Surana College, Peenya

INDIAN ACCOUNTING STANDARDS

2 Marks question and answers
1. What are accounting standards?
Accounting standards are written policy documents issued by expert accounting body or by Government
or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and
disclosures accounting transaction in the financial statements.
2. What is IFRS?
International Financial Reporting Standards (IFRS Standards) is a single set of accounting standards,
developed and maintained by the International Accounting Standards Board
3. What do you mean by convergence with IFRS?
Convergence will involve alignment of the two sets of standards. The compromise is done by adopting
the policies of the IFRS either fully or at least partially.
4. Expand:
 IFRS: International Financial Reporting Standards
 IASB: International Accounting Standard Board
 IASC: International Accounting Standard Committee
 ICAI: Institute of Chartered Accountants of India.
 NACAS: National Advisory Committee on Accounting Standards
 MCA: Ministry of Corporate Affairs
 IND-AS: Indian Accounting standards
 GAAP: Generally Accepted Accounting Principles.
5. What is an Asset?
 A resource controlled by an entity
 Arising out of past event, and
 From which future economic benefits are expected to flow to the entity
6. What is a liability?
 Present obligation of an entity
 Arising from past events,
 The settlement of which is expected to result in an outflow from the entity of resources embodying
economic benefits
7. What is PPE?
Property, plant and equipment are tangible items that:
 Are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
 Are expected to be used during more than one period (12 months).
8. What is carrying amount?
Is the amount at which an asset is recognised after deducting any accumulated depreciation and
accumulated impairment losses.

MAHESH B N MCOM, MBA, ICWAI (inter), (PhD)

 Surana College, Peenya

9. What is fair value?

Is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s
length transactions?
10. What is residual value?
Is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal at the end of its useful life.
11. Define intangible assets?
Intangible asset: It is an identifiable non-monetary asset without physical substance.
It must also satisfy the following basic criteria for being called an asset
• Controlled by entity arising from past event &
• From which future economic benefits are expected to flow to the entity
• Its cost must be reliably measured
12. What is impairment loss?
It is the amount by which the carrying amount of an asset or a cash generating unit exceeds its recoverable
amount.

SECTION B & C
State the need and objectives of Accounting Standards.
The reasons for setting the accounting standards are:
• Comparison between two firms is possible if both of them maintain the same principle, otherwise
proper comparison is not possible. For example, if firm X follows the FIFO method in valuation of stock
whereas firm Y follows the LIFO method for valuing the stock, the comparison between the two firms
becomes useless. The same is possible only when both of them follow identical method of valuing
closing stock.
• The firms are not allowed to maintain and present their accounts according to their own will or choice or
cannot prepare report of financial statements for various interested groups. The same is possible
only when there is common fixed standard for setting practices.
• The accounting standards recognise the principle of equity applicable for different users of
accounting information, viz creditors, investors, shareholders etc.

Briefly explain the convergence of IFRS with Ind-As.

1. Voluntary adoption
Companies can voluntarily adopt Ind AS for accounting periods beginning on or after 1 April 2015 with
comparatives for period ending 31 March 2015 or thereafter. However, once they have chosen this path,
they cannot switch back.

2. Mandatory applicability
1. Phase I : Ind AS will be mandatorily applicable to the following companies for periods beginning on
or after 1 April 2016, with comparatives for the period ending 31 March 2016 or thereafter:

MAHESH B N MCOM, MBA, ICWAI (inter), (PhD)

 Surana College, Peenya

 Companies whose equity and/or debt securities are listed or are in the process of listing on any stock
exchange in India or outside India and having net worth of 500 crore INR or more.
 Companies having net worth of 500 crore INR or more other than those covered above.
 Holding, subsidiary, joint venture or associate companies of companies covered above.

2. Phase II : Ind AS will be mandatorily applicable to the following companies for periods beginning on
or after 1 April 2017, with comparatives for the period ending 31 March 2017 or thereafter:
 Companies whose equity and/or debt securities are listed or are in the process of being listed on
any stock exchange in India or outside India and having net worth of less than rupees 500 Crore.
 Unlisted companies other than those covered in Phase I and Phase II whose net worth are more
than 250 crore INR but less than 500 crore INR.
 Holding, subsidiary, joint venture or associate companies of above companies.

Explain the merits and demerits of IND AS.

Merits of IND AS

 IFRS brings improvement in comparability of financial information and financial performance

with global peers and industry standards
 The adoption of IFRS is expected to result in better quality of financial reporting due to
consistent application of accounting principles and improvement in reliability of financial statements.
 IFRS provide better access to the capital raised from global capital markets since IFRS are now accepted
as a financial reporting framework for companies seeking to raise funds from most capital markets across
the globe.
 IFRS minimize the obstacles faced by Multi-national Corporations by reducing the risk associated with
dual filings of accounts.
 Implementation of uniform accounting practices i.e., IFRS will provide much better-
quality information.
 Uniform accounting standards (IFRS) enable investors to understand better the investment opportunities
as against multiple sets of national accounting standard.
 With the help of IFRS, investors can increase the ability to secure cross border listing.

