ACCOUNTING

Indian Accounting Standards and IFRSs: A Comparative Study

Global Harmonization

he idea of global harmonization of accounting standards stems from lack of comparability of financial statement across the country. In particular, a company having presence in different countries has to prepare financial reports as per generally accepted accounting principle of the country of operation and then it is required to reconcile all such reports for the purpose of consolidation as per GAAP of the country to which the parent belongs. This increase the cost of preparing the financial report and also performance measurement across the geographical region becomes difficult because of non-comparable accounting rules. As global diversification of portfolio has become an important issue of fund management with more and more countries accept capital account convertibility or restricted fund flow on capital account a uniform GAAP thought out the world would have helped to increase understandability of financial statement. This would also help in cross border rising of funds. The expanding globaliza-

Vikash Baingani*

Nitin Agrawal**

tion of business and investment is driving increase interest and as well as pressure, to enhance the quality of financial reporting throughout the world to compare apples with apples, so to speak- so that effective evaluation between companies can be made. This article made a comparative study between Accounting Standard issued by ICAI and latest version of IFRS / IAS. International Accounting Standards (IASs) were issued by the International Accounting Standards Committee (IASC) from 1973 to 2000. The International Accounting Standard Board (IASB) replaced the IASC in 2001. Since then, the IASB has amended some IASs, has proposed to replace some IASs with new International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topics

for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards. Financial statements may not be described as complying with IFRSs unless they comply with all of the requirements of each applicable standard and each applicable interpretation.

What is International Financial Reporting Standard (IFRSs)?

IFRSs refer to the entire body of IASB pronouncements, including standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee (IASC). It means IFRS includes: IFRS issued by IASB (Currently 5 IFRS has been issued) IAS issued by IASC Interpretation issued by SIC Interpretations issued by IFRICs

Is International Financial Reporting Standards (IFRSs) mandatory for all companies of all countries?

The authors are the members of the Institute. * The author is working with Corporate Accounts Department of Larsen & Toubro Limited, Mumbai. ** The author is working with Electrical & Electronics Division of Larsen & Toubro Limited, Mumbai THE CHARTERED ACCOUNTANT

The IASB has no authority to require compliance with its accounting standards. However, many countries require the financial statements of publicly traded
FEBRUARY 2005

1050

ACCOUNTING
companies to be prepared in accordance with IFRSs, and (where necessary) to give particulars of any material departure from those standards and the reasons for it. Companies and/or securities legislation in many countries requires management and directors of publicly traded companies (and, in many cases, all companies) to prepare financial statements in accordance with IFRSs because it gives a true and fair view of the financial position of the company at the end of the financial year.

FASB and IASB In a joint meeting between FASB (Authority who issues US-GAAP) and IASB in September 2002, both have acknowledged their commitment to the development of high quality, compatible accounting standard that could be used for both domestic and cross border financial reporting. Both the FASB and IASB pledge to used their best efforts to: a) Make their existing financial reporting standards fully compatible as soon as it is practicable and b) To co-ordinate their future work programs to ensure that once achieved , compatibility is maintained.

What is IAS Regulation?

The Council of the European Union has adopted an IAS Regulation requiring listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with IAS from 2005 onwards. Member States may defer application until 2007 for those companies that are listed both in the EU and elsewhere and that currently use US GAAP or other GAAP e.g. Indian GAAP as their primary basis of accounting, as well as for companies that have only publicly traded debt securities.

Are all IFRSs issued by IASB is covered by IAS Regulation? No. All IFRSs and interpretation issued for IFRSs are not mentioned in IAS regulation. Only those pronouncements i.e. IFRSs and IFRICs are mandatory to comply with, which are ENDORSED by EU parliament.
Endorsement of IFRS To ensure appropriate political oversight, the IAS regulation establishes a new EU mechanism to IFRS adopted by the IASB, to give them legal endorsement for the use within the EU. On the basis of Accounting Regulatory Committee (ARC) and considering the technical advice of EFRAG, the commission will take decision to endorse IFRS/ IAS.

