Financial Reporting under new companies Act, 2013

CA P. C. SAINI ( ACA, CS, CMA-Inter)

+91 9425531645

FINANCIAL REPORTINGUnder Companies Act,2013

ContentsCompanies Act 2013

National Financial Reporting Authority (NFRA)

Key Definitions related to Financial Reporting

Holding & Subsidiary Company

Provisions related to Books of Accounts- Sec.128

Provisions on applicability Accounting Standards- Sec.133

Provisions related to Financial Statements- Sec.129,134,137

Revision of Financial Statements- Sec.130

Frame work for preparation of FS

Applicability of Ind AS

Presentation of FS- IND AS 1

Old AS vs New Ind AS

Example : Accounts of SECL

Act contains 470 Sections, 29 Chapters, 7 schedules

Background

Companies Act, 2013

MCA has notified 282 Sections till date

Background…

The Changed Approach:

Shift from Shareholders Protection to stakeholders protection Corporate Governance /Investor Protection is Mantra Widened disclosure requirements Stricter penalties and Prosecution Liability of Directors / Professionals increased Increased coverage of the Act

Background…

Introduction of One Person Company & Small Company Internal Audit & Secretarial audit New Regulators (NFRA, SFIO, NCLT) New Committees - Nomination and Remuneration Committee

and Stakeholders Relationship Committee, Vigil Mechanism New definition for Associate company, Control, Small company,

Key managerial personnel, Related party, etc.

New Concepts

NATIONAL FINANCIAL REPORTING AUTHORITY

National Financial Reporting Authority

NFRA to be constituted by Central Government (CG) to provide for dealing with matters relating to accounting and auditing policies and standards to be followed by companies and their auditors.

The Chairperson and full time members of NFRA shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and 2 years thereafter.

Functions of NFRA are as below: Make recommendations to CG on the formulation of accounting and auditing

policies and standards Monitor and enforce compliance with accounting and auditing standards Oversee the quality of service of the professions and suggest measures

required for improvement in quality of services and such other related matters as may be prescribed;

Perform other prescribed functions in relation to above as may be prescribed.

National Financial Reporting Authority…

Powers of NFRA include: Investigate into the matters of professional or other misconduct committed by member

or firm of CA. Powers as are vested in a civil court under the Code of Civil Procedure, 1908 while

trying a suit. Where professional or other misconduct is proved, NFRA has the power to make order

for imposing monetary penalty or debarring the member or the firm from engaging himself or itself from practice as member of the institute for a minimum period of 6 months or for such higher period not exceeding 10 years.

Any person aggrieved by the order of NFRA can prefer an appeal to NFRAA. Function of NFRA – Standard Setting, Monitoring, Compliance Review and Overseeing

Quality of Service, Enforcement and Investigation It has he power to investigate, suo moto or on reference made by Central Government in

matters of professional or other misconduct by CA or firm. No other institute or body shall initiate or continue any proceedings in matters where NFRA has initiated an investigation and vise versa ( see para 81 of 13th Report of Standing Committee of 16th Lok Sabha.)

National Financial Reporting Authority… For monitoring compliance with Accounting Standards by Companies,

the Committee on Accounting Standards shall conduct scrutiny of financial statements of such class of companies and in such manner as may be decided by the Committee or the Authority.

For monitoring compliance with Auditing Standards, the Committee on Auditing Standards shall monitor the compliance of auditors including individual auditors, audit firms and audit LLPs, with the notified accounting standards and auditing standards and submit such periodical report(s) to the Authority as the Authority may specify.

Class of companies covered for investigation and quality review of audit Listed Companies Unlisted companies with net worth not less than ` 500 crores or paid up

capital not less than `500 crores or annual turnover not less than ` 1,000 crores as on 31st March of immediately preceding financial year or

Companies having securities listed outside India


Auditors to be covered under investigation by NFRA Auditors or audit firms which conduct the audit of the following

category of companies or their branches (including through the network or brand to which it belongs), whether “directly or indirectly”, as defined in Explanation to Sec. 144 of the Act -

a) audit of 200 companies or more in a year

b) audit of 20 or more listed companies

c) company or companies (including listed company or companies), having net worth not less than ` 500 crores or paid up capital not less than ` 500 crores or annual turnover not less than ` 1,000 crores as on 31st March of immediately preceding financial year or

d) company or companies having securities listed outside India


Act replaces NACAS with NFRA Legal sanctity for Auditing Standards Judicial powers to ensure independent oversight over CA’s NFRA can take action against those working in Companies as well as

Auditors

KEY DEFINITIONS

Key Definitions

“Financial Statement” in relation to a company, includes—

(i) a balance sheet as at the end of the financial year

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year

(iii) cash flow statement for the financial year

(iv) a statement of changes in equity, if applicable and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

Sec. 2(40)

Key Definitions…

“Financial Year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:

Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:

Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause

As this provision is effective from April 1, 2014, companies shall align their financial years as per this provision within April 1, 2016.