Demerits of IND AS

 The most noteworthy disadvantage of IFRS relate to the costs related to the application by multinational
companies which comprise of changing the internal systems to make it compatible with the new
reporting standards, training costs and etc.
 The issue of regulating IFRS in all countries, as it will not be possible due to various reasons
beyond IASB or IASC control as they cannot enforce the application of IFRS by all countries of the
world. 3. Issues such as extraordinary loss/gain which are not allowed in the new IFRS still remain an
issue.
 Another major disadvantage of converting to IFRS makes the IASB the monopolist in terms of
setting the standards. And this will be strengthened if IFRS is adopted by the US companies. And if
there is competition, such IFRS vs. GAAP, there is more chance of having reliable and useful
information that will be produced during the course of competition.

MAHESH B N MCOM, MBA, ICWAI (inter), (PhD)

 Surana College, Peenya

 And even though the companies and countries are incurring huge transitional costs, the benefits of IFRS
cannot be seen until later point due to the fact that it takes some years for the harmonization and to have
sufficient years of financial statements to be prepared under IFRS to improve consistency.
 They key problem in conversion to IFRS that has stressed with high importance is the use of fair value
as the primary basis of asset and liability measurements. And the interviewers think that this principle
will bring increased volatility as the assets are reported.

CHALLENGES FACED IN CONVERGENCE WITH IFRS.

Following are a few challenges faced during adoption and implementation of IFRS:

 Interaction between Legislation and Accounting: There are concerns about the compatibility of
Indian laws with IFRS in certain matters pertaining to accounting, such as formats and
presentation requirements. Similarly, there is uncertainty over tax treatments of items arising from
convergence such as unrealized gains and losses and the move from a tax basis for depreciation (IGAAP)
to one of useful economic life (IFRS).
 Issue of GAAP Reconciliation: The Securities Exchange Commission (SEC) laid out with two options
in its proposal firstly calling for the traditional IFRS first time adoption process, secondly requiring that
step plus an on-going unaudited reconciliation of the financial statements from IFRS to US GAAP.
Clearly the second one is a more costly approach for firms and its users.
 Efficient Financial Reporting Processes: Although many Indian companies have still not thought
about the impact on their information systems. These will require a fundamental review and initial costs
could be significant. At the same time, it is important to have in place sound systems in order to ensure
that subsequent generation of reporting information is efficient.
 Taxation: The convergence of IFRS in India will not only affect the Financial Statements but also the
tax liabilities would also get changed. Present scenario, Indian Tax laws do not recognize the
Accounting Standards. To entertain immediate change in the Indian Tax Law is the major challenge
faced by the Indian Law makers.
 Re-negotiation of Contract: The contracts would have to be re-negotiated which is also a big
challenge. This is because the financial results under IFRS are likely to be very different from those
under the Indian GAAP.

Opportunities in adopting IFRS in India

Some of the opportunities that India can enjoy are stated below.

 Fair transparency in financial data: IFRS provides a single set of high quality accounting
standards globally, it ensure transparency in financial data. As IFRS is a single globally accepted
accounting standards it will ensure true and fair view of the financial information to various users.
 Better comparability: As different country follows different accounting standards; investors
feel difficulty in comparing the financial statement prepared under different accounting standard
of different countries. Hence, IFRS is the better remedy for global investors which helps them
compare the financial statement of one country with other.
 Develops international linkages: Adoption of IFRS in India definitely develops the international
trade and business. It helps to make cross border acquisitions and joint venture possible, and also

MAHESH B N MCOM, MBA, ICWAI (inter), (PhD)

 Surana College, Peenya

provide access to foreign capital. This is because majority of stock exchanges require financial
information presented according to the IFRS.
 Reduces the reporting costs: For an MNCs, IFRS is a boon as they own many branches across the world
they have to prepare a financial statement as per different countries accounting standards for example;
financial statement as per Indian GAAP, US GAAP if they are operating in India and US. Adoption of
IFRS will reduce the multiple reporting cost as it is a single globally accepted accounting standards, they
is no need to prepare multiple financial statement.
 Boost the growth of service sector: The implementation of IFRS in the corporate world demands
a professionally trained accountants, auditors, valuers and actuaries. This will boost the growth of
the service sector in India and helps to emerge as an accounting service hub. As IFRS is global
standards, the trained and quality of work maintained at global level.
 Helps to access foreign capital markets: Indian is a growing economy where many entities
expanding their business towards internationalization. Huge amount of capital are required in this
process for which entities have to list their shares in various stock exchanges around the world. Majority
of the stock exchanges permit IFRS complaint account. Hence, adoption of IFRS will enable Indian
entities to access to international capital markets.
 New opportunities for professionals: As India is a country with immense human resource; it will
be boon to accounting professionals like Chartered accountants, Academicians, Account
preparers, accounting students etc., one who possess the knowledge of IFRS. The convergence process
will be highly beneficial for IFRS trained professional in near future.

MAHESH B N MCOM, MBA, ICWAI (inter), (PhD)