). IASB recently issued IFRS 5 and withdrew IAS 35, Discontinuing Operations, on which AS 24 is based. An Indian Accounting Standard corresponding to IFRS 5 is under preparation. After the issuance of this Indian AS, AS 24 is proposed to be withdrawn. Pending the issuance of a comprehensive Accounting Standard on Financial Instruments, the following pronouncements deal with the accounting for certain types of financial instruments: (1) AS 13, Accounting for Investments (2) Guidance Note on Equity Index and Equity Stock Futures and Options (3) Guidance Note on Investments by Mutual Funds. (4) Guidance Note on Securitization Corresponding to IFRS 6 (effective 2006), Exploration for and Evaluation of Mineral Resources, Guidance Note of the ICAI titled Accounting for Oil and Gas Producing Activities, has been issued. (An official pronouncement by the Institute of Chartered Accountants of India) 4.1 IAS 1 Presentation of Financial Statements & AS 1 Disclosure of Accounting Policies 40
4.1.1 IAS 1 Presentation of Financial Statements (Revised 1997) This revised International Accounting Standard supersedes IAS 1, Disclosure of Accounting Policies, IAS 5, Information to be Disclosed in Financial Statements, and IAS 13, Presentation of Current Assets and Current Liabilities, which were approved by the Board in reformatted versions in 1994. IAS 1 (revised 1997) was approved by the IASC Board in July 1997 and became effective for financial statements covering periods beginning on or after 1 July 1998. The objective of IAS 1 (revised 1997) is to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. IAS 1 sets out the overall framework and responsibilities for the presentation of financial statements, guidelines for their structure and minimum requirements for the content of the financial statements. Standards for recognizing, measuring, and disclosing specific transactions are addressed in other Standards and Interpretations. The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet that objective, financial statements provide information about an entity's: Assets. Liabilities. Equity. Income and expenses, including gains and losses. Other changes in equity. Cash flows. That information, along with other information in the notes, assists users of financial statements in predicting the entity's future cash flows and, in particular, their timing and certainty. A complete set of financial statements should include: - a balance sheet, - income statement, - a statement of changes in equity showing either: 41
all changes in equity, or changes in equity other than those arising from transactions with equity holders acting in their capacity as equity holders; - cash flow statement, and - notes, comprising a summary of accounting policies and other explanatory notes. Reports that are presented outside of the financial statements -- including financial reviews by management, environmental reports, and value added statements -- are outside the scope of IFRSs. 4.1.1.1 Information to be presented on the Face of the Balance Sheet As a minimum, the face of the balance sheet should include line items which present the following amounts: (a) Property, plant and equipment; (b) Intangible assets; (c) Financial assets (excluding amounts shown under (d), (f) and (g)); (d) Investments accounted for using the equity method; (e) Inventories; (f) Trade and other receivables; (g) Cash and cash equivalents; (h) Trade and other payables; (i) tax liabilities and assets as required by IAS 12, Income Taxes; (j) Provisions; (k) Non-current interest-bearing liabilities; (l) Minority interest; and (m) Issued capital and reserves. Additional line items, headings and sub-totals should be presented on the face of the balance sheet when an International Accounting Standard requires it, or when such presentation is necessary to present fairly the enterprise s financial position. An enterprise should disclose the following, either on the face of the balance sheet or in the notes: (a) For each class of share capital: 42
(i) The number of shares authorized; (ii) The number of shares issued and fully paid, and issued but not fully paid; (iii) par value per share, or that the shares have no par value; (iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the year; (v) The rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital; (vi) Shares in the enterprise held by the enterprise itself or by subsidiaries or associates of the enterprise; and (vii) Shares reserved for issuance under options and sales contracts, including the terms and amounts; (b) A description of the nature and purpose of each reserve within owners equity; (c) The amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorized for issue; and (d) the amount of any cumulative preference dividends not recognized. An enterprise without share capital, such as a partnership, should disclose information equivalent to that required above, showing movements during the period in each category of equity interest and the rights, preferences and restrictions attaching to each category of equity interest. 4.1.1.2 Information to be Presented on the Face of the Income Statement As a minimum, the face of the income statement should include line items which present the following amounts: (a) Revenue; (b) The results of operating activities; (c) Finance costs; (d) Share of profits and losses of associates and joint ventures accounted for using the equity method; (e) Tax expense; (f) Profit or loss from ordinary activities; (g) Extraordinary items; (h) Minority interest; and 43
