IFRS convergence PPT

Just click on the below mentioned link to download the PPT.

ifrs convergence.pdf

1.FOLLOW US ON TWITTER CLICK HERE: http://twitter.com/taxpertindia
2.Posted www.taxpertindia.blogspot.com
3.Get Tax updates from my blog through by joining my google group
CA_taxmannindia:http://groups.google.co.in/group/ca_taxmannindia?hl=en
5.Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates

A Good presentation on SOX

Friends
Just click here to download the presenatation on SOX
http://www.ziddu.com/download/7292914/SOX.pdf.html

Shared by
CA Sameer Pradhan
Manager - Internal Audit

Posted www.taxmannindia.blogspot.com
Now www.taxmannindia.blogspot.com will be
http://www.taxpertindia.blogspot.com/
Sorry for the inconvenience.
Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates

AS-1 : DISCLOSURE OF ACCOUNTING POLICIES

AS-1 : DISCLOSURE OF ACCOUNTING POLICIES

                                                                                    

Meaning:

            Accounting Policies refer to

• Specific Accounting Principal
• And Method of Applying those Principal
• In Preparation & presentation of Financial Statement.

Ø      REASON FOR SUCH POLICIES :

1)      Better comparison between different Financial Enterprises.

2)      Comparison over the years.

3)      Different accounting policies affects enterprises

VARIOUS ACCOUNTING POLICIES

1)      valuation of inventories

2)      valuation of Investment

3)      Treatment of goodwill

4)      Retirement Benefits

5)      Contingent liabilities

ABOVE LIST ARE EXHAUSTIVE

PRINCIPLES FOR SELECTING ACCOUNTING POLICIES

A)    Prudence: Provision for all kinds of loss to be made BUT NOT OF PROFIT.

B)     Materiality: Disclosing all materials items i.e. ITEMS THAT MIGHT INFLUENCE THE DECISION OF ANY ONE i.e.  Shareholers’, Creditors etc.

C)    Substance Over Form: The Accounting treatment & Presentation in financial statement of transaction & events should be governed by their substance & not BY LEGAL FORM

Eg: FINANCIAL LEASE

WHAT ARE ACCOUNTING POLICIES DISCLOSURES?

Ø      All Accounting policies adopted in PREPARATION & PRESENTATION of Financial statement should be disclosed.

Ø      All significant accounting policies should be DISCLOSED AT ONE PLACE

Ø      Accounting policies should be disclosed as first note to financial statement as THIS FORMS BASIS OF PREPARATION FOR SUCH STATEMENT.

CHANGE IN ACCOUNTING POLICIES

When to Adopt

1. Required by Law or Statute
2. Required by any AS
3. Will give better preparation & presentation of accounting statement

REQUIREMENT WHEN ENETRPRISES CHANGES ITS POLICIES

Ø      Shall disclose all material facts/effects in current year &

Ø      If such change affects the future years then future effects too.

WHEN CHANGES NOT AMOUNTS TO CHANGE IN ACCOUNTING POLICIES

Ø      Adoption of accounting policies for events or transaction that differ in substance form previously occurring events or transaction.

Ø      Adoption of New accounting policy for events or transactions which doesn’t occur previously or that was not material.

Eg: Change in valuation of Inventory Method is not change in polices, if previously followed method, inventory was insignificant in overall context of enterprises

FUNDAMENTAL ACCOUNTING ASSUMPTION

Their acceptance is underlie thus no disclosure is required if followed but if not than DISCLOSURE IS NECESSARY

GOING CONCERN	CONSISTENCY	ACCURAL
Assumed that Business will Continue for FORSEEABLE FUTURE	Assumed that POLICES ARE SAME IN YEAR TO YEAR	Assumed that REVENUE & COST ARE accounted as when THEY ARE EARNED OR INCCURED not necessary in CASH.

OTHERS:

CAN DIFFERENT ACCOUNTING POLICES CAN BE APPLY FOR SIMILAR ITEMS ?

