1.

Harmony In Indian Accounting Standards Recent global and domestic developments in the economic environment in India have led to more measures being taken to standardize accounting standards. Further, cross-border raising of huge amount of capital has also generated considerable interest in the generally accepted accounting principles in advanced countries such as USA. Initiatives taken by International Organisation Securities Commission (IOSCO) towards propagating International Accounting Standards (IASs)/ International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), as the uniform language of business to protect the interests of international investors have brought into focus the IASs/ IFRSs. The Institute of Chartered Accountants of India, being a premier accounting body in the country, took upon itself the leadership role by establishing Accounting Standards Board, more than twenty five years ago, to fall in line with the international and national expectations. Today, accounting standards in India have come a long way. Rationale of Accounting Standards Accounting Standards are formulated with a view to harmonise different accounting policies and practices in use in a country. The objective of Accounting Standards is, therefore, to reduce the accounting alternatives in the preparation of financial statements within the bounds of rationality, thereby ensuring comparability of financial statements of different enterprises with a view to provide meaningful information to various users of financial statements to enable them to make informed economic decisions. The Companies Act, 1956, as well as many other statutes in India require that the financial statements of an enterprise should give a true and fair view of its financial position and working results. This requirement is implicit even in the absence of a specific statutory provision to this effect. The Accounting Standards are issued with a view to describe the accounting principles and the methods of applying these principles in the preparation and presentation of financial statements so that they give a true and fair view. The Accounting Standards not only prescribe appropriate accounting treatment of complex business transactions but also foster greater transparency and market discipline. Accounting Standards also helps the regulatory agencies in benchmarking the accounting accuracy. International Harmonisation of Accounting Standards Recognising the need for international harmonisation of accounting standards, in 1973, the International Accounting Standards Committee (IASC) was established. It may be mentioned here that the IASC has been reconstituted as the International Accounting Standards Board (IASB). The objectives of IASC included promotion of the International Accounting Standards for worldwide acceptance and observance so that the accounting standards in different countries are harmonised. In recent years, need for international harmonisation of Accounting Standards followed in different countries has grown considerably as the cross-border transfers of capital are becoming increasingly common. Accounting Standards-setting in India

The Institute of Chartered Accountants of India (ICAI) being a member body of the IASC, constituted the Accounting Standards Board (ASB) on 21st April, 1977, with a view to harmonise the diverse accounting policies and practices in use in India. After the avowed adoption of liberalisation and globalisation as the corner stones of Indian economic policies in early 90s, and the growing concern about the need of effective corporate governance of late, the Accounting Standards have increasingly assumed importance. While formulating accounting standards, the ASB takes into consideration the applicable laws,customs, usages and business environment prevailing in the country. The ASB also gives due consideration to International Financial Reporting Standards (IFRSs)/ International Accounting Standards (IASs) issued by IASB and tries to integrate them, to the extent possible, in the light of conditions and practices prevailing in India. Composition of the Accounting Standards Board The composition of the ASB is broad-based with a view to ensuring participation of all interest groups in the standard-setting process. These interest-groups include industry, representatives of various departments of government and regulatory authorities, financial institutions and academic and professional bodies. Industry is represented on the ASB by their apex level associations, viz., Associated Chambers of Commerce & Industry (ASSOCHAM), Confederation of Indian Industries (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI). As regards government departments and regulatory authorities, Reserve Bank of India, Ministry of Company Affairs, Comptroller & Auditor General of India, Controller General of Accounts and Central Board of Excise and Customs are represented on the ASB. Besides these interest-groups, representatives of academic and professional institutions such as Universities, Indian Institutes of Management, Institute of Cost and Works Accountants of India and Institute of Company Secretaries of India are also represented on the ASB. Apart from these interest groups, certain elected members of the Central Council of ICAI are also on the ASB. The Accounting Standards-setting Process The accounting standard setting, by its very nature, involves reaching an optimal balance of the requirements of financial information for various interest-groups having a stake in financial reporting. With a view to reach consensus, to the extent possible, as to the requirements of the relevant interest-groups and thereby bringing about general acceptance of the Accounting Standards among such groups, considerable research, consultations and discussions with the representatives of the relevant interest-groups at different stages of standard formulation becomes necessary. The standard-setting procedure of the ASB, as briefly outlined below, is designed in such a way so as to ensure such consultation and discussions:

Identification of the broad areas by the ASB for formulating the Accounting Standards. Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards. Consideration of the preliminary draft prepared by the study group by the ASB and revision, if any, of the draft on the basis of deliberations at the ASB. Circulation of the draft, so revised, among the Council members of the ICAI and 12 specified outside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department of Company Affairs, for comments. Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard. Finalisation of the Exposure Draft of the proposed Accounting Standard on the basis of comments received and discussion with the representatives of specified outside bodies. Issuance of the Exposure Draft inviting public comments. Consideration of the comments received on the Exposure Draft and finalisation of the draft Accounting Standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance. Consideration of the draft Accounting Standard by the Council of the Institute, and if found necessary, modification of the draft in consultation with the ASB. The Accounting Standard, so finalised, is issued under the authority of the Council. Present status of Accounting Standards in India in harmonisation with the International Accounting Standards As indicated earlier, Accounting Standards are formulated on the basis of the International Financial Reporting Standards (IFRSs)/ International Accounting Standards (IASs) issued by the IASB. Of the 41 IASs issued so far, 29 are at present in force, the remaining standards have been withdrawn. Apart from this, 8 IFRSs have also been issued by the IASB. Corresponding to the IASs/IFRSs, so far, 30 Indian Accounting Standards on the following subjects have been issued: AS 1 Disclosure of Accounting Policies

AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events Occurring after the Balance Sheet Date AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies AS 6 Depreciation Accounting AS 7 Construction Contracts AS 8 Accounting for Research and Development (Withdrawn pursuant to AS 26 becoming mandatory) AS 9 Revenue Recognition AS 10 Accounting for Fixed Assets AS 11 The Effects of Changes in Foreign Exchange Rates AS 12 Accounting for Government Grants AS 13 Accounting for Investments AS 14 Accounting for Amalgamations AS 15 Employee Benefits AS 16 Borrowing Costs AS 17 Segment Reporting AS 18 Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations AS 25 Interim Financial Reporting

AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions, Contingent Liabilities and Contingent Assets AS 30 Financial Instruments: Recognition and Measurement AS 31 Financial Instruments: Presentation

