Introduction

Accountancy
Social Science which contains terms, principles and procedures to be followed by a business
concern, while recording and performing works related to transactions in book of accounts.

Theory and Practices of Accounting

Several years ago human beings developed the need to accumulate information about economic
resources.
Land, Livestock and other personal property

It emerged as an information system formulated for accountability in the exchange of goods and services.

Accounting is a function of economic and social development.

Language of business
Debit & Credit, GAAP
Recording business transactions in books in a scientific way
Cash and Non cash – Book Keeping
Books of original entries – Journal Proper, Subsidiary books, Ledger
According to AICPA (American Inst of Certified Public Accounts)-
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms
of money, transactions and events which are of financial character and interpreting the results thereof.

Features of accounting

- Identifying the business transactions to be recorded in books

- Expressing the values of transactions in terms of money
- Recording business transactions in the books of original entry
- Grouping of entries of like nature into proper heads in ledger
- Summarizing the effects of business transactions in the form of P&L-BS
- Interpreting the information found in the Financial Statements and drawing meaningful conclusion
about profit and the financial status and the future prospects of the business
- Communicating the findings of analysis of financial statements to the end users for decision making
Objectives of Accounting

- To maintain proper records of business transactions.

- To convert the data into information based on GAAP.
- To ascertain the Profit and Loss of the business based on standards.
- To know the sources of revenue and the items of expenses.
- To ascertain the financial position of the business.
- To ascertain the accounts due to the business and the amounts due from the business.
- To formulate and review the business policies based on the past and present records.
- To ensure effective control over the performance of business.
Roles of Accounting
It describes and analyses a mass of data of an enterprise through measurement,
classification and summarization.
It reduces those data into reports and statements, which shows the financial
condition and results of operations of that enterprise.

It performs service activity by providing quantitative financial information that helps

the users in various ways.
It doesn’t provide qualitative and non financial information.

Language Historical Record Current Economic Reality Information System

Functions of Accounting

Historical Function – To maintain a correct record of an enterprise.

Managerial Function – To maximize operational efficiency of an enterprise.

Legal Function – Should satisfy the legal requirements of ASB and Govt.

Communicating Function – To communicate information to users of information.

Users having Direct Interest Decision
Owners and potential owners, Management, Formulating policies
Managers and Heads. Setting short and long term goals
Comparing actual performance with set goal to make
strategic decisions.
Present and potential share holders. Creditors, Assessing profitability, financial position, competitive
suppliers, managers, employees and customers, tax ability and making future plans.
authority, analysts, rating agencies, banks, television, Share investment decisions
internet, newspapers. Credit decisions
Supply decisions
Employee remuneration
Pricing policy
Tax policy
Decision related to company status and prospects.

Users having Indirect Interest Decision

Financial analysts, Stock exchanges, lawyers, Profitability and tax assessment
regulatory authorities, registration authorities, trade Investors protection and advising on investments
associations, stock brokers, underwriters, labour Safeguarding public interest
unions, general public. Negotiating labour agreements
Consumer and community awareness programmes
Basic terms in Accounting

Entity – A business concern enjoys separate existence from that of owners.

Business Transactions – Event, activity or dealing involving money or money’s worth.

Transaction between Business concern and owner/outsider.

Cash Transaction –Cash is paid or received immediately.

Receipt or payment of cash
-Purchase of goods for cash
-Sale of goods for cash

Credit transaction - Creates obligation to pay or receive the amount later

Postponement of receipt or payment of cash
-Purchase of goods on credit
-Sale of goods on credit
Capital
The amount of money’s worth goods or assets invested by the owners in the business. It
also refers to owner's equity.

Capital = Assets – Liabilities

Assets
Economic resources of an enterprise that can be expressed in monetary terms. Classified
into Fixed Assets (held on long term basis) and Current Assets (held on short term basis).
Ex: Trucks, Land, Building, Machine, Plant, Furniture and Fixtures
Ex: Accounts receivable, Bills receivable, Stock, Marketable securities, Cash and Bank balance.

Liabilities
Claim of outsiders against the assets of a business concern (outsiders equity)
Loans borrowed, Deposits collected, assets and goods purchased on credit, services received
on credit. Sundry creditors, Outstanding expenses.
Debtor
A person who owes money to the business because he has received some
benefit from the business entity. He constitutes an asset for the business.