The exemption has not been provided for an associate or joint venture.

Sec. 2(41)

Key Definitions…

“Free Reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend:

Provided that—

(i) any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise, or

(ii) any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value,

shall not be treated as free reserves

Key Points Definition excludes securities premium Instances of provisions where the definition of free reserves is referred:

• Sec.63 for Issue of Bonus Shares• Sec.68 for purchase of its own shares or specified securities by companies• Sec.123 for declaration of dividend.• Sec.180(1)(c) restriction on powers of the Board• Sec.186 Loans and investment by a company

Sec. 2(43)

Key Definitions…

“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.Instances of provisions where the definition of net worth is referred: Sec.76(1) relating to Acceptance of deposits by Companies, for

determination of eligible company. Sec.135 determining criteria for Corporate Social Responsibility Sec.148 where the Central Government shall specify audit of items of

cost in respect of certain Companies. Limits for the purposes of approval by Special resolution – Related

Party transactions Sec. 2(57)

Key Definitions…Related party with reference to a company means: Director or his relative KMP or his relative a firm, in which a director, manager or his relative is a partner a private company in which a director or manager or his relative is a member

or director public company in which a director or manager is a director and holds along

with his relatives, more than 2% of its paid-up share capital any body corporate whose Board of Directors, managing director or manager

is accustomed to act in accordance with the advice, directions or instructions of a director or manager (excluding advice given in professional capacity)

any person on whose advice, directions or instructions a director or manager is accustomed to act (excluding advice given in professional capacity)

any company which is— a holding, subsidiary or an associate company of such company or a subsidiary of a holding company to which it is also a subsidiary

• a director other than an independent director or KMP of the holding company or his relative with reference to a company, shall be deemed to be a related party.

Sec. 2(76)

HOLDING & SUBSIDIARY COMPANIES

Holding & Subsidiary Companies

“Holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies (Sec. 2(46))

A Company shall make investments through not more than two layers of investment companies. (Sec.186 (1))

The provisions of this section shall not effect the following: a company from acquiring any other company incorporated in a

country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country

a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force

Holding & Subsidiary Companies…Subsidiary Company

“Subsidiary Company” or “Subsidiary”, in relation to any other company (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

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. (This proviso is not notified)

As per the Companies (Specification of definitions details) Rules, 2014,

Total share capital = paid up equity share capital + convertible preference share capital.

Sec. 2(87)

Holding & Subsidiary Companies…Subsidiary Company…

Explanation—For the purposes of this clause, (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to above is of another subsidiary company of the holding company

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors

(c) the expression “company” includes any body corporate

(d) “layer” in relation to a holding company means its subsidiary or subsidiaries

Sec. 2(87)

Holding & Subsidiary Companies…

As per Sec 2(27) of the Act, “control” “shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.”

As per AS-21, Control is defined as:(a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise or(b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

BOOKS OF ACCOUNTS

Books of Accounts

Sec. 128

Company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company.

Such books shall be kept on accrual basis and according to the double entry system of accounting

All or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within 7 days thereof, file with the Registrar a notice in writing giving the full address of that other place

Company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.

Books of Accounts…

Rule 3 of Companies (Accounts) Rules, 2014

The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference.

The books of account and other relevant books and papers shall be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered.

The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches.

The information in the electronic record of the document shall be capable of being displayed in a legible form.


There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or rendered unusable, unless permitted by law.

The back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis.

The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement- the name of the service provider the internet protocol address of service provider the location of the service provider (wherever applicable) where the books of account and other books and papers are maintained on

cloud, such address as provided by the service provider.

Rule 3 of Companies (Accounts) Rules, 2014


Sec. 128

If a company has a branch office in India or outside India proper books of account relating to the transactions effected at the branch office shall be kept at that office and proper summarised returns shall be periodically sent by the branch office to the company at its registered office.

The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed.

Inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Directors.