Compliance with Accounting Standards Accounting Standards issued by the ICAI have legal recognition through the Companies Act, 1956, whereby every company is required to comply with the Accounting Standards and the statutory auditors of every company are required to report whether the Accounting Standards have been complied with or not. Also, the Insurance Regulatory and Development Authority (IRDA) (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2000 requires insurance companies to follow the Accounting Standards issued by the ICAI. The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India also require compliance with the Accounting Standards issued by the ICAI from time to time. Section 211 of the Companies Act, 1956, deals with the form and contents of balance sheet and profit and loss account. The Companies (Amendment) Act, 1999 has inserted new sub-sections 3A, 3B and 3C to Section 211, with a view to ensure that the financial statements are prepared in accordance with the Accounting Standards. The new sub-sections as inserted are reproduced below: Section 211 (3A): Every profit and loss account and balance sheet of the company shall comply with the accounting standards Section 211 (3B): Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following, namely:a) the deviation from the accounting standards; b) the reasons for such deviation; and c) the financial effect, if any, arising due to such deviation Section 211 (3C): For the purposes of this section, the expression accounting standards

means the standards of accounting recommended by the Institute of Chartered Accountants of India, constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub- section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this subsection. It may also be mentioned that the National Advisory Committee on Accounting Standards NACAS) has been constituted under section 210A as referred to under section 211 (3C) to advise the Central Government on formulation and laying down of the accounting standards for adoption by companies or class of companies. It is of significance to note that on the recommendation of NACAS, the Ministry of Company Affairs, has issued a Notification dated 7th December, 2006, whereby it has prescribed Accounting Standards 1 to 7 and 9 to 29, as recommended by the Institute of Chartered Accountants of India, which are included in the said Notification. As per the Notification, the Accounting Standards shall come into effect in respect of accounting periods commencing on or after the publication of these Accounting Standards, i.e., 7th December, 2006. Specific relaxations are given to particular kinds of companies, termed as Small and Medium Sized Companies, depending upon their size and nature. The above legal provisions have cast a duty upon the management to prepare the financial statements in accordance with the accounting standards. The corresponding provision to report on the compliance of accounting standards has been inserted under section 227 of the Companies Act, 1956, thereby casting a duty upon the auditor of the company to report on such compliance. A new clause (d) under sub-section 3 of Section 227 of the Companies Act, 1956 is read as under: whether, in his opinion, the profit and loss account and balance sheet comply with the accounting standards referred to in sub-section (3C) of section 211 As far as the reporting of compliance with the Accounting Standards by the management is concerned, clause (i) under the new sub-section 2AA of Section 217 of the Companies Act, 1956, (inserted by the Companies Amendment Act, 2000)

prescribes that the Boards report should include a Directors Responsibility Statement indicating therein that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures. Accounting is the art of recording transactions in the best manner possible, so as to enable the reader to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that there are set guidelines. These guidelines are generally called accounting policies. The intricacies of accounting policies permitted Companies to alter their accounting principles for their benefit. This made it impossible to make comparisons. In order to avoid the above and to have a harmonised accounting principle, Standards needed to be set by recognised accounting bodies. This paved the way for Accounting Standards to come into existence. Accounting Standards in India are issued By the Institute of Chartered Accountanst of India (ICAI). At present there are 30 Accounting Standards issued by ICAI. Objective of Accounting Standards Objective of Accounting Standards is to standarize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements. The institute of Chatered Accountants of India, recognizing the need to harmonize the diversre accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977. Compliance with Accounting Standards issued by ICAI Sub Section(3A) to section 211 of Companies Act, 1956 requires that every Profit/Loss Account and Balance Sheet shall comply with the Accounting Standards. 'Accounting Standards' means the standard of accounting recomended by the ICAI and prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards(NACAs) constituted under section 210(1) of companies Act, 1956. Accounting Standards Issued by the Institute of Chatered Accountants of India are as below:

Disclosure of accounting policies: Valuation Of Inventories: Cash Flow Statements Contingencies and events Occurring after the Balance sheet Date

Net Profit or loss For the period, Prior period items and Changes in accounting Policies. Depreciation accounting. Construction Contracts. Revenue Recognition. Accounting For Fixed Assets. The Effect of Changes In Foreign Exchange Rates. Accounting For Government Grants. Accounting For Investments. Accounting For Amalgamation. Employee Benefits. Borrowing Cost. Segment Reporting. Related Party Disclosures. Accounting For Leases. Earning Per Share. Consolidated Financial Statement. Accounting For Taxes on Income. Accounting for Investment in associates in Consolidated Financial Statement. Discontinuing Operation. Interim Financial Reporting. Intangible assets. Financial Reporting on Interest in joint Ventures. Impairment Of assets. Provisions, Contingent, liabilities and Contingent assets. Financial instrument. Financial Instrument: presentation.

Financial Instruments, Disclosures and Limited revision to accounting standards.

Disclosure of Accounting Policies: Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements. Valuation of Inventories: The objective of this standard is to formulate the method of computation of cost of inventories / stock, determine the value of closing stock / inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue. Cash Flow Statements: Cash flow statement is additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise. Contigencies and Events occuring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet. While following the prudent accounting policies, the provision is made for all known liabilities and losses even for those liabilities / events, which are probable. Professional judgement is required to classify the likehood of the future events occuring and, therefore, the question of contingencies and their accounting arises. Objective of this standard is to prescribe the accounting of contigencies and the events, which take place after the balance sheet date but before approval of balance sheet by Board of Directors. The Accounting Standard deals with Contingencies and Events occuring after the balance sheet date. Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies : The objective of this accounting standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period. This accounting standard also deals with change in accounting policy, accounting estimates and extraordinary items. Depreciation Accounting : It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time. Depreciation is nothing but distribution of total cost of asset over its useful life. Construction Contracts : Accounting for long term construction contracts involves question as to when revenue should be recognized and how to measure

the revenue in the books of contractor. As the period of construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so. Therefore question arises how the profit or loss of construction contract by contractor should be determined. There may be following two ways to determine profit or loss: On year-to-year basis based on percentage of completion or On cpmpletion of the contract. Revenue Recognition : The standard explains as to when the revenue should be recognized in profit and loss account and also states the circumstances in which revenue recognition can be postponed. Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of enterprises resources by other yeilding interest, dividend and royalties. In other words, revenue is a charge made to customers / clients for goods supplied and services rendered. Accounting for Fixed Assets : It is an asset, which is:- Held with intention of being used for the purpose of producing or providing goods and services. Not held for sale in the normal course of business. Expected to be used for more than one accounting period. The Effects of changes in Foreign Exchange Rates : Effect of Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting for transaction in Foreign currencies in translating in the Financial Statement Of foreign operation Integral as well as nonintegral and also accounting for For forward exchange.Effect of Changes in Foreign Exchange Rate, an enterprises should disclose following aspects:

Amount Exchange Difference included in Net profit or Loss; Amount accumulated in foreign exchange translation reserve; Reconciliation of opening and closing balance of Foreign Exchange translation reserve;

Accounting for Government Grants : Governement Grants are assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government assistance, which cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with Governement, which cannot be distinguished from the normal trading transactions of the enterprise, are not considered as Government grants. Accounting for Investments : It is the assets held for earning income by way of dividend, interest and rentals, for capital appreciation or for other benefits.

