Audit Checklist For Compliance With Accounting Standards

AUDIT CHECKLIST FOR COMPLIANCE WITH
ACCOUNTING STANDARDS
AS-1: Disclosure of Accounting Policies.
Area Yes No Sch. Remarks

No.
(1) (2) (3) (4) (5)
A Significant Accounting Policies
1. Have the following fundamental

accounting assumptions been
followed?
a. Going Concern Yes
b. Accrual Yes
c. Consistency Yes
Is there a list of all significant policies

adopted? (For both current period
and previous period)
If the answer is yes, are all the area

listed below (illustrative) covered, if
applicable?
a. Method of account Yes
b. Method of depreciation Yes
c. Valuation of stock No Not Applicable
d. Valuation of fixed assets Yes
e. Valuation of investments Yes
f. Allocation of expenditure during No Not Applicable

construction period.
g. Deferred revenue expenditure Yes
h. Translation of Foreign currency No Not Applicable

transactions and balances.
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No.
i. Disclosure of events subsequent No

to the balance sheet.
j. Recognition of profit on long-term

contracts.
k. Treatment of
i. Contingent Liabilities
ii. Borrowing Costs
iii. Lease Accounting
iv. Taxes on Income
v. Goodwill and other

intangible assets.
vi. Research and development

expenditure
vii. Cost for retirement benefits.
viii Prior period items
ix. Preliminary expenses
x. Impairment of Assets.
5. Have the Accounting Policies listed

above been applied in preparation of
financial Statements? (Review each
policy independently)
B Disclosure:
1. Have all the applicable accounting

policies been disclosed?
2. If yes, are they disclosed in one place

preferably in the notes to accounts?
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No.
3. Is the policy drafted in a “clear and
concise” manner?
4. Has specific disclosure been made if

fundamental accounting assumptions
are not followed?
C Changes in Accounting Policy:
1. Have there been any changes in any

Accounting Policy? (Note: do a
review for each accounting policy).
2 Has the Change been made only.
a. For compliance with the Statute

or Accounting Standard.
b. If Management considers the

change will result in a more
appropriate presentation of
Financial Statements.
3 Are the changes in the policies going

to have a material effect on the
accounts of the current period.
4 Are the changes in the policies going

to have a material effect on the
accounts of later periods?
5 Can the change in the policies and its

subsequent effects be quantified?
6 Where the effect of the change

cannot be quantified, has this been
adequately disclosed?
7 Has adequate disclosure been made

regarding the change in method and
its impact on the financial statements.
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AS-2: (Revised) Valuation of Inventories
A Applicability
1 Has it been ensured that this

standard applies to accounting for
inventories other than the following?
a. Work-in-progress arising under

construction contracts, including
directly related services
contracts.
b. Work-in-progress arising in the

ordinary course of business of
service providers.
c. Shares, debentures and other

financial instruments held as
stock-in-trade.
d. Producers’ inventories of
livestock, agricultural and forest
products, and mineral oils, ores
and gases etc.
B Information:
1. Are the following working available?
a. Inventory items and codes.
b. Cost sheets (if the volume is

high, sample check and append
a note).
c. Inventory valuation statement as

at valuation dated
d. Note on procedure for valuing

inventory
e. Note on method of determining

net realisable value.
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C Basis of Inventory Valuation
1. Has it been ensured that the

acceptable basis of inventory
valuation or measurement of
inventories is at lower of Cost or Net
Relisable value (NRV)?
2. Does Cost comprise the following

components only?
b. Costs of conversion
i) Direct labour
ii) Variable production

overheads based on actual
production.
iii) Fixed production overheads

based on normal capacity.
c. Other costs incurred in bringing

the inventories to their present
location and condition.
d. If inventory is a qualifying asset,

has borrowing cost as per AS-16
been included.
3 Has it been ensure that the following

costs have been excluded from the cost
of inventories?
a. Abnormal amounts of wasted

materials, labour and other
production costs.
b. Storage Costs
c. Administrative overheads that do

not contribute to bringing the
inventories to their present
location and condition.
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d. Selling and distribution
expenses.
4 Has it been ensured that the

following cost formulae have been
used for determining the historical
cost of inventories?
a. For terms “not ordinarily

interchangeable”-Specific
Identification method.
b. For other items –First In First Out

(FIFO) or Weighted Average
Cost method.
c. Standard Cost or Retail method

may be used if results
approximate actual cost under 4
(b) above.
5. Has NRV been ascertained as the

estimated selling price in the ordinary
course of business less the estimated
costs of completion and costs
necessary to make the sale based on
reliable evidence after considering
“Adjusting Events”, if any, after the
Balance Sheet date?
6. Have items whose NRV is below cost

been carried at NRV?
7. Have the following been ensured?
a. Materials and other supplies held

for use in the production of
inventories are not written down
below cost if the finished
products in which they will be
used are expected to be sold at
or above cost.
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b. When there has been a decline
in the price of materials and it is
estimated that the cost of the
finished products will exceed
NRV, the replacement cost of
materials may be the best
available measure of their NRV.
D Disclosure in the Financial Statements
1. Has the following information been

disclosed in the financial statements?
a. The accounting policies adopted

in measuring inventories
including cost formula used.
b. Total carrying amount of

inventories and its classification
as raw materials and
components , work-in-progress,
finished goods, stores and
spares and loose tools.
AS-3: (Revised) Cash Flow Statements
A Preparation of cash flow statement

( Applicability to be mentioned )
1. Have the operating cash flows been
presented as follows?
a Listed companies – Indirect

. approach
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b Insurance companies – Direct
. approach
c Others. – Direct or indirect

. approach.
2 Have the cash flows during the

period been classified as follows?
a Operating cash flows

.
b Investing cash flows
.
c Financing cash flows
.
3. Has the enterprise opted to report
the cash flows arising from the
operating, financing or investing
activities on a net basis correctly?
4. Where the enterprise is a financial

enterprise, has it opted to report the
cash flows arising from each of the
following activities on a net basis?
a Cash receipts and payments for

. the acceptance and repayments
of deposits with a fixed maturity
date.
b The placement of deposits with

. and withdrawal of deposits from
other financial enterprises and.
c Cash advances and loans made

. to customers and the repayment
of the same.
5 Except to the extent that cash flows

are reported on a net basis (as
stated in 3 and 4 above), has the
enterprise reported separately major
classes of gross cash receipts and
gross cash payments arising from
investment and finance activities?
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6 Where cash flows arise from
transactions in a foreign, currency,
has the same been reported in the
enterprises reporting currency
applying the prevailing exchange
rate at the date of the cash flow?
7 Has the effect of changes in

exchange rate on cash and cash
equivalents held in a foreign
currency been disclosed separately
in the cash flow statement?
8 Are the cash flows associated with

extra-ordinary items classified and
disclosed separately as arising from
operating, financing or investing
activities as appropriate?
9 Are the cash flows arising from

interest paid, interest and dividends
received classified in the following
manner?
a In case of financial enterprise –

. operating activities.
b In case of other enterprises.

.
i) Interest paid – Financing
Activities
ii) Interest and dividends

received – Investing
activities
10 Are the cash flows arising from tax
on income separately disclosed and
classified as arising from operating
activities except in cases where the
same can be identified as arising
from financing or investing activities?
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11 Has the enterprises reported
separately the cash flow between
itself and the associate/joint venture
when accounting for an investment
in an associate or a subsidiary or a
joint venture?
12 Are the aggregate cash flows arising

from acquisition and disposal of
subsidiaries or other business
classified separately as arising from
investing activities?
13 Has the enterprise disclosed in

aggregate cash flows in respect of
both acquisition and disposals of
subsidiaries or other business as
follows?
a Total purchase or disposal

. consideration
b Portion of consideration
. discharged by means of cash or
cash equivalents.
B Disclosure
1 Have investing and financing
transactions that do not require the
use of cash or cash equivalent been
disclosed elsewhere in the financial
statements in a way that provided all
the relevant information about these
transactions?
2 Has the enterprise disclosed the

components of cash and cash
equivalents and has a reconciliation
of the amounts in its cash flow
statement with the equivalent items
reported in the Balance Sheet been
presented?
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3 Has the enterprise disclosed the
amount of significant cash and cash
equivalent balances held by the
enterprise that are not available for
use by it?
AS:4 Contingencies and Events Occurring After the

Balance Sheet Date
A Applicability
1 Have the audit procedure

ascertained any items of
“Contingencies” and “Events
Occurring after the Balance Sheet
Date” like the following?
a. Suit filed by/against enterprise.
b. Claims not acknowledged as

debts
c. Guarantees given
d. Bills discounted.
e. Natural Calamity such as fire,

flood, earthquakes, riots etc.
f. Theft of stocks, assets, cash,

etc.
g. Major clients/customers
becoming bankrupt
h. Claims made by suppliers.
i. Wage revisions
j. Change in policy of Government
k. Other such items such as

amalgamation, mergers etc.
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2 Has a list of all such contingencies
been prepared?
B Contingency:- Treatment
1 Is it probable that future events will

confirm, after taking into account any
related probable recovery, that an
asset has been impaired or a liability
incurred as at the Balance Sheet
date?
2 Can a reasonable estimate of the

resulting loss be made?
3 Is the estimate of provision for

liability/write off supported by a
working note?
4 If the answer to the above conditions

is yes, has the amount of loss an
quantified above been charged to
the Profit & Loss Account?
5 If the “contingency” fulfills only one

of the two specified conditions, has a
disclosure been made in the notes to
accounts?
6 Have you ensured that contingent

gains have not been recognised in
the financial statements except
when the realisation of the gain is
virtually certain?
C Contingency-Disclosure
1. Have you ensured that the following

information has been disclosed?
a. Nature of Contingency/event
b. Uncertainties which will affect

future outcome.
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c. Estimate of financial effect, or, a
statement that financial effect
cannot be quantified.
D Events occurring after the Balance Sheet

. date – Treatment
1 Adjusting Events.
a. Do the audit procedures of

events occurring after the
Balance Sheet date indicate any
instances of “additional
evidence” as to the status of
assets and liabilities as at the
Balance Sheet date?
b. Has the “Going Concern”

assumption been tested for its
validity?
c. Has a list of adjusting events

been prepared for each item of
asset and liability as at the
Balance Sheet date?
d. Have the assets/liabilities been

adjusted on the basis of the
foregoing?
e. Have dividends proposed/

declared after Balance Sheet
date but before approval of
financial statements been
provided for in the Balance
Sheet?
2. Non Adjusting Events
a. Have audit procedures of

“events occurring after the
Balance Sheet date” identified
new events, which are material
and involve financial
commitment?
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b. Have the following disclosure
been made in the report of the
approving authority (Director’s
Report)?
i) Nature of event
ii) Estimate of financial effect

or a statement that financial
effect cannot be quantified.
As-5: (Revised) Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies
A Applicability
1 Are all items of income and

expenditure, which are recognised in
a period, included in the
determination of net profit or loss for
the period?
2 Are the exclusions permitted, or

required by other standards?
3 Are the following components

disclosed on the face of the P & L
A/c?
a. Profit or Loss from ordinary

activities and
b. Extraordinary items.
4 Has the nature and amount of each

extraordinary item been separately
disclosed in the P & L A/c in a
manner that its impact on current
profit/loss can be perceived?
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5 Have the nature and amount of
items of income and expenditure
been disclosed separately where
their size, nature and incidence is
relevant to explain the performance
of the enterprise for the period?
B Prior Period Items
1 Do prior period items refer only to

items of income or expenses, which
arise in the current period as a result
of errors or omissions in one or more
prior periods?
2 Has a list of these items been

made?
3 Have these items been separately

disclosed in the P & L A/c in a
manner such that their impact on
current period profit/loss can be
perceived?
C Changes in Accounting Estimates

.
1. Is there any change in any
accounting estimate?
2. Does the change have a material

financial impact and has it been
quantified?
3. Have the particulars of the change,

including the financial impact, been
disclosed in the financial
statements?
4. Has it been ensured that the nature

and amount of change in an
accounting estimate which has a
material effect in the current period,
or which is expected to have a
material effect in subsequent
periods, has been disclosed?
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5. Has the fact of a change in
accounting estimate where it is
impractical to quantify the amount,
been disclosed?
D Changes in Accounting Policy
1. Refer Checklist for AS 1
AS-6: (Revised) Depreciation Accounting
A Applicability
.
1 Has the standard been applied to all
depreciable assets of the entity?
2 AS 6 does not cover certain specific

items. Has the auditee ignored such
exceptions (e.g. Goodwill,
Livestock)?
B Depreciation
1 Is there a list of fixed assets? Is

there a Fixed Asset register?
2 Is the estimated useful life and

estimated residual value of each
asset available on record?
3 Is the depreciable amount for each

item of fixed asset defined?
4 Has the useful life of the depreciable

asset been estimated after
considering the following factors?
a. Expected physical wear and tear
b. Obsolescence
c. Legal or other limits on the use

of the asset.
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5 Is documentary evidence available
where required?
6 Has the useful life of the assets

been reviewed periodically?
7 Is there a revision of the estimated

useful life of the asset?
8 Is there any unamortised

depreciation on revision of useful
life?
9 Has the unamortised depreciation

been charged over the revised
remaining useful life?
10 Has depreciation been provided on

assets added or extended to the
existing assets during the year?
11 Has depreciation been provided

separately on additions/extensions
to assets where the estimate of
useful life can be made independent
of the existing assets?
12 Has depreciation been provided

prospectively on any change
occurring in the historical value of
assets due to exchange fluctuations,
price adjustments, changes in duties
or similar factors?
C Revaluation
.
1 Where the depreciable assets are
revalued, has depreciation been
charged on the revalued amount?
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2 Has there been a material effect on
the amount of depreciation on
revaluation? In case the revaluation
has a material effect on the amount
of depreciation, has the same been
disclosed separately in the year in
which revaluation is carried out?
D Sale
1 Has there been a sale of depreciable
asset?
2 Has the surplus or deficiency, if

material, been disclosed separately?
E Depreciation Method
1 Has the same method of

depreciation been considered for
similar assets or class of assets?
2 Have identical methods for

calculation of depreciation been
consistently followed from one
accounting period to another?
3 Has a change from one method of

providing depreciation to another
been disclosed as per the
requirements of AS-1 as follows?
a. Reason for the change.
b. Financial effect of the change in

the current and subsequent
years.
4 When such a change in the method

of depreciation is made, has
depreciation been recalculated in
accordance with the new method
from the date of the asset coming
into use?
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5 Has the surplus or deficiency arising
from retrospective recomputation
been adjusted in the accounts of the
year when the method has
changed?
F Disclosure
1 Has the following information been

statements?
a. The historical cost or other

amount substituted for historical
cost of each class of
depreciable assets?
b. Total depreciation for the period

for each class of assets.
c. The related accumulated

deprecation
d. Depreciation methods use.
e. Depreciation rates for the useful

lives of the assets, if they are
different from the principal rates
specified in the stature
governing the enterprise
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AS-7: (Revised) Construction Contracts
A Applicability
1 Does the enterprise have any of

following activities?
a. Construction contracts
(including contracts for
destruction and restoration).
b. Services related to contracts