(i) Net profit or loss for the period. Additional line items, headings and sub-totals should be presented on the face of the income statement when required by an International Accounting Standard, or when such presentation is necessary to present fairly the enterprise s financial performance. An enterprise should present, either on the face of the income statement or in the notes to the income statement, an analysis of expenses using a classification based on either the nature of expenses or their function within the enterprise. Enterprises classifying expenses by function should disclose additional information on the nature of expenses, including depreciation and amortization expense and staff costs. An enterprise should disclose, either on the face of the income statement or in the notes, the amount of dividends per share, declared or proposed, for the period covered by the financial statements. 4.1.1.3 Presentation of Cash Flow Statement Cash flow information is useful in providing users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows. 4.1.1.4 Presentation of Statement of Change in Equity An enterprise should present, as a separate component of its financial statements, a statement showing: (a) The net profit or loss for the period; (b) Each item of income and expense, gain or loss which, as required by other Standards, is recognized directly in equity, and the total of these items; and (c) The cumulative effect of changes in accounting policy and the correction of fundamental errors dealt with under the Benchmark treatments in IAS 8. In addition, an enterprise should present, either within this statement or in the notes: (d) Capital transactions with owners and distributions to owners; (e) The balance of accumulated profit or loss at the beginning of the period and at the balance sheet date, and the movements for the period; and (f) A reconciliation between the carrying amount of each class of equity capital, share premium and each reserve at the beginning and the end of the period, separately disclosing each movement. 44
4.1.1.5 Notes to the Financial Statements The notes to the financial statements of an enterprise should: (a) Present information about the basis of preparation of the financial statements and the specific accounting policies selected and applied for significant transactions and events; (b) Disclose the information required by International Accounting Standards that is not presented elsewhere in the financial statements; and (c) Provide additional information which is not presented on the face of the financial statements but that is necessary for a fair presentation. Notes to the financial statements should be presented in a systematic manner. Each item on the face of the balance sheet, income statement and cash flow statement should be cross-referenced to any related information in the notes. 4.1.1.6 Presentation of Accounting Policies The accounting policies section of the notes to the financial statements should describe the following: (a) The measurement basis (or bases) used in preparing the financial statements; (b) Each specific accounting policy that is necessary for a proper understanding of the financial statements. 4.1.1.7 Other Disclosures An enterprise should disclose the following if not disclosed elsewhere in information published with the financial statements: (a) The domicile and legal form of the enterprise, its country of incorporation and the address of the registered office (or principal place of business, if different from the registered office); (b) A description of the nature of the enterprise s operations and its principal activities; (c) The name of the parent enterprise and the ultimate parent enterprise of the group; and (d) Either the number of employees at the end of the period or the average for the period. 4.1.2 AS 1 Disclosure of Accounting Policies This standard deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. The accounting policies refer to the specific accounting principles and the methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statements. There is no 45
single list of accounting policies which are applicable to all circumstances. The differing circumstances in which enterprises operate in a situation of diverse and complex economic activity make alternative accounting principles and methods of applying those principles acceptable. The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in the preparation and presentation of the financial statements. The accounting policies followed vary from enterprise to enterprise. Disclosure of significant accounting policies followed is necessary if the view presented is to be properly appreciated. 4.1.2.1 Disclosure of All significant accounting policies All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. 4.1.2.2 Disclose accounting policies in one place 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. 4.1.2.3 Disclosure of change in the accounting policies 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. 4.1.2.4 Disclosure If a fundamental accounting assumption is not followed 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. 4.1.3 Observation First we have to know that in respect of International Accounting Standard this standard supersedes IAS 1, Disclosure of Accounting Policies, IAS 5, Information to be Disclosed in Financial Statements, and IAS 13, Presentation of Current Assets and Current 46
Liabilities, but in respect of India Accounting Standard there were no change which mean that this IAS will have more requirement than India AS which is covered by an other India AS. So the different or less disclosure requirement of India AS because of this reason. 4.2 IAS 2 Inventories & AS 2 Valuation of Inventories 4.2.1 IAS 2 Inventories (Revised 1993) This Standard prescribes the accounting treatment for inventories under the historical cost system. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard provides practical guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. This Standard should be applied in financial statements prepared in the context of the historical cost system in accounting for inventories other than: (a) Work in progress arising under construction contracts, including directly related service contracts (see IAS 11, Construction Contracts); (b) Financial instruments; and (c) Producers' inventories of livestock, agricultural and forest products, and mineral ores, and agricultural produce to the extent that they are measured at net realizable value in accordance with well established practices in certain industries. (d) Biological assets related to agricultural activity (see IAS 41, Agriculture). Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories should be measured at the lower of cost and net realizable value. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. 47