Accounting for Amalgamation : This accounting standard deals with accounting to be made in books of Transferee company in case of amalgamtion. This accounting standard is not applicable to cases of acquisition of shares when one company acquires / purcahses the share of another company and the acquired company is not dissolved and its seperate entity continues to exist. The standard is applicable when acquired company is dissolved and seperate entity ceased exist and purchasing company continues with the business of acquired company Employee Benefits : Accounting Standard has been revised by ICAI and is applicable in respect of accounting periods commencing on or after 1st April 2006. the scope of the accounting standard has been enlarged, to include accounting for short-term employee benefits and termination benefits. Borrowing Costs : Enterprises are borrowing the funds to acquire, build and install the fixed assets and other assets, these assets take time to make them useable or saleable, therefore the enterprises incur the interest (cost on borrowing) to acquire and build these assets. The objective of the Accounting Standard is to prescribe the treatment of borrowing cost (interest + other cost) in accounting, whether the cost of borrowing should be included in the cost of assets or not. Segment Reporting : An enterprise needs in multiple products/services and operates in different geographical areas. Multiple products / services and their operations in different geographical areas are exposed to different risks and returns. Information about multiple products / services and their operation in different geographical areas are called segment information. Such information is used to assess the risk and return of multiple products/services and their operation in different geographical areas. Disclosure of such information is called segment reporting. Related Paty Disclosure : Sometimes business transactions between related parties lose the feature and character of the arms length transactions. Related party relationship affects the volume and decision of business of one enterprise for the benefit of the other enterprise. Hence disclosure of related party transaction is essential for proper understanding of financial performance and financial position of enterprise. Accounting for leases : Lease is an arrangement by which the lesser gives the right to use an asset for given period of time to the lessee on rent. It involves two parties, a lessor and a lessee and an asset which is to be leased. The lessor who owns the asset agrees to allow the lessee to use it for a specified period of time in return of periodic rent payments. Earning Per Share :Earning per share (EPS)is a financial ratio that gives the information regarding earning available to each equiy share. It is very important financial ratio for assessing the state of market price of share. This accounting standard gives computational methodology for the determination and presentation

of earning per share, which will improve the comparison of EPS. The statement is applicable to the enterprise whose equity shares or potential equity shares are listed in stock exchange. Consolidated Financial Statements : The objective of this statement is to present financial statements of a parent and its subsidiary (ies) as a single economic entity. In other words the holding company and its subsidiary (ies) are treated as one entity for the preparation of these consolidated financial statements. Consolidated profit/loss account and consolidated balance sheet are prepared for disclosing the total profit/loss of the group and total assets and liabilities of the group. As per this accounting standard, the conslidated balance sheet if prepared should be prepared in the manner prescribed by this statement. Accounting for Taxes on Income : This accounting standard prescribes the accounting treatment for taxes on income. Traditionally, amount of tax payable is determined on the profit/loss computed as per income tax laws. According to this accounting standard, tax on income is determined on the principle of accrual concept. According to this concept, tax should be accounted in the period in which corresponding revenue and expenses are accounted. In simple words tax shall be accounted on accrual basis; not on liability to pay basis. Accounting for Investments in Associates in consolidated financial statements : The accounting standard was formulated with the objective to set out the principles and procedures for recognizing the investment in associates in the cosolidated financial statements of the investor, so that the effect of investment in associates on the financial position of the group is indicated. Discontinuing Operations : The objective of this standard is to establish principles for reporting information about discontinuing operations. This standard covers "discontinuing operations" rather than "discontinued operation". The focus of the disclosure of the Information is about the operations which the enterprise plans to discontinue rather than dsclosing on the operations which are already discontinued. However, the disclosure about discontinued operation is also covered by this standard. Interim Financial Reporting (IFR) : Interim financial reporting is the reporting for periods of less than a year generally for a period of 3 months. As per clause 41 of listing agreement the companies are required to publish the financial results on a quarterly basis. Intangible Assets : An Intangible Asset is an Identifiable non-monetary Asset without physical substance held for use in the production or supplying of goods or services for rentals to others or for administrative purpose Financial Reporting of Interest in joint ventures : Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic

activity under 'joint control'. Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. 'Joint control' is the contractually agreed sharing of control over economic activity. Impairment of Assets : The dictionary meanong of 'impairment of asset' is weakening in value of asset. In other words when the value of asset decreases, it may be called impairment of an asset. As per AS-28 asset is said to be impaired when carrying amount of asset is more than its recoverable amount. Provisions, Contingent Liabilities And Contingent Assets : Objective of this standard is to prescribe the accounting for Provisions, Contingent Liabilitites, Contingent Assets, Provision for restructuring cost. Provision: It is a liability, which can be measured only by using a substantial degree of estimation. Liability: A liability is present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Financial Instrument: Recognition and Measurement, issued by The Council of the Institute of Chartered Accountants of India, comes into effect in respect of Accounting periods commencing on or after 1-4-2009 and will be recommendatory in nature for An initial period of two years. This Accounting Standard will become mandatory in respect of Accounting periods commencing on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and Medium-sized Entity. The objective of this Standard is to establish principles for recognizing and measuring Financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in Accounting Standard.

Financial Instrument: presentation : The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Accounting Standard Financial Instruments:

Financial Instruments, Disclosures and Limited revision to accounting standards: The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate:

the significance of financial instruments for the entitys financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants Act, 1949 (Act No. XXXVIII of 1949) for the regulation of the profession of Chartered Accountants in India. During its 61 years of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development, maintenance of high accounting, auditing and ethical standards.ICAI now is the second largest accounting body in the whole world. Indian Accounting Standards, abbreviated as Ind AS are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with International Financial Reporting Standards(IFRS). These accounting standards are formulated bu Accounting Standards Board of Institute of Chartered Accountants of India. Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 and IFRS converged Indian Accounting Standards(Ind AS). The Ind AS are named and numbered in the same way as the corresponding IFRS. NACAS recommend these standards to the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has to spell out the accounting standards applicable for companies in India. As on date the Ministry of Corporate Affairs notified 35 Indian Accounting Standards(Ind AS). But it has not notified the date of implementation of the same. Convergence with IFRS The inception of the idea of convergence of Indian GAAP with IFRS was made my the Prime Minister of India Dr. Manmohan Singh by committing in G20 to align Indian accounting standards with IFRS. Thereafter ICAI has decided to converge its Accounting Standards with IFRS for accounting periods commencing on or after 1 April 2011 in a phased manner as envisaged the Roadmap to IFRS formulated by the Ministry of Corporate Affairs. For smooth transition to IFRS, ICAI has taken up the matter of convergence with the National Advisory Committee on Accounting Standards and various regulators such as the RBI, SEBI and IRDA, CBDT. IASB, the issuer of IFRS, is also supporting the ICAI in its endeavours towards convergence. It has been decided that there shall be two sets of Accounting Standards under the Companies Act. The new set of standards which have been converged with IFRS are

now known as Indian Accounting Standards or Ind AS. The Ministry of Corporate Affairs has notified the 35 Ind AS on 25 February 2011.[2] The text of the 35 Ind AS are now available at the Ministry of Corporate Affairs portal.[3] At the same time The Ministry of Corporate Affairs haven't specified the date of implementation of the same. This reluctance of The Ministry of Corporate Affairs to notify the date even when the proposed date is less than a month away is seen as rooted in the strong lobbying my the Corporates in India to defer the implementation. But the president of ICAI. CA.G.Ramaswamy expects that it will be notified soon and there wont be any deferment.[4] [edit] List of Ind AS 1. Ind AS 101 First-time Adoption of Indian Accounting Standards 2. Ind AS 102 Share based Payment 3. Ind AS 103 Business Combinations 4. Ind AS 104 Insurance Contracts 5. Ind AS 105 Non current Assets Held for Sale and Discontinued Operations 6. Ind AS 106 Exploration for and Evaluation of Mineral Resources 7. Ind AS 107 Financial Instruments: Disclosures 8. Ind AS 108 Operating Segments 9. Ind AS 1 Presentation of Financial Statements 10.Ind AS 2 Inventories 11.Ind AS 7 Statement of Cash Flows 12.Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors 13.Ind AS 10 Events after the Reporting Period 14.Ind AS 11 Construction Contracts 15.Ind AS 12 Income Taxes 16.Ind AS 16 Property, Plant and Equipment 17.Ind AS 17 Leases 18.Ind AS 18 Revenue 19.Ind AS 19 Employee Benefits

