Regulatory Framework

Chapter 3

Regulatory Framework Governing Corporate

Financial Disclosure in Bangladesh and India
3.1 Historical Review
3.2 Comparative Regulatory Framework Governing Corporate
Financial Disclosure for Listed Companies
3.3.1 Bangladesh: Companies Act. 1994 - A Mainstream Regulation
I to Accounts and Audits
I 3.3.2 Bangladesh: The Securities and Exchange Rules 1987
I 3.3.3 Bangladesh: Accounting Standards
3.4.1 India: Companies Act. 1956- A Mainstream Regulation
to Accounts and Audit
i 3.4.2 India: The Securities and Exchange Board of India Act, 1992
I 3.4.3 India: Accounting Standards
! 3.5 Comparative Disclosure Requirements in Balance Sheet
under the Companies Act in Bangladesh and India
3.6 Comparative Disclosure Requirements in Profit & Loss
Account under the Companies Act in Bangladesh and India
3.7 Comparative Disclosure in Financial Statements Other than
in Balance Sheet and Profit & Loss Account under the
Companies Act in Bangladesh and India
3.8 Comparative Disclosures in Directors' Report under the
Compemies Act in Bangladesh and India
3.9 Competitive Disclosure in Auditors' Report under the
Companies Act in Bangladesh and India
3.10 Corporate Governance Report under the SEBI Code
3.11 The Salient Feature of the Comparative Corporate Disclosure
Requirements in Bangladesh and India

38
 Regulatory Framework

Chapter 3

Regulatory Framework Governing Corporate Finaneial

Disclosure in Bangladesh and India

3.1 Historical Review

Corporate financial disclosure in Bangladesh and India operates within regulatory and
institutional framework, either mandatory or recommendatory or both. This
Iramcwork (comiirising laws, guidelines and interpreUUions; and inslilulions
overseeing them) regulates forms and contents of the corporate reports (S. Aiam,
1991).
In Bangladesh and India, fmaneial reporting and disclosure is largely a function of
law. Generally companies prepare their reports in conformity with the legal provisions
of the country. The legal provision very from country to country and consequently the
extent of financial disclosure also varies largely from one country to another, 'fhe two
major components of the regulatory framework governing financial reporting and
disclosure are Companies Act, 1994 and Securities and Exchange Rules 1987 in
Bangladesh and Companies Act, 1956 and the Securities Contracts (Regulations)
Act, 1956 in India. The British ruled both the countries. As a result, the Companies
Acts of the two countries inherited to the British Acts up to 1947 and have uniform
provisions for various areas including corporate financial reporting. The first Limited
Liabilities Act, 1857 required 'preparation of balance sheet and a statement of income
and expenditure' on optional basis, which was turned into compulsory basis by the
Indian Companies Act, 1866. All the Companies Acts were re-cast and over-hulled by
the Indian Companies Act, 1882 which contained compulsory provisions regarding
the balance sheet and its audit but still remained optional provisions concerning profit
and loss account, and contents of directors' and auditors' reports. The Indian
Companies Act, 1913 brought further changes to corporate financial reporting and
discloser wherein an advanced form of balance sheet was formed, brief contents of
balance sheet were given, and contents of auditors' reports were prescribed in it.
However, presentation of profit and loss account and balance sheet at annual general
meeting was not made compulsory by that Act which was so made by the Indian
Companies (Amendment) Act, 1936. This Amendment Act was verbatim copies of
the new provisions of the English Companies Act, 1929 which shifted statutory
emphasis from the balance sheet to the revenue account; and made obligatory
presentation of the balance sheet, profit and loss account, and directors' and auditors'
reports at the annual general meeting. This act was eventually adopted in India and in
Pakistan in 1949 after the two countries became independent in 1947. The accounting
provisions of the 1913 Act were ' seriously out of date ' (Parry and Khan, 1984; p. 42)

m
 and hence were limited to very minimum disclosure by companies. In liie year 1956,
the first corporate legislation of independent India, the Companies Act, 1956 was
passed in the Parliament. Later, this Act was amended several times, the major once
having taken place in 1961, 1977, 1988 and 1989. The Act has been again amended in
2000, which was enforced in January 2001. In Bangladesh, the Companies Act, 1913
was replaced by the Companies Act, 1994 in 1994.

3.2 Comparative Regulatory Framework Governing Corporate Mnancial

Disclosure for Listed Companies

i SI. i Contents Bangladesh India

No.
i 1. i Main 1 1. The Companies Act. 1994. 1. The Companies Act, 1956
i 1 Regulating 1 2. Securities and Lxchangc (as amended up to dale).
i i Law 1 Rules, 1987. 2. Securities and Lxchangc
j 3. Accounting Standards Board of India-Guidelines.
1 (as adopted by ICAB). 3. Accounting Standards (as
adopted by ICAl).
i 2, i Financial i 1. Balance Sheet. 1. Balance Sheet.
1 1 Statements 1 2. Profit and Loss Account. 2. Profit and Loss Account.
i i included in i 3. Statement of Changes in 3. Statement ol' Changes in
1 i the Accounts Financial Position / Cash Financial Position / Cash
Flows Statement. Flows Statement.
4. Schedule and Notes to the 4. Schedule and Notes to the
\ Accounts. Accounts.
5. Disclosure of Accounting 5. Disclosure of Accounting
Policies. Policies.
i 3. j Reports j 1. Directors' Report. 1. Directors' Report.
2. Accounts. 2. Accounts.
3. Auditors' Reports. 3. Auditors' Reports.
4. Corporate Governance
Report
5. Directors' Responsibility
Statement
i 4. Time limit Nine months (twelve months Six months or earlier; or in
for for companies having cases where an extension of
presentation business outside time has been granted by the
of reports at Bangladesh). However, the Registrar, by not more than
the AGM Registrar of Joint Stock nine months.
Companies may extend the
time limit further by three
months for specific i
reason(s). i

M
 i 'T-Bef^t^[Link]'

3.3.) Bangladesh; Companies Act, 1994, A Mainstream Regulation to

Accounts and Audit
The Companies Act, 1994 is the cornerstone in the regulatory framework for
companies in Bangladesh, it has Licen discussed earlier that the historical perspective
of this Act is rested in the Indian Companies Act, 1913 as amended up to 1947. The
main provisions of the Companies Act. 1994 in respect of the financial disclosure and
reporting has been laid down under section 181 to 190. The respective provisions arc
summarized below:

Sec. 181(1) of the Act requires every company to keep compulsorily at its
registered office proper books of accounts relating to: (a) all sums of money received
and expended and the matters in respect of which the receipt and expenditure takes
place, (b) all sales and purchases of goods, (c) all assets and liabilities, and (d) all
manufacturing, processing, extraction costs and overheads. Although Section 181 of
the Act states the obligation to keep proper books of account but does not give any
idea about what short of books of accounts to be kept. Sec. 183(1) and 183(2)
provides the requirements of the directors of the company to present before the
shareholders in annual general meeting the balance sheet and the profit and loss
account (income and expenditure account for the companies not trading for profit) at
least once in every calendar year within a period of nine months or within twelve
months for companies carrying on business or having interest outside Bangladesh
after closing the accounts. However, the Registrar may for any special reason exleiid
lime by a period not exceeding three months. Sec. 183(3) provides that the balance
sheet and the profit and loss account or income and expenditure account shall be
caused to be audited by the auditor of the company and the auditor's report to be
attached thereto. Provisions regarding the qualification and appointment of auditors
are laid down in Sec. 210 and 212 and powers and duties of auditors are prescribed in
Sec. 213. Sec. 183(4) states that the financial year of a company may be more or less
than a calendar year but shall not exceed fifteen months, which may further be
extended to eighteen months with special permission of the Register. Sec. 183(5)
provides a penalty for the directors an amount up to Tk. 5,000 for any default in
complying with the provisions of this section. Section 183(6) requires companies to
keep a copy of the audited balance sheet and profit and loss account or income and
expenditure account together with a copy of the directors' report for inspection of the
members for a period of at least fourteen days before the annual general meeting.

Section 184(4) states that a directors' report shall be attached to every balance sheet
with respect to: (a) the state of company's affairs, (b) proposed transfer to a reserve
fund, (c) recommended dividend, and (d) any material changes and commitments
affecting the financial position of the company between the date of the balance sheet
and the date of the report. Section 184(2) provides that the directors' report shall deal
with any changes occurred during the year in: (a) the nature of the company's
 •y,^ Rfg^laipry Bramework

business, (b) the company's subsidiaries or the nature of their business, and (e) liie
classes of business in wiiicii the company has an interest. Section 184(3) bounds the
board to give fullest information and explanations in its report on every reservation,
qualification or adverse remark contained in the auditor's report. Section 184(4)
prescribes the competent person who shall sign the Board's reports.
Section 185(1) prescribes the format and the content of the balance sheet. It requires
that the balance sheet must contain the summary of the property and assets and of
capital and liabilities of the company giving a true and fair view ol'thc affairs al the
end of the financial year. The detailed provisions regarding the balance sheet are
furnished in part I of schedule XI of this Act, which contains two forms of balance
sheet - form "A" and \'o\m '\V in (he name of hori/.onUil and vertical iorm
respectively. "I'orm A' contains assets on the right hand side and liabilities on the let'l
hand side of the balance sheet and specifies instructions in accordance with which
assets and liabilities should be made out. Figures for the current year as well as
previous year are to be shown in the balance sheet for both the forms. In addition, this
section states that in preparing the balance sheet due regard shall be made as far as
possible, to the general instructions for preparation of balance sheet under the heading
"Notes' at the end of the part 1. Section 185(2) prescribes the content but not the
format of the profit and loss account. It requires that the profit and loss account shall
give a true and fair view of the profit and/or loss of the company for the financial year
and shall comply with the requirements of Part 11 of the Schedule XI so far as
applicable thereto. Part 11 of the schedule XI states that the profit and loss account (a)
shall be made out clearly to disclose the result of the working of the company during
the period covered by the account; and (b) shall disclose every material feature,
including credits or receipts and debits or expenses in respect of non-recurring
transactions or transactions of an exceptional nature. The profit and loss account sets
out the various items relating to the income and expenditure of the company arranged
under most convenient heads. Part II of the Schedule XI provides the list of the
incomes and expenditures relating to the period covered by the account. The provision
of this section, however, shall not apply to banks, insurance companies, electricity
companies or to any other company for which forms of balance sheets and/or profit
and loss account have been specified in respective laws governing such companies.
Section 186 requires holding companies to include particulars of their subsidiary
companies. Section 190 requires companies to forward three copies of their audited
accounts to the Registrar of Joint Stock Companies.

3.3.2 Bangladesh: 'l"he Securities and Exchange Rules 1987

On June 28, 1969 the Securities and Exchange Ordinance, 1969 was passed and
enforced in the then Pakistan. At the same time the Securities and Exchange Authority
was established. The accounting rules were included in the legislation applicable to
those companies who were trading on the stock exchanges in the then Pakistan. After
 •;? f^egiilatpryframework

the independence of Bangladesh in 1971, Ihis ordinance and accounting rules were
accepted as existing laws in liangladcsh but no Securities and Exchange Authority
was established, it is a matter of great regret that in the absence of any Securities and
Exchange Authority, the aforesaid ordinance and the rules were not iniplcmented nor
enforced in Bangladesh. In 1987, the Government of l^angladesh took some importani
steps to enforce the aforesaid ordinance and rules. As a result, the Investment Wing ol'
the Finance Division of the Ministry of Finance passed and enforced the Securities
and Exchange Rules (SEF^), in 1987. The SER became effective in September, 1987
following the establishment of the Securities and Exchange Authority to regulate the
disclosure and accounting practices of listed companies in Bangladesh ([Link].
IWH).

The accounting provisions of the Rules apply to companies whose securities arc listed
on a stock exchange. All listed companies except banks are required to submit annual
reports along with a balance sheet, profit and loss account and a cash Hows slalcmcnl.
and notes to the accounts prepared in accordance with the format prescribed by ihc
Rules and the International Accounting Standards as adopted by the ICAB jSections
12(1) and 12(2)]. Section 12(3) requires the audit of the aforesaid statements by a
chartered accountant and specifies the ibrmat in which the auditor shall report. In the
form of the auditors' report the auditor will affirm that the financial statements have
been drawn up in accordance with the requirements of the schedule to the SEC", ihc
Companies Act and the IAS as adopted by the ICAB. Section 12(4) slates that the
listed companies shall send a copy of the annual report together with the balance sheet
and the profit and loss account to the shareholders at least fourteen days before the
AGM, and shall simultaneously furnish a copy of such report to the stock exchange in
which its securities are listed and to the Government. Section 13 requires that half-
yearly financial statements must be submitted, audited or otherwise, to the SEC and to
be transmitted to the shareholder within one month of close of the tirst-half year. I'he
Rules set out detailed requirements for the balance sheet, the profit and loss account
and cash flows statement in separate schedules. As regards the balance sheet, they
require the classification of assets and define the categories under which they arc to be
classified. For each asset category, other than capital work in progress, the Rules
require the disclosure of original cost, additions, deductions, and aggregate amount
written off or provided or retained, by way of depreciation or amortization or
diminution in value. This exemplifies how detailed are the guidelines provided by the
Rules. Similar guidelines are provided for each category of assets, liabilities, and
capital. Detailed guidelines for the preparation of the profit and loss account and cash
flows statement are also provided. The Rules, however, do not explicitly require the
disclosure of significant accounting policies. For example, with regard to stock-in-
trade, the companies must distinguish, where applicable, between (a) stock of raw
materials and components, (b) work in progress, (c) stock of finished products, and
(d) other stock, but there is no mention of the disclosure o f the method to be used in
their valuation (Karim, 1998).
 ' ; R^'gmtoty Framework

Karim (1998) also made an attempt to review the SER 1987 with particular rclcrcncc
to the improvements made by the SER and the shortcomings of the SBR which can be
summarized as follows: (i) the requirement of sending the annual report to the
shareholders before the AGK4 that was previously not required ; (ii) the requiremenl
of auditor to report in a prescribed format: (iii) the requirement of submitting semi-
annual reports : (iv) setting minimum qualifications for members of slock
exchange(s); (v) providing detailed guidelines under which the balance sheet and
profit and loss account must be prepared and the prescribing formats ibr both the
statements;(vi) requiring the disclosure of contingent liabilities, claims against the
company not acknowledged as debt, uncalled liability on partly paid shares, and
arrears of fixed cumulative dividends on preference shares, (vii) requiring the
disclosure of corresponding figures for the previous period for all items in the balance
sheet and profit and loss account; (viii) requiring to [Link] .separatel\' by a compan\
which has more than one unit of operation or line of business, the working results of
each such unit; (ix) requiring financial statements to include other information such
as: (a) the capacity of the industrial unit, actual production and reasons for shortfall, if
any; (b) the aggregate amounts of capital commitments outstanding, and (c) the
general nature of unveiled credit facilities.

The Size has also added cash Hows statement, and notes to the accounts to the
financial statements according to the prescribed guidelines. They have also prescribed
that the financial statements of a listed company shall be prepared in accordance with
the IAS as adopted by ICAB, which is a new improvement as the mandatory
disclosure in the financial statements.

