The new era of Accounting and
presentation for corporate entities has been set by Ministry of Corporate
Affairs (MCA) by notifying 39 new Indian Accounting Standards (INDAS) vide its
notification dated 16th February,2015. These INDASs are applicable
to companies other than Banking, Insurance & Non Banking Finance companies.
At the time of transition to INDAS Company and auditor need to have more
cautious about the accounting treatment as well as presentation factors
prescribed in INDAS.
Let’s have a glimpse on Notification
and Transition method on a FAQ basis.
1.0 How Many Accounting Standards
Rules are in force?
Ans: At present there are 2 types of Accounting
Standards Rules are in force. As per Rule 4 of Companies (Indian Accounting
Standards) Rules, 2015 which was notified by MCA on 16-02-2015 clearly
prescribed for applicability of following 2 Accounting Standards Rules.
i. Companies (Indian Accounting
Standards) Rules, 2015.(cover New INDAS)
ii. Companies (Accounting Standards)
Rules, 2006 (cover existing Accounting Standards)
2.0 To whom above standards are
applicable ?
a. Applicability of Companies
(Indian Accounting Standards) Rules, 2015.
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Description
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Phase-I
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Phase-II
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Phase-III
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Effective
Date
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01-04-2016
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01-04-2017
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01-04-2015
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Condition
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Listed or
Unlisted Companies
Ø Net worth is > ` .500 crores
Ø Holding, Subsidiary, joint
ventures or associates of these companies.
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Ø Listed Companies whose
net worth is < ` .500 crores
Ø Unlisted
companies whose net worth is >=` 250.00 Croes but <` 500.00Crores
Ø Holding, Subsidiary, joint
ventures or associates of these companies.
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Company May
Comply, this is voluntary for every company.
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b. Companies (Accounting Standards)
Rules, 2006 is applicable to those companies which are not falling under any
category specified above.
3.0 What is the Cut-off
Date for Calculation of Net Worth and how Net worth is to be calculated?
Ans: Net Worth shall be calculated in
accordance with the stand-alone financial Statements of the company as on 31-03-2014
or the first audited financial statements for accounting period which ends
after that date
Net Worth” shall have the meaning
assigned to it in clause (57) of section 2 of the Companies Act,2013
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Section 2(57)
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net worth” means the aggregate value of the
paid-up share capital and all reserves created out of the profits and
securities premium account, after deducting the aggregate value of the
accumulated losses, deferred expenditure and miscellaneous expenditure not
written off, as per the audited balance sheet, but does not include reserves
created out of revaluation of assets, write-back of depreciation and
amalgamation;
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4.0 What is the Date of conversion of
INDAS?
Ans: Para-6 of INDAS-101 First-time
Adoption of Indian Accounting Standards clearly indicate that “ An
entity shall prepare and present an opening Ind AS Balance Sheet at the date of
transition to Ind ASs. This is the starting point for its accounting in
accordance with Ind Ass.
Hence the date of transition to INDAS
is the beginning of earlier period for which an entity presents full
comparatives information under Ind As in first Ind AS financial Statement.
Example: If entity eligible for Ind
AS from 2016-17, its transition date is 01st April,2015.
5.0 Whether Subsidiary,
Associates, Joint venture incorporated outside india has to prepare its
financial statement as per INDAS?
Ans: If any Subsidiary, Associates or
Joint venture incorporated outside India they may prepare its standalone
financial statements in accordance with the requirements of the specific
jurisdiction.
However, if parent company is
incorporates in India and covered under the parameter of Companies (Indian
Accounting Standards) Rules, 2015 should prepare its Consolidated Financial
statement as per INDAS. Therefore, it indicates that parent company should take
care of conversion of financial statement of its Subsidiary, join venture or
Associate incorporate outside india to INDAS financial Statement for
consolidation.
5.0 What is the meaning of
Subsidiary, Associates in the context of above rule,2015?
Ans: Companies (Indian Accounting
Standards) Rules, 2015, did not clearly prescribe the meaning of subsidiary or
Associate. However, Rule-2, clause-2 of Companies (Indian Accounting Standards)
Rules, 2015 mentioned that: “Words and expressions used herein and not
defined in these rules but defined in the Act shall have the same meaning
respectively assigned to them in the Act.” Therefore, for the purpose of
definition following sections of Companies Act 2013 are being used
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Section-2(87)
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Subsidiary company ”or “subsidiary”, in
relation to any other company (that is to say the holding company), means a
company in which the holding company –
(i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: |
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Section
2(6)
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Associate Company’” in relation to another
company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company
having such influence and includes a joint venture company.
significant influence” means
control of at least 20%. of total share capital, or of business
decisions under an agreement;
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From the above definition you can
clearly note that the 2 sections are focus on Total Share capital for
classification of Subsidiary and Associates.