20.Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance 21.Ind AS 21 The Effects of Changes in Foreign Exchange Rates 22.Ind AS 23 Borrowing Costs 23.Ind AS 24 Related Party Disclosures 24.Ind AS 27 Consolidated and Separate Financial Statements 25.Ind AS 28 Investments in Associates 26.Ind AS 29 Financial Reporting in Hyperinflationary Economies 27.Ind AS 31 Interests in Joint Ventures 28.Ind AS 32 Financial Instruments: Presentation 29.Ind AS 33 Earnings per Share 30.Ind AS 34 Interim Financial Reporting 31.Ind AS 36 Impairment of Assets 32.Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets 33.Ind AS 38 Intangible Assets 34.Ind AS 39 Financial Instruments: Recognition and Measurement 35.Ind AS 40 Investment Property News: http://www.moneycontrol.com/news/the-firm/jamil-khatris-ifrs-diary-part10_526759.html Through a press release, the Ministry of Corporate Affairs (MCA) notified the final Ind AS on February 25, 2011. This is an important first step in operationalizing the adoption of the Ind AS by Indian companies. Key points:

The February 25 press release states that the Ind AS will be implemented after various issues, including tax related issues are resolved with other relevant government departments (for example, the Ministry of Finance). Accordingly, the actual date of implementation of the Ind AS is proposed to be notified by the MCA at a later date

Per its announcement dated January 22, 2010, the MCA had issued a phased approach for IFRS convergence by Indian companies based on net worth and certain other specified criteria. The MCA now needs to notify whether the previously specified timelines (which would require certain companies to follow the Ind AS from April 1, 2011) would continue; or alternatively specify the new timelines for adoption of Ind AS The adoption of Ind AS will need an amendment of various sections of the Companies Act. In addition to amendments to Schedule VI and Schedule XIV of the Companies Act, various individual sections of the Companies Act may also need to be changed. Similarly, amendments would need to be made to specify how distributable profits will be determined by companies that follow Ind AS The government needs to notify how income taxes (including Minimum Alternate Tax) will be computed by companies that follow Ind AS. While it may seem intuitive to permit companies that follow Ind AS, to use profits computed per Ind AS as a starting point for computing their income tax liability; this approach has its own limitations. Profits computed per Ind AS are likely to include various types of unrealized gains/losses (for example, unrealized gains/losses on derivatives) and other notional non-cash accounting adjustments (for example, notional higher interest cost on convertible instruments based on fair value principles). It may be difficult to identify and list in the income tax laws all such items that may require a treatment for tax purposes, which is different from the books of accounts. Alternatively, requiring that taxable profits be computed per some other bases (for example, old Indian GAAP) would require Ind AS companies to make several adjustments to Ind AS book profits to compute taxable profits. This is a sensitive issue, and I am aware that various government departments are currently working through this issue. In this regard, the experience of European countries may be relevant as Indian regulators seek to address this issue. Several European countries opted to disregard the IFRS-based profits and required companies to compute taxable income per other frameworks, which were based more on historical cost conventions.

The previous chapter of my diary (Part 9) had a discussion on the carve outs that had been proposed in the near final Ind AS submitted by the ICAI (mandatory deviations from IFRS, voluntary deviations from IFRS and removal of options under IFRS). There are a few substantive differences between the final Ind AS and the near final Ind AS previously issued by the ICAI. Consequently all carve outs proposed in the near final Ind AS have been accepted in the final versions with some modifications and additions which are outlined below:

The near final Ind AS specified that a company could choose to use the Indian GAAP carrying values of fixed assets acquired before April 1, 2007, as the

deemed cost for future accounting under Ind AS (i.e. a company could choose not to make any adjustment in the opening Ind AS balance sheet for such assets). The final Ind AS extend the benefit of this exemption to all such assets acquired before the transition date. This is a major relief to all transitioning companies

The final Ind AS defer the application of guidance on accounting for embedded leases and service concession arrangements. While guidance on accounting for such arrangements has been included as part of the Ind AS, the effective date for the application of these principles is not the transition date, and will be notified separately. This deferral would impact infrastructure and power companies Similarly, the Ind AS that governs accounting for exploration and evaluation of mineral resources will be applied (with potential modification) from a date to be notified later.

Even though the transition date for adoption of Ind AS has not been notified, the notification of the final Ind AS affirms Indias commitment for convergence to IFRS. However, as discussed above, there are several important steps that need to be implemented by the regulators to fully operationalize the adoption of Ind AS. It is now clear that while Ind AS financial statements presented for the first transition period cannot be fully compliant with IFRS (since comparatives would not be presented), Ind AS financial statements for subsequent years can be made fully compliant with IFRS, if a company chooses optimal accounting policies and does not adopt the diluted alternatives available under Ind AS. This is assuming that a company is not impacted by the mandatory deviations. With the issuance of final Ind AS, it is now up to each company to finalize its preparations for the eventual transition. Any additional time that may be available due to the deferral of the transition date, should be used to further embed Ind AS reporting into the financial reporting systems and processes. http://pib.nic.in/newsite/erelease.aspx?relid=70248 Indian Accounting Standards Converged with IFRS Notified Reliable, consistent and uniform financial reporting is important part of good corporate governance practices worldwide in order to enhance the credibility of the businesses in the eyes of investors to take informed investment decisions. In pursuance of G-20 commitment given by India, the process of convergence of Indian Accounting Standards with IFRS has been carried out in Ministry of Corporate Affairs through wide ranging consultative exercise with all the stakeholders. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notified by the Ministry and placed

on the website. . These are: IND ASs 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, 29, 31, 32, 33, 34, 36, 37, 38, 39, 40, 101, 102, 103, 104, 105, 106, 107 and 108. The Ministry of Corporate Affairs will implement the IFRS converged Indian Accounting Standards in a phased manner after various issues including tax related issues are resolved with the concerned Departments. It would be ensured that the implementation of the converged standards in a phased manner is smooth for the stakeholders. The date of implementation of the IND AS will be notified by the Ministry at a later date. Reference http://220.227.161.86/9548Indian%20Accounting%20Standards.pdf http://www.saralaccounts.com/resources/accounting-std.php 2. IFRS and Indian GAAP

India, in 2011, joins the global accounting revolution: International Financial Reporting Standards. Convergence with IFRS is not just about switching over from one set of accounting & reporting standards to another. It takes the description of a revolution because conceptual differences are expected, as evidenced in this publication. Convergence is more about a complete business and financial strategy to adopt international standards which is expected to be a long drawn process involving investment of time and resources.

3. Difference between financial accounting and management accounting Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. In contrast to financial accountancy information, management accounting information is:

forward-looking, instead of historical; model based with a degree of abstraction to support decision making generically, instead of case based; designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators; usually confidential and used by management, instead of publicly reported; computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.