An investigation into the areas concerning corporate financial reporting and disclosure
in SER reveals some shortcomings. Karim (1998) identified the following
shortcomings: (i) no disclosure of significant accounting policies is required; (ii) no
mention is made about the profit and loss appropriation account (iii) directors" report
is not mentioned while a directors' report must still be prepared in accordance with
the Companies Act; (iv) no improvement suggested for banks and insurance
companies listed on the stock exchange(s); (v) no mechanism or body exists to
guarantee the enforcement of the requirements of the rules. In conclusion, it may be
suggested that, the Securities and Exchange Rules, 1987 do not significantly broaden
the umbrella of mandatory disclosure, rather they prescribe in-depth guidelines for the
three basic financial statements, the balance sheet, the profit and loss account and the
cash flows statement.
 : 'Reg'^iatory Framework

3.3.3 Bangladesh: Accounting Standards

The accounting profession in Bangladesh has evolved in the British tradition of self
regulation and professional ethics, and its root can be traced to 1850 when the lirsl
Companies Act was enacted in India (Nicholls and Ahmed. 1995). fhere are two
accountancy bodies in Bangladesh - the Institute of Chartered Accounts of
Bangladesh (ICAB) and the Institute of Cost and Management Accountants of
Bangladesh (ICMAB). The two bodies are members of the International Accounting
Standards Committee (lASC). But according to tiie Companies Act. the members of
ICAB arc entitled to attest to the validity of accounts and to report to the shareholders
whether a company's financial statements comply with statutory provisions. As a
member of lASC, ICAB through its Technical and liesearch Committee started
adoption of International Accounting Standards (IAS) as Accounting Standards (AS)
in Bangladesh which is renamed as Bangladesh Accounting Standards (BAS). In
Bangladesh there is no separate body like Accounting Standard Board (ASB) in India.
However, the accounting standards issued by the ICAB are recommendatory in nature
as the ICAB has no power of its own to enforce agreement or require compliance with
accounting standards and as a result, there is a little influence of the accounting
standards on financial reporting practices in Bangladesh. The companies Act 1994 is
quite silent as regards enforcement of IAS in Bangladesh. In such a situation,
accounting standards without having any legal backing, are likely to have a very little
influence on the financial reporting system in Bangladesh. However, the Securities
and Exchange Commission has amended Section 12 of the Securities and Exchange
Rules, 1987 and substituted sub- rule (2) by notification No. SEC / Section-7/ SER-
03/ 132 dated October 22, 1997 (published in the Gazette on December 22, 1997)
requiring all listed companies to abide by International Accounting Standards as
adopted by ICAB and passed on the ultimate responsibility to the ICAB regarding the
implementation of IAS. Hence, accounting standards are mandatory only for the
companies listed in the Dhaka Stock Exchange (DSE) and the Chittagong Stock
Exchange (CSE). As a result, the accounting standards are likely to have greater
influence on the financial statements of the listed companies in Bangladesh. ICAB has
adopted 16 of the 41 IAS as BAS and several lASs are in process of adoption. In this
section a brief discussion about the summary and disclosure requirements according
to the relevant BAS is made that follows:

tti
 Regulatory Framework

The InsliUilc orCharlercd Accounlanls of Bangladesh (ICAIV

Adoption Status of IAS as of 31 December 2002

Effective date of TASCV

'I ,
lASB ICAB Adoption
• IAS, .',-,, Present Tille', • .
, Original Revised . Status
l ( '''•'•
' Version Version
01 Picbcntation of rinancial 01 Januai) 01 lul\ Adopted original
Slatcmcnls 1975 1998 ' version as AS 1
02 ' inventories 01 January 01 January Adopted latest
1976 1995 version as BAS 2
07 Cash Flow Statements 01 .lanuar\' 01 January Adopted original
1979 1994 version
08 Net Profit or Loss for the 01 January 01 January Adopted original
period, 1-undamental l-,rrors 1979 1995 version
and Changes in Aecounting
Policies
10 Events alter the Balance 01 January 01 January Adopted original
Sheet Date 1980 1995 version
Construction Contracts 01 Januar\ 01 January Adopted latest
1980 1995 version as BAS
11
12 Income Taxes 01 January 01 January Adopted original
1981 1998 version
1 4 " " Segment Reporting 01 January OlJuly " Not adopted
1983 1998
15 Information Reficcting the 01 January 01 January Not adopted
effects of Changing prices 1983 1995
16 Property, Plant and 01 January 01 January Adopted original
Equipment 1983 1995 version
17 Leases 01 January 01 January Not adopted
1984 1999
18 Revenue 01 January 01 January Adopted latest
1984 1995 version as BAS
18
19 Employee Benefit 01 January 01 January Not adopted
1985 1999
20""^ Accounting for Government 01 January 01 January Adopted latest
Grants and Disclosure of 1984 1984 version as BAS
Government Assistance 20
21 The effects of Changes in 01 January 01 January Adopted original
Foreign Exchange Rates 1985 1995 version
22 Business Combinations 01 January 01 January Not adopted
1985 1995
23 Borrowing Costs 01 January 01 January Adopted original
1986 1995 version ,
24 Related F'arty Disclosures 01 January 01 January Not adopted
1986 1995

46
 Regulatory Framework

J- ''? •<«» • i* u "• !'{' < -' 2,*'., ..Effective date of lASC/
m - ^ /'lASB • ICAB Adoption
aboriginal;. Revised"^ ' Status
-e^.~ Version •Version
26 Accounting and Reporting 01 January 01 January Not adopted
by Retirement Benefit Plans 1988 1995
27 Consolidated Financial 01 January 01 January Adopted latest
Statements and Accounting 1990 1995 version BAS 27
for Investments in
Subsidiaries
28 Accounting for Investments 01 January 01 January Not adopted
in Associates 1990^ 1995
29 ' financial Reporting in 01 January 01 January Not adopted
1 lyperinnalionary 1990 1995 i
Economics
30 Disclosures in the Financial 01 January 01 January Adopted lalesl
Statements of Banks and 1991 1995 version as BAS
Similar Financial Institutions 30
31 Financial Reporting of 01 January 01 January Not adopted
Interests in Joint Venture 1992 1995
32 Financial Instruments: 01 January Not revised Not adopted
Disclosure and Presentation 1996
33 Earnings Per Share 01 January Not revised Adopted latest
1998 version as BAS
33
34 Interim Financial Reporting 01 January Not revised Adopted latest
1999 version as BAS
34
35 Discontinuing Operations 01 January Not revised Not adopted
1999
36 Impairment of Assets 01 July Not revised Not adopted
1999
37 Provisions, Contingent 01 July Not revised Not adopted
Liabilities and Contingent 1999
Assets
38 Intangible Assets 01 July Not revised Not adopted
1999
39 Financial Instruments: 01 January Not revised Not adopted
Recognition and 2001
Measurement
40 Investment Property 01 January Not revised Not adopted
2001
41 Agriculture 01 January Not revised Not adopted
2003

Source: The Institute of Chartered Accountants of Bantiladcsh.

m
 Regulatory Framework

Some salient aspects and the disclosure rcc]iiircments of each of the standards are
stated below:

BAS 1: Presentation of Financial Statements supersedes:

• BAS 1, Disclosure of Accounting Policies;
• BAS 5, information to be Disclosed in Financial Statements; and
• BAS 13, Presentation of Current Assets and Current Liabilities.
BAS 1 defines overall considerations for financial statements:
Fair presentation; Accounting policies; Going concern; Accrual basis of accounting;
Consistency of presentation; Materiality and aggregation; Offsetting; Comparative
information.
Four basic financial statements: BAS I prescribes the minimum structure and content,
including certain information required on the face of the financial statements:
• Balance sheet (current/concurrent distinction is not required)
• hicome statement (operating/nonoperating separation is required)
• Cash flow statement (IAS 7: Cash Flow Statements sets out the details)
• Statement showing changes in equity.

Other matters addressed:

• Notes to financial statements
• Requires certain information on the face of financial statements
• Income statement must show: revenue; results of operating activities; finance
costs; income from associates and joint ventures; taxes; profit or loss from
ordinary activities; extraordinary items; minority interest; net profit or loss.
Offsetting (netting)
Summary of accounting policies
Illustrative Financial Statements
Disclosure of compliance with IAS
Limited "true and fair override" if compliance is misleading
Requires compliance with Interpretations
Definitions of current and concurrent

BAS 2: Inventories
ICAB adopted latest version of IAS 2 as BAS 2. It reveals that:
• Inventories should be measured at the lower of cost and net realisable value. Net
realisable value is selling price less cost to complete the inventory and sell it.
• Cost includes all costs to bring the inventories to their present condition and
location.
 Regulahfy Framework

• If specific cost is not determinable, tlie benciimark treatment is to use cither the
first in, first out (FIFO) or weighted average cost formulas. An allowed
alternative is the last in, first out (LIFO) cost formula. When LIFO is used, there
should be disclosure of the lower of (i) net realisable value and (ii) FIFO,
weighted average or current cost.
• The cost of inventory is recognised as an expense in the period in which the
related revenue is recognised.
• if inventory is written down to net realisable value, the write-down is charged to
expense. Any reversal of such a write-down in a later period is credited to
income by reducing that period's cost of goods sold.
• Required disclosures include:
o accounting policy,
o carrying amount of inventories by category,
o carrying amount of inventory carried at net realisable value,
o amount of any reversal of a write-down,
o carrying amount of inventory pledged as security for liabilities,
o cost of inventory charged to expense for the period, and
o LIFO disclosures mentioned above.

BAS 7: Cash Flow Statements

ICAB has not adopted the IAS 7 (revised 1992) on cash fiows statement, which was
issued by lASC superseding the original IAS 7 on statement of changes in financial
position. ICAB adopted original IAS 7 on changes in financial position effective from
1984. However, the Securities and Exchange Rules as amended in Oct. 1997 has
made provision as to the requirement of cash flows statement, mostly similar to and in
line with the requirements of IAS 7 (revised 1992) exceeding for the fact that while
the said IAS 7 encouraged the use of direct method for presenting cash fiows of a
company from operating activities and allowed the indirect method as an alternative
option for the said purpose, the amended SER has made direct method mandatory
without leaving any alternative options. As the preparation of cash fiows statement is
mandatory for the listed companies, the same is discussed in line with IAS 7. The
standard lays down that:
• The cash fiow statement is a required basic financial statement.
• It explains changes in cash and cash equivalents during a period.
• Cash equivalents are short-term, highly liquid investments subject lo
insignificant risk of changes in value.
• Cash fiow statement should classify changes in cash and cash equivalents into
operating, investing, and financial activities.
• Operating: May be presented using either the direct or indirect methods. Direct
method shows receipts from customers and payments to suppliers, employees,
 \R9gulat0ry Framework

government (taxes), etc. Indirect method begins with accrual basis net profit or
loss and adjusts for major non-cash items.
• Investing: Disclose separately cash receipts and payments arising from
acquisition or sale of property, plant, and equipment; acquisition or sale of
equity or debt instruments of other enterprises (including acquisition or sale oi'
subsidiaries); and advances and loans made to, or repayments from, third
parties.
• Financing: Disclose separately cash receipts and payments arising from an issue
of share or other equity securities; payments made to redeem such securities;
proceeds arising from issuing debentures, loans, notes; and repayments of such
securities.
• Cash flows from taxes should be disclosed separately within operating activities,
unless they can be specifically identified with one of the other two headings.
• Investing and financing activities that do not give rise to cash flows (a
nonmonetary transaction such as acquisition of property by issuing debt) should
be excluded from the cash flow statement but disclosed separately.

BAS 8: Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting PoHcies
ICAB adopted latest version of IAS 8 as BAS 8 and made effective from January I,
1995. The standard lays down that:
• Separate disclosure of extraordinary items of profit or loss is required on the
face of the income statement, after the total of profit or loss from ordinary
activities. Such extraordinary items are rare and beyond management control.
Examples are expropriation of assets and effects of natural disasters.
• Items of income or expense arising from ordinary activities that are abnormal
because of their size, nature or incidence are separately disclosed, usually in the
notes.
• A change in accounting estimate should be reflected prospectively. The nature
and effect of the change should be disclosed, even if the effect will only be
significant in a future period. If the effect cannot be quantified, that fact should
be disclosed.
• A correction of a fundamental error should be treated as a prior period
adjustment (benchmark) or recognised in current profit or loss (allowed
alternative). The nature and effect of the change in the current and prior periods
should be disclosed.
• A change in accounting policy should be treated retrospectively by restating all
prior periods presented and adjusting opening retained earnings (benchmark). If
the adjustments relating to prior periods cannot be reasonably determined, the
change may be accounted for prospectively. An allowed alternative for the

50
 Regulator^framework

adjustment arising from a retrospective ciiange in accounting policy is to include

it in the determination of the net profit or loss for the current period.
• Disclosure is required of the reasons for and effect and accounting treatment of
the change.
• A change in accounting policy should be made only if required by statute or by
an accounting standard-setting body, or if the change results in a more
appropriate presentation offinancialstatements.

BAS 9: Accounting for Research and Development Costs

Though IAS 9 has been superseded by IAS 38, ICAB has adopted original version of
IAS 9 and was made effective from July 1991. The standard provides for charging of
R&D costs as an expense of the period in which they are incurred. It also provides
that development cost of a project may be deferred to future periods if all the
following criteria are satisfied:
a) product process is clearly defined and the costs attributable to the product of
process can be separately identified ;
b) technical feasibility of the product or process has been demonstrated;
c) management of the enterprise has indicated its intention to produce and market, or
use, the product or process ;
d) there is a clear indication of a future market for the product or process, or if it is to
be used internally rather than sold, its usefulness to the enterprise can be
demonstrated ;and
e) adequate resources exist, or are reasonably expected to be available to complete
the project and market the product or process(para 17)
The deferral of development costs of a project under the criteria in paragraph 17
should be limited to the amount that, taken together with further development costs,
related production costs, and selling and administrative costs directly incurred in
marketing the product, can reasonably be expected to be recovered from related future
revenues ( para 18).
If an accounting policy of deferral of development costs is adopted, it should be
applied to all development projects that meet the criteria in paragraph 17 (para 19).
If development cost of a project is deferred, they should be allocated on a systematic
basis to future accounting periods by a reference either to the sale or use of the
product or process or to the time period over which the product or process is expected
to be sold or used (para 20)
The deferred development costs of a project should be reviewed at the end of each
accounting period. When the criteria of paragraph 17 , which previously justified the
deferral of the costs no longer apply, the unamortized balance should be charged as an
expense immediately. When the criteria for deferral continue to be met but the amount
of deferred development costs ( and other relevant costs as set out in paragraph 18)

5L
 , Regulatqry^^camqwork,

that can reasonably be expected to be recovered from related future revenues is

exceeded by the unamortized balance of such costs, the excess should be charged as
an expense Immediately (para 21).
Development costs once written - off should not be reinstated even though the
uncertainties which had led to their being written- off no longer exist (para 22).

BAS 10: Events After the Balance Sheet Date

ICAB adopted original version of IAS 10 effective from January 1,1995. The standard
reveals that:
• an enterprise should adjust its financial statements for events after the balance
sheet date that provide further evidence of conditions that existed at the balance
sheet;
• an enterprise should not adjust its financial statements for events after the
balance sheet date that are indicative of conditions that arose after the balance
sheet date;
• if dividends to holders of equity instruments are proposed or declared after the
balance sheet date, an enterprise should not recognise those dividends as a
liability;
• an enterprise may give the disclosure of proposed dividends either on the face of
the balance sheet as an appropriation within equity or in the notes to the
financial statements;
• an enterprise should not prepare its financial statements on a going concern
basis if management determines after the balance sheet date either that it intends
to liquidate the enterprise or to cease trading, or that it has no realistic
alternative but to do so;
• there should no longer be a requirement to adjust the financial statements where
an event after the balance sheet date indicates that the going concern assumption
is not appropriate for part of an enterprise;
• an enterprise should disclose the date when the financial statements were
authorised for issue and who gave that authorisation. If the enterprise vs. owners
or others have the power to amend the financial statements after issuance, the
enterprise should disclose that fact; and
• an enterprise should update disclosures that relate to conditions that existed al
the balance sheet date in the light of any new information that it receives after
the balance sheet date about those conditions.

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 Regulatory Framework

BAS 11: Construction Contracts

BAS 11, Construction Contracts, became effective for annual financial statements
covering periods beginning on or after 1 January [Link] standard reveals that:
•If the total revenue, past and future costs, and the stage of completion of a
contract can be measured or estimated reliably, revenues and costs should be
recognised by stage of completion (the "percentage-of-completion method").
• Expected losses should be recognised immediately.
• If the outcome cannot be measured reliably, costs should be expensed, and
revenues should be recognised to the extent that costs are recoverable ("cost
recovery method").
• Disclosure requirements include (for each major contract or class of contracts):
o Amount of contract revenue recognised.
o Method for determining that revenue.
o Method for determining stage of completion.
o For contracts in progress, disclose aggregate costs incurred, recognised
profits or losses, advances received, and retentions.
o Gross amount due from customers under the contract(s).
o Gross amount owned to customers under the contract(s).

BAS 12: Income Taxes

ICAB adopted original version of IAS 12 and became effective for annual financial
statements covering periods beginning on or after 1 January 1999. It lays down that:
Accrue deferred tax liability for nearly all taxable temporary differences.
Accrue deferred tax asset for nearly all deductible temporary differences if it is
probable a tax benefit will be realised.
Accrue unused tax losses and tax credits if it is probable that they will be
realised.
Use tax rates expected at settlement.
Current and deferred tax assets and liabilities are measured using the tax rale
applicable to undistributed profits.
Non-deductible goodwill: no deferred tax.
Unremitted earnings of subsidiaries, associates, and joint ventures: Do not
accrue tax.
Capital gains: Accrue tax at expected rale.
Do not "gross up" government grants or other assets or liabilities whose initial
recognition differs from initial tax base.
 Reguliftqry'Framework

BAS 16: Property, Plant and Equipment

ICAB adopted original version of IAS 16, wiiich lays down that:
• Property, plant and equipment should be recognised when (a) it is probable that
future benefits will flow from it, and (b) its cost can be measured reliably.
• Initial measurement should be at cost.
• Subsequently, the benchmark treatment is to use depreciated (amortised) cosl
but the allowed alternative is to use an up-to-date fair value.
• Depreciation:
o Long-lived assets other than land are depreciated on a systematic basis over
their useful lives.
o Depreciation base is cost less estimated residual value.
o The depreciation method should reflect the pattern in which the asset's
economic benefits are consumed by the enterprise.
o If assets are revalued, depreciation is based on the revalued amount.
o The useful life should be reviewed periodically and any change should be
reflected in the current period and prospectively.
o Significant costs to be incurred at the end of an asset's useful life should
either be reflected by reducing the estimated residual value or by charging
the amount as an expense over the life of the asset.
• Revaluations (allowedalternative):
o Revaluations should be made with sufficient regularity such that the carrying
amount does not differ materially from that which would be determined
using fair value at the balance sheet date.
0 If an item of PP&E has been revalued, the entire class to which the asset
belongs must be revalued (for example, all buildings, all land, all
equipment).
o Revaluations should be credited lo equity (revaluation surplus) unless
reversing a previous charge to income.
o Decreases in valuation should be charged to income unless reversing a
previous credit to equity (revaluation surplus).
o If the revalued asset is sold or otherwise disposed of, any remaining
revaluation surplus either remains as a separate component of equity or is
transferred directly to retained earnings (not through the income statement).
• If an asset's recoverable amount falls below its carrying amount, the decline
should be recognised and charged to income (unless it reverses a previous credit
to equity).
• Gains or losses on retirement or disposal of an asset should be calculated by
reference to the carrying amount.

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 Regulatory Framework

Required disclosures include:

o Rcconcilialion ormovcincnts. //^'^* ' , / ^'*r\
o Capital commitments. 'I''r''^\ f \ v \ - ^ ' i'
o items pledged as security. ![ ('•'^i ^^" " ), //
o If assets arc revalued, disclose historical cost amount^ "^.S^
o Change in revaluation surplus.