What is Acceptance level of standard issued by IASB

Contrary to the US and UK position, acceptance level of IASB standards are very positive within the European Commission, G4+1 group of standard setters, World Bank etc. a. Member Countries of European Commission (As on .) b. G4+1 Group of standard setters comprise of representative of the national accounting standard bodies of Australia, Canada, New Zealand, the UK and the USA.
THE CHARTERED ACCOUNTANT

Who are various Parties associated with issuance of IFRS and what are their roles? IASB (Framing and issuing IFRS) 1051

The European Financial Reporting Advisory Group (EFRAG) The IAS Regulation foresees an accounting technical committee, which shall provide support and expertise to the Commission in the assessment of international accounting standards. The committee is called the European Financial Reporting Advisory Group (EFRAG). Main role is to contribute to and influence IASB standard setting process before a standard is issued and to give endorsement advice to the European Commission (EU) Accounting Regulatory Committee (ARC) According to Article 6 of the IAS Regulation, the European Commission (EC) shall be assisted by an Accounting Regulatory Committee (ARC) composed of representatives of the Member States (the political level of the endorsement process). The Commission shall submit draft-implementing measures concerning international accounting standards to the ARC for its opinion. The Committee of European Securities Regulators (CESR) CESR was established in June 2001 by a Decision of EU commission. The role of CESR is to improve coordination among European Securities Regulators and to act as an advisory group to assist the European Commission, in particular in its preparation of draft implementing measures in the field of securities (See figure 1)
FEBRUARY 2005

ACCOUNTING
Figure 1 IASB will issue IFRS EFRAG will Advice to IASB before issuance of IFRS EFRAG will endorsement give EU commission will receive assistance from ARC

After EU review, EU parliament and Council of Ministers will finally endorse that IFRS

EU Commission will endorse and translate IFRS

Importance of IFRS As per European commission the requirement of compliance of IFRS by all listed companies in their CFS from 2005 (IAS Regulation) onwards will help eliminate barriers to cross boarder trading in securities by ensuring that company accounts through out the EU are more reliable and transparent and that they can be more easily compared. This will in turn increase market efficiency and red

uce the cost of raising capital for companies, ultimately improving competitiveness and helping boost economy.

Exposure drafts issued / Projects under IASB Exposure Draft 6: Exploration for and Evaluation of Mineral Resources Exposure Draft 7: Financial Instruments: Disclosures Amendment to IAS-39:

Financial Instrument- Recognition and measurement: The fair value Option Proposed amendment to IFRS 3 Business combination: Combination by contract alone or involving mutual entities Proposed amendment to IAS 19 Employee benefits: Acturial gains and losses, group plans and disclosure

Accounting Standards issued by ICAI v/s recent version of IFRS/IAS: A Comparative Study
AS by ICAI AS-1 IFRS / IAS IAS 1 Position under IAS / IFRS After considering recent changes Disclosure of Accounting Policies IAS 1, inter alia, deals with overall considerations, AS 1 does not deal with these aspects. including fair presentation, off-setting, comparative information. IAS 1 prescribed minimum structure of finan- AS 1 does not prescribe any minimum structure. cial statements and contains guidance on related issues viz. current liabilities etc. Under IAS 1, financial statements includes AS 1 does not prescribe any such statement to be Statement showing changes in equity prepared. Under IAS 1, there is a presumption that applica- There is no such presumption under AS 1. tion of IFRS would lead to fair presentation IAS 1 requires specific disclosure for departures There is no such specific provision in AS 1. from IFRS IAS 1 requires disclosure of critical judgements made There is no such specific disclosure requirement in by management in applying accounting policies AS 1 IAS 1 prohibits any items to be disclosed as extra- AS 5 specifically requires disclosure of certain ordinary items. items as Extra-ordinary items.
THE CHARTERED ACCOUNTANT