4.2.1.1 Disclose the accounting policies adopted in measuring inventories The accounting policies adopted in measuring inventories, including the cost formula used 4.2.1.2 Disclose the total carrying amount of inventories The financial statements should disclose: (a) The total carrying amount of inventories and the carrying amount in classifications appropriate to the enterprise; (b) The carrying amount of inventories carried at net realizable value; (c) The amount of any reversal of any write-down that is recognized as income in the period; (d) The circumstances or events that led to the reversal of a write-down of inventories. 4.2.1.3 Disclose the carrying amount of inventories pledged as security for liabilities The carrying amount of inventories pledged as security for liabilities should be disclosed. 4.2.1.4 Other disclosure i- When the cost of inventories is determined using the LIFO formula in accordance with the allowed alternative treatment, the financial statements should disclose the difference between the amount of inventories as shown in the balance sheet and either: (a) The lower of the amount arrived at and net realizable value; or (b) The lower of current cost at the balance sheet date and net realizable value. ii- The financial statements should disclose either: (a) The cost of inventories recognized as an expense during the period; or (b) The operating costs, applicable to revenues, recognized as an expense during the period, classified by their nature. 4.2.2 AS 2 Valuation of Inventories A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognized. This Statement deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realizable value. This standard not deals with shares, debentures and other financial instruments held as stock-in-trade. 48
4.2.2.1 Disclosure of accounting policies The accounting policies adopted in measuring inventories, including the cost formula used. 4.2.2.2 Disclosure of carrying amount of inventories The total carrying amount of inventories and its classification appropriate to the enterprise. 4.2.2.3 Disclosure of Information about different classifications of inventories Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are raw materials and components, work in progress, finished goods, stores and spares, and loose tools. 4.2.3 Observation In this accounting standard I have noted that it is mostly the same except that IAS has require Disclose the carrying amount of inventories pledged as security for liabilities which India AS did not required but I think this is because it is covered by other AS even in my opinion it should be like IAS. 4.3 AS 6 Depreciation Accounting & Corresponding IAS 4.3.1 Corresponding IAS has been withdrawn since the matter is now covered by IAS 16 and IAS 38 4.3.2 AS 6 Depreciation Accounting This Standard deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply:- i- Forests, plantations and similar regenerative natural resources; ii- wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources; iii- expenditure on research and development; iv- goodwill; v- Live Stock. 4.3.2.1 Disclosure of historical cost or revalued cost The historical cost or other amount substituted for historical cost of each class of depreciable assets should be disclosed. 49
4.3.2.2 Disclosure in respect of the amount of depreciation Total depreciation for the period for each class of assets; and the related accumulated depreciation should be disclosed. 4.3.2.3 Disclose the depreciation accounting policies The following information should also be disclosed in the financial statements along with the disclosure of other accounting policies: i- depreciation methods used; and ii- depreciation rates or the useful lives of the assets, if they are different from the principal rates specified in the statute governing the enterprise. 4.3.2.4 Disclosure where the depreciable assets are revalued In case the revaluation has a material effect on the amount of depreciation, the same should be disclosed separately in the year in which revaluation is carried out. 4.3.3 Observation In respect of this standard IAS has been withdrawn since the matter is now covered by IAS 16 and IAS 38 and even this standard withdrawn but the disclosure requirement of IAS and India AS mostly the same. 4.4 IAS 7 Cash Flow Statements & AS 3 Cash Flow Statements 4.4.1 IAS 7 Cash Flow Statements (Revised 1992) This revised International Accounting Standard supersedes IAS 7, Statement of Changes in Financial Position, approved by the Board in October 1977. The revised Standard became effective for financial statements covering periods beginning on or after 1 January 1994. The objective of IAS 7 is to require the presentation of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period according to operating, investing and financing activities. All enterprises that prepare financial statements in conformity with IAS are required to present a cash flow statement. The cash flow statement analyses changes in cash and cash equivalents during a period. Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of 50