BAS 18: Revenue

ICAB adopted latest version of IAS 18 as BAS 18. BAS 18 lays down that:
• Revenue should be measured at fair value of consideration received or
receivable. Usually this is the inflow of cash. Discounting is needed if the
inflow of cash is significantly deferred without interest. If dissimilar goods or
services are exchanged (as in barter transactions), revenue is the fair value of the
goods or services received or, if this is not reliably measurable, the fair value of
the goods or services given up.
• Revenue should be recognized when:
o significant risks and rewards of ownership are transferred to the buyer;
o managerial involvement and control have passed;
o the amount of revenue can be measured reliably;
o it is probable that economic benefits will flow to the enterprise; and
o the costs of the transaction (including future costs) can be measured reliably.
• For services, similar conditions apply by stage of completion if the outcome can
be estimated reliably.
• Interest revenue is recognized on a time-proportion basis using the effective
interest rate.
• Dividend revenue is recognized when the shareholder's right to receive the
dividend is legally established.
• If revenue has been recognized but collectibility of a portion of the amount is
doubtful, bad debt expense should be recognized when the revenue is
recognized.
• Revenues and related expenses must be matched. If future related expenses
cannot be measured reliably, revenue recognition should be deferred.
• Required disclosures include:
o Revenue recognition accounting policies.
o Amount of each significant category of revenue recognized.
o Amount of revenue from exchanges of goods or services.
 Regulatory Framework

BAS 20: Accounling for Govcrnmcnl Grants and Disclosure of

Government Assistance
ICAB has adopted latest version of IAS 20 as BAS 20. This standard implies that the
grants should not be credited directly to equity. They should be recognized as income
in a way matched with the related costs. Grants related to assets should be deducted
from the cost or treated as deferred income.

BAS 21: The Effects of Changes in Foreign Exchange Rates

ICAB adopted original version of IAS 21 and became effective for annual financial
statements covering periods beginning on or after I January 1999. The standard states
that:
Foreign currency transactions should be translated on the date of the transaction.
Thus, income statement items are translated at the average exchange rate.
Investments in foreign entities that are integral to the operations of the parent
• Subsequently, monetary balances should be translated at the closing rate, and
nonmonetary balances at the rate that relates to the valuation basis. This means
the rate on acquisition date for nonmonetary assets carried at historical cost and
the rate at valuation date for revalued nonmonetary assets.
• Differences on monetary items should be taken to income, unless the items
amount to a net investment in a foreign entity, in which case they are reported in
equity until the asset or liability is disposed of.
• The financial statements of foreign operations that are integral to the operations
of the parent should be treated as above.
Investments in other foreign entities
• Financial statements of other entities should be translated using closing rates for
balance sheets and transaction rates (or, in practice, average rates) for income
and expenses. Differences should be taken directly to equity.
Disclosures
• translation differences included in net income
• analysis of translation differences in equity
• changes in rates after balance sheet date
• foreign exchange risk management policies

BAS 23: Borrowing Costs

ICAB adopted original version of IAS 23 and became effective for annual financial
statements covering periods beginning on or after 1 January 1999. It lays down that:
• The benchmark treatment is to treat borrowing costs as expenses.

u
 RegMory Framework

• The allowed allernalive is to capitalise those directly attributable to construction.

• I ("capitalised and liinds are speciIleally borrowed, the borrowing costs should be
calculated after any investment income on temporary investment of the
borrowings. If funds are borrowed generally, then a capitalisation rate should be
used based on the weighted average of borrowing costs for general borrowings
outstanding during the period. Borrowing costs capitalised should not exceed
those actually incurred.
• Capitalisation begins when expenditures and borrowing costs are being incurred
and construction of the asset is in progress.
• Capitalisation suspends if construction is suspended for an extended period, and
ends when substantially all activities are complete.

BAS 27: Consolidated Financial Statements and Accounting ibr

Investments in Subsidiaries
ICAB has adopted latest version of IAS 27 as BAS 27, which became operative for
financial statements covering periods beginning on or after January 01, 1999. There is
no requirement for preparation of Consolidated Financial Statements under the
Companies Act, 1994. Thus, this standard would first time require corporate entities
to prepare Consolidated Financial Statements.
The standard requires preparation of Consolidated Financial Statements by a parent
company other than a parent that is a wholly owned subsidiary, or is virtually wholly
owned and in the case of virtually wholly owned, the parent obtains the approval of
the owners of the minority interest, for a group of enterprises under its control in
addition to its separate financial statement. Such Consolidated Financial Statements
should consolidate all subsidiaries, domestic as well as foreign other than a subsidiary
when:
a) control is intended to be temporary because the subsidiary is acquired and held
exclusively with a view to its subsequent disposal in near future; or
b) it operates under severe long-term restrictions which significantly impair its
ability to transfer funds to the parent.
The Standard provides for normal procedure of consolidation on a line-by-line basis
by adding together like items of assets, liabilities, income, and expenses. The
Standard also requires that the financial statement used in consolidation should be
drawn up to the same reporting date. If it is not practicable to draw up the financial
statement of one or more subsidiaries to such date, adjustments should be made for
the effect of significant transactions or other events that occur between those dates.
The following disclosure requirements should be made:

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 Regulatory framework

a. In the case of one that is virtually wholly owned and the parent obtains the
approval of the owners of the minority interest; the parent should disclose the
reasons why the consolidated financial statements have not been presented
b. The name and registered office of its parent that publishes consolidated financial
statements.
c. Consolidated financial statements should be prepared using uniform accounting
policies for like transactions and other events in similar circumstances. When
uniform accounting policies are not followed lor like transactions for practical
difficulties, the fact of such departure and proportion of the items to which the
different accounting policies have been applied.
d. List of all subsidiaries including the name, country of incorporation or
residence, proportion of ownership and, if different, proportion of voting power
held.
e. The nature of relationship between the parent and a subsidiary, if the parent does
not own, directly or indirectly through subsidiaries, more than one-half of the
voting power of the subsidiary.
f. The effect of the acquisition and disposal of subsidiaries on the financial
position on the reporting date, the results for the reporting period and on the
corresponding amounts for the preceding period.
g. In the parent's separate financial statements, a description of the method used to
account for subsidiaries.

BAS 30: Disclosures in the Financial Statements of Banks and Similar

Financial Institutions
ICAB adopted latest version of IAS 30, Disclosures in the Financial Statements of
Banks and Similar Financial Institutions. The standard lays down that:
This standard prescribes special disclosures for banks and similar financial
institutions.
A bank's income statement should group income and expense by nature and
should report the principal types of income and expense.
Income and expense items may not be offset except (a) those relating to hedges
and (b) assets and liabilities for which the legal right of offset exists.
Specific minimum line items for income and expenses are prescribed.
A bank's balance sheet should group assets and liabilities by nature.
Assets and liabilities may not be offset unless a legal right of offset exists and
the offsetting is expected at realisation.
Specific minimum line items for assets and liabilities are prescribed.
Disclosures are required of various kinds of contingencies and commitments,
including off-balance-sheet items.
Disclosures are required of information relating to losses on loans and advances.
Other required disclosures include:
 Regujftoiy Framework

o Maturities of various kinds of liabilities.

o Concentrations of assets, liabilities, and off-balance-sheet items.
o Net foreign currency exposures.
o Market values of investments.
o Amounts set aside as appropriations of retained earnings for general banking
risks.
o Secured liabilities and pledges of assets as security.

BAS 33: Earnings per Share

ICAB adopted latest version of IAS 33, Earnings per Share, and became effective for
annual financial statements covering periods beginning on or after I January 1999.
The standard states that:
• IAS 33 applies only to publicly-listed companies.
• Disclose basic (undiluted) and diluted net income per ordinary share on the face
of the income statement with equal prominence.
• For each class of common having different dividend rights.
• Diluted EPS reflects potential reduction of EPS from options, warrants, rights,
convertible debt, convertible preferred, and other contingent issuances of
ordinary shares.
• Numerator for basic EPS is profit after minority interest and preference
dividends.
• Denominator for basic EPS is weighted average outstanding ordinary shares.
• "If converted method" to compute dilution from convertibles.
• "Treasury stock method" to compute dilution of options and warrants.
• Pro forma EPS to reflect issuances, exercises, and conversions after balance
sheet date. Use net income to assess whether dilutive.
• Will be effective for financial reporting periods beginning on or after I January
1998.

BAS 34: Interim Financial Reporting

ICAB adopted latest version of IAS 34, Interim Financial Reporting, and became
effective for financial statements covering periods beginning on or after 1 January
1999. The standard lays down that:
BAS 34, Interim Financial Reporting:
• contains both presentation and a measurement guidance,
• defines the minimum content of an interim financial report, and
• sets out the accounting recognition and measurement principles to be followed
in any interim financial statements.
BAS 34 does not specify which enterprises must publish interim financial reports,
how frequently, or how soon after the end of an interim period. Those are deemed

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 ". Regul$t6ry Framework

matters that are best left to be decided by law or regulation. IAS 34 applies if an
enterprise is required or elects to publish an interim financial report in accordance
with International Accounting Standards. In IAS 34, lASC expresses encouragement
that public enterprises ought to provide, at least, half-yearly reports within 60 days
after mid-year.
BAS 34 defines the minimum content of an interim financial report as a condensed
balance sheet, condensed income statement, condensed cash fiow statement,
condensed statement showing changes in equity, and selected explanatory notes. An
enterprise might choose to go beyond that and present full financial statements or
something in between full and condensed. If condensed financial statements arc
provided, they must contain, at a minimum, the same headings and subtotals as were
in the enterprise Vs latest annual financial statements, plus only selected notes.
Interim financial statements, complete or condensed, must cover the following
periods:
• a balance sheet at the end of the current interim period, and comparative as of
the end of the most recent full financial year;
• income statements for the current interim period and cumulatively for the
current financial year to date, with comparative statements for the comparable
interim periods of the immediately preceding financial year;
• a statement of changes in equity cumulatively for the current financial year to
date and comparative for the same year-to-date period of the prior year; and
• a cash fiow statement cumulatively for the current financial year to date and
comparative for the same year-to-date period of the prior financial year.
The notes in an interim financial report are viewed primarily as an update since the
last annual report. Examples of those kinds of notes would include disclosures about
changes in accounting policies, seasonality or cyclicality, changes in estimates,
changes in outstanding debt or equity, dividends, segment revenue and result, events
occurring after balance sheet date, purchases or disposals of subsidiaries and long-
term investments, restructurings, discontinuing operations, and changes in contingent
liabilities or contingent assets.
Because research has shown that an investor is much better able to use interim
information to make forecasts if recurring and nonrecurring cash fiow and earnings
data are segregated, BAS 34 requires special disclosures about unusual events and
transactions.
Enterprises are required to apply the same accounting policies in their interim
financial reports as in their latest annual financial statements. The frequency of an
enterprise Vs reporting - annual, half-yearly, or quarterly - docs not affect ihc
measurement of its annual results. To achieve that objective, measurements for
interim reporting purposes are made on a year-to-date basis.

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 Regulatory Framework

An appendix to IAS 34 contains guidance for applying [he basic recognition and
measurement principles at interim dates to such items as employer payroll taxes,
periodic maintenance costs, provisions, year-end bonuses, contingent lease payments,
intangible assets, pensions, compensated absences, income taxes, depreciation,
inventories, foreign currency translation, and impairments.

3.4.1 India: Companies Act, 1956, A Mainstream Regulation to

Accounts and Audit
After independence, the Companies Act, 1913 was replaced by the Companies Act
1956 based on the British Companies Act, 1948 though by extending both disclosure
requirements and the reporting responsibilities of the auditors. The Indian Companies
Act, 1956 came into force with effect from April 1, 1956. The Companies Act, 1956
was amended in 1960,1962, 1963, 1964 1965 1966 1967 1969,1974,1977, 1985,1988,
1996, 1999 and 2000. The following are the main legal provisions regarding financial
reports in India.
Section 209 of the Indian Companies Act, 1956 lays down provisions regarding the
books of accounts to be kept by a company. Section 209 requires that every company
shall keep at its registered office proper books of account with respect to (a) all sums
of money received and expended by the company and the matters in respect of which
the receipt and expenditure take place; (b) all sales and purchases of goods by the
company; (c) the assets and liabilities of the company; and (d) in the case of a
company pertaining to any class of companies engaged in production, processing,
manufacturing or mining activities, such particulars relating to utilization of material
or labour or to other items of cost as may be prescribed, if such class of companies is
required by the Central Government to include such particulars in the books of
account. Section 210 lays down that the board of directors of the company shall lay
before the company at every annual general meeting a balance sheet as at the end of
the period, a profit and loss account for that period and a report by the company's
Board of Directors. Section 211(1) requires that a balance sheet be prepared as per the
form drawn in the part I of Schedule VI and shall give a true and fair view of affairs
of the company and in the preparation of the balance sheet due regard shall be paid to
the general instruction for the preparation of the balance sheet. The Companies
(amendment) Act, 1999 has prescribed requirement by amending Section 211 that
every profit and loss account and balance sheet shall comply with accounting
standards. It is further provided by the amendment that if there is any deviation from
the prescribed standards, the annual accounts shall state (1) the fact that there has
been a deviation; (2) the reason for such deviation, and (3) the financial implication of
the deviation. It is further provided by the amendment that for the purpose of this
section 'accounting standards' means such standards of accounting recommended by
the ICAl.

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 Regulatory Framework

Section 211(2) provides thai every prollt and loss account of a company must give a
true and fair view of the profit and loss of the company for the financial year.
Although the Act does not provide any form of the profit and loss account, part II of
schedule VI lays down guidelines for the preparation of the profit and loss account.
The company can prepare it either in a traditional account form or in a statement form
showing all items on the vertical scale. This Act requires the disclosure of
comparative figures of the previous year both in respect of balance sheet and profit
and loss account. According to the paragraph 3 of part II of schedule VI, the profit
and loss account or the income and expenditure account of a company must set out
the various items relating to the income and expenditure of the company arranged
under the most convenient head. Part 11 of Schedule VI lays down certain items of
information that must be disclosed in the profit and loss account. The main items to be
disclosed are discussed in the following section under the head 'comparative
disclosure requirements'.

Section 212 sets out the provisions regarding the balance sheet of holding companies
to include certain particulars as to subsidiaries while section 213 lays down certain
provisions regarding the authentication of balance sheet and profit and loss account
of a company. Section 216 requires that the profit and loss account shall be annexed
to the balance sheet and the auditors' report shall be attached thereto. Section 217 lays
down that a directors' report shall be attached to every balance sheet and prescribes
the contents of directors' report. As per Companies Act 1956 the preparation of
consolidated financial statements for the parent company and its subsidiaries is not
mandatory.

3.4.2 India: the Securities and Exchange Board of India Act, 1992.
In India, there are no Securities and Exchange Rules like Bangladesh. The Securities
and Exchange Board of India (SEBl) was established in 1988 entrusted with the work
to protect investors, to promote and develop capital market and to regulate securities
market in India. It was abrogated statutory status in 1992 through the enactment of the
Securities and Exchange Board of India Act, [Link] a short period, the SEBl has
done some commendable breakthroughs in the field of age-old stock market
operations. Through increased requirements by way of Listing Agreement, it has also
played its role in improving financial disclosure by corporate enterprise. The
requirement of Cash flows Statement and Corporate Governance Report as part of
Listing Agreement is examples on the point (B. Banerjee). Any company that intends
to raise capital from the public must require prior approval of the SEBl. The SEBl has
issued guidelines for disclosure and investor protection which includes that specific
disclosures need to be made by the companies regarding the project details, moans of
financing working capital, history of the company, promoters and their background,
technological process, marketing of product, implementation schedules, governmcnl
approvals, outstanding litigation and the adequacy of redressal mechanism set up for
 Regu\atoryj,Framework
t-J«-C fCfc^-^rf- .

responding to grievances of the investors. Tine SEBI Act, 1992 does not require any
more disclosure requirements in the corporate annual reports than the provisions laid
down in the Companies Act, 1956 (M.A. iiossain).

3.4.2 India: Accounting Standards

The Institute of Chartered Accountants of lndia( ICAI) was established in [Link]
birth, the ICAI has become one of the largest accountancy profession in the world
( Bose, 1988). It was in 1976, because of membership of lASC, the ICAI decided to
seriously undertake the task of setting accounting standards in India (B. Banerjee).
Accordingly, the ICAI constituted Accounting Standards Board (ASB) in April 1977.
ASB finalized the procedure to be followed in the formulation of accounting
standards and published, in January, 1979, the 'Preface to the Statements of
Accounting Standards' which outlines the scope and functions of ASB, the scope of
accounting standards and the procedure to be followed in formulating the standards.
Earlier, there was no legal back up in the Companies Act to ensure compliance with
them. However, through an amendment of the Companies Act, 1956 it is provided
that:
a) Every profit and loss account and balance sheet of the company shall comply with
the accounting standards.
b) In case of non-compliance with the accounting standards, disclosure should be
made regarding the deviations from the accounting standards, the reasons for such
deviations and the financial effect arising due to such deviations (Sec. 211, 3A
&3B).
c) Auditor of a company while performing attest function, must report whether, in
his opinion, the profit and loss account and balance sheet complied with
mandatory accounting standards [Sec. 227(3)(l)(d)].
The ICAI issued its first standard in November, 1979. Since then a number of
accounting standards have been issued by the ICAI from time to time. Over the years,
except AS 24: Discontinuing Operations, all standards issued by ICAI have been
made mandatory. Some salient aspects and the disclosure requirements of each of the
standards are stated below:

AS 1: Disclosure of Accounting Policies

It deals with the disclosure of significant accounting policies followed in the

preparation and presentation offinancialstatements. The purpose of this standard is to
promote better understanding of financial statements by establishing the disclosure ol'
significant accounting policies in the financial statements and the manner of doing so.