YES

After taking into Consideration type & nature of items

Shared BY PAPPU MISHRA 

CA FINAL STUDENT

Posted at www.taxmannindia.blogspot.com
Now www.taxmannindia.blogspot.com would be www.taxpertindia.blospot.com by 22nd Nov 2009.
Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates

Introduction to SOX (Sarbanes-Oxley)

 Introduction to SOX (Sarbanes-Oxley)

Introduction: In response to widely publicized corporate failures, regulators have created stringent new legislation: Sarbanes-Oxley (" SOX") to usher in a new era of transparency and accountability for publicly traded companies. Confronted daily by illustrations of the sweeping impact of these reforms, executives, boards of directors, and business advisors are scrambling to meet new standards and restore investor confidence.

All of this activity is motivated by a desire to eliminate opportunities for dishonesty. In the foreseeable future, organizations should expect not only that they will be held to a much higher standard of conduct, but also that the areas under examination — and the rights of the examiners — will continue to increase.

The suggestion that murky business practices are best eliminated by exposure to intense scrutiny — or sunlight - was voiced by U.S. Supreme Court in the early 20th century. Recently, this concept has been resurrected to support the crusade for greater openness and transparency in the governance of public companies.

This article deals with the evolving issues of tax risk, driven by a highly charged regulatory and governance environment, and will suggest an approach for the management of tax risk now and in the future.

The current regulatory environment

SOX created the Public Company Accounting Oversight Board (PCAOB), a U.S. private sector, non-profit corporation, to oversee the auditors of public companies. All US exchange registrants, or subsidiaries of registrants, are required to register with PCAOB. A similar oversight board — the Canadian Public Accounting Oversight Board (CPAB) — has been established for Canada.

Publicly traded companies are also bound by the regulations of exchanges with which they are registered. Those in the financial services industry — including all banks and federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, and pension plans — must meet additional regulations from the Office of the Superintendent of Financial Institutions (OSFI), whose frameworks are aligned with PCAB rulings. In this new world of accountability, corporate governance has never been more extensively regulated or publicized.

New CEO/CFO responsibilities

External oversight of corporate reporting, in the not too distant past, meant having the company's financial statements reviewed annually by an external auditor. Today, public company CEOs and CFOs must personally acknowledge their accountability for the validity of financial statements.

Under Section 302 of Sarbanes-Oxley, CEOs and CFOs must attest that they are responsible for financial disclosure controls and procedures. Each quarterly filing to the SEC must include certification that they have performed an evaluation of the design and effectiveness of these controls. The certifying executives must also state that they have disclosed to their audit committee and independent auditor any significant control deficiencies, material weaknesses and acts of fraud. Similar rules apply under Canadian equivalent standards.

 Furthermore, as it is recognized that the accuracy and timeliness of financial reporting is heavily dependent on a well-controlled reporting environment, Section 404 mandates an annual evaluation of internal controls & procedures for financial reporting. The company's independent auditor must issue a separate report that attests to management's assertion on the effectiveness of internal controls & procedures for financial reporting. CEOs & CFOs are required to "sign off" on the integrity of internal controls.

A transformed audit committee

SOX also set forth new requirements that the responsibilities of the audit committee be increased. Although the Act did not outline specific changes, the fundamental intent of these transformative recommendations is to ensure that members of audit committees are — and appear to be — autonomous, skeptical, and fluent in the language of financial reporting so that they can probe effectively on independence, the industry, the business, the company's management and its risk profile.

The future: An expanded regulatory focus

As the lid is fully removed from the Pandora's Box of corporate behaviour, it is becoming increasingly evident that misconduct can occur at many levels, in many departments, and across many operations. Accordingly, regulators are expanding the focus of their efforts to identify opportunities for misappropriation, malfeasance and misleading reporting.

For most companies, the various forms of taxation can equal 30% or more of corporate costs, and significant portions of recorded assets and liabilities. Thus, taxes will inevitably be "in scope" as a significant area subject to the new requirements for adequate, auditable reporting and internal controls. In their new expanded roles, management, boards and the audit committee will need to understand all risks — including those in the tax arena, so that their decisions and recommendations will strike a balance between opportunity and prudence.