However, Total Share Capital
definition is not clearly mentioned in the respective section or anywhere in
the companies act 2013 but the same has been defined in Rule 2 (1)(r) of
Companies (Specification of definitions details) Rules, 2014.
Total Share Capital”, for the
purposes of clause (6) and clause (87) of section 2, means the aggregate of the
–
(a) Paid-up equity share capital; and
(b) Convertible preference share
capital;
Therefore, now company should take
care about both investment of equity share and convertible preference share for
classification of subsidiary and Joint venture.
6.0 What are the Steps need to be
taken for Transition to INDAS?
For transition to INDAS, the eligible
company should carefully examine the provision contained in the notified 39
INDASs.
The relevant INDAS for transition to
IndAS is INDAS-101 “First-time Adoption of Indian Accounting Standards”. INDAS
101, explain how the company will prepare its first financial statement as per
INDAS. Broadly it covers following aspects
a. Mandatory Exemption (Appendix-B)
which will be for prospective application of INDAS in certain areas.
b. Voluntary Exemption
(Appendix-C&D) which will exempt from specific applicability of particular
INDAS.
c. Presentation of Financial
Statement.
7.0 What are the important areas
prescribed in INDAS-101?
INDAS 101 basically provides the
frame-work for preparation of first INDAS financial Statement and its interim
financial report.
Bird eye view of INDAS-101
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INDAS-101: First-time Adoption of Indian
Accounting Standards
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Recognition and Measurement
(Para: 6 to 19) |
Presentation and disclosure
(Para: 20 to 33) |
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i. Opening
Ind AS Balance Sheet
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i.
Comparative information
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ii.
Accounting policies
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ii.
Explanation of transition to Ind Ass
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iii.
Exceptions to the retrospective application of other Ind Ass
(Appendix-B)
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iii.
Reconciliations
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iv.
Exemptions from other Ind Ass
(Appendix C &D) |
iv.
Designation of financial assets or financial liabilities
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v. Use of
fair value as deemed cost
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vi. Use of
deemed cost for investments in subsidiaries, joint ventures and associates
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vii. Use of
deemed cost for oil and gas assets
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viii. Use
of deemed cost for operations subject to rate regulation
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ix. Use of
deemed cost after severe hyperinflation
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x. Interim
financial reports
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Para-3 “ An entity’s first Ind AS
financial statements are the first annual financial statements in which the
entity adopts Ind ASs, in accordance with Ind Ass notified under the
Companies Act, 2013 and makes an explicit and unreserved statement in those
financial statements of compliance with Ind ASs.”
From above para it clearly depicts
that along with adoption of INDAS an entity should mandatorily provide an Explicit
and Unreserved Statement in the first INDAS financial statement.
Para-10: Except as described in
paragraphs 13–19 and Appendices B–D, an entity shall, in its opening Ind AS
Balance Sheet:
(a) recognise all assets and
liabilities whose recognition is required by Ind ASs;
(b) not recognise items as assets or
liabilities if Ind ASs do not permit such recognition;
(c) reclassify items that it
recognised in accordance with previous GAAP as one type of asset, liability or
component of equity, but are a different type of asset, liability or component
of equity in accordance with Ind ASs; and
(d) apply Ind ASs in measuring all
recognised assets and liabilities.
Example;
(a) recognise all assets and
liabilities whose recognition is required by Ind ASs;
Example: Derivative Financial Instrument
Accounting: Now As per INDAS-109, derivative financial Instrument like
Call option, interest rate swap derivatives, commodities derivatives etc. is to
be accounted for.
Now Balance Sheet should Specifically
Disclosed the Financial Asset & Liability. Note that INDAS-109 is meant for
recognition & Measurement Criteria of Financial Instrument where as
INDAS-32 is for Presentation of Financial Instrument.
(b) not recognise items as assets or
liabilities if Ind ASs do not permit such recognition;
Example: Proposed Dividend: INDAS-10:
Events after the Reporting Period: Para-12 – If an entity declares dividends to
holders of equity instruments (as defined in Ind AS 32, Financial Instruments:
Presentation) after the reporting period, the entity shall not recognise those
dividends as a liability at the end of the reporting period.