(Contracts involving project
management or providing
architectural services etc.)
2 Types of Construction Contracts
a. Has it been ensured that the

construction contracts have
been identified as follows?
i) Fixed price contracts
ii) Cost plus contracts
3 Have the principles of “Combining

and segmenting” contracts been
applied to all contracts consistently?
4 Has a list of modifications to terms of

contracts been prepared contract
wise?
B Percentage of Completion Method (PCM)

.
1 Can the outcome of the construction
contract be estimated reliability?
2 If yes, has the amount of revenue

recognised been determined with
reference to the stage of completion
of the contract activity at the end of
each accounting period?
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3 Is the percentage of completion
certified by a technical expert?
4 Has he overall assessment as to

percentage of completion been
carried out satisfactorily?
5 Has the billing been done as per

terms of contract?
6 Has the contratee raised any

objection/ dispute?
7 Have progress payments been

received?
8 Has it been ensured that the costs

included in the amount at which
construction contract work is stated
comprises the following?
a. Costs specific to the contract

(direct material/wages)
b. Allocable costs based on normal

activity.
c. Other costs specifically

chargeable as per terms of
contract.
9. Has an appropriate allowance been

made for unforeseeable factors?
10 In respect of fixed price contracts,

has it been ensured that at least 20-
25% of the work is complete?
11 In respect of cost plus contracts, has

it been ensured that all costs
considered are identifiable or
reasonably estimable?
C Provision for Foreseeable Losses

.
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1 Has the provision for foreseeable
loss been made in full irrespective of
extent/percentage of completion of
work?
2 Does the nature and magnitude of

the contract require inclusion of
indirect costs in the provision for
foreseeable losses?
3 If yes, has the same been ensured?
D Revenue
1. Have the following components of

contract revenue been identified for
each contract?
a. Basic Price
b. Price Variation
c. Claims
d. Incentive
e. Residual Value
2. Have principles of “Measurability”

and “ultimate collectibility” been
fulfilled in respect of contract
revenue recognised?
3 Has it been ensured that claims and

variations have been recognised
only if documentary evidence of
acceptance is available by the
client?
4 Have all claims or penalties payable

been fully provided for? Further have
contingent Claims been disclosed?
E Progress Payments, Advances and

Retentions.
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1 Has it been ensured that progress
payments/advances are not included
as revenue and are disclosed as
liabilities/reduction from contract
WIP?
2 Has retention money been shown

either as receivables or by way of a
note?
F Disclosure
1. Has contract revenue been

disclosed in the P & L A/c?
2 Have the following been disclosed in

the Balance Sheet?
a. Amount of Contraction WIP
b. Progress payments and

advances received.
c. Retention’s on account of
contracts
d. Gross dues to/from contractee.
AS-8: Accounting for Research and Development – Redundant
AS-9: Revenue Recognition

A Applicability
1 Has it been ensured that this

standard has been applied in
respect of revenue arising in the
course of the ordinary activities of
the enterprise from the following?
a. Sale of goods.
b. Rendering of services, and
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c. Use by others of enterprises
yielding interest, royalties and
dividends.
2 Is there a list of items of revenue?
B Recognition of Revenue
1 Sale of goods
a. Have the following conditions

been fulfilled?
i) The seller of goods has

transferred to the buyer the
property in the goods for a
price, or all significant risks
and rewards of ownership
have been transferred to the
buyer and the seller retains
no effective control of the
goods transferred to a
degree usually associated
with ownership; and
ii) No significant uncertainly

exists regarding the amount
of consideration that will be
derived from the sale of the
goods.
b. Has the recognition of revenue

been postponed if it is
unreasonable to expect ultimate
collection?
2 Rendering of Services
a. Has the appropriate method

been followed as per the
following?
i) Has the “Completed

Service Method” been
followed in respect of
service involving a single
81
act or more than one act,
where services not
performed are significant
enough in relation to all
transactions as a whole?
ii) Has the “Proportionate

Completion Method” been
followed only if service
involves execution of more
than one act?
iii)
Have the recognition of
revenue been postponed if
it is unreasonable to expect
ultimate collection?
3. Use of Enterprise Resources by
others.
a. Has revenue been recognised

on the following bases:
i) Interest: on a time
proportion basis taking into
account the amount
outstanding and the rate
applicable:
ii) Royalties: On an accrual

basis in accordance with
the terms of the relevant
agreement;
iii) Dividends from

Investments in shares;
when the right to receive is
established.
C Disclosure
1 Where uncertainty exists and

revenue recognition has been
postponed, have the circumstances
been disclosed?
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2 Has revenue been disclosed on
gross basis and deductions shown
separately?
AS-10; Accounting for Fixed Assets

A Applicability
1 Has it been ensured that “Fixed

Assets” of auditee are those held
with the intention of being used for
the purpose of producing or
providing goods or services and are
not held for “sale in the normal
course of business”?
2 Has it been ensured that such

assets do not include exceptions
(e.g. livestock, etc.) under AS 10?
B Identification
.
1 Is there a list of Fixed Assets? If so,
is there a Fixed Assets Register?
Has it been updated?
C Historical Costs
1 Is any fixed asset’s gross book value

arrived at after revaluation? If yes,
apply checklist as given in E below.
2 In respect of the fixed assets stated

at historical cost, does it comprise
only of the following?
a. Purchase Price net of duty

drawback and trade discount
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b. Costs of Installation or other
such costs.
c. Borrowing costs subject to AS-

16.
3 Does it include any other cost? If so,

specify.
4 If the assets is self-constructed have

only directly attributable or allocable
costs been considered?
5. In respect of assets acquired in

exchange, have the assets been
recorded as follows?
a. FMV of asset given up
b. FMV of asset acquired, where it

is more clearly evident.
c. Net Book Value of asset given

up adjusted for consideration
given or taken.
6. In respect of assets acquired by

exchanging securities, has the asset
been recorded at fair market value of
asset acquired or of security issued
whichever is more clearly evident?
7. Has capitalisation of any subsequent

expenditure been justified in terms of
incremental future benefits
derivable?
8. In respect of fixed assets purchased

at consolidated price, has the
allocation of costs been done to
individual assets on the basis of the
fair value?
D Retired Assets
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1 In respect of retired assets, have
they been shown at the lower of the
book value and NRV?
2 Have the retired assets been

disclosed separately in the financial
statements?
3. In respect of retired/disposal assets,

has it been ensured that losses (and
gains/loses for disposed assets)
have been provided for?
E Revaluation
1 Have any fixed assets been

revalued?
2 Is the process of revaluation

justified.
3 Is it applied to the entire lot of

assets? If not is the selection
systematic?

revaluation in financial statements of
a class of assets does not result in
the net book value of that class
being greater than the recoverable
amount of assets on that class?
5 Has it been ensured that in the case

of upward revision, the accumulated
depreciation has not been credited
to the P & L accounts?
6 Has the revaluation surplus/loss

been accounted as prescribed in this
standard?
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7 In respect of sale/disposal of
revalued assets, has the credit
balance standing in respect of the
disposal asset in the revaluation
reserve been adjusted or reversed?
F
statements?
a. Gross and net book value of

fixed assets at the beginning
and end of an accounting period
showing additions, disposals,
acquisitions and other
movements;
b. Expenditure incurred on account

of fixed assets in the course of
construction or acquisition; and
c. In respect of revalued assets the

revalued amount substituted for
historical costs of fixed assets,
the methods adopted to
compute the revalued amounts,
the nature of indices used, the
year of any appraisal made, and
whether an external valuer was
involved.
AS-11: Accounting for the Efforts of Changes in Foreign

Exchange Rates
A Applicability
1. Has it been ensured that this

standard has been applied by the
enterprise as follows?
a. In accounting for transactions in

foreign currencies; and
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b. In translating the financial
statements of foreign branches
for inclusion in the financial
statements of the enterprises.
B Translation of transaction in Foreign

Currency
1 Has a transaction in a foreign

currency been recorded in the
reporting currency by applying the
exchange rate to the following?
a. Transactions resulting in foreign

exchange inflow/outflow-the
transaction is recorded at
exchange rate prevalent on the
date of the transaction.
b. Transactions which result in

foreign exchange inflow/outflow
at a later date- the transaction is
translated as per enterprise
policy (usually average rate).
2 Are there any inter-related

transactions?
a. Has a list of parties and group

concerns been prepared?
b. Is there any contract or

contracts with common parties?
c. In particular, are there

settlements to be made net or
have been made net of
receivable and payable
amounts? In such instances the
average exchange rate may be
adopted.
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3. Have the monetary items of assets
and liabilities as at the Balance
Sheet date been reported at the
closing rate? (buying rate for
receivables and selling rate for
payables).
4. Have the non-monetary items

(excluding fixed assets) which are
carried at historical cost
denominated in a foreign currency
been reported using the exchange
rate as at the date of the transaction.
5. Have the non-monetary items

(excluding fixed assets) which are
taken at NRV, been reported using
the exchange rate as at the date
determination of NRV?
C Recognition of Exchange Differences
1. Have the exchange differences

arising on foreign currency
transactions been recognised as
income or as expense in the period
in which they arise?
2. Foreign currency borrowings.
a. In respect of foreign currency

borrowing in relation to
acquisition of fixed assets, are
there any payments or
repayments made during the
period?
b. Are there any exchange

differences arising there from?
c. Are they reflected in the

‘Carrying Amount’ and not
debited or credited to P & L
account as exchange
fluctuation?
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d. If the net amount of fixed assets
after adjusting the carrying
amount for exchange difference
is negative, has the difference
been debited to Revaluation
Reserve Account (RR) or if
there is not balance in the RR,
the P & L A/c?
D Forward Exchange Contracts

.
1. Is there a difference between the
forward rate and the exchange rate
at the date of transaction?
2. Is the difference in respect of

liabilities incurred for acquiring such
a fixed asset been adjusted in the
carrying amount of the respective
fixed asset?
3. If no, has the difference been

accounted as income or expense in
the P & L A/c.
E Foreign Branches
1. Have the financial statements of a

foreign branch been translated using
the procedures mentioned below.
a. Revenue items- At average rate,

weighted rate if fluctuations are
heavy.
b. Opening/closing Inventory – at
opening and closing rates.
c. Depreciation – At the rates used

for the translation of the values
of the assets on which
depreciation is calculated.
d. Monetary items- Closing rate.
89
e. Non-Monetary items (other than
fixed assets and inventories) –
Exchange rate at the date of the
transaction.
f. Fixed Assets- Exchange rate at

the date of the transaction, any
increase or decrease in the
liability incurred for the
acquisition of fixed assets by
applying the closing rate should
be added to or deducted from
the historical cost of the asset.
g. Head office account (Whether

debit or credit) – To be reported
at the amount of the balance in
the branch account in the books
of the head office after adjusting
un-reconciled transactions.
h. Net Exchange Difference-

Should be recognised as
income of expense of the period
except in respect of (f) above
amount.
i. Contingent Liabilities – At
closing rate.
F Disclosure
.
1 Have the following been disclosed?
a. The amount of exchange

differences included in the net
profit or loss for the period:
b. The amount of exchange

difference adjusted in the
carrying amount of fixed assets
during the accounting period:
and
90
c. The amount of exchange
differences in respect of forward
exchange contracts to be
recognised in the profit or loss
for one or more subsequent
accounting periods, as required
by para D above.
d. Recommended – Enterprise’s
Foreign Currency Risk,
Management Policy.
AS-12: Accounting for Government Grants
A Recognition
1. Has the enterprise received a grant

or is it likely to receive a grant?
2. Is the enterprise in a position to

comply with the conditions attached
to the Government Grant?
3. Has the grant been actually

received?
4. If yes, has the receipt of such grant

been recognised?
B Accounting
.
1 Government Grant related to
depreciable fixed assets.
a Alternative.1
i) Has the grant been

received against a
particular fixed asset?
ii) Has the grant so received

been shown as a deduction
from the gross value of
fixed asset?
91
iii) Does the deduction of the
grant from fixed asset
equal the whole of such
fixed asset? If so, has the
asset been shown in the
books at nominal value
after full deduction is
made?
b. Alternative 2
i) Has such grant against

fixed assets been treated
as deferred income?
ii) Has the deferred income

been recognized in the P &
L A/c?
iii) Has such deferred income

been allocated to the P & L
A/c on a systematic and
rational basis?
iv) Have such allocations

been made over the useful
life of the asset?
v) Have such allocations

been made in the
proportions in which
depreciation is charged?
vi) In respect of deferred

income balance, has it
been separately shown in
the Balance Sheet?
2 Have grants relating to non-

depreciable fixed assets been
credited to capital reserve?
3 Government Grants related to