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 :'' Regiiiaiory Framework

The standard slipiilates that (a) the significant accounting policies should normally be
disclosed in one placc;(b) any change in accounting policies, which has a material
elTect in later periods, should be disclosed, and (c) the non-adherence ol' fundamental
accounting assumption in preparation of financial statements should be disclosed.

AS 2: Valuation of Inventories
This standard deals with the principles lor valuing inventories for financial statements
and ensures adequate disclosure in financial statements. The standard states that the
valuation of inventories should be at cost or net realizable value, whichever is lower.
The cost of inventories should comprise (a) all cost of purchase (purchase price,
duties and taxes, freight inward and other directly attributable expenses less discounts,
rebates, drawbacks, etc.), (b) costs of conversion (direct labour and overhead) and (c)
other costs incurred in bringing the inventories to their present location and condition
(interest and borrowing costs are excluded). The standard requires that the allocation
of fixed production overheads for the purpose of their inclusion in the costs of
conversion should be based on normal capacity of the production facilities. Net
realizable value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the sale.
Required disclosure includes:
• the accounting policies adopted in measuring inventory values including the cost
formula used, and
• total carrying amount of inventories and its classification appropriate to the
enterprise.
Thus, measurement and reporting of inventories for the purpose of financial
statements are the focus of a AS 2.

AS 3: Cash Flows Statement

The initial standard on Fund Flow Statement was revised in March, 1997. It is
predominantly based on IAS 7 on Cash Flows Statement. As 3 has been made
mandatory in respect of
a) listed companies or companies whose shares and debentures are in the process of
enlisting on a recognized stock exchange in India;
b) all other commercial industrial and business enterprises whose turnover for the
accounting period exceeds Rs. 50 crore.
AS 3 requires that a cash flow statement should be divided into three heads, viz., (a)
cash flows from operating activities, (b) cash flows from investing activities and (c)

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 Regulatory Framework

cash flows from financing activities. In India, a cash How statement docs not ibrm
part of financial statements to be prepared in compliance with the Companies Act.
1956. But as per SEBl Guidelines (dated 26.6. 1995), a listed company is required to
prepare, among others, a cash How statement and get it audited.

As 4: Contingencies and Events Occurring after the Balance Sheet Date

it deals with the treatment in financial statements of contingencies and events
occurring after the balance sheet date. The standard requires disclosure only in respect
of those contingencies and events, which affect the financial position to a material
extent. Also, it stipulates if a contingent loss is not provided for, its nature and an
estimate of its financial effect, or a statement that such an estimate cannot be made,
should be disclosed. There is a view that simple disclosure of events occurring after
the balance sheet date is not expected to be useful, as it would not facilitate future
projections. It is considered necessary to disclose anticipated effect of such events on
revenue, expense, assets and liabilities of the reporting entity.

AS 5: Net Profit or Loss for the period, prior period Items and Changes in
Accounting policies
This standard deals with the treatment in the financial statements of prior period and
extraordinary items and changes in accounting policies. It defines ordinary activities,
extraordinary items, prior period items, accounting estimates and accounting policies
and deals with the treatment of prior period and extraordinary items and changes in
accounting policies and estimates. According to AS 5:

1. A change in the accounting policy should be made only if:

(a) The adoption of a different accounting policy is required (i) by a statute, or (ii)
for compliance with an accounting standard;
(b) it is considered that the change would result in a more appropriate preparation
or presentation of thefinancialstatements of the enterprise.
2. Any change in an accounting policy, which has a material effect, should be
disclosed in the period in which such a change is made. The impact of such
change, if material, should also be disclosed. Where the effect of such change
cannot be ascertained, wholly or partly, the fact should be disclosed.
3. If a change has no material effect in the current period but is reasonably expected
to have a material effect in later period, the fact of such change should be
appropriately disclosed in the period in which such change is adopted.
The standard requires that the nature and amount of each extraordinary item should be

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 f^egulatory Framework

separately disclosed in the prollt and loss account. Moreover, when items of income
and expenses within profit and loss from ordinary activities are of such size, nature or
incidence that their disclosure is relevant to explain the performance of the enterprise
for the period, the nature and amount of such items shall be disclosed separately.
It may be reiterated that in determining profit or loss for a period, the income and
expenses should pertain to that period only. In cases where the provision for expenses
made during the previous year is less than the actual expenditure during the year, the
excess of expenditure over the provision should be disclosed, if material, separately in
the profit and loss account. Such disclosure should be made only in respect of
material accounts. In the event of non-disclosure, it is the duty of the auditor to
suitably qualify his audit report.

AS 6: Depreciation Account
AS 6 deals with accounting for depreciation and the disclosure requirements in
connection therewith. It requires that:
• Depreciable amount of a depreciable asset should be allocated on a systematic
basis to each accounting period during the useful life of the asset;
• The depreciable method should be applied consistently from period to period.
Of the various methods used for computing depreciable amount, the most
commonly used and accepted methods are: (i) Straight Line Method, and (ii)
reducing balance Method. A change from one method of providing depreciation
to another should be made only if the adoption of the new method is required by
statute or for compliance with an accounting standard of if it is considered that
the change would result in a more appropriate preparation or presentation of the
financial statements of the enterprise.
• When a change in the method of depreciation is made, depreciation should be
recalculated as per the new method from the date of acquisition of the asset and
the deficiency or surplus arising from retrospective re-computation of
depreciation should be adjusted in the profit and loss account. Such a change
should be treated as a change in accounting policy and should be disclosed.
• When a change in the useful life of the asset is made, the unamortized
depreciable amount of the asset should be charged to revenue over the
remaining useful life by applying the new method.
• Any adoption or extension, which become an integral part of the existing asset
should be depreciated over the remaining useful life.
• Where the historical cost of a depreciable asset has undergone a change due to
increase or decrease in long term liability on account of exchange Huctuation.
price adjustments, changes in duties or similar factor, the depreciation on
revised unamortized depreciable amount should be provided prospectively over
the residual life of the asset.

^6
 • Where the depreciable assets are revalued, the provision for depreciation should
be based on the revalued amount and on the estimate of the remaining useful
lives of such assets.
• In case the assets are used for double or triple shifts, depreciation may be
charged accordingly.
The standard contains some important requirements for disclosures in the llnancial
statements: They are:
• the historical cost or other amount [Link] for historical cost of each class of
depreciable assets;
• total depreciation for the period for each class of asset;
• the related accumulated depreciation;
• depreciation methods used;
• depreciation rates or the useful lives of the assets, if they are different from the
principle rates specified in the statute governing the enterprise, and
y

• net surplus or deficiency, if material, of an asset disposed of, discarded,

demolished or destroyed.

AS 7: Accounting for Construction Contracts

The standard recognizes two methods of accounting for construction contracts,
namely, the percentage of completion method and the completed contract method and
explains the essential ingredients of these two methods, fhe standard requires a
number of disclosures in the financial statements, viz. -
1. the amount of construction work in progress;
2. progress payment received and advances and retentions on account of contracts
included in construction work in progress;
3. the amount receivable in respect of income accrued under cost plus contracts not
included in construction work in progress; and
4. changes in an accounting policy used for construction contracts giving the effect
of the change and its amount.

AS-8 : Accounting for Research and Development

This Standard deals with the treatment of costs of research and developmcnl in
financial statements and their disclosure. The Standard identities items of costs which
comprise research and development and suggests the following treatments:
• Research and development costs are to be charged to expenses in the period in
which they are incurred. This is because in most cases there is little, if any, direct
relationship between the amount of current research and development costs and
future benefits in as much as the amount of such benefits, and the period over
which they will be received, are usually too uncertain.
• If the product or process is technically feasible and the enterprise has adequate
resources to market it, the costs of research and development should be deferred to
future periods. Deferred research and development costs are to be amortized on a
systematic basis. Moreover, the deferred research and development costs of a
project should be reviewed at the end of each accounting period and if dclerral is
no longer justified, the unamortized balance should be charged as expenses
immediately.
The Standard requires the disclosures of the following in the financial statements:
• research and development costs, including the amortization of deferred costs,
charged as an expense of each period;
• the unamortized balance, if any, of deferred research and development costs; and
• accounting policy adopted for research and development costs.

AS-9: Revenue Recognition

Revenue recognition is mainly concerned with the liming of recognition of revenue in
the profit and loss account of an enterprise. AS 9 defines revenues as the gross inflow
of cash, receivables or other consideration arising in the course of the ordinary
activities of an enterprise from the:
• sale of goods;
• renderingof services; and
• use by others of enterprise resources yielding interest, royalties and dividends.
AS 9 lays down the timing of recognition of revenue as follows:
1. Sale of goods:
When the seller has transferred the property in the goods (along with risks and
rewards of ownership) to the buyer for a consideration. When transfer of properly
in goods does not coincide with the transfer of significant risks and rewards of
ownership, revenue is recognized at the time of transfer of significant risks and
rewards of ownership to the buyer.
2. Rendering of services:
Revenue from service transactions is usually recognized as the service is
performed, either by the proportionate completion method or by the completed
service contract method.
3. Resources yielding Interest, Royalties and Dividends:
Interest: On a time proportion basis taking into account the amount outstanding
and the rate appropriate.
Royalties: On an accrual basis in accordance with the terms of agreement.
Dividends: When the owner's right to receive payment is established.
 • >' Regulatory Framework

The Standard further requires that revenue should only be recognized when no
significant uncertainty as to measurability or coilectabilily exists. When an
uncertainty relating to collectability arises subsequent to recognition of revenue, the
standard provides for making of a separate provision rather than adjusting the amount
of revenue originally recorded.
Regarding disclosure in financial statements, AS 9 states that, in addition to the
disclosures required under AS-1, an enterprise is required to disclose ihc
circumstances in which revenue recognition has been postponed pending the
resolution of significant uncertainties.

AS-10 : Accounting lor Fixed Assets

AS 10 deal with identification of fixed assets, costs of fixed assets, their accounting
and disclosures.
According lo the Standard, a (Ixcd asset is an asset held with ihc intenlion of being
used for the purpose of producing or providing goods or services and is not held for
sale in the normal course of business. The gross book value of a fixed asset should be
either historical cost or a revaluation computed as per the Standard. Cost comprises its
purchase price, including import duties and other non-refundable taxes or levies and
any directly attributable cost of bringing the asset to its working condition or its
intended use (trade discounts, rebates etc. are deducted for the purchase price).
Subsequent expenditure of capital nature should be added to its book value. Profit or
loss on sale or retirement of an item of asset should be shown separately in the Prolil
and Loss Account.
AS 10 requires that the following information should be disclosed in the Imancial
statements:
(1) gross and net book values of fxed assets at the beginning and end ol" an
accounting period showing additions, disposals, acquisitions and other
movements;
(2) expenditure incurred on account of fixed assets in the course of construction or
acquisition; and
(3) revalued amount substituted for historical costs of fixed assets, the method
adopted to compute the revalued amounts, the nature of indices used, the year of
any appraisal made, and whether an external valuer was involved, in case where
fixed assets are stated at revalued amounts.

AS-11 : Accounting for Effects of Changes in Foreign Exchange Rales

Foreign currency transactions should be expressed in the enterprise's reporting
currency and the financial statements of foreign branches should be translated into
 . ReaumoiyFrafnework

the enterprise's reporting currency in order to include them in the financial statements
of the enterprise.
The principal issues in accounting for foreign currency transactions and foreign
branches are to decide which exchange rate to use and how to recognize in the
financial statements the financial effect of changes in exchange rales. AS-11 deals
with the above issues and conforms to the requirements of IAS 21 (revised)
AS-11 requires the disclosure of the amount of exchange differences:
i) included in the net profit or loss for the period;
ii) adjusted in the carrying amount of fixed assets during the accounting period; and
iii) in respect of forward exchange contracts lo be recognized in the profit or loss for
one year or more subsequent accounting periods.

AS-12 : Accoiinling for Govt. Grants and Disclosure of Govt. Assistance

The receipt of government grants by an enterprise is significant for preparation of the
financial statements for two reasons. Firstly, if a government grant has been received,
an appropriate, method of accounting for the same is necessary. Secondly, it is
desirable to give an indication of the extent to which the enterprise has benefited from
such grant during the reporting period. This facilitates both inler-pcriod and inler-llrm
comparison.
AS-12 suggests two approaches for treatment of government grants (a) Capital
Approach, and (b) Income Approach.
Under the capital approach a grant is treated as part of shareholders" funds and under
the latter, it is treated as income in the Profit and Loss Account ( either as a current
income or as a deferred income).
AS-12 requires the following disclosures in the financial statements:
i) accounting policy for government grants, including methods of presentation;
ii) the nature and extent of government grants recognized, including grants for non-
operating assets given at a concessional rate or free of cost.

AS-13 : Accounting for Investments

This Standard requires classification of investments into two categories viz., long-
term and current on the basis of intention to hold such investments. Cost of an
investment comprises purchase price and acquisition charges such as brokerage, fees
and duties. Long term investments are valued at cost and decline in market value is
not recognized unless such decline is other than temporary. However, AS-13 does not
specify what is temporary and what is permanent decline.
According to AS-13, the disclosures that are required to be made in the financial
statements are as follows:
a) the accounting policies for the determination of amount of investment shown;
b) the amount included in Profit and Loss Account for:
(i) interest, dividends (showing separately dividends from subsidiary
companies), and rentals on investments, showing separately such income
from long-term and current investments. Gross income should be staled, the
amount of income lax deducted al source being included under Advance
Taxes Paid;
(ii) profits and losses on disposal of current investments and changes in carrying
amount of such inveslments;
(iii) profits and losses on disposal of long term investments and changes in the
carrying amount of such investments.
c) significant restrictions on the right of ownership, realisability of investments or
the remittance of income and proceeds of disposal;
d) the aggregate amount of quoted and unquoted investments, giving the aggregate
market value of quoted investments;
e) other disclosures as specifically required by the relevant statute governing the
enterprise.

AS-14 : Accounting for Amalgamation

It deals with accounting for merger and disclosures in connection therewith, fhe
Standard recognizes two methods of accounting for amalgamations viz.: (a) pooling
of interests method, and (b) purchase method.
The pooling of interests method is applied in case of an amalgamation in the nature of
merger. Purchase method is used in accounting for amalgamation in the nature of
purchase.
AS-14 requires general disclosures (for both types), and specific disclosures for each
of the two methods. These are mentioned below:
General disclosures-
a) names and general nature of business of the amalgamating companies;
b) effective date of amalgamation for accounting purposes;
p) the method of accounting used to reflect the amalgamation; and
d) particulars of the scheme sanctioned under a statue.
Additional disclosures under pooling of interests method-
a) description and number of shares issued, together with the percentage of each
company's equity shares exchanged to effect the amalgamation;
b) the amount of any difference between the consideration and the value of net
identifiable assets acquired, and the treatment thereof.
Additional disclosures under the purchase method-
a) consideration for the amalgamation and a description of the consideration paid or
contingently payable; and

b) the amount of any difference between the consideration and the value of ncl
identifiable assets acquired, and the treatment thereof including the period of
amortization of any goodwill arising on amalgamation.

AS-15 : Accounting for Retirement Benefits in the Financial Statements

of Employers
Retirement benefit schemes are normally significant elements of an employer's
remuneration package for employees.

Retirement benefits usually consist of (a) provident fund; (b) Superannuation/pension;

(c) gratuity; (d) leave encashment benefit on retirement; (e) post-retirement health and
welfare schemes, and (f) others. In case of retirement gratuity and other benefit
schemes, the Standard provides for ascertainment and accounting of liability on the
basis of estimation or actuarial valuation when employer has chosen to make payment
out of own fund. AS 15 also provides for ascertainment of liability for leave
encashment benefit payable on retirement or cessation of employment. Regarding
contribution to provident fund or other defined contribution scheme, it prescribes that
such contributions should be treated as expenses during the period in which they
accrue. When retirement benefit scheme for retired employees is amended, due to
inflation or for other reasons, to provide additional benefits to retired employees, any
additional costs are charged to profit and loss account of the year. The requirements
of this Standard generally conform to the accounting treatments specified in IAS 26.
The Standard contains the following provisions for disclosures:

• In view of the diversity of practices used for accounting of retirement bcncllls

costs, adequate disclosure of method followed in determination of such costs is
essential for an understanding of the significance of such costs to an employer.
• Retirement benefit costs are sometimes disclosed separately for statutory
compliance. In other [Link], they are considered to be an element of employee
remuneration and their separate disclosure is not usually made.
• When retirement benefit costs are measured on the basis of actuarial valuation,
the date of such valuation and method of determination of periodical charges
should briefly be described (if such charges are not based on actuarial
valuation).
AS-16 : Borrowing Costs
It deals with accounting for borrowing costs. Borrowing costs are interest and otiicr
costs incurred by enterprise in connection with the borrowing ol'funds.
Borrowing costs that are directly attributable in the acquisition, construction or
production of a qualifying asset should be capitalized. The amount eligible for the
purpose-is determined on fulfillment of certain conditions mentioned in the Standard.
Other borrowing costs are recognized as an expense in the period in which they arc
incurred.
According to AS- 16, the financial statements should disclose the:
a) accounting policy adopted for borrowing costs, and
b) amount of borrowing costs capitalized during the period.