Position as per Indian GAAP

1052

FEBRUARY 2005

ACCOUNTING
AS 2 IAS 2 Valuation of Inventories: AS 2 requires that the formula used in determinIAS 2 prescribes same cost formula to be used for all ing the cost of an item of inventory needs to be inventories having a similar nature and use to the entity. selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. However, there is no stipulation for use of same cost formula in AS 2 as compared to IFRS There are certain additional requirement in IAS 2 which are not contained in AS 2 which are as under: 1. Purchase of inventory on deferred settlement terms excess over normal price is to be accounted as interest over the period of financing. 2. Measurement criteria are not applicable to commodity broker-traders. 3. Exchange differences are not includible in inventory valuation. 4. Inventory pledged as security for liabilities requires separate disclosure. Cash Flow Statements: Bank overdrafts are to be treated as a component of cash AS 3 has no such stipulation / cash equivalents under IAS 7. IAS 7 allows interest and dividend paid to be classified AS 3 mandates disclosure of interest and diveither under Operating Activities or Financing Activities. idend paid under Financial Activities only. IAS 7 requires additional disclosure of cash payments by a No such disclosures required under AS 3. lessee relating to finance lease under Financing Activities. IAS 7 deals with issues relating to disclosure in cash flow AS 3 was issued prior to AS 21, hence issues statement in consolidated financial statements viz. relating to consolidate financial statements Undistributed profits of associate & minority interests, are not dealt with. Forex cash flows of foreign subsidiary etc. IAS 7 prohibits separate disclosure of extraordinary AS 3 mandates such disclosure. items in Cash Flow Statements. In case of acquisition of subsidiary, IAS 7 requires two No such provision in AS 3 Additional disclosures on acquisitions viz. Cash/ cash equivalents of acquired subsidiary and all other assets acquired. Contingencies and Events occurring after the Balance Sheet Date: IAS 10 provides that proposed dividend should not be shown as liability. IAS 10 requires date of authorization for issue of financial statements to be specifically mentioned in the financial statements itself. IAS 10 also requires disclosure of contingent liability to be updated in the light of new information received after the balance sheet date. Prior Period Items and Changes in Accounting Policies: In case of change in accounting policy IAS 8 requires retrospective effectto be given by adjusting opening retained earnings. The definition of prior period Items is broader under IAS 8 as compared to AS 5 since IAS 8 covers all the items in the financial statements. IAS 8 requires retrospective restatement of prior period figures by restatement of opening balances of assets, liabilities and equity for the earliest period practicable. IAS 8 requires disclosure of any impending change in accounting policy viz. change mandated by a new accounting standard which is yet to come into effect.

AS 3

IAS 3

AS 4

IAS 10

AS 4 specifically requires such disclosure as the same is mandated by statutory requirement. AS 4 has no such stipulation. AS 4 requires adjustments to figures stated in financial statements for events occurring after the balance sheet date, if such events relate to conditions existing at the balance sheet date. AS 5 requires only prospective change in accounting policy with appropriate disclosures. AS 5 covers only incomes and expenses in the definition of prior period items. AS 5 requires prior period items to be included in the determination of net profit or loss for the current period. AS 5 does not require such disclosure

AS 5

IAS 8

THE CHARTERED ACCOUNTANT

1053

FEBRUARY 2005

ACCOUNTING
IAS 8 prohibits disclosure of any items as extra-ordinary item. AS 5 requires separate disclosure of extraordinary items. Depreciation Accounting (AS 6): In case of change in method of depreciation, IAS 16 AS 6 requires retrospectively re-computation requires effect to be given prospectively. of depreciation and any excess or deficit on such re-computation is required to be adjusted in the period in which such change is effected. Change in method of depreciation is treated as change in AS 6 considers this as change in accounting accounting estimate under IAS 16. policy IAS 16 requires estimation of Residual value without There is no such stipulation in AS 6 although considering inflation effects i.e, residual value has to be it prescribes use of realisable value of simiestimated assuming that the asset were already of the age lar assets, which have reached the end of and in the condition expected at the end of its useful life their useful lives and have operated under conditions similar to the asset as one of the basis of estimating residual value. Construction Contract (AS 7): Contract Revenue under IAS 11 is measured at the fair AS 7 does not refer to fair value and states value of the consideration received or receivable. that Contract revenue is measured at the consideration received or receivable Revenue Recognition (AS 9): Under IAS 18, revenue from sale of goods cannot be AS 9 does not contain any such stipulation. recognised when entity retains continuing managerial ownership or effective control over the goods sold. In case of revenue from rendering of services, IAS 18 AS 9 allows completed service contract allows only percentage of completion method. method or proportionate completion method. IAS 18 requires effective interest method prescribed in AS 9 requires interest income to be recogIAS 39 to be followed for interest income recognition. nised on a time proportion basis. Under IAS 18, payments received in advance for goods yet AS 9 permits recognition when the goods are to be manufactured or third party sales, cannot be recognized manufactured, identified and ready for as revenue until such goods are delivered to the buyer. delivery in such cases. Accounting for Fixed Assets: Under IAS 16, if subsequent costs are incurred for replacement of a part of an item of fixed assets, such costs are required to be capitalized and simultaneously the replaced part has to be de-capitalized. Effects of changes in Foreign Exchange Rates: The revised IAS 21 makes no distinction between an integral foreign operation and non-integral foreign operation as done in AS 11. In fact, the factors of distinction between an integral operation and a non-integral operation are incorporated as considerations for determining functional currency. Revised IAS 21 requires an entity to determine functional currency and measure results and financial position in that currency. Functional currency is the currency of the primary economic environment. Under the revised IAS 21 states that if functional currency of a foreign operation is other than reporting currency, the provisions of translation of such operation are similar to that prescribed for a non-integral foreign operation under AS 11. If financial statements are presented in any other currency other than functional currency, the revised IAS 21 requires Assets /Liabilities to be translated at Closing Rate and Income / Expenses at Average Rate. AS 11 provides separate treatment for integral operations and non-integral operations. AS 10 provides that only that expenditure which increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity.