Revenue.
92
a. Has the enterprise received
grants against any particular
expenditure to be incurred?
b. Have these grants been

received to compensate against
a particular expenditure?
c. Have the grants so received

been deducted from the
particular expenditure.
d. Have the grants received been

shown separately under other
income?
4 Government grants received as

promoters’ contribution.
a. Have the grants been received

as promoters’ contribution?
b. Have such grants been credited

to Capital reserve?
c. Have such grants been treated

as a part of shareholders’ fund?
5. Other Government Grants
a. Has any Government grant

been given in the form of a non-
monetary asset?.
b. Has non-monetary asset been

given at a confessional rate, and
accounted for on the basis of
their acquisition cost?
c. Has the non-monetary asset

been given free of cost?
d. Is documentary or other
evidence available?
93
e. Has the same been recorded as
compensation?
f. Has such compensation been

given for expenses or losses
incurred in the previous years?
g. Has such compensation been

given for lending immediate
financial support to the
enterprise?
h. Has such compensation

receivable been credited to the
P & L A/c/
i. Has such compensation which

has been credited, been
disclosed
C Contingencies
1 Has a grant become contingent after

it has been recognised?
2 Has proper disclosure of this

contingency been made in the
financial statements?
D Refund
1 Have the grants become

refundable? If yes, have the
conditions and circumstances been
identified?
2 Have the grants, which are

refundable, been accounted for as
an extraordinary them?
3 Has the refunded grant been

accounted as follows?
94
a. Grant relating to depreciable
fixed assets- debit to asset or
unamortised deferred income
and the balance to P & L A/c.
b. Grant relating to non-

depreciable fixed asset or in the
nature of promoters
contribution-debit to capital
reserve.
c. Others –charge to P & L A/c.
4. Has depreciation been charged on

revised value of fixed assets?
5. Has depreciation been provided

prospectively on such fixed assets.
E Disclosure
a. The accounting policy adopted

for Government grants,
including the methods of
presentation in the financial
statements;
b. The nature and extent of

Government grants recognised
in the financial statements,
including grants of non-
monetary assets given at a
concessional rate or free of cost.
AS-13: Accounting for Investments

A Classification of Investments
1 Has the enterprise classified

investments as current investments
and long term investment distinctly in
its financial statements?
95
2 Has further classification of current
and long-term investments as
specified by the statute governing the
enterprise been done? In the
absence of statutory requirements,
such further classification should
disclose, where applicable,
investment in:
a. Government or Trust securities;
b. Shares, debentures or bonds;
c. Investment properties;
d. Others-specifying nature.
3 Have investment properties been

classified as long-term investments?
B Cost of Investments
1 Does the cost of an investment

include acquisition charges such as
brokerage, fee and duties?
2 If an investment is acquired, or partly

acquired by the issue of shares or
other securities, is the acquisition
cost arrived at on the basis of the fair
value of the securities issued?
3 If an investment is acquired in
exchange for another asset, has the
acquisition cost of the investment
been determined by reference to the
fair value of the asset given up?
Alternatively, has the acquisition cost
of the investment been determined
with reference to the fair value of the
investment acquired it if is more
clearly evident?
C Carrying Amount of Investments
96
1. Have the investments classified as
current investments been carried in
the financial statements at the lower
of cost or fair value determined either
on an individual investment basis or
by category of investment, but not on
an overall (or global) basis?
2. Have the long-term investments been

carried in the financial statements at
cost? Has a provision for diminution
been made to recognise a decline,
other than temporary, in the value of
for each investment individually?
3. Have any reductions in the carrying

amount and any reversals of such
reductions been charged or credited
to the P & L A/c?
4. On disposal of an investment, has

the difference between the carrying
amount and net disposal proceeds
been charged or credited to the P & L
A/c?
5. Have the sale proceeds of ‘rights’ on

shares purchased on cum-rights
basis been credited to the cost of
investments?
D Disclosure

a. The accounting policies for

determination of carrying amount
of investments, and
b. Classification of investments as
specified in A1above;
c. The amounts included in P & L

A/c for:
97
i) Gross income by way of
interest, dividends (showing
separately dividends from
subsidiary companies), and
rentals on investments
showing separately such
income from long term and
current investments.
ii) Profits and Losses on

disposal of current
investments and changes in
the carrying amount of such
investments; and
iii) Profits and losses on

disposal of long term
investments and changes in
the carrying amount of such
investments;
d. Significant restrictions on the

right of ownership, realisability of
investment or the remittance of
income and proceeds of
disposal;
e. The aggregate amount of quoted

investments;
f. Other disclosure as specifically

required by the relevant statute
governing the enterprise.
AS-14: Accounting for Amalgamations

A Classification of Amalgamation
1. Has the scheme of amalgamation

been tested for all the following
conditions?
98
a. All the assets and liabilities of the
transferor Company become,
after amalgamation, the assets
and liabilities of the transferee
Company.
b. Shareholders holding not less

than 90% of the face value of the
equity shares of the transferor
Company (other than the equity
shares already held there in,
immediately before the
amalgamation, by the transferee
Company or its subsidiaries or
their nominees) become equity
shareholders of the transferee
Company by virtue of the
amalgamation.
c. The consideration for the

amalgamation receivable by
those equity shareholders of the
transferor Company who agree
to become equity shareholders of
the transferee Company is
discharged by the transferee
company, except that cash may
be paid in respect of any
fractional shares.
d. The business of the transferor

Company is intended to be
carried on, after the
amalgamation, by the transferee
Company.
e. No adjustment is intended to be
made to the book values of the
assets and liabilities of the
transferor Company except to
ensure uniformity of accounting
policies.
99
2 If the scheme of amalgamation does
not fulfill any or all of the five
conditions, has the amalgamation
been considered to be an
“amalgamation in the nature of
purchase”?
3. If the scheme fulfills all the five

conditions, has the amalgamation
been considered an “amalgamation
in the nature of merger”?
B The Pooling of interests Method
1. Has the pooling of interest method

been adopted for accounting of
amalgamation in the nature of
merger?
2. In preparing the transferee

Company’s financial statements,
have the assets, liabilities and
reserves (whether capital or revenue
arising on revaluation) of the
transferor Company been recorded at
their existing carrying amounts and in
the same form as at the date of the
amalgamation?
3. Has the balance of the P & L A/c of

the transferor Company been
aggregated with the corresponding
balance of the transferee Company
or transferred to the General
Reserve, if any?
4 It, at the time of the amalgamation,

the transferor and the transferee
companies have conflicting
accounting policies, has a uniform set
of accounting policies been adopted
following the amalgamation?
100
5 Has the difference between the
consideration and the amount of
share capital of the transferor
Company been adjusted in reserves?
C The Purchase Method
1 Has the purchase method been

adopted for accounting of
purchase?
2 In preparing the transferee

Company’s financial statements,
have the assets and liabilities of the
transferor Company been
incorporated at their fair values at the
date of amalgamation?
3 Have only statutory reserves been

included in the financial statements of
the transferee Company?
4 If there is a difference between total

consideration and net assets taken
over, has it been accounted as
‘Goodwill/Capital Reserve’?
5 If the statutory requirement regarding

a particular statutory reserve is yet to
be complied, has the debit been
given on ‘Amalgamation Adjustment
Account. If yes has it been disclosed,
under ‘Miscellaneous Expenditure in
the Balance Sheet?
D Others
1 In case the scheme provide for any

payment in future and if the payment
is probable, has the amount been
included in the ‘consideration’? In
other cases, where amounts are not
determinable have they been
recognised after being determinable?
101
2 Where the scheme of amalgamation
sanctioned under a statute prescribes
the treatment to be given to the
reserves of the transferor Company
after amalgamation, has the same
been followed in lieu of prescriptions
in this standard?
3 If the amalgamation has been

approved before issuance of financial
statements of either Transferor or
Transferee Company, has disclosure
been made as per AS-4?
E Disclosure

respect of all amalgamations during
the year?
a. Names and general nature of

business of the amalgamating
companies;
b. Effective date of amalgamation

for accounting purposes;
c. The method of accounting used

to reflect the amalgamation; and
d. Particulars of the scheme

sanctioned under a statute.
2 For amalgamations accounted for

under the pooling of interest’s
method, have the following additional
disclosures been made in the first
financial statements after
amalgamation?
a. Description and number of

shares issued, together with the
percentage of each Company’s
equity shares exchanged to
effect the amalgamation;
102
b. The amount of any difference
between the consideration and
the value of net identifiable
assets acquired, and the
treatment thereof.
3. For amalgamations accounted for

under the purchase method, have the
following additional disclosures been
made in the first financial statements
after amalgamation?
a. Consideration for the

amalgamation and a description
of the consideration paid or
continently payable; and
b. The amount of any difference

between the consideration and
the value of net identifiable
assets acquired, and the
treatment thereof including the
period of amortisation of any
goodwill arising on
amalgamation.
4 If the reserves have been dealt with

as per D 2 above has separate
disclosure been made?
AS-15: Accounting for Retirement Benefits in the Financial

Statements of Employers
A Applicability

standard has not been applied in
respect of those retirement benefits
for which the employer’s obligation
cannot be reasonably estimated, e.g.
ad hoc-ex-gratia payment made to
employees on retirement?
103
2 Does the enterprise have any benefit
plans for its employees? List them as
under and make a brief note of the
features.
a. Provident Fund
b. Superannuation pension
c. Gratuity
d. Leave encashment benefit on

retirement.
e. Post-retirement health and

welfare scheme.
f. Other retirement benefits.
3 Have the benefit plans been grouped

as either Defined Contribution
Scheme or Defined Benefit Scheme?
B Funding
1 Has a trust been created for making

contributions in respect of defined
Contribution Scheme?
2 Is there any shortfall or excess of

contribution as compared to the
amount payable?
3 Has the shortfall been accounted for

by means of a provision in the P & L
A/c? Has the excess of contribution
been treated as a pre-payment in the
Balance Sheet?
4 In case the liability for retirement

benefits is funded through creation of
a trust.
104
a. Has the contribution been made
on the basis of actuarial
valuation?
b. Has the actuarial valuation been

done at least once in three years,
if not done annually?
c. Does the actuary’s report specify

the amount to be contributed
during the inter valuation period?
d. Is there any shortfall or excess of

amount payable?
e. Where the contribution paid

during a year is lower than the
amount required to be
contributed during the year to
meet the accrued liability as
certified by the actuary, has the
shortfall been charged to the P &
L A/c for the year?
f. Where the contribution paid

during a year is in excess of the
certified by the actuary, has the
excess been treated as a pre-
payment?
5. In case the liability for retirement

benefits is funded through a scheme
administered by an insurer.
a. Has the employer made an

arrangement through an insurer
for payment of Defined Benefit
Scheme?
105
b. Has appropriate accrual of the
liability been made by the
employer?
c. Has the actuarial certificate or

confirmation been obtained from
the insurer?
d. Is there any shortfall or excess of

amount payable?
e. Where the contribution paid

during a year is lower than the
certified by the actuary or
confirmed by the insurer, has the
shortfall been charged to the P &
L A/c for the year?
f. Where the contribution paid

during a year is in excess of the
certified by the actuary or
confirmed by the insurer, has the
excess been treated as a pre
payment?
C Accounting Treatment
1. If the employer has chosen to make

payment for retirement benefits out of
own funds, has an appropriate
charge to the P 7 L A/c for the year
been made through a provision for
the accruing liability?
106
2. Has the accruing liability been
calculated on the basis of actuarial
valuation or any other rational
method? (e.g. method based on the
assumption that such benefits are
payable to all employees at the end
of the accounting year)
D Alterations
1. Is there any alteration of a retirement

benefit scheme, or an improvement
to an existing scheme?
2. Is there any change in actuarial

valuation method or assumption
adopted? If yes, have AS-5 & AS-1
been compiled with?
3. If any additional benefit has arisen to

employees, have the costs been
accounted for as specified above?
E Disclosures
1. Have the following been disclosed?
a. Method of determining retirement

cost for the period.
b. Actuarial valuation method used

for determining retirement
benefits under the Defined
Benefit Scheme.
c. In case the costs related to

gratuity and other defined benefit
schemes are based on an
actuarial valuation, whether the
actuarial valuation was made at
the end of the period or at an
earlier date. (disclose date).
107
d. If any other method has been
applied, has it been appropriately
described?
AS-16: Borrowing Costs

A Capitalisation
.
1 Has the enterprise incurred
Borrowing Costs (BC) during the
period?
2 If yes, is the BC directly attributable

to the acquisition, construction or
production of a Qualifying Asset
(QA)?
3 Have the following been excluded

from QA?
a. Inventories that are routinely

manufactured.
b. Inventories that are produced in

large quantities on a repetitive
basis over a short period of time.
c. Assets that are ready for their

intended use or for sale when
acquired.
4. If BC is not attributable to QA, has

the BC been expensed?
5. If BC is attributable to QA, have the

following condition been satisfied?
a. The QA will result in future

economic benefits to the
organisation.
b. The BC can be measured

reliably.
108
c. Expenditure for the acquisition,
construction or production of a
QA is being incurred.
d. BC is being incurred.
e. Activities that are necessary to

prepare the QA for its intended
use or sale are in progress.
6. If the answer to the above conditions

is yes, has BC been capitalised?
B Measurement
.
1. Has the enterprise borrowed funds
specifically for the purpose of
obtaining a particular QA?
2. If yes, has the entire actual amount of

specific BC from the date of
borrowing, reduced by the income on
temporary investments, been
capitalised?
3. If no, are the BC such that they are

not readily identifiable with a specific
QA?
4. If yes, has the amount of BC to be

capitalised been determined by
applying a capitalisation rate to the
expenditure on that asset?
5. Has it been ensured that the amount

of BC capitalised during the period
does not exceed the amount of BC
incurred during the period?
C Suspension of Capitalisation
1 Have the activities necessary to

prepare an asset for its intended use
or sale been interrupted for extended
periods?
109
2 Is the suspension avoidable or
unavoidable?
3 If avoidable, has capitalization of BC

been suspended during that period?
D Cessation of Capitalisation
1. Are substantially all the activities

necessary to complete the QA for its
intended use or sale complete?
2. If yes, has capitalization of BC

ceased?
3. Is the QA such that it is completed in

parts and a completed part is capable
of being used while construction
continues for other parts?
4. If yes, have substantially all the

activities necessary to prepare that
part of its intended sale or use been
completed?
5. If yes, has capitalisation of BC