The company now at the time of
transition to INDAS derecognise the proposed dividend liability from its
opening balance sheet and the same proposed dividend will be treated as
liability in subsequent financial year when the dividend is actually paid.
(c) reclassify items that it
recognised in accordance with previous GAAP as one type of asset, liability or
component of equity, but are a different type of asset, liability or component
of equity in accordance with Ind ASs; and
Example: As per INDAS-32:
Compound financial instruments: The issuer of a non-derivative
financial instrument shall evaluate the terms of the financial instrument to
determine whether it contains both a liability and an equity component. Such components
shall be classified separately as financial liabilities, financial assets or
equity instruments
Like Convertible Bond, Convertible
Preference Share. The Equity portion of Convertible Bond / Preference share
should be appropriately classified as Equity and remaining portion should be
classified as Financial Liability.
(d) apply Ind ASs in measuring all
recognised assets and liabilities.
Example: Componentization of Asset
i.e. Component accounting as per INDAS-16 need to be applied to Property, Plant
& Equipment (PPE).
Earlier As per AS-19, Land lease is
specifically excluded from the scope of lease and, however, as per INDAS-17,
land lease is not excluded, and company has to recognize its interest in
leasehold land as operating or finance lease.
EXEMPTION AS PER INDAS-101
INDAS-101 lays down the various
process of transition to INDAS from current GAAP by incorporating certain
exemptions. As far as accounting aspect at the time of transition to INDAS is
concerned it requires retrospective accounting treatment, which is not
practically very easy to adopt. Therefore, INDAS 101 provided various type of
exemption while transition to INDAS.
It is to be noted that where
INDAS-101 provide certain exemption towards retrospective accounting treatment
and some other requirement of specified INDAS at the time of transition to
INDAS, at the same time it does not provide exemptions from the presentation
and disclosure requirements of other IndASs. Therefore, company should take
proper initiative towards presentation area of notified INDAS.
There are two type of exemptions
prescribed on IND AS-101
a. Prohibition of Retrospective
application of some aspect of INDAS (Appendix-B)
b. Exemptions from some requirements
of other Ind ASs.(Appendix – C & D)
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Sl.No.
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Mandatory exceptions (Appendix-B)
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1
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Estimates
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2
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derecognition
of financial assets and financial liabilities
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3
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hedge
accounting
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4
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non-controlling
interests
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5
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classification
and measurement of financial assets
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6
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impairment
of financial assets
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7
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embedded
derivatives
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8
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government
loans
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–
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Sl no
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Optional exemptions (Appendix -C & D)
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1
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Business
combinations
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2
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Share-based
payment transactions.
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3
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Insurance
contracts.
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4
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Deemed
cost.
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5
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Leases.
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6
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Cumulative
translation differences.
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7
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Long Term
Foreign Currency Monetary Items
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7
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Investments
in subsidiaries, joint ventures and associates.
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8
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assets and
liabilities of subsidiaries, associates and joint ventures
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9
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compound
financial instruments
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10
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designation
of previously recognised financial instruments
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11
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fair value
measurement of financial assets or financial liabilities at initial
recognition
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12
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decommissioning
liabilities included in the cost of property, plant and equipment
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13
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financial
assets or intangible assets accounted for in accordance with Appendix C to
Ind AS 115 Service Concession Arrangements
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14
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borrowing
costs
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15
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extinguishing
financial liabilities with equity instruments
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16
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severe
hyperinflation
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17
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joint
arrangements
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18
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stripping
costs in the production phase of a surface mine
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19
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designation
of contracts to buy or sell a non-financial item
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20
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revenue
from contracts with customers
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21
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non-current
assets held for sale and discontinued operations
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This is pertinent to note that, List
of exemption mentioned in Appendix –C & D is voluntary in nature and the
company should not apply these exemptions by analogy to other items .i.e.
exemption is restricted to the area mentioned in the list and could not be
extended to other similar area of other INDAS.
8.0 What are the exemptions for
Deemed Cost?
Ans: Appendix-D of INDAS-101
mentioned that, Company May elect to measure its Property, Plant and Equipment
(PPE), Investment Property & Intangible assets at following options as
deemed cost as on the date of transition to INDAS
a. At its Fair value.
b. Previous GAAP revaluation Amount.
c. Carrying Amount as recognised in
the financial statements as at the date of transition to Ind ASs
9.0 What is the meaning of
Carrying Amount ? In this context what will be the transition value, Original
Amount or Net Amount?