AS-6

No correspon ding IAS (covered by IAS which discuss about assets)

AS-7 IAS 11 (Revis ed) AS-9 IAS-18

AS-10

IAS 16

AS 11 IAS 21 (Revis ed)

There is no concept of functional currency under AS 11. Absence of functional currency concept does not enable AS 11 to provide for such a stipulation. AS 11 does not contain any guidance on this issue.

THE CHARTERED ACCOUNTANT

1054

FEBRUARY 2005

ACCOUNTING
AS-12 IAS 20 Government Grants: The concept of extra-ordinary item is deleted under all AS 12 requires disclosure of government standards of IFRS. grants for financial support / compensation for losses as extra-ordinary items in P&L. In case of non-monetary assets acquired at nominal / con- AS 12 requires accounting at acquisition cessional rate, IAS 20 permits accounting either at fair cost. value or at acquisition cost In respect of grant related to a specific fixed asset becom- AS 12 requires enterprise to compute depreing refundable, IAS 20 requires retrospective re-computa- ciation prospectively as a result of which the tion of depreciation and prescribes charging off the deficit revised book value is provided over the in the period in which such grant becomes refundable. residual useful life. IAS 20 requires separate disclosure of unfulfilled condi- AS 12 has no such disclosure requirement. tions and other contingencies if grant has been recognised. Accounting for Amalgamations: IFRS 3 allows only purchase method. Option of pool- AS 14 allows both Pooling of Interest Method and Purchase Method. ing method given under IAS 22 has been withdrawn. IFRS 3 requires valuation of assets & liabilities at Fair Value. AS 14 requires valuation at carrying value. AS 14 requires amortization of Goodwill IFRS 3 requires Goodwill to be tested for impairment. IFRS 3 requires recognition of negative goodwill imme- AS 14 requires it to be credited to Capital Reserve diately in P&L A/c. IFRS 3: Reverse Acquisition is accounted assuming AS 14 does not deal with reverse acquisition acquirer is the acquiree. IFRS 3 requires valuation of Financial Assets to be dealt AS 14 contains no such similar provision. with as per IAS 39. Under IFRS 3, provisional values can be used provided they There is no such provision in AS 14. are updated retrospectively within 12 months with actual values. Employee Benefits: IAS 19 provides an option to recognise actuarial gains and losses either by following "Corridor Approach" or immediately in P&L A/c. Under IAS 19, the discount rate used to discount postemployment benefit obligations should be determined by reference to market yields of high quality corporate bonds or, in case there is no deep market in such bonds, on the basis of market yields of Govt. bonds. Under IAS 19, the liability for termination benefits has to be recognized on constructive basis for e.g. Announcement of a formal plan. IAS 19 provides a choice to recognize the incremental liability on first time application either immediately in P&L or over a period of five years on SLM basis. Exposure draft on revised AS 15 (AS 15 ED) does not admit "Corridor Approach". Exposure draft on revised AS 15 allows use of only market yields on Govt. bonds.

AS-14

IFRS 3 (IFRS 3 supersedes IAS 22)

Expos IAS 19 ure Draft issued on AS15

AS 15 ED requires an entity to follow AS 29 in this regard. AS 15 ED requires adjustment against opening balance of revenue reserves.

