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Accounting Standards

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Accounting Standards

Latest official content and updates published under Accounting Standards.

Guidance Note on Audit of Inventories

Guidance Note on Audit of Inventories
The Guidance Note deals with procedures of the auditor in respect of audit of inventories. It outlines the peculiar features of inventories, which impact the audit procedures. The following is a gist of the important aspects of audit of inventories covered by the Guidance Note:
  • Internal Control Evaluation:segregation of incompatible functions, standard form for recording movement of inventory, cross checking of data generated by different departments.
  • Verification: management’s responsibility for physical verification, sufficient appropriate audit evidence for existence, ownership and valuation, procedures for verification by auditor.
  • Examination of Records: type of records, extent of auditor’s examination, auditor’s procedures in case of absence or insufficiency of records.
  • Attendance at Stock Taking: need for auditor’s attendance at stock taking, methods and procedures for stock taking, factors to be considered and procedures to be adopted in assessing the adequacy of stock taking, movement of stocks during stock taking, cut off procedures.
  • Confirmation from Third Parties: factors to be seen, confirmations from third parties.
  • Examination of Valuation and Disclosures: basis for valuation of inventories and methods of applying the basis, compliance with Accounting Standard (AS) 2, “Valuation of Inventories”, use of standard costing, examination of the disclosure in financial statements.
  • Analytical Review Procedures: illustrative analytical procedures, comprising mainly of comparison of various elements.
  • Work in Progress: assessing appropriateness of its valuation etc.
  • Management Representations
  • Documentation by the auditor
The Guidance Note also gives illustrated set of instructions to be issued by the client to its staff responsible for stock taking, illustrative letter of confirmation of inventories held by others, illustrative letter of confirmation of inventories held by the entity on behalf of others and an illustrative management representation letter for inventories.
The Clarification issued by the Institute on the auditor’s duties where inventories are stated to be “As Valued and Certified by the Management” in the financial statements, issued in September, 1999, has also been given. (This Clarification is given at the end of the Guidance Note only in the Handbook of Auditing Pronouncements, Vol. II and is not available in the Guidance Note published as a separate booklet).
Issued in August, 1994
Published in the Handbook of Auditing Pronouncements, Vol. II (Edn. 2005).
Also available as a separate publication of the Institute (price: Rs. 15/-).
ISBN: 81-85868-55-7.

Withdrawal of the Announcement issued by the Council on ‘Treatment of exchange differences under Accounting Standard (AS) 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates vis-à-vis Schedule VI to the Companies Act, 1956’

Announcement
Deferment of Applicability of Announcement on ‘Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction’
1.  The Institute of Chartered Accountants of India (ICAI), in January 2006, issued an Announcement on ‘Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction’. Pending the issuance of the proposed Accounting Standard on ‘Financial Instruments: Recognition and Measurement’, which is under formulation, the said Announcement prescribes the accounting treatment which should be followed in respect of the exchange differences arising on the forward exchange contracts entered into to hedge the foreign currency risks of a firm commitment or a highly probable forecast transaction.
2.  Subsequently, an Announcement was issued in June 2006, deferring the applicability of the Announcement issued in January 2006, to the accounting period(s) commencing on or after April 1, 2007.
3.  As the proposed Accounting Standard on ‘Financial Instruments: Recognition and Measurement’, is still to be issued by the Council, the matter was reconsidered at the 269th meeting of the Council held on July 18, 2007, whereat it has been decided to further defer the applicability of the Announcement issued in January 2006, to accounting period(s) commencing on or after April 1, 2008.

About the Accounting Standards Board

Accounting Standards
OBJECTIVES AND FUNCTIONS OF THE ACCOUNTING STANDARDS BOARD
1. The following are the objectives of the Accounting Standards Board:

(i) To conceive of and suggest areas in which Accounting Standards need to be developed.

(ii) To formulate Accounting Standards with a view to assisting the Council of the ICAI in evolving and establishing Accounting Standards in India.

(iii) To examine how far the relevant International Accounting Standard/International Financial Reporting Standard (see paragraph 3 below) can be adapted while formulating the Accounting Standard and to adapt the same.

(iv) To review, at regular intervals, the Accounting Standards from the point of view of acceptance or changed conditions, and, if necessary, revise the same.

(v) To provide, from time to time, interpretations and guidance on Accounting Standards.