The books of account of every company relating to a period of not less than 8 FY’s immediately preceding a FY, or where the company had been in existence for a period less than 8 years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order.

If the MD, the WTD in charge of finance, the CFO or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such MD, WTD in charge of finance, CFO or such other person of the company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ` 50,000 but which may extend to ` 5 lakh or with both.

Sec. 128

ACCOUNTING STANDARDS

Accounting Standards

Sec. 133

The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the NFRA.

Transitional provisions with respect to Accounting Standards (Rule 7 of Companies (Accounts) Rules, 2014- The standards of accounting as specified under the Companies Act,

1956 shall be deemed to be the accounting standards until accounting standards are specified by the Central Government under section 133.

Till the NFRA is constituted under section 132 of the Act, the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendations made by the National Advisory Committee on Accounting Standards constituted under section 210A of the Companies Act, 1956.

FINANCIAL STATEMENTS

Financial Statements

Sec. 129

The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III.

The items contained in such financial statements shall be in accordance with the accounting standards.

These provisions shall not apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:

Financial Statements…

Sec. 129

At every AGM of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.

Where a company has one or more subsidiaries, it shall, in addition to standalone financial statements prepare a consolidated financial statement (CFS) of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM of the company along with the laying of its financial statement.

Subsidiary shall include associate company and joint venture. Company shall also attach along with its financial statement, a

separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in Form AOC I (Rule 5 of Companies (Accounts) Rules, 2014)


As per the proviso to Sec. 129(3), the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.

As per Rule 6 of Companies (Accounts) Rules, 2014 Manner of consolidation of accounts.- The CFS of the company shall be made in accordance with the

provisions of Schedule III of the Act and the applicable accounting standards.

In case of a company covered under Sec. 129(3) which is not required to prepare CFS under the Accounting Standards, it shall be sufficient if the company complies with provisions on CFS provided in Schedule III of the Act.

As per Companies (Meetings of Board and its Powers) Second Amendment Rules, 2014 consideration of financial statements, including CFS, if any, shall not be dealt with in a meeting held through video conferencing.


The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the CFS.

Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.

The Central Government may, on its own or on an application by a class or classes of companies, by notification, exempt any class or classes of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification Sec. 129


If a company contravenes the provisions of this section, the MD the WTD in charge of finance, the CFO or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ` 50,000 but which may extend to ` 5 lakhs, or with both.

Sec. 129

Financial Statements…Consolidated Financial Statements – Key Points

Companies having one or more subsidiaries, shall also prepare CFS and the same shall be laid before the AGM of the Company along with standalone financial statements.

A separate statement containing salient features of the financial statement of subsidiaries to be attached to the holding company’s financial statements. – Form AOC - I

‘Subsidiary’ includes ‘associate company’ and ‘joint venture’

Associate means a company other than a subsidiary company and joint venture company, in which the other company has a significant influence.

Significant influence means control of at least 20% of total share capital or of business decisions under an agreement.

In case of a company covered u/s 129(3), which is not required to prepare CFS under the Accounting Standards, it shall be sufficient if the company complies with provisions on CFS provided in Schedule III of the Act.

1. Sl. No.

2. Name of the subsidiary

3. Reporting period for the subsidiary concerned, if different from the holding company’s reporting period

4. Reporting currency and Exchange rate as on the last date of the relevant Financial year in the case of foreign subsidiaries.

5. Share capital

6. Reserves & surplus

Form AOC-IPart A – SubsidiariesInformation in respect of each subsidiary to be presented with amounts in `

7. Total assets 8. Total Liabilities 9. Investments 10. Turnover 11. Profit before taxation 12. Provision for taxation 13. Profit after taxation 14. Proposed Dividend 15. % of shareholding

1. Names of subsidiaries which are yet to commence operations 2. Names of subsidiaries which have been liquidated or sold during the year.


Form AOC-IPart B – Associates and Joint Ventures

1. Names of associates or joint ventures which are yet to commence operations 2. Names of associates or joint ventures which have been liquidated or sold during the year.

Name of Associates/Joint Ventures Name 1 Name 2

1. Latest audited Balance Sheet Date

2. Shares of Associate/Joint Ventures held by the company on the year end

No.

Amount of Investment in Associates/ Joint Venture

Extend of Holding %

3. Description of how there is significant influence

4. Reason why the associate/joint venture is not consolidated

5. Net worth attributable to Shareholding as per latest audited Balance Sheet

6. Profit / Loss for the year i. Considered in Consolidation ii. Not Considered in Consolidation


Financial Statement - Signing

Sec. 134(1)

The financial statement, including CFS, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board at least by the chairperson of the company where he is authorised by the

Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the Company Secretary of the company,

wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon. The auditors’ report shall be attached to every financial statement.

