Voices on Reporting...Voices on Reporting - April 2020 4 Key impacts on financial reporting The financial reporting impacts of the COVID-19 outbreak will depend on facts and circumstances,

Voices on ReportingAnnual updates publication

April 2020-home.kpmg/in

Click here to access

© 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated wi th KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Voices on Reporting - April 2020 2

Table of contents

Updates relating to COVID-19

Other updates

Updates relating to SEBI Regulations

Updates relating to the Companies Act, 2013

Updates relating to Ind AS

Voices on Reporting

Updates

relating to COVID-19

Updates

relating to the Companies

Act, 2013

Updates

relating to SEBI

Regulations

Updates

relating to Ind ASOther

updates

In this publication, we have summarised important updates relating to the year ending 31 March 2020 from the Securities and Exchange Board of India (SEBI), the Ministry of Corporate Affairs (MCA), the Institute of Chartered Accountants of India (ICAI), the Reserve Bank of India (RBI) and the Ministry of Law and Justice.


Updates relating to COVID-19The rapid outbreak of the coronavirus (COVID-19) presents an alarming health crisis that the world is grappling with. The impacts of the COVID-19 pandemic are unfolding in real time. The COVID-19 outbreak has already had a significant effect on the economies of affected countries and international financial

markets. As the companies in India approach their year-end, there is an urgent need to evaluate the impacts of the outbreak on their accounting and financial reporting.

Background Financial reporting impacts

Relaxations


Other updates




Voices on Reporting


Key impacts on financial reportingThe financial reporting impacts of the COVID-19 outbreak will depend on facts and circumstances, including the degree to which a company’s operations are exposed to the impacts of the outbreak. Some of the key accounting and financial reporting considerations for the companies are explained below:

• Revenue recognition: Companies would need to assess the impact on revenue recognition aspects such as revision of estimates of variable consideration and also timing of revenue recognition including assessment of whether consideration is probable considering the impact of COVID-19 outbreak. Also, companies should consider the consider the impact of changes in market prices or expected costs on estimates while allocating the transaction price for new contracts.

• Inventory valuation: There could be a significant impact on the inventory valuation on account of forced plant shutdowns, decline in net realisable value

due to reduction in demand and non-fulfillment of sales and purchase contracts. Additionally, entities should assess the allocation of fixed overhead as during periods of abnormal production levels (i.e., production levels below the range of normal capacity), the excess overhead should not be allocated to inventory (e.g. by revising the normal capacity), but instead should be recorded as an expense in the period incurred.

• Impairment of non-financial assets and goodwill: Many companies may be facing the problem of low demand for their products or services or may be affected by the restrictions imposed by the government. Certain companies may be dependent on supply chains or production facilities affected by lockdown. This situation could be an impairment trigger and require an impairment test. However, it could be a challenge for many companies to estimate future cash flows due to the increase in economic uncertainty. Also, companies would need to ensure that

discount rates used in recent valuations have been updated to reflect the risk environment at the reporting date.

Additionally, companies should provide additional focus and attention while testing of impairment of goodwill and indefinite useful life of intangible assets as at reporting date.

• Expected Credit Loss (ECL): Certain sectors and regions may be particularly severely affected by the economic effects of COVID-19. Hence, companies would need to consider the impact of COVID-19 appropriately while recognising ECLs. However, the companies may find it challenging to incorporate into their measurement of ECLs the forward-looking information relating to the economic impact of COVID-19 that is available without undue cost or effort at the reporting date. Relevant disclosures should be provided to enable better understanding of credit risk, timing and uncertainty of future cash flows.


Other updates




Voices on Reporting


Relaxations


Key impacts on financial reporting• Fair value assessment: The fair value of an

asset (or liability) is determined as per the market conditions at the measurement date. Due to uncertainty of the economic impact of COVID-19, there would be a significant change in the assumptions used to measure fair value of the assets and liabilities of a company at the end of the reporting period including considerable change in the valuation techniques being adopted by the companies on account of change in the market conditions and related observable inputs, redundant previous information, etc. Appropriate disclosures to address the change would become necessary.