AS-17: Segment Reporting

The objective of Segment Reporting is to establish principles for reporting financial
information in annual financial statement by segment. It is mandatory for:
(i) enterprises whose equity or debt securities are listed on a recognized slock
exchange in India, and enterprises that are in the process of issuing equity or debt
securities that will be listed on a stock exchange in India as evidenced by the
board of directors' resolution in this regard; and
(ii) all other commercial, industrial and business reporting enterprises, whose turnover
for the accounting period exceeds Rs. 50 crores.
The Standard distinguishes between business (or industrial) segment and geographical
segment and identifies the factors that are to be taken into consideration in their
determination.
According to the Standard, a segment with 10% or more of total revenues, profits (or
loss) or identifiable assets becomes a reportable segment. The Standard (Para, 29) also
stipulates that if total external revenue attributable to reportable segments constitutes
less than 75% of the total revenue of the enterprise, additional segment should be
identified as reportable segments, even if they do not meet the 10% thresholds, to
make the revenue of the reportable segments at least equivalent to 75% of lolal
revenue of the enterprise.
A reportable segment must disclose its revenue, expense, profit or loss, assets,
liabilities and accounting policies. 1-or disclosure of segment information, the
Standard also distinguishes between primary segment and secondary segment and
suggests primary and secondary reporting formats respectively for them.
Once a segmental disclosure is made in the previous accounting period based on 10 %
thresholds, disclosure of information for the same segment should be made in the
current year also even though the segment fails to meet 10 % thresholds. Similarly,
 :k.^v..'-t

for a current year disclosure of information of a segment based on 10 % tiiresiiolds,

corresponding previous year's figure should be publisiied, unless it is impracticable to
do so, even though the segment in question did not meet the 10 % thresholds in the
previous year. This will facilitate comparative analysis of segmental data over time.

AS-18 : Related Party Disclosure

AS-18 deals with reporting of related party relationships and transactions between a
reporting enterprise and related parties. The requirements of the Standard apply to the
financial statement of each reporting enterprise as also to consolidated financial
statements presented by holding company.
it requires disclosure of name of the related party and nature of related party
relationships where control exists in such relationship irrespective of whether or not
there have been transactions between related parties.
The Standard requires disclosure of the following in the financial slatemenl ol'
reporting enterprise for transactions between related parties, during the existence of
related party relationship:
1) The name of the transacting related party;
2) A description of the relationship between the parties;
3) A description of the nature of the transaction;
4) Volume of the transactions either as an amount or as an appropriate proportion;
5) Any other elements of the related party transactions necessary for an
understanding of thefinancialstatements;
6) The amounts or appropriate proportions of outstanding items pertaining to related
parties at the balance sheet date and provisions for doubtful debts due from such
parlies at that dale; and
7) Amounts written off or written bacl< in the period in respect of debts due from
related parlies.
'fhe Standard provides exemption to stale-controlled enterprises as regards disclosure
of related party relationships with other slate-controlled enterprises, further, no
disclosure is required in consolidated financial statements in respect of inlra-group
transactions.

AS-19 : Leases
AS- 19 deals with accounting of transactions relating to leases other than :
i) lease agreement to explore for, or use of, natural resources;
ii) licensing agreements for items such as motion picture films, video recordings.
plays, manuscripts, patents and copyrights; and
iii) lease agreements to use lands.
The Standard classifies leases into finance lease and operating lease on the basis of
the extent to which risks and rewards incident to ownership of a leased assets lie with
lessor or lessee.
The Standard requires detailed disclosure in respect of a finance lease in the books of
lessor and lessee. Major disclosure requirements are as under:
The lessee should, in addition to the requirements of AS-10 : Accounting for Tixcd
Assets, AS-6 : Depreciation Accounting, and the governing statute, make the
following disclosures for finance leases:
(a) assets acquired under finance lease as segregated from the assets owned;
(b) for each class of assets, the net carrying amount at the balance sheet date;
(c) a reconciliation between the total of minimum lease payments at the balance sheet
date and their present value. In addition, an enterprise should disclose the total of
minimum lease payments at the balance sheet date, and their present value, for
each of the following periods :
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years;
(d) contingent rents recognized as income in the statement of profit and loss for the
period;
(e) the total of future minimum sublease payments expected to be received under non-
cancellable subleases at the balance sheet date; and
(f) a general description of the lessee's significant leasing arrangements including,
but not limited to, the following :
(i) the basis on which contingent rent payments are determined;
(ii) the existence and terms of renewal or purchase options and escalation
clauses; and
(iii) restrictions imposed by lease arrangements, such as those concerning
dividends, additional debt, and further leasing.
The lessor should make the following disclosures for finance leases :
(a) a reconciliation between the total gross investment in the lease at the balance
sheet date, and the present value of minimum lease payments receivable at the
balance sheet date. In addition, an enterprise should disclose the total gross
investment in the lease and the present value of minimum lease payments
receivable at the balance sheet date, for each of the following periods :
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years;
(b) unearned finance income;
(c) the unguaranteed; residual values accruing to the benefit of the lessor;
(d) the accumulated provision for uncollectible minimum lease payments receivable;
(e) contingent rents recognized in the statement of profit and loss for the period;
(f) a general description of the significant leasing arrangements of the lessor; and
(g) accounting policy adopted in respect of initial direct costs.
The Standard also contains requirements regarding accounting and disclosure of sale
and leaseback transactions.

AS-20 : Earnings Per Share (EPS)

EPS is critical to fmancial analysis and is most widely used statistic by the
shareholders (present and potential) in evaluating the performance of an enterprise for
taking investment decisions. AS-20 is predominantly based on IAS 33. AS-20 has
been made mandatory w.e.f. 1.4.2001 for enterprises whose equity shares or potential
equity shares are listed on a recognized stock exchange in India. AS-20 requires that
Basic EPS and Diluted EPS should be disclosed prominently on the face of Profit and
loss account. Such disclosure is required to be made even when the amounts disclosed
are negative (a loss per share).
The Standard states the principles and the manner in which both basic and diluted
EPS are to be computed. Although not free from certain limitations (Ghosh &
Chakraborly 2001) the Standard focuses on many intricate issues involved in Ihc
computation of Basic EPS and Diluted EPS.

AS-21 : Consolidaled Financial Slalemenl

In India, there is no requirement to prepare Consolidated llnancial statement (CI"S)
under the companies Act, 1956. Thus, this standard would first time require corporate
entities to prepare CFS w.e.f 01.04.2001.
The standard requires preparation of CFS by a parent company for a group ol"
enterprises under its control in addition to its separate financial statement. Such CfS
should consolidate all subsidiaries, domestic as well as foreign other than a subsidiary
when :
a) control is intended to be temporary because the subsidiary is acquired and held
exclusively with a view to its subsequent disposal in near future; or
b) it operates under severe long-term restrictions which significantly impair its
ability to transfer funds to the parent.
The Standard provides for normal procedure of consolidation on a line-by-line basis
by adding together like items of assets, liabilities, income, and expenses. The
Standard also requires that the financial statement used in consolidation should be
drawn up to the same reporting date. If it is not practicable to draw up the financial

1
statement of one or more subsidiaries to siicii date, adjustments should be made for
the effect of significant transactions or other events that occur between those dates.
The Standard contains following requirements as to disclosure:
i) The reasons for not consolidating a subsidiary.
ii) When uniform accounting policies are not followed for like transactions for
practical difficulties, the fact of such departure and proportion of the items to
which the different accounting policies have been applied,
iii) List of all subsidiaries including the name, country of incorporation or residence,
proportion of ownership and, if different, proportion of voting power held,
iv) The nature of relationship between the parent and a subsidiary, if the parent does
not own, directly or indirectly through subsidiaries, more than one-half of the
voting power of the subsidiary,
v) The effect of the acquisition and disposal of subsidiaries on the financial position
on the reporting date, the results for the reporting period and on the corresponding
amounts for the preceding period,
vi) The names of the subsidiary (ies) of which reporting date(s) is/a^'g'adi^ftftt'nt/^'CiTi
that of the parent and the difference in reporting dates. // *• ' / / J.<'

AS-22 : Accounting for Taxes on Income

w \ • ' //
It aims at removing the special problems that [Link] frdi^i^ 4^i^£rgencc beuvucn'^.//
accounting income and taxable income.
The Standard requires recognition of deferred la.\ assets and liabilities for all liming
differences subject to consideration of prudence in respect of deferred ta.x assets.
However, the discounting of deferred tax assets in terms of present value is not
permitted. The Standard also contains transitional provisions to recognize
accumulated deferred tax balances in the financial statement as deferred tax
assets/liabilities with corresponding credit charge to revenue reserves.
Regarding disclosure, the Standard provides that deferred tax assets and liabilities
should be disclosed under a separate heading in the balance sheet of the enterprise,
separately from current assets and liabilities. Further, the break-up of deferred lax
assets and deferred tax liabilities into major components of the respective balances is
required to be disclosed in the notes to accounts.

AS-23 : Accounting for Investment in Associates in Consolidated

financial Statement
An associate is an enterprise in which the investor has significant influence and which
is neither a subsidiary nor joint venture of the investor. The Standard requires that
there should be a differentiation between accounting of investment in associates from
that in any other entity. The Standard advocates that equity method should be applied
for accounting ofsucli investment in associates wliilc preparing consolidated financial
statement (Cl-S).
Under the equity method, the investment is initially recorded at cost, identifying any
goodwill/capital reserve arising at the time of acquisition and the carrying amount is
increased or decreased to recognize investor's share oi' the profits or losses of the
investee after the date of acquisition.
The departure from accounting under equity method in CFS is allowed when :
(a) the investment is acquired and held exclusively with a view to its subsequent
disposal in near future; or
(b) the associate operates under severe long-term restrictions which signi(icanli>
impair its ability to transfer funds to the investor.
Investment in such associates should be accounted for in accordance with AS-13,
Accounting for Investment.
When the investor [Link] to have significant inlluences in associates it should
discontinue the use of equity method. Investment in associates accounted for using
equity method should be classified as long-term investment and disclosed separalcl)
in CI"S.
Other major disclosure requirements are as under:
i) An appropriate listing and description of associates including the proportion oi'
ownership interest,
ii) The investor's share of the profit or losses on investment in associates,
iii) A brief description of differences between accounting policies of associates and
the investor when such different policies are adopted for practical difficulties,
iv) Amount of goodwill/capital reserve arising on the acquisition of an associate that
has been included in investment,
v) The reason for not applying equity method in accounting for investments in an
associate under certain special circumstances as permitted by the Standard.

AS-24 : Discontinuing Operations

Though the standard is recommendatory in nature at present, the objective of this
Standard is to establish principles for reporting information about discontinuing
operations.
The disclosure requirement arises on occurrence of the initial disclosure event with
respect to a discontinuing operation. The initial disclosure event is the occurrence of
one of the following, whichever occurs earlier:
(a) the enterprise has entered into a binding sale agreement for substantially all of the
assets attributable to the discontinuing operation; or
(b) the enterprise's board of directors or similar governing body has both (i)approvcd
a detailed formal plan for the discontinuance, and (ii) made an announcement of
the plan.
An enterprise should include the following information relating to a discontinuing
operation in its financial statements beginning with the financial statements for ihc
period in which the initial disclosure occurs.
(a) a description of the discontinuing operation(s);
(b) the business or geographical segment(s) in which it is reported in accordance with
AS-17: Segment Reporting;
(c) the dale and nature oi'lhc initial disclosure cvcnl;
(d) the date or period in which the discontinuance is expected to be completed il'
known or determinable;
(e) the carrying amounts, as of the balance sheet date, of the total assets to be
disposed of and the total liabilities to be settled;
(0 the amounts of revenue and expenses in respect of ordinary activities attributable
to the discontinuing operation during the current financial reporting period;
(g) the amount of pre-tax profit or loss from ordinary activities attributable to the
discontinuing operation during the current financial reporting period, and the
income-tax expense related thereto; and
(h) the amounts of net cash fiows attributable to the operating, investing and
financing activities of the discontinuing operation during the current financial
reporting period.
If an initial disclosure event occurs between the balance sheet date and the date on
which the financial statements for that period are approved by the board of directors
in the case of a company or by the corresponding approving authority in the case of
any other enterprise, disclosures, as required by AS-4, Contingencies and [Link]
Occurring After the Balance Sheet Date, are made.
When an enterprise disposes of assets or settles liabilities attributable to a
disconUnuing operation or enters into binding agreements for the sale of such assets
or the settlement of such liabilities, it should include, in its financial statements, the
following information when the events occurs:
(a) for any gain or loss that is recognized on the disposal of assets or settlement of
liabilities attributable to the discontinuing operation (i) the amount of the pre-tax
gain or loss and (ii) income tax expense relating to the gain or loss, and
(b) the net selling price or range of prices (which is after deducting the expected
disposal costs) of those net assets for which the enterprise has entered into one or
more binding sale agreements, the expected timing of receipt of those cash flows
and the carrying amount of those net assets on the balance sheet date.
If an enterprise abandons or withdraws from a plan that was previously reported as a
discontinuing operation, that fact and its effect should be disclosed.
The required disclosures may be presented either in the notes to the financial
statements or on the face of the financial statements except that the disclosure of the
amount of the pre-tax gain or loss recognized on the disposal of assets or seillcmeni of
liabilities attributable to the discontinuing operation should be shown on the face of
the statement of profit and loss. However, a discontinuing operation should not be
treated as an extraordinary item.

AS-25 : Interim Financial Reporting

AS-25 prescribes the minimum content of an interim financial report and also the
principles for recognition and measurement in the financial statements for an interim
period it does not, however, mandate which enterprises should be required lo prescnl
interim financial reports, how frequently, or how soon after the end of an interim
period. If an enterprise is required or elects to prepare and present an interim financial
report, it should comply with this Standard, which comes into elTect in respecl o\
accounting periods commencing on or after 1.4. 2002.
An enterprise should include the following information, as a minimum, in the notes U)
its interim financial statements, if material and if not disclosed elsewhere in ihc
interim financial report:
(a) a statement that the same accounting policies are followed in the interim financial
statements as those followed in the most recent annual financial statements or, if
those policies have been changed, a description of the nature and effect of the
change;
(b) explanatory comments about the seasonality of interim operations;
(c) the nature and amount of items affecting assets, liabilities, equity, net income, or
cash flows that are unusual because of their nature, size, or incidence (vide AS-5);
(d) the nature and amount of changes in estimates of amounts reported in prior
interim periods of the current financial year or changes in estimates of amounts
reported in prior financial years, if those changes have a material effect in the
current interim period;
(e) issuance, buy backs, repayments and restructuring of debt, equity and potential
equity shares;
(0 dividends, aggregate or per share (in absolute or percentage terms), separately for
equity shares and other shares;
(g) segment revenue, segment capital employed (segment assets minus segment
liabilities) and segment result for business segments or geographical segments,
whichever is the enterprise's primary basis of segment reporting (disclosure of
segment information is required in an enterprise's interim financial report only if
 rMetiilatay framework •

the enterprise is required, in term of AS-17, Segment Reporting, to disclose

segment information in its annual financial statements);
(h) the effect of changes in the composition of the enterprise during the interim
period, such as amalgamations, acquisition or disposal or subsidiaries and long-
term investments, restructurings, and discontinuing operations; and
(i) material changes in contingent liabilities since the last annual balance sheet dale
The above information should normally be reported on a financial year-to-dale basis.
However, the enterprise should also disclose any events or transactions that arte
material to an understanding of the current interim period.
if an estimate of an amount reported in an interim period is changed significantiy
during the final interim period of the financial year but a separate financial report is
not prepared and presented for that final interim period, the nature and amount of that
change in estimate should be disclosed in a note in the annual financial statements for
that financial year.
Unusual or extraordinary items, changes in accounting policies or estimates, and prior
period items are recognized and disclosed based on materiality in relation to interim
period data. The overriding objective is to ensure that an interim financial report
includes all information that is relevant to understanding an enterprise's financial
position and performance during the interim period, for recognition and
measurement, an enterprise should follow the same accounting policies as are applied
in its annual financial statements.

AS-26: Intangible Assets

AS-26 prescribes accounting treatment for intangible assets that arc not dealt with
specifically in another Accounting Standard. The Standard requires an enterprise to
recognize an intangible asset subject to fulfillment of certain conditions and specifics
how to measure the carrying amount of intangible assets and disclose them. The
Standard will come into effect in respect of expenditure incurred on intangible items
during accounting periods commencing on or after 4, 2003.
The Standard contains the following requirements for disclosure.

A. General:
The financial statements should disclose the following for each class of intangible
assets, distinguishing between internally generated intangible assets and other
intangible assets;
a) the useful lives or the amortization rates used;
b) the amortization methods used;
c) the gross carrying amount and the accumulated amortazation (aggregated with
accumulated impairment losses) at the beginning and end of the period.

Ki
 \[Link](,
. •Aft''*— , ' « . * . - - •.*

d) a reconciliation ofthe carrying amount at the beginning and end of the period
showing;
i) additions, indicating separately those from internal development and
through amalgamation,
ii) retirements and disposals;
iii) impairment losses recognized in the statement of profit and loss during the
period (if any);
iv) impairment losses reversed in the statement of profit and loss during the
period (if any);
v) amortization recognized during the period and;
vi) other changes in the carrying amount during the period.

B. The fmancial statements should also disclose:

(a) if an intangible asset is amortized over more than ten years, the reasons why it is
presumed that the useful life of an intangible asset will exceed ten years from the
date when the asset is available for use. In gibing these reasons, the enterprise
should describe the iactor(s) that played a signilkanl role in determining the
useful life ofthe asset.
(b) a description the carrying amount and remaining amortization period of any
individual intangible asset that is material to the fmancial statements oi" the
enterprise as a whole;
(c) the existence and carrying of intangible assets whose title is restricted and the
carrying amount of intangible assets pledged as security for liabilities; and
(d) the amount of commitments for the acquisition of intangible assets.

