HARMONISATION OF VARIOUS DIFFERENCES BETWEEN THE
ACCOUNTING STANDARDS ISSUED BY THE ICAI AND THE ACCOUNTING STANDARDS NOTIFIED
BY THE CENTRAL GOVERNMENT
The Council has considered the differences between
the Accounting Standards issued by the Institute of Chartered Accountants of
India and the Accounting Standards notified on 7th December,
2006 by the Central Government under the Companies (Accounting Standards)
Rules, 2006. The Council decided the following scheme for harmonisation of
differences:
1. Harmonisation of Differences between the
Accounting Standards issued by the ICAI and those notified by the Government on
account of language, presentation, etc.
The Council noted that following differences
between the Accounting Standards issued by the ICAI and those notified by the
Government are on account of language, presentation, etc.
(a) The Accounting Standards
notified by the
Government use the
term
‘accounting
standard’ or ‘standard’ instead of the word ‘Statement’ used in the
Accounting
Standards issued by the Institute of Chartered Accountants of India
(b)
The Accounting Standards
notified by the Government use the heading ‘Main Principles’ instead of
‘Accounting Standard’ appearing above the bold-italic paragraphs in respect of the old
accounting standards issued by the ICAI. For example,
the heading ‘Main Principles’ appears above paragraphs 24 to 27 of
AS 1 notified by the Government (The
other accounting standards notified by the Government in which this heading is
used are AS 4, AS 6, AS 9, AS 10, AS 12, AS 13 and AS 14).
(c)
Paragraph numbers of certain
Accounting Standards, notified by the Government have been changed as compared
to paragraph numbers of Accounting Standards issued by the ICAI. For instance,
in AS 10, issued by the ICAI, numbers of paragraphs 9.2, 16.3 to 16.7, 37 and
38 appear even though there is no matter in these paragraphs as the same have
been withdrawn due to subsequent issuance of Accounting Standards such as AS 16
and AS 26. In other words, the above paragraph numbers remain. However,
in
the Accounting Standard notified by the Government, the paragraph numbers have
been changed by omitting the aforesaid paragraphs.
Also, numbering
of certain sub-paragraphs, e.g.,
(a), (b), (c),….
etc., have
been
done in the Accounting Standards notified by the Government, whereas these were indicated as ‘bullets’ in Accounting Standards issued
by the ICAI.
For example,
paragraph 20 of AS 14 and paragraph 24 of AS 18.
(d)
The word ‘Illustration’
has been used in the Accounting Standards notified by the Government instead of ‘Examples’ as used in various
Standards issued by the ICAI. Similarly, the word ‘Appendix’ used in the
Accounting Standards issued by the ICAI, containing
various examples at the end of an Accounting Standard, has been replaced by the word ‘Illustrations’ in the notified
Accounting Standards.
(e)
Accounting Standards issued by the
ICAI, at certain places make reference to the Preface to the Statements of
Accounting Standards. Since the Government has not notified the Preface, some
of the requirements of the Preface, such as the consideration of materiality,
have been included in the
‘General Instructions’ in
the Rules. Accordingly, the Accounting Standards notified by
the Government make reference to the General Instructions.
Since points 1(a) to 1(d), as mentioned above do
not create any substantive difference between Accounting Standards issued by
the ICAI and those notified by the Government, the Council decided to change
the Standards issued by the ICAI in order to harmonise the two sets of
Accounting Standards. Accordingly, changes are being made in the Accounting
Standards and the amended Accounting Standards will be published in the
Compendium of Accounting Standards 2008.
With regard to
1(e) above, the
Council decided that
no amendment was
required in the Accounting Standards issued by the
ICAI on account of the reference to ‘General Instructions’
in the Rules notified by the Government as compared to the ‘Preface’ in the
Accounting Standards issued by the ICAI.
2. Harmonisation of differences caused by
inclusion of the consensus portion of the Accounting Standards Interpretations
(ASIs) issued by the ICAI in the Accounting Standards notified by the
Government with certain exceptions.
The
Council noted that consensus portion of certain ASIs have been included in the notified
Accounting Standards as ‘Explanation’ to the relevant paragraphs as
indicated below:
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ASI
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Title of the ASI
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Relevant
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Paragraph(s)
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of
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the
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No.
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Accounting Standards
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1
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Substantial Period
of Time (Re.
