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Update on Indian GAAP

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23 Jan 2004

The Institute of Chartered Accountants of India (ICAI) has issued Accounting Standard 29 on Provisions, Contingent Liabilities and Contingent Assets.

The objective of AS 29 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.

     

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