(vi) To carry out such other functions relating to Accounting Standards.
2. The main function of the ASB is to formulate Accounting Standards so that such standards may be established by the ICAI in India. While formulating the Accounting Standards, the ASB will take into consideration the applicable laws, customs, usages and business environment prevailing in India.
3. The ICAI, being a full-fledged member of the International Federation of Accountants (IFAC), is expected, inter alia, to actively promote the International Accounting Standards Board’s (IASB) pronouncements in the country with a view to facilitate global harmonisation of accounting standards. Accordingly, while formulating the Accounting Standards, the ASB will give due consideration to International Accounting Standards (IASs) issued by the International Accounting Standards Committee (predecessor body to IASB) or International Financial Reporting Standards (IFRSs) issued by the IASB, as the case may be, and try to integrate them, to the extent possible, in the light of the conditions and practices prevailing in India.
4. The Accounting Standards are issued under the authority of the Council of the ICAI. The ASB has also been entrusted with the responsibility of propagating the Accounting Standards and of persuading the concerned parties to adopt them in the preparation and presentation of financial statements. The ASB will provide interpretations and guidance on issues arising from Accounting Standards. The ASB will also review the Accounting Standards at periodical intervals and, if necessary, revise the same.
COMPOSITION OF THE ACCOUNTING STANDARDS BOAR0
(for the period from 05-2-2007 to 04-2-2008)
Elected Members of the Council of ICAI on the Accounting Standards Board:
CA. Amarjit Chopra, Chairman New Delhi
Shri Pankaj I. Jain, Vice-Chairman Mumbai
CA. Sunil H. Talati, President
(Ex-officio)		 Ahmedabad
CA. Ved Kumar Jain, Vice-President
(Ex-officio)		 New Delhi
CA. Rajkumar S. Adukia Mumbai
CA. Sanjeev K. Maheshwari Mumbai
CA. Mahesh P. Sarda Jamnagar
CA. S. Gopalakrishnan Hyderabad
CA. S. Santhanakrishnan Chennai
CA. Abhijit Bandopadhyay Kolkata
CA. Manoj Fadnis Indore
CA. Harinderjit Singh New Delhi
Nominees of the Central Government on the Council of ICAI on the Accounting Standards Board:
Shri Jitesh Khosla,
Joint Secretary, New Delhi		 Ministry of Company Affairs
Shri A.K. Awasthi, Director General (Commercial), New Delhi Office of the Comptroller and Auditor General of India
Shri R. Sekar, Joint Secretary (TRU-II), New Delhi Central Board of Excise and Customs
Co-opted Members/Special Invitees
CA. Rahul Roy, Kolkata Federation of Indian ChambersOf Commerce & Industry (FICCI)
CA. Manish Dawar, Gurgaon Associated Chambers of Commerce &Industry (ASSOCHAM)
CA. Sanjay Grover, New Delhi Institute of Company Secretaries of India (ICSI)
CA. A.N. Raman, Chennai Institute of Cost and Works Accountants of India (ICWAI)
CA. P.R. Ramesh, Hyderabad Co-opted by the ICAI
Shri P.R. Ravi Mohan, Mumbai Reserve Bank of India (RBI)
CA. Uday Phadke, Mumbai Confederation of Indian Industry (CII)
CA. P. Sitaram, Mumbai Industrial Development Bank of India (IDBI)
Dr. Vijay Gupta, Indore Indian Institute of Management (IIM), Indore
Nomination Awaited Securities and Exchange Board of India (SEBI)
Smt. Sonali Singh, New Delhi Office of the Controller General of Accounts (CGA)
Nomination Awaited. University Grants Commission
Ms. Mamta Suri, Hyderabad Insurance Regulatory and Development Authority (IRDA)
Shi B.D. Vishnoi, New Delhi Central Board of Direct Taxes
CA. Atul Chunilal Bheda, Mumbai Chairman, Expert Advisory Committee of ICAI
CA. Shanti Lal Daga, Hyderabad Chairman, Research Committee of ICAI
Dr. Avinash Chander, Technical Director Secretary to the Board
RECENT SIGNIFICANT ACHIEVEMENTS
Released
  • Release of Compendium of Accounting Standards (ASs) as on July 1, 2006, covering ASs 1-29 and Accounting Standards Interpretations (ASIs) and Announcements on accounting aspects issued up to that date along with CD.
  • Revision of Accounting Standards Interpretation (ASI) 14, Disclosure of Revenue from Sales Transactions (Re.: AS 9, Revenue Recognition).
  • Issuance of Guidance Note on Recognition of Revenue by Real Estate Developers
Announcements issued
  • Applicability Date of Announcement on ‘Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction’ .
  • Deferment of Applicability of Announcement on ‘Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction’.
Exposure Drafts Issued
  • Revised Accounting Standard (AS) 10, Tangible Fixed Assets.
  • Proposed Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurement.
  • Proposed Accounting Standard (AS) 31, Financial Instruments: Presentation.
    Consequent to above proposed Accounting Standards, Exposure Drafts of the Limited Revisions to the following Accounting Standards have been issued.
  • Accounting Standard (AS) 2 (revised 1999), Valuation of Inventories.
  • Accounting Standard (AS) 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates.
  • Accounting Standard (AS) 21 (issued 2001), Consolidated Financial Statements and Accounting for Investments in Subsidiaries in Separate Financial Statements.
  • Accounting Standard (AS) 23 (issued 2001), Accounting for Investments in Associates.
  • Accounting Standard (AS) 26 (issued 2002), Intangible Assets.
  • Accounting Standard (AS) 27 (issued 2002), Financial Reporting of Interests in Joint Ventures.
  • Accounting Standard (AS) 28 (issued 2002), Impairment of Assets.
  • Accounting Standard (AS) 29 (issued 2003), Provisions, Contingent Liabilities and Contingent Assets.
Submission of comments to International Accounting Standards Board (IASB)
  • Exposure Draft of proposed IFRS on Operating Segments.
  • Discussion paper on Management Commentary
  • Exposure Draft of proposed amendments to IAS 32, Financial Instruments; Presentation
  • Exposure Draft of proposed amendments to IAS 1, Presentation of Financial Statements
  • Proposed amendments to IAS 16, Borrowing Costs.
Submission of comments to the RBI
  • Draft revised Guidelines regarding ‘Classification and Valuation of Investments’.
INITIATIVES
Finalisation of the drafts of proposed/revised Accounting Standards for public exposure
  • Revised Accounting Standard (AS) 1, Presentation of Financial Statements.
  • Revised Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.
    Consequent to above revised Accounting Standards, Limited Revisions to the following Accounting Standards are being proposed:
    • Accounting Standard (AS) 3 (revised 1997), Cash Flow Statements.
    • Accounting Standard (AS) 17 (Issued 2000), Segment Reporting.
    • Accounting Standard (AS) 20 (Issued 2001), Earnings Per Share.
    • Accounting Standard (AS) 23 (Issued 2001), Accounting for Investments in Associates.
    • Accounting Standard (AS) 25 (Issued 2002), Interim Financial Reporting.
Finalisation of the drafts of proposed/revised Accounting Standards for circulation among the Institute’s Council Members and specified outside bodies (limited exposure)
  • Revised accounting Standard (AS) 12, Accounting for Government Grants and Disclosure of Government Assistance
  • Proposed Accounting Standard on Non-Current Assets Held for Sale and Discontinued Operations (corresponding to IFRS 5)
Subjects on which new Accounting Standards are under preparation
  • Financial Instruments: Disclosures (corresponding to IFRS 7)
  • Share-based Payment (corresponding to IFRS 2)
  • Insurance Contracts (corresponding to IFRS 4)
  • Agriculture (corresponding to IAS 41)
  • Accounting and Reporting by Retirement Benefit Plans (corresponding to IAS 26)
  • Investment Property (corresponding to IAS 40)
Accounting Standards under revision
  • Accounting Standard (AS) 4, Events After the Balance Sheet Date
  • Accounting Standard (AS) 9, Revenue Recognition
  • Accounting Standard (AS) 14, Accounting for Amalgamations
Other project in pipeline
  • Revision of ‘Guidance Note on Terms Used in the Financial Statements’
  • Constitution of Task Force for preparation of a paper on accounting for entities subject to tariff fixation such as electricity companies, to be considered by the National Standards-Setters.
  • Constitution of Task Force for preparation of a Concept Paper on the issue of convergence with the International Accounting Standards (IASs)/ International Financial Reporting Standards (IFRSs).
DETAILS OF PROJECTS IN PROGRESS ACCOUNTING STANDARDS BOARD
I.

