REPORT ON THE PRESENTATION OF

CORPORATE ACCOUNTING

TOPIC – ACCOUNTING STANDARDS 1 AND 29

Submitted by –

Bhargav Saikia

Sanchita Chakraborty
 Acknowledgment

I would like to thank my professor-in-charge, Mr. Dhritabrata jyoti Bhaeadwaz

for guiding me throughout the course of this assignment. he was there to help
me every step of the way, and her motivation is what helped me complete this
assignment successfully
I would also like to express my sincere gratitude to my friends, who stood by me
and encouraged me to work on this assignment.
ACCOUNTING STANDARDS (AS – 1 & AS – 29)

Accounting Standards are the written statements consisting of rules

and guidelines, issued by the accounting institutions, for the
preparation of uniform and consistent and also for other disclosures
affecting the different users of accounting information. Accounting
standards lay down the terms and conditions of accounting policies
and practices by way of codes, guidelines and adjustments for
making the interpretation of the items appearing in the financial
statements easy and even their treatment in the books of account.
Accounting Standards(ASs) are basically the written policy
documents issued by the Government with the support of other
regulatory bodies e.g., Ministry of Corporate Affairs (MCA)
issuing Accounting Standards for corporate in consultation with
National Financial Reporting Authority (NFRA) covering the
following aspects of accounting transaction in financial
statements :

 Recognition
 Measurement
 Presentation
 Disclosure

The ostensible purpose of the standard setting bodies is to promote

the dissemination of timely and useful financial information to
investors and certain other stakeholders, having an interest in the
company’s economic performance. Accounting Standards reduce
the accounting alternatives in the preparation of financial
statements within the bounds of rationality, thereby, ensuring
comparability of financial statements of different enterprises.

Accounting Standards deal with the following :

(1) Recognition of events and transactions in the financial

statements,
(2) Measurement of these transactions and events,
(3) Presentation of these transactions and events in the
financial statements in a manner that is meaningful and
understandable to the reader, and
(4) The disclosure relating to these transactions and events to
enable the public at large and the stakeholders and the
potential investors in particular, to get an insight into
what these financial statements are trying to reflect and
thereby facilitating them to take prudent and informed
business decisions.

Objectives of Accounting Standards:

In earlier days, accounting was just used for recording business transactions of
financial nature. Its main emphasis now lies on providing accounting information
in the process of decision making.
For the following purposes, accounting standards are needed:

(i) For bringing uniformity in accounting methods:

Accounting standards are required to bring uniformity in accounting methods by
proposing standard treatments to the accounting issue. For example, AS-6(Revised)
states the methods for depreciation accounting.

(ii) For improving the reliability of the financial statements:

Accounting is a language of business. There are many users of the information
provided by accountants who take various decisions relating to their field just on
the basis of information contained in financial statements. In this connection, it is
necessary that the financial statements should show true and fair view of the
business concern. Accounting standards when used give a sense of faith and
reliability to various users.

They also help the potential users of the information contained in the financial
statements by disclosure norms which make it easy even for a layman to interpret
the data. Accounting standards provide a concrete theory base to the process of
accounting. They provide uniformity in accounting which makes the financial
statements of different business units, for different years comparable and again
facilitate decision making.

(iii) Simplify the accounting information:

Accounting standards prevent the users from reaching any misleading conclusions
and make the financial data simpler for everyone. For example, AS-3 (Revised)
clearly classifies the flows of cash in terms of ‘operating activities’, ‘investing
activities’ and ‘financing activities’.

(iv) Prevents frauds and manipulations:

Accounting standards prevent manipulation of data by the management and others.
By codifying the accounting methods, frauds and manipulations can be minimized.

(v) Helps auditors:

Accounting standards lay down the terms and conditions for accounting policies
and practices by way of codes, guidelines and adjustments for making and
interpreting the items appearing in the financial statements. Thus, these terms,
policies and guidelines etc. become the basis for auditing the books of accounts.

Accounting Standard (AS) – 1: Disclosure of Accounting

Policies.
AS 1 refers to the disclosure of accounting policies. It states that an enterprise needs to
disclose significant accounting policies followed by it to prepare and present
its financial statements. This is because a business entity’s state of affairs gets
significantly impacted by the accounting policies used in preparing its financial
statements. Typically, every enterprise follows accounting policies appropriate to its
own business as well as industry. Thus, an enterprise mandatorily needs to disclose its
significant accounting policies in order to present a true and fair view of its state of
affairs.