Are companies ready for greater tax scrutiny?

Meeting this need will require a determined effort. Organizations do not typically recognize the significance of tax risks and controls in the new regulated environment. Planning, controversy effort, and management controls for tax are not being widely or systematically addressed, nor are the increasingly complex international aspects. In fact, in many case the compliance project team does not include the tax executive in scoping out the exercise. This is a serious oversight, considering that 10% of all regulatory compliance efforts normally relates to the tax area.

How is the tax compliance function being managed currently? Most companies focus on documenting all tax processes and controls related to compliance, resulting in either too much or too little documentation, and insufficient consideration given to scope and priority of risk. Some internal controls have been implemented, but only to the extent that basic assurance is provided on the accuracy of financial reporting for significant tax accounts.

With the growing complexity of tax legislation in general, the impact of retroactive legislation, and new initiatives being taken by the revenue authorities, the risks associated with tax clearly need to be managed. Transparency is now the watchword.

The Revenue Authorities join the battle

It is not entirely coincidental that revenue authorities in a number of countries are seeing the current environment as an opportunity to flex their legislative and/or administrative muscle to reign in tax reduction arrangements they regard as abusive. These developments can be summarized as follows:

1.         Increased efforts to influence decisions on prospective transactions:

In this regard consider the Alert System being contemplated by CRA, whose stated purpose is to electronically convey messages to taxpayers about important tax issues — including those it considers tax avoidance schemes. In addition, CRA has proposed the development of a procedure for businesses to declare "novel tax plans or arrangements" to permit early clarification of CRA's position.

In the U.S., the IRS has been posting a "rogues list" of avoidance transactions, and in some cases publicly exposing both the promoters and the implementers of such arrangements.

This pre-emptive approach suggests that revenue authorities expect public actions to do as much or more to dissuade certain tax planning than challenges through the more traditional (and more private) routes of audit, appeal and litigation.

2.         Increased cooperation and joint action by national revenue agencies:

In addition to the other well-established multinational information sharing protocols, on April 23, 2004, Canada, Australia, United Kingdom and the United States established the Joint International Tax Shelter Information Centre to "increase collaboration and coordinate information about abusive tax transactions."

3.         Additional legislative authority for gathering information and disclosure:

Recent final tax shelter disclosure regulations in the United States, requiring taxpayers engaged in certain designated transactions to disclose to the IRS the basic terms of those transactions and the parties involved. This statute also makes it necessary for organizers and sellers of potentially abusive tax shelter transactions to maintain lists of the parties involved, and to provide those lists to the IRS in certain circumstances.

 4.        Expanded administrative interpretation of requirements to provide documents or information:

Revenue authorities continue to test the water in terms of access to taxpayers' documents and advisers' working papers. Buoyed by judicial confirmation of the extent of their legislative powers (in MNR v. Kitch, Tower et al. 2003 DTC 5540, the FCA confirmed the CRA's extensive rights to "information" through an interview process or documents, and the lack of accountant-client privilege, the CRA is requesting audit working papers from accountants even in circumstances where fraud or fraudulent misrepresentation is not alleged, or where the information may otherwise exist with the client.

What is the motivation behind these more aggressive approaches?

They are the result of two closely linked realities: i) an inevitable trickle down effect of the new regulatory environment on a function that contributes significantly to financial results, and ii) the published evidence of tax manipulation.

Tax is perceived by regulators and tax authorities to be a meaningful part of the breakdown of public company accountability; accordingly, it must be seen to be a meaningful part of the solution.

Tax advisors beware

The term 'advice' implies the provision of a subjective opinion, the new reality of tax reporting, both for internal and external consumption, adds considerable more weight to the opinion given by the adviser. It is, therefore, important that tax advisers understand the new regulatory/governance environment. This is particularly important in cases where the tax service provider is also the auditor, giving rise to restrictions imposed by regulation and/or company policy on the services that are allowed, and to pre-approval of services by the audit committee. Even where the advisor is not restricted by an attest relationship, it is increasingly important that he/she appreciate the impact of the tax risk and transparency expectations that Tax Directors, CFOs and others now face.