AS-16

IAS 23

Borrowing Costs : IAS 23 prescribes borrowing costs to be recognized as AS 16 mandates capitalization of borrowing expense as benchmark treatment. It requires capital- costs. ization as an allowed alternative. IAS 23 requires disclosure of capitalization rate used to AS 16 does not require such disclosure. determine the amount of borrowing costs. Segment Reporting: IAS 14 prescribes treatment of revenue, expenses, profit/loss, assets and liabilities in relation to Associates & Joint Ventures in consolidated financial statements. IAS 14 encourages reporting of vertically integrated activities as separate segments but does not mandate the disclosure. IAS 14 provides that a business segment can be treated as reportable segment only if, inter alia, majority of its revenue is earned from sales to external customers. AS 17 is silent on the aspect of treatment in consolidated financial statements. AS 17 does not make any distinction between vertically integrated segment and other segments AS 17 does not contain any such stipulation.

AS-17

IAS 14

THE CHARTERED ACCOUNTANT

1055

FEBRUARY 2005

ACCOUNTING
Under IAS 14, if a reportable segment ceases to meet threshold requirements, than also it remains reportable for one year if the Management judges the segment to be of continuing significance. In case of change in identification of segments, IAS 14 requires restatement of prior period segment information. In case it is not practicable, IAS 14 requires disclosure of data for both the old and new bases of segmentation. Related Party Disclosures: The definition of related party under IAS 24 includes Post employment benefit plans (e.g. gratuity fund, pension fund) of the enterprise or of any other entity, which is a related party of the enterprise. The definition of Key management persons (KMPs) under IAS 24 includes any director whether executive or otherwise i.e. Non-executive directors are also related party. Further, under IAS 24, if any person has indirect authority and responsibility for planning, directing and controlling the activities of the enterprise, he will be treated as a key management person (KMP) The definition of related party under IAS 24 includes close members of the families of KMPs as related party as well as of persons who exercise control or significant influence. IAS 24 requires compensation to KMPs to be disclosed category-wise including share-based payments. Under AS 17, this is mandatory irrespective of the judgment of Management. AS 17 requires only disclosure of the nature of the change and the financial effect of the change, if reasonably determinable.

AS-18

IAS 24

AS 18 does not include this relationship.

AS 18 read with ASI-18 excludes non-executive directors from the definition of key management persons. AS 18 does not specifically cover indirect authority and responsibility. AS 18 covers only relatives of KMPs

AS-19

IAS 17

AS 18 read with ASI 23 requires disclosure of remuneration paid to key management persons but does not mandate category-wise disclosures. IAS 24 mandates that no disclosure should be made to the AS 18 contains no such stipulation. effect that related party transactions were made on arms length basis unless terms of the related party transaction can be substantiated No concession is provided under IAS 24 where disclo- AS 18 provides exemption from disclosure sure of information would conflict with the duties of con- in such cases. fidentiality in terms of statute or regulating authority. Under IAS 24, the definition of "control" is restrictive as Under AS 18, the definition is wider as it it requires power to govern the financial and operating refers to power to govern the financial and policies of the management of the enterprise /or operating policies of the management. The definition of "control" under IAS 24 is restrictive on AS 18 includes control over composition of the count that it does not include control over composi- Board of Directors in the definition of "contion of Board of Directors trol" The disclosure requirement under IAS 24 are applicable when Under AS 18 the standard applies if related party related party relationship exists as on the date of balance sheet relationship exist at any time during the year. IAS 24 requires disclosure of terms and conditions of No such disclosure requirement is contained outstanding items pertaining to related parties. in AS 18. IAS 24 does not define "significant influence" which is to AS 18 prescribe a rebuttable presumption of be considered while determining related party relationship. significant influence if 20% or more of the voting any party holds power. Leases Under IAS-17 it has been clarified that land and buildings AS-19 - " Accounting for Leases" at it stands at elements of a lease of land and buildings need to be consid- present does not deal with lease agreements to ered separately. The land element is normally an operating use lands. Hence, the classification criteria are lease unless title passes to the lessee at the end of the lease applicable only to buildings as a separate asset. term. The buildings element is classified as an operating or To be in line with IAS-17, a suitable modififinance lease by applying the classification criteria. cation is required in AS-19 to bring lease agreements for use of land within the purview and prescribe separate classification criteria for land as stated in revised IAS-17. The definition of residual value is not included in IAS 17. AS 19 defines residual value.

