• India is included in the IFAD GAAP Convergence Studies
• National Professional Organisation Website: Institute of Chartered Accountants of India
• Response to IFAC Member Body Survey on Standard Setting and Regulation
• World Bank ROSC Accounting and Auditing Report
• Participant in the Asian-Oceanian Standard-Setters Group (AOSSG)

Updates

New Delhi:

Mumbai:

Deloitte India publishes its 'Tracking IFRS' newsletters on a regular basis, providing insights into global acccounting developments and their impacts on Indian companies. We post on IAS Plus the externally available isues of this newsletter.

India exposes consolidation, joint arrangement and disclosure standards for comment

The Institutue of Chartered Accountants in India (ICAI) has published the following exposure drafts which propose to adopt Indian Accounting Standard (Ind-AS) equivalents to the package of five standards on consolidation, joint arrangements and disclosures issued by the IASB in May 2011.

• Exposure Draft of Indian Accounting Standard (Ind AS) 27 (as amended) Separate Financial Statements
• Exposure Draft of Indian Accounting Standard (Ind AS) 28 (as amended) Investments in Associates and Joint Ventures
• Exposure Draft of Indian Accounting Standard (Ind AS) 110 Consolidated Financial Statements
• Exposure Draft of Indian Accounting Standard (Ind AS) 111 Joint Arrangements
• Exposure Draft of Indian Accounting Standard (Ind AS) 112 Disclosure of Interests in Other Entities.

The start date for Ind-AS have not yet been proclaimed by the Indian Government, and there are a number of differences between existing Ind-AS and IFRSs (see our earlier story). The exposure drafts propose certain amendments to the requirements of IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011). Many of these amendments relate to application dates, differences in terminology, amendments or references to other standards not yet adopted as Ind-AS (such as IFRS 9), Indian legal requirements for implementation, or to delete requirements which are not considered relevant in the Indian context. However, a number of the amendments alter the requirements of the equivalent IFRSs, e.g. the deletion of the exemption from consolidation for wholly-owned and partially owned subsidiaries in certain circumstances.

Comments on the exposure drafts close on 15 October 2011. Click for access to the exposure drafts (link to ICAI website).
 

Call for unmodified IFRS option in India

IASB Board Member, Mr. Prabhakar Kalavacherla (PK), has called for India to consider allowing Indian companies the option of using full IFRS in financial statements.

In a speech given in his personal capacity at an 'IFRS Summit 2011' conference organised by Confederation of Indian Industry (CII), Mr. Kalavacherla noted the IASB strongly encourages outright adoption of IFRSs, as against convergence. He stated "there is quite a degree of surprise in many international settings, including at the IASB, about India's approach to convergence with IFRS".

As noted in our earlier story, the Indian Ministry of Corporate Affairs (MCA) has issued 35 Indian Accounting Standards (Ind AS), which are based on IFRSs, but include some changes ('carve-outs') which are noted in the appendix to each standard. Some of the carve-outs may prevent an entity following Ind AS from making an explicit and unreserved statement of compliance with IFRSs. The MCA has not yet notified the start date for the application of Ind-AS.

An extract from the speech follows:

Click for:

• The full text of Mr. Kalavacherla's speech (PDF 35k), which is posted with his kind permission
• Ind AS vs. IFRS: Overview of key differences (PDF 286k) – published by Deloitte (India).
• CII press release about the conference (link to CII website)

India finalises IFRS-converged standards, implementation date yet to be announced

The Indian Ministry of Corporate Affairs (MCA) has issued 35 Indian Accounting Standards (Ind AS) that are converged with International Financial Reporting Standards and announced their 'phased implementation' once certain Indian tax and other issues have been resolved.

Consistent with our earlier story, the Ind AS are based on IFRSs, but include some changes which are noted in the appendix to each standard. Some of the modifications may prevent an entity following Ind AS from making an explicit and unreserved statement of compliance with IFRSs (Ind AS 1 Presentation of Financial Statements requires a statement of compliance with Ind AS, not IFRSs).

The MCA press release accompanying the release of the standards notes the following in relation to application of the Ind AS:

India had previously announced a plan to begin a phased implementation of the new standards beginning from 1 April 2011. It is possible the revised effective date(s) for implementation may be announced soon after the Indian Government presents its budget. Click for:

• MCA press release (PDF 56k)
• Access to the notified Indian Accounting Standards (link to the MCA website)
• Tracking IFRS - Issue 9 (PDF 286k) – highlights the amendments made by the MCA to the near-final exposure drafts of Ind AS, and the significant differences between Ind AS and IFRSs

ICAI publishes near final drafts of Indian Accounting Standards

The Institute of Chartered Accountants of India (ICAI) has published near final Indian Accounting Standards (Ind ASs) finalised by the Council of the ICAI and sent to the Indian National Advisory Committee on Accounting Standards (NACAS).