In the context of the new regulatory environment, it's clear that when faced with a choice between tax opportunity and tax risk, there is an increasing tendency to reduce risk at the expense, perhaps, of a legitimate opportunity. However, until tax managers attain greater comfort that their company's tax risk position is more effectively and transparently managed, they may be less willing to take on new tax planning or otherwise increase the `risk profile' of the organization.

It is beyond the scope of this paper to deal with the responsibilities faced by both lawyers and accountants in rendering tax opinions. This topic was addressed extensively by David W. Smith, in "Dealing with Tax Risk in an Opinion," in Report of Proceedings of the Forty-Sixth Tax Conference, 1994 Conference Report (Toronto: Canadian Tax Foundation, 1995), 38:1-23. It may be enlightening to reconsider some of the matters raised in Mr. Smith's paper, such as:

•           duty of a tax adviser to warn a client of the risk in a course of action

•           duty to advise or warn of the risk that a revenue authority might decline to accept a given transaction, or that the authority has publicly advised that it views similar ones as abusive

•           ability of the client (in the expanded realm of governance, "Who is the client?" is an appropriate question) to understand that the opinion could be wrong, and an appreciation of the consequences

•           extent of disclosure on uncertainties or contrary opinions required to be made to clients and third parties who are the recipients of these opinions.

Shared by 

CA Sameer Pradhan

Manager - Internal Audit 

Posted www.taxmannindia.blogspot.com
Now www.taxmannindia.blogspot.com will be http://www.taxpertindia.blogspot.com/
Sorry for the inconvenience.
Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates

AS-22: ACCOUNTING FOR TAXES ON INCOME

AS-22: ACCOUNTING FOR TAXES ON INCOME

Meaning and Glance to Its Recognition, Presentation & Disclosures.

MEANING:

             Taxable income is calculated in accordance with tax laws. In some circumstances, the requirements of these laws to compute taxable income differ from the accounting policies applied to determine accounting income. The effect of this difference is that the taxable income & accounting income may not be the same. Such a Difference results in DEFFERED TAX as ASSETS or LIABILITY.

Difference is Due to two Reasons:

1) Timing Difference: Are Difference between Accounting & taxable income that originate in one period & are capable of reversal in one or more subsequent period.

2) Permanent Difference: Are Difference between Accounting & taxable income that originate in one period & do not reverse in subsequently.

RECOGNITION:

Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period. Such recognition will be based on matching concept resulting in timing differences.

Permanent differences do not result in deferred tax assets or deferred tax liabilities.

PRESENTATION & DISCLOURES:

An Enterprise should offset deferred tax assets and deferred tax liabilities if:

i)  The enterprise has legally enforceable right to set off assets against liabilities representing current tax;

and

ii) The deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.             

     Deferred tax assets and liabilities should be distinguished from assets and liabilities,it should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.

     The break-up of deferred tax assets and deferred tax liabilities into major components of respective balance should be disclosed in the notes to accounts.

Examples:

TIMING DIFFERENCES: Expenditure of the nature of section 43B, where book & tax depreciation differ, Differences in amortization of expense of section 35D,35DD etc.

PERMANENT DIFFERENCES: Tax laws allows only part of an item of expenditure, the disallow amount would result in permanent differences.

 Articles is written by PAPPU MISHRA (CA Final Student) 

 Posted at www.taxmannindia.blogspot.com
Get Free Quality SMS updates from my blog on your MOBILE:http://labs.google.co.in/smschannels/subscribe/ca_taxmannindia
OR
Send a message JOIN ca_taxmannindia to 9870807070 thru ur mobile nd receive updates

Cost accounting norms to be in tune with IFRS

It is not just Indian accounting standards, which would converge fully with the International Financial Reporting Standards (IFRS) by 2011, but cost accounting standards (CAS) would also need to be in tune with the global model.
 
The Institute of Cost and Works Accountants of India (ICWAI), the apex body to regulate the profession of cost accountants, is working out the impact of IFRS on costing principles.