cash and that are subject to an insignificant risk of changes in value. Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date). Bank overdrafts which are repayable on demand and which form an integral part of an enterprise's cash management are also included as a component of cash and cash equivalents. Cash flows must be analyzed between operating, investing and financing activities. operating activities are the main revenue-producing activities of the enterprise that are not investing or financing activities, so operating cash flows include cash received from customers and cash paid to suppliers and employees. Investing activities are the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents. Financing activities are activities that alter the equity capital and borrowing structure of the enterprise. Interest and dividends received and paid may be classified as operating, investing, or financing cash flows, provided that they are classified consistently from period to period. Cash flows arising from taxes on income are normally classified as operating, unless they can be specifically identified with financing or investing activities. For operating cash flows, the direct method of presentation is encouraged, but the indirect method is acceptable. 4.4.1.1 Present Cash Flow Statements An enterprise should prepare a cash flow statement in accordance with the requirements of this Standard and should present it as an integral part of its financial statements for each period for which financial statements are presented. 4.4.1.2 Present cash flow arising from each operating, investing and financing activities separately The cash flow statement should report cash flows during the period classified by operating, investing and financing activities. 51
4.4.1.3 Cash flows arising from activities of a financial institution reported on a net basis Cash flows arising from the following operating, investing or financing activities may be reported on a net basis: a- cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and b- cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. 4.4.1.4 Disclose the method used to report cash flows from operating activities An enterprise should report cash flows from operating activities using either: a- the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or b- the indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. 4.4.1.5 Other disclosure requirements Cash flows from following transactions should also be disclosed separately either paid or received: Foreign Currency Cash Flows, Extraordinary Items, Interest and Dividends, Taxes on Income, Investments in Subsidiaries, Associates and Joint Ventures, Components of Cash and Cash Equivalents, and the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it. 4.4.2 AS 3 Cash Flow Statements The Standard deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities. 4.4.2.1 Present Cash Flow Statements An enterprise should prepare a cash flow statement in accordance with the requirements of this Standard and should present it as an integral part of its financial statements for each period for which financial statements are presented. 52
4.4.2.2 Present cash flow arising from each operating, investing and financing activities separately The cash flow statement should report cash flows during the period classified by operating, investing and financing activities. 4.4.2.3 Cash flows arising from activities of a financial institution reported on a net basis Cash flows arising from the following operating, investing or financing activities may be reported on a net basis: a- cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and b- cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. 4.4.2.4 Disclose the method used to report cash flows from operating activities An enterprise should report cash flows from operating activities using either: a- the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or b- the indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. 4.4.2.5 Other disclosure requirements Cash flows from following transactions should also be disclosed separately either paid or received: Foreign Currency Cash Flows, Extraordinary Items, Interest and Dividends, Taxes on Income, Investments in Subsidiaries, Associates and Joint Ventures, Components of Cash and Cash Equivalents, and the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it. 4.4.3 Observation I have observed the same disclosure requirements by both IAS & India AS. 4.5 IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies & AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies 53
4.5.1 IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies (Revised 1993) The objective of this Standard is to prescribe the classification, disclosure and accounting treatment of certain items in the income statement so that all enterprises prepare and present an income statement on a consistent basis. This enhances comparability both with the enterprise's financial statements of previous periods and with the financial statements of other enterprises. Accordingly, this Standard requires the classification and disclosure of extraordinary items and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accounting treatment for changes in accounting estimates, changes in accounting policies and the correction of fundamental errors. This Standard should be applied in presenting profit or loss from ordinary activities and extraordinary items in the income statement and in accounting for changes in accounting estimates, fundamental errors and changes in accounting policies. Extraordinary items are income 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. Ordinary activities are any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of, incidental to, or arising from these activities. Fundamental errors are errors discovered in the current period that are of such significance that the financial statements of one or more prior periods can no longer be considered to have been reliable at the date of their issue. Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements. 4.5.1.1 Disclosure related to: Net Profit or Loss for the Period The net profit or loss for the period comprises the following components, each of which should be disclosed on the face of the income statement: (a) profit or loss from ordinary activities; and (b) extraordinary items. 54
