Compendium of Accounting Standards (Accounting Standards mandatory as on July 1, 2012) The Institute of Chartered Accountants of India New Delhi © The Institute of Chartered Accountants of India All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior permission, in writing, from the publisher. Year of Publication : 2012 Committee/Department : Accounting Standards Board E-mail : [email protected] Website : www.icai.org Price : ` 600/- (with CD) ISBN : 978-81-88437-90-0 Published by : The Publication Department on behalf of the Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi - 110 002. Printed by : Sahitya Bhawan Publications, Hospital Road, Agra - 282 003. June/2012/5,000 Copies Foreword In today’s complex economic environment, the financial reporting has become critical from the point of view of allocation of economic resources. For proper allocation of economic resources, it is imperative that financial information contained in the financial reports of corporates is reliable, comparable and transparent so that the present and potential investors and creditors and other users can make rational investment, credit, and similar decisions. This is achievable only if the financial reports are prepared and presented using high quality Accounting Standards. The Institute of Chartered Accountants of India (ICAI), being the premier standard-setting body in the country, has been making relentless efforts in this direction by formulating/revising the Accounting Standards since 1977 to be followed in the preparation and presentation of financial statements. Accounting Standards lay down sound principles for recognition, measurement, presentation and disclosures of information in the financial statements, which substantially improve the quality of financial statements. Significant changes have taken place in Accounting Standards since the issuance of last edition of Compendium of Accounting Standards, such as, Accounting Standards have been notified by the Central Government and various Announcements relating to applicability of the standards have been issued. Keeping all this in view, it has been decided to publish an updated edition of the Compendium containing the existing Accounting Standards as on July 1, 2012, so that all the relevant pronouncements could be made available at one place for easy reference of the users of the Accounting Standards. Accordingly, this edition of the Compendium of Accounting Standards contains the Accounting Standards harmonised with the Accounting Standards notified by the Central Government and all the Announcements issued and other developments subsequent to the last edition of the Compendium. The existing Accounting Standards contained in this Compendium are presently applicable to all the entities. IFRS-converged Indian Accounting Standards (Ind ASs) would be applicable to various classes of entities as may be prescribed by the relevant authorities such as the Ministry of Corporate Affairs for the companies governed under the Companies Act, 1956, from a future date. However, even after Ind AS come into force, these existing Accounting Standards would continue to apply to entities other than those to which IFRS-converged Indian Accounting Standards would apply. I firmly believe that this edition of the Compendium would be immensely useful to the preparers of financial statements, members of the Institute in discharging their duties and other users of the existing Accounting Standards. New Delhi CA. Jaydeep Narendra Shah June 18, 2012 President Preface Accounting Standards have assumed great significance in today’s environment, which is constantly evolving and changing. Accounting Standards act as pillars of sound financial reporting system of a country, which is an integral and important part of good corporate governance and provides the shareholders and other stakeholders useful information about the entity to make their economic and financial decisions. To strengthen the financial reporting system existing in the country, Accounting Standards are formulated or revised from time to time. In view of developments subsequent to the publication of last edition of the Compendium of Accounting Standards, the Compendium of Accounting Standards as on July 1, 2012, has been compiled which incorporates all the relevant developments. One of the significant developments since the last edition of the Compendium is that the Accounting Standards AS 1 to 7 and AS 9 to 29 have been notified by the Central Government on recommendation of National Advisory Committee on Accounting Standards (NACAS). There were certain differences between the Accounting Standards issued by the Institute of Chartered Accountants of India and the Accounting Standards notified by the Central Government. Accordingly, a decision was taken by the Council of the ICAI to harmonise those differences. All the changes required to implement the decision of the Council have been incorporated while updating this edition of the Compendium of Accounting Standards, such as, changes in the language, inclusion of consensus portion of