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 Accounting Standard 1 i.e. “Disclosure of Accounting Policies” deals with disclosure of significant accounting policies followed in preparing and presenting financial statements whereas IND AS 1 i.e. “Presentation of Financial Statements” prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods as well as with the financial statements of other entities. The requirement for presentation of financial statement is set out in statutes governing the body (In case of companies, Schedule III of companies Act, 2013 (earlier revised schedule VI of Companies Act, 1956) specifies the format for balance sheet and disclosure requirement for companies).

IND AS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Therefore, it is clearly evident that the scope of IND AS is much wider as compared to existing AS 1 hence it is difficult to compare both the standard paragraph wise. Highlights of the requirements that are laid down in Ind AS 1 are as follows:-

a. Para 16 of IND AS 1 requires an enterprise to make an explicit statement in the financial statement of compliance with all the Indian Accounting Standards (IND AS). However, such statement shall be made only if the enterprise complies with all the requirements of IND AS’s.

b. It allows deviation from a requirement of an accounting standard in case the management concludes that compliance with Ind AS’s will be misleading and if the regulatory framework requires or does not prohibit such a departure. For this purpose, Para 20 of IND AS 1 sets out the manner of such departure and requires the enterprise to disclose that :-

i. that management has concluded that the financial statements present a true and fair view of the entity’s financial position, financial performance and cash flows; - Paragraph 20(a)

ii. that it has complied with applicable Ind ASs, except that it has departed from a particular requirement to present a true and fair view; -Paragraph 20(b)

iii. the title of the Ind AS from which the entity has departed, the nature of the departure, including the treatment that the Ind AS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and  - Paragraph 20(c)

iv. For each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement. -Paragraph 20(d)

Further, Para 21 states that, if an enterprise has departed from of an Ind AS in a prior period which will affect the amount recognised in the financial statement of current period, it shall make the disclosure set out in paragraph 20(c) and 20(d).

However, if the relevant regulatory framework prohibits the departure from the requirement the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:

- the title of the Ind AS in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and

- For each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to present a true and fair view

c. If the fundamental accounting assumptions, viz. “going concern, consistency and accrual” are followed in financial statements, specific disclosure is not required. Para 27 of existing AS 1 states that if a fundamental accounting assumption is not followed, the fact should be disclosed. IND AS 1 however, requires the entity to disclose the reason and the basis on which the financial statements have been prepared along with disclosure of fact  and state the reason why the entity is not regarded as going concern (Para 25 of IND AS 1).

d. IND AS 1 requires presentation of a minimum two balance sheets, two of each of the other statements and related notes for entities disclosing comparative information. Para 39 states that When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements or when it reclassifies items in its financial statements, it shall present, as a minimum, three balance sheets, two of each of the other statements, and related notes. An entity presents balance sheets as at:

-. the end of the current period,           

-. the end of the previous period (which is the same as the beginning of the current period), and

-. the beginning of the earliest comparative period.

e. In case of change in presentation / classification of item in the financial statements, the entity shall reclassify comparative amount and disclose the nature, amount and reason for re-classification. In case when it is impracticable to reclassify comparative amounts, an entity shall disclose the reason for not re-classifying and the nature of adjustments that would have been made if the amount had been reclassified (Paragraph 41 and 42 of IND AS 1).

f. Ind AS 8 sets out the adjustments to comparative information required when an entity changes an accounting policy or corrects an error. Para 45 of IND AS 1 states that, the entity shall retain the presentation and classification of items in the financial statements from one period to another unless it is apparent, following the significant change in the nature of entity’s operations and that having regard to the criteria for selection and application of accounting policies in IND AS 8, another presentation would be appropriate OR when an IND AS requires a change in the presentation of the financial statements.

g. The general instructions for preparation of balance sheet given in Para 7 of guidance note on revised schedule VI requires all items to be classified and reflected in the balance sheet as either Current or Non-current. However, Para 60 of IND AS 1 requires to make a separate classification of Current and Non-Current Asset and liabilities only when the presentation based on order of liquidity is less reliable or less relevant. Therefore, IND AS prescribes two method of presentation:-

- Based on Order of liquidity or

- Based on classification as Current and Non-Current Asset and liabilities.

IND AS also clarifies that, in case of entities having diverse operations, a need for mixed basis of presentation arises. Para 64 permits entity to present some of its assets and liabilities using current/noncurrent classification and others in the order of liquidity if the information obtained from such classification will be more reliable or relevant. Similar provisions were also provided in Para 7.2.1 of guidance note on revised schedule VI, which states that, entities running multiple business will have to classify all the assets and liabilities of the respective businesses into current and non-current, depending upon the operating cycles for the respective businesses.

Further, Para 61 of IND AS 1 clarifies that irrespective of the method of presentation adopted, an entity shall disclose the amount expected to be recovered or settled for each asset and liability line item as:-

- No more than 12 months after reporting period, and

- More than 12 months after the reporting period.

