ISSN: 2347-3215 Volume 3 Number 5 (May-2015) pp. 127-133 www.ijcrar.com

A Study of International Accounting Standard and Indian Accounting Standard Parmanand Barodiya1* and Sonal Saxena2

1Department of Commerce, Madhav Mahavidyalaya, Gwalior (MP), India 2 Department of Management, Jiwaji University, Gwalior (MP), India

*Corresponding author

KEYWORDS A B S T R A C T

International The widespread acceptance of International Accounting Standards Accounting Standard (IAS)/International Financial Reporting Standards (IFRS) makes it timely to & Indian examine their technical determinants as well as their implications for the Accounting accounting profession and the process of accounting harmonization. In this Standard respect, we suggest that the principles-based approach to the standards and its inner flexibility enables the application of IAS/IFRS to countries with diverse accounting traditions and varying institutional conditions. Furthermore, the principles-based approach involves major changes in the expertise held by accountants and, hence, in their educational background, training programs, and in the organizational and business models of accounting firms. Finally, we submit that the standards set by the IAS/IFRS constitute a step forward in the process of accounting harmonization, although there is still far to go in the comparability of accounting measures across countries and regions. In the paper we discourse to study of International Financial Reporting Standard & Indian Accounting Standard and understand the procedure for issue of International Financial Reporting Standard & Indian Accounting Standard.

Introduction

Accounting Standards are used as regulatory transaction in the financial statement. mechanisms for preparation of financial Objective of accounting standard is to reports in almost all the countries of the standardize the diverse accounting policies world. Accounting Standard are written & practices with a view to eliminate to the policy documents issued by expert extent the non-comparability of financial accounting body or government or other statements & add the reliability to the regulatory body covering the aspects of financial statements. The rapid growth of recognition, measurement, treatment, international trade & Internationalization of presentation & disclosure of accounting f i r m s c r e a t e need of global harmonization of

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accounting standards as a company having Reporting Standard & Indian presence in different countries has to prepare Accounting Standard. financial reports as per GAAP of the country where it operates. Under this global business Research methodology environment, companies are in need of common accounting language in the form of In the present study, descriptive research harmonized accounting standard across the design was used. Data has been collected world. From 1973 to 2000 International from secondary sources. Accounting Standard Committee (IASC) was the body upon which the Procedures after an IFRS is issued responsibility was set to issue International Accounting Standards. In 2001 IASC was Setting the agenda: The IASB, by replaced by International Accounting developing high quality financial reporting Standards Board (IASB). Since standards, seeks to address a demand for then International Accounting Standards better quality information that is of value to Board (IASB), based at London - UK is now those users of financial reports. When responsible to issue International Financial deciding whether a proposed agenda item Reporting Standards will address users needs the IASB (IFRS) and International Accounting considers: Standards (IAS). IASB is independent body and consists of members from nine different a) The relevance to users of the countries around the globe having variety of information and the reliability of functional backgrounds. In India the Institute of Chartered Accountants of information that could be provided, India (ICAI) has formed Accounting b) Existing guidance available, Standards Board (ASB) in 1977, upon which c) The possibility of increasing the responsibility was set to develop convergence, accounting standards to be issued and d) The quality of the IFRS to be revised in the country from time to time. developed, Though ASB is shaped by ICAI, it is e) Resource constraints. independent in the formulation of accounting standards. ASB comprises members from various fields and To help the IASB in considering its future organization and it also takes in to agenda, its staff is asked to identify, review consideration customs, usages and business and raise issues that might warrant the environment prevailing in the country while IASB s attention. New issues may also arise formulating the standards. from a change in the IASB s Conceptual Framework for Financial Reporting. In Objectives of the study addition, the IASB raises and discusses potential agenda items in the light of a) To study of International Financial comments from other standard-setters and other interested parties, the IFRS Advisory Reporting Standard & Indian Council and the IFRS Interpretations Accounting Standard. Committee, and staff research and other b) To understand the procedure for recommendations. In making decisions issue of International Financial regarding its agenda priorities, the IASB also considers factors related to its