certain Accounting Standards Interpretations (ASIs) in the notified Accounting Standards as ‘Explanation’ to the relevant paragraphs, harmonised criteria for classification of entities as SMCs and SMEs, etc. Besides this, Limited Revision to AS 15, Employee Benefits, and amendments to AS 11, The Effects of Changes in Foreign Exchange Rates, made by the MCA, have also been incorporated. Various Announcements issued by the Council subsequent to the last edition of the Compendium have also been incorporated in this edition of Compendium of Accounting Standards. This Compendium contains the mandatory Accounting Standards as on 1st July, 2012. Therefore, AS 30, AS 31 and AS 32 on financial instruments issued by the ICAI have not been included in this Compendium of Accounting Standards, as these Standards are not mandatory at present and are only encouraged to be followed. These Accounting Standards will be issued separately after considering incorporation of necessary changes in AS 30, AS 31 and AS 32 issued in 2007, to bring the same in line with corresponding Ind AS 39, Ind AS 32 and Ind AS 107, respectively. I gratefully acknowledge the efforts of all persons involved in the formulation of Accounting Standards at relevant times. I am also grateful to the various regulators and other bodies, our members, and other individuals in supporting the technical activities of the Institute and in providing invaluable inputs/suggestions in the process of formulation of Accounting Standards and other related pronouncements. I wish to place on record my sincere appreciation of Dr. Avinash Chander, Technical Director, for bringing out this revised edition of Compendium of Accounting Standards and for his technical support to the Accounting Standards Board in all its endeavours. I would like to thank the team of the Technical Directorate; CA. Parminder Kaur, Assistant Secretary, and CA. Shilpi Hisaria, Executive Officer, for their efforts in bringing out this publication, and CA. Geetanshu Bansal, Sr. Executive Officer, and other staff for their support to the Accounting Standards Board. I firmly believe that this edition of the Compendium would be very useful to all concerned. CA. Manoj Fadnis New Delhi Chairman June 15, 2012 Accounting Standards Board Contents Announcements of the Council Regarding Status of Various Documents Issued by the Institute of Chartered Accountants of India A–1 Preface to the Statements of Accounting Standards (revised 2004) 1 Framework for the Preparation and Presentation of Financial Statements 10 Accounting Standards (ASs) AS 1 Disclosure of Accounting Policies 39 AS 2 Valuation of Inventories 46 AS 3 Cash Flow Statements 55 AS 4 Contingencies and Events Occurring After the Balance Sheet Date 80 AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies 89 AS 6 Depreciation Accounting 98 AS 7 Construction Contracts (revised 2002) 107 AS 9 Revenue Recognition 126 AS 10 Accounting for Fixed Assets 139 AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003) 152 AS 12 Accounting for Government Grants 170 AS 13 Accounting for Investments 180 AS 14 Accounting for Amalgamations 192 AS 15 Employee Benefits (revised 2005) 209 AS 16 Borrowing Costs 279 AS 17 Segment Reporting 288 AS 18 Related Party Disclosures 324 AS 19 Leases 337 AS 20 Earnings Per Share 359 AS 21 Consolidated Financial Statements 385 AS 22 Accounting for Taxes on Income 400 AS 23 Accounting for Investments in Associates in Consolidated Financial Statements 422 AS 24 Discontinuing Operations 432 AS 25 Interim Financial Reporting 452 AS 26 Intangible Assets 482 AS 27 Financial Reporting of Interests in Joint Ventures 527 AS 28 Impairment of Assets 543 AS 29 Provisions, Contingent Liabilities and Contingent Assets 609 Appendix I to the Compendium of Accounting Standards (mandatory as on July 1, 2012) 639 ANNOUNCEMENTS OF THE COUNCIL REGARDING STATUS OF VARIOUS DOCUMENTS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Contents I. Clarification regarding Authority Attached to Documents Issued by the Institute A-5 II. Accounting Standards 1, 7, 8, 9 and 10 Made Mandatory A-9 III. Applicability of Mandatory Accounting Standards to Non- corporate Enterprises A-19 IV. Accounting Standard 11 A-20 V. Mandatory Application of Accounting Standards in respect of Certain Non-corporate Bodies A-21 VI. Mandatory Application of Accounting Standards in respect of Tax Audit under Section 44AB of the Income Tax Act, 1961 A-23 VII. Accounting Standard (AS) 6 (Revised), Depreciation Accounting, Made Mandatory A-25 VIII. Applicability of Accounting Standards to Charitable and/ or Religious Organisations A-26 IX. Applicability of Accounting Standard 11, Accounting for the Effects of Changes in Foreign Exchange Rates, to Authorised Foreign Exchange Dealers A-27 X. Accounting Standard (AS) 3, Cash Flow Statements, Made Mandatory A-28 XI. Applicability of Accounting Standard (AS) 20, Earnings Per Share A-28 XII. Applicability of Accounting Standard (AS) 18, Related Party Disclosures A-29 XIII. Clarification on Status of Accounting Standards and Guidance Notes A-30