Creditor
A person to whom the business owes money because he has given some benefit
to the business. He constitutes a liability for the business.

Goods
Things, commodities, products, articles or merchandise.

Stock
Value of unsold goods and unused materials in a concern at the end of the year.
It includes value of raw materials, unfinished and finished gods. Opening stock and
Closing stock.
Purchases
Goods purchased by a business for production or sale. Cash or credit purchases.
Recorded in purchases account.

Sales
Goods sold by a business. Cash sales or credit sales. Recorded in sales account.

Expenses
Costs incurred by a business in the process of earning revenue. Rent Wages, interest,
salary, Electricity, water and Telephone charges.

Expenditure
Incurring a liability for some benefit. If the benefit of the expenditure is exhausted in a
year, treated as expense (revenue expenditure). If benefit of expenditure lasts for more
than a year, treated as an asset (capital expenditure).
Revenue
Earned by selling products or providing service to customers. Other revenue are
commission, interest, dividend, royalty and rent received.

Loss
The excess of expenses over its related income. It decreases owners equity. It is money
or money worth lost. Cash or goods lost by theft or fire accident, loss on sale of fixed assets.

Profit
The excess of revenue over its related expenses. It increases owners equity.

Gain
An income that arises due to events which are not regular to the business. Gain on sale
of asset.
Discount
Deduction in the price of the goods sold.
Trade discount - Offering deduction at agreed % on list price while selling.
Cash Discount – Given at the time of payment of cash (For goods on Credit).

Voucher
The documentary evidence in support of a transaction.
Cash Memo – If we buy goods for cash.
Invoice – If we buy goods on credit.
Receipt – If we make payment.
Financial Accounting

Concerned with collecting, recording, classifying and reporting business information about economic
events that involve a specific accounting entity.

The basis for preparing financial accounting is GAAP pronounced by accounting profession.

The function of Financial accounting is to provide financial information of the business enterprise to
its users.

To provide performance information to the enterprise’s management.

To communicate the performance report to external users for decision making.

Cost Accounting

Relates to reporting information useful to different types of information

for planning and controlling.

Performance reports, cost reports, budgets, forecasts and other types

of special reports constitute the needs of the managers.

An enterprise intends to ascertain the cost effectiveness of a product or

forecast the market viability.
Management Accounting

Managerial accountant relies on economic decision models, quantitative techniques for preparing reports based
on the specific needs of the users.

Managerial accounting information is more detailed and specific to time and issue concerned for decision making.

Management reporting is a part of management accounting system which attempts to summarize and present
the desired information to various levels of management.

Reporting information at regular intervals for the purpose of evaluating the performance and undertaking
remedial action if performance is not up to the mark.

Based on managerial decisions the financial accounting strategies gets changed.

External users make their decisions based on the information provided and help in planning and controlling.

Product planning, Forecasting, Diversification, Pricing strategy, Cost cutting measure and Problem solving
issues.
Key Distinctions
Objective
Financial Accounting – External Accounting produces information and reports it for external
users.
Management Accounting – Internal Accounting provides necessary information to the
management for planning, control and decision making.

The primary objective of financial accounting is to make periodical reports to owners, creditors
and government. The objective of management accounting is to assist internal management.
The information generated under management accounting is used by members at different
levels of management. The nature of internal reports and data varies for different levels of
management.
Accounting Method
Financial accounting follows the double-entry system for recording, classifying and business transactions.
Management accounting is not bound to use the GAAP. It can use any accounting technique or practice which
generates useful information. Data developed in management accounting may be facts, estimates, projections or
analysis.

Nature of data used

Financial accounting deals with the historical records relating to the past. Makes use of quantitative. Management
accounting covers mainly the future plans and policies. Makes use of descriptive, subjective and relates to future.

Accounting principles
Financial accounting is governed by the Gen accepted principles and conventions. In Management accounting the
form and method of presenting figures differ from concern to concern. No such principles and conventions are
followed.
Unit of measurement
All information under financial accounting are in terms of money and historical costs are essential. Management
accounting may apply any measurement unit that is useful in a particular situation. They may use number of labour
hours, machine hours, and product units if found them necessary for the purpose of analysis and decision making.