THE CHARTERED ACCOUNTANT

1056

FEBRUARY 2005

ACCOUNTING
IAS 17 specifically excludes lease accounting for invest- There is no such exclusion under AS 19. ment property and biological assets. IAS 17 does not prohibit upward revision in value of un-guaranteed residual value during the term of lease. In case of sale & lease back, IAS 17 requires excess of sale proceeds over the carrying amount to be deferred and amortised over lease term. IAS 17 does not require any separate disclosure for assets acquired under finance lease segregated from assets owned. IAS 17 prescribes initial direct costs incurred by lessor to be included in lease receivable amount in case of finance lease and in the carrying amount of the asset in case of operating lease and does not mandate any accounting policy related disclosure. IAS 17 requires assets given on operating leases to be presented in the Balance Sheet according to the nature of the asset. AS-20 IAS 33 Earnings per Share (EPS): IAS 33 requires separate disclosure of basis and diluted EPS for continuing operations and discontinued operations. IAS 33 deals with computation of EPS in case of Share based payment transactions. IAS 33 prescribes treatment of written put options and forward purchase contracts in computing EPS. IAS 33 requires changes in accounting policy to be given retrospective effect for computing EPS, which means EPS to be adjusted for prior periods presented. IAS 23 does not require disclosure of EPS with and without extra-ordinary item IAS 33 does not deal with the treatment of application money held pending allotment. AS 19 permits only downward revision AS 19 requires excess or deficiency both to be deferred and amortised over the lease term in proportion to the depreciation of the leased asset. AS 19 mandates such separate disclosure. AS 19 requires initial direct cost incurred by lessor to be either charged off at the time of incurrence or to be amortised over the lease period and requires disclosure for accounting policy relating thereto in the financial statements of lessor. AS 19 requires assets given on operating lease to be presented in Balance Sheet under Fixed Assets. AS 20 does not requires any such separate computation or disclosure. AS 20 does not contain any such provision. AS 20 is silent on this aspect. AS 20 does not prescribe such treatment.

AS-21

IAS 21

AS 20 requires EPS / DPS with and without extra-ordinary items to be disclosed separately. Under AS 20, application money held pending allotment should be included in the computation of diluted EPS. IAS 33 requires disclosure of anti-dilutive instruments AS 20 does not mandate such disclosure. even though they are ignored for the purpose of computing dilutive EPS. IAS 33 does not require disclosure of normal face value Disclosure of normal face value is required under AS 20. of share Consolidated Financial Statements (CFS): Under IAS 27, it is mandatory to prepare CFS and an Under AS 21, it is not mandatory to prepare entity should prepare separate financial statements in CFS. addition to CFS only if local regulations so require. Under IAS 27, exemption from preparation from CFS if There is no such exemption under AS 21. certain conditions are fulfilled. Under IAS 27, a subsidiary cannot be excluded from con- Under AS 21, a subsidiary can be excluded solidation under any circumstances. from consolidation if (1) the subsidiary is acquired and held with an intention to dispose; or (2) the subsidiary operates under severe long term restrictions impairing its ability to transfer funds to parent. Under IAS 27 while determining whether entity has AS 21 does not provide for such eventuality. power to govern financial and operating policies of another entity, potential voting rights currently exercisable should be considered. Under IAS 27, the definition of "control" is restrictive as Under AS 21, the definition is wider as it it requires power to govern the financial and operating refers to power to govern the financial and

