ICAI: Issues Exposure Drafts of Revised Accounting Standards

The Accounting Standards Board, ICAI, in its venture of revising Accounting Standards applicable to entities to whom Indian Accounting Standards are not applicable, has further issued Exposure Drafts of these revised as:

• Exposure Draft of AS 103, Accounting for Amalgamations
• Exposure Draft of AS 110, Consolidated and Separate Financial Statements
• Exposure Draft of AS 111, Financial Reporting of Interest in Joint Ventures
• Exposure Draft of AS 28, Accounting for Associates and Jointly Controlled Entities

Key highlights of the proposed revised standards, including comparisons with Ind as:

• Revised AS 103 defines business differently from the definition of business under Ind AS 103.
• Revised AS 103 prescribes accounting for amalgamations using purchase method and pooling of interest method. Ind AS 103 prescribes only the acquisition method for every business combination, except for business combinations involving entities or businesses under common control which shall be accounted for using the pooling of Interests method.
• Under Ind AS 103, the goodwill is not amortized but tested for impairment on annual basis in accordance with Ind AS 36. In revised AS 103 the goodwill arising on amalgamation in the nature of purchase is amortized over a period not exceeding ten years.
• Revised AS 110 provides requirement for both Consolidated and Separate Financial Statements in a single standard. While under Ind AS, there are 2 different standards, Ind AS 110 dealing with consolidated financial statements and Ind AS 27 on Separate Financial Statements.
• Revised AS 110 defines control as – the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control in Ind AS 110 is defined as – an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
• AS 111 defines the term ‘joint venture’ whereas Ind AS 111 defines the term ‘joint arrangement’. AS 111 classifies joint venture into three categories, namely, jointly controlled operations, jointly controlled assets and jointly controlled entities. Under Ind AS 111, a joint arrangement is either a joint operation or a joint venture.
• Both Revised AS 28 and Ind AS 28 require that similar accounting policies should be used for preparation of investor’s financial statements and in case an associate uses different accounting policies for like transactions, appropriate adjustments shall be made to the accounting policies of the associate. Revised AS 28 provide exemption to this that if it is impracticable to make adjustments to the accounting policies of the associate, the fact shall be disclosed along with a brief description of the differences between the accounting policies. Ind AS 28 provides that the entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances unless, in case of an associate, it is impracticable to do so but does not require specific disclosure in this regard.

Manav Rajgaria, Audit Associate, SW India