AS-27 : Financial Reporting of Interests in Joint Venture

The Standard is mandatory with effect from the accounting periods commencing on or
after 01.04.2002.
The Standard deals with jointly controlled operations, jointly controlled assets,
separate fmancial statements of a ventures, consolidated fmancial statements of a
venturer, transactions between a venturer and joint venture, reporting interests in joint
ventures in the financial statements of an investor, operations of joint ventures and
disclosures.
As-27 requires a venture to disclose the following information in its separate financial
statements as well as in consolidated financial statements:
• the aggregate amount ofthe following contingent liabilities, unless the probability
of loss is remote, separately from the amount of other contingent liabilities:
 Regulafory Framework

(a) any contingent liabilities that the venturer has ineurrcd in relation to its
interests in joint ventures and its share in each of the contingent liabilities
which have been incurred jointly with other venturers;
(b) its share of the contingent liabilities of the joint ventures themselves for which
it is contingently liable; and
(c) those contingent liabilities that arise because the venturer is contingently liable
for the liabilities of the other venturers of a joint venture.
• The aggregate amount of the following commitments in respect oi" its interests in
joint ventures separately from other commitments:
(a) any capital commitments of the venturer in relation to its interests in joint
ventures and its share in the capital commitments that have been incurred
jointly with other venturers ; and
(b) its share of the capital commitments of the joint ventures themselves.
• A list of all joint ventures and description of interests in significant joint ventures;
the proportion of ownership interest, name and country of incorporation or
residence in respect of a jointly controlled entities;
• The aggregate amounts of each of the assets, liabilities, income and expenses
related to its interests in the jointly controlled entities.

3.5 Comparative Disclosure Requirements in Balance Sheet under the

Companies Act in Bangladesh and India

SI. Contents Bangladesh India

No.
A. Title Balance Sheet i Balance Sheet
B. Form Horizontal /Vertical 1 Horizontal /Vertical
C. Main 1. Fixed Assets i 1. Fixed Assets
Headings - 2. Investments 2. Investments
Assets side 3. Current Assets, Loans 3. Current Assets, Loans
and Advances and Advances
4. Miscellaneous 4. Miscellaneous
Expenditures Expenditures
5. Profit and Loss Account 5. Profit and Loss Account
! D. Main 1. Share capital 1. Share capital
Headings- 2. Reserves and Surplus 2. Reserves and Surplus i
Liabilities 3. Secured loans 3. Secured loans \
side
4. Unsecured Loans 4. Unsecured Loans \
5. Current Liabilities and 5. Current Liabilities and 1
Provisions Provisions \
 Regulatory framework

"E.""" Sub-Headings
Assets side:
E.l Fixed Assets 1. Goodwill 1. Goodwill
2. Land 2. Land
3. Buildings 3. Buildings
4. Leaseholds 4. Leaseholds
5. Railway Sidings 5. Railway Sidings
6. Plant and Machinery 6. Plant and Machinery
7. I-'urniturc and Mttings 7. Furniture and Fittings
8. Dcvclopnicnl of properly 8. Development of properly
9. Patents, Trademarks 9. Patents, Trademarks
and designs and designs
[Link], and [Link], and
[Link], etc. [Link], etc.
E.2 Investment 1. Investments in Govt, or 1. Investments in Govt, or
Trust Securities Trust Securities
2. investments in shares, 2. Investments in shares.
Debentures or Bonds or of Debentures or Bonds or of
those of subsidiary those of subsidiary
Companies Companies
3. Immovable properties 3. Immovable properties
4. Investments in Capital of Investments in Capital of
partnership Firms. partnership Firms.
E. 3 Current (a) Current Assets: (a) Current Assets:
assets, Loans 1. Interest accrued on 1. Interest accrued on
and Advances investments investments
2. Loose tools 2. Stores and spare parts I
3. Inventories of store & 3. loose Tools \
spares parts, raw materials 4. Stock-in-trade
stock in trade, work in 5. Works in progress i
progress. 6. Sundry Debtors |
4. Sundry Debtors: (a)Debts outstanding for a \
(a) Debts outstanding for a period exceeding six i
period exceeding six months
months. (b) Others debts
(b) Other debts less 7. (i) Cash balance on hand
provision. (ii) Bank balances
a. With scheduled Banks
 •Regulatory Framework

1
j i 5. Cash: b. With others
\ (a) in hand (b) Loans and Advances ;
i (b) in Bank 8. (i)Advanccs and Loans to
i 6. Loans and Advances: subsidiaries
j (a)Advances and Loans to (ii) Advances and loans to
i subsidiaries partnership firms
1 (b)Advances and Loans to 9. Bills of Exchange
partnership firms I which 10. Advances recoverable in
! the company or any or its cash or in kind or for
1 subsidiaries is a partner. value to be received
1 7. Bills of Exchange [Link] on current
\ 9. Balances with Agents account with Managing
10. Advances recoverable in Agents or Secretaries and
i cash or in kind or lor Treasurers.
value to be received [Link] with various
ill. Balance with customs. Authorities (where
1 Port trust, etc. (where payable on demand).
\ payable on demand).
E. 4 Miscellaneous | 1. Preliminary Expenses 1. Preliminary Expenses
Expenditure j 2. Expenses including 2. Expenses including
i commission or brokerage commission or brokerage
i on underwriting or on underwriting or
! subscription of shares or subscription of shares or
1 debentures debentures
1
1 3. Discount allowed on the 3. Discount allowed on the
i shares or debentures shares or debentures
4. Interest paid out of capital 4. Interest paid out of capital
during construction during construction
5. Development expenditure 5. Development expenditure
not adjusted not adjusted
6. Other items 6. Other items.
F. Sub Heading- j
Liabilities side: i
F.l Capital i 1. Authorized Capital 1. Authorized Capital i
1 2. Issued Capital 2. Issued Capital
1 3. Subscribed Capital 3. Subscribed Capital
1 4. Called up Capital 4. Called up Capital
i 5. Calls unpaid 5. Calls unpaid J
j 6. Forfeited shares 6. Forfeited shares i
 Regulatory Framework

1 7. Paid up capital 7. Paid up capital

F.2 Reserve and 1. Capital Reserve 1. Capital Reserve
Surplus 2. Capital Redemption 2. Capital Redemption
Reserve Reserve
3. Share Premium Account 3. Share Premium Account
4. Other Reserves less Debit i 4. Other Reserves less Debit
Balance in prollt and loss Balance in prollt and loss
account, if any account, if any
5. Balance in Profit and Loss 5. Surplus
account after providing for 6. Proposed additions to
proposed allocations 1 Reserves.
6. Proposed additions to
Reserves.
7. Sinking Fund.
F.3 Loans Loans: Loans:
(a) Secured Loans- (a) Secured Loans-
1. Debentures 1. Debentures
2. Loans and Advances from [Link] and Advances from
Banks Banks
3. Loans and Advances from [Link] and Advances from
subsidiaries subsidiaries
4. Other loans and Advances 4.0ther loans and Advances
(b) Unsecured Loans - (b) Unsecured Loans -
1 .Fixed Deposits [Link] Deposits
2. Loans and Advances from [Link] and Advances from 1
subsidiaries subsidiaries |
3. Short term Loans and [Link] term Loans and \
Advances Advances |
(i) From Banks (i)From Banks |
(ii)From others (ii)From others
4, Other Loans and [Link] Loans and Advances \
Advances (i) From Banks 1
(i) From Banks (ii) From others
(ii) From others
 Regulatory Framework

F.4 Current Current Liabilities and Current Liabilities and

Liabilities and Provisions: Provisions:
Provisions I (a) Current Liabilitics-
1. Short term loan and (a) Current Liabililics-
advances: 1. Acceptances
(i) l-'rom Banks 2. Sundry Creditors
(ii)l-"rom Others 3. Subsidiary Companies
[Link] position of Long 4. Advance Payments &
term Liabilities unexpired discounts for
[Link] Creditors: the portions for which
(i) I'or goods value is still to be given.
(ii)For services 5. Unclaimed Dividends
[Link] Companies 6. Other Liabilities (if any )
5. Ad vane payment 7. Interest accrued but not
[Link] dividend. due on loans.
[Link] on loans- (b)Provisions-
(i) Accrued and due 1. Provision for 'I'[Link]
(ii)Accrued but not due 2. Proposed Dividends
[Link] liabilities (if any) 3. For Contingencies
(b)Provisions- 4. For insurance, pension and
1. Provision for Taxation similar staff benefit
2. Proposed Dividends scheme
3. For Contingencies 5. Other provisions.
4. For insurance, pension and
similar staff benefit
scheme
5. Other provisions.
F. 5 Contingencies 1. Claims against the 1. Claims against the
and company not company not
Commitments acknowledged as debts acknowledged as debts
2. Unclaimed liability on 2. Unclaimed liability on
shares partly paid shares partly paid
3. Arrears of fixed 3. Arrears of fixed
cumulative dividends cumulative dividends
4. Estimated amount on 4. Estimated amount on
contracts remaining to be contracts remaining to be
executed on capital executed on capital
account and not provided account and not provided
for for
5. Other money for which 5. Other money for which
the company is the company is
contingently liable contingently liable
 Regulatory Framework

3.6 Comparalive Disclosure Requirements in Profit and Loss Account

under the Companies Act in I^angiadesh and India

SI. Contents Bangladesh India

No.
A. Title Profit and Loss Account Prodt and Loss Account

B. Form Not prescribed Not prescribed

Objective •|"o clearly disclose the result I'o clearly disclose the lesuil
of the working of the of the working of tiie
company, and to give true company, and to give true
and fair view of the profit or and fair view of the profit or
loss of the company for the loss of the company for the
financial year financial year
D. Income The income arranged under The income arranged under
the most convenient heads the most convenient heads
and in particular the and in particular the
following information:- following information:-
1. Turnover 1. Turnover
2. Income from Investments 2. Income from Investments
3. Other income by way of 3. Other income by way of
interest interest
4. Profits on investments 4. Profits on investments
5. Profits arising from 5. Profits arising from
unusual items unusual items
6. Miscellaneous income 6. Miscellaneous income
7. Dividend from subsidiary 7. Dividend from subsidiary
companies companies
Expenditure The expenditure arranged The expenditure arranged
under the most convenient under the most convenient
heads and in particular the heads and in particular the
following information:- following information:-
1. The value of raw materials 1. The value of raw
consumed materials consumed
2. The opening and closing 2. The opening and closing
stock of goods produced stock of goods produced
3. The value of work in 3. The value of work in
progress at the progress at the
 Regulatory Framework

comincnccinciil ami al llic commencement and al the

end end
4. The amount provided for 4. The amount provided for
depreciation renewals or depreciation renewals or
diminution in value of diminution in value of
fixed assets fixed assets
5. The amount of interest on 5. The amount of interest on
the company's debenture the company's debenture
and other fixed loans and other fixed loans
6. The amount of charge for 6. The amount of charge for
income tax and other income tax and other
taxation and profits taxation and profits
7. Any amount set aside to 7. Any amount set aside to i
provisions made for provisions made for j
meeting specified meeting specified
liabilities, contingencies liabilities, contingencies
and commitments and commitments
8. Consumption of stores and 8. Consumption of stores
spares parts and spares parts
9. Power and fuel 9. Power and fuel
10. Rent 10. Rent
11. Repairs to buildings 11. Repairs to buildings
12. Repairs to machinery 12. Repairs to machinery
13. (i) Salaries, wages and 13. (i) Salaries, wages and
bonus bonus
(ii) Contribution to (ii) Contribution to
provident and other provident and other
funds funds
(iii) Workmen and staff (iii)Workmen and staff
welfare expenses welfare expenses
[Link] 14. Insurance i
15. Rates & taxes excluding [Link] & taxes excluding |
taxes on income taxes on income i
16. Miscellaneous [Link] [Link] expenses i
17. Losses on investments 17. Losses on investments i
18. Losses on unusual items [Link] on unusual items i
19. Provisions for losses of 19. Provisions for losses of i
subsidiary companies subsidiary companies i

i
 ^•^. * * 1 ^ f ^ * A ^ li-i.,*'

i 20. Managerial remuneration ! 20. Managerial remuneration

1 to the directors (including | to the directors (including
1 managing director) or | managing director) or
manager, if any | manager, if any
1 [Link]' remuneration, i 2{.Auditors' remuneration,
1 whether as fees, expenses | whether as fees, expenses
1 or otherwise for services i or otherwise for services
rendered. | rendered.
F. Appropriation 1. The amounts reserved for i 1. The amounts reserved for
repayment of share capital i repayment of share capital
and repayment of loans 1 and repayment of loans
2. Any amount set aside or i 2. Any amount set aside or
proposed to be set aside to i proposed to be set aside to
reserves or withdrawn | reserves or withdrawn
from reserves \ from reserves
3. The aggregate amount of j The aggregate amount of
dividend paid and i dividend paid and
proposed \ proposed.
G. Further
Classification
of Income:
iC.l Turnover The aggregate amount of The aggregate amount of
turnover and showing as turnover and showing as
deduction there from: deduction there from:
i [Link] paid to sole {.Commission paid to sole
i selling agents | selling agents
1 [Link] paid to other | 2. Commission paid to other
selling agents i selling agents
i [Link] and discount on i 3. Brokerage and discount
sales, other than the usual i on sales, other than the
i trade discount | usual trade discount
G.2 Income from 1 The amount of income from \ 'fhe amount of income irom
Investment | investments distinguishing i investments distinguishing
: between; i between;
i (i) trade investments j (i) trade investments i
i (ii) other investments ! (ii)other investments i
G.3 Income by | Other income by way of Other income by way of |
way of interest i interest, specifying the nature interest, specifying the i
i of the income nature of the income i
 Regulatory Framework

ill. ! Further
Classification
of Expenditure:
iH. Slock in Trade [Link] value of raw materialsjl The value of raw materials
I
consumed giving itcm-vvisc
consumed giving item-wisej
break-up and indicating the
breal<-up and indicating the
quantities thereof
quantities thereof
The opening and closing!
2. The opening and closing 2
stock of goods produced,!
stock of goods produced,
giving break-up in respectj
giving break-up in respect oi
of each class of goods andj
each class of goods and
indicating the quantiliesj
indicating the quantities
thereof
thereof
In the case of trading
3. In the case of trading
companies, the purchase
companies, the purchase
made and the opening andj
made and the opening and
closing stocks, givingj
closing stocks, giving break-
break-up in respect of eachj
up in respect of each class of
class of goods traded in byi
goods traded in by the
the company and indicating!
company and indicating the
the quantities thereof \
quantities thereof
Value of work in progressi
4. Value of work in progress in 4.
in the commencement andj
the commencement and at
at the end of the year i
the end of the year
H.2 Depreciation The amount provided for The amount provided fori
depreciation, renewals or depreciation, renewals ori
diminution in value of fixed diminution in value of fixed!
j
asset asset !
jH.3 Interest on The amount of interest on- The amount of interest on- j
borrowing 1. debentures debentures
2. other fixed loans 2. other fixed loans |
3. the amount of interest( paid 3. the amount of interest( paid!
or payable) to the managing or payable) to the managing!
director and the manager, ifj director and the manager, ill
any any i
H.4 The amount o1fiThe amount of charge for The amount of charge for!
charge for tax income tax and other taxation Indian income tax and other!
on profit, including, where Indian taxation on prollt,!
practicable with Indian income including, where practicable!
 tax and any taxation imposed with Indian income tax andi
elsewhere to the extent of the any taxation imposed |
relief, if any, from income tax elsewhere to the extent of the i
and distinguishing, where relief, if any, from Indian i
practicable income income tax and distinguish!
between
tax and other taxation. where practicable between |
income tax and other taxation. •
H.5 jSalaries and 1. Salaries, wages and bonus 1. Salaries, wages and bonus \
wages 2. Contribution to provident 2. Contribution to provident;
and other funds and other funds
3. Workmen and staff welfare 3. Workmen and staff welfare;
expenses expenses \
H.6 Amount paid to The following payments The following payments i
managing provided or made during the provided or made during the |
agent, directors financial year to the financial year to the \
and directors or manager, if any, directors or manager, if any, :
management by the company , the by the company . the i
subsidiaries of the company subsidiaries of the company |
or any other person- or any other person-
1. managerial remuneration 1. managerial remuneration
2. other allowance and 2. other allowance and |
commission including commission including I
guarantee commission guarantee commission i
(details) (details) |
3. any other perquisites or 3. any other perquisites or|
benefits in cash or in kind benefits in cash or in kind |
4. retired benefits- 4. retired benefits-
(i) pensions (i) pensions
(ii) gratuities (ii) gratuities
(iii) payments from provident (iii)payments from provident i
funds, in excess of own funds, in excess of own '•
subscriptions and interest subscriptions and interest i
thereon compensation for thereon i
loss of office (iv) compensation for loss of!
consideration in olTicc j
connection with (v) consideration in i
recruitment from office connection with i
recruitment from office i
 ' Fiegulatory Framework

i
H.7 Payments to! Amount paid to auditors; Amount paid to auditors
Auditor i whether as fees, expenses ori whether as fees, expenses
1 otherwise for services or otherwise for services
i rendered- rendered-
i il. as auditor 1. as auditor
|2. as adviser, or in any other 2. as adviser, or in any other
capacity, in respect of- capacity, in respect of-
|(i) taxation matters (i) taxation matters
i(ii) company law matters (ii) company law matters
(iii) management services; and (iii)managemcnt services; and
in any other manner in any other manner
I. Further i
classification The amount reserved for - The amount reserved for -
of 1. repayment of share capital 1. repayment of share capital
appropriations- 2. repayment of loan 2. repayment of loan
reserve fori
repayment ofi
liabilities:

3.7 : Comparative Disclosure in financial Statements Other than in

Balance Sheet and Profit and Loss Account under the Companies Acts in
Bangladesh and India

i SI. Contents Bangladesh India

i No.
i A. Statement of A statement of changes in
Changes in financial position shall be
Financial included as an integral part of --
Position the financial statements, and
shall be presented for each
period for which the profit
and loss account is prepared.