Legal compulsion
Financial accounting becomes statutory for every business.
Management accounting is optional and is adopted on voluntary basis to increase the managerial efficiency.

Time span
Financial accounting statements are prepared for a definite period, usually a year and presented at regular
intervals. Management accounting very much requires immediate and prompt communication of data. If data are
not up to date or received late, then they are not considered as valuable for the use of management.
Purpose
The information and reports of financial accounting are general purpose reports, which serve the informational
needs of external users such as shareholders, creditors, potential investors, customers, suppliers, regulatory
authorities, employees and public as well. It focuses on the overall firm performance rather than that of individual
segments or departments.

Reports and data developed in management accounting are specific purpose reports designed for a particular
manager or for a particular decision. Management accounting uses internal reports to evaluate the performance of
entities, product lines, department and managers.

Precision
Under financial accounting it is necessary to record the transactions with accuracy and precision.
In the case of management accounting there is less emphasis on precision as it is used internally. Sometimes
approximated projections are significant because to find the trend in the business.
Accounting Principles
Norms, Rules of action to be followed while recording business transactions (data), converting data into
information (financial statements), and communicating the same to the users (form & format).

These principles serve as guidelines to ensure uniformity, clarity and understanding.

The scientifically laid down principles should satisfy the criteria of relevance or usefulness, objectivity or
reliability (not influenced by personal judgement), and feasibility (implemented without undue complexity
or the cost)

Principles are based on accounting concepts and accounting conventions formulating into accounting
standards should enhance the effectiveness of accounting.

Scientifically drawn principles by professional thinkers are broadly categorized as concepts and conventions
and grouped under GAAP.
Generally Accepted Accounting Principles
Consist of norms laid down in the form of principles, concepts and
conventions to be strictly followed by the accountants to provide
quality information to the users.

Indian GAAP comprises a set of pronouncements issued by various

regulatory authorities, but predominantly controlled by the ICAI.
Indian Companies Act, the SEBI, the RBI, the Income Tax Act, and the
court pronouncements are the regulatory bodies contribute to GAAP.
 Accounting Concepts
Business Entity Concept

The concept distinguishes ‘business unit’ from its ‘proprietors’ or ‘owners’.

Business unit is treated as a separate entity distinct from its owners.
Every business undertaking whether it is a joint stock company or a partnership firm or a sole trading concern is regarded as a
distinct unit.
The owners are considered as lenders and capital invested is treated as liability of the business.
Business view point is considered while making decisions regarding asset, liability, capital, revenue and expense.
The facilitating factor is that the business transactions are unique to the business and are not to be mixed up with proprietor’s
personal transactions.

When owner introduces capital into business, its considered as liability from business point of view. When he withdraws money
from business for personal expenses, it is treated as reduction in owners capital and consequently reduction in the liabilities of the
business.
Mr. A invests Rs 60,000 into “BE” as capital. Rs 60,000 is treated as the amount owed by “BE” to Mr. A.
Suppose he withdraws Rs 10,000 to pay college fees of his son, then in the books of BE, the amount owed or the capital (liability)
will be reduced to Rs 50,000 (Rs 60,000 – Rs 10000).
Money Measurement Concept

Transactions which can be measured in terms of money only are recorded in the books.
The transactions which can not be measured in terms of money are either omitted or noted separately in a note book
or a dairy only to provide additional information.
Non monetary events are like appointment of a manager, retirement of an employee, and quality of the product. These
are material and qualitative but not expressed in terms of money.

The business was started with Rs 1,00,000 cash, 2 tones of stock, 2 machines, 1 building, 5 tables and 10 chairs. In the
absence of a common measure of value, these items can not be added up to give any meaningful and useful figure.

They are expressed in terms of money as cash Rs 1,00,000, stock worth Rs 50,000, machines worth Rs 1,00,000,
building worth Rs 75,000 and furniture worth Rs 25,000 (Tables Rs 10,000 and Chairs Rs 15,000).
It is very convenient to add up the values of all these assets and to state the total worth of the assets of the business as
Rs 3,50,000.
Going Concern Concept

Business unit has a long life (infinite period), an enterprise is regarded as a going concern. A concern that
continues to operate for indefinitely long period of time and prosper.
There is neither the intention nor there is any necessity to wind up the concern in the foreseeable future.