According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities" (CIMA Official Terminology).

The Institute of Management Accountants(IMA)[1] recently updated its definition as follows: "management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems,and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organizations strategy."

Financial accounting reports are prepared for the use of external parties such as shareholders and creditors, whereas managerial accounting reports are prepared for managers inside the organization. This contrast in basic orientation results in a number of major differences between financial and managerial accounting, even though both financial and managerial accounting often rely on the same underlying financial data. In addition to the to the differences in who the reports are prepared for, financial and managerial accounting also differ in their emphasis between the past and the future, in the type of data provided to users, and in several other ways. These differences are discussed in the following paragraphs. Emphasis on the Future: Since planning is such an important part of the manager's job, managerial accounting has a strong future orientation. In contrast, financial accounting primarily provides summaries of past financial transactions. These summaries may be useful in planning, but only to a point. The future is not simply a reflection of what has happened in the past. Changes are constantly taking place in economic conditions, and so on. All of these changes demand that the manager's planning be based in large part on estimates of what will happen rather than on summaries of what has already happened. Relevance of Data: Financial accounting data are expected to be objective and verifiable. However, for internal use the manager wants information that is relevant even if it is not completely objective or verifiable. By relevant, we mean appropriate for the problem at hand. For example, it is difficult to verify estimated sales volumes for a proposed new store at good Vibrations, Inc., but this is exactly the type of information that is most useful to managers in their decision making. The managerial accounting information system should be flexible enough to provide whatever data are relevant for a particular decision. Less Emphasis on Precision: Timeliness is often more important than precision to managers. If a decision must be made, a manager would rather have a good estimate now than wait a week for a more precise answer. A decision involving tens of millions of dollars does not have to be based on estimates that are precise down to the penny, or

even to the dollar. In fact, one authoritative source recommends that, "as a general rule, no one needs more than three significant digits., this means, for example, that if a company's sales are in the hundreds of millions of dollars, than nothing on an income statement needs to be more accurate than the nearest million dollars. Estimates that accurate to the nearest million dollars may be precise enough to make a good decision. Since precision is costly in terms of both time and resources, managerial accounting places less emphasis on precision than does financial accounting. In addition, managerial accounting places considerable weight on non monitory data, for example, information about customer satisfaction is tremendous importance even though it would be difficult to express such data in monitory form. Segments of an Organization: Financial accounting is primarily concerned with reporting for the company as a whole. By contrast, managerial accounting forces much more on the parts, or segments, of a company. These segments may be product lines, sales territories divisions, departments, or any other categorizations of the company's activities that management finds useful. Financial accounting does require breakdowns of revenues and cost by major segments in external reports, but this is secondary emphasis. In managerial accounting segment reporting is the primary emphasis. Generally Accepted Accounting Principles (GAAP): Financial accounting statements prepared for external users must be prepared in accordance with generally accepted accounting principles (GAAP). External users must have some assurance that the reports have been prepared in accordance with some common set of ground rules. These common ground rules enhance comparability and help reduce fraud and misrepresentations, but they do not necessarily lead to the type of reports that would be most useful in internal decision making. For example, GAAP requires that land be stated at its historical cost on financial reports. However if, management is considering moving a store to a new location and then selling the land the store currently sits on, management would like to know the current market value of the land, a vital piece of information that is ignored under generally accepted accounting principles (GAAP). Managerial Accounting Not Mandatory: Financial accounting is mandatory; that is, it must be done. Various out side parties such as Securities and exchange commission (SEC) and the tax authorities require periodic financial statements. Managerial accounting, on the other hand, is not mandatory. A company is completely free to do as much or as little as it wishes . No regularity bodies or other outside agencies specify what is to be done, for that matter, weather anything is to be done at all. Since

managerial accounting is completely optional, the important question is always, "Is the information useful?" rather than, "Is the information required?" Summary: Financial Accounting

Managerial Accounting

Reports to those outside the organization owners, lenders, tax authorities and regulators. Emphasis is on summaries of financial consequences of past activities. Objectivity and verifiability of data are emphasized. Precision of information is required. Only summarized data for the entire organization is prepared. Must follow Generally Accepted Accounting Principles (GAAP). Mandatory for external reports.

Reports to those inside the organization for planning, directing and motivating, controlling and performance evaluation. Emphasis is on decisions affecting the future. Relevance of items relating to decision making is emphasized. Timeliness of information is required. Detailed segment reports about departments, products, customers, and employees are prepared. Need not follow Generally Accepted Accounting Principles (GAAP). Not mandatory

Introduction

Financial accounting means Recording of events (transactions) Financial management means Planning of events (transactions)

Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be "future looking" and have forecasting value to those within the company. Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company. Management Accounting is the branch of Accounting that deals primarily with confidential financial reports for the exclusive use of top management within an organization. These reports are prepared utilizing

scientific and statistical methods to arrive at certain monetary values which are then used for decision making. Such reports may include:

Sales Forecasting reports Budget analysis and comparative analysis Feasibility studies Merger and consolidation reports

Financial Accounting, on the other hand, concentrates on the production of financial reports, including the basic reporting requirements of profitability, liquidity, solvency and stability. Reports of this nature can be accessed by internal and external users such as the shareholders, the banks and the creditors. [edit] Regulation and standardization While financial accountants follow Generally Accepted Accounting Principles set by professional bodies in each country, managerial accountants make use of procedures and processes that are not regulated by a standard-setting bodies. However, multinational companies prefer to employ managerial accountants who have passed the Certified Management Accountant certification. The CMA is an examination given by the Institute of Management Accountant, a professional organization of Accounting professionals. This certification is different. [edit] Time Period Managerial Accounting provides top management with reports that are futureoriented, while Financial Accounting provides reports based on historical information. There is no time span for producing managerial accounting statements but financial accounting statements are generally required to be produced for the period of 12 previous months. [edit] Other differences

There is no legal requirement for an organization to use management accounting but publicly-traded firms (limited companies or whose shares are bought and sold on an open market) must, by law, prepare financial account statements. In management accounting systems there is no requirement for an independent external review but financial accounting annual statements must be audited by an independent CPA firm.

In management accounting systems, management may be concerned about how reports will affect employees behavior whereas management concerns are about the adequacy of disclosure in financial statements. (BAC)

There are two broad types of accounting information: Financial Accounts: geared toward external users of accounting information Management Accounts: aimed more at internal users of accounting information Although there is a difference in the type of information presented in financial and management accounts, the underlying objective is the same - to satisfy the information needs of the user. Management Accounts Management accounts are used to help management record, plan and control the activities of a business and to assist in the decision-making process. They can be prepared for any period (for example, many retailers prepare daily management information on sales, margins and stock levels).

Financial Accounts Financial accounts describe the performance of a business over a specific period and the state of affairs at the end of that period. The specific period is often referred to as the "Trading Period" and is usually one year long. The period-end date as the "Balance Sheet Date"

Companies that are incorporated under the There is no legal requirement to prepare management Companies Act 1989 are required by law to accounts, although few (if any) well-run businesses prepare and publish financial accounts. The can survive without them. level of detail required in these accounts reflects the size of the business with smaller companies being required to prepare only brief accounts. The format of published financial accounts There is no pre-determined format for management is determined by several different accounts. They can be as detailed or brief as regulatory elements: management wish. Company Law Accounting Standards Stock Exchange

Financial Accounts Financial accounts concentrate on the business as a whole rather than analysing the component parts of the business. For example, sales are aggregated to provide a figure for total sales rather than publish a detailed analysis of sales by product, market etc.