Current Practices Followed in Disclosing the Accounting Policies

 Disclosure Required by Law

Sometimes, law requires a business entity to disclose certain accounting policies

followed by it in order to prepare and present financial statements. In such cases, the
entity needs to necessarily disclose these accounting policies.

 Disclosure Required by ICAI

Institute of Chartered Accountants of India (ICAI)) has been issuing notifications over
a period of time recommending disclosure of certain accounting policies. Thus, an
enterprise following such accounting policies while preparing its financial statements
needs to disclose these policies necessary. For example, translation policies in respect
of foreign currency items.

 Disclosure in Annual Reports to Shareholders

Few enterprises in India include a separate statement showcasing their accounting

policies used to prepare their financial statements. Thus, an enterprise can even include
a separate statement reflecting its accounting policies. However, such a statement
must be included in the annual reports to the shareholders of the enterprise.

 Disclosure of Accounting Policies not Fully Disclosed

It has been witnessed that the accounting policies at present are not disclosed in the
financial statements regularly and fully. Many enterprises prefer inserting descriptions
pertaining to the important accounting policies in the notes to their financial statements.

The enterprises can follow such a practice. However, the nature and degree of such a
disclosure varies immensely. It varies between corporate and non – corporate sectors as
well as the units in the same sector.

 Disclosure in case of Enterprises including a Separate Statement of Accounts

A wide variation pertaining to the nature and degree of disclosure also exists. The
variation exists especially among those enterprises that include a separate statement of
accounting policies in their annual reports presently.

In such cases, there are few firms that include such a separate statement of accounting
policies in their books of accounts. While others give such details in the form of
supplementary information.

 Purpose of Disclosure of Accounting Policies

The very purpose behind giving a statement of accounting policies is to encourage

better understanding of the financial statements. Further, it also helps in facilitating
more meaningful comparison between financial statements of various companies.

Thus, a separate accounting standard on Disclosure has been established to achieve

these objectives. This accounting standard promotes the disclosure of accounting
 policies. Further, it also describes the manner in which such accounting policies need to
be disclosed in the financial statements.

Is there a Need to Disclose Fundamental Accounting Assumptions?

Usually, an enterprise need not specifically state or disclose the fundamental

accounting assumptions followed in preparing its financial statements. However, it
needs to disclose such assumptions only if it fails to follow them while preparing its
financial statements.

Following are the generally accepted fundamental accounting assumptions followed

while preparing financial statements:

1. Going Concern
Generally, an enterprise is assumed to be a going concern. This means the enterprise
continues to operate for the foreseeable future. In other words, it is assumed that an
enterprise neither intends nor is necessarily required to liquidate or cut down its scale of
operations significantly.

2. Consistency
According to this assumption, the accounting policies followed by an enterprise to
prepare its financial statements are consistent across different periods.

3. Accrual
As per this assumption, the revenues and costs are recognized as they are earned or
incurred rather than when money is received or paid. Such accrued revenues or costs
recorded in the financial statements concern to the periods to which they relate.

Meaning of Accounting Policies

The term ‘accounting policies’ in AS 1 refer to the following while preparing financial
statements an enterprise:

 specific accounting principles

 methods to apply those accounting principles

There is no standardized list of accounting principles applicable to varied circumstances

experienced by different enterprises. Thus, varied accounting principles and methods to
apply to those principles are followed by different enterprises. These enterprises
operate in a diverse and complex environment of economic activity. So, the
management of each enterprise has to make considerable amount of judgement at its
own level. This is done in order to choose an appropriate set of accounting principles
and methods to apply those principles in specific circumstances faced by each of them.

Areas in which Different Accounting Policies are Encountered

Following are the areas where different accounting policies may be adopted by
different enterprises:

 Methods of depreciation, depletion and amortization

 Treatment of expenditure during construction

 Conversion or translation of foreign currency items

 Valuation of inventories

 Treatment of goodwill

 Valuation of investment

 Treatment of retirement benefits

 Recognition of profit on long-term contracts

 Valuation of fixed assets

 Treatment of contingent liabilities

However, the above list is not an exhaustive list.

What are the Considerations to Keep in mind While Selecting

Accounting Policies?
The basic consideration while selecting accounting policies to prepare financial
statements is that such policies should represent a true and fair view the company’s
affairs. This also includes presenting true and fair view of the profit or loss earned by
a business enterprise at the closing date.