While valuing the business assets, the cost of assets is recorded in the business by deducting depreciation
considering the date of purchase.
Asset cost minus depreciation up to date is the value at which the asset is shown in the business.
The market values or the resalable values of the assets are not at all considered because the assets are
meant for continuous use in the business and not for selling them at a profit.

Based on this concept the distinction is made between Capital expenditure and Revenue expenditure. The
cost of the asset is treated as capital expenditure and the annual depreciation is treated as revenue
expenditure.
Cost Concept:

The asset acquired by a concern is recorded in the book of accounts at cost or purchase price. The market price of
the asset is ignored as the business is not going to be liquidated soon. The cost price includes cost of acquisition,
transportation, installation and making the asset ready for use.

A plant was purchased for Rs 2,00,000 by an enterprise. An amount of Rs 5,000 was spent on transporting the
plant to the factory premises and Rs 10,000 on installation. The total amount at which the plant will be recorded
in the books of account would be the sum of Rs 2,15,000.

The concept is historical in nature. Something which has been paid on the date of acquisition doesn’t change year
after year. A building purchased at Rs 3,00,000 will remain same in the book of accounts though its market value
may change.

Historical costs basis does not show the true worth of the business and it may lead to hidden profits.
Accounting Period Concept

As per Going concern concept the financial results of a business can be ascertained only on the
liquidation of the business.
But is it going to be helpful in knowing the periodical progress and performance ?
Generally Profit/Loss and Financial position are required by different users at regular intervals for
various purposes.

Concept stresses for measuring the financial results of a business periodically. The working life of
the business is split into convenient short periods of time, called accounting periods.
At present, accounting periods are regarded as a period of 12 months, according to the
Companies Act and Banking Regulation Act. To facilitate uniformity in assessment, the tax laws
suggest the accounting period to be between 1st April to 31st March.
Revenue Realization Concept

The concept relates to revenue recognition. The actual revenue earned during the accounting period is recorded in
the books, irrespective of whether the cash is received or not.

The revenue is stated to have been realized on the date on which goods and services are transferred. Customer
becomes legally liable to pay for them.

When the order is received from a customer, it doesn’t mean that, revenue is realized or earned even if, an advance
payment is received.

Mr. A receives an order for goods on 1st April 2021 and he sells goods on 1st May 2021 but receives the amount in the
month of July 2021. The revenue will be recognized on 1 st May 2021.

A business unit sells goods for Rs 15,000 on 1 st Feb 2022. Receives cash Rs 5,000 immediately and Rs 10,000 on 1 st
May 2022. The sale value Rs 15,000 should be recorded in the books for the year 2021-22.
Accrual Concept

The concept reinforces the realization concept as it takes into account not only the recognition of
revenue but also the expense.
It recognizes the total revenue to be received and the total expenses to be paid.

Future consequences of a transaction arise when it is entered into books of accounts. Hence all the
transactions must be brought into record, whether they are settled in cash or not.

All items of revenues will be treated there is legal right to receive them even though cash might not
have been received for the same. Similarly items of expenses are treated as there is a legal
obligation to pay them, even though cash might not have been paid for the same.
Interest on Capital, Interest on drawings, depreciation and reserves.
Matching Concept

For the measurement of Profit and Loss, two factors Revenue and Expense are matched or compared
to come out with resultant balance as Net Profit or Net Loss.

While ascertaining the Profit/Loss of the business, all the expenses incurred whether paid during the
year or not and all the incomes earned whether received during the year or not should be taken into
account.

Outstanding expenses, Accrued incomes, Incomes received in advance.

Matching concept confirms that, there is a need to link the realization concept, accrual concept and
accounting period concept.
Dual Aspect Concept
Every business transaction involves dual or double aspects of equal value.
When business purchases goods for cash. It receives goods of some value and gives cash of equal value. Vice versa.