“IFRS would affect the structure of cost of product and hence the Institute bringing in necessary changes and preparing its members,” said ICWAI President GN Venkataraman. IFRS are interpretations and the framework for the preparation and presentation of financial statements adopted by the International Accounting Standards Board (IASB).

The ICWAI has taken this initiative at the behest of the International Federation of Accountants (IFAC), the global organisation for the accountancy profession, which is for the first time addressing costing and has come out with guidelines on the impact of IFRS on costing principles.

Post-IFRS, moving away from historical cost, value of asset would be based on current cost, which would impact not only the raw material cost but also finished goods and overheads, said Chandra Wadhwa, past president of ICWAI and added that this would ultimately affect the cost of production and would directly impact the industry.

Under historical basis approach, assets are presented on the balance sheet at their value at the time of acquisition (generally represented by the purchase cost). However, experts believe that in today’s time with widespread use of complex and complicated financial instruments and risk management strategies have rendered yesterday’s prices obsolete. Under the IFRS, historical cost has been abandoned and replaced by a current cost system for a more accurate financial reporting.

At present, there are over 100 countries where the IFRS is followed. Once the Indian accounting standards converge with the standard, it would be first applicable for the listed companies, followed by other entities. By 2011, about 150 countries would have adopted the IFRS. However, the US plans to move to the pattern by 2014.

According to Wadhwa, ICWAI would bring out cost accounting standards in line with the IFRS and would make changes in those, which are already out. The institute has issued six CAS and would come out with the rest 33 in two years.

Sources:Business Standard

compendium on accounting standards

Just click here:Compendium

AS 32-Financial Instruments: Disclosures

CLICK HERE:AS 32

Global accounting standard: Challenges ahead

IFAC PAIB office requested ICWAI to prepare a note on the implications of IFRS on historical cost statements. The issue came up as ICWAI took a stand in IFAC meeting that if cost statements are made based on ledger balances which are subject to IFRS the impact of fair value estimates would have changed the recorded transaction costs or historical costs. This may change the paradigm of historical costing. But we are not sure if this can really happen.
Two meetings were conducted at Kolkata and Chennai with a small group of interested professionals. Chennai meeting was led by Mr T.P.Ghosh with particpation from various experts and the Kolkata meeting by Prof Asish Bhattacharyya of IIM Calcutta..
The crux of the discussions are as below :
IFRS fair value affected expense balances can make serious impact on historical costing. This is true of many standards like, employee costs, inventory valuation, depreciation, some intangible expenses etc.
Regulated industries will have give misleading cost structure if cost statements are submitted on the basis of fair value influenced IFRS.
Board of directors should be told about the difference in profitability between historical cost structure based profitability and IFRS based.
Due to the potential hazards all companies beyond a threshold limit should maintain profitability measured by cost accounting standards as a discipline whether coming under section 209(1)d) or not .
It is very very very relevant like fertilisers wherein Govt decides subsidies based on historical cost structure.
Views of the portal members are solicited on this subject.
A.N.Raman
CCM ICWAI

Accounting guidelines on carbon credits effective from July 1 : ICAI

Accounting guidelines on carbon credits will come into force from July 1. "The Council of the Institute of Chartered Accountants of India (ICAI) has scheduled a meeting between June 18-20 to approve the accounting guidelines on carbon credits,'' S Santhana Krishnan, chairman, Accounting Standards Board, ICAI, told. Krishnan said that the guidelines will be made applicable to companies with effect from July 1.


This means, corporates will have to account for their issued carbon credits, as well as carbon credits which they may have sold in the current financial year, in the September quarter results.


For the current financial year, companies will have to account for carbon credits sold or issued to them by the United Nations Framework Convention on Climate Change (UNFCCC) from April 1 this year.


The core group, which framed the draft guidance note on the accounting guidelines, has concluded that carbon credits are "intangible assets'' and they need to be treated as "inventory'' in the balancesheet till they are sold.