ceased in relation to that part?
E Disclosure
.
1. Has disclosure been made of the
following?
a. Accounting policy adopted for BC
b. Amount of BC capitalised during

the period.
110
AS-17: Segment Reporting
A Segments
1 Have the business segments and

geographical segments been
identified on the basis of best
evidence of internal organisational
and management structure and
system of internal reporting to Board
of Directors and CEO?
2 Are the business segments identified

above based on the following
factors?
a. The nature of the products or

services.
b. The nature of the production

processes
c. The type or class of customers

for the products or services.
d. The methods used to distribute

the products or provide the
services.
e. If applicable, the nature of the

regulatory environment, for
example, banking, insurance, or
public utilities.
3. Are the geographical segments

identified above based on the
following factors?
a. Similarly of economic and

political conditions.
b. Relationships between
operations in different
geographical areas.
111
c. Proximity of operations.
d. Special risks associated with

operations in a particular area.
e. Exchange control regulations.
f. The underlying currency risks.
4. Are the risks and returns of the

enterprise affected predominantly by
differences in the products and
services produced?
5. If yes, have business segments been

chosen for primary reporting?
6. If yes, has secondary reporting been

applied to geographical segments?
7. Alternatively, are the risks and

returns of the enterprise affected
predominantly by operations in
different countries or other
geographical assets?
8. If yes, have geographical segments

been chosen for primary reporting?
9. If yes, has secondary reporting been

applied to business segments?
10 Are the risks and returns of the

enterprise affected both by
differences in the products and in the
geographical areas in which it
operates?
11 If yes, have business segments been

chosen for primary reporting and
secondary reporting applied to
geographical segments?
112
12 Is the internal organisation and
management structure of the
enterprise and its system of internal
reporting to Board of directors and
CEO based neither on industrial
products or services nor on
geographical areas?
13 If yes, has a choice been made of

primary reporting segments based on
judgement?
B Identification of Reportable segments:
1 Have reportable Segments been

identified as either business or
geographical segments based on the
following tests?
a. 10% Revenue Test
b. 10% Result Test
c. 10% Asset Test
2 Has management chosen any

segment, not fulfilling the 10%
criteria, as a reportable segment?
3 Does the external revenue

attributable to the reportable
segments identified above constitute
at least 75% or more of total external
revenue?
4 If the answer to the above is no, have

additional segments been identified
for reporting until the 75% thre shold
make is reached even though the
10% criteria is not fulfilled?
5 Have the business/geographical

segments that are not reportable
segments been included as an
unallocated reconciliation item?
113
C Comparability
1. Has it been ensured that a segment

identified as a reportable segment
based on 10% criteria in the
immediate preceding period
continues as a reportable segment
for the current period even if it does
not satisfy the 10% threshold in the
current period?
2. Has it been ensured that if a segment

is identified as a reportable segment
in the current period the preceding
period segment date has been
related (unless impracticable) to
reflect the newly reportable segment?
D Operating Definitions
.
1. Have the monetary values been
derived in respect of the following
items as defined in the standard?
a. Segment revenue
b. Segment expenses
c. Segment result
d. Segment assets
e. Segment liabilities
2 Has the segment report been

prepared by applying the segment
accounting policies which comprise
the accounting policies adopted for
preparing and presenting the
financial statements of the enterprise
as well as those accounting policies
that relate specifically to segment
reporting.
E Primary Reporting Format
114
provided in respect of every
reportable segment chosen for
primary reporting.
a. Segment revenue, classified into

segment revenue from sales to
external customers and segment
revenue from transactions with
other segments
b. Segment result
c. Total carrying amount of

segment assets
d. Total amount of segment

liabilities
e. Total cost incurred during the

period to acquire segment assets
that are expected to be used
during more than one period
(tangible and intangible fixed
assets).
f. Total amount of depreciation

included in the segment result in
respect of segment assets for the
period, and
g. Total amount of significant non-

cash expenses, other than
depreciation and amortisation in
respect of segment assets, that
was included in segment
expense and, therefore,
deducted in measuring segment
result.
2 Has a reconciliation between the

information disclosed for reportable
segments and the aggregated
financial information in the financial
statements been presented?
115
F Secondary Reporting Format

provided in respect of every
reportable segment chosen for
secondary reporting?
a. Segment revenue.
b. Total carrying amount of

segment assets.
c. Total cost incurred during the

that are expected to be used in
more than one period (Capital
expenditure).
2. Have geographical segments been

classified b y the following criteria?
a. Location of Assets
b. Location of customers
3. If yes, primary format of geographical

segments based on location of
customers?
4. If yes, has the following been

disclosed in secondary reporting
format?
a. Total carrying amount of

segment assets by location of
assets.
b. Total cost incurred during the

that are expected to be used in
more than one period (Capital
expenditure).
G Consolidated Financial Statements (CFS)
116
1. If CFA is prepared, has segment
report been prepared, at the
minimum, on the basis of CFA?
AS-18: Related party Disclosures
A Applicability
1. Is the enterprise a Level 1

enterprise?
B Related Party Relationships and

transactions
1 Has a list of Related Parties in each

of the following relationships been
prepared?
a. Enterprises that directly, or

indirectly through one or more
intermediaries, control, or are
controlled by, or are under
common control with, the
reporting enterprise (this includes
holding companies, subsidiaries
and fellow subsidiaries).
b. Associates and joint ventures of

the reporting enterprise and the
investing party or venturer in
respect of which the reporting
enterprise is an associate or a
joint venture.
c. Individuals owning, directly or

indirectly, an interest in the voting
power of the reporting enterprise
that gives them control or
significant influence over the
enterprise, and relatives of any
such individual.
117
d. Key management personnel and
relatives of such personnel; and
e. Enterprises over which any

person described in © or (d) is
able to exercise significant
influence. This includes
enterprises owned by directors or
major shareholders of the
reporting enterprise and
enterprises that have a member
of key management in common
with the reporting enterprise.
2. Have the related party transactions,

which are a transfer of resources or
obligations between related parties,
regardless of whether or not a price
is charged, been ascertained?
C Disclosure
1 Does the element of “Control” exist in

the related party relationship listed
above?
2 If yes, have the following been

disclosed, irrespective of whether or
not there have been transactions
during the year?
a. Name of Related Party
b. Nature of Related Party

relationship
3 Have the following types of

transactions been disclosed?
4 Have the following types of

transactions been disclosed?
a. Purchase or sales of goods

(finished or unfinished)
118
b. Purchases or sales of fixed
assets.
c. Rendering or receiving of
services
d. Agency arrangements
e. Leasing or hire purchase

arrangements
f. Transfer of research and

development
g. License agreements.

respect of every such transaction?
a. The name of the transacting

related party.
b. A description of the relationship

between the parties.
c. A description of the nature of

transactions.
d. Volume of the transactions either

as an amount or as an
appropriate proportion.
e. Any other elements of the related

party transactions necessary for
an understanding of the financial
statements.
f. 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 parties at that date.
119
g. Amounts written off or written
back in the period in respect of
debts due from or to related
parties.
Note:
a. Items of a similar nature may be
disclosed in aggregate by type of
related party.
b. Exceptions to disclosure:
i) No disclosure is required
where providing such
disclosures would conflict
with the Reporting
Enterprises duties of
confidentiality as specifically
required in terms of a
statute or by any regulator
or similar competent
authority.
ii) No disclosure is required in

consolidated financial
statements in respect of
inter-group transactions.
iii) No disclosure is required in

the financial statements of
state-controlled enterprises
as regards related party
relationships with other
state-controlled enterprises
and transactions with such
enterprises
AS-19: Accounting for Leases

A In the books of lessee
1. Finance Lease
120
a. Has the lease been recognised
as an asset and a liability
immediately at the inception of
the lease at the lower of the fair
value of the leased asset or the
present value (PV) of the
minimum lease payment (MLP)
from the standpoint of the
lessee?
b. Has the initial direct cost if any

been capitalised?
c. Have the lease payments been

apportioned between the finance
charge and reduction of
outstanding liability by allocating
the finance charge to periods
during the lease term so as to
produce a constant periodic rate
of interest on the remaining
balance of the liability for each
period?
d. Is the provision for depreciation

made in the books of the lessee
in consonance with the
depreciation on owned assets?
e. Where there is not reasonable

certainly that the lessee will
obtain ownership by the end of
the lease term has the asset
been fully depreciated over the
lease term or its useful life
whichever is shorter?
f. Have the assets acquired under

finance lease been segregated
from the assets owned?
g. Have contingent rents been

recognized as expense in P & L
A/c?
121
h. Disclosure
i) Has the net carrying amount

for each class of assets
been disclosed as a
Balance Sheet date?
ii) Has a reconciliation

between the total of MLP at
their PV been made and
disclosed property?
iii) Has the total of the MLPs at

their PV been disclosed in
categories of
a) Less than One year
b) Between one to five

years
c) Greater than five years
iv) Has the total of future

minimum sub-lease
payments expected to be
received under non-
cancelable subleases been
disclosed?
v) Has a general description of

the lessee’s significant
leasing arrangement been
disclosed?
2. Opening lease
122
a. Are the lease payments
recognised as expenses in the P
& L A/c on a straight-line basis
over the term of the lease unless
another systematic basis is more
representative of the time pattern
of the user’s benefit?
b. Have the following disclosures

made?
i) The total of future MLP

under non-cancelable
operating leases for the
periods.

years
ii) The total of future minimum

payments expected to be
received under non-
cancelable subleases.
iii) Lease payments recognised

in P & L a/c with separate a
amounts for MLPs and
contingent rent.
iv) Sub-Lease payments

receivable recognised in the
P & L A/c for the period.
v) A general description of the

lessee’s significant terms.
B In the books of lessor
1. Finance lease
123
a. Has the Net investment in lease
been accounted for as
receivables at inception of lease.
b. Has the finance income been

recognised based on a pattern
reflecting a constant periodic rate
of return on net investment
outstanding in respect of finance
lease?
c. Have the lease payments of the

accounting period excluding cost
of services been reduced from
both principal and unearned
finance income?
d. Have the estimated

unguaranteed residual values
used in computing the lessor’s
gross investment in a lease been
reviewed regularly?
e. If there has been a reduction in

the unguaranteed residual value,
has the allocation over the
remaining lease period been
reversed and the reduction in
respect of amounts already
accrued recognised
immediately?
f. Have initial direct costs been

either expensed or immediately
allocated against the finance
income over the term of the
lease?
In case of Manufacturer lessor
g. Has the income steam been

segregated on the following
basis?
i) Profit or loss resulting from

an outright sale of asset
124
being leased at normal
selling prices reflecting any
applicable volume or trade
discounts and finance
income over the lease term.
ii) In a transaction of sale, is

the selling profit recognised
in accordance with
enterprise’s policy for
outright sale?
h. At the commencement of lease

term has the lessor recorded the
sale revenue at the fair value of
the asset?
i. However if PV of MLPs accruing

to the lessor computed at the
commercial rate of interest is
lower than the fair value, is the
amount recorded as sales
revenue equal to the PV?
j. If artificially low rates of interest

are quoted, is profit on sale
restricted to that amount which
would apply if a commercial rate
of interest were charged?
k. Have the following been

disclosed in the books of the
lessor.
l. Reconciliation between the total

gross investment in lease and
the PV of the MLP receivable at
the Balance Sheet date.
i) Reconciliation between the

total gross investment in
lease and the PV of the
MLP receivable at the
Balance Sheet date.
ii) The total gross investment
125
in the lease and the PV of
MLP receivable for each of
the following period
categories (i.e.)
a Less than One year

)
b Between one to five
) years
c Greater than five years

)
iii) Unearned Finance Income
iv) The unguaranteed residual

values accruing to the
benefit of the lessor.
v) The accumulated provision

for uncollectible MLP
receivable.
vi) Contingent rent

recognised.
vii) A general description of the

significant leasing
arrangements of the lessor.
viii) Accounting Policy in

respect of initial direct
costs.
2. Operating Lease
a. Are the assets given under

operating lease disclosed under
fixed assets?
b. Is the lease income recognised

on SLM basis over the lease
term unless another systematic
basis is more representatives?
126
c. Has the depreciation been
provided on the basis of life of
the asset.
d. Have the initial direct costs been

expensed when incurred or
deferred and allocated to income
over the lease term in proportion
to the recognition of rent income?
e. Have the following disclosure

been made.
i) The gross carrying amount,

the accumulated
depreciation and
accumulated impairment
losses at the Balance Sheet
date for each class of
assets.
ii) The depreciation

recognised in the P & L A/c
for the period.
iii) The impairment loss

recognise/reversed in the P
& L A/c for the period.
iv) The future MLP under non-

cancelable operating lease
in the aggregate and for
each of the following period
categories.

years
v) The total contingent rents

recognized as income.
127
vi) A general description of the
lessor’s significant leasing
arrangement s.
vii) Accounting Policy adopted

in respect of initial direct
costs.’
AS-20: Earning Per Share
A Basic Earnings per Share-BEPS

.
1. Has net profit or loss for the period
been arrived at after deducting the
following?
a. Tax expense
b. Preference Dividend
i) On non-cumulative
preference shares-the
preference dividend
provided for in respect of
the period” and
ii) On cumulative preference

shares – the preference
dividends for the period
whether or not the dividends
have been provided for.
2. Does the net profit or loss include the

following?
a. Extraordinary items
b. Prior period items.
128
3. If the enterprise has more than one
class of equity shares, has net profit
or loss for the period been
apportioned over different classes of
shares in accordance with their
dividend rights?
4. Has the Weighted Average Number

of Equity Shares (WANES)
outstanding during the period been
computed as the number of equity
shares outstanding at the beginning
of the period, adjusted by the number
of equity shares bought back or
issued during the period multiplied by
the time weighting factor?
5. Have shares been included in