The near final Ind ASs are based on IFRSs, but have some changes which are noted in the appendix to each standard, e.g. investment property must be measured on the cost basis, bargain purchases arising in business combinations are generally recognised in other comprehensive income rather than profit or loss, and the 'date of transition' is the beginning of the current period rather than the comparative period (an option to present comparative financial statements in accordance with Ind-ASs on a memorandum basis is included).

The Ind ASs are subject to any changes which may be made by the Government before their notification. There is currently a lot of debate in India whether the 'modified' IFRS approach is the best way to implement IFRSs in India. The changes made in the final drafts may mean entities complying with Ind ASs will not be able to make an explicit and unreserved statement of compliance with IFRSs. There is also some conjecture as to whether the implementation of the new Ind ASs should be deferred from the original date of April 2011 (for certain entities).

Click for access to the final drafts (link to the ICAI website).

New edition of 'Tracking IFRS', discussing leases

Deloitte (India) has published Tracking IFRS - Issue 3 (PDF 1,384k). This edition discusses the joint IASB-FASB exposure draft Leases, including the key proposals and how they differ from existing Indian GAAP.

New IFRS publication from Deloitte India

Deloitte (India) has published Tracking IFRS (PDF 485k). This publication provides a summary of the IASB exposure draft ED/2010/6 Revenue from Contracts with Customers and includes preliminary observations with respect to the possible impacts of the exposure draft on current practice in India.

Edition 2 of 'Tracking IFRS', discussing first-time adoption

Publication First-time adoption: IFRS 1 vs. Indian IFRS 1 - Convergence made easy ('Tracking IFRS' Issue 2) withdrawn as of February 2011 as the relevant previous Ind AS exposure draft has been revised significantly; an up-to-date comparison is included in Issue 8 (please refer to our list of 'Tracking IFRS' issues).

India-Japan Joint Working Group on IFRS

Various government and accounting organisations from India and Japan have formed the India-Japan Joint Working Group as a common platform between the two countries to discuss IFRS-related matters. The first meeting of the Joint Working Group was held in Tokyo, Japan from 26-28 July 2010.

At the meeting, a Memorandum of Understanding was signed which primarily focuses on:

• An exchange of views on legal and regulatory and other issues arising out of application of or convergence with IFRSs and exploring the possibilities of mutual cooperation
• Addressing critical issues relating to application of, or convergence with, IFRSs and reaching consensus through a process of consultation mutually agreed to
• Fostering a strong and cohesive profession by providing leadership on emerging issues, coordinating with global, other regional, intra-regional organisations, member bodies and associates to achieve appropriate strategic objectives.

The next meeting of the group will be held in India in 2011. Click for Accounting Standards Board of Japan (ASBJ) press release Inauguration of India-Japan Dialogue (PDF 41k).

Reserve Bank of India to address IFRS implementation issues in banking sector

The Reserve Bank of India has set up a working group to address "...implementation issues and facilitate formulation of operational guidelines in the context of International Financial Reporting Standards (IFRSs) convergence for the Indian banking system." The group will address the following issues:

• Classification and measurement of financial assets
• Classification and measurement of financial liabilities and hedge accounting, including balance sheet issues of corporates and their implications.
• Amortised cost and impairment
• Fair value measurement
• Presentation, disclosures and balance sheet formats
• Derecognition, consolidation and residuary issues

Updated roadmap for transition to IFRS-converged Indian standards

As noted in our February 2010 update below, the Ministry of Corporate Affairs of India (MCA) is in the process of adopting a plan for phased transition to 'notified Indian standards that have been converged with IFRS' (notified standards). The MCA has issued updates on adopted convergence plans by banks, insurance companies and non-banking financial companies and has also clarified a number matters related to convergence. Here is an overview:

Insurance companies

Banking companies

Non-banking financial companies (NBFCs)

Other companies

IFRS 1 requires at least one year of comparative IFRS financial statements when IFRSs are first adopted. The MCA has clarified that Indian companies applying the Indian Accounting Standards converged with IFRS will not be required to restate comparatives and will present comparatives as per Indian non-converged accounting standards. However, such entities have the option to add an additional column to indicate what these figures could have been if Indian Accounting Standards converged with IFRS had been applied in the previous year.