Financial Statement – Circulation of Accounts

A listed company shall also place its financial statements including CFS, if any, and all other documents required to be attached thereto, on its website.

As per the Rule 11, of Companies (Accounts) Rules, 2014, Manner of circulation of financial statements in certain cases.- In case of all listed companies and such public companies which have a

net worth of more than ` 1 crore and turnover of more than ` 10 crore rupees, the financial statements may be sent by electronic mode to such members whose shareholding is in

dematerialised format and whose email Ids are registered with Depository for communication purposes;

where Shareholding is held otherwise than by dematerialised format, to such members who have positively consented in writing for receiving by electronic mode; and

by dispatch of physical copies through any recognised mode of delivery as specified under section 20 of the Act, in all other cases.

Copy of Financial Statement to be Filed with Registrar A copy of the financial statements, including CFS, if any, along with

all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the AGM of the company, shall be filed with the Registrar within 30 days of the date of AGM in Form AOC-4 - Rule 12(1).

Where the financial statements are not adopted at the AGM or adjourned AGM, such unadopted financial statements along with the required documents shall be filed with the Registrar within 30 days of the date of AGM and the Registrar shall take them in his records as provisional till the financial statements are filed with him after their adoption in the adjourned AGM for that purpose.

The financial statements adopted in the adjourned AGM shall be filed with the Registrar within 30 days of the date of such adjourned AGM.

Financial Statement – Copy to be filed

Sec. 137

Copy of Financial Statement to be Filed with Registrar… Along with its financial statements to be filed with the Registrar,

attach the accounts of its subsidiary or subsidiaries which have been incorporated outside India and which have not established their place of business in India.

Where the AGM of a company for any year has not been held, the financial statements along with the documents required to be attached, duly signed along with the statement of facts and reasons for not holding the AGM shall be filed with the Registrar within 30 days of the last date before which the AGM should have been held.

Financial Statement - Copy to be filed…

Sec. 137

REVISION OF FINANCIAL STATEMENTS

Revision of Financial Statements

Mandatory reopening or recasting (Sec.130) A Company can reopen its books of accounts and recast its financial

statements if: • The relevant accounts were prepared in fraudulent manner or• Affairs of the Company were mismanaged during the relevant

period casting a doubt on the reliability of the financial statements On an application by Central Government, IT authorities, SEBI or any

regulatory body and an order being made by Court or Tribunal.

Voluntary Revision (Sec.131) The Company may, if it appears to the directors that the Financial

Statements or Board’s Report are not in compliance with the provisions of the Act, may prepare revised financial statement or a revised Board’s Report with the approval of Tribunal.

Not Notified

Revision of Financial Statements…Key Points Revision / Reopening of financial statements for a period earlier

than immediately preceding financial year may impact financial statements for subsequent years also.

Presently, as per circular issued by SEBI in August 2012, SEBI is empowered to require revision of financial statements, if the audit report is qualified.

Complications may arise when revision/ reopening pertains to companies which have already amalgamated / amalgamation is pending Court’s approval.

Detailed process for revision, including involvement of current and previous auditors , may lead to frivolous litigations.

May require current auditor to re-audit entire financial statements for one or more previous periods.

Revision / reopening might have an impact on taxation as well.

Framework for the Preparation

and Presentation of Financial Statements

The Framework is the conceptual framework upon which the Ind AS are based and determine how financial statements are prepared and the information they contain.

It provides the general principles upon which Ind AS will be based . The framework is the standard of all standards, but is not an accounting standard.

It is issued in July 2000.

In case of conflict between Framework and Ind AS, Ind AS shall prevail over the Framework, as Ind AS contains specific principles with respect to items of financial statement whereas framework contains general principles with respect to items of financial statement.

Framework for the Preparation and Presentation of Financial Statements

The Framework deals with:

1. the objective of financial statements;

2. the qualitative characteristics that determine the usefulness of information provided in financial statements;

3. definition, recognition and measurement of the elements from which financial statements are constructed; and

4. concepts of capital and capital maintenance.

Scope

Objective of financial statements

The objective of financial statements is to provide information about

Financial position,

Financial performance, and

Cash flows

of an entity that is useful to a wide range of users in making economic decisions.