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convergence initiatives with accounting Developing and publishing: the discussion standard-setters. The IASB s approval to paper a discussion paper is not a mandatory add agenda items, as well as its decisions on step in the IASB s due process. Normally their priority, is by a simple majority vote at the IASB publishes a discussion paper as its an IASB meeting. first publication on any major new topic as a vehicle to explain the issue and solicit early Planning the project: When adding an item comment from constituents. If the IASB to its active agenda, the IASB decides decides to omit this step, it will state its whether to conduct the project alone or reasons. Typically, a discussion paper jointly with another standard-setter. Similar includes a comprehensive overview of the due process is followed under both issue, possible approaches in addressing the approaches. When considering whether to issue, the preliminary views of its authors or add an item to its active agenda, the IASB the IASB, and an invitation to comment. may determine that it meets the criteria to be This approach may differ if another included in the annual improvements accounting standard-setter develops the process. The IASB assesses the issue against research paper. Discussion papers may result criteria such as- either from a research project being conducted by another accounting standard- a) Clarifying. setter or as the first stage of an active agenda b) Correcting. project carried out by the IASB. If research c) Well defined and sufficiently narrow in has been performed by another accounting scope that the consequences of the standard-setter, issues related to the proposed change have been considered. discussion paper are discussed in IASB d) Completed on a timely basis, all criteria meetings, and publication of such a paper must be met to qualify for inclusion in requires a simple majority vote by the IASB. annual improvements. If the discussion paper includes the preliminary views of other authors, the Once this assessment is made, the IASB reviews the draft discussion paper to amendments included in the annual ensure that its analysis is an appropriate improvements process will follow the same basis on which to invite public comments. due process as other IASB projects. The For discussion papers on agenda items that primary objective of the annual are under the IASB s direction, or include improvements process is to enhance the the IASB s preliminary views, the IASB quality of IFRSs by amending existing develops the paper or its views on the basis IFRSs to clarify guidance and wording, or of Analysis drawn from staff research and correcting for relatively minor unintended recommendations, as well as suggestions consequences, conflicts or oversights. After made by the IFRS Advisory Council, considering the nature of the issues and the working groups and accounting standard- level of interest among constituents, the setters and presentations from invited IASB may establish a working group at this parties. All discussions of technical issues stage and a project team for the project will related to the draft paper take place in public be selected. The project manager draws up a sessions. When the draft is completed and project plan under the supervision of the the IASB has approved it for publication the directors of the technical staff and the discussion paper is published to invite public project team may also include members of comment. The IASB normally allows a staff from other accounting standard-setters, period of 120 days for comment on a as deemed appropriate by the IASB.

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discussion paper, but may allow a longer dissenting IASB members (if any). The period on major projects (which are those IASB normally allows a period of 120 days projects involving pervasive or difficult for comment on an exposure draft. If the conceptual or practical issues). After the matter is exceptionally urgent, the document comment period has ended the project team is short, and the IASB believes that there is analyses and summaries the comment letters likely to be a broad consensus on the topic, for the IASB s consideration. Comment the IASB may consider a comment period of letters are posted on the IASB s website. In no less than 30 days, but it will set such a addition, a summary of the comments is short period only after formally requesting posted on their website as a part of IASB and obtaining prior approval from 75 per meeting observer notes. If the IASB decides cent of the Trustees. The project team to explore the issues further, it may seek collects summaries and analyses the additional comment and suggestions by comments received for the IASB s conducting field visits, or by arranging deliberation. After the comment period ends, public hearings and round-table meetings. the IASB reviews the comment letters received and the results of other Draft the IFRS: Publication of an exposure consultations. As a means of exploring the draft is a mandatory step in due process. An issues further, and soliciting further exposure draft is the IASB s main vehicle comments and suggestions, the IASB may for consulting the public. Unlike a conduct field visits, or arrange public discussion paper, an exposure draft sets out hearings and round-table meetings. The a specific proposal in the form of a proposed IASB is required to consult the IFRS IFRS (or amendment to an IFRS). The Advisory Council and maintains contact development of an exposure draft begins with various groups of constituents. with the IASB considering issues on the basis of staff research and recommendations, Developing and publishing the standard as well as comments received on any discussion paper, and suggestions made by The development of an IFRS is carried out the IFRS Advisory Council, working groups during IASB meetings, when the IASB and accounting standard-setters and arising considers the comments received on the from public education sessions. After exposure draft. Changes from the exposure resolving issues at its meetings, the IASB draft are posted on the website. After instructs the staff to draft the exposure draft. resolving issues arising from the exposure When the draft has been completed, and the draft, the IASB considers whether it should IASB has balloted on it, with a minimum of expose its revised proposals for public nine votes necessary to publish an exposure comment, for example by publishing a draft, the IASB publishes it for public second exposure draft. If the IASB decides comment. An exposure draft contains an that re-exposure is necessary, the due invitation to comment on a draft IFRS, or process to be followed is the same as for the draft amendment to an IFRS, that proposes first exposure draft As it moves towards requirements on recognition, measurement completing a new IFRS or major and disclosures. The draft may also include amendment to an IFRS, the IASB prepares a mandatory application guidance and project summary and feedback statement. implementation guidance, and will be These give direct feedback to those who accompanied by a basis for conclusions on submitted comments on the exposure draft the proposals and the alternative views of identify the most significant matters raised