Click for Ministry of Corporate Affairs press releases:

• Dated 22 January 2010 (PDF 61kb) - deals with entities other than banks, insurance companies and non-banking finance companies
• Dated 21 March 2010 (PDF 19kb) - deals with banks, insurance companies and non-banking finance companies
• Dated 4 May 2010 (PDF 47kb) - clarification on earlier press releases.

Consolidated financial results may be submitted to the SEBI using IFRSs

The Securities Exchange Board of India (SEBI) has provided an option to listed entities having subsidiaries to submit their consolidated financial results either in accordance with the accounting standards specified in section 211(3C) of the Companies Act, 1956, or in accordance with IFRS (with required reconciliations). Submission of separate financial results to the stock exchanges will continue to be in accordance with Indian GAAP.

Roadmap for transition to IFRS-converged Indian standards

The Ministry of Corporate Affairs of India has adopted a plan for phased transition to 'notified Indian standards that have been converged with IFRS' (notified standards) by listed and large Indian companies, other than banks and insurance companies. Click for Ministry of Corporate Affairs Press Release (PDF 61k). Here is an overview:

IFRS 1 requires at least one year of comparative IFRS financial statements when IFRSs are first adopted. It is unclear from the reference to 'opening balance sheet' in the Ministry's release whether, for instance, Phase 1 companies will be exempted from preparing comparative financial statements for year ended 31 March 2011 using the notified standards. Companies in the following categories will not be required to follow the notified standards (though they may voluntarily opt to do so) but need to follow only the 'notified accounting standards that are not converged with the IFRS':

• Non-listed companies with a net worth** of Rs 500 crores or less and whose shares or other securities are not listed on Stock Exchanges outside India
• Small and Medium Companies ('SMCs').

October 2008: CESR consultation on equivalence of Indian GAAP and IFRSs

On 3 October 2008, the Committee of European Securities Regulators (CESR) issued a Consultation Paper (PDF 508k) on whether Indian GAAP should be deemed equivalent to IFRSs. CESR's tentative conclusion is that the current programme of the Institute of Chartered Accountants of India (ICAI) to converge Indian GAAP with IFRSs, if completed by 2011 as planned, will result in Indian GAAP that is equivalent to IFRSs. Therefore, CESR's proposed recommendation to the Commission is to allow companies currently using Indian GAAP for listing on a European securities market to continue to do so, without reconciliation through 2011 and, if India's convergence plan is achieved, to continue to do so after 2011. Following this consultation, CESR will report its final conclusion to the European Commission, which must make the final equivalence decision. Here is an excerpt from CESR's paper:

CESR's paper notes that the ICAI's timeline for converging Indian GAAP and IFRSs is as follows:

'The following table gives the key milestones that will need to be met for the Indian convergence program to be achieved, based on current assumptions in the concept paper and a changeover date of 1st April 2011 as announced in May 2008 by the Ministry of Corporate Affairs. The table also identifies the key decisions that both the ICAI and the Indian Government will need to make in order to implement the convergence program'.

New comparison of IFRSs and Indian GAAP

Deloitte Touche Tohmatsu India Private Limited has published IFRSs and Indian GAAP: A Comparison (PDF 288k, 48 pages). This booklet summarises the strategy of the Institute of Chartered Accountants of India (ICAI) for converging Indian Accounting Standards and IFRSs and presents a comparison of current Indian GAAP and IFRSs in issue at 31 March 2008.

Summary of IFRS Convergence Strategy of Indian Institute of Chartered Accountants

The above comparison of IFRSs and Indian GAAP includes a summary of the IFRS Convergence Strategy of Indian Institute of Chartered Accountants. Here are some excerpts:

• Will all entities be required to follow IFRS?
  Keeping in view the complex nature of IFRSs, the ICAI in its Concept Paper has expressed the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities, and large-sized entities from the accounting periods beginning on or after 1 April 2011.

• Accounting standards for small and medium-sized entities
  The ICAI has indicated that a separate standard may be formulated based on the IFRS for SMEs (an exposure draft of which has been issued recently) when finally issued by the IASB after making any modifications necessary. In order to be an IFRS-compliant country, it is not necessary to adopt the IFRS for SMEs to be issued by the IASB.

• Format of converged Accounting Standards (ASs)
  The ICAI, in its Concept Paper, has expressed the view that the format of standards to be adopted for public interest entities should be the same as IFRSs including their numbers. The numbers of existing ASs may be given in brackets for the purpose of easier identification. India-specific regulatory or legal aspects may be included in a separate section, where appropriate.