Understandability Relevance Reliability Comparability

Materiality

Faithful Representation

Substance Over Form Neutrality Prudence Completeness

Qualitative characteristics are the attributes that make the information provided in financial statement useful to users.

Qualitative Characteristics of Financial Statement

The elements of financial position are 1. Assets,2. Liabilities, 3. Equity

Element of Financial Position

The elements of financial performance :1. Income2. Expenses

Element of Financial Performance and their definition

Measurement is the process of determining the monetary amounts at which the elements of financial statement are recognised and carried in the Financial Statement.

Measurement Basis

Historical cost Current cost Realisable

value Present value

(a) Historical cost: Assets are recorded at the amount of cash or cash equivalents paid

or the fair value of the other consideration given to acquire them at the time of their acquisition.

Liabilities are recorded at the amount of cash or cash equivalents expected to be paid to satisfy the liability or at the amount of proceeds received in exchange for the obligation, in the normal course of business.

(b) Current cost: Assets are carried at the amount of cash or cash equivalents that

would have to be paid if the same or an equivalent asset were acquired currently.

Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

Measurement Basis

(c) Realisable (settlement) value: Assets are carried at the amount of cash or cash equivalents that

could currently be obtained by selling the asset in an orderly disposal.

Liabilities are carried at their settlement values, that is, the undiscounted amount of cash or cash equivalents expected to be required to settle the liabilities in the normal course of business.

(d) Present value: Assets are carried at the present value of the future net cash

inflows that the item is expected to generate in the normal course of business.

Liabilities are carried at the present value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.

Measurement Basis

Capital and Capital maintenance

There are two concepts of capital:

1. Financial concept: Under the financial concept, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity.

2. Physical concept: Under the physical concept, such as operating capability, capital is regarded as the productive capacity of the entity. This productive capacity may be defined in terms of volume of production. For eg.- Units of output per annum.

Underlying Assumptions

Under Going concern, it is assumed that the entity will continue inoperation for the foreseeable future and has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

Under Accrual basis, the effects of transactions are recognised on mercantile basis i.e. when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statement of the periods to which they relate.

Under Consistency, same accounting policies are followed from one period to another so that comparability of the financial statement can be achieved.

Going concern Accrual basis Consistency

Applicability of Ind AS

NW - Rs. 500 Crore

or more

NW - Less than Rs. 250 Crore

NW - Rs. 250 Crore or more but less than Rs. 500 Crore

1st April 2016

NA1st April 2017

LISTED COMPANY

NW – Less than Rs.

500 Crore

1st April 2017

UNLISTED COMPANY

NW - Rs. 500 Crore

or more

1st April 2016

Applicability of Ind-AS to Companies

Listed comapany means company whose equity and /or debt securities are listed or are in the process of listing on any stock exchange in or outside India.

NW stands here for Net WorthSlide 2 of 7

All Companies can voluntarily adopt Ind AS from 1st April 2015.Ind AS is applicable to Banks, NBFCs and Insurance Companies

from 1st April, 2018.Ind AS is not applicable to Unlisted companies with net worth of

less than Rs. 250 Crore and Companies listed on SME exchange. They are required to comply with existing Accounting Standards.

Holding, Subsidiary, Associate and Joint Venture of above are also required to follow Ind-AS from respective date.

Apply to both consolidated and stand-alone financial statements.Comparatives of previous year are also required to be Ind AS

compliant.Ind ASs are notified by MCA on 16th February, 2015.Once opt to follow Ind AS, cannot switch back.In case of conflict between Ind AS and law, the provisions of law

shall prevail.

Companies having paid up share capital of Rs. 25 Crore or less are listed on Small and Medium Enterprises (SME) exchange.

What is net worth and how to calculate? When to calculate?

Net worth is the agreegate 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 miscellanous 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.

Net worth will be determined based on the standalone accounts of the company as on 31st March, 2014 or the first audited period ending after that date.

Companies listed on SME Exchange & Net Worth

Old AS vs.

New Ind AS

Principle-based Standards Applicable on separate as well as consolidated

financial statements. Give more importance to concept of ‘substance

over form’, i.e., economic reality of a transaction. Rely more on fair valuation approach, and

measurements based on time value of money. Require more disclosures of all the relevant

information and assumptions used. Require higher degree of judgment and estimates.