As per Ind AS 1, Presentation of Financial Statements and Ind AS 113, Fair Value Measurement a company would need to provide sensitivity disclosures along with disclosure of the key assumptions and judgements made by management. This is likely to enable users to understand how fair value has been determined and categorisation of fair value hierarchy.

• Onerous contract provisions: Customer contracts may become onerous if, for example, suppliers are unable to fulfil their obligations under the contract as a result of closure or reduced production by manufacturing plants, which would necessitate recognition of a provision. Delay in fulfilment of contractual obligations may also result in penalties to be provided for. Companies should consider providing meaningful disclosures about judgements and estimates applied in recognising and measuring provisions.

• Lease accounting: Companies should consider the impact on lease term. Company should consider the impact of rental concessions if agreed as a result of COVID-19, this may be either variable lease payments or a lease modification. A company which is a lessee would need to assess its right-of-use assets for impairment. Similarly, lessors would need to ascertain whether some of their underlying assets held for lease are to be

considered for impairment due to decrease in demand for such assets or steep decline in rentals.

• Going concern: The outbreak of COVID-19 has caused a significant deterioration in economic conditions for some companies and an increase in economic uncertainty for others. Management would need to assess whether the current events and conditions cast significant doubt on a company’s ability to continue as a going concern, or in severe cases, whether the going concern assumption is still appropriate as a basis for the preparation of the company’s financial statements. In many cases, budgets and forecasts that may have been used to support management’s initial going concern assessment may now be of limited relevance given the rapidly changing economic and business circumstances and may require significant revision to be able to support management’s assessment in the current environment.


Other updates




Voices on Reporting


Relaxations


Key impacts on financial reportingIt would be critical to understand what impacts current events and conditions have on a company’s operations and forecast cash flows, with the key immediate issue being whether the company still has sufficient liquidity to continue to meet its obligations as they fall due.

To the extent the events and conditions are identified that may cast significant doubt on a company’s ability to continue as a going concern, disclosure would be required if these events constitute material uncertainties or management’s conclusion involved significant judgement (i.e. a ‘close call’ scenario). Additionally, Ind AS 107, Financial Instruments: Disclosures requires disclosure of quantitative data about liquidity risk arising from financial instruments. A company also needs to explain how it is managing this risk, including any changes from the previous period and any concentrations of liquidity risk.

• Internal controls over financial reporting:Companies should also evaluate the effect

on internal control over financial reporting, if any. For instance, new controls or modification in controls would be required where companies have enhanced/modified IT access to enable remote workforces.

• Disclosure and presentation in financial statements: Disclosures should include identification of key assumptions about the impact of COVID-19 on material estimates and sources of estimation uncertainty that could result in material adjustments to the carrying amount of assets and liabilities, including sensitivity analysis. Additionally, more extensive disclosures about company’s policies and processes for managing its credit or liquidity risk exposures may become necessary.

• Potential impact on audit, an auditor’s report, completion of the last quarter’s results and annual financial reporting process: Companies may face challenges in helping auditors to conduct their audits as it may be difficult to provide them access to their establishments (e.g. not being able to observe management’s inventory counts or

to physically verify fixed assets after year-end). Also, in certain situations, companies may have challenges in obtaining access to management and others, including legal counsel, management’s experts due to travel restrictions. They may not be able to provide the anticipated audit evidence e.g. there could a significant decline in response rates for bank and/or debtor confirmations. For large companies with various overseas components, there could be a significant challenge to work with component auditors and managements of the overseas components.

These challenges could lead to certain implications in the auditor’s report which may include:

– Reporting of a new Key Audit Matter (KAM) in response to additional audit work necessary as a result of the outbreak

– Addition of a material uncertainty in relation to going concern paragraph, where relevant


Other updates




Voices on Reporting


Relaxations


Key impacts on financial reporting– An emphasis of matter paragraph

relating to a significant uncertainty arising from the outbreak

– A qualification or adverse opinion in respect of inadequate disclosures in the financial statements.

Key takeaways

• Companies should maintain close communications with their board of directors, auditors, legal counsel and other service providers as the circumstances progress. They should discuss with the board and the audit committee the potential financial impacts and risk assessment would help in better preparation of the financial statements.