• Date of adoption of IFRSs for public interest entities: whether stage-wise or all at once from a specified future date?
  The ICAI, in its Concept Paper, has expressed the view that it would be more appropriate to adopt all IFRSs from a specified future date as has been done in many other countries rather than doing so stage-wise. After considering the current economic environment, expected time to reach the satisfactory level of technical preparedness and the expected time to resolve the conceptual differences with the IASB, the ICAI has decided that IFRSs should be adopted for public-interest entities for accounting periods commencing on or after 1 April 2011. This should give enough time for all the participants in the financial reporting process to help in building the environment supporting the adoption of IFRSs.

India plans to converge its GAAP with IFRSs

The Council of the Institute of Chartered Accountants of India has announced a plan to converge Indian Accounting Standards with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. However, the ICAI noted that it may make modifications to IFRSs to reflect "the Indian conditions". The new standards will be effective for accounting periods beginning on or after 1 April, 2011. They would be required for all listed companies as well as banks, insurance companies, and large-sized entities. Government approval of the plan is required. Click for IASB Press Release (PDF 268k).

India is studying full adoption of IFRSs

The Institute of Chartered Accountants of India (ICAI) has set up a task force to explore the possibility of adopting all International Financial Reporting Standards in full, without modification, as Indian standards. The 11-member task force is chaired by S C Vasudeva, chairman of ICAI's accounting standard board. It will develop a concept paper on adoption of IFRSs in India. Currently, many ICAI standards reflect modifications of IFRSs. The task force was announced in the October 2006 message to members from the President of the ICAI, T N Manoharan:

Revised Accounting Standard (AS) 15 on Employee Benefits

The Institute of Chartered Accountants of India (ICAI) has specified that the Revised AS 15 Employee Benefits will become mandatory for accounting periods commencing on or after 1 April, 2006. The Revised AS 15 reflects limited revisions to the existing standard, including the following:

Applicability

The revised AS 15 is applicable in its entirety to all Level I enterprises (see the January 2004 Update below for definition of Levels I, II, and III). For Levels II and III enterprises whose average number of persons employed is more than 50 during the year (referred as category B), AS 15 will apply in its entirety, except for the following:

• Recognition and measurement of short-term accumulating compensated absences which are non-vesting.
• Discounting of the amount of defined contribution and termination benefits which fall due for a period of more than 12 months after the balance sheet date.
• The elaborate recognition and measurement principles and disclosures relating to defined benefit plans and other long-term employee benefits. However, such enterprises should actuarially determine and provide for such liability based on the Projected Unit Credit Method for which the discount rate should be determined with reference to market yields at the balance sheet date on government bonds. Further, disclosure should be made in respect of the actuarial assumptions as provided in AS 15.

In respect of enterprises which employed less than 50 people during the year (referred as category C), they may calculate and account for the accrued liability under defined benefit plans and other long-term benefit plans by some other rational method on the assumption that such benefits are payable to all employees at the end of the year. Accordingly, it is not necessary to determine the liability based on the actuarial method.

In case of a change in the status of an enterprise from category A to B/C or from category B to C, the respective exemptions as specified above would not apply for a period of two consecutive years. Further, in the first year in respect of which the change becomes applicable, the corresponding previous year's figures need not be given for the disclosures.

Termination Benefits

Where an enterprise incurs expenditure in respect of termination benefits on or before 31 March, 2009, the enterprise may choose to follow the accounting policy of deferring such expenditure over its pay-back period. However, expenditure so deferred cannot be carried forward beyond accounting period commencing on or before 31 March, 2010.

Disclosures

AS 15 has a now mandated additional disclosure to enable users to evaluate the nature of defined benefit plans and the financial effects thereof during the period. Further, disclosure is also required of the reconciliation of the opening and closing balances of the present value of defined benefit obligations and the fair value of the plan assets. Finally, specific assertions are also required with regard to actuarial assumptions which are made and other related matters. An enterprise availing exemption as category B or C, as the case may be, should disclose the fact. An enterprise under category C should additionally disclose the method used to calculate and provide for the accrued liability.

India moving to align its GAAP with IFRSs

The Prime Minister of India Manmohan Singh has announced that his government will introduce comprehensive new company legislation that will include aligning Indian accounting standards with IFRSs. The new law the existing 50-year-old companies law with the objective of promoting greater transparency and efficient governance, the Prime Minister said.

Revised Accounting Standard 15 on Employee Benefits

The Institute of Chartered Accountants of India (ICAI) has issued Revised Accounting Standard (AS) 15 Employee Benefits. AS 15 prescribes accounting and disclosure for all employee benefits except employee share-based payments. The effective date has not yet been specified.