Each transaction of a business unit has two aspects

a) Receiving of the benefit aspect (Debit) - Asset
b) Giving of the benefit aspect (Credit) - Capital

Miss. Y starts business by investing a sum of Rs 5,00,000. The amount of cash brought in by her will result into an
increase in assets (cash) of business by Rs 5,00,000. At the same time, the owners equity (capital) will also increase
by an equal amount.

Assets = Liabilities + Capital

Total assets of the business be equal to the total liabilities plus capital.

Asset = Liability
Cash = Capital
Suppose Rs 1,00,000 is used to purchase machinery then equation changes to Cash + Machinery = Capital
Goods worth 50,000 purchased by paying Rs 10,000 immediately
Accounting Conventions
Accounting conventions are general rules of practice formulated out of customs,
usages, and traditions as guiding principles for accounting.

The accountant follow these rules on a conviction that the accounting practices
should be consistent, the financial statements should be prepared on a conservative
basis to mitigate risk of loss and the vital information relating to accounting should
be disclosed.

1) Convention of Consistency
2) Convention of Conservatism
3) Convention of Material Disclosure
Convention of Consistency

Business unit should be consistent in its accounting practices. The methods should remain
unchanged from one accounting year to another, which would make easy to compare.
If the business firm is charging depreciation on its fixed assets according to straight line method,
it should go on charging with same method every year. If the stock and investments are valued at
cost or market price, whichever is lower, the same practice should be continued for all the years.

Unless the change is necessarily warranted, it should remain same. But this does not prevent the
introduction of innovative methods of accounting. It is essential that any change and its effect
has to be clearly stated, so that decision makers are not mislead.
If there is change in depreciation policy the aspect should be clearly disclosed with the financial
statements.
Convention of Conservatism

Convention of caution.
Anticipate no profit but provide for all possible losses.
Insists that all types of anticipated losses should be provided for before ascertaining the profits of the
enterprise.

Conservatism in financial statements demand that, we should avoid uncertainties and make sufficient
provisions for unforeseen losses.
Value of the stock at cost price or market price whichever is lower.
Going for depreciation of land and building even though there may be appreciation in value.

Provision for doubtful debts, provision for discount on debtors are made on account of this.
Convention of Material Disclosure

Disclosure of vital information related to financial statements. All material and relevant facts
concerning financial performance must be fully disclosed.

Business transactions which are significant are detailed using footnotes, references and insignificant
transactions are ignored.

In addition to asset values, mode of valuation and accounting policy changes have to be mentioned.

In case of sundry debtors, not only the total number of debtors are disclosed but also the amount of
good & secured debtors, the amount of good but unsecured debtors and the amount of doubtful
debts should be disclosed.
Differences
Accounting Concepts Accounting Conventions
Assumptions and conditions on which the accounting Customs and traditions on which the accounting rules
records are based are based
To convey the same meaning to all who use Followed by accountants in preparation of accounting
statements.
Abstract ideas /understanding which govern the Not abstract ideas but they guide the practitioners in
accounting records of transactions preparation of financial statements of business.
Basis of accounting theory and hence they will not Common consents originated from customs hence
change they may change with passage of time
Accounting Standards
Accounting Standards are written statements issued from time to time by institutions of the
accounting profession in India by ICAI. AS are named and numbered in the same way as IFRS

Deal with Financial measurement and disclosures.

ASB formulates standards related to different aspects of accounting.
These standards are prescribed after a through discussion with accountants, practitioners,
academicians, experts, business etc. Representatives from CII, ASSOCHAM and FICCI.
Under Indian Companies Act the financial statements should conform the accounting standards.
If they are not followed, the fact of the same should be disclosed in the annual statements of the
company.

The benefits –
The improve the credibility and reliability of the financial statements.
They facilitate inter-firm and inter period comparison of the statements.
They guide the accountants and auditors in their work.
They help in assessing the managerial efficiency in improving the profitability of the business.
Ind AS No. Name of the Indian Accounting Standard
Ind AS 1 Presentation of Financial Statements
Ind AS 2 Inventories
Ind AS 7 Statement of Cash Flows
Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Ind AS 12 Income Taxes
Ind AS 16 Property, Plant and Equipment
Ind AS 19 Employee Benefits
Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance
Ind AS 21 The Effects of Changes in Foreign Exchange Rates
Ind AS 23 Borrowing Costs
Ind AS 28 Investments in Associates and Joint Ventures
Ind AS 32 Financial Instruments: Presentation
Ind AS 33 Earnings Per Share
Ind AS 36 Impairment of Assets
Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
Ind AS 110 Consolidated Financial Statements
Ind AS 113 Fair Value Measurement
Accounting Equation (Balance Sheet Equation)
This is fundamental inter relationship of assets, liabilities and owners
equity.
Assets form the resources (money, material, machinery) of the business
enterprise and liabilities form the claims.