Management Accounts Management accounts can focus on specific areas of a business' activities. For example, they can provide insights into performance of: Products Separate business locations (e.g. shops) Departments / divisions

Most financial accounting information is of Management accounts usually include a wide variety a monetary nature of non-financial information. For example, management accounts often include analysis of: - Employees (number, costs, productivity etc.) - Sales volumes (units sold etc.) Customer transactions (e.g. number of calls received into a call centre) By definition, financial accounts present a historic perspective on the financial performance of the business Management accounts largely focus on analysing historical performance. However, they also usually include some forward-looking elements - e.g. a sales budget; cash-flow forecast.

4. Limited Liability Partnership

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations.[1] In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. [2] In some countries, an LLP must also have at least one "general partner" with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation. Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least

one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries the LLP is more suited for businesses where all investors wish to take an active role in management. There is considerable confusion between LLPs as constituted in the U.S. and that introduced in the UK in 2001 and adopted elsewhere - see below - since the UK LLP is, despite the name, specifically legislated as a Corporate body rather than a Partnership. India The Limited Liability Partnership Act 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March 2009. However, the Act, has been notified with limited sections only.[4] The rules have been notified in the official gazette on April 1, 2009. The first LLP was incorporated in the first week of April 2009. In India for all purposes of taxation, an LLP is treated like any other partnership firm. The salient features of the LLP Act, 2008 are as under:1. The LLP has an alternative corporate business vehicle that would give the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on an agreement. 2. The LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act. 3. While the LLP has a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partners wrongful business decisions or misconduct. 4. LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20, LLP Act makes a mandatory statement where one of the partner to the LLP should be an Indian. 5. Provisions have been made for corporate actions like mergers, amalgamations etc. 6. While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act. 7. The Act also provides for conversion of existing partnership firm, private limited company and unlisted public company into a LLP by registering the same with the Registrar of Companies (ROC)

8. Nothing Contained in the Partnership Act 1932 shall effect an LLP. 9. The Registrar of Companies (Roc) shall register and control LLPs also. 10. The governance of LLPs shall be in electronic mode based on the successful model of the present Ministry of Corporate Affairs Portal. Visit LLP Portal to register a new LLP. Limited Liability Partnership (LLP) in India All you need to know about By Sharda Balaji on 12, May, 2009 | Topic: Legal Resources for startups LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act 2008, with effect from April 1, 2009. link (pdf) . LLP combines the advantages of ease of running a Partnership and separate legal entity status and limited liability aspect of a Company. Here are some of the main features of a LLP

LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued. Unlike corporate shareholders, the partners have the right to manage the business directly One partner is not responsible or liable for another partners misconduct or negligence. Minimum of 2 partners and no maximum. Should be for profit business. Perpetual succession. The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law. Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud. LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public. The process for incorporating a LLP is pretty simple. The flow chart here depicts it clearly. The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps required are:

Decide on the Partners and the Designated Partners

Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate. Decide on the name of the LLP and check whether it is available. Draft the LLP agreement File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.

In order to help you decide on which legal form to choose, heres a feature comparison between the LLP, Partnership firm and a Company: Features Registration Company Compulsory registration required with the ROC. Certificate of Incorporation is conclusive evidence. Name Name of a public company to end with the word limited and a private company with the words private limited Capital contribution Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company Legal entity status Is a separate legal entity Liability Limited to the extent of unpaid capital. Partnership firm LLP Not compulsory. Compulsory Unregistered registration Partnership Firm will required with the not have the ability toROC sue. No guidelines. Name to end with LLP Limited Liability Partnership

Not specified

Not specified

No. of shareholders / Partners Foreign Nationals as shareholder / Partner Taxability

Not a separate legal Is a separate legal entity entity Unlimited, can Limited to the extend to the extent of the personal assets of the contribution to the partners LLP. Minimum of 2. In a 2- 20 partners Minimum of 2. No private company, maximum. maximum of 50 shareholders Foreign nationals can Foreign nationals Foreign nationals be shareholders. cannot form can be partners. partnership firm. The income is taxed The income is taxed Not yet notified. at 30% + at 30% +

surcharge+cess surcharge+cess Meetings Quarterly Board of Not required Not required. Directors meeting, annual shareholding meeting is mandatory Annual Return Annual Accounts and No returns to be filed Annual statement Annual Return to be with the Registrar of of accounts and filed with ROC Firms solvency & Annual Return has to be filed with ROC Audit Compulsory, Compulsory Required, if the irrespective of share contribution is capital and turnover above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs. How do the bankers High Creditworthiness Perception is view creditworthiness, due depends on goodwill higher compared to stringent and credit worthiness to that of a compliances and of the partners partnership but disclosures required lesser than a company. Dissolution Very procedural. By agreement of the Less procedural Voluntary or by partners, insolvency compared to Order of National or by Court Order company. Company Law Voluntary or by Tribunal Order of National Company Law Tribunal Whistle blowing No such provision No such provision Protection provided to employees and partners who provide useful information during the investigation process. The parliament on 12.12.2008 has passed the limited liability partnership Act 2008 and the rules under the act have been framed and are made effective from 01.04.2009. The salient features of the act and rules are as under: The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the

flexibility of organising their internal structure as a partnership based on an agreement. The bill is for the benefit of any enterprise which fulfills the requirements of the Act. There can also be a foreign LLP. Every person having the capacity to contract according to the law of the land can be a member of LLP. The capacity may be natural or legal. No minor or a simple partnership firm or any entity which is not a body corporate can be a partner in a LLP. While the LLP being a separate legal entity is liable to the full extent of its assets, its partners will be liable only to the extent of their agreed contribution in the LLP. Further no partner will be liable for the independent or unauthorized actions of other partners thereby shielding the partners from the joint liability created by the other partners' wrongful business decisions or misconduct. LLP shall be a corporate body and a legal entity separate from its partners. It has a perpetual succession. Indian Partnership Act shall not be applicable to LLP and the minimum number of partners of a LLP is two and there is no upper limit to the number of partners. An LLP will be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. LLP can also take actions like mergers amalgamations. Similarly there are provisions for winding up and dissolution. Every LLP should have two "Designated partners" at least one of whom should be a resident Indian satisfying the conditions stipulated by the Central Government. They should apply and obtain designated partner identification number (DPIN) and digital signature certificate from the designated authority. An intending unlimited liability partnership firm seeking to convert itself into a LLP is required to apply to the Registrar as per form 17 which should be accompanied by written consent from all creditors. When once the Registrar accepts and registers the firm it comes into force and all the assets and liabilities would be transferred to the new LLP.

The Central government by a notification in the Gazette can apply any provisions of the Companies act to LLP either fully or with certain modifications. Perhaps these would cover the time frame within which charges are required to be registered, the forms for this, the inter se priority of charges etc.