RBI NBFCs - Treatment of Deferred Tax Assets/Deferred Tax Liabilities for Computaion of Capital

RBI/2008-09/494

DNBS.PD/ CC.No. 142 / 03.05.002 /2008-09 June 9, 2009

All NBFCs

Dear Sir,

Accounting for taxes on income- Accounting Standard 22- Treatment of deferred tax assets (DTA) and deferred tax liabilities (DTL) for computation of capital

NBFCs were advised vide DNBS (PD) C.C. No. 124/ 03.05.002/ 2008-09 dated July 31, 2008 that in terms of Accounting Standard 22, the tax effects of timing differences are included in the tax expense in the statement of profit and loss as deferred tax assets (DTA) (subject to the consideration of prudence) or as deferred tax liabilities (DTL) in the balance sheet.

Further that the balance in DTL account will not be eligible for inclusion in Tier I or Tier II capital for capital adequacy purpose and that DTA being an intangible asset, should be deducted from Tier I Capital.

2. In this connection it is further clarified that

a) DTL created by debit to opening balance of Revenue Reserves or to Profit and Loss Account for the current year should be included under ‘others’ of "Other Liabilities and Provisions."

b) DTA created by credit to opening balance of Revenue Reserves or to Profit and Loss account for the current year should be included under item ‘others’ of "Other Assets."

c) Intangible assets and losses in the current period and those brought forward from previous periods should be deducted from Tier I capital.

2

d) DTA computed as under should be deducted from Tier I capital:

(i) DTA associated with accumulated losses; and

(ii)The DTA (excluding DTA associated with accumulated losses) net of DTL. Where the DTL is in excess of the DTA (excluding DTA associated with accumulated losses), the excess shall neither be adjusted against item (i) nor added to Tier I capital."

3. NBFCs shall comply with all instructions as above and also contained in the circular dated July 31, 2008 in this regard meticulously.

Yours sincerely

(P Krishnamurthy)

Chief General Manager-In-Charge

IASB Exposure Draft on Fair Value Measurement

IASB Exposure Draft on Fair Value Measurement

This Exposure Draft on Fair Value Measurement, has been issued by the International Accounting Standards Board keeping in view the following objectives:

To establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application;

To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly; and

To enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values.

The proposed IFRS does not require additional fair value measurements.

Invitation to comments

ASB inviting comments on the said Draft from the public. The downloadable version of the draft is available at http://www.iasb.org/NR/rdonlyres/C4096A25-F830-401D-8E2E 9286B194798E/0/EDFairValueMeasurement_website.pdf. Whereas the Basis for Conclusions and Illustrative Examples are available at http://www.iasb.org/NR/rdonlyres/D55E0BA1-5420-456B-8CCC EB488BAD5B80/0/EDFairValueMeasurementBC_website.pdf and http://www.iasb.org/NR/rdonlyres/8C24627A-3E1B-49EB-9740 E6EB67C0C594/0/EDFairValueMeasurementIE_website.pdf respectively. Comments would be most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to the Secretary, Accounting Standards Board, The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi-110002, so as to be received not later than August 21, 2009. Comments can also be sent by e-mail at asb@icai.org or edcommentsasb@icai.org

AS 30

The Accounting Standards Board of the Institute of Chartered Accountant of India, which sets the standard for the country, has formulated two new Standards on Financial Instruments — AS 30 (Financial Instruments: Recognition and Measurement) and AS 31 (Financial Instruments: Presentation). These standards were placed in public domain as exposure drafts for comments up to March 31, 2007 and are now being finalised. While AS 30 is the equivalent of International Accounting Standard IAS 39, AS 31 corresponds to IAS 32.

Features of AS 30

The AS 30 is a complex standard and its main objective is to
establish principles for recognising and measuring financial
instruments whose definition encompass most items of financial
assets, financial liabilities in an entity's balance sheet. The introduction of this Standard is likely to affect almost all items
in a corporate/bank balance sheet. It deals with recognition/de-
recognition and measurement of financial instruments as also
derivatives and hedge accounting.