THE CHARTERED ACCOUNTANT

1057

FEBRUARY 2005

ACCOUNTING
/or operating policies of the management. AS 21 gives exemption from following uniform accounting policies if the same is not practicable Under AS 21, minority interest has to be separately disclosed from liability and equity of parent shareholder. Under AS 21, Goodwill / capital reserve on consolidation is computed on the basis of carrying value of assets/ liabilities. Under IAS 27, 3 months' time gap is permitted between Under AS 21, six months time gap is Balance Sheet dates of financial statements of subsidiary allowed. and parent. IAS 27 prescribes that deferred tax adjustment as per IAS AS 21 is silent on this aspect. 12 should be made in respect of timing difference arising out of elimination of unrealised profit. IAS 27 requires drawing up of financial statements as on Under AS 21, for computing parent's portion the date of acquisition for computing parent's portion of of equity in a subsidiary at the date on which equity in a subsidiary. investment is made, the financial statements of immediately preceding period can be used as a basis of consolidation if it is impracticable to draw financial statement of the subsidiary as on the date of investment. IAS 27 does not require additional disclosure of list of all AS 21 requires additional disclosure of list subsidiaries including the name, country of incorpora- of all subsidiaries including the name, countion, proportion of ownership interest and if different, try of incorporation, proportion of ownerproportion of voting power held. ship interest and if different, proportion of voting power held. Accounting for Taxes on Income: IAS 12 is based on Balance Sheet approach and therefore temporary difference (for e.g. Difference on any upward revaluation of assets, leads to creation of deferred tax liability) Under IAS 12, deferred tax liability for differences associated with investments in subsidiaries, associates and Joint Ventures may not be provided, if the parent is able to control the timing of reversal and it is probable that difference will not reverse in foreseeable future. Accounting for Associate in Consolidated Financial Statement: Under IAS-28, Potential voting rights currently exercisable to be considered in assessing significant influence. As per IAS 28, difference between Balance sheet date of investor and associate can not be more than three month. In case uniform accounting policies are not followed by investor & Investee, necessary adjustments have to be made while preparing consolidated financial statements of investor. While recognizing losses of associates / joint ventures under IAS 28, carrying amount of investment in equity and other long term interests to be considered For identification of goodwill / capital reserve , IAS-28 envisages net fair value basis on acquisition Under IAS 28 it is necessary to subject the investments in associates / joint ventures to the test of impairment . AS 22 is based on income statement approach and only timing differences leads to creation of deferred tax asset or liability. AS 22 provides no such exception as it does not deal with temporary differences policies of the management of the enterprise Use of uniform accounting policies for like transactions while preparing CFS is mandatory under IAS 27. Under IAS 27, minority interest has to be disclosed within equity but separate from parent shareholders equity. Under IAS 27, Goodwill / capital reserve on consolidation is computed on fair values of assets / liabilities

AS-22

IAS 12

AS-23

IAS 28

AS-23 is silent on this.

Under AS 23, no period is specified. Only consistency is mandated Under AS 23, if it is not practicable to make such adjustments, exemption is given, provided appropriate disclosures are made. Under AS 23, losses are to be recognised to the extent of investment plus incurred obligations plus payments made towards guaranteed obligations. AS-23 prescribes historical cost basis on acquisition , for computation of goodwill. If decline in value of investment in an associate is permanent, provision for diminution to be made. Impairment testing is not required under AS23. While defining Significant influence under IAS 28 par- As per AS-23, participation in the financial ticipation in the financial and operating policy decisions and / or operating policy decisions is is envisaged. required

THE CHARTERED ACCOUNTANT

1058

FEBRUARY 2005

ACCOUNTING
AS-25 IAS 34 Interim Financial Reporting: Under IAS 34, minimum components of Interim Financial Report includes - Statement showing changes in Equity Under IAS 34, in case of any change in accounting policy, figures of prior interim periods of the current financial year and comparable figures of corresponding previous periods to be restated. No such disclosure is required under AS 25. AS 25 requires restatement of figures of prior interim periods of the current financial year only

