The journey is now going to get juicier as we now step into the accounting standards!
The first one in the row will be Ind AS1 “Presentation of Financial Statements”.
If your insides are shouting that the first one is Ind AS 101 “First Time Adoption of Ind AS”, then bear with me for that!! We will get to it later.
Well. Before getting into the game, let’s make a few rules:
Rule 1: Ok. Compare with AS 1, but don’t assume these two are same. Forget same, they are even far from being similar.
Rule 2: This article is being written with an assumption, hope and pride that we are aware of the Revised Sch.VI or Sch.III to the Companies Act.
Rule 3: The write up is for beginners.
Rule 4: Don’t forget Rule 1!!
If it is not similar to AS 1, then what is it all about?
The title tells us. Ind AS 1 is about the Financial Statements, how they are ideally presented. It addresses the following questions:
How a Balance sheet should be presented?
How a P&L should look like?
What should you disclose in notes to accounts? etc..
In a way, Ind AS 1 is our AS 1 and Revised Sch. VI (Sch. III), put together along with a little more gyaan.
Being a standard on Financial Statements, it’s ideal if we walk through the standard in the order of financial statements.
That brings us to the topmost page of the Financial Statements, the Balance Sheet!!
The standard recommends the BS to be presented in current and non-current classification. (nothing but the new BS format). The concepts of current, non-current, operating cycle are all the same as in the Schedule III. You can present in the order of liquidity, only if that gives a better picture.
If that tallies the Balance Sheet, let’s go to the next page, the Statement of Profit & Loss!
Here comes the fun part. Before getting into what Ind AS 1 talks about the P&L, just recall the tall statement of P&L in Schedule III. Towards the end, there are headers like extra-ordinary items, prior period items and exceptional items. All those concepts are done away with here.
Instead of all that, the new rule is to split the P&L into two parts, Income Statement and the Statement of Other Comprehensive Income.
The first part is our normal P&L. The latter part might have raised your eyebrows.
What is the Statement of Other Comprehensive Income (SOCI)?
Various Ind AS recommend certain items to be shown separately under this statement. Following are some of those items:
i. Actuarial gains or losses in defined benefit plans.
ii. Forex gains/losses in translation of foreign operations.
iii. Changes in revaluation surplus
There are two categories of items that come under SOCI. Those that are NOT reclassified into P&L, and those that are reclassified into P&L.
If the confusion has begun, the example has to begin!!
Remember Non-Integral operations in AS 11?
All forex. differences go to Foreign Exchange translation reserve. At the end when the foreign operation is disposed, the net balance lying in the reserve is written off to P&L. Here, the item is reclassified into P&L at the end. That is what is meant by reclassifying into P&L. first the amounts go to a reserve and later they come to P&L.
The next statement is the Statement of Changes in Equity.
SOCIE (so see!!). This statement depicts the movement of equity during the reporting period. Equity changes may be due to income/loss, creation of reserves, issue of shares and the like. This statement is more or less already being prepared in the Schedule III. We give a reconciliation of opening and closing balances of equity showing how much has changed by what.
Now comes the flowery English filled pages, the notes to accounts.
The notes to accounts, as we all know, contain measurement bases, information required by the standards, accounting policies adopted and the like. Here are certain interesting disclosures Ind AS 1 requires:
Disclosure as to how an entity manages its capital. –
That means disclosing what the entity treats as capital, how does it manage the capital, what are it objectives, if there are any legal requirements on capital etc.
An explicit statement that all Ind AS are followed. –
You must not only comply with the standards, you should brag yourself about it!! Deviations from accounting standards are allowed only in extremely rare cases.
"Extremely rare circumstances" are those situations where, deviation is necessary to give a fair presentation. Even that "extremely rare" is possible only when Law and Regulations allow you to deviate. Even if it is allowed, you have to disclose the reasons for deviation.
Say Laws and regulations do not allow you to deviate but deviation is necessary for fair presentation .In that case, the standard requires a disclosure of the situation.
The standard also speaks about general features of financial statements like the Going concern assumption, the materiality concept and the accrual basis of accounting. For those who are still searching for traces of AS 1, they may have their recluse here.
So this is Ind AS 1 “Presentation of Financial Statements”. The next time we meet, we shall discuss the Ind As 2 “Inventories”.