Ans: In the context of Carrying
amount specified in Appendix –D for transition to INDAS, it should be the Net
Amount after Depreciation as on the date of Transition to INDAS.
10.0 A company intends to
book it’s all assets at its carrying amount as on the date of Transition to
INDAS. Is it possible?
Ans: It is clearly mentioned in
Appendix-D, of INDAS-101 that “An entity shall not apply these exemptions by
analogy to other items.” i.e. exemption is restricted to the area mentioned in
the list and could not be extended to other similar area of other INDAS.
Further, similar contention also mentioned in Para-D7 of the appendix-D.
Therefore, Carrying amount of , Plant and Equipment (PPE), Investment Property
& Intangible assets only are eligible to be treated as deemed cost as on
the date of transition.
11.0 What are the Exemptions for Long
Term Foreign Currency Monetary Items?
Ans: Para- D13AA of
INDAS-101: A first-time adopter may continue the policy adopted
for accounting for exchange differences arising from translation of long-term
foreign currency monetary items recognised in the financial statements for the
period ending immediately before the beginning of the first Ind AS financial
reporting period as per the previous GAAP.
The company which is availing the
benefit of Para-46 & 46A of Accounting Standard-11 “ The effect of Change
in Foreign Exchange Rate” i.e. exchange difference relating to translation
of foreign currency monetary item relating to depreciable asset can be added /
deduct from the cost of asset or it can be accumulated n “Foreign Currency
Monetary Item Translation Difference Account” can avail the benefit upto the
beginning of of First IND AS Financial Year.
Example: If one company is company is
eligible for transition to INDAS from Financial Year 2016-2017. Company can
capitalise or accumulate the exchange difference upto 31-03-2016. Any exchange
difference arises after 01-04-2016 will be treated in Statement of Profit &
Loss as per IND AS-21 “The Effect of Change in Foreign Exchange Rates”.
12.0 How Comparative information’s
are to be present as per INDAS?
As per INDAS-101 An entity’s
first INDAS financial statements shall include at least three Balance Sheet,
two Statements of profit and loss, two Statements of cash flows and two
Statements of changes in equity and related notes, including comparative
information for all statements presented.
Suppose, xyz ltd need to apply INDAS
from FY: 2016-17, its first INDAS financial Statement should contain
a. Balance Sheet as on 01-04-2015,
31-03-2016 and 31-03-2017
b. Statement of Profit &Loss :
For the period 31-03-2016 and 31-03-2017
c. Statement of cash flow : for the
period 31-03-2016 and 31-03-2017
d. Statement of Changes in Equity For
the period: 31-03-2016 and 31-03-2017
e. Related note including comparative
information for all statement presented
f. Additionally as per the
requirement of para-3 of INDAS 101, explicit & unreserved statement should
be furnished,
13.0 How a user will understand the
impact of transition to INDAS on First INDAS financial Statement?
As per INDAS-101 a reconciliation statement should be
presented along with financial statement . Reconciliation Statement shall
include:
a) reconciliations of its equity
reported in accordance with previous GAAP to its equity in accordance with
INDASs for both of the following dates:
i. the date of transition to INDASs;
and
ii. the end of the latest period
presented in the entity’s most recent annual financial statements in accordance
with previous GAAP.
b) a reconciliation to its total
comprehensive income in accordance with Ind ASs for the latest period in the
entity’s most recent annual financial statements. The starting point for that
reconciliation shall be total comprehensive income in accordance with previous
GAAP for the same period or, if an entity did not report such a total, profit
or loss under previous GAAP.
Example: If one company is eligible for
Applicable of INDAS from FY: 2016-2017, its date of transition to INDAS is 01st
April,2015. Reconciliation statement as per para 24 shall be
a. Equity as per Previous GAAP as on
01-04-2015 and after due adjustment the balance amount of equity as per INDAS
as on 31-03-2016.
b. A reconciliation of its Total
Comprehensive income as per INDAS as on 31-03-2016 with previously reported
Income as per previous GAAP. Point to be noted that as per Existing Accounting
Standards and companies act 2013 there is no concept of Total comprehensive
income, therefore Statement of profit & loss should be used for previous
year.
Conclusion
This is a small step to briefly
explain an overview of INDAS on FAQ basis. Now both Company as well as auditor
need to have more cautious about both Accounting and presentation aspect of
INDAS. Time has already come to redesign our financial Statement with
international standard framework.
- See more
at: http://taxguru.in/company-law/faq-transition-indas-indas101.html#sthash.mf8t8AZS.dpuf
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