The Revised AS 15 identifies four categories of employee benefits and prescribes the accounting for each similarly to IAS 19:

• short-term employee benefits, including paid annual leave, profit sharing and bonuses payable within 12 months of the end of the period, and non-monetary benefits for current employees;
• post-employment benefits including gratuity, pension, other retirement benefits, life insurance, and medical care;
• other long-term employee benefits, including long-service leave or sabbatical leave, long-term disability benefits and compensation payable beyond 12 months after the end of the period; and
• termination benefits.

Treatment of inter-divisional transfers

The ICAI has issued an announcement that states that the recognition of inter-divisional transfers within an enterprise as sales is an inappropriate accounting treatment and is inconsistent with Accounting Standard (AS) 9, Revenue Recognition. In case of inter-divisional transfers, risks and rewards remain within the enterprise. Also there is no consideration from the point of view of the enterprise as a whole. Therefore, the criteria for revenue recognition are not fulfilled.

The limited revision was made because Indian Industries claimed to be in a disadvantageous position while passing through a restructuring phase because AS 26 had required that all such payments be charged off when incurred. The Indian Industries noted that termination benefits are excluded from the scope of IAS 38 Intangible Assets, which is the corresponding International Accounting Standard to AS 26, and instead are incorporated in IAS 19 Employee Benefits, which corresponds to AS 15 Accounting for Retirement Benefits in the Financial Statements of Employers.

Because AS 15 is currently under revision, the ICAI decided to amend the scope of AS 26. Accordingly, the treatment of terminal benefits will be dealt with by AS 15 when revised.

The limited revision to AS 26 is effective for accounting periods commencing on or after 1 April 2003, the date from which AS 26 had come into effect.

Accounting Standard 29 on Provisions, Contingent Liabilities and Contingent Assets

The objective of the Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financial statements to enable the users to understand their nature, timing and amount. Further, the Standard seeks to lay down appropriate accounting principles for contingent assets.

Under AS 29, a provision should be recognised when:

• an enterprise has a present obligation as a result of a past event;
• it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
• a reliable estimate can be made of the amount of the obligation.

If those conditions are not met, a provision should not be recognised. Further, an enterprise should not recognise a contingent liability or a contingent assets.

AS 29 is effective for accounting periods commencing on or after 1 April 2004 for specified categories of enterprises.

Applicability of Accounting Standards

The Council of the Institute of Chartered Accountants of India has decided the following scheme for applicability of Accounting Standards to Small and Medium Sized Enterprises (SMEs). This scheme comes into effect in respect of accounting periods commencing on or after 1 April 2004:

• For the purpose of applicability of Accounting Standards, enterprises are classified into three categories, viz., Level I, Level II and Level III. Level II and Level III enterprises are considered as SMEs.
• Level I enterprises are required to comply fully with all the accounting standards.
• Level II and Level III enterprises will have to follow the recognition and measurement principles stated in the individual Accounting Standards. Relaxations are provided only with regard to disclosure requirements to SMEs. Accordingly, Level II and Level III enterprises are fully exempted from certain accounting standards which are primarily disclosure Standards. The exemptions/relaxations are provided by modifying the applicability portion of the relevant existing Accounting Standards.
• Level I Enterprises are those which fall in any one or more of the following categories, at any time during the accounting period:
  • Enterprises whose equity or debt securities are listed whether in India or outside India.
  • Enterprises that are in the process of listing their equity or debt securities as evidenced by the board of directors' resolution.
  • Banks including c-operative banks.
  • Financial institutions.
  • Enterprises carrying on insurance business.
  • All commercial, industrial, and business reporting enterprises whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 500 million.
  • All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs. 100 million at any time during the accounting period.
  • Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
• Level II Enterprises are not Level I enterprises but those who fall in any one or more of the following categories:
  • All commercial, industrial, and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 4 million but does not exceed Rs. 500 million.
  • All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs. 10 million but not in excess of Rs. 100 million at any time during the accounting period.
  • Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
• Level III Enterprises are those that are neither Level I nor Level II.