When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. 4.5.1.2 Disclosure of Extraordinary Items The nature and the amount of each extraordinary item should be separately disclosed. 4.5.1.3 Disclosure related to: Changes in Accounting Estimates The effect of a change in an accounting estimate should be included in the determination of net profit or loss in: (a) the period of the change, if the change affects the period only; or (b) the period of the change and future periods, if the change affects both. The nature and amount of a change in an accounting estimate that has a material effect in the current period or which is expected to have a material effect in subsequent periods should be disclosed. If it is impracticable to quantify the amount, this fact should be disclosed. 4.5.1.4 Disclosure related to: Fundamental Errors An enterprise should disclose the following: (a) The nature of the fundamental error; (b) The amount of the correction for the current period and for each prior period presented; (c) The amount of the correction relating to periods prior to those included in the comparative information; and (d) The fact that comparative information has been restated or that it is impracticable to do so. 4.5.1.5 Disclosure related to: Changes in Accounting Policies When a change in accounting policy has a material effect on the current period or any prior period presented, or may have a material effect in subsequent periods, an enterprise should disclose the following: (a) The reasons for the change; (b) The amount of the adjustment for the current period and for each period presented; 55
(c) The amount of the adjustment relating to periods prior to those included in the comparative information; and (d) The fact that comparative information has been restated or that it is impracticable to do so. 4.5.2 AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies This Standard should be applied by an enterprise in presenting profit or loss from ordinary activities, extraordinary items and prior period items in the statement of profit and loss, in accounting for changes in accounting estimates, and in disclosure of changes in accounting policies. 4.5.2.1 Disclosure of net profit or loss for the period All items of income and expense which are recognized in a period should be included in the determination of net profit or loss for the period unless an Accounting Standard requires or permits otherwise. 4.5.2.2 Disclosure of extraordinary Items Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived. 4.5.2.3 Disclosure of Prior Period Items The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived. 3.5.2.4 Disclosure of Changes in Accounting Estimates The effect of a change in an accounting estimate should be included in the determination of net profit or loss in: the period of the change, if the change affects the period only; or the period of the change and future periods, if the change affects both. 4.5.2.5 Disclosure of Changes in Accounting Policies Any change in an accounting policy which has a material effect should be disclosed. The impact of, and the adjustments resulting from, such change, if material, should be shown in the financial statements of the period in which such change is made, to reflect the 56
effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact should be indicated. 4.5.3 Observation In this accounting standard also I noted the same treatments and disclosure requirements of IAS & India AS. 4.6 IAS 10 Events After the Balance Sheet Date & Contingencies and Events Occurring After the Balance Sheet Date 4.6.1 IAS 10 Events After the Balance Sheet Date (revised 1999) The objective of this Standard is to prescribe: (a) When an enterprise should adjust its financial statements for events after the balance sheet date; and (b) The disclosures that an enterprise should give about the date when the financial statements were authorized for issue and about events after the balance sheet date. This Standard also requires that an enterprise should not prepare its financial statements on a going concern basis if events after the balance sheet date indicate that the going concern assumption is not appropriate. Events after the balance sheet date are those events, both favorable and unfavorable, that occur between the balance sheet date and the date when the financial statements are authorized for issue. Two types of events can be identified: (a) Those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); (b) Those that is indicative of conditions that arose after the balance sheet date (nonadjusting events after the balance sheet date). An enterprise should adjust the amounts recognized in its financial statements to reflect adjusting events after the balance sheet date. An enterprise should not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the balance sheet date. If dividends to holders of equity instruments (as defined in IAS 32, Financial Instruments: Disclosure and Presentation) are proposed or declared after the balance sheet date, an enterprise should not recognize those dividends as a liability at the balance sheet date. 57