Under IAS 34, separate guidance is available for treat- AS 25 does not address these issues specifiment of Provision for Leave encashment, Interim Period cally. Manufacturing Cost Variances, Foreign Currency Translation Gains and Losses. AS 26 IAS 38 Intangible Assets: There is no presumption under IAS 38 as regards useful Under AS 26, there is a rebuttable presumplife of an intangible asset tion that the useful life of intangible assets will not exceed 10 years. IAS 38 does not exclude intangible assets arising in Intangible assets arising in insurance enterinsurance enterprise from contract with policy holder prise from contract with policyholder are excluded from scope of AS-26. Under IAS 38, intangible assets having "Indefinite use- There is no such restriction in AS 26 ful life" cannot be amortized. Indefinite useful life means where, based on analysis, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflow for the entity. Indefinite is not equal to Infinite. Such assets should be tested for impairment at each Balance sheet date and separately disclosed IAS 38 does not require any impairment testing if there AS 26 requires test of impairment to be are no indications of impairment. applied even if there is no indication of that the asset is impaired for following assets: -Intangible asset not yet available for use -Intangible asset amortised over > 10 years. Under IAS 38, if Intangible Asset is 'held for sale' then There is no such stipulation under AS 26. amortization should be stopped. Under IAS 38, R&D expenditure that relates to an in- AS 26 is silent on this. process R&D project acquired separately or in a business combination shall be accounted as per normal principles considering the research phase and development phase. Under IAS 38, Revaluation Model is allowed for account- AS 26 does not permit revaluation model. ing Intangible Asset provided active market exists. AS- 27 IAS 31 Financial Reporting of Interests in Joint Ventures: Under IAS 31, when the investments are made by venture capital organization, mutual funds, unit trusts and similar entities when those investments are classified as held for trading and accounted for as per IAS 39. IAS 31 not to apply if parent is exempt from preparing CFS under IAS 27. Similar exemption for investor satisfying same conditions as parent. IAS 31 permits both proportionate consolidation method and equity method for recognizing interest in a jointly controlled entity in CFS. Equity method prescribed in IAS 31 is similar to that prescribed in AS 23. There is no such provision under AS 27.

There is no such specific provision under AS 27. AS 27 permits only proportionate consolidation method.

THE CHARTERED ACCOUNTANT

1059

FEBRUARY 2005

ACCOUNTING
AS-28 IAS 36 Impairment of Assets: Under IAS 36, for determining net selling price, cost of disposal to be reduced only in cases where asset is intended to be disposed off. IAS 36 does not permit reversal of impairment losses. IAS 36 suggests only bottom-up approach for allocation of goodwill in case of a cash-generating unit. Provisions, Contingent Assets and Contingent Liabilities IAS 37 permits discounting of provisions. IAS 37 requires that provisions for onerous contracts to be recognized IAS 37 requires provisioning on the basis of construction obligation on restructuring. IAS 37 requires disclosure of Contingent Assets in Financial Statements. IAS 37 provides certain basis and statistical methods to be followed for arriving at the best estimate of the expenditure for which provision is recognised. IAS 37 defines only obligation but does not define present obligation and possible obligation. AS 28: For determining net selling price, cost of disposal to be reduced from fair value of assets in all cases. AS 28 permits reversal of impairment losses. AS 28 allows both bottom up and top down methods AS 29 does not permit any discounting AS 29 does not mandate it. AS 29 prohibits the same. AS 29 allows such disclosure only in approving authority report. AS 29 does not contain any such guidance and relies on judgement of management. AS 29 defines present obligation and possible obligation as well.

AS- 29 IAS 37

HELP US TO SERVE YOU BETTER

For the attention of Members Restoration of Membership and Certificate of Practice
Attention of members was drawn to Regulation 6 of the Chartered Accountants, Regulations, 1988, which provides, interalia, for payment of annual membership fee and certificate of practice fee on 1st April each year. Individual notices to members requesting them to pay their annual membership and certificate of practice fee for the year 2004-05 were also sent. Announcements drawing attention of members to the requirement of payment of said annual fees for the current year were also published in the past issues of our Journal. The names of members who had not paid their fees within the stipulated period are in the process of being removed and/or their certificates of practice being cancelled. The notifications for removal of name and cancellation of certificate of practice w.e.f. 1.10.2004 are under issue. In the event of removal of member's name or cancellation of his certificate of practice on account of non-payment of fees, the member concerned ceases to have the right to practise the profession of Chartered Accountancy and also the right to train articled clerks under him. Regulation 19 and Regulation 11 of the Chartered Accountants Regulations, 1988, provide for restoration of membership and restoration of certificate of practice, respectively, with retrospective effect, provided the application, complete in all respects, together with the necessary fees is received from the member concerned by the Secretary of the Institute before the expiry of the relevant financial year. Members may note that Restoration Fee of Rs. 100/- is a part of the fees payable by the members before the expiry of the relevant financial year, as prescribed in Regulation 19. Members whose names are removed or certificate of practice cancelled may, if they so desire, apply in the appropriate form (Form No 9/101)* along with necessary fees in accordance with these Regulations for restoration of membership and/or certificate of practice. * Form 109/101 are available on the website of the Institute at [Link]

THE CHARTERED ACCOUNTANT

1060

FEBRUARY 2005