A new trend that has been observed of-late is that more and more entreprenuers have started opting for Limited Liability Partnerships. But What is a Limited Liability Partnership? Before answering this question well explain you reasons behind the emergence of LLPs. Till a few years back there used to be only 2 forms of Organisations 1. Limited Liability Organisations i.e. Companies 2. Unlimited Liability Partnerships i.e. Partnership/ Proprietorship Both these forms of organisations have their own plus and minuses. There is limited liability of the Owners in a Company as compared to Partnerships/Proprietorship which are easy to form and operate but Small Businesses & Professionals usually tend to opt for Partnerships as they are easy to form and operate. However, as Businesses grew there was a need for a form of organisation which was a hybrid between the 2 forms of organisations. Moreover, the rapid growth of Service Sector created an environment and a demand for a new form of Organisation. Thus, the concept of Limited Liability Partnership was evolved which incorporates the benefits of both Companies as well as Partnerships. Meaning of Limited Liability Partnership (LLP) The Law defines LLP as:A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership Features of LLP 1. The LLP has Separate Legal Entity i.e. the LLP and the partners are distinct from each other. 2. Minimum of 2 partners are required to form a LLP. However, there is no limit on the maximum number of partners. 3. No requirement of Minimum Capital Contribution.

4. The LLP Act does not restrict the benefit of LLP structure to certain classes of Professionals only and would be available for use by any enterprise. Benefits of forming a LLP 1. The Liability of each partner is limited to his share as written in the Agreement filed at the time of creation of LLP as compared to Partnership Firms which have unlimited liability. 2. It has a Low Cost of Formation and is Easy to Form. 3. The Partners are not liable for the acts of each other and can be held liable only for their own acts as compared to Partnerships wherein they can be held liable for the acts of their partners as well. 4. Less Restrictions and Compliance are enforced on a LLP by the Govt as compared to the restrictions enforced on a Company. 5. As a Juristic Legal Person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP. Disadvantages of Forming a LLP The only disadvantage of forming a LLP is that it cannot come out with its IPO and Raise Money from the Public which a Company form of organisation can easily do. Difference between LLP & Traditional Partnership Firm The basic difference between LLP and Partnership is with regard to the Liability of the Partners. In a Partnership Firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a Partner. However, under the LLP structure, liability of the partner is limited only to his agreed contribution. Further, no partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partners wrongful acts or misconduct. Difference between LLP & Company The major difference between LLPs and Companys is that there are less Regulatory and other Compliance Regulations applicable on a LLP which makes it Easy and Cost-Effective to Manage. Taxation of LLPs in India

In India, the Govt has notified that LLPs would be taxed in the same form as Partnerships i.e. Tax would be levied on the LLP and the partners would be exempt from Tax. Moreover, as LLPs would be taxed in the same form as Partnership Firms, no tax would be levied on the conversion of Partnership Firms into LLPs. The Income Tax Return shall be signed and verified by the designated partner and where for any unavoidable reason the designated partner is not able to sign the return of income or where there is no designated partner, by any other partner. 6. Accounting environment in India 5. Accounting environment in India The accounting environment in India is comprised of Ministry Of Corporate Affairs, SEBI, ICAI, Income Tax Department, RBI, IRDA and Comptroller and Auditor General of India. The Companies Act of 1956 provides the basic accounting framework and disclosure of corporate financial information in India. The 1956 Act constitutes the first comprehensive piece of company legislation passed by the parliament of independent India. The Institute of Chartered Accountants of India (ICAI), a professional body created by an Act of parliament in 1949, is similar in stature to the American Institute of Certified Public Accountants (AICPA). It issues Statements on Accounting Matters, and Guidance Notes to the accounting profession. In 1977 it constituted the Accounting Standards Board (ASB) with the express purpose of setting accounting standards. Constitution of the ASB was triggered by ICAIs membership of the International Accounting Standards Committee (IASC, 1873). The ASB has used International Accounting Standards as the basis for designing standards. In the absence of an ASB accounting standard on a particular issue, the ICAI recognizes its obligation to persuade compliance with international standards by accounting entities and members of the accounting profession. By 1992, ASB had standards corresponding to twelve out of 31 International Accounting Standards. By April 2001, ASB had issued 21 Accounting Standards as compared to 41 issued by the International Accounting Standards Committee. The Companies (Amendment) Ordinance issued in 1999 empowers the Government of India to form a National Advisory Committee on Accounting Standards (NACAS). Till such a Committee is established, accounting standards that are specified by ICAI are deemed to be accounting standards enforceable under the company law. Companies that desire listing by stock exchanges (All major cities in India have stock exchanges.) have to comply with regulations

issued by the Securities Exchange Board of India (SEBI), a regulatory agency that began functioning in 1992. Some Indian firms, desirous of lowering their cost of capital and enhancing their international image and prestige, have cast their net wider by seeking listings on global stock exchanges, particularly in the United States. But listings in American stock exchanges come at a price: firms have to conform to the American FASB standards, claimed to be superior to standards set by the IASC, and to standards that are specific to other countries. The U.S. Securities and Exchange Commission does not yet accept standards set by IASC or other countryspecific standard setting bodies. Indian public enterprises operated by the central (federal) government have to comply with circulars issued by the Department of Public Enterprises. The Bureau of Public Enterprises (BPE) made conformance to national accounting standards, and, in the absence of national, to international accounting standards, mandatory for public enterprises operated by the Central (Federal) government.

Ministry of Corporate Affairs (India) The Ministry of Company Affairs (MCA) is an Indian government ministry. It is charged with administering the Companies Act 1956 and other acts related to Indian private sector. It is responsible mainly for regulation of Indian enterprises in Industrial and Services sector. The ministry administers the following acts:

The Companies Act 1956 (basic law governing the creation, existence, and dissolution of companies, and the relationships between the shareholders, the company, the public, and the government. The Competition Act 2002 The Monopolies and Restrictive Trade Practices Act 1969 The Chartered Accountants Act 1949 [As amended by the Chartered Accountants (Amendment) Act, 2006]

The Company Secretaries Act 1980 [As amended by The Company Secretaries (Amendment) Act, 2006] Cost and Works Accountants Act 1959 [As Amended By The Cost And Works Accountants (Amendment) Act, 2006] Companies (Donation to National) Fund Act 1951 Partnership Act 1932 Societies Registration Act 1860 The Companies Amendment Act, 2006

Securities and Exchange Board of India (SEBI) This regulates the investment market in India. The purpose of this board is to maintain stable and efficient markets by creating and enforcing regulations in the marketplace. The Securities and Exchange Board of India is similar to the U.S. SEC. The SEBI is relatively new (1992) but is a vital component in improving the quality of the financial markets in India, both by attracting foreign investors and protecting Indian investors. Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India. Responsibilities of SEBI SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities the investors the market intermediaries.