WANES from the date the
consideration is receivable?
6 Have equity shares issued as part of

consideration I amalgamation in the
nature of purchase been included in
WANES as of the date of acquisition?
7. Have equity shares issued as part of

consideration in amalgamation in the
nature of merger been included in
WANES from the beginning of
reporting period?
8. Have party paid equity shares been

treated as a fraction of an equity
share to the extent they were entitled
to participate in dividends relative to
a fully paid equity share?
9. Have equity share of different

nominal values but same dividend
rights been converted into equivalent
shares of same nominal value?
129
10 Have continently issuable shares
been included from the date when all
necessary conditions under the
contract have been satisfied.
11 Has it been ensured that in

computing WANES, events given
below, that have changed the
number of equity shares outstanding
without a corresponding change in
resources been adjusted?
a. A bonus issue
b. A bonus element in any other

issue, for example a bonus
element in a rights issue to
existing shareholders.
c. A share split; and
d. A reverse share split

(consolidation of shares).
12 Has the BEPS been computed by

. dividing the net profit or loss for the
period attributable to equity
shareholders by the WANE
outstanding during the period?
B Diluted Earnings Per Share (DEPS)

.
1. Does the enterprise have any of the
potential equity shares (PES) listed
below?
a. Debt instruments or preference

shares, that are convertible into
equity shares;
b. Share warrants;
130
c. Options including employees
stock option under which
employees of an enterprise are
entitled to receive equity shares
as part of their remuneration and
other similar plans; and
d. Contingently issuable shares.
2. Have PES been treated as dilutive

when and only when their conversion
to equity shares would decrease net
profit per share from continuing
ordinary operations?
3. Has the effect of anti-dilutive PES

been ignored?
4. Have PES been weighted for the

period that they were outstanding?
5. Has the net profit or loss for the

period attributable to the equity
shareholders been adjusted in
respect of the following pertaining to
PES after adjusting for tax expense?
a. Dividends
b. Interest
c. Any other changes in expenses

or income.
6 Have the number of equity shares

been computed as the aggregate of
WANES considered for PEPS as also
WANES which would be issued on
the conversion of all Dilutive PES into
equity shares?
131
7. Have dilutive PES been deemed to
have been converted into equity
shares at the beginning of the period
or if issued later, the date of the issue
of the PES.
8. Has the number of equity shares,

which would be issued on the
conversion of dilutive PES, bee
determined from the terms of the
PES?
9. Does the above computation assume

the most advantageous conversion
rate or exercise price from the
standpoint of the holder of the PES?
10 Has the exercise of dilutive options

and other dilutive PES of the
enterprise been correctly assumed?
11 Have the assumed proceeds been

considered to have been received
from the issue of shares on exercise
of options at fair value?
12 Has the difference between number

of shares issuable and the number of
shares that would have been issued
at fair value been treated as an issue
of equity shares for no consideration?
13 Has the DEPS been computed by

dividing the earnings/loss-diluted for
the period by the number of shares
computed as above?
C Presentation
1 Have PEPS and DEPS been

presented for each class of equity
shares that has a different right to
share in the net profit for the period?
132
2 Have BEPS and DEPS been
presented on the face of the P & L:
A/c in the case of listed companies?

presented with equal prominence for
all periods presented?

disclosed, even if the amounts are
negative?
5 Does the enterprise prepare

Consolidated Financial Statements of
the group?
6 Has the information required by the

statement been presented in the
Consolidated Financial Statements
on the basis of consolidated
information?
D Restatement
1 Have any changes taken place in the

number of equity or potential equity
shares on account of Bonus issue,
Share split, reverse share split
between the Balance sheet date and
the date on which the financial
statements are approved by the
Board of Directors?
2 If yes, have the per share

calculations for those financial
statements and any prior period
financial statements presented been
based on the new number of shares?
133
3 Have any changes of the following
nature taken place in the number of
equity shares of PES other than on
account of Bonus issue. Share split,
reverse share split between the
Balance Sheet date and the date on
which the financial statements are
approved by the Board of Directors,
which are of such importance that
non-disclosure would affect the ability
of the users of financial statements to
make proper evaluation and
decisions?
a. The issue of shares for cash.
b. The issue of shares when the

proceeds are used to repay debt
or preference shares outstanding
at the Balance Sheet date.
c. The cancellation of equity shares

outstanding at the Balance Sheet
date.
d. The conversion of exercise of

PES, outstanding at the Balance
Sheet date, into equity shares.
e. The issue of warrants, options or

convertible securities.
f. The satisfaction of conditions that

would result in the issue of
Contingently issuable shares.
4. If yes, has a description of such

transactions been included in the
5. Has the entity opted for these

recommendatory disclosures?
E Disclosure
.
134
a. The amounts used as the

numerators in calculating BEPS
and DEPS, and a reconciliation
of those amounts to the net profit
or loss for the period.
b. The WANES used as the

denominator in calculating BEPS
and DEPS, and a reconciliation
of these denominators to each
other.
c. The nominal value of shares

along with the earnings per share
figures.
d. The fact that per share

calculations reflect changes in
the number of shares as
described in ‘Restatement’
above.
e. Items and conditions of contracts

generating PES which affect the
measurement of BEPS and
DEPS.
2 Has the following recommendatory

disclosure been adopted by the
entity?
Other per share amounts for various

components of net profits, which may
help the users to evaluate the
performance of the enterprise e.g.
profit from ordinary activities.
135
AS – 21: Consolidated Financial Statements
A Coverage
1. Has a list of entities over which the

parent exercises control been
prepared?
2. Is the objective of the control of the

entities to obtain economic benefits
from their activities.
3. Have Consolidated Financial

Statements (CFS) been presented
including all the entities over which
the enterprise exercises control?
4. If no, has it been ensured that the

following conditions/situations do not
exist for such excluded subsidiaries?
a. Control is intended to be
temporary because the
subsidiary is acquired and held
exclusively with a view to its
subsequent disposal in the near
future: or
b. Subsidiary operates under

severe long- term restrictions,
which significantly impair its
ability to transfer funds to its
parent.
B Consolidation Procedures
1. Have the following consolidation

procedures been compiled with?
a. Line by line addition of like items

of assets, liabilities, income and
expenses.
136
b. Identification and elimination of
cost of investment off the
enterprise in each subsidiary and
portion of equity of each
subsidiary, at the date on which
investment in each subsidiary is
made.
c. Recognition of difference of cost

of investment over portion of
equity as goodwill or capital
reserve in the CFS.
d. Identification and adjustment of

minority interest in the net
income of consolidated
subsidiaries.
e. Identification and presentation of

minority interest in the net assets
of consolidated subsidiaries,
consisting of.
i) Amount of equity
attributable to minorities at
the date on which
investment is made.
ii) Minorities’ share of

movements in equity since
the date the parent
subsidiary relationship
came into existence.
f. Elimination of intra group

balances and intra group
transactions and resulting
unrealised profit in full.
g. Elimination of unrealised losses

resulting from intra group
transactions (unless cost cannot
be recovered).
137
h. Set off of goodwill and capital
reserve arising on consolidation
of more than one subsidiary.
2. Do losses applicable to the minority

in a consolidated subsidiary exceed
the minority interest in equity of the
subsidiary?
3. If yes, has such excess been

adjusted against the controlling
auditee’s interest except to the extent
that minority has a binding obligation
to make good the losses?
4. Does any subsidiary have

outstanding cumulative preference
shares held outside the group?
5. If yes, has the share of profits/losses

been computed after adjusting for the
subsidiaries preference dividend,
whether or not dividends have been
declared?
6. Is the carrying amount of the

subsidiary in the books different from
its cost?
7. If yes, has the carrying amount been

considered for the purpose of the
above computations?
8. Are financial statements of the

subsidiary as on the date of
investment in the subsidiary
available?
9. Are financial statements of the

subsidiary as on the date of
investment in the subsidiary
available?
138
10 If no, have the financial statements of
the subsidiary for the immediately
preceding period been used as a
basis for consolidation?
11 If yes, have the effects of significant

transactions or other events that
occur between the date of such
financial statements and the date of
investment in such subsidiaries been
adjusted?
12 Has the enterprise made two or more

investments in the subsidiary at
different dates?
13 If yes, was the control eventually

obtained?
14 If yes, has CFS been presented only

from the date on which parent-
subsidiary relationship came into
existence?
15 Has the equity of the subsidiary as on

the date of investment been
determined on a step-by-step basis?
16 Does the reporting date of any

subsidiary vary with the Parent’s
reporting date?
17 If no, have financial statements of

such subsidiaries to the parent’s
reporting date?
18 If no have financial statements drawn

up to different reporting dates been
consolidated?

occur between those dates and the
date of the parent’s financial
statements been adjusted?
139
20 Have the CFS been prepared using
uniform accounting policies for like
transactions and other events in
similar circumstances?
21 Has the auditee disposed of the

whole or any part of investment in
any subsidiary?
22 If yes, has the disposal resulted in

the cessation of parent-subsidiary
relationship?

ensured?
a. Inclusion of results of operations

of the subsidiary until the date of
cessation of relationship.
b. Recognition of profit or loss on

disposal of investment in
subsidiary in the consolidated P
& L A/c.
c. If the whole of the investment in

the subsidiary has not been
disposed, is accounting for the
remaining investment in
accordance with AS 13/AS 23?
24 Have other Ass (including AS 17 on

Segment reporting) been applied in
the preparation of CFS as they apply
to separate financial statements?
C Disclosure

the CFS?
a. A complete description of
subsidiaries e.g. name, country
of incorporation or residence,
proportion of ownership interest.
140
b. Where applicable:
i) Relationship between
parent and subsidiary, if the
parent does not own,
directly or indirectly through
subsidiaries, more than
one-half of the voting power
of the subsidiary.
ii) The effect of the acquisition

and disposal of subsidiaries
on the financial position at
the reporting date, the
results for the reporting
period and on the
corresponding amounts for
the preceding period; and
iii) The names of the subsidiary

(ies) of which reporting date
(s) is/are different from that
of the parent and the
difference in reporting
dates.
c. Differences in accounting policies

followed in preparing the CFS,
and the proportions of the items
to which such accounting policies
have been applied.
d. Minority interests separately from

liabilities and the equity of the
parent’s shareholders and
minority interests in the income
of the group.
e. Comparative figures for previous

period.
f. Gross amount of Goodwill and

Capital reserve arising on
acquisition of various
subsidiaries.
141
g. Reasons for not including any
subsidiary for consolidation.
2. In preparing CFS, have the following

principles been observed in respect
of notes and other explanatory
material that form an integral part
thereof?
a. Notes that are necessary for

presenting a true and fair view of
the CFS should be included.
b. Only the notes involving items

which are material need to be
disclosed.
c. Additional statutory information

disclosed in separate financial
statements of the subsidiary or
parent having no bearing on the
true and fair view of CFS need
not be disclosed.
AS-22: Accounting for Taxes on Income

A Application
1. Has AS 22 been implemented in

determination of the amount of
expense or saving related to taxes on
income in respect of this accounting
period?
2. Have all domestic and foreign taxes,

which are based on taxable income,
been included in taxes on income?
B Recognition and Measurement
1. Has the accounting income been

arrived at without including tax saving
or expense?
142
2. Has taxable income been computed
in accordance with the prevailing tax
laws?
3 Has the current tax been computed

for the period?
4 Are there differences between

accounting income and taxable
income?
5 If yes, have the differences been

classified as Permanent. Differences
and Timing Differences?
6 Does the enterprise have any

unabsorbed depreciation and carry
forward of business losses?
7 Has deferred tax been measured for

all timing differences?
8 Has deferred tax asset/liability been

measured using the tax rates and tax
laws that have been enacted or
substantively enacted by the Balance
Sheet date?
9 DO different tax rates apply to

different levels of taxable income of
the enterprise?
10 If yes, have deferred tax

assets/liabilities been measured
using average rates?
C Recognition of Deferred tax Assets-

Prudence.
143
1 Has deferred tax Assets been
recognised on timing differences
other than unabsorbed depreciation
and carry forward of business losses
subject to reasonable certainly that
sufficient future taxable income will
be available against which such
deferred tax assets can be realised?
2 Is there “virtual certainty” that

adequate taxable income will be
available in future for set off of
unabsorbed depreciation and
business loss carried forward?
3 Have previously unrecognised

deferred tax assets now been
recognised, to the extent that they
have become reasonably certain or
virtually certain, as the case may be,
that sufficient future taxable income
will be available against which such
4 Has the carrying amount of deferred

tax assets been written down to the
extent that it is no longer reasonably
certain or virtually certain, as the
case may, that sufficient future
taxable income will be available
against which such deferred tax
assets can be realised?
5. Has an earlier write down been

reversed to the extent that it
becomes reasonably certain or
virtually certain, as the case may be,
that sufficient future taxable income
will be available against which such
D Others
144
1 Has it been ensured that deferred tax
asset/liability has not been
discounted to its Present Value?
2 Has tax expense been included in the

P & L A/c
3 Has an asset or liability representing

Current Tax been offset, if and only if
the following conditions have been
satisfied?
a. The enterprise has a legally

enforceable right to set off assets
against liabilities representing
current tax and
b. The deferred tax assets and the

deterred tax liabilities relate to
taxes on income levied by the
same governing taxation laws.
4 Have deferred tax assets or liabilities

been offset if and only if the following
conditions have been satisfied?
a. The enterprises has a legally

enforceable right to set off assets
against liabilities representing
current tax and.
b. The deferred tax assets and the

deferred tax liabilities relate to
taxes on income levied by the
same governing taxation laws.
5 In respect of the following have the

prescriptions of AS Interpretations
been followed?
a. AS 13-Section 801A and 80 IB of

Income Tax Act.
b. AS 14-Section 10A and 10B of

Income Tax Act.
145
c. AS 16-Section 115JB of Income
Tax Act (MAT)
d. AS 18-Guidance for determining

“Virtual Certainty”
E Disclosure
1 Has Deferred Tax Asset/Liability

been disclosed as follows?
a. Deferred tax liability-After

Unsecured Loans.
b. Deferred tax asset-After

Investments.
2 Has disclosure been made of the

break up of Deferred Tax Assets/
Liabilities into major components of
respective balances in the Balance
Sheet notes to accounts schedules?

nature of convincing evidence
supporting the recognition of
Deferred Tax Asset in respect of
unabsorbed depreciation or carry
forward of losses?
AS-23: Accounting for Investments in Associates in