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Paragraph 3.2
of Accounting Standard
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AS 16)
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(AS) 16, ‘Borrowing
Costs’
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3
Accounting for Taxes on Income Paragraph 13 of
Accounting Standard in the situations of Tax Holiday (AS)
22, ‘Accounting
for Taxes on
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under Sections 80-IA and 80-IB of
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Income’
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the Income-tax
Act, 1961 (Re.
AS
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22)
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4
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Losses under
the head Capital
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Explanation 2
to paragraph 17
of
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Gains (Re. AS 22)
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Accounting
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Standard
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(AS)
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22,
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‘Accounting for Taxes on
Income’
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||
5
Accounting for Taxes on Income Paragraph 13 of
Accounting Standard in the situations of Tax Holiday (AS)
22, ‘Accounting
for Taxes on under Sections 10A and 10B of Income’
the Income-tax Act, 1961 (Re. AS
22)
6
Accounting for
Taxes on Income
Paragraph 21 of
Accounting Standard
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in the
context of Section
115JB of
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(AS) 22, ‘Accounting for
Taxes on
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the Income-tax
Act, 1961 (Re.
AS
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Income’
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22)
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7
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Disclosure of
deferred tax assets
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Paragraph 30
of Accounting Standard
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and deferred
tax liabilities in
the
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(AS) 22, ‘Accounting for
Taxes on
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balance
sheet of a
company (Re.
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Income’
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AS 22)
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8
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Interpretation of
the term ‘Near
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Explanation (b)
to paragraph 11
of
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Future’ (Re.
AS 21, AS 23 and AS
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Accounting
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Standard
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(AS)
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21,
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27)
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‘Consolidated Financial
Statements’
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Paragraph 7
of Accounting Standard
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(AS) 23,
‘Accounting for
Investments
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in
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Associates
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in
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Consolidated
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Financial
Statements’
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Paragraph 28
of Accounting Standard
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(AS) 27, ‘Financial Reporting of
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Interests in
Joint Ventures’
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9
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Virtual
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certainty
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supported
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by
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Explanation 1
to paragraph 17
of
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convincing evidence (Re.
AS 22)
|
Accounting
|
Standard
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(AS)
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22,
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‘Accounting for Taxes on
Income’
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10
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Interpretation of
paragraph 4(e) of
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Paragraph 4(e) of
Accounting Standard
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AS 16 (Re. AS 16)
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(AS) 16, ‘Borrowing Costs’
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13
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Interpretation
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of
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paragraphs
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26
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Paragraphs 26
and 27 of
Accounting
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and 27 of AS 18 (Re. AS
18)
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Standard (AS)
18, ‘Related Party
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Disclosures’
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14
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Disclosure of
Revenue from Sales
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Paragraph 10
of Accounting Standard
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Transactions (Re. AS 9)
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(AS) 9, ‘Revenue Recognition’
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15
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Notes
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to
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the
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Consolidated
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Paragraph 6
of Accounting Standard
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Financial Statements
(Re. AS 21)
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(AS)
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21,
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‘Consolidated
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Financial
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Statements’
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16
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Treatment of
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Proposed Dividend
|
Explanation (b)
to paragraph 6
of
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under AS 23 (Re. AS 23)
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Accounting
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Standard
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(AS)
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23,
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‘Accounting
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for
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Investments
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in
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Associates
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in
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Consolidated Financial
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Statements’
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17
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Adjustments
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to
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the
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Carrying
|
Explanation (a)
to Paragraph 6
of
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Amount
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of
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Investment
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arising
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Accounting
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Standard
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(AS)
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23,
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from Changes in
Equity not
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‘Accounting for Investments in
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Included in the
Statement of Profit
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Associates
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in
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Consolidated Financial
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and Loss
of the Associate
(Re. AS
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Statements’
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23)
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18
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Consideration of
Potential Equity
|
Paragraph 4
of Accounting Standard
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Shares
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for
Determining
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whether
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(AS)
23, ‘Accounting for
Investments
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an Investee
is an Associate
under
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in
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Associates
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in
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Consolidated
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||||||||||
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AS 23 (Re. AS 23)
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Financial
Statements’
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19
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Interpretation
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of
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the
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term
|
Paragraph 13
of Accounting Standard
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‘intermediaries’ (Re. AS 18)
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(AS) 18, ‘Related Party
Disclosures’
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20
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Disclosure
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of
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Segment
|
Paragraph 38
of Accounting Standard
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Information (Re. AS 17)
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(AS) 17, ‘Segment
Reporting’
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21
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Non-Executive Directors
on the
|
Paragraph 14
of Accounting Standard
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Board-whether related
parties (Re.