Besides this primary consideration, there are a few major considerations to be kept in
mind while selecting accounting policies. These include:

1. Prudence
An enterprise cannot forecast its profits keeping in mind the uncertainty related to the
future events. Instead, it can only recognize the profits when they are realized. Further,
such recognized profits are not necessarily realized in cash. In addition to this, an
enterprise also creates a provision for all known liabilities and losses. This is despite the
fact that the amount of such liabilities and losses cannot be determined with certainty.
Thus, it means that such a provision represents only a best estimate of such liabilities
and losses according to the information available.

2. Substance over Form

As per this consideration, the accounting treatment and presentation of transactions and
events in the financial statements must be governed by their substance. This means
merely the legal form of accounting treatment and presentation of such events in the
financial statements should not be considered.

3. Materiality
The financial statements should disclose all the material items. The material items are
the ones that influence the decisions of the financial statement users once they become
aware of such items.
 Disclosure of Accounting Policies
 It is necessary to disclose all the significant accounting policies adopted while presenting &
preparing financial statements. This is done to ensure proper understanding of financial
statements.
 The disclosure of significant accounting policies should form part of the financial statements.

 Disclosure of accounting policies must be made in one place as it helps the financial
statement users in reading such statements. Such a disclosure should not be made in a way
that it is scattered over several statements, schedules and notes.

 An enterprise should disclose any change in an accounting policy that has a material effect.
Further, the enterprise should also disclose the amount by which any item in the financial
statements is affected by such a material change. Such an amount needs to be disclosed to the
extent ascertainable. However, only the fact of such a material change needs to be indicated
where such amount is not ascertainable wholly or partly. On the other hand, there might be
cases where a change in the accounting policies does not have a material impact on the
current period’s financial statements. But are reasonably expected to have a material impact in
later periods. In such cases, an enterprise needs to disclose the fact of such a change in the
period in which the change is adopted.

 A business entity needs to keep in mind that a disclosure of accounting policies or of changes
therein cannot remedy a wrong or inappropriate treatment of the item in the accounts.

Accounting Standard(AS) – 29: Provisions, Contingent Liabilities

and Contingent Assets.
PROVISION:
A provision is a liability which can be measured only by using a substantial
degree of estimation.
Treatment : A provision should be recognized when:
(a) An enterprise has a present obligation as a result of past event
(b) It is probable that an outflow of resources embodying economic benefits will be
required
to settle the obligation; and
(c) A reliable estimate can be made of the amount of the obligation.

Present Obligation: An obligation is a present obligation if, based on the evidence

available, its existence at the balance sheet date is considered Probable, i.e. more likely
than not.

Past Event: A Past event that leads to a present obligation is called an obligating event.

CONTINGENT LIABILITY:
1) A contingent liability is
• A possible obligation that arises from past events
• And; existence of which will be confirmed by the occurrence or non occurrence of
future events not wholly within the control of the enterprise
Treatment: An enterprise should not recognize a contingent liability. It should be
disclosed in financial statements unless the possibility of outflow is remote.
 CONTINGENT ASSETS:
A contingent assets is a possible asset that arises from past events of the existence of
which will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the enterprise.
Treatment: An enterprise should not recognize a contingent asset.

An enterprise should not be disclosed in financial statements. It may be disclosed in the

report of approving authority, where an inflow is probable.

RESTRUCTURING:
A restructuring is a program that is planned and controlled by management and materially
changes either:
(a) the scope of a business undertaken by an enterprise; or
(b) the manner in which the business is expected.

Restructuring may include the following:

(a) sale or termination of a line of business;
(b) the closure of business location in a region
(c) eliminating a layer of management;

Treatment: A provision for recognition criteria is recognized only when the recognition
criteria for provision is met.
A restructuring provision should include only the direct expenditures arising from the
restructuring, which are those that are both;
(a) necessarily entailed by the restructuring; and
(b) not associated with the ongoing activities of the enterprise.

Restructuring provision does not include costs like

(a) retraining or relocating continuing staff
(b) marketing expenses
(c) investments in new systems and distribution networks.

Identifiable future operating losses up to the date of a restructuring and gains on disposal of
assets (even if it is included as part of restructuring) are not included in provisions.

DISCLOSURES:
The enterprise should disclose for each class of provision:
(a) the carrying amount at the beginning & end of the period
(b) additional provision made during the period
(c) amount used during the period
(d) amount reversed during the period
(e) nature of obligation & and expected time of incurrence
(f) indication about the uncertainties attached to the provisions

The enterprise should disclose for each class of contingent liabilities:

(a) an estimate of its financial effects
(b) an indication of the uncertainties relating to any outflow
(c) the possibility of any reimbursement

Where any of the information required is not disclosed because it is not practicable to do so,
that fact should be stated.