Salient Features of Ind AS

IND AS ARE BASED MORE ON SUBSTANCE OVER FORM : Sale of Goods on Extended Credit Terms, i.e., goods sold on terms extending

more than normal credit period. Financing element inbuilt in price is segregated and considered as ‘interest’

income. Say, goods normally sold at price at Rs. 100 for 3 months credit If sold for Rs. 110 for 15 months credit: Rs. 10 considered as ‘interest’

income This has VAT and TDS implications

Understanding Ind AS from AS

Fixed assets or inventories purchased on deferred credit terms having financing element:

Financing element, viz., ‘interest’ to be segregated from the ‘purchase price’

Implications: What would be the original cost of the fixed asset/inventories for tax?

Substance over form (Contd.)

Unbundling of multiple elements from the sale price where required:

Sale of Automobile on Extended Warranty An automobile dealer sells a car for extended warranty of 3

years instead of normal 1 year Extended warranty element of 2 years required to be

separated under Ind AS from the selling price based on Fair Value of warranty.

Revenue from warranty service recognised in the year when the service is rendered, i.e., revenue recognition is deferred.


Implications: Tax: Income from sale of car to be recognised when car

sold VAT: To be levied on invoice price exclusive of value of

extended warranty Service Tax: To be levied on value of extended warranty


Redeemable preference shares carrying fixed rate of dividend considered a liability under Ind AS

Dividend paid/payable considered as ‘interest’ Charged to statement of profit and loss and not to be

considered as an appropriation of profit as at present Implications: TDS on interest MAT implication as Book Profit


Certain transfers in substance considered as finance lease under Ind AS

Accordingly, only receivable is recognised in the Balance Sheet by the transferor

Presently, the transferor recognises it as its fixed asset and charges depreciation

Implications: MAT implication as Book Profit Where lease more than 12 years, will be considered as sale

for VAT purpose


Measurement of interest at Effective Interest Rate rather than the contracted rate to recognise interest income and expense

Illustration: A company issues bond of Rs. 100 carrying interest rate at

10% to be redeemed at Rs. 110 after five years. Presently , interest expense recognised at Rs. 10 per year and

Rs. 10 premium paid at the time of redemption recognised in the year of redemption (though some companies amortise this Rs. 10 over the five year term on straight line basis)

Time value of money as a measurement basis

Under Ind AS, interest rate is recomputed to recognise Rs. 10 premium payable at the end of the term of the bond. Accordingly, interest is recognised every year, at the effective rate of 11.43%

Implications: TDS MAT on account of change in Book Profit

Time value of money as a measurement basis

Certain investments (e.g., held for trading in normal course of business) required under Ind AS to be measured at FV and changes in FV, gains and losses, recognised in profit or loss.

Presently, only FV changes resulting in losses recognised in profit or loss; gains ignored

Implications: MAT implications on Book Profit

Greater use of Fair Value (FV) as Measurement Basis

Service Concession Arrangement, e.g., Build-Operate-Transfer arrangement of a road Revenue is required to be recognised at FV of the

construction services rendered during construction period

Even though actual receipts start when the road is put under operation, i.e., toll is collected

Implications: Should the income be taxed during construction period? MAT implications on Book Profit

Fair Value as Measurement Basis (Contd.)

Component approach and concept of useful life of charging depreciation Ind AS require depreciation to be charged on significant

parts of a fixed asset where useful lives of the parts and the remaining asset are different Presently, depreciation required to be charged on the

complete asset at a single rate Ind AS also confer primacy to useful life concept for

charging depreciation, rather than statutory minimum depreciation concept hitherto followed

Implications: MAT on Book Profit

Other significant differences

Effects of Changes in Foreign Exchange Rates Ind AS based on ‘functional currency’ concept, existing AS is

not Where functional currency of an entity other than INR,

impact on profit or loss different from existing AS Consequential tax impact

After transitioning to Ind AS, option of capitalising/deferring foreign exchange differences under existing AS no longer available, Such differences would be recognised in profit or loss

Implications: Consequential tax impact on Book Profit

Other significant differences

77

AS No.

Existing Indian Standard

IFRS No.