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(AS) 18, ‘Related Party
Disclosures’
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AS 18)
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22
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Treatment
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of
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Interest
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for
|
Point (b) of
the definition of ‘Segment
|
|||||||||
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determining
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Segment
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Expense
|
Expense’ under
paragraph 5.6 of
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(Re. AS 17)
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Accounting
|
|
Standard
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(AS)
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17,
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‘Segment
Reporting’
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24
|
Definition of
‘Control’ (Re. AS
|
Paragraph 10
of Accounting Standard
|
|||||||||||||
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21)
|
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(AS)
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21,
|
‘Consolidated
|
Financial
|
||||
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|
|
Statements’
|
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25
|
Exclusion of
a subsidiary from
|
Explanation (a)
to paragraph 11
of
|
|||||||||||||
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consolidation
(Re. AS 21)
|
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|
Accounting
|
|
Standard
|
|
(AS)
|
21,
|
|||||
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|
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‘Consolidated
Financial Statements’
|
|||||||
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26
|
Accounting for taxes on income in
|
Explanation (a)
to paragraph 13
of
|
|
||||||
|
|
the
|
consolidated
|
financial
|
Accounting
|
Standard
|
(AS)
|
21,
|
|
|
|
|
statements (Re. AS 21)
|
|
‘Consolidated
Financial Statements’
|
|
|||||
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28
|
Disclosure of
parent’s/venturer’s
|
Explanation (b)
to paragraph 13
of
|
|
||||||
|
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shares in
post-acquisition reserves
|
Accounting
|
Standard
|
(AS)
|
21,
|
|
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of
|
a subsidiary/jointly
|
controlled
|
‘Consolidated
Financial Statements’
|
|
||||
|
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entity (Re. AS 21 and AS
27)
|
Paragraph
32 of Accounting
Standard
|
|
||||||
|
|
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|
|||||
|
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(AS) 27,
‘Financial
Reporting of
|
|
||||
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Interests in
Joint Ventures’
|
|
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|
||
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30
|
Applicability
of AS
29 to Onerous
|
Paragraph 1(b) of
Accounting Standard
|
|
||||||
|
|
Contracts (Re. AS 29)
|
|
(AS)
|
29,
|
‘Provisions,
|
Contingent
|
|
||
|
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|
|
|
Liabilities
and Contingent Assets’
|
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|
|||
The
Council decided to make the consensus portion of the above ASIs a part of the
Accounting Standards issued by the Institute. Accordingly, the Accounting
Standards are being amended to incorporate the consensus portion
of the above mentioned ASIs as
‘Explanation’ to the relevant paragraphs.
Following ASIs have not been
included in the notified Accounting Standards:
|
(i)
|
ASI 2
|
Accounting for Machinery
Spares (Re. AS
2
|
|
|
|
and AS 10)
|
|
(ii)
|
ASI 11
|
Accounting
for Taxes on Income in case of an
|
|
|
|
Amalgamation
(Re. AS 22)
|
|
(iii)
|
ASI 12
|
Applicability
of AS 20 (Re. AS 20)
|
|
(iv)
|
ASI 23
|
Remuneration
paid to key management
|
|
|
|
personnel – whether a related
party transaction
|
|
|
|
(Re. AS
18)
|
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(v)
|
ASI 27
|
Applicability of AS
25 to Interim
Financial
|
|
|
|
Results
(Re. AS 25)
|
|
(vi)
|
ASI 29
|
Turnover in case
of Contractors (Re.
AS 7
|
|
|
|
(revised
2002))
|
The Council decided to withdraw the above ASIs and
issue the same as Guidance Notes except ASI 2 and ASI 11. Guidance Notes are
being separately issued.
3. Harmonisation of
differences with regard to applicability of Accounting Standards to various
Levels of entities.
The Council noted that as per its
Announcement, ‘Applicability of Accounting Standards’, issued by the ICAI
(published in ‘The Chartered Accountant’, November
2003), there
are three levels
of entities. Level
II entities and
Level III entities
as per
the said Announcement are considered
to be the Small and Medium Entities (SMEs). On the other hand, as per the
Accounting Standards notified by the Government, there are two levels, namely,
Small and Medium-sized Companies (SMCs) as defined in the Rules and companies
other than SMCs. Non-SMCs are required to comply with all the Accounting Standards
in their entirety, while certain exemptions/ relaxations have been given to
SMCs. Certain differences in the criteria for classification of the levels were
also noted.