• Companies should aim to provide adequate disclosures in their year-end financial statements on current and potential impacts of COVID-19 on results of operations, liquidity and capital resources. The assessment should be based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance.

• The sectors that are likely to be mostly affected by the COVID-19 outbreak are aviation, tourism, hospitality, Information Technology (IT), pharmaceuticals, automotive, building and construction and consumer goods. Additionally, banking sector would be impacted by the shutdowns in industries and this could result in rise in Non-Performing Assets (NPAs).

(Source: KPMG in India’s First Notes: COVID-19 Potential impact on financial reporting dated 24 March 2020 and KPMG in India’s Voices on Reporting webinar dated 3 April 2020)


Other updates




Voices on Reporting


Relaxations


Relaxations for companies amid COVID-19 outbreakIn order to accommodate concerns relating to the outbreak of COVID-19, recently, the Securities and Exchange Board of India (SEBI), and the Ministry of Corporate Affairs (MCA) have granted relaxations to companies from certain provisions of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 (Listing Regulations) and the Companies Act, 2013 (2013 Act). Additionally, the Reserve Bank of India (RBI) has issued certain measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 outbreak.

Those relate to the following:

• Extension of timeline of various filings with the stock exchange(s)

• Revised board/audit committee meeting norms

• Eligibility of CSR funds for COVID-19

• Other special measures

• RBI’s regulatory package

Extension of timeline of various filings with the stock exchange(s)

SEBI has extended the timeline for various filings to be made by the listed companies to the recognised stock exchange(s) under the Listing Regulations and other required compliances for the quarter, half-year and year ended 31 March 2020.

The following chart shows extension of timelines of filing of financial results for listed entities:

Regulation/circular Existing timeline for quarter/half-year/year ended 31 March 2020

Revised timeline for quarter/half-year/year ended 31 March 2020

Applicable to companies with listed specified securities (i.e. equity shares and convertible shares)

Regulation 33: Filing of financial results in the following manner:

• Quarterly results other than last quarter: Within 45 days from the end of each quarter

15 May 2020 30 June 2020

• Annual results with last quarter results: Within 60 days from the end of Financial Year (FY)

30 May 2020 30 June 2020


Other updates




Voices on Reporting


Relaxations


Relaxations for companies amid COVID-19 outbreakRegulation/circular Existing timeline for quarter/half-

year/year ended 31 March 2020Revised timeline for quarter/half-year/year ended 31 March 2020

Applicable to companies with listed Non-Convertible Debentures (NCDs), Non-Convertible Redeemable Preference Shares (NCRPS) and Commercial Papers (CPs)

Regulation 52 and SEBI circular on listing of CPs1: Filing of financial results in the following manner:

• Half-yearly results: Within 45 days from the end of the half-year 15 May 2020 30 June 2020

• Annual results: Within 60 days from the end of FY. 30 May 2020 30 June 2020

Extension of other timelines are as follows:

Regulation/circular Existing timeline for quarter/half-year/year ended 31 March 2020

Revised timeline for quarter/half-year/year ended 31 March 2020

Applicable to all listed companies

Regulation 7(3): Filing of compliance certificate on share transfer facility within one month of end of each half of the FY

30 April 2020 31 May 2020

Regulation 13(3): Filing of a statement with details relating to investors’ complaints received, disposed and pending within 21 days from the end of each quarter

21 April 2020 15 May 2020

1. SEBI circular no. SEBI/HO/DDHS/CIR/P/2019/115 dated 22 October 2019.


Other updates




Voices on Reporting

(Source: KPMG in India’s analysis, 2020 basis SEBI circulars dated 19 March 2020 and 23 March 2020)


Relaxations




Applicable to companies with listed specified securities (i.e. equity shares and convertible shares)

Regulation 19(3A): Nomination and Remuneration Committee (NRC) to meet at least once in a year.

31 March 2020 30 June 2020Regulation 20(3A): Stakeholders Relationship Committee (SRC) to meet at least once in a year.

Regulation 21(3A): Risk Management Committee (RMC) to meet at least once in a year.

