Comparison of ICDS-I, AS 1 & IndAS-1 - Income Tax - Ready Reckoner - Income Tax

Topic ICDS Indian GAAP Ind AS Accounting Policies, Changes in Accounting Estimates and Errors ICDS I relating to accounting policies AS 1 Disclosure of Accounting Policies AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies Ind AS 1 Presentation of Financial Statements Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors Consideration in selection of accounting policies To represent a true and fair view of the state of affairs and income of the business, profession or vocation, the treatment and presentation of transactions and events shall be governed by their substance and not merely by the legal form. The major considerations governing the selection and application of accounting policies are:- a. Prudence b. substance over Form c. Materiality When an Ind AS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the Ind AS. True Fair Accounting policies adopted by a person shall be so as to represent a True Fair view of the state of the affairs and income of the business, profession or vocation. The primary consideration in the selection of accounting policies by an enterprise is that the financial statements prepared and presented on the basis of such accounting policies should represent a true and fair view of the state of affairs of the enterprise as at the balance sheet date and of the profit or loss for the period ended on that date. If management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out, Departure is allowed from requirement of an IndAS. This is Known as true and fair override . Concepts of both true fair of true and fair override are there. Assessment of appropriatness of Going Concern assumption No guidance available on assessment of Going Concern assumption. No guidance available on assessment of Going Concern assumption. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate. Disclosure if Going Concern assumption is not appropriate If fundamental accounting assumptions is not followed, The fact shall be disclosed. If fundamental accounting assumptions is not followed, The fact shall be disclosed. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. Mark to market losses and expected losses There is a specific provision that marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is in accordance with the provisions of any other ICDS. For example, ICDS II provides for valuation of inventories at cost or net realisable value, whichever is lower. However, no guidance is included on expected or marked to market gains. In the absence of specific guidance in Indian GAAP, mark to market losses will be provided for in view of prudence concept. Expected losses will be provided for in accordance with relevant Indian GAAP standards. In the absence of an Ind AS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: a. relevant to the economic decision- making needs of users; b. and reliable, in that the financial statements: i. represents faithfully the financial position, financial performance and cash flows of the entity; ii. reflect the economic substance of transactions, other events and conditions, and not merely the legal form; iii. are neutral, i.e. free from bias; iv. are prudent; and v. are complete in all material aspects Changes in accounting policies Changes in accounting policy will not be done unless for a reasonable cause . However, Reasonable cause is not defined. The guidance for the same will need to be taken from judicial precedents. If a change is made in the accounting policies which has no material effect for the current year but which is reasonably expected to have a material effect in later years, the fact of such change should be appropriately disclosed in the year in which the change is adopted and also in the year in which such change has material effect for the first time. Changes in accounting policies should be made only if it is required by statute, for compliance with an Accounting Standard or for a more appropriate presentation of the financial statements on a prospective basis (unless transitional provisions, if any, of an accounting standard require otherwise) together with a disclosure of the impact of the same, if material. If a change in the accounting policy has no material effect on the financial statements for the current period, but is expected to have a material effect in the later periods, the same should be appropriately disclosed However, change in depreciation method, though considered a change in accounting policy, is given retrospective effect. (See discussion on Property, Plant and Equipment below) Requires retrospective application of changes in accounting policies by adjusting the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts for each period presented as if the new accounting policy had always been applied, unless transitional provisions of an accounting standard require