In this
regard, the Council decided that the ICAI should continue to have three levels
as at present instead of two as per the Government notification, as below:
(a)
Level I should be as per the existing Level I,
modified keeping in view the definition of SMC under the Government
Notification except co-operative banks should be included along with the banks
and reference to industrial, commercial and business reporting entities should
be retained as part of the criteria in (vi) and (vii) of the existing ICAI
criteria for Level I.
(b)
Level II should include companies other than those
covered under Level I and the non-corporate entities having the same criteria
as at present for ICAI Level II. The exemptions or relaxations available to
this Level should be the same as available to SMCs under the Government
Notification.
(c)
Level III should cover only non-corporates not
covered in Levels I and II. Exemptions or relaxations available at Level III as
at present should continue to be available at this Level.
(d)
Exemptions or relaxations available to enterprises
employing less than 50 employees during the year in respect of AS 15, Employee
Benefits (revised 2005), should continue to be available to non-corporate
entities under Levels II and III.
As a
consequence to the above decision of the Council to harmonise with the
notification:
(i) the harmonised criteria for classification of
entities and other instructions regarding SMEs are given in Annexure I;
(ii) applicability of Accounting Standards to
companies as per the Government Notification is given in Annexure II; and
(iii)
applicability of Accounting Standards to
non-corporate entities is given in Annexure III.
The
Council decided that the above requirements with regard to SMEs should be
applicable to non-corporates for accounting periods commencing on or after
1-4-2008.
Annexure I
Harmonised Criteria for Classification of Entities
(1)
Criteria for classification of non-corporate entities as decided by the
Institute of Chartered Accountants of India
Level I Entities
Non-corporate
entities which fall in any one or more of the following categories, at the end
of the relevant accounting period, are classified as Level I entities:
(i)
Entities whose equity or debt securities are
listed or are in the process of listing on any stock exchange, whether in India
or outside India.
(ii)
Banks (including co-operative banks), financial
institutions or entities carrying on insurance business.
(iii)
All commercial, industrial and business reporting
entities, whose turnover (excluding other income) exceeds rupees fifty crore in
the immediately preceding accounting year.
(iv)
All commercial, industrial and business reporting
entities having borrowings (including public deposits) in excess of rupees ten
crore at any time during the immediately preceding accounting year.
(v)
Holding
and subsidiary entities of any one of the above.
Level II Entities (SMEs)
Non-corporate
entities which are not Level I entities but fall in any one or more of the
following categories are classified as Level II entities:
(i) All commercial, industrial and
business reporting entities, whose turnover (excluding other income) exceeds
rupees forty lakh but does not exceed rupees fifty crore in the immediately
preceding accounting year.
(ii)
All commercial, industrial and business reporting
entities having borrowings (including public deposits) in excess of rupees one
crore
but not in
excess of rupees ten crore at any time during the immediately preceding
accounting year.
(iii) Holding and subsidiary entities of any one of the
above.
Level III Entities (SMEs)
Non-corporate
entities which are not covered under Level I and Level II are considered as
Level III entities.
Additional requirements
(1)
An SME which does not disclose certain information
pursuant to the exemptions or relaxations given to it should disclose (by way
of a note to its financial statements) the fact that it is an SME and has
complied with the Accounting Standards insofar as they are applicable to
entities falling in Level II or Level III, as the case may be.
(2)
Where an entity, being covered in Level II or
Level III, had qualified for any exemption or relaxation previously but no
longer qualifies for the relevant exemption or relaxation in the current
accounting period, the relevant standards or requirements become applicable
from the current period and the figures for the corresponding period of the
previous accounting period need not be revised merely by reason of its having
ceased to be covered in Level II or Level III, as the case may be. The fact
that the entity was covered in Level II or Level III, as the case may be, in
the previous period and it had availed of the exemptions or relaxations
available to that Level of entities should be disclosed in the notes to the
financial statements.
(3)
Where an entity has been covered in Level I and
subsequently, ceases to be so covered, the entity will not qualify for
exemption/relaxation available to Level II entities, until the entity ceases to
be covered in Level I for two consecutive years. Similar is the case in respect
of an entity, which has been covered in Level I or Level II and subsequently,
gets covered under Level III.