The Effects of Changes in Foreign Exchange Rates (AS 11). The revised AS 11 is effective for accounting periods commencing on or after 1 April 2004. The following are the major differences between the old and the revised AS 11:

• The old AS 11 required exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which were carried in terms of historical cost to be adjusted in the carrying amount of the respective fixed assets. The revised Standard adopts the benchmark treatment in IAS 21 that requires all exchange differences to be recognised as expense/revenue in the current period.
• The revised Standard, in line with IAS 21, requires classification of foreign operations as those that are part of the enterprise (termed integral foreign operations) and those that are largely independent (termed non-integral foreign operations). The financial statements of the foreign operations, which are integral, should be translated by using the temporal method that involves application of a combination of historical and closing rates. In translating the financial statements of a non-integral foreign operation, the assets and liabilities, both monetary and non-monetary, should be translated at the closing rate, items of income and expenditure should be translated at the exchange rates at the dates of the transactions and all resulting exchange differences should be accumulated in a foreign currency translation reserve until the disposal of the net investment.
• The revised Standard specifically deals with foreign exchange contracts entered into for the purpose of trading or speculation, which were not specifically dealt with in the old AS 11.

Accounting for Investments (AS 13). The ICAI has revised AS 13 by extending its non-applicability to Venture Capital Funds. This is effective for accounting periods commencing on or after 1 April 2002.

Applicability of Accounting Standards to c-operative Societies. The ICAI has clarified that the Accounting Standards shall apply to financial statements of c-operative societies that (a) carry on commercial, industrial, or business activities and (b) are subject to the attest functions of the members of the ICAI.

Accounting Standard on Impairment of Assets (AS 28)

• The Standard is effective for accounting periods commencing on or after 1 April 2004 for listed companies and for unlisted companies whose turnover exceeds Rs. 500 million. It is effective one year later for other companies.
• The Standard prescribes the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount.
• The Standard does not apply to inventories, assets arising from construction contracts, financial assets including investments, and deferred tax assets; separate standards address impairment for those assets. The Standard applies to assets whether carried at cost or at revalued amounts.

Revised Accounting Standard on Construction Contracts (AS 7)

• The Standard prescribes the recognition criteria and practical guidance to determine when a contractor should recognise contract revenue and contract costs as revenue and expenses in the statement of profit and loss. When the outcome of a construction contract can be estimated reliably, the percentage-of-completion method should be used.
• The Standard will come into effect for accounting periods commencing on or after 1 April 2003.

Discontinuing Operations (AS 24)

• The ICAI has decided to make the Accounting Standard on Discontinuing Operations (AS 24) mandatory for accounting periods commencing on or after 1 April 2004 for listed companies and for unlisted companies whose turnover exceeds Rs. 500 million. It will take effect one year later for other companies.

AS 24, Accounting Standard on Discontinuing Operations

• AS 24 enhances the ability of the users of the financial statements to make projections of an enterprise's cash flows, earnings-generating capacity, and financial position by segregating information about discontinuing operations from information about continuing operations.
• AS 24 does not establish any recognition and measurement principles. Rather, it requires that an enterprise follow recognition and measurement principles established in other Accounting Standards.
• This Standard is recommendatory in nature at present.

AS 25, Accounting Standard on Interim Financial Reporting

• The objective of AS 25 is to prescribe the minimum contents of an interim financial report and to prescribe the principles for recognition and measurement in complete or condensed financial statements for an interim period.
• If an enterprise is required or elects to prepare and present an interim financial report, it should comply with this Standard.
• Effective for accounting periods commencing on or after 1 April 2002.

AS 26, Accounting Standard on Intangible Assets

• This Standard came into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1 April 2002 and is mandatory in nature from that date for the following:
  (i) Enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises which are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India.
  (ii) All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 500 million.

  In respect of all other enterprises, AS 26 takes effect in accounting periods commencing on or after 1 April 2004 and is mandatory in nature from that date.

  From the date that AS 26 becomes mandatory for the concerned enterprises, the following stand withdrawn:
  (i) Accounting Standard (AS) 8 on Accounting for Research and Development;
  (ii) Accounting Standard (AS) 9 on Depreciation Accounting with respect to the amortisation (depreciation) of intangible assets; and
  (iii) Accounting Standard (AS) 10 on Accounting for Fixed Assets - certain relevant portions.
  

• AS 26 addresses the accounting for intangible assets that are not dealt with specifically in other Accounting Standards. It requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met.
• AS 26 also specifies how to measure the carrying amount of intangible assets and requires disclosures about intangible assets.

AS 27, Accounting Standard on Financial Reporting of Interests in Joint Ventures

• AS 27 sets out principles and procedures for accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income, and expenses in the financial statements of the venturers and investors.
• AS 27 is mandatory for both the separate financial statements and the consolidated financial statements prepared by an enterprise.
• Effective for accounting periods commencing on or after 1 April 2002.