Economic Resources = Claims

Assets = Liabilities + Owners Equity

Liabilities + [(Investment in capital –withdrawal) + (Revenue – Expenses)] = Assets

 Every debit transaction has equivalent credit.
Value of benefits received should be equal to value of benefits given.

Every business transaction causes changes in all or any of the

components of the equation.
But the Accounting Equation remains Equal
Possible changes or effects of transaction.

1) Increase in one asset; decrease in another asset

- Furniture purchased for cash. It increases furniture but decreases cash

2) Increase in one liability; decrease in another liability

- Loan taken from bank and paid to suppliers. This will increase bank loan but reduce the amount
payable to creditors.

3) Decrease in an asset; decrease in a liability

- Cash paid to creditors. It reduces cash as well as liability to creditors.

4) Decrease in an asset; decrease in owners capital

- Cash withdrawn by the proprietor. It reduces capital as well as cash

5) Increase in an asset; increase in capital

- Cash invested by proprietor in business. It increases cash as well as capital.
6) Increase in an asset; increase in a liability
- Purchase of machinery out of bank loan. It increases asset as well as liability.

7) Increase in a liability; decrease in capital.

- Repayment of partners capital by taking loan from bank.

8) Increase in one item of owners equity; decrease in another item of owners equity.
- Issue of Bonus shares out of general reserve. It increases capital but decreases general
reserve.

9) Increase in one item of owners equity; decrease in liability.

- Redemption of debentures by issue of shares. It increases capital but reduces debentures.
Transaction Analysis
Sl. No. Transaction Cause Effect Asset Liability+ Capital
1 Pragathi Ent commenced Increase in Asset Increase in Cash Owners equity
business by introducing a Owners equity (+) 2, 00, 000 (+) 2, 00, 000
capital of Rs 2,00,000
2 Bought merchandise on Increase in Asset Increase in Stock Creditors
credit from R & Co worth Liability (+) 1, 50, 000 (+) 1, 50, 000
Rs 1, 50, 000
3 It paid R & Co Rs 50, 000 Decrease in Decrease in Cash Creditors
Asset Liability (-) 50, 000 (-) 50, 000
4 Pragathi Ent withdrew for Decrease in Decrease in Cash Owners equity
personal use Rs 30, 000 Asset Owners equity (-) 30, 000 (-) 30, 000
5 Pragathi Ent bought X Increase in one Decrease in Investment
company shares totaling Asset another Asset (+) 45, 000
Rs 45, 000 -
Cash
(-) 45, 000
Internal Assessment - Assignment No 1

Submit the assignment in A4 sheet. Please use the backside page.

Marks BLL
Submit it before Monday, 28th 2022, 5.30 pm
Q1 Explain with examples the Accounting Concepts and Conventions. 10 BLL - L2

Construct the statement of accounting equation for the following

Q2 transactions and also Balance Sheet. 10 BLL - L3
a 1st Jan 2022 Mr. Shiva commenced business with cash Rs 30, 000
b 2nd Jan 2022 Borrowed Rs 20, 000 from Bank
c 3rd Jan 2022 Bought electronic machine costing Rs 6, 000
d 4th Jan 2022 Bought goods from Mr. Sachin on credit Rs 8, 000
e 5th Jan 2022 Sold goods to Mr. Deepak on credit Rs 7, 500
f 5th Jan 2022 Cash sales Rs 3, 000
g 5th Jan 2022 Paid carriage Rs 500
h 5th Jan 2022 Paid wages Rs 1, 000
i 5th Jan 2022 Closing stock on hand Rs 1, 000
j 5th Jan 2022 Paid Mr. Sachin Rs 5, 000 on account
International Financial Reporting Standards (IFRS).
- A Change for the Better.
Govt. proposed to implement IFRS in a phased manner.