Regulation 24A read with circular no CIR/CFD/CMD1/27/2019 dated 8 February 2019: Filing of an annual secretarial compliance report within 60 days of the end of FY

30 May 2020 30 June 2020

Regulation 27(2): Filing of a compliance report on corporate governance within 15 days from the end of each quarter

15 April 2020 15 May 2020

Regulation 31: Filing of a statement showing holding of securities and shareholding pattern for each class of securities within 21 days from the end of each quarter

21 April 2020 15 May 2020

Regulation 40(9): Certificate from a practicing company secretary within one month of the end of each half of the FY on timely issue of share certificates

30 April 2020 31 May 2020


Other updates




Voices on Reporting


Relaxations




Regulation 44(5): Top 100 listed (Basis market capitalisation as on 31 March of every FY) companies to hold an Annual General Meeting (AGM)within five months from the date of closing of the FY.

31 August 2020 30 September 2020

Regulation 47: Publication of advertisements in newspapers including financial results and notice of board meeting to discuss the financial results.

To be published along with submission of information to the stock exchange(s) except financial results.

Publication of advertisements of all events scheduled till 15 May 2020 is exempt.

Other compliances

• Cut-off date for issuance of NCDs/NCRPs/CPs

Particulars Available audited financial results

Existing timeline Revised timeline

Applicable to companies with listed NCDs, NCRPS and CPs

Companies proposing a public issue of debt securities (i.e. NCDs/NCRPs/CPs) are required to submit their latest audited financials which should not be older than six months along with the offer document.

However, they are allowed to disclose unaudited financial results with limited review report for the stub period.

As on

30 September 2019

On or before

31 March 2020

On or before

31 May 2020


Other updates




Voices on Reporting

(Source: KPMG in India’s analysis, 2020 basis SEBI circulars dated 19 March 2020 and 23 March 2020)

(Source: KPMG in India’s analysis, 2020 basis SEBI circular dated 23 March 2020)


Relaxations


Relaxations for companies amid COVID-19 outbreak• Initial and annual disclosure by a large corporate

Particulars Existing timeline Revised timeline

Applicable to all listed companies which meets the criteria of being a large corporate2

A listed company identified as a large corporate is required to make following disclosures:

• Disclosure of the fact of being identified as a large corporate: Within 30 days from the beginning of the FY

30 April 2020 30 June 2020

• Details of the incremental borrowings during the FY: Within 45 days of the end of the FY.

15 May 2020 30 June 2020

2. A listed company is identified as a large corporate if as on last day of the FY, it meets all of the following conditions:

• It has listed specified securities, debt securities or NCRPs, in accordance with the Listing Regulations

• It has an outstanding long-term borrowing of INR100 crore or above and

• It has a credit rating of ‘AA and above’.


Other updates




Voices on Reporting

(Source: KPMG in India’s analysis, 2020 basis SEBI circular dated 23 March 2020)


Relaxations


Relaxations for companies amid COVID-19 outbreakEnforcement of actions in case of non-compliance with the Listing Regulations

SEBI through its circular dated 22 January 2020 prescribed actions to be taken by stock exchange(s) for non-compliances with certain provisions of the Listing Regulations and also provided a standard operating procedure for suspension and revocation of trading of specified securities. The provisions of the circular were applicable for compliance periods ending on or after 31 March 2020.

Relaxation

As part of the relaxations, SEBI has extended the applicability of the provisions of the circular dated 22 January 2020. Accordingly, it will come into force with effect from compliance periods ending on or after 30 June 2020. The provisions of the erstwhile circular dated 3 May 2018 would be applicable till such time.

Revised board/audit committee meeting norms

MCA and SEBI have also relaxed certain board and audit committee meeting norms for companies as discussed below:

• Exemption from timeline: Currently, Section 173(1) of the 2013 Act and Regulation 17(2) of the Listing Regulations requires every company to hold minimum four meetings of its Board of Directors (BoD) every year with a gap of at least 120 days between two consecutive meetings. Also, Regulation 18(2) of the Listing Regulations requires an audit committee of a listed company to meet at least four times in a year with a gap of at least 120 days between two meetings. No such requirement for audit committee meeting is prescribed under the 2013 Act.