93
1 B. Accounting
i
i j Policies:
1
i 1. Disclosure Balance sheet shall include
of accoun- clear and concise disclosure
i
ting of all significant accounting 1
policies policies which have been
used.
2. Deprecia- Depreciation methods used; i Depreciation methods used;
tion and depreciation rates or the and depreciation rates or the
method useful lives of the assets, if useful lives of the assets, if;
and rates different from the principal different from the principal i
rates specified in the schedule rates specified in the
schedule.
3. Valuation Mode of valuation of Mode of valuation of i
of investments, cost or market investments, cost or market |
investment value, shall be slated. value, shall be slated.
i i 4. Valuation Mode of valuation of stock Mode of valuation of stock
1 of and works in progress shall be and works in progress shall i
i i invento- stated be stated
1 \ ries
1 1 5. Funda- If a fundamental accounting
j i mental assumptions, namely, going
1 1 accounting concern, consistency and
i assump- accrual is not followed in —
i i tions preparation of financial
statements, that fact together
with the reasons therefore,
shall be disclosed.
6. Changes A change in an accounting
in policy that has a material
accounting effect in the current period or
policies may have a material effect in —
subsequent periods should be
disclosed together with the
reasons. The effect of the
change should, if material, be
disclosed and quantified. i

m
 / F^gulatgry Framework

Schedules or
1
Notes to the
Balance
1 Sheet:
jC.l Terms and Terms of or Terms of redemption or
redemption
conditions of conversion , if any, of the conversion , if any, of the
redeemable redeemable preference shares redeemable preference shares
preference to be stated together with the to be stated together with the
share earliest date of redemption or earliest dale of redemption or
conversion. conversion.
1 C.2 1 Fixed assets Under each head . the original Under each head , the
cost, and the additions thereto original cost, and the
and deductions there from additions thereto and
during the year, and the total deductions there from during
depreciation written off or the year, and the total
provided up to the end of the depreciation written off or
year to be stated. provided up to the end of the
year to be stated.
1 C.3 Assets Separate disclosure should be
acquired on made for assets acquired on —
hire purchase hire purchase plans
plans

1 C.4 Revaluation Where sums have been Where sums have been
of assets or written off on a reduction of written off on a reduction of
reduction of capital or a revaluation of capital or a revaluation of |
share capital assets, the reduced figures assets, the reduced figures
with the date of reduction with the date of reduction
shall be shown. Similarly, shall be shown. Similarly, i
where sums have been added where sums have been added |
by writing up the assets, the by writing up the assets, the i
increased figures with the date increased figures with the
of increase shall be shown. date of increase shall be i
shown. i
1 C.5 Book Debts In regard to sundry debtors in regard to sundry debtors i
the particulars shall given i the particulars shall given \
separately of- separately of-
(i) debts considered good and i (i)debts considered good and i
 Regulatory Framework

in respect of which the in respect of which the

company is fully secured; company is fully secured;
(11) debts considered good for (ii)debts considered good for
which the company holds which the company holds
no security other than the no security other than Ihc
directors personal directors personal
security; and security; and
(iii)debts considered doubtful (iii)debts considered doubtful
of bad. of bad.
The following lurthcr •fhc following further
information is also required to information is also required
be given - to be given -
(i) debts due by directors or (i) debts due by directors or
other officers of the other officers of the
company or any of them company or any of them
either severally or jointly either severally or jointly
with any other person or with any other person or
debts due by firms or debts due by firms or
private companies private companies
respectively in which any respectively in which any
director or a member to be director or a member to
separately stated. be separately stated.
(ii) debts due by companies (ii) debts due by companies
under the same under the same
management to be management to be
disclosed with the names disclosed with the names
of the companies. of the companies.
(iii)the minimum amount due (iii)the minimum amount due
by a directors or other by a directors or other
officers of the company at officers of the company
any time during the year at any time during the
to be shown by way of a year to be shown by way
note. of a note.
C.6 Investments Aggregate book value
of Aggregate book value of
company's quoted and company's quoted and
unquoted investments, and unquoted investments, and
also market value of quoted also market value of quoted
investments ,shall be shown. investments ,shall be shown.
 'vpewprk

C.7 Loans from (a)Loans from directors, (a)Loans from directors,

related managing agents, managers managers should be shown
parties siiould be shown separately separately
{b)Wlien loans have been (b)When loans have been
guaranteed by managing guaranteed by managers or
agents, managers or directors, directors, a mention thereof
a mention thereof shall be shall be made with the
made with the aggregate aggregate amount of such
amount of such loans under loans under each head.
each head.
C.8 Interest on Interest on loans should be Interest accrued and due on
loans- stated under sub head: loans should be included
accrued or (a)Accrued and due under the appropriate sub-
due (b)Accrued but not due. heads under the head
'secured/unsecured loans".
C. 9 Current Current account with Current account with
account with directors, managing agents, directors, managers, whether
managers, whether they are in they are in credit or debit
credit or debit shall be shown shall be shown separately.
separately.
C. Particulars of In regard to bank balances, in regard to bank balances,
10 Bank particulars to be given particulars to be given
Balances separately of- separately of-
(a) the balance lying with (a) the balance lying with
scheduled banks on scheduled banks on
current accounts, call current accounts, call
accounts, and deposit accounts, and deposit
accounts; accounts;
(b) the names of bankers other (b) the names of bankers
than scheduled banks and other than scheduled
the balance lying with banks and the balance
each such banker lying with each such
current accounts, call banker on current
accounts and deposit accounts, call accounts
accounts, and the and deposit accounts, and
maximum amount the maximum amount
outstanding at any time outstanding at any time i
during the year from each during the year from each |
such bankers; and such bankers; and
 s;Mt£i/^^'^"'^
(c) the nature of the interest, (c) the nature of the interest,
if any, of any director or if any, of any director or
his relative or the his relative or the
managing agent in each of managing agent in each
the banks other than of the banks other than
schedule banks. schedule banks.
C. Movements Additions and deductions Additions and deductions
11 in reserves since last balance sheet to be since last balance sheet to be
and surplus shown , under each of the shown , under each of the
specified heads. speci lied heads.
C. l^erms and (a) 'fcrms of redemption or (a)Terms of redemption or
12 conditions of conversion, if any, of conversion, if any, of
debentures debentures issued to be debentures issued to be
stated together with stated together with
earliest date of redemption earliest date of
or conversion. redemption or
(b) Where any of the conversion.
company's debentures are (b) Where any of the
held by a nominee or a company's debentures
trustee of the company the are held by a nominee or
nominal amount and the a trustee of the company
amount at which they are the nominal amount and
stated in the books of the the amount at which they
company shall be stated. are stated in the books of
the company shall be
stated.
..._t..
C. i Realisability If, in the opinion of the
13 of current Board, any of the current
assets assets, loans, and advance do
not have value on realization
in the ordinary course of
business at least equal to the
amount at which they are
stated, the fact that the Board
is of that opinion shall be
stated.
D. Schedules or Credits or receipts and debits Credits or receipts and debits
Notes to or expenses in respect of non- or expenses in respect of
Profit and recurring transactions or non-recurring transactions or
Loss transactions of an exceptional transactions of an
 ' Regulatory Framework

Account: nature shall be disclosed. exceptional nature shall be

D. Unusual disclosed.
items
D.2 Disclosure of 'I'he result of llie working of The result of the working of
different the company during the period the company during the
results of covered by the account shall period covered by the
operations be clearly disclosed. account shall be clearly
disclosed.
D.3 Employee's Break-up of the expenditure fircak-up of the expenditure
expenditure incurred on employees who- incurred on employees wln>-
(a) if employed throughout (a) if employed throughout
the financial year were in the financial year were in
respect of remuneration respect of remuneration
for that year which in the for that year which in the
aggregate was not less aggregate was not less
than Tk. 36,000; or thanRs. 1,44,000; or
(b) if employed for a part of (b) if employed for a part of
the financial year were in the financial year were in
receipt of remuneration receipt of remuneration
for any part of that year at for any part of that year
a rate which in the at a rate which in the
aggregate was not less aggregate was not less
than Tk. 3,000 per month. than Rs. 12,000 per
This note shall indicate the month. This note shall
number of employees indicate the number of
falling in each of the employees falling in each
above two categories. of the above two
categories.
D.4 Imports Value of imports calculated Value of imports calculated
on C.l.F. basis by the on C.l.F. basis by the
company during the financial company during the financial
year in respect of- year in respect of-
(i) raw materials, (i) raw materials,
(ii) components and spares (ii) components and spares
parts, parts,
(iii)capital goods, shall be (iii) capital goods, shall be
stated. stated.
D.5 Consumption Value of all imported raw Value of all imported raw
of materials, spare parts and materials, spare parts and

1
 RQQUjatory Framework

indigenous components consumed during components consumed

and imported the financial year and tiic during the llnancial year and
raw value of all indigenous raw the value of all indigenous
materials. materials, spare parts and raw materials, spare parts
spare parts components consumed and and components consumed
and the percentage of each to the and the percentage of each to
components total consumption, shall be the total consumption, shall
staled. be slated.
D.6 Expenditure Expenditure in foreign Expenditure in foreign
in Foreign currency during the llnancial currency during the llnancial
currency year on account ol" royalty. year on account of royally.
know-how, professional know-how, professional
consultation fees, interest and consultation fees, interest
other matters, shall be stated. and other matters, shall be
stated.
D.7 Dividend The amount remitted during The amount remitted during
remitted in the year in foreign currencies the year in foreign currencies
foreign on account of dividends, with on account of. dividends.
currencies a specific mention of the with a specific mention of
number of non-resident the number of non-resident
shareholders, the number of shareholders, the number of
shares held by them on which shares held by them on
dividends are due and the year which dividends are due and
to which dividends are the year to which dividends
related. are related.
D.8 Earning in Earnings in foreign exchange Earnings in foreign exchange
Foreign classified under the following classified under the
Exchange heads- following heads-
(i) export of goods calculated (i) export of goods
on FOB basis; calculated on FOB basis;
(ii) royalty, know- how, (ii) royalty, know- how.
professional and professional and
consultation fees; consultation fees;
(iii)interest and dividend; and (iii) interest and dividend;
(iv)other income , indicating and
the nature thereof (iv) other income , indicating
the nature thereof

m
 mgoktiify fmnmofK

D.9 Commission Commission on net profits Commission on net profits

on net profils with relevant details of the with relevant details of the
calculation of the commission calculation of the
pajable by way of percentage commission payable b>' \\a>
of such profits to the directors of percentage of such profils
( including managing director) to the directors (including
or manager, if aiiy. shall be managing director) or
stated. manager, if any. shall be
staled.
General
Notes:
E.I Capacity and In the case of manufacturing In the case of manufacturing
Utilization companies, in respect of each companies, in respect of each
thereof class of goods manufactured, class of goods manufactured,
(a) the licensed capacity; (b) (a) the licensed capacity; (b)
the installed capacity; and (c) the installed capacity; and (c)
the actual production, shall be the actual production, shall
stated. be stated.
E,2 Comparative Except in the case of first Except in the case of first
Figures balance sheet and profit and balance sheet and profit and
loss account laid before the loss account laid before the
company, the corresponding company, the corresponding
amounts for the immediately amounts for the immediateh'
preceding financial year for preceding financial year for
all items shown in the balance all items shown in the
sheet and the profit and loss balance sheet and the profit
account. and loss account.
E.3 Rounding off The figures in the balance The figures in the balance
figures in the sheet may be rounded off to sheet may be rounded off to
financial the nearest '000' or '00' as the nearest '000' or '00" as
statements may be convenient or may be may be convenient or may be
expressed in terms of expressed in terms of
decimals of thousands. decimals of thousands.
E.4 Materiality' All material information
in should be disclosed that is
disclosures necessar*' to make the balance
of sheet clear and
information understandable.
 mgu{y<ify fmm^mrf^

E.5 Relegation of The information required to The information required to

details to be given under any of the be given under any of the
notes, items or sub-items in the items or sub-items in the
schedules or balance sheet, if it can not be balance sheet, if it can not be
statements conveniently included in the conveniently included in the
balance sheet itself, shall be balance sheet itself shall be
furnished in a separate furnished in a separate
schedules annexed to the schedules annexed to the
balance sheet to form part balance sheet to form part
thereof thereof
F. Conformit}' Ever>' profit and loss account
of financial and balance sheet shall
statements comply with accounting
with standards. If there is any
International — deviation from the prescribed
Accounting standards, the annual
Standards accounts shall state:
(i) the fact that there has
been a deviation;
(ii) the reasons for such
deviation, and
(iii) the financial implication
of the deviation.

3.8: Comparative Disclosures in Directors' Report under the Companies

Act in Bangladesh and India

SI. Contents Bangladesh India

1
No.
A. Title The Boards' Report The Directors' report

B. Contents:
1. State of the The state of the company's The slate of the company's
company's affairs affairs
affairs
2. Proposed The amounts , if any, which The amounts , if any, which
transfer to the Board proposes to carry the directors propose to carr>' 1
reserves to any reserves in the balance to any reserves in the balance
sheet sheet
 fi$guktofy fmm^wofH

' 3. Proposed The amounts, if any. which The amounts, if any. which
dividend Ihe Board recommends the directors recommend
should be paid b\- way of should be paid b\' was- oi"
dividend dividend

4. Material Material changes and Material changes and

changes and commitments, if any, commitments, if any.
commitments affecting the financial affecting the financial
between the position of the company position of the company
balance sheet which have occurred which ha\'e occurred between
date and date between the end of the the end of the financial year
of the financial year of the of the company to which the
Directors' company to which the balance sheet relates and the
report balance sheet relates and the date of the Directors' report.
date of the Directors" report
5. Changes in Any changes which ha\'e Any changes which iiave
businesses occurred during the financial occurred during the financial
during the year in the nature of the year in the nature of the
financial year company's business, or in company's business, or in the
the business of its business of its subsidiaries
subsidiaries and the classes and the classes of business in
of business in which the which the company has
company has interest. interest.
6. Information Fullest information and Fullest information and i
and explanation on ever>' explanation on even,'
explanations reservation, qualification or reservation, qualification or
on adverse remark contained in adverse remark contained in
qualifications the auditors' report. the auditors' report.
in auditors"
report
7. Conserva- Particulars relating to the
tion of energy conservation of energy and
technology' absorption.
8. Foreign Total foreign exchange
exchange — earnings and outgoing
earnings and
outgoings i
[Link] Any reference to benefits Any reference to benefits j
expected from expected from contracts to expected from contracts to '
unexecuted the extent not executed shall the extent not executed shall
contracts be made in the Board's be made in the Board's
Report. Report
10. Buy-back Where the company had gone
of shares in for a buy-back of shares
— but could not complete it
within (he prescribed lime,
the Board' reports must slate
the reasons for such failure.
11. Informa- Slatemenl showing Ihe name
tion of of ever>' employee of the
employees compan>' who-
(a) if employed throughout
llie financial >ear.
remuneration not less
than Rs. 1,44,()()() per ;
Near; or
(b) if employed for a part of i
that \ear, remuneralion
not less than Rs. 12.1)00
per month.
Indicating also whether any
of such emploj'ee is a relali\e ;
of any director or manager. |
12. Realisation If in the opinion of the
value of board, any of the current
current assets, assets, loans and advances do
loans and — not have value on realization ;
advances in the ordinan*' course of i
*
business at least equal lo the
amount at which they are
stated, the fact that the board
is of that opinion shall be
stated.
13. Directors" The Board's report shall
Responsibility — include a Directors"
Statement Responsibility Statement,
indicating therein, - 1
 .•.. ,•5.4

(i) thai in the preparation of

the annual accounts, the
applicable accounliny
standards had been
followed along with
proper expliuialion
relating to material
departure;
(ii) thai the directors had
selected such accounting
policies and applicil thcni
consislenlK- and made
judgments and estimate
that are reasonable anti
prudent so as to give a
true and fair view of the
state of affairs of the
compan)' at the end ol'the
financial year and of the
profit or loss of the
company for that period;
(iii)that the directors had
taken proper and
sufficient care for the
maintenance of adequate
accounting records in
accordance with the ;
provisions of this Act for
safeguarding the assets of '•
the company and for |
preventing and detecting |
fraud and other
irregularities;
(iv)thal the directors had
prepared the annual '
accounts on a goinu '
concern basis. '
 [Link] The board's report shall be The board's report shall be
of Directors" sij^/ied b\' the chairm;iii if so signed b>' the chairiiuui il" so
Report authorized b>' the board aJid. authorized by the board and.
if not so aulhori/ed . it would if not so authorized . il would
have to be signed in the same have to be signed in the same
milliner as annual accounts. maimer as annual accounts.