Ind AS No. Converged IFRS

AS 1 Disclosure of Accounting Policies

IAS 1 Ind AS 1 Presentation of Financial Statements

AS 2 Valuation of Inventories

IAS 2 Ind AS 2 Inventories

AS 3 Cash Flow Statements

IAS 7 Ind AS 7 Statements of Cash Flows

AS 4 Events Occurring after the Balance Sheet Date

IAS 10 Ind AS 10

Events after the Reporting Period

Comparative Summary of Indian Accounting Standards, IFRS & Present AS

AS No. Indian Standard IFRS

No.Ind-AS

No. IFRS

AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

IAS 8 Ind AS 8

Accounting Policies, Changes in Accounting Estimates and Errors

AS 6 Depreciation Accounting

- - -

AS 7 Construction Contracts

IAS 11 Ind AS 115

Revenue



No.Ind-AS

No. IFRS

AS 9 Revenue Recognition

IAS 18 Ind AS 115

Revenue

AS 10 Accounting for Fixed Assets

IAS 16 Ind AS 16

Property, Plant and Equipment

AS 11 The Effects of Changes in Foreign Exchange Rates

IAS 21 Ind AS 21

The Effects of Changes in Foreign Exchange Rates



No.Ind-AS

No. IFRS

AS 12 Accounting for Government Grants

IAS 20 Ind AS 20

Accounting for Government Grants and Disclosure of Government Assistance

AS 13 Accounting for Investments

IAS 40

IAS 27

Ind AS 40

Ind AS 27

Investment Property

Separate Financial Statements



No.Ind-AS

No. IFRS

AS 14 Accounting for amalgamations

IFRS 3 Ind AS 103

Business combinations

AS 15 Employee Benefits IAS 19 Ind AS 19

Employee Benefits

AS 16 Borrowing costs IAS 23 Ind AS 23

Borrowing costs

AS 17 Segment Reporting IFRS 8 Ind AS 108

Operating Segments



No.Ind-AS

No. IFRS

AS 18 Related Party Disclosures

IFRS 12

Ind AS 24

Disclosure of Interests in other Entities

AS 19 Leases IAS 17 Ind AS 17

Leases

AS 20 Earnings Per Share IAS 33 Ind AS 33

Earnings Per Share



No.Ind-AS

No. IFRS

AS 21

Consolidated Financial Statements

IFRS 10

IAS 27

IFRS 12

Ind AS 110

Ind AS27

Ind AS 112

Consolidated Financial Statements

Separate Financial Statements

Disclosure of Interest in other entities

AS 22

Accounting for Taxes on Income

IAS 12

Ind AS 12

Income taxes



No.Ind-AS

No. IFRS

AS 23 Accounting for Investments in Associates in Consolidated Financial Statements

IAS 28

Ind AS 28

Investments in Associates and Joint Ventures

AS 24 Discontinuing operations

IFRS 5

Ind AS 105

Non Current Assets Held for Sale and Discontinued operations

AS 25 Interim financial reporting

IAS 34

Ind AS 34

Interim Financial Reporting



No.Ind-AS

No. IFRS

AS 26 Intangible assets IAS 38 Ind AS 38

Intangible Assets



No.Ind-AS

No. IFRS

AS 27

Financial Reporting of Interests in Joint Ventures

IAS 28

IAS 27

IFRS 11

IFRS 12

Ind AS 28

Ind AS27

Ind AS 111

Ind AS 112

Investments in Associates and Joint VenturesSeparate Financial StatementsJoint Arrangements

Disclosure of Interest in other entities



No.Ind-AS

No. IFRS

AS 28 Impairment of assets IAS 36 Ind AS 36

Impairment of assets

AS 29 Provisions, Contingent Liabilities and Contingent Assets

IAS 37 Ind AS 37

Provisions, Contingent Liabilities and Contingent Assets

AS 30 Financial Instruments Accounting

IAS 39 Ind AS 109

Financial Instruments

AS 31 Financial Instruments Presentation

IAS 32 Ind AS 32

Financial Instruments – Presentation



No.Ind-AS

No. IFRS

AS 32 Financial Instruments-Disclosures

IFRS 7 Ind AS 107

Financial Instruments: Disclosures

- - IFRS 2 Ind AS 102

Share based payment

- - IAS 29 Ind AS 29

Financial Reporting in hyperinflationary Economies


Exploration for and Evaluation of Mineral Resources



No.Ind-AS

No. IFRS


Accounting and Reporting of Retirement Benefit Plans*


Agriculture

- - IFR S4 Ind AS 104

Insurance Contracts


First Time Adoption of Indian Accounting Standards



No.Ind-AS

No. IFRS

- - IFRS 12

Ind AS 114

Regulatory Deferral Accounts

- - IFRS 13

Ind AS 113

Fair Value Measurement


Ind AS 1: Presentation of Financial Statement

In India, Presentation of Financial Statement is always governed by Companies Act instead of Accounting Standard.