AS 30 uses a mixed measurement model. Some assets and liabilities
are valued at Fair Value and others on cost basis. The concept of
fair value is central to the standard as also the concept of
symmetry. Fair value is the amount for which an asset could be
exchanged or a liability settled between knowledgeable willing
parties in an arm's length transaction. The standard stipulates
measurement of assets and liabilities at fair value unless otherwise
stated. Rationale for fair value stems from the fact that for
financial instruments the most relevant information is the amount
that could be realised from disposal. Subsequent measurement of
financial assets depends upon their classification at initial
recognition into any of the four categories.

Financial assets at fair value through P&L (held for trading)

Held to maturity investments

Loans and receivables

Available for sale financial assets

Subsequent measurement of financial liabilities classified under
fair value through P&L is at fair value and the resulting
gains/losses are recognised in the statement of profit and loss. All
other financial liabilities are to be measured at amortised cost
using the effective interest method.

The standard also stipulates restrictions on reclassification
between categories. No reclassification of a financial instrument
into or out of the category fair value through profit and loss is
permitted. The standard however prescribes certain exceptional
circumstances under which reclassification between `held to
maturity' and `available for sale' categories are permitted.

The requirements regarding impairment and uncollectability of
financial assets constitute an important and significant part of AS
30. Conceptually at each balance sheet date, an entity should assess
whether there is any objective evidence that a financial asset or
group of financial assets is impaired and if so it should determine
the amount of impairment loss and provide for the same.

Asset is defined as a resource controlled by an entity having future
economic benefit. Two key ingredients in this definition are
resource controlled by an entity and future economic benefit
associated with it. If the entity loses control or future economic
benefit ceases, there is impairment and it has to be provided. These
areas will have significant impact on the financial statements of
banks, since they are currently following 90-day delinquency norms
for recognition of NPAs and provisioning.

The standard also stipulates the criteria to qualify for hedge
accounting and the recognition and measurement of gains and losses
for different types of hedging relationships such as fair value
hedges, cash flow hedges and hedge of a net investment in a non-
integral foreign operation. Derivatives will be recorded on the
balance sheet at fair values and changes in their fair values will
be reflected in the profit & loss account unless stringent hedge
accounting criteria are satisfied.


Challenges

Change in accounting ushered in by the standard can substantially
affect the operation of entities. The implementation of AS 30 has
the potential to accentuate earnings volatility especially since
hedge accounting has been defined very rigorously under the
framework and derivatives that do not qualify as hedges will have to
be marked to market and resultant gains or losses will have to be
routed through the profit & loss account.

Resorting to fair value measurement would pose a serious challenge
in the valuation of financial instruments underpinning the need to
develop skills for valuation among accountants, finance
professionals and prepare for greater level of transparency through
enhanced disclosure requirements and documentation needs prescribed
by the standard.

Appropriate Board oversight and involvement of senior management
would be a pre-requisite for the smooth adoption. Further, there is
a need to revamp the MIS and technology capabilities of the entities
that have to comply with AS 30 for which significant initial
investment would have to be earmarked. Migration to fair value
accounting has its own challenges but at the same time it brings in
enormous amount of opportunities for Indian corporates and financial
institutions especially in the context of greater integration of our
markets with international markets.

Measures initiated by ICAI for revisiting AS 11

Measures initiated by ICAI for revisiting Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates

CA. Uttam Prakash Agarwal, President, The Institute of Chartered Accountants of India (ICAI) re-iterated the Institute's desire to work closely with Industry and Government in both framing and revising Accounting Standards. He briefly outlined the measures initiated by ICAI for revisiting Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates.

Chronological order of discussions relating to Revision in Accounting Standard (AS) 11

Accounting Standards Board meeting (148) held on 1 February, 2009

A Working Group was set up for review of accounting treatment of monetary items under AS 11 on the matter being referred by National Advisory Committee on Accounting Standards (NACAS)

Working Group of meeting on AS 11 held on 16 February, 2009
- Discussed modalities for revision in accounting treatment.

Working Group meeting on AS 11 held on 2 March, 2009
- Discussed modalities for revision in accounting treatment.