Consolidated Financial Statements
A Applicability
1 Does the enterprise prepare and

present Consolidated Financial
Statements (CFS)?
2 Has a list of enterprises over which

the enterprise exercises significant
influence been prepared?
146
3 Has it been ensured that PES of the
investee held by the enterprise have
not been taken into account to
determine voting power?
4 Have the associates been identified

after ascertaining that the following
conditions have been satisfied?
a. The investment is not acquired

and held exclusively with a view
to its subsequent disposal in the
near future.
b. The associate does not operate

under severe long-term
restrictions that significantly
impair its ability to transfer funds
to the investor.
5. If yes, has the investment in the

associate been recognised as per the
provisions of AS 23?
B Application of the Equity Method of

Accounting.
1. Has goodwill/capital reserve been

computed on the investment in an
associate as the difference between
the cost of acquisition and the
investor’s share of the equity of the
associate?
2. Has the goodwill/capital reserve

computed above been included in the
carrying amount of the investment in
the associate?
3. Has the goodwill/capital reserve

appearing in the CFS prepared by
the associate been included in the
net assets of the associate?
147
4. Has the investing enterprise share of
operating results of the associate
from the date of acquisition been
included in the carrying amount of the
investment?
5. Has the gross share of profit/loss as

above been credited/debited to
Consolidated P & L A/c?
6. Have the distributions received from

the associate been reduced from the
carrying amount of investment?
7. Has it been ensure that the dividend

proposed in the financial statements
of the associate has not been taken
into account in computing the
investing enterprises’ share of
results.
8. Have the changes in equity not

included in the P & L A/c of the
associate (e.g. revaluation profits)
been directly adjusted in the carrying
amount of investment without routing
it through the P & L A/c and has the
corresponding debit/credit been
made in and disclosed in the relevant
head of equity interest in the
Consolidated Balance Sheet?
9. Has the appropriation to mandatory

reserves been included in the results
of the associate?
10 Has the associate made an operating

loss? Does the share of loss exceed
the value of the investment?
11 If yes, has the adjustment of share of

loss been limited to the value of the
investment?
148
12 If the associate has uncalled capital,
has the excess loss been recognised
only to the extent of unpaid capital, if
any?
13 Have the unrealised profits and

losses resulting from transactions
between the reporting enterprise and
the consolidated subsidiaries and the
associate to the extent of the
investor’s interest in the associate
been a eliminated?
14 If the enterprise made two or more

investments in the associate at
different dates, was the significant
influence eventually obtained?
15 If yes, has it been ensured that CFS

are presented by applying equity
method for investment in associate
only from the date of which investor-
associate relationship comes into
existence?
16 Has the equity of the associate as on

the date of investment been
determined on a step-by-step basis?
17 Does the reporting date of any

associate vary with the reporting
enterprises’ reporting date?
18 If yes, is it practicable to draw up the

financial statements of such
associates to the reporting date of
the reporting enterprise?
19 If no, have financial statements

drawn up to different reporting dates
been consolidated?
149
occur between those dates and the
date of the parent’s financial
statements been adjusted?
21 Does the associate use accounting

policies other than those adopted in
CFS? If yes, have appropriate
adjustments been made to its
financial statements before
consolidation?
22 If any associate has outstanding

cumulative preference shares held
outside the group has the investing
enterprises share of profits/losses
been computed after adjusting for the
associate’s preference dividend
whether or not dividends have been
declared?
C Discontinuation of the use of Equity

method
1 Has the enterprise ceased to have

significant influence in an associate?
2 If yes, has it retained the whole or

any part of its investment?
3 If yes, have the investments in such

associates been accounted for in
accordance with AS 13 as the case
may be?
4 If any associate has begun to operate

under severe long-term restrictions
that significantly impair its ability to
transfer funds have the investments
in such associates have been
accounted for in accordance with AS
13, with carrying amount of
investment at that date being
regarded as cost thereafter?
150
D Disclosure

following?
a. An appropriate listing and

description of associates
including the proportion of
ownership interest and, if
different, the proportion of voting
power held.
b. Investor’s share of Profit/Loss in

the Consolidated P & L Account.
c. Investor’s share of
extraordinary/prior period items.
d. The name(s) of the associate(s)

of which reporting date(s) is/are
different from that of the financial
statements of an investor and the
differences in reporting dates.
e. In case an associate uses

accounting policies other than
those adopted for the CFS for
like transactions and events in
similar circumstances and it is
not practicable to make
appropriate adjustments to the
associate’s financial statements,
such fact, along with a brief
description of the differences in
the accounting policies.
f. Goodwill or capital reserve

arising on the acquisition of an
associate.
g. If the investment in associate has

not been accounted for in
accordance with the equity
method, the reasons for the
same.
151
h. Investor’s share of the
contingencies and capital
commitments of an associate for
which it is also continently liable.
i. Contingencies that arise because

the investor is severally liable for
the liabilities of the associate.
j. Carrying amount of investments

in associates classified as long-
term investments in separate
Financial Statements.
AS – 24: Discontinuing Operations

A Applicability
1 Does the enterprise have

discontinuing operations as defined
in AS-24?
2 Has AS-24 been applied in reporting

information about Discontinuing
Operations?
3 Has the enterprise ensured that none

of the following has been classified
as a discontinuing operation
individually?
a. Gradual or evolutionary phasing

out of a product line or class of
service.
b. Discontinuing, even if relatively

abruptly, several products within
an on going line of business;
c. Shifting of some production or

marketing activities for a
particular line of business from
one location to another; and
152
d. Closing of a facility to achieve
productivity improvements or
other cost savings.
B Initial Disclosure Event

.
1 Has the enterprise entered into a
binding sale agreement for
substantially all of the assets
attributable to the discontinuing
operation?
2 Has the enterprise’s Board of

Directors or similar governing body
done the following?
a. Approved a detailed, formal plan

for the discontinuance; and
b. Made an announcement of the

plan.
3 Has the enterprise included the

following information relating to a
discontinuing operation in its financial
statements when the initial disclosure
event takes place.
a. A description of the discontinuing

operatin9s)?
b. The business or geographical

segment9s) in which it is covered
as per AS 17.
c. The date and nature of the initial

disclosure event;
d. The date or period in which the

discontinuance is expected to be
completed if known or
determinable;
153
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;
f. The amounts of revenue and

expenses in respect of the
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
operation during the current
financial reporting period, and the
income tax expense related
thereto, and
h. The amounts of net cash flows

attributable to the operating
investing, and financing activities
of the discontinuing operation
during the current financial
reporting period.
C Other Disclosures
1 Where an enterprise disposes of

assets or settles liabilities attributable
to a discontinuing operation or enters
into binding agreements for sale, has
the following information been
included in its financial statements,
for any gain or loss that is recognised
on the disposal of assets or
settlement of liabilities attributable to
the discontinuing operation?
a. The amount of the pre-tax gain or

loss and
b. Income tax expense relating to

the gain or loss;
154
c. The net selling price or range of
prices of those net assets for
which the enterprise has entered
into one or more binding sale
agreements
d. The expected timing of receipt of

those cash flows
e. The carrying amount of those net

assets on the Balance Sheet
date.
2 Where some of the assets

attributable to a discontinuing
operation have actually been sold or
are the subject to one or more
binding sale agreements entered into
between the Balance Sheet date and
the date on which the financial
statements are approved by the
Board of Directors in case of a
company or by the corresponding
approving authority in the case of any
other enterprise, have the disclosures
as required by AS-4 been made?
3 Has the enterprise included, in its

financial statements, for periods
subsequent to the one in which the
initial disclosure event occurs, a
description of any significant changes
in the amount or timing of cash flows
relating to the assets to be disposed
or liabilities to be settled and the
events causing those changes?
4 Have such disclosures continued in

financial statements for period’s upto
and including the period in which the
discontinuance is completed?
155
5 Where an enterprise abandons or
withdraws from a plan that was
previously reported as a
discontinuing operation, has that fact,
reasons thereof and its effect been
disclosed?
6 Does the enterprise disclose

information as required by this
statement separately for each
discontinuing operation?
7 Have the disclosures been presented

in the notes to the financial
statements except the following
which should be shown on the face of
the P & L A/c?
a. The amount of pre-tax profit or

loss from ordinary activities
operation during the current
financial reporting period, and the
income tax expense related
thereto.
b. The amount of the pre-tax gain or

loss recognised on the disposal
of assets or settlement of
liabilities attributable to the
discontinuing operation.
8 Has the comparative information for

prior periods that is presented in
financial statements prepared after
the initial disclosure event, been
restated to segregate assets,
liabilities, revenue, expenses, and
cash flows of continuing and
discontinuing operations?
156
AS-25: Interim Financial Reporting
A Applicability
1 Is the enterprise required under any

law or statute to prepare and present
an interim Financial Report (FR)?
2 Has the enterprise elected to prepare

and present an IFR?
3 If yes, has AS-25 been implemented

in the financial statements for an
interim period?
4 Has the enterprise prepared and

presented a Cash Flow Statement for
the purpose of its Annual Financial
Report?
5 If yes, have the requirements related

to Cash Flow Statement of AS –25
been compiled with?
B Contents of IFR
1 Does the IFR include, at a minimum,

the following components?
a. Condensed Balance Sheet
b. Condensed P & L A/c
c. Condensed Cash Flow

Statement
d. Selected Explanatory Notes
2 Has the enterprise chosen to provide

a complete set of financial
statements in its IFR?
157
3 If yes, does the form and content of
these statements conform to the
requirements applicable to the annual
complete set of financial statements?
4 Alternatively, has the enterprise

opted for the presentation of a set of
condensed financial statements in its
IFR?
5 If yes, do the condensed statements

include, at a minimum, each of the
headings and sub headings and
select explanatory notes that were
included in the most recent annual
6 Have additional line items or notes,

the omission of which would make
the condensed financial statements
misleading been included?
7 Does the enterprise present BEPS

and DEPS in annual financial
statements?
8 If yes, has BEPS and DEPS been

presented on the face of the
complete/condensed P & L A/c?
9 Did the enterprise’s annual financial

statements include Consolidated
Financial Statements in addition to
separate financial statements?
10 If yes, Consolidated Financial

statements, complete or condensed,
been included in the interim financial
report, along with separate financial
statements?

included, as a minimum, in the notes
to IFR?
158
a. A statement has 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.
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’s, buy-backs,
repayments and restructuring of
debt, equity and potential equity
shares.
f. Dividends, aggregate or per

share (in absolute or percentage
terms), separately for equity
shares and other shares.
159
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.
h. The effect of changes in the

composition of the enterprise
during the interim period, such as
amalgamations, acquisition or
disposal of subsidiaries and long
term investments, restructuring,
and discontinuing operations.
i. Material changes in contingent

liabilities since the last annual
Balance Sheet date.
C Comparatives:
1 Have the following comparatives

been included in the IFR?
a. Balance Sheet
i) As of end of current interim

period.
ii) As of end of immediately

preceding financial year
b. P & L A/c
i) For current interim period.
ii) For the cumulative upto

current interim period in the
current financial year (YTD)
iii) For the comparative current

period and cumulative
periods in proceeding
financial year.
160
iv) For the immediately
preceding Accounting Year.
c. Cash Flow Statement
i) For the current financial

year – cumulative YTD
ii) For the immediately

preceding financial year
2 Is the business of the enterprise

highly seasonal in nature?

included in the IFR?
a. Financial information for 12

months ending on the interim
reporting date.
b. Comparative financial information

for the corresponding prior 12
month period.
D Materiality
.
1 Has materiality been assessed in
relation to interim period financial
data?
2 Has judgement been exercised in

assessing materiality?
E Recognition and measurement
1 Have the following principles of

recognition been applied?
a. Asset – Test of future economic

benefit.
b. Liability – Existing obligation at

interim reporting date.
161
c. Income – Increase in future
economic benefits related to an
increase in an asset or a
decrease of a liability that can be
measured reliably
d. Expense – Decrease in future

economic benefits related to a
decrease in an asset or an
increase of a liability that can be
measured reliably.
2. Have measurements for interim

reporting purposes been made on a
YTD basis?
3. Have the following been ensured?
a. Inventory write downs,

restructuring or impairments in
an interim period on the basis of
the same principles that the
enterprise would follow if it
prepared only annual financial
statements.
b. Cost that does not meet the

definition of asset has not been
deferred to await future
information.
c. Income Tax expense on the

basis of the best estimate of
weighted average annual
effective income tax rate
expected for the full financial
year.
4. Have changes in estimate of an item

recognised in one interim period
been recognised in the subsequent
interim period either by accrual of an
additional amount of loss or by
reversal of the previous recognised
amount?
162
5. Have recognition and measurement
principles as prescribed by the
Standard in respect of the following
items been adhered to?
a. Revenues received seasonally or

occasionally
b. Costs incurred unevenly during

the financial year.
c. Gratuity and other defined benefit

schemes.
d. Major planned periods

maintenance or overhaul
e. Provisions
f. Year end bonuses
g. Intangible assets.
h. Planned but irregularly occurring

costs
i. Tax Expense for interim period
j. Tax deductions and exemptions
k. Tax loss carry forwards
l. Contractual or anticipated
purchase price changes
m Depreciation and amortisation
n. Inventories and their Net

Realisable Value
o. Foreign currency translation

gains and losses
p. Impairment of assets.
163
F Restatement of previously reported interim
periods.
1 Have accounting policies applied in

previously reported interim periods,
other than the ones for which the
transition is specified by an
Accounting Standard been changed?
2 If yes, has the change been reflected

by restating the financial statements
of prior interim periods of the current
financial year?
G Disclosure

following?
a. Events or transactions that are

material to an understanding of
the current interim period report.
b. Nature and amount of any

significant changes in estimates.
c. Where separate financial reports

for the final interim period are not
presented because the annual
financial statements are
presented and an estimate is
changed significantly during the
final interim period, the nature
and amount of that change in
estimate should be disclosed in a
note to the annual financial
statements for that financial year.
164
AS-26 Accounting for Intangible Assets
A Applicability
1 Does the auditee entity have in its

books any intangible assets?
2 Is the intangible asset capable of

being identified separately?
3 Does the enterprise have control over

intangible asset?
4 Is it probable that future economic

benefits will flow to the enterprise
from the use of the intangible asset?
B Measurement
1 Can the cost of the intangible asset

be measured reliably?
2 Where the intangible asset has been

acquired separately, does the cost
comprise the following?
a. Purchase Price
b. Import Duties & Other Taxes