(4)
If an entity covered in Level II or Level III opts
not to avail of the exemptions or relaxations available to that Level of
entities in respect of any but not all of the Accounting Standards, it should
disclose the Standard(s) in respect of which it has availed the exemption or
relaxation.
(5)
If an entity covered in Level II or Level III
desires to disclose the information not required to be disclosed pursuant to
the exemptions or relaxations available to that
Level of
entities, it should disclose that information in compliance with the relevant
Accounting Standard.
(6) An
entity covered in Level II or Level III may opt for availing certain exemptions
or relaxations from compliance with the requirements prescribed in an
Accounting Standard:
Provided that such a partial exemption or relaxation and
disclosure should not be permitted to mislead any person or public.
(7) In
respect of Accounting Standard (AS) 15, Employee Benefits, exemptions/
relaxations are available to Level II and Level III entities, under two
sub-classifications, viz., (i) entities whose average number of persons
employed during the year is 50 or more, and (ii) entities whose average number
of persons employed during the year is less than 50. The requirements stated in
paragraphs (1) to (6) above, mutatis mutandis, apply to these
sub-classifications.
(2)
Criteria for classification of companies under the Companies (Accounting
Standards) Rules, 2006
Small and Medium-Sized Company (SMC) as defined in
Clause 2(f) of the Companies (Accounting Standards) Rules, 2006:
(f)
“Small
and Medium Sized Company” (SMC) means, a company-
(i)
whose equity or debt securities are not listed or
are not in the process of listing on any stock exchange, whether in India or
outside India;
(ii)
which
is not a bank, financial institution or an insurance company;
(iii)
whose turnover (excluding other income) does not
exceed rupees fifty crore in the immediately preceding accounting year;
(iv)
which does not have borrowings (including public
deposits) in excess of rupees ten crore at any time during the immediately preceding
accounting year; and
(v)
which is not a holding or subsidiary company of a
company which is not a small and medium-sized company.
Explanation: For the purposes of clause
(f), a company shall qualify as a Small and Medium Sized Company, if the
conditions mentioned therein are satisfied as at the end of the relevant
accounting period.
Non-SMCs
Companies
not falling within the definition of SMC are considered as Non-SMCs.
Instructions
A. General Instructions
1. SMCs shall follow the following instructions while
complying with Accounting Standards under these Rules:-
1.1
the SMC which does not disclose certain
information pursuant to the exemptions or relaxations given to it shall disclose
(by way of a note to its financial statements) the fact that it is an SMC and
has complied with the Accounting Standards insofar as they are applicable to an
SMC on the following lines:
“The Company is a Small and Medium Sized
Company (SMC) as defined in the General
Instructions in respect of Accounting Standards notified under the Companies
Act, 1956. Accordingly, the Company has complied with the Accounting Standards
as applicable to a Small and Medium Sized Company.”
1.2
Where a company, being an SMC, has qualified for
any exemption or relaxation previously but no longer qualifies for the relevant
exemption or relaxation in the current accounting period, the relevant
standards or requirements become applicable from the current period and the figures
for the corresponding period of the previous accounting period need not be
revised merely by reason of its having ceased to be an SMC. The fact that the
company was an SMC in the previous period and it had availed of the exemptions
or relaxations available to SMCs shall be disclosed in the notes to the
financial statements.
1.3
If an SMC opts not to avail of the exemptions or
relaxations available to an SMC in respect of any but not all of the Accounting
Standards, it shall disclose the standard(s) in respect of which it has availed
the exemption or relaxation.
1.4
If an SMC desires to disclose the information not
required to be disclosed pursuant to the exemptions or relaxations available to
the SMCs, it shall disclose that information in compliance with the relevant
accounting standard.
1.5
The SMC may opt for availing certain exemptions or
relaxations from compliance with the requirements prescribed in an Accounting
Standard:
Provided
that such a partial exemption or relaxation and disclosure shall not be
permitted to mislead any person or public.
B. Other Instructions
Rule 5 of the Companies
(Accounting Standards) Rules, 2006, provides as below:
“5. An
existing company, which
was previously not
a Small and
Medium
Sized
Company (SMC) and subsequently becomes an SMC, shall not be qualified for
exemption or relaxation in respect of Accounting Standards
available
to an SMC until the company remains an SMC for two consecutive accounting
periods.”
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