SEBI through its circular provided that the BoD and audit committee of listed companies have been exempted from observing the maximum stipulated time

gap between two meetings (i.e. 120 days) for the meetings held or proposed to be held between the period 1 December 2019 and 30 June 2020. However, the BoD/audit committee should ensure that that they meet at least four times a year as stipulated under Regulation 17(2) and Regulation 18(2) of the Listing Regulations.

Also, MCA have extended the maximum time gap between two board meetings to 180 days up to 30 September 2020 instead of 120 days as required Section 173(1) of the 2013 Act. This has been issued as part of the special measures taken by MCA to address the outbreak.

• Physical presence not mandatory:Currently, Section 173(2) of the 2013 Act provides that the directors can participate in BoD meetings in person, through video conferencing or other audio-visual means in the prescribed manner.


Other updates




Voices on Reporting


Relaxations


Relaxations for companies amid COVID-19 outbreakThe MCA through an amendment to the Companies (Meetings of Board and its Powers) Rules, 2014 (Board meeting Rules) provided that, for the periods commencing from 19 March 2020 and ending on 30 June 2020, meetings to discuss the matters specified in Rule 4 of the Board meeting Rules (i.e. those relating to approval of financial statements, board’s report, prospectus, etc.) can be held through video conferencing or other audio-visual means. Further, companies are required to ensure compliance with the requirements specified for conducting meeting through video conferencing or other audio-visual means under Rule 3 of the Board meeting Rules. Some of the key requirements are as follows:

– Companies should make necessary arrangements to avoid failure of video or audio-visual connection

– Chairperson of the meeting and the company secretary, if any, should take due and reasonable care, inter alia, to

safeguard the integrity of the meeting by ensuring sufficient security and identification procedures and to record proceedings and prepare the minutes of the meeting

– The notice of the meeting should provide all necessary information to enable the directors to participate through video conferencing mode or other audio-visual means.

• Meeting of independent directors:Currently, Schedule IV of the 2013 Act requires independent directors of a company to hold at least one meeting in a FY without the attendance of non-independent directors and members of management.

As part of the special measures introduced by MCA, for FY2019-20, in case the independent directors have not been able to hold the required meeting, then it will not be considered as a violation under the provisions of the 2013 Act. Independent directors may share their views amongst

themselves through telephone, e-mail or any other mode of communication, if they deem it to be necessary.

Effective date: The provisions of the SEBI circular and amendment to the Board meeting Rules are effective from 19 March 2020. Special measures by MCA are effective from 24 March 2020.

Eligibility of CSR funds for COVID-19

The 2013 Act mandates that every company with a net worth of INR500 crore or more, turnover of INR1,000 crore or more or a net profit of INR5 crore or more during the immediately preceding FY should contribute at least two per cent of its average net profits (made during the three immediately preceding FYs) for the purpose of Corporate Social Responsibility (CSR). Further, Schedule VII of the 2013 Act provides the list of activities which are eligible for the CSR expenditure and can be included by companies in their CSR policies.


Other updates




Voices on Reporting


Relaxations


Relaxations for companies amid COVID-19 outbreakClarification

MCA through a circular (no. 10/2020) dated 23 March 2020 has clarified that spending of CSR funds for COVID-19 is an eligible CSR activity. Accordingly, companies can now spend the funds earmarked for CSR for various activities related to COVID-19 as specified under

Schedule VII of the 2013 Act i.e. those relating to promotion of healthcare, including preventive healthcare and sanitation and disaster management. It has been further reiterated that activities specified under Schedule VII of the 2013 Act are broad-based and can be interpreted liberally for the purpose.