Accounting standards differ from country to country because of various factors- Culture,
Economic development, Level of inflation, Legal systems.

Quality accounting standards become necessary in a sound capital market system as

they reduce uncertainty, enhance the confidence of the investors and increase overall
efficiency of the business entity.

Earlier the usefulness of reports was limited to only county’s vicinity, but now it has
extended to other countries because of Liberalisation, Privatization and Globelisation.
USA has a volatile capital market and it has developed high quality accounting
standards to reduce the uncertainty and boost the investors confidence level.

Countries such as Japan, Germany, have concern for creditors protection as most
of the financing is done by commercial banks and not by individual share
holders.

Principle of conservatism is given importance while setting the accounting

standards as such countries intend to safeguard the interest of the society at
large in the long run.

Agrarian economies have less pressure to develop an elaborate set of accounting standards.
India has adopted LPG policy from 1990-91, which has paved the way for international
business. This has necessitated India to develop quality accounting standards. It will have
universal acceptability on par with the International Accounting Standards.

Accounting standards improve the reliability of financial statements and provide set of
standard accounting policies, valuation norms and disclosure requirements.

To achieve these objectives, International Accounting Standards Committee (IASC) was

established in 1973 in London. IASC comprises the professional accountancy bodies of
over 100 countries which include Inst. of Chartered Accountants of India. IASC was
restructured to form International Accounting Standards Board (IASB). IASB publishes its
standards in a series of pronouncements called International Financial Reporting
Standards (IFRS).
IFRS India Scene
It will integrate domestic business with the global investor and financial
community so that there is no language gap and barrier.

ICAI observed that Indian Accounting Standards are well aligned with
IFRS, hence suggested to adopt IFRS for listed and other public entities.
Drastic difference in the areas of-
Financial instruments
Business combinations
Benefits anticipated if IFRS are adopted-

Foreign investors are more likely to invest if firms accounting is similar to their country.

The cost of capital will be lower for Indian firms.

Increased job opportunities for Indian accountants.

Increased reported earnings for adopting fair value concept.

Disadvantages-

May result in volatility in reported earnings – Impacts EPS and P/E.

Volatility in reported earnings may result in wiping off entire retained earnings.

Market cost valuation is favourable but whether it is sustainable in future?

eXtensible Business Reporting Language

XBRL (eXtensible Business Reporting Language) is a freely available and global framework for exchanging business information. XBRL
allows the expression of semantic meaning commonly required in business reporting. The language is XML-based and uses the XML
syntax and related XML technologies such as XML Schema, XLink, XPath, and Namespaces.
One use of XBRL is to define and exchange financial information, such as a financial statement. The XBRL Specification is developed and
published by XBRL International, Inc. (XII).

XBRL is a standards-based way to communicate and exchange business information between business systems. These communications
are defined by metadata set out in taxonomies, which capture the definition of individual reporting concepts as well as the relationships
between concepts and other semantic meaning. Information being communicated or exchanged is provided within an XBRL instance.

Early users of XBRL included regulators such as the U.S. Federal Deposit Insurance Corporation and the Committee of European Banking
Supervisors (CEBS). Common functions in many countries that make use of XBRL include regulators of stock exchanges and securities,
banking regulators, business registrars, revenue reporting and tax-filing agencies, and national statistical agencies.

Within the last ten years, the Securities and Exchange Commission (SEC), the United Kingdom's HM Revenue and Customs (HMRC), and
Singapore's Accounting and Corporate Regulatory Authority (ACRA), had begun to require companies to use it, and other regulators were
following suit. Development of the SEC's initial US GAAP Taxonomy was led by XBRL US and was accepted and deployed for use by public
companies in 2008 in phases, with the largest filers going first: foreign companies which use International Financial Reporting Standards
(IFRS) are expected to submit their financial returns to the SEC using XBRL once the IFRS taxonomy has been accepted by the SEC.
In the UK in 2011, both HMRC and Companies House accepted XBRL in the iXBRL format. XBRL was adopted by the Ministry of Corporate
Affairs (MCA) of India for filing financial and costing information with the Central Government.