Functions of SEBI quasi-legislative quasi-judicial

quasi-executive

It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. Powers For the discharge of its functions efficiently, SEBI has been invested with the necessary powers which are: 1. to approve bylaws of stock exchanges. 2. to require the stock exchange to amend their bylaws. 3. inspect the books of accounts and call for periodical returns from recognised stock exchanges. 4. inspect the books of accounts of a financial intermediaries. 5. compel certain companies to list their shares in one or more stock exchanges. 6. levy fees and other charges on the intermediaries for performing its functions. 7. grant licence to any person for the purpose of dealing in certain areas. 8. delegate powers exercisable by it. 9. prosecute and judge directly the violation of certain provisions of the companies Act. Institute of Chartered Accountants of India (ICAI) It is a professional accounting body of India. It was established on 1 July 1949 as a body corporate under the Chartered Accountants Act, 1949 enacted by the Constituent Assembly of India (acting as the provisional Parliament of India) to regulate the profession of Chartered Accountancy in India. ICAI is the second largest professional accounting body in the world in terms of membership second only to American Institute of Certified Public Accountants. ICAI is the only licensing cum regulating body of the financial audit and accountancy profession in India. It

recommends the accounting standards to be followed by companies in India to the National Advisory Committee on Accounting Standards (NACAS) and sets the accounting standards to be followed by other types of organisations. ICAI is solely responsible for setting the auditing and assurance standards to be followed in the audit of financial statements in India. It also issues other technical standards like Standards on Internal Audit (SIA), Corporate Affairs Standards (CAS) etc. to be followed by practising Chartered Accountants. It works closely with the Government of India, Reserve Bank of India and the Securities and Exchange Board of India in formulating and enforcing such standards. Members of the Institute are known as Chartered Accountants. However the word chartered does not refer to or flow from any Royal Charter. Chartered Accountants are subject to a published Code of Ethics and professional standards, violation of which is subject to disciplinary action. Only a member of ICAI can be appointed as auditor of an Indian company under the Companies Act, 1956. The management of the Institute is vested with its Council with the president acting as its Chief Executive Authority. A person can become a member of ICAI by taking prescribed examinations and undergoing three years of practical training. The membership course is well known for its rigorous standards. ICAI has entered into mutual recognition agreements with other professional accounting bodies world-wide for reciprocal membership recognition. Functions of ICAI It prescribes the qualifications for a Chartered Accountant, conducts the requisite examinations and grants license in the form of Certificate of Practice. Apart from this primary function, it also helps various government agencies like RBI, SEBI,[3] MCA, CAG, IRDA, etc. in policy formulation. ICAI actively engages itself in aiding and advising economic policy formulation. For example ICAI has submitted its suggestions on the proposed Direct Taxes Code Bill, 2010. It also has submitted its suggestions on the Companies Bill, 2009. The government also takes the suggestions of ICAI as expert advice and considers it favourably. ICAI presented an approach paper on issues in implementing Goods and Service Tax in India to the Ministry of Finance. In response to this, Ministry of Finance has suggested that ICAI take a lead and help the government in implementing Goods and Services Tax (GST). It is because of this active participation in formulation economic legislations, it has designated itself as a "Partner in Nation Building". Income Tax Department The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State. An important

restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law." Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India. The CBDT provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income Tax Department. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.It is Indias official FATF unit. Income Tax Act of 1961 Main article: Income tax in India The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporations. This Act imposes a tax on income under the following five heads.

Income from house and property, Income from business and profession, Income from salaries, Income in the form of Capital gains, and Income from other sources

However, this Act is about to be repealed and be replaced with a new Act which consolidates the law relating to Income Tax and Wealth Tax, the new proposed legislation is called the Direct Taxes Code (to become the Direct Taxes Code, Act 2010). The new Act is purported to come into effect from 1 April 2012. Income tax rates In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. The rate of taxes are prescribed every year by the Parliament in the Finance Act, popularly called the Budget. In terms of the Finance Act, 2009, the rate of tax for individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) is as under;

A surcharge of 2.50% of the total tax liability is applicable in case the Payee is a Non-Resident or a Foreign Company; where the total income exceeds Rs 10,000,000.

Note : -

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount. Service tax Service tax is a part of Central Excise in India. It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs(CBEC). The Finance Minister of India, Pranab Mukherjee in his Budget speech has indicated the government's intent of merging all taxes like Service Tax, Excise and VAT into a common Goods and Service Tax by the year 2011. To achieve this objective, the rate of Central Excise and Service Tax will be progressively altered and brought to a common rate. In budget presented for 2008-2009 It was announced that all Small service providers whose turnover does not exceed Rs10 lakhs need not pay service tax. Circular No. 127/9/2010-ST, dated 16-8-2010 regarding Service tax on commercial training and coaching - Whether donation' is consideration'. A representation has been received seeking clarification whether donations and grants-in-aid received from different sources by a charitable Foundation imparting free livelihood training to the poor and marginalized youth, will be treated as consideration' received for such training and subjected to service tax under commercial training or coaching service'. 2. The matter has been examined. The important point here is regarding the presence or absence of a link between consideration' and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax. Donation or grant-in-aid is not specifically meant for a person receiving such training or to the specific activity, but is in general meant for the charitable cause championed by the registered Foundation. Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training. Other Major Taxation Laws Other major taxation laws enacted by the Parliament are; 1. Wealth Tax Act, which has a regular history of being passed and repealed; 2. Service Tax, imposed under Finance Act, 1994, which taxes the provision of services provided by service providers within India or services imported by Indian from outside India;

3. Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India; 4. Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India; 5. Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in India; 6. Transaction Tax, which taxes transactions of sale of securities and other specified transactions; The major taxation enactments passed by the State Legislatures are in the nature of the following; 1. Excise duties on tobacco, alcohol and narcotics; 2. Sales tax, on sale of goods within the State; 3. Stamp duties, on sale of property situated within the State; 4. Entertainment taxes Insurance Regulatory and Development Authority (IRDA) The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.In 2010, the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the market regulator Securities and Exchange Board of India. Duties, Powers and Functions of IRDA Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, 1. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

2. protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; 4. specifying the code of conduct for surveyors and loss assessors; 5. promoting efficiency in the conduct of insurance business; 6. promoting and regulating professional organisations connected with the insurance and re-insurance business; 7. levying fees and other charges for carrying out the purposes of this Act; 8. calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; 9. control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938); 10.specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; 11.regulating investment of funds by insurance companies; 12.regulating maintenance of margin of solvency; 13.adjudication of disputes between insurers and intermediaries or insurance intermediaries; 14.supervising the functioning of the Tariff Advisory Committee; 15.specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); 16.specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and

17.exercising such other powers as may be prescribed from time to time Comptroller and Auditor General of India (CAG) The Comptroller and Auditor General (CAG) of India is an authority, established by the Constitution of India, who audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is also the external auditor of government-owned companies. The reports of the CAG are taken into consideration by the Public Accounts Committees, which are special committees in the Parliament of India and the state legislatures . The CAG of India is also the head of the Indian Audits and Accounts Service. Indian Audits and Accounts Service The Constitution of India [Art.148] provides for an independent office to the CAG of India. He is the head of Indian Audit and Accounts Department. His duty is to uphold the constitution of India and laws of the Parliament in the field of financial administration. Scope of audits Audit of government accounts (including the accounts of the state governments) in India is entrusted to the CAG of India who is empowered to audit all expenditure from the revenues of the union or state governments, whether incurred within India or outside. Specifically, audits include: Transactions relating to debt, deposits, remittances, Trading, and manufacturing Profit and loss accounts and balance sheets kept under the order of the President or Governors Receipts and stock accounts