Exposure Draft on proposed Accounting Standard on Intangible Assets

• The objective of the Standard is to prescribe the accounting treatment for intangible assets. The Standard lays down the criteria for recognition of an intangible asset, specifies how to measure intangible assets, and prescribes certain disclosures. It lays down the rules for amortisation of intangible assets and application of an impairment test.
• On the introduction of this Standard, Accounting Standard on Research and Development (AS-8) would be withdrawn. Accounting treatment of expenditure on research and development and accounting for self-generated intangible assets are dealt with in the Standard.
• The effective date of the Standard is to be decided later.

Exposure Draft on proposed Accounting Standard on Financial Reporting of Interests in Joint Ventures

• The objective of the Standard is to set out principles and procedures for accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income, and expenses in the financial statements of venturers and investors.
• The Standard is to be applied regardless of the structures or forms under which the joint venture activities take place.
• The requirements relating to accounting for joint ventures in consolidated financial statements are to be applied only where consolidated financial statements are prepared and presented by the venturer.
• The effective date of the Standard is to be decided later.

Exposure Draft on proposed Accounting Standard on Interim Financial Reporting

• The objective of the Standard is to prescribe the minimum content of an interim financial report and to prescribe the principles for recognition and measurement in complete or condensed financial statements for an interim period.
• The Standard will come into effect in respect of accounting periods commencing on or after 1 April 2002. If an enterprise is required or elects to prepare and present an interim financial report (either a set of complete financial statements or a set of condensed financial statements), it should comply with this Standard.

Exposure Draft on proposed Accounting Standard on Impairment of Assets

• The objective of the proposed Standard is to prescribe the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount. The proposed Standard states that if the carrying amount of an asset exceeds the amount to be recovered through use or sale of the asset, then the asset is described as impaired, and the enterprise must recognise an impairment loss. The proposed Standard also specifies when an enterprise should reverse an impairment loss and prescribes certain disclosures for impaired assets.
• This proposed Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets, or investments because existing Accounting Standards already contain specific requirements for recognising and measuring impairment for those assets.
• The effective date of the Standard is to be decided later.

• Accounting Standard on Accounting for Investments in Associates in Consolidated Financial Statements (AS 23). The ICAI has issued AS 23 on Accounting for Investments in Associates in Consolidated Financial Statements. The Standard comes into effect in respect of accounting periods commencing on or after 1 April 2002. An enterprise that presents consolidated financial statements should account for investments in associates in the consolidated financial statements in accordance with this Standard.
• Exposure draft on proposed limited revision to Accounting Standard AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. AS 5 is under revision. Until AS 5 is completely revised, a limited revision to AS 5 is proposed. A change in accounting policy resulting from adoption of an Accounting Standard should be accounted for in accordance with the specific transitional provisions, if any, contained in that Standard.
• Exposure draft on proposed Accounting Standard AS 7, Construction Contracts. The objective of the proposed Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. The present AS 7 gives the option to use either the percentage of completion method or the completed contract method. The proposed Standard states that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date. Proposed effective date: accounting periods beginning on or after 1 April 2002.
• Exposure draft on proposed Accounting Standard on Discontinuing Operations. The objective of the proposed Standard is to establish principles for reporting information about discontinuing operations, thereby enhancing the ability of users of financial statements to make projections of an enterprise's cash flows, earnings-generating capacity, and financial position by segregating information about discontinuing operations from information about continuing operations. The Standard describes the initial disclosure event on occurrence of which the enterprise should estimate the net realisable value of the assets attributable to the discontinuing operation and if it is lower than the carrying amount of the assets, recognise the estimated loss. The Standard also lays down the various disclosures required with regard to discontinuing operations. The proposed Standard will come into effect in respect of accounting periods commencing on or after 1 April 2002.

The Institute is one of the Members of the International Accounting Standards Committee (IASC) and has agreed to support the objectives of IASC. While formulating the Accounting Standards, ASB will give due consideration to International Accounting Standards issued by IASC and try to integrate them, to the extent possible, in the light of conditions and practices prevailing in India.

Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) since the beginning of the calendar year 2001 are as follows:

• AS 19, Accounting Standard on Leases. The Standard prescribes, for lessees and lessors, the appropriate accounting policies and disclosures in relation to finance leases and operating leases. Whether a lease is a finance lease or an operating lease will depend on the substance of the transaction rather than its form. At the inception of a finance lease, the lessee has to recognise the lease as an asset (and accordingly provide for depreciation) and a liability. The Standard comes in to effect in respect of all assets leased during accounting periods commencing on or after 1 April 2001 and is mandatory in nature.