(other than those recoverable)
c. Any directly attributable

expenditure on making the asset
ready for intended use.
d. Any trade discount & rebate.
3 Where the intangible asset has been

acquired in exchange for shares or
other Securities, has the intangible
asset been recorded at its fair value
or the fair value of securities issued,
whichever is more clearly evident?
165
4 Where the intangible asset is
acquired as a part of an
amalgamation, has the enterprise
accounted the intangible asset in
accordance with AS –14?
5 Has the cost of intangible asset been

determined on the basis of the
following?
a. Quoted Market Price in an active

market.
b. Amount that would have been

paid by an enterprise in an arms
length transaction.
c. Appropriate accepted techniques

like discounted cash flow etc.
d. If the answer to any of the above

is no, has the value of such
intangible asset been included
with goodwill?
6 Where an intangible asset is acquired

by way of Government Grant, has the
intangible asset been recognised at
nominal value/acquisition cost?
7 Where the intangible asset is

acquired in exchange/part exchange,
have the principles laid down in AS-
10 been followed in determining cost
of intangible asset?

enterprise has not recognised
internally generated goodwill as an
asset?
C Research & Development
166
1 Is the enterprise able to distinguish
research phase from development
phase?
2 If no, it been ensured that such

expenditure incurred on research and
development has not been treated as
an intangible asset?

enterprise has not recognised as
intangible asset any expenditure on
research?
4 Where the enterprise has recognised

any expenditure on development as
an intangible asset, can the
enterprise demonstrate all of the
following?
a. The technical feasibility of

completing the intangible asset
so that it will be available for use
or sale;
b. Its intention to complete the

intangible asset;
c. Its ability to use or sell the

intangible asset;
d. An assurance that the asset will

generate future economic
benefit.
e. The availability of adequate

technical, financial and other
resources to complete the
development and to use or sell
the asset; and
f. Its ability to measure the

expenditure attributable to the
intangible asset during its
development reliably.
167
5. If answer to any of the above is No,
has the enterprise recognised the
intangible asset.
D Cost of internally generated intangible

asset

following have not been included in
the cost of the internally generated
intangible asset?
a. Selling, administrative and other

general overhead expenditure
unless this expenditure can be
directly attributed to making the
asset ready for use:
b. Clearly identified inefficiencies

and initial operating losses
incurred before an asset
achieves planned performance;
and
c. Expenditure on training the staff

to operate the asset.
E Recognition as Expense
1 Has a it been ensured that

expenditure on an intangible item is
recognised as an expense when it is
incurred unless the following
conditions are satisfied?
a. It forms part of the cost of an

intangible asset that meets the
recognition criteria or
b. The item is acquired in an

purchase and cannot be
recognised as an intangible
asset.
168
2 Has any expenditure on an intangible
item that was recognised as an
expense by the enterprise in one or
more periods been recognised as
part of the cost of an intangible asset
at a later date?
3 Has subsequent expenditure on an

intangible asset after its purchase or
its completion been properly
capitalised, by applying principles of
measurability of cost and incremental
economic benefits?
4 If no, has the expense been properly

charged off?
5 After initial recognition, has the

intangible asset been carried at its
cost less any accumulated
amortisation and any accumulated
impairment losses?
F Amortisation
1 Has the depreciable amount of an

intangible asset been allocated on a
systematic basis over the best
estimate of its useful life.
2 Has the amortization commenced

from the time when the asset is
available for use?
3 Has the life of the intangible asset

been reckoned at the maximum, at
ten years?
4 If not, has the best estimate of its

useful life been used based on
persuasive evidence that the useful
life will be a period longer than ten
years?
169
5 Has it been ensured that, if control
over the future economic benefits
from an intangible asset is achieved
through legal rights that have been
granted for a finite period, the useful
life of the intangible asset does not
exceed the period of the legal rights
unless the following conditions are
satisfied?
a. The legal rights are renewable;

and
b. Renewal is virtually certain.
6 Has the residual value of an

intangible asset been assured to be
zero unless the following conditions
are satisfied?
a. There is a commitment by a third

party to purchase the asset at the
end of its useful life; or
b. There is an active market for the

asset and:
i) Residual value can be

determined by reference to
that market; and
ii) It is probable that such a

market will exist at the end of
the asset’s useful life.
7 Has the amortisation period and the

amortisation method been reviewed
at the financial year end?
8 If the expected useful life of the asset

is significantly different from previous
estimates, has the ameritisation
period been changed accordingly?
170
9 If there has been a significant
changes in the expected pattern of
economic benefits from the asset,
has the amortisation method been
changed to reflect the changed
pattern?
10 Have such changes been accounted

for in accordance with AS-57.
11 In addition to the requirements of AS-

28, does the enterprise estimate the
recoverable amount of the following
intangible assets at each financial
year end even if there is no indication
that the asset is impaired?
a. An intangible asset that is not yet

available for use; and
b. An intangible asset that is

amortised ever a period
exceeding ten years from the
date when the asset is available
from use.
12 Has an intangible asset been

derecognised (eliminated from the
Balance Sheet) on disposal or when
no future economic benefits are
expected from its use and
subsequent disposal?
13 Have any gains or losses arising from

the disposal of an intangible asset
determined as the difference
between the net disposal proceeds
and the carrying amount of the asset
been recognised as income or
expense in the P & L A/c.
G Disclosure
171
1 Do the financial statements disclose
the following for each class of
intangible assets, distinguishing
between internally generated items,
and other items?
a. The useful lives or the

amortisation rates used;
b. The amortisation methods used;
c. The gross carrying amount and

the accumulated amortisation at
the beginning and end of the
period;
d. A reconciliation of the carrying

amount at the beginning and end
of the period showing:
i) Addition, indicating
separately intangible assets
generated internally and
through amalgamation;
ii) Retirements and disposals;
iii) Impairment losses

recognised in the P & L a/c
during the period;
iv) Impairment losses in the P

& L A/c during the period;
and
v) Amortisation recognised
during the period; and
vi) Other changes in the

carrying amount during the
period;
2 Do the financial statements also

disclose the following?
172
a. Intangible asset amortised over
more than ten years, the reason
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.
b. A description, the carrying

amount and remaining
amortisation period of any
individual intangible asset that is
material to the financial
statements of the enterprise as a
whole;
c. The existence and carrying

amounts of intangible assets
whose title is restricted and the
carrying amounts of tangible
assets pledged as security for
liabilities; and
d. The amount of commitments for

the acquisition of intangible
assets.
e. Intangible assets fully amortised

but still in use.
3 Do the financial statements disclose

the aggregate amount of research
and development expending
recognised as an expenses during
the period?
AS-27: Financial Reporting of Interests in Joint Ventures
A Applicability
.
1 Does the enterprise have an interest
in a Joint Venture in any of the
following forms?
173
a. Jointly controlled operations
b. Jointly controlled assets
c. Jointly controlled entities.
2 Has the interest in Joint Venture

been evidenced by the existence of a
contractual arrangement?
3 Does the agreement provide for the

Joint Control, by way of participative
rights, in the contractual
arrangement?
4 If yes, have the provisions of this

standard been implemented in the
financial statements of the
enterprise?
B Jointly Controlled Operations
1. Does the Joint Venture interest as

evidenced by the contractual
arrangement, possess the following
features?
a. Each ventures uses its own fixed

assets and carries its own
inventories.
b. Each venturer incurs its own

expenses and liabilities and
raises its own finance.
c. Revenue from the jointly

controlled operations and any
expenses incurred in common
are shared among the venturers.

disclosed in the separate financial
statements and consequently in the
Consolidated Financial Statements of
the enterprise?
174
a. The assets that it controls and
the liabilities that it incurs.
b. The expenses that it incurs and

share of the income that it earns
from the joint venture.
C Jointly Controlled Assets
1 Does the Joint Venture interest, as

features?
a. Joint Control and Joint

Ownership of assets dedicated to
the purposes of the joint venture,
used to obtain economic benefits
for the venturers.
b. Output from the jointly controlled

assets and any expenses
incurred in common are shared
among the venturers.
2. If yes, have the following been

disclosed in the separate financial
statements and consequently in the
consolidated Financial Statements of
the enterprise?
a. Its share of the jointly controlled

assets, classified according to
the nature of the assets.
b. Any liabilities which it has

incurred.
c. Any venturer’s share of any

liabilities incurred jointly with the
other venturers in relation to the
joint venture
175
d. Any income from the sale or use
of it’s share of the output of the
joint venture, together with its
share of any expenses incurred
by the joint venture.
e. Any expenses which it has

incurred in respect of its interest
in the point venture.
D Jointly Controlled Entities (JCE)
1 Does the Joint Venture interest as

features?
a. Establishment of a company
partnership or other entity in
which each venturer has a Joint
Control.
b. The entity can enter into

contracts in its own name and
raise finance for the purposes of
the joint venture activity.
c. Each venturer is entitled to a

share of the results of the jointly
controlled entity.
d. The entity maintains its own

accounting records and prepares
and presents financial
statements in the same way as
other entities.
2. If yes, does the following situation

exist?
a. The interest in the JCE is

acquired and held exclusively
with a view to its subsequent
disposal in the near future.
176
b. The JCE operates under severe
long-term restrictions that
significantly impair its ability to
transfer funds to the venturer.
3 If no, has it been ensured that the it’s

interest in the joint venture been
disclosed in the following manner?
a. In its separate financial

statements as an investment in
accordance with AS 13 (inclusive
of cash and other resources
contributed by the venturer)
b. In its consolidated Financial

Statements according to the
Proportionate Consolidation
method.
E Proportionate Consolidation Method

(auditee in venture)
1 Has the venturer’s share of assets,

liabilities, income and expenses of
the JCE been disclosed as separate
line items in its Consolidated
Financial Statements?
2 Have the financial statements of the

JCE used in applying proportionate
consolidation been drawn up to the
same date as the financial
statements of the venturer?
3 If no, is it practicable for the JCE to

prepare financial statements to the
same date as the financial
statements of the venturer?
177
4 If no, have adjustments been made
for the effects of significant
occur between the date of financial
statements of the JCE and the date
of the venturer’s financial
statements?
5 Have Consolidated Financial

Statements been prepared using
uniform accounting policies for like
transaction and events in similar
circumstances?
6 If no, have appropriate adjustments

been made to the financial
statements of the JCE by the
venturer in applying proportionate
consolidation?
7 If it is not practicable to do so, has

such fact, together with the
proportions of the items in the
Consolidated Financial Statements to
which the different accounting
policies have been applied, been
disclosed?
8 Has it been ensured that off setting of

assets or liabilities/income or
expenses has not been done, unless
the following conditions are satisfied?
a. A legal right to set off exists and
b. The offsetting represents the

expectation as to the realisation
of the asset or the settlement of
the liability.
178
9 Has goodwill or capital reserve
arising from any excess of the cost to
the venturer of its interest in the JCE
over its share of net assets of the
JCE, at the date on which interest in
the JCE is acquired, or vice versa,
been recognised and disclosed
separately in the Consolidated
Financial Statements?
10 Has it been ensured that where the

carrying amount of the venturer’s
interest in a JCE is different from its
cost, the carrying amount has been
considered for the purpose of above
computations?
11 Has the venturer’s share of the

unrealised gain or loss been
eliminated in the preparation of
Consolidated Financial Statements?
12 Has the venturer’s share of the

unrealised gain or loss been
eliminated in the preparation of
F Discontinuation of Proportionate
Consolidation method
1 Subsequent to the application of the

Proportionate Consolidation method,
have any of the following conditions
arisen?
a. The venturer ceases to have joint

control over a JCE
b. The JCE operates under severe

long term restrictions that
significantly impair its ability to
transfer funds to the venturer.
179
2 If yes, has the use of proportionate
consolidation method been
discontinued?
3 Has the venturer retained in whole or

in part, its interest in the JCE?
4 If yes, has the interest been

accounted for in accordance with the
AS-13. AS-21 or 23 as applicable?
5 For this purpose, has the cost of the

investment been determined by
adjusting the venturer’s share of the
net assets of the JCE with the
carrying amount of goodwill/capital
reserve as at the date of
discontinuance of proportionate
consolidation?
G Transactions between a venturer and a

joint venture
1 Sale of assets by venturer
a. Has the venturer recognised only

that portion of the gain or loss
which is attributable to the
interests of the other venturers,
where the assets are retained by
the joint venture and the venturer
has transferred the significant
risks and rewards of ownership?
b. Has the venturer recognised the

full amount of any loss when the
contribution or sale provides
evidence of a reduction in the net
realisable value of current assets
or an impairment loss?
2 Purchase of assets by venturer
180
a. Has it been ensured that the
venturer has recognised its
share of the profits of the joint
venture from the transaction only
when it resells the assets to an
independent party?
b. Has it been ensured that the

venturer has recognised its share
of the profits of the joint venture
from the transaction only when it
resells the assets to an
independent party?
H Reporting of interests in Joint Ventures in

financial statements of an investor.
1. Does the auditee qualify to be an

investor within the meaning of AS-
27?
2. Is the interest of the investor in the

JCE such that there is no element of
joint control?
3. If yes, has the interest been

accounted for in accordance with the
AS-13, 21 or 23 as applicable, in the
4. Has the interest been accounted for

in accordance with AS 13 in the
separate financial statements?
I Operations of Joint Ventures
1 Is the reporting enterprise an

operator or manager of the Joint
Venturer?
2 If yes, have fees been accounted for

in accordance with AS-9?
181
a. The aggregate amount of the
following contingent liabilities:
i) Contingent liabilities that the

venturer has incurred in
relation to its interest in joint
ventures and its share in
each of the contingent
liabilities which have been
incurred jointly with other
venturers.
ii) Its share of the contingent

liabilities of the joint venture
themselves for which it is
Contingently liable.
iii) Contingent liabilities that

arise because the venturer
is continently liable for the
liabilities of the other
venturer of a joint venture.
b. Aggregate amount of the

following commitments in respect
of its interests in joint venturers
showing separately.
i) Capital commitments of the

venturer in relation to its
interest in joint ventures and
its share in the capital
commitments that have
been incurred jointly with
other venturers.
ii) Its share of the capital

commitments of the joint
ventures themselves.
c. A list of all joint ventures and

description of interests in
significant joint ventures.
182
d. In respect of JCE’s the proportion
of ownership interest, name and
country of incorporation or
residence.
J Disclosure in separate financial

statements
1. The aggregate amounts of each of

the assets, liabilities, income and
expenses related to its interests in
the JCE’s
AS – 28: Impairment of Assets