Formulation of New Accounting Standards

  1. Financial Instruments: Disclosures (corresponding to IFRS 7)

  2. Share-based Payment (corresponding to IFRS 2)

  3. Insurance Contracts (corresponding to IFRS 4)

  4. Agriculture (corresponding to IAS 41)

  5. Accounting and Reporting by Retirement Benefit Plans (corresponding to IAS 26)

  6. Investment Property (corresponding to IAS 40)

  7. Non-Current Assets Held for Sale and Discontinued Operations (corresponding to IFRS 5)

II.

Accounting Standards under revision

  1. Accounting Standard (AS) 1, Disclosure of Accounting Policies (revised Standard to be titled as Presentation of Financial Statements)

  2. Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date (revised Standard to be titled as Events Occurring After the Balance Sheet Date)

  3. Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (revised Standard to be titled as Accounting Policies, Changes in Accounting Estimates and Errors)

  4. Accounting Standard (AS) 9, Revenue Recognition

  5. Accounting Standard (AS) 14, Accounting for Amalgamations

  6. Accounting Standard (AS) 12, Accounting for Government Grants (revised Standard to be titled as Accounting for Government Grants and Disclosure of Government Assistance)

  7. Accounting Standard (AS) 10, Accounting for Fixed Assets (revised Standard to be titled as Property, Plant and Equipment)
III.

Other Projects

  1. Revision of Guidance Note on Terms used in Financial Statements

  2. Constitution of Task Force for preparation of an approach paper on Accounting for Tariff Regulated Entities such as electricity companies, to be considered by the National Standards-Setters, further to be considered by IASB.

  3. Constitution of Task Force for preparation of a Concept Paper on the issue of convergence with the International Accounting Standards (IASs)/ International Financial Reporting Standards (IFRSs).