Meeting at Ministry of Corporate Affairs Office on 4 March, 2009

There were discussions on various issues related to AS 11. The meeting was attended by President, Vice President and Director of the Institute. Mr. Jitesh Khosla’s presence was requested at the Accounting Standards Board meeting the next day but he regretted his inability to attend due to other preoccupations.

Accounting Standards Board meeting (149) held on 5 March 2009

Two senior ministry officials were present at the meeting. Discussions on revision to AS 11 could not be concluded as two diverging views were there on the matter. Industry Representatives gave presentation to the Board on their views. The meeting decided to refer the matter to the Council with both points of view on the matter as in technical matters there was a convention of seeking unanimity.

Council Meeting held on 6,7 & 8 March 2009.

The item relating to revision of AS 11 for long-term monetary items was introduced as an additional agenda item in view of its importance to Industry and the need for providing clarity in accounting treatment for the year ended 31 March 2009. Joint Secretary, Government of India along with other government nominees were present and participating. On the question of a member of the Council as to whether the matter under consideration was of revision of the standard or a discussion on the pros and cons of revision Mr.Jitesh Khosla confirmed it was a process of discussion. The matter thereafter was on the council table for discussion. The council discussed the matter for over 2 1/2 hours as members had strong concerns on the gravity of revising the accounting standard.

As the matter warranted further deliberations to address the concerns of members it was decided that the matter would be referred back to the Accounting Standards Board. It was also decided that a process of discussion would be taken up with industry representatives in the presence of Mr.Jitesh Khosla and a tentative date of 18 March 2009 was fixed for a meeting at Mumbai.

As on that date,CII had organised a seminar on IFRS where President ICAI, Vice President ICAI and Mr.Jitesh Khosla Joint Secretary Government of India were speakers, as per advise of Mr.Jitesh Khosla, a meeting was held with a small group from CII. President ICAI after listening to the views of the group assured them that the matter would be taken up in the Council meeting to be held in April 2009.Proposed meeting with industry representatives scheduled for 18 March 2009 was subsequently cancelled.

National Advisory Committee on Accounting Standards (NACAS) meeting on 24 March, 2009.

The meeting was attended by President ICAI, Vice President ICAI, Chairman Accounting Standards Board ICAI. The meeting was also attended by representatives of the Institute of Cost and Works Accountants of India, Institute of Company Secretaries of India, ASSOCHAM, FICCI, and CII were present. Representatives from the Comptroller and Auditor General’s Office and the Indian Institute of Management Calcutta were also present. At the meeting only the matter relating to AS 11 was discussed.

CA. Uttam Prakash Agarwal, President Institute of Chartered Accountants of India explained all the steps taken by the Institute in this matter to arrive at a consensus decision. He also informed the meeting that there was a process involved both in the issuing of accounting standards as well as revising any standard. He stressed the need that the request of Industry for a revision to the accounting standard be examined in the context of the principles of consistency, prudence and going concern basis so that such action was in the best interest of all concerned. He also pointed out that fluctuation in foreign currency and volatility in foreign exchange markets were a given factor today. There was a mechanism of hedging against the risk of foreign currency fluctuation and it was in fact a failure of business house’s decision-making process. He apprised Chairman NACAS of the various questions which had to be addressed such as whether this would require any amendment to the Companies Act as there was a contradiction between Schedule VI and AS? Whether this would amount to a deviation from IFRS? Are we going to defer convergence with IFRS? Whether the change will be specifically to the benefit of a group of people? Would this amount to distribution of losses? Is this an extraordinary circumstance? There has been a criticism that when it came to taking profits, Industry booked it, while when it comes to losses, Industry is approaching for changes. What are the hardships faced by the Industry? What is the impact on the share value? Is this going to be beneficial to the shareholders?

On the issue of certain comments made by Chairman NACAS on CNBC channel, President ICAI stressed that the Institute of Chartered Accountants of India had all along taken a very proactive role in the matter so that problems of industry could be resolved and that all the members of the Council were in support of the process initiated for the purpose of revision to the accounting standards.