An enterprise should not prepare its financial statements on a going concern basis if management determines after the balance sheet date either that it intends to liquidate the enterprise or to cease trading, or that it has no realistic alternative but to do so. 4.6.1.1 Disclosure of the Date of Authorization for issue Financial Statements An enterprise should disclose the date when the financial statements were authorized for issue and who gave that authorization. If the enterprise s owners or others have the power to amend the financial statements after issuance, the enterprise should disclose that fact. 4.6.1.2 Disclosure of Adjusting Events after the Balance Sheet Date If an enterprise receives information after the balance sheet date about conditions that existed at the balance sheet date, the enterprise should update disclosures that relate to these conditions, in the light of the new information. 4.6.1.3 Disclosure of the Nature of Non-Adjusting Events After the Balance Sheet Date Where non-adjusting events after the balance sheet date are of such importance that nondisclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions, an enterprise should disclose the following information for each significant category of non-adjusting event after the balance sheet date: (a) The nature of the event; and (b) An estimate of its financial effect or a statement that such an estimate cannot be made. 4.6.1.4 Disclosure of Dividend IAS 1, Presentation of Financial Statements, requires an enterprise to disclose the amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorized for issue. IAS 1 permits an enterprise to make this disclosure either: (a) on the face of the balance sheet as a separate component of equity; or (b) in the notes to the financial statements. 4.6.2 AS 4 Contingencies and Events Occurring After the Balance Sheet Date This Standard deals with the treatment in financial statements of a- contingencies, and b- events occurring after the balance sheet date. 58
The following subjects, which may result in contingencies, are excluded from the scope of this Statement in view of special considerations applicable to them: a- liabilities of life assurance and general insurance enterprises arising from policies issued; b- obligations under retirement benefit plans; and c- commitments arising from long-term lease contracts. 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 nonoccurrence, of one or more uncertain future events. Events occurring after the balance sheet date are those significant events, both favorable and unfavorable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity. Two types of events can be identified: a- those which provide further evidence of conditions that existed at the balance sheet date; and b- those which are indicative of conditions that arose subsequent to the balance sheet date. 4.6.2.1 Disclosure of contingent loss in the profit or loss statement The amount of a contingent loss should be provided for by a charge in the statement of profit and loss if: a- it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and b- a reasonable estimate of the amount of the resulting loss can be made. 4.6.2.2 Disclosure of contingent loss in the note of financial statements If a contingent loss is not provided for, its nature and an estimate of its financial effect are generally disclosed by way of note unless the possibility of a loss is remote (other than the circumstances mentioned in first requirement). If a reliable estimate of the financial effect cannot be made, this fact is disclosed. 59
4.6.2.3 Disclosure of events occurring after the balance sheet date 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 financial effects or a statement that such an estimate cannot be made. 4.6.3 Observation Here I have realized that in respect of contingencies which covered by India AS the IAS have covered it in IAS 37 Provision, Contingent Liabilities and Contingent Assets. But for the events after the balance sheet both IAS & India AS have same disclosure requirements except the Date of Authorization for issue Financial Statements & dividend disclosure requirements which India AS did not required which will make miss information needed by the users. 4.7 IAS 11 Construction Contracts & AS 7 Construction Contracts 4.7.1 IAS 11 Construction Contracts (Revised 1993) This Standard prescribes the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the income statement. It also provides practical guidance on the application of these criteria. This Standard should be applied in accounting for construction contracts in the financial statements of contractors. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. A fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses. 60
A cost plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee. 4.7.1.1 Disclosure of contract revenue An enterprise should disclose: a- the amount of contract revenue recognized as revenue in the period; b- the methods used to determine the contract revenue recognized in the period; c- the methods used to determine the stage of completion of contracts in progress. 4.7.1.2 Disclosure for contracts in progress An enterprise should disclose the following for contracts in progress at the reporting date: a- the aggregate amount of costs incurred and recognized profits (less recognized losses) up to the reporting date; b- the amount of advances received; and c- the amount of retentions 4.7.1.3 Disclosure of contract assets and liability An enterprise should present: a- the gross amount due from customers for contract work as an asset; b- the gross amount due to customers for contract work as a liability. 4.7.2 AS 7 Construction Contracts The primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. The objective of this Statement is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. 4.7.2.1 Disclosure of contract revenue An enterprise should disclose: a- the amount of contract revenue recognized as revenue in the period; b- the methods used to determine the contract revenue recognized in the period; c- the methods used to determine the stage of completion of contracts in progress. 61