• AS 20, Accounting Standard on Earnings Per Share (EPS). The objective of the Standard is to lay down principles for the determination and presentation of EPS, to enable comparison of performance amongst different enterprises. The Standard would apply to all enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India and would be mandatory in nature in respect of accounting periods commencing on or after 1 April 2001. Enterprises which have neither listed equity shares or potential equity shares but which disclose EPS, should calculate and disclose EPS in accordance with this Standard. In consolidated financial statements, the information required by this Standard should be prepared on the basis of consolidated information. At present, all companies are required to report their EPS as part of their financial statements prepared in accordance with Schedule VI to the Companies Act, 1956.

• AS 21, Accounting Standard on Consolidated Financial Statements. An enterprise that presents consolidated financial statements should prepare and present its financial statements in accordance with this Standard. Consolidated financial statements are prepared by a parent company to provide financial information about the economic activities of its group as also to show the economic resources controlled by the group, the obligations of the group and the results the group achieves with the resources it has. The Standard comes into effect in respect of accounting periods commencing on or after 1 April 2001. AS 21 differs from IAS 27 in that it does not make it mandatory for an enterprise (group) to prepare consolidated financial statements. It is expected that the Securities Exchange Board of India will require all listed companies to present consolidated financial statements for the year ending 31 March 2002.

• AS 22, Accounting Standard on Accounting for Taxes on Income. The Standard comes into effect in respect of accounting periods commencing on or after 1 April 2001. The Standard is mandatory:
  • A. in respect of accounting periods commencing on or after 1 April 2001 for:

    i. Companies whose debt or securities are listed on a recognised stock exchange in India and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India; and
    

    ii. All enterprises in a group where the parent presents consolidated financial statements, if the Standard is mandatory for any enterprise of that group in terms of (i) above;
    

  • B. in respect of accounting periods commencing on or after 1 April 2002 for companies not covered by the above;
  • C. in respect of accounting periods commencing on or after 1 April 2003 for all other enterprises, including firms, trusts, and associations of persons.

  The objective of AS 22 is to prescribe the accounting treatment for taxes on income including the determination of the amount of the expense or savings related to taxes on income in respect of an accounting period and the disclosure of such an amount in the financial statements. For the purposes of this Standard, taxes on income include all domestic and foreign taxes that are based on taxable income and the tax effect of timing differences (deferred taxation).

  AS 22 differs from IAS 12. Whereas IAS 12 recognises and measures deferred income taxes based on temporary (book-tax differences in balance sheet items), AS 22 recognises and measures deferred taxes based on timing differences (book-tax differences in items reported in the income statement).

Exposure drafts of Accounting Standards ICAI since the beginning of 2001 are as follows:

• Exposure draft on proposed Accounting Standard on Accounting for Investments in Associates in Consolidated Financial Statements. The objective of the Standard is to set out principles and procedures for recognising, in the consolidated financial statements, the effects of the investments in associates on the financial position and operating results of a group. The proposed Standard prescribes the equity method for accounting for investments in an associate in the consolidated financial statements with certain exceptions where the Standard on Accounting for Investments (AS 13) is to be used. An associate is an enterprise in which the investor has significant influence (but not control) and which is neither a subsidiary nor a joint venture of the investor. The proposed Accounting Standard will come into effect in respect of accounting periods commencing on or after 1 April 2002. A separate Accounting Standard on Financial Reporting of Interests in Joint Ventures, is being formulated by the ICAI.

• Exposure draft on proposed Accounting Standard on Discontinuing Operations. The objective of the Standard is to establish principles for reporting information about discontinuing operations, thereby enhancing the ability of users of financial statements to make projections of an enterprise's cash flows, earnings-generating capacity, and financial position by segregating information about discontinuing operations from information about continuing operations. The proposed Standard is to apply to all discontinuing operations of an enterprise. The proposed Accounting Standard will come into effect in respect of accounting periods commencing on or after 1 April 2002.

• Exposure draft on Proposed Limited Revision to AS 5, Accounting Standard on Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. It is proposed to make a limited revision to AS 5 whereby a change in accounting policy consequent upon the adoption of an Accounting Standard is to be accounted for in accordance with the specific transitional provisions, if any, contained in that Accounting Standard.

Recent accounting standards have been issued for the following:

• AS 16, Borrowing Costs
• AS 17, Segment Reporting
• AS 18, Related Party Disclosures
• AS 19, Leases

Exposure Drafts have been issued for the following:

• Earnings Per Share
• Consolidated Financial Statements

An exposure draft for Income Taxes is under final stages of preparation.

While many of the Indian Accounting Standards conform in most material respects to IAS, those on R&D, foreign exchange, borrowing costs, and business combinations do not.