Earlier there is Schedule VI, now Schedule III is there for Presentation of Financial Statement as per Accounting Standard.

Recently Ministry of Corporate affairs had issued Format of Financial Statement as per Ind AS. (As per notification dated 06/04/2016).

Financial Statement comprises of:-

(a) Balance Sheet as at the end of the period;(b) Statement of Profit and Loss for the period;(c) Cash Flow Statement for the period; and(d) Notes.

Financial Statement

Balance Sheet

Statement of Profit and Loss

Cash Flow Statement Notes

Comparative Information

1. Should have comparatives with all the amounts reported in current period financial statements

2. When Change in Accounting policy retrospectively, Retrospective restatement / Reclassifies items

Present 3 balance sheets and two statements Current period end Previous period end Beginning of earliest comparative period end

3. When the entity changes the presentation or classification of items in its financial statements, the entity shall reclassify comparative amounts unless reclassification is impracticable and disclose Nature, amount and reasons of Reclassification in Notes.

4. When impossible to reclassify, disclose the reason for not reclassifying the amounts and Nature of the adjustments that would have been made if the amounts had been reclassified.

Balance Sheet Balance sheet include Statement of change in equity which is presented as a part of the Balance Sheet.

Statement of Profit and Loss

Statement of Profit and Loss include other comprehensive income which is presented as part of a single statement of profit and loss.

There is no concept of extraordinary item in Ind AS.

Notes

Notes comprises of summary of accounting policies and other explanatory information about items of financial statement.

Reason: Definition of Income Enhancement of an Asset or reduction of a Liability

(other than transactions with owners) Accordingly, any increase in asset, e.g., upward

revaluation of asset, is an ‘income’ even though not realised

Earlier, such increase transferred directly to Revaluation Reserve in Balance Sheet

Now, transferred to Reserve through OCI

Ind AS use ‘Other Comprehensive Income’ (OCI) concept

Statement of profit and loss is, therefore, divided into two sections:

Profit or loss section:

Containing items of revenue/income and expenses which are hitherto normally included in the statement of profit and loss with a few exceptions (e.g. actuarial gains & losses on measurement of defined benefit obligations now not included)

Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required by other Ind ASs.

OCI concept (Contd.)

OCI section contains generally unrealised gains and losses arising from re-measurements of assets & liabilities

On realisation, with few exceptions, gains & losses are recognised in profit or loss section

Exceptions: Sale of revalued assets Equity Instruments opted to be measured at Fair

Value through OCI

97 OCI concept (Contd.)

COMPONENTS OF OCI

The components of other comprehensive income include:

(a) changes in revaluation surplus (see Ind AS 16 Property, Plant and Equipment and

Ind AS 38 Intangible Assets);

(b) actuarial gains and losses on defined benefit plans (see Ind AS 19 Employee

Benefits);

(c) gains and losses arising from translating the financial statements of a foreign

operation (see Ind AS 21 The Effects of Changes in Foreign Exchange Rates);

(d) gains and losses on remeasuring available-for-sale financial assets (see Ind AS

39 Financial Instruments: Recognition and Measurement);

(e) the effective portion of gains and losses on hedging instruments in a cash flow

hedge (see Ind AS 39 Financial Instruments: Recognition and Measurement). Reclassification adjustments are amounts reclassified to profit or loss in the

current period that were recognised in other comprehensive income in the current or previous periods.

For MAT purposes ‘profit or loss’ as per that section may be considered for the sake of simplicity

Since OCI mostly comprises unrealised gains & losses, may be ignored

profit or loss section also includes certain unrealised gains and losses on operating items, e.g., fair value changes in held for trading investments; should be tax neutral, i.e., if unrealised gains included for MAT then unrealised losses also should be allowed as deduction

99 Implication : OCI concept (Contd.)

FORMAT OF FINANCIAL STATEMENT AS PER Ind AS ENCLOSED

Double click on Format

FORMAT NOTIFIED BY MCA ON 06.04.2016

Example- Accounts of SECL in New Format

Double click on Format

Accounts of SECL - Old FormatAccounts of SECL - New Format

Compliance with Ind ASs

Financial statements complying with Ind ASs shall make an explicit and unreserved statement of such compliance in the notes.

Financial statements shall not be described as complying with Ind ASs unless they comply with all the requirements of applicable Ind ASs.

THANK YOU

Financial Reporting under new companies Act, 2013

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