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in the comment process and explain how the development of the pronouncement and IASB responded to those matters. At the consideration of any unexpected costs or same time, the IASB prepares an analysis of implementation problems encountered. A the likely effects of the forthcoming IFRS or review may also be prompted by: Changes major amendment. The analysis will in the financial reporting environment and therefore attempt to assess the likely effects regulatory requirements, Comments made of the new IFRS on: by the IFRS Advisory Council, the IFRS Interpretations Committee, standard-setters a) The financial statements of those and constituents about the quality of the applying IFRSs. IFRS. b) The possible compliance costs for preparers. Presentation of Financial statement c) The costs of analysis for users (including the costs of extracting Companies Act requires preparation of data. d) Identifying how the data have been a) Balance Sheet. measured and adjusting data for the b) Profit & Loss Account. purposes of including them in, for c) Notes to Accounts example, a valuation model. d) Statement of Financial Position e) The comparability of financial (Balance Sheet) information between reporting e) Income Statement (Profit & Loss periods for an individual entity and Account) between different entities in a f) Statement of Changes in Equity particular reporting period, and (SOCIE) f) The quality of the financial g) Statement of Cash flows. information and its usefulness in h) Notes comprising a summary of assessing the future cash flows of an significant accounting policies & other entity. explanatory information. i) Statement of financial position as at After the standard is issued: After an IFRS the beginning of the earliest comparative is issued, IASB members and staff hold period when an entity applies an accounting regular meetings with interested parties, policy retrospectively or makes a including other standard-setting bodies, to retrospective restatement of items in its help understand unanticipated issues related financial statements, or when it reclassifies to the practical implementation and potential items in its financial statement. impact of its provisions. The IFRS Foundation also fosters educational Balance sheet: IFRS does not prescribe a activities to ensure consistency in the particular format of Balance Sheet. A application of IFRSs. The IASB carries out a current/non-current presentation of assets & post-implementation review of each new liabilities is used, unless a liquidity IFRS or major amendment. This is normally presentation provides more relevant & carried out two years after the new reliable information. Certain minimum items requirements have become mandatory and are presented on the face of the balance been implemented. Such reviews are sheet. Indian GAAP also does not prescribe normally limited to important issues a particular format; certain items must be identified as contentious during the presented on the face of the balance sheet.

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Whereas Formats prescribed by the & it should be prepared by using indirect Companies Act, 1956 & other Industry method & direct method is prescribed for regulations like banking, insurance etc is insurance companies. applicable for Indian companies for presentation of financial statement. Changes in accounting policy: IFRS prescribes if there is changes in accounting Income statement: IFRS does not prescribe policy then Comparative year s format for the income statement. The entity information is restated and the amount of the should select a method of presenting its adjustment relating to prior period is expenses by either function or nature; this adjusted against opening balances of can either be, on the face of the income retained earnings of the earliest prior period statement, as is encouraged, or in the notes. presented, unless specifically exempted. Additional disclosure of expenses by nature Under Indian GAAP restatement is not is required if functional presentation is used. required. The effect of changes is included IFRS requires, as a minimum presentation of in current year income statement. The the following items on the face of the impact of change is disclosed. income statement: Correction of errors: IFRS prescribes if a) Revenue. error occurred before the earliest prior b) Finance costs period presented, the opening balances of c) Share of post-tax result of associates assets, liabilities and equity for the earliest prior period presented are restated. Whereas, and Joint ventures accounted for Indian GAAP prescribes if errors occurred using the equity method tax expense then restatement is not required. The effect d) Profit or loss for the period of correction is included in current year income statement with separate disclosure. Statement of Changes in Equity (SOCIE) Conclusion Under IFRS Statement of Changes in Equity (SOCIE) is presented as a primary International financial Reporting Standard statement. In addition to the items required focuses on quality, reliability & relevancy to be in SOCIE, it should show capital aspects of the information to all its users all transactions with owners, the movement in over the globe while setting a new standard. accumulated profit and a reconciliation of all Harmonization of Accounting Standard is a other components of equity. Whereas under need to create & develop global economy. Indian GAAP no separate statement is Harmonisation wills result into true & fair required. Changes in shareholders equity presentation of financial statement that can are disclosed in separate schedules of Share be easily accessible to all the potential users Capital and Reserves & Surplus . including potential investors. IFRS provided detailed guideline for presentation of Statement of Cash flows: IFRS requires financial statement & it gives more insights preparation of cash flow statement no about the financial information of the entity exemptions for preparation of the same. FRS so that investor can compare it with other permits the preparation of cash flow entity to find out best investment option. For statement using either direct or indirect MNC s adoption of IFRS will result into method the In India as per AS-3 cash flow reduction in the cost of preparation of statement is mandatory for listed companies

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