However, the criterion for classification of assets and liabilities as current and non-current provided in Para 66 of IND AS 1 are same as provided in Para 7.1.3 of guidance note on revised schedule VI.

h. IND AS 1 requires entities to classify its financial liabilities as current when they are due to be settled within 12 months after the reporting period even if the original term was for a period longer than twelve months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are approved for issue (Para 72).

i. Para 79 of IND AS 1 prescribes certain disclosure to be made either in the balance sheet or in the statement of changes in equity forming part of balance sheet. The disclosure requirements are similar to disclosures required by Clause (a) to Clause (k) of Note 6A mentioned in paragraph 8.1.1 of guidance note on revised schedule VI. Few additional disclosures required by revised schedule VI but not specifically mentioned in IND AS 1 are as under:

- shares in the company held by each shareholder holding more than 5 percent shares specifying the number of shares held – Clause (g) of Note 6A

- For the period of five years immediately preceding the date as at which the Balance Sheet is prepared :

i. Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash.

ii. Aggregate number and class of shares allotted as fully paid up by way of bonus shares.

iii. Aggregate number and class of shares bought back.

– Clause (i) of Note 6A

a. Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date – Clause (j) of Note 6A

b. Calls unpaid (showing aggregate value of calls unpaid by directors and officers) – Clause (k) of Note 6A

Para 106 of IND AS 1 states that, a statement of changes in equity shall include the following information:-

a. total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;

b. for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with Ind AS 8;

c. for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing each changes resulting from:

i. profit or loss;

ii. each item of other comprehensive income;

iii. transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control; and

iv. Any item recognised directly in equity such as amount recognised directly in equity as capital reserve with paragraph 36A of Ind AS 103.

According to Para 7 of IND AS 1 profit or loss is the total of income less expenses, excluding the components of other comprehensive income. Other comprehensive income comprises items of income and expense (including reclassification adjustments) that is not recognised in profit or loss as required or permitted by other Ind ASs. The components of other comprehensive income include:

- changes in revaluation surplus ( provision for the same are covered in Ind AS 16 Property, Plant and Equipment and Ind AS 38) Intangible Assets);

- actuarial gains and losses on defined benefit plans recognised in accordance with paragraph 92 and 129A of Ind AS 19 Employee Benefits; gains and losses arising from translating the financial statements of a foreign operation (see Ind AS 21 The Effects of Changes in Foreign Exchange Rates);

- Gains and losses on re-measuring available-for-sale financial assets (see Ind AS 39 Financial Instruments: Recognition and Measurement); the effective portion of gains and losses on hedging instruments in a cash flow hedge (see Ind AS 39).

Para 81 of the standard requires an entity to present the components of profit and loss and components of other comprehensive income as a part of single statement of profit and loss.

Para 90 of IND AS 1 requires the entities to disclose the amount of income tax related to each item of other comprehensive income, including reclassification adjustments, either in the statement of profit or loss or in the notes. Reclassification adjustments are amounts re-classified to profit and loss account in the current period that were recognised in the other comprehensive income in the current or previous periods.

IND AS requires entities to prepare an analysis of other comprehensive income by item either in the statement of changes in equity or in the notes. It also requires entities to present, either in the statement of equity or in the notes the amount of dividend recognised as distribution to owners during the period and the related amount of dividend per share

Currently extraordinary items are disclosed separately in the statement of profit and loss and are included in the determination of net profit or loss for the period. Ind AS 1 prohibits presentation of an item as extraordinary item in the statement of profit and loss or in the notes.

Para 118 of IND AS 1 states that:- “It is important for an entity to inform users of the measurement basis or bases used in the financial statements (for example, historical cost, current cost, net realisable value, fair value or recoverable amount) because the basis on which an entity prepares the financial statements significantly affects users’ analysis. When an entity uses more than one measurement basis in the financial statements, for example when particular classes of assets are re-valued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied.”

Ind AS 1 requires disclosure of judgments made by management while framing of accounting policies. Also, it requires disclosure of key assumptions about the future and other sources of measurement uncertainty that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within next financial year ( Para 125 to Para 133).

Profit or loss attributable to minority interests is disclosed as deduction from the profit or loss for the period as an item of income or expense (as per AS 21). Under IND AS, Profit or loss attributable to non-controlling interest (minority interest) and equity holders of the parent are disclosed in the statement of comprehensive income/income statement (if presented separately) as allocations of profit or loss and total comprehensive income for the period. Includes all items of income and expense (non-owner changes in equity) including (a) components of profit or loss and (b) other comprehensive income, for example, revaluation reserve. 


Published by

Aadarsh Gupta
(Trainee at Balrampur Chini Mills Ltd)
Category Accounts   Report

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