ICAI released Technical Guide on Preparation of Financial Statements under Cash Basis of Accounting

The Institute of Chartered Accountants of India (ICAI) has released a Technical Guide on Preparation of Financial Statements under Cash Basis of Accounting.

ICAI through the Accounting Standards Board (ASB) issues Accounting Standards for the preparation of financial statements by non-company entities and for effective implementation of the Accounting Standards scheme for the applicability of Accounting Standards to non-company entities with certain exemptions and relaxations has also been prescribed.

Accounting standards (AS) are a set of principles which entities follow while preparing their financial statements to provide information about its financial position and financial performance in a relevant, consistent and comparable manner.

Technical Guide on Preparation of Financial Statements under Cash Basis of Accounting

Background

A sound accounting and financial reporting framework acts as an important pillar for promoting the accountability of an organisation. The primary objective of financial reporting is to provide information about the entity that is useful to users of general-purpose financial statements for decision-making purposes. Financial reporting by an entity about its activities provides useful information about its financial position and financial performance to a wide range of users for making decisions about that entity.

Information about the cash receipts, cash payments and cash balances of an entity is necessary for accountability purposes and to provide inputs useful for the assessment of the ability of the entity to generate adequate cash in the future and the likely sources and uses of cash. In making and evaluating decisions about the allocation of cash resources and the sustainability of the entity’s activities, users require an understanding of the timing and certainty of cash receipts and cash payments. Apart from information about the liquidity position of an entity, cash flows provide reasonable information about the solvency of the entity.

Objective

The purpose of this Technical Guide is to provide guidance for the preparation of general-purpose financial statements of non-company entities under the cash basis of accounting. This includes the application of accounting principles pertaining to recognition, measurement, presentation and disclosure of various items of income and expenses, assets and liabilities in the financial statements in the context of cash
basis of accounting.

Compliance with the requirements of this Technical Guide will enhance the consistency and transparent financial reporting of the cash receipts, cash payments and cash balances of the entity. It will also enhance comparability with the financial statements of other entities which adopt the cash basis of accounting.

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