3.9 Comparative Disclosures in Auditors' Report under the Companies

Act in Bangladesh and in India

SI. Contents Bangladesh India

No.
A, Title Auditors" Report to the Auditors" Report to the
Members Members

B Form Not prescribed Not prescribed

C, Contents:
C.l Receipt of Whether he has obtained all Whether he has obtained all
Information the information and the information and
and explanations which lo the explanations which to the best
explanations best of his knowledge and of his knowledge and belief
belief were necessap>' for were necessary for the
the purposes of his audit purposes of his audit.
C,2 Conformity of Whether in Ms opinion and Whether in his opinion and to
financial to the best of his the best of his information and
statements information and according according to the explanations
with law to the explanations gi\en to given to him. the balance
liim. the balance sheet and sheet and the profit and loss
the profit and loss account account give the information
give the information required by the Act in the
required by the Act in the manners so required.
manners so required.
i

m
 H^gaMory ff^mmm

cJ Conformity of Whether, in his opinion, the

financial profit and loss account and
statements — balance sheet comply with the
with Accounting Stiuidards referred
Accounting (0 in sub-seclion (.1-c) of
Stajidaids Section 211.
"C.4 Proper books Whether . in his opinions. Whether . in his opinions.
of account / proper books of account as proper books of account as
returns required b>' law has been required b\' law has been kept
kept by the compiuiy so far b>' the compan> so iar as
as appears his appears from his examination
from
examination of those books. of those books, and proper
ajid proper returns adequate returns adequate for the
for the purposes of this purposes of this audit have
audit have been received been received from branches
from branches not visited not visited by him .
by him .
C.5 Agreement of Whether the compan>'"s Whether the company's
financial balance sheet and profit and balance sheet and profit and
statements. loss account dealt with by loss account dealt with by the
with books of the report are in agreement report are in agreement with
account and with the books of account the books of account and
returns and returns. returns.
C.6 Truth and Whether, in his opinion and Whether, in his opinion and to
fairness of to the best of liis the best of his information and
financial information and according according to the explanations
statements to the explanations given to given to him, the said
him. the said accounts give accounts give a true and fair
a true and fair xiew- view -
(i) in the case of the (i) in the case of the balance
balance sheet of the sheet of the state of the
state of the company's company's alTairs as al the
affairs as at the end of end of its financial year;
its financial year; and and
(ii) in the case of the profit (ii) in the case of the profit ;
and loss account, of the and loss account, of the
profit or loss of its profit or loss of its
financial v'ear. financial year. t
 H^guimry ffmwwork

C.7 Branch Whether the branch Whether the bnuich auditors"

auditors" auditors" report on the report on the accounts of the
report accounts of the branch branch office has been
oriice has been rorwardcci forwarded (o him h\' (he
to him by the branch auditor branch auditor and how lie has
and how he has dealt witli dealt with the same in
(he .same in preparing tlie preparini^ the auditors" report.
auditors" report
C.8 Statement on Whether the auditors" report
specified contains the following matters
matters specified in the
Manufacturing and Other
Companies (Auditors" Report)
Olden 1988:-
(A) In the case of a
manufacturing .mining or
processing company:
(i) whether the compiui>' is
maintaining proper
records showing full
particulars, including
quantitative details and
situation of fixed assets ;
whether these fixed assets
have been physicalh
verified by the
management at
reasonable intervals;
whether any material
discrepancies were
noticed on such
verification and if so ,
whether the same ha\e
been properly dealt with
in the books of account;
(ii) whether any of the fixed
assets have been revalued
during the year, if so. the
 fi^gatmofy fmnmofH

basis of revaluation
should be indicaled;
(iii) whelhei" physical
verification has been
conducted b\- the
nKinagement at
reasonable intervals in
respect of finished goods,
stores, spare parts and
raw materials;
(i\) are the procedures of
pliNsical verification of
stocks followed b> the
management responsible
and adequate in relation
to (he si/e of the
company and the nature
of its business? If not .the
inadequacies in such
procedures should be
reported:
(v) whether any material
discrepancies have been
noticed on physical
verification of slocks as j
compared to book
records, and if so,
whether the same have
been properly dealt with
in the books of account;
(vi) whether the auditor on
the basis of his
examination of stocks, is
satisfied that such
valuation is fair and
proper in accordance with
the normally accepted
accounting principles ? Is

m
 fi-eguktofy fmmmork

the basis of \alualion of

slocks same as in the
preceding year; if there is
any deviation in the basis
of valuation . the elTecl of
such deviation . if
material. should be
reported;
(vii)if the compan>' has taken
an>' loans, secured or
unsecured from
companies, firms or other
parlies listed in the
register maintained under
section 301 of the
Companies Act, 1956 and
/ or from the companies
under the same
management as defined
under sub-section (IB) of
section 370 of the
Companies Act, 1956
whether the rate of
interest and other terms
and conditions of such
loans are prima facie
prejudicial to the interests
of the company;
(viii)if the company has
granted any loans,
secured or unsecured to
companies, firms or other
parlies listed in the
registers maintained
under section 301 and /or
to the companies under
the same management as
defined under sub-section

m
 Regulatpry Framework

( I B ) of section 3 70 of the
Companies Act, 1956,
whether the rate oC
interest and other terms
and conditions oi' such
loans are prima facie
prejudicial to the interest
of the company;
(ix) whether the parties to
whom the loans, or
advances in the nature of
loans, have been given by
the company are repaying
the principal amounts as
stipulated and are also
regular in payment of the
interest and if not
whether reasonable steps
have been taken by the
company for recovery of
the principal and the
interest ;
(x) is there an adequate
internal control procedure
commensurate with the
size of the company and
the nature of its business,
for the purchase of stores,
raw materials including
components, plant and
machinery, equipment
and other assets, and /or
for the sale of goods;
(xi) whether the transactions
of purchase of goods and
materials and sale of
goods, materials and
services, made in
 Reg^[Link]

pursuance of contracts or
arrangements entered in
the register(s) maintained
under section 301 of the
Companies Act, 1956.
and aggregating diiring
the year to Rs. 50,000 or
more in respect of each
party, have been made at
prices which MC
reasonable having regard
to prevailing market
prices for such goods,
materials, or services or
other prices at which
transactions for similar
goods or services have
been made with other
parties;
(xii) whether any
unserviceable or
damaged stores, raw
materials or finished
goods, are determined
and whether provision for
the loss, i f any, has been
made in the accounts;
{xiii)in case the company has
accepted deposits from
the public, whether the
directives issued by the
Reserve Bank of India
and the provisions of
section 58A of the
Companies Act, 1956,
and the rules framed
there under, where
applicable have been

ii
 Regulatory Framework

complied with ? i f not,

tiic nature of
contraventions should be
staled;
(.\iv)is the company
maintaining reasonahlc
records lor the sale and
disposal of realizable by-
products and scraps,
where applicable;
(xv)in the case of companies
having a paid-up capital
exceeding Ks. 25 lakhs as
the commencement of the
Financial year concerned,
or having an average
annual turnover
exceeding Rs. 2 crorc lor
a period of three
consecutive financial
years immediately
preceding the financial
year concerned, whether
the company has an
internal audit system
commensurate with its
size and nature of its
business;
(xvi)where maintenance of
cost records has been
prescribed by the Central
Government under
section 209(1) (d) of the
Companies Act, 1956,
whether such accounts
and records have been
made and maintained;
 Regulatory Framework

(Nvii)is the company regular

in depositing provident
fund and Rnipioyee" State
Insurance dues with the
appropriate authority and
if not, the extent of
arrears of provident ilind
and llmpioyees' State
Insurance dues shall be
indicated by the auditor;
(.\viii)whether any disputed
amounts payable in
respect of income tax,
wealth tax, sales tax,
custom duty and excise
duty were outstanding, as
at the last day of the
financial year concerned,
for a period of more than
six months from the date
they become payable; if
so, the amounts of such
outstanding dues should
be reported;
(xix)whether personal
expenses have been
charged to revenue
account; if so, the details
thereof should be
reported;
(xx) whether the company is a
sick industrial company
within the meaning of
clause (0) sub-section (I)
of section 3 of Sick
Industrial Companies
(Special Provisions) Act,
1985; i f so, whether a

114
 Regulatory Framework

reference has been niacle

to the Board lor
Industrial and Financial
Reconstruction under
section 15 of that Act.

(B) In the Case of a service

company:
(i) ail the matters specilled
in clause (A) to the extent
to which they are
applicable;
(ii) whether the company has
a reasonable system of
recording receipts, issues
and consumption of
materials and stores and
allocating materials
consumed to the relative
jobs, commensurate with
its size and nature of its
business;
(iii) whether the company has
a reasonable system of
allocating man-hours
utilized to the relative
jobs, commensurate with
its size and nature of its
business;
(iv) whether there is
reasonable system of
authorization at proper
levels, and an adequate
system of internal control
commensurate with the
size of the company and
the nature of its business,
on issue of stores and
allocation of stores and
labour to jobs.

115
 ReguhtQry^Fr9rrie\/vQrk

(C) In the case of a trading

company:
(i) all the matters specified
in clause (A) to the extent
to which they arc
applicable;
(ii) have the damaged goods
been determined and if
the value of such goods is
significant, has provision
been made for the loss;
(D) In the case of a finance,
investment, chit fund,
nidhi or mutual benefit
company;
(i) all the matters specified
in clause (A) to the extent
to which they arc
applicable;
(ii) whether adequalc
documents and records
arc maintained in a case
where the company has
granted loans and
advances on the basis of
security by way of pledge
of shares, debentures and
other securities;
(iii) whether the provisions of
any special statute
applicable to chit fund,
nidhi or mutual benefit
society have been duly
complied with; and
(iv) if the company is dealing
or trading in shares,
securities, debentures and
other investments.
 Regulatory Framework

whether proper records

have been maintained of
the transactions and
contracts and whetlicr
timely entries have been
made therein; also
whether the shares ,
securities, debentures and
other investments, have
been held by the
company in its own name
except to the extent of the
exemption, ii' any,
granted under section 49
of the Companies Act,
1956.
C.9 Reasons for Whether any of the matters Whether any of the matters in
qualification in the Auditors' Report is the Auditors' Report is
in the answered in the negative, answered in the negative,
Auditors' unfavourable or qualified, unfavourable or qualified, the
Report the auditors" report shall auditors" report shall state the
state the reasons for such reasons for such negative,
negative, unfavourable or unfavourable or qualiUcd
qualified answer, as the answer, as the case may be.
case may be.
C. Signature on Only the person appointed Only the person appointed as
10 Auditors' as Auditor of the Company, Auditor of the Company, or
Report or where a firm is so where a firm is .so appointed,
appointed, only a partner in only a partner in the firm
the finn practicing in practicing in India, may sign
Bangladesh, may sign the the Auditors' Report.
Auditors' Report.
 4-Regulatory teamwork

2.10 Corporate Governance Report under the SHBI Code

The SEBl Code of Corporate Governance Requires listed companies to include a
separate section of "corporate governance' in their annual repots. This section should
include a detailed compliance report on corporate governance. The code provides the
following suggested list of items to be included in the report:
SI. Contents Bangladesh India
No.
D.l Company's A brief statement on the
Philosophy company's philosophy on the
code of governance
D.2 Board of 1. Composition and category
Directors of directors (for example
promoter, executive, non-
executive, independent non-
executive, nominee-director,
which institution
represented, as lender or as
equity investor)
2. Attendance of each director
at the BOD meetings and
the last AGM
3. Number of other BODs or
board eommiUees he/she is
a memlier or chairperson ol"
Number of iK)[) meetings
held, dates on which held.
D.3 Audit 4, Brief Description of terms
Committee of reference
5, Composition, name of
members and chairperson
6, Meetings and attendance
during the year.
D.4 Remuneration a) Brief description of terms
Committee of reference
b) Composition, name of
members and chairperson
c) Attendance during the year
d) Remuneration policy
 R^gulMpryfr^m^work

e) Details of remuneration to
all liic directors, as per the
format in the main report.
D.5 Shareholders a) Name of non-executive
Committee director heading the
committee
b) Number of shareholders'
complaints received so far
c) Number not solved to the
satisfaction of shareholders
d) Number of pending share
transfers.
D.6 General Body a) Location and time, where
Meeting the last there AGMs were
held
b) Whether there will be
special resolutions
c) Whether they were put
through postal ballot the
previous year; details of the
voting pattern
d) Person who conducted the
postal ballot exercise
e) Whether they are proposed
to be conducted through
postal ballot
0 Procedure for postal ballot.
D.7 Disclosures a) Disclosures on materially
significant related party
transactions (i.e.
transactions of the company
of material nature, with its
promoters, the directors or
the management, their
subsidiaries or relatives, etc.
that may have potential
conflict with the interests of
the company at large.
 b) Details of noii-complianci;
by the company, penalties,
and strictures imposed on
the company by a stock
exchange or SCBI or any
statutory authority, on any
matter related to capital
markets, during the three
previous years.
D.8 Means of a) Half-yearly report sent to
Communica- each household of
tion shareholders
b) Quarterly results
c) Which newspapers it is
normally published in
d) Any website, where
displayed
e) Whether it also displays
official news releases
f) The presentations made to
institutional investors or lo
analysts.
g) Whether the MD&A is a
part of the annual report or
not.
D.9 General a) A G M : Date, time and
Shareholder venue
Information b) Financial calendar
c) Date of book closure
d) Dividend payment date
e) Listing on stock exchanges
0 Stock code
g) Market price data: High
and low during each month
in the previous fmancial
year
h) F'erformance in comparison
to broad-based indices such
 Regulatory Framework

as the BSE Sensex, CRISIL

index, etc.
i) Registrars and transfer
agents
j) Share transfer system
l<) Distribution of
shareholding
1) Dematerialization of shares
and h'quidity
m) Outstanding
GDRs/ADRsAvarrants or
any convertible
instruments, conversion
date and likely impact on
equity
n) Plant locations
o) Address for
correspondence.

3.11: The Salient Feature of the Comparative Corporate [Link]

Requirements in Bangladesh and India
The salient feature of the comparative corporate disclosure requirements as discussed
above may be stated as follows:
1. The basis of disclosure requirements of the two countries has come from the
British accounting and reporting system and the British Companies Act in
particular. And the norms are more or less the same
2. Both the Companies Acts in Bangladesh and India require presentation of
annual accounts, directors" report and auditors' report as a part of the
corporate report.
3. Both the Acts in Bangladesh and India require inclusion of balance sheet,
profit and loss account and schedules/notes as a part of the annual accounts.
Companies Act in Bangladesh, in addition, requires inclusion of a statement of
changes infinancialposition in the annual accounts of a company. Though the
Indian Accounting Standards required inclusion of a statement of changes in
financial position in the annual accounts.
4. Bangladesh Act fixes the time limit for presentation of annual accounts and
reports at the annual general meeting of the shareholders of the company at
nine months from the balance sheet date; whereas Indian law fixes the time
limit at six months.
5. Both the Acts prescribe form for balance sheet -horizontal or vertical, with

m
 ' Regulatory Framework

comprehensive contents and neither of the Acts prescribes any form for profit
and loss account.
6. Companies Act in Bangladesh requires disclosure of significant accounting
policies preferably in one place, and changes in accounting policies that has
material effect in the subsequent years together with reasons for the change
and the financial effect of the change, if material. Indian Companies Act does
not require accounting policies and changes therein, but require disclosure of
accounting policies on some particular cases such as in valuing inventories
though the Indian Accounting Standard (AS-1) requires disclosure of
accounting polices and changes in accounting policies that has material effect
which is tantamount to the requirement of the Indian Act.
7. Indian Act requires disclosure of the following information in the directors"
report which Act in Bangladesh does not so require:
• Foreign exchange earnings and outgoings
• Conservation of energy
• Buy-back of shares
• Information of employees
• Realization value of current assets, loans and advances
• Directors' Responsibility Statement
8. The SEC of Bangladesh added Cash Flows Statement to the financial
statements of listed companies according to the prescribed guidelines;
whereas, in addition to Cash Flows Statement, SEBI requires listed companies
to include a separate section of Corporate Governance Report as part of listing
agreement.
9. Indian Act extends the scope of statutory audit of a company from 'verifictory
audit' to "propriety audit', because the auditors are required to express their
opinion on systems, procedures, policies and the auditors' report has been
specified in the Manufacturing and Other Companies (Auditor's Report)
Order, 1988.
10. Indian Companies Act has incorporated Accounting Standards that needs to be
complied in preparing financial statements and as such constituted National
Advisory Committee. Even the Board's report shall include Directors"
Responsibility statement wherein they will confirm that in the preparation of
the annual accounts, the applicable accounting standards had been followed
along with proper explanation relating to material departure but Companies
Act in Bangladesh does neither have such provision nor have any national
standards setting committee.

In fine, considering the aforementioned rules and regulations and the comparative
presentation of disclosure requirements according to companies acts, it has been
found that apart from some minor differences, the disclosure requirements o f the two
are more or less same and the companies in two under study are expected to disclose
in the same fashion as the basis of disclosure requirements came from the British
accounting and reporting system and the British Companies Acts in particular.

m
 Reference
Government of Pakistan (1969), The Securities and Exchange Coniniission
Ordinance]969, The Lvast Pakistan Ga/.etlc, Government of Hast Pakistan.
Government of Bangladcsli (1987), The Securities and Exchange Cominission Rules
1987, 'flic Bangladesh Ga/ctte, Government of the Peoples" Republic of
Bangladesh.
Government of Bangladesh (1993), The Securities and Exchange Commission
Act J 993, The Bangladesh Gazette, Government of the Peoples" Republic of
Bangladesh.
Government of Bangladesh (1994), The Companies Act 1994, The Bangladesh
Gazette, Government of the Peoples" Republic of Bangladesh.
Government of India (1956), The Companies Act 1956.
The International Accounting Standards Committee, International Accounting
Standards (lASs).
The Institute of Chartered Accountants of Indld, Accounting Standards (ASs).