A Test of Impairment
1 Has the enterprise tested as at the

Balance Sheet date for indications of
impairment by looking at the
following:-
a. External sources of information
b. Internal sources of information
B Impairment Loss
.
1 Where the recoverable amount is
less than carrying amount has the
impairment loss been charged to P &
L A/c?
2 Where the difference between

recoverable amount and carrying
amount is greater than carrying
amount has it been treated as a
liability?
3 Where Recoverable amount cannot

be estimated for an individual asset,
has it been estimated for a cash-
generating unit.
183
4 Where the recoverable amount of
cash generating unit is lesser than
carrying amount, has the difference
been treated as an impairment loss?
C Measurement of Recoverable Amount
1 Has the net selling price been

determined in either of the following
ways:
a. On the basis of a binding sale

agreement in an arm’s length
transaction, adjusted for
incremental costs that would be
directly attributable to the
disposal of the asset.
b. On the basis of the current bid

price.
2 Has the Value in Use been estimated

after the following steps?
a. Estimating the future cash

inflows and outflows arising from
continuing use of the asset and
from its ultimate disposal,; and
b. Applying the appropriate discount

rate to these future cash flows.
3 In measuring Value in Use are cash

flow projections based on reasonable
and supportable assumptions that
represent management ‘s been
estimate of the set of economic
conditions that will exist over the
remaining useful life of the asset?
4 Are cash flow projections based on

the most recent financial
budgets/forecasts that have been
approved by management?
184
5 Are cash flow projections beyond the
period covered by the most recent
budgets/forecasts estimated by
extrapolating the projections based
on the budgets/forecasts using a
steady or declining growth rate for
subsequent years, unless an
increasing rate can be justified?

estimates of future cash flows include
the following?
a. Projections of cash inflows from

the continuing use of the asset;
b. Projections of cash outflows that

are necessarily incurred to
generate the cash inflows from
continuing use of the asset
(including cash outflows to
prepare the asset for use) and
that can be directly attributed, or
allocated on a reasonable and
consistent basis, to the asset,
and
c. Net cash flows, if any. To be

received (or paid) for the disposal
of the asset at the end of its
useful life.
7. Has it been ensured that the

estimates of future cash flows do not
include the following?
a. Cash inflows from assets that

generate cash inflows from
continuing use that are largely
independent of the cash inflows
from the asset under review (for
example, financial assets such
as receivables); and
185
b. Cash outflows that relate to
obligations that have already
been recognised as liabilities (for
example, payables, pensions or
provisions).
c. A future restructuring to which an

enterprise is not yet committed;
or
d. Future capital expenditure that

will improve or enhance the asset
in excess of its originally
assessed standard of
performance.
e. Cash inflows or outflows from

financing activities; or
f. Income tax receipts or payments.
8. Has it been ensured that future cash

flows are estimated in the currency in
which they will be generated and
then discounted using a discount rate
appropriate for that currency.
D Discount Rate
1. Have the discount rates been

adjusted to reflect the following?
a. The way that the market would

assess the specific risks
associated with the projected
cash flows; and
b. To exclude risks that are not

relevant to the projected cash
flows.
2. Has it been ensured that the discount

rate does not reflect risks for which
future cash flow estimates have been
adjusted?
186
E Identification of a cash generating unit
1 Does the asset belong to smallest

distinguishable component of an
enterprise with independent cash
flows?
2 Is there consistency in identification

of cash generating unit?
3 Is there an active market for products

produced by a cash-generating unit?
F Recognition of Impairment Loss

.
1 Has any goodwill been recognised in
the financial statements?
2 Where no goodwill has been

recognised and where the
recoverable amount of the asset is
lesser than the carrying amount has
the difference been recognised as
impairment loss?
3 Has the impairment loss been

allocated pro-rata between the assets
in the cash-generating unit?
4 Where goodwill recognised in

financial statements is allocable to a
Cash generating unit has the Bottom
Up Test been followed?
5 Where Goodwill stands recognised in

the Financial Statements but is not
allocable to cash generating unit has
the Top Down Test been followed?
G Corporate Assets Identification
1 Has the enterprise identified

Corporate Assets?
187
2 In testing a cash-generating unit for
impairment, has the enterprise
identified and allocated all the
corporate assets that relate to the
cash-generating unit under review?
3 Where the carrying amount of the

corporate asset has been allocated
on a reasonable and consistent basis
to the cash-generating unit under
review, has the Bottom Up test been
applied?
4 Where the carrying amount of the

corporate asset cannot be allocated
on a reasonable and consistent basis
to the cash-generating unit under
review, have both Bottom Up and
Top Down Tests been applied?
5 Has the enterprise determined

revised carrying amount of cash
generating unit after including the
allocable portion of corporate assets?
6 Where the carrying amount is greater

than recoverable amount, has the
difference been recognised an
impairment loss?
H Reversal of Impairment Loss
1 Individual Asset
a. Has the enterprise assessed

whether there is any indication
that an impairment loss
recognised for an asset in prior
accounting periods may no
longer exist or may have
decreased?
188
b. If any such indication exists, has
the enterprise estimated the
recoverable amount of that
asset?
c. Has there been a change in the

estimates of cash inflows, cash
outflows or discount rates used
to determine the recoverable
amount since the last impairment
loss was recognised?
d. If this is the case, has the

carrying amount of the asset
been increased to its recoverable
amount?
e. Does the increased carrying

amount of an asset due to a
reversal of an impairment loss
exceed the carrying amount that
would have been determined (net
of amortization or depreciation)
had no impairment has been
recognised for the asset in prior
accounting periods? If yes, have
correction been made?
f. Has the reversal of an

impairment loss for an asset
been recognised as income
immediately in the P & L A/c?
g. If answer to the above is no, and

where the asset is carried at
revalued amount has the reversal
of impairment loss been treated
as a revaluation adjustment?
189
h. After a reversal of an impairment
loss is recognised, has the
depreciation (amortisation)
charge for the asset been
adjusted in future periods to
allocate the revised carrying
amount, less its residual value (if
any), on a systematic basis over
its remaining useful life?
2 Cash Generating Unit
a. Has the reversal of an

impairment loss for a cash-
generating unit been allocated to
increase the carrying amount of
the assets of the unit in the
following order?
i) First, assets other than

goodwill on a pro-rata basis
based on the carrying
amount of each asset in the
unit; and
ii) Then, to goodwill allocated to

the cash-generating unit (if
any),
b. In allocation a reversal of an
impairment loss for a cash-
generating unit has it been
ensured that the carrying amount
of an asset should not be
increased above the lower of the
following?
c. Has the amount of the reversal of

the impairment loss that would
otherwise have been allocated to
the asset been allocated to the
other assets of the unit on a pro-
rata basis?
3 Goodwill
190
a. Has the enterprise reversed in a
subsequent period impairment
loss recognised for goodwill
subject to the following
conditions being met.
i) The impairment loss was

caused by a specific external
event of an exceptional
nature that is not expected to
recur; and
ii) Subsequent external events

have occurred that reverse
the effect of that event.
I. Impairment in case of Discontinuing

Operations
1. Has the enterprise estimated the

recoverable amount of assets of
discontinuing operation and
recognised impairment loss or
reversal of a prior impairment loss, if
any, on approval and announcement
of a plan for discontinuance?
2. Has the enterprise determined

whether the recoverable amount of
an asset of a discontinuing operation
is assessed for the individual asset or
for the assets cash-generating unit?
3. Where the enterprise disposes of the

discontinuing operation in other ways
such as piecemeal sales has the
recoverable amount been determined
for individual assets, unless the
assets are sold in groups?
4. Where the enterprise abandons the

discontinuing operation, has the
recoverable amount been determined
for individual assets as set out in this
Statement?
191
5. Has the enterprise re-estimated the
recoverable amount of the assets of
the discontinuing operation and
recognised resulting impairment
losses or reversals of impairment
losses in accordance with AS-28?
J Disclosure in P & L A/c and Balance Sheet

.
1. For each class of assets, do the
financial statements disclose the
following?
a. The amount of impairment losses

during the period and the line
item (s) of the P & L A/c in which
those impairment losses are
included;
b. The amount of reversals of

impairment losses recognised in
the P & L A/c during the period
and the line item(s) of the P 7 L
A/c in which those impairment
losses are reversed;
c. The amount of impairment losses

recognised directly against
revaluation surplus during the
period; and
d. The amount of reversals of

impairment losses recognised
directly in revaluation surplus
during the period.
2. Where an enterprise applies AS-17:

Segment Reporting, has the following
been disclosed for each reportable
segment based on an enterprise’s
primary format?
192
a. The amount of impairment losses
and/or directly against
revaluation surplus during the
period; and
b. The amount of reversals of

impairment losses recognised in
the P 7 L A/c and directly in
reevaluation surplus during the
period.
3. Where impairment loss for an

individual asset or a cash-generating
unit is recognised or reversed during
the period is material to the financial
statements does the enterprise
disclose the following?
a. The events and circumstances

that led to the recognition or
reversal of the impairment loss;
b. The amount of the impairment

loss recognised or reversed for
an individual asset:
i) The nature of the asset; and
ii) The reportable segment to

which the asset belongs,
base don the enterprise’s
primary format.
c. For a cash-generation unit:
i) A description of the cash-

generating unit
ii) The amount of the

impairment loss recognised
or reversed by class of
assets and by reportable
segment based on the
enterprise’s primary format;
and
193
iii) If the aggregation of assets
for identifying the cash-
generating unit has
changed since the previous
estimate of recoverable
amount, the enterprise
should describe the current
and former way of
aggregating assets and the
reasons for changing the
way the cash-generating
unit is identified;
iv) Whether the recoverable

amount is its net selling
price or its value in use;
v) If recoverable amount is net

selling price, the basis used
to determine net selling
price 9such as whether
selling price was
determined by reference to
an active market or in some
other way): and
vi) If recoverable amount is

value in use, the discount
rate9s) used in the current
estimate and previous
estimate (if any) of value in
use.
d. Where impairment losses

recognised (reversed) during the
period are material in aggregate
to the financial statements of the
reporting enterprise as a whole,
does the enterprise disclose a
brief description of the following?
i) The main classes of assets

affected by impairment
losses (reversals of
impairment losses) for
194
which no information is
disclosed.
ii) The main events and

circumstances that led to
the recognition (reversal) of
these impairment losses for
which no information is
disclosed.
K Transactional Provisions
1 On the date of this Statement
becoming mandatory, does the
enterprise assess whether there is
any indication that an asset may be
impaired?
2 If any such indication exists, does the

enterprise determine impairment
loss, if any, in accordance with this
Statement?
3 Has the enterprise adjusted the

impairment loss, so determined,
against opening balance of revenue
reserves being the accumulated
impairment loss relating to periods
prior to this Standard becoming
mandatory unless the impairment
loss is on a revalued asset?
4 Has the impairment loss on a

revalued asset been recognised
directly against any revaluation
surplus for the asset to the extent
that the impairment loss does not
exceed the amount held in the
revaluation surplus for that same
asset.
195
5 If the impairment loss exceeds the
amount held in the revaluation
surplus for that same asset, has the
excess been adjusted against
opening balance of revenue
reserves?
196

Audit Checklist For Compliance With Accounting Standards

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Audit Checklist For Compliance With Accounting Standards

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AUDIT CHECKLIST FOR COMPLIANCE WITH

Area Yes No Sch. Remarks

1. Have the following fundamental

a. Going Concern Yes

Is there a list of all significant policies

If the answer is yes, are all the area

a. Method of account Yes

b. Method of depreciation Yes

c. Valuation of stock No Not Applicable

d. Valuation of fixed assets Yes

e. Valuation of investments Yes

f. Allocation of expenditure during No Not Applicable

h. Translation of Foreign currency No Not Applicable

i. Disclosure of events subsequent No

j. Recognition of profit on long-term

ii. Borrowing Costs

iii. Lease Accounting

iv. Taxes on Income

v. Goodwill and other

vi. Research and development

vii. Cost for retirement benefits.

viii Prior period items

ix. Preliminary expenses

5. Have the Accounting Policies listed

1. Have all the applicable accounting

2. If yes, are they disclosed in one place

4. Has specific disclosure been made if

C Changes in Accounting Policy:

1. Have there been any changes in any

2 Has the Change been made only.

a. For compliance with the Statute

b. If Management considers the

3 Are the changes in the policies going

4 Are the changes in the policies going

5 Can the change in the policies and its

6 Where the effect of the change

7 Has adequate disclosure been made

1 Has it been ensured that this

a. Work-in-progress arising under

b. Work-in-progress arising in the

c. Shares, debentures and other

1. Are the following working available?

a. Inventory items and codes.

b. Cost sheets (if the volume is

c. Inventory valuation statement as

d. Note on procedure for valuing

e. Note on method of determining

1. Has it been ensured that the

2. Does Cost comprise the following

ii) Variable production

iii) Fixed production overheads

c. Other costs incurred in bringing

d. If inventory is a qualifying asset,

3 Has it been ensure that the following

a. Abnormal amounts of wasted

c. Administrative overheads that do

4 Has it been ensured that the

a. For terms “not ordinarily

b. For other items –First In First Out

c. Standard Cost or Retail method

5. Has NRV been ascertained as the

6. Have items whose NRV is below cost

7. Have the following been ensured?