Further, MCA on 10 April 2020 issued a circular which clarifies the eligibility of CSR expenditure related to COVID-19 activities. Some of the key clarifications issued by MCA are as follows:

Contributions that would qualify as CSR expenditure Contributions that would not qualify as CSR expenditure

• Contribution made to PM CARES Fund

• Contribution made to State Disaster Management Authority

• Spending funds for various activities relating to COVID-19 such as promotion of health care including preventive health care and sanitation, and disaster management

• Ex-gratia payment to temporary/casual workers/daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID-19, provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

• Contribution made to Chief Minister’s Relief Fund or State Relief Fund

• Payment of salary/wages to employees and workers during the lockdown period (including imposition of other social distancing requirements)

• Payment of wages to temporary or casual or daily wage workers during the lockdown period.


Other updates




Voices on Reporting

(Source: KPMG in India’s analysis basis provisions of the 2013 Act and the MCA FAQ dated 10 April 2019)


Relaxations


Relaxations for companies amid COVID-19 outbreakOther special measures

The MCA with the aim the reduce compliance burden on companies and to address the impact of COVID-19 introduced certain other special measures, which are as follows:

• No additional fee would be charged for late filing in respect of any document, return, statement, etc., required to be filed in the MCA-21 registry during a moratorium period from 1 April 2020 to 30 September 2020, irrespective of its due date.

• The applicability of Companies (Auditor's Report) Order, 2020 has been deferred to FY2020-21 instead of FY2019-2020 as notified earlier.

• The requirement to create deposit repayment reserve under Section 73(2)(c) of the 2013 Act amounting to 20 per cent of deposits maturing during the FY2020-21 before 30 April 2020 has been allowed to be complied with up to 30 June 2020.

• The requirement to invest or deposit at least 15 per cent of the amount of debentures

maturing during the year by 30 April 2020 as required under Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 has been allowed to be complied with up to 30 June 2020.

• Currently, Section 149(3) of the 2013 Act requires every company to have at least one director who stays in India for a total period of not less than 182 days during the FY. For the FY2019-20, if the company fails to ensure compliance with the requirement, it will not be treated as a non-compliance by companies.

• Newly incorporated companies are required to file a declaration for commencement of business within 180 days of incorporation under Section 10A of the 2013 Act. An additional period of 180 days has been allowed to ensure compliance with the requirement.

RBI’s regulatory package

On 27 March 2020. RBI announced certain regulatory measures to mitigate the burden of

debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses.

The regulatory measures issued are as follows:

I. Rescheduling of payments: RBI issued following measures in respect of rescheduling of payment relating to term loans and working capital facilities:

• Term loans: All lending institutions (commercial banks, co-operative banks, all-India financial institutions and Non-Banking Financial Companies (NBFCs) are permitted to grant a moratorium of three months on payment of all instalments3 falling due between 1 March 2020 and 31 May 2020. Therefore, the repayment schedule for such loans will be shifted by three months after the moratorium period. However, interest would continue to accrue on the outstanding portion of the term loans during the moratorium period.

3. Instalments include principal and/or interest components, bullet repayments, Equated Monthly Instalments (EMIs) and credit card dues.


Other updates




Voices on Reporting


Relaxations


Relaxations for companies amid COVID-19 outbreak• Working capital facilities: All lending

institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from 1 March 2020 and 31 May 2020. However, the accumulated accrued interest would be recovered immediately after the completion of moratorium period.

II. Ease in working capital financing

In respect of working capital facilities sanctioned to borrowers facing stress on account of the economic fallout of the COVID-19 outbreak, lending institutions may recalculate the ‘drawing power’ for such borrowers by reducing the margins and/or by reassessing the working capital cycle. However, the relief would be available in respect of all such changes effected up to 31 May 2020 and would be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19.

III. Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)

The moratorium/deferment/recalculation of the drawing power would not be treated as concession or change in terms and conditions of loan agreements under RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated 7 June 2019 (Prudential Framework) and therefore would not result in asset classification downgrade. Additionally, the asset classification of term loans which are granted relief would be determined on the basis of revised due dates and the revised repayment schedule.

Key takeaways

• The relaxations provided by the regulators are timely as companies are in the midst of finalising the financial results/statements of the last quarter and year ended 31 March 2020, would be preparing for various filings to be made to the stock exchanges and planning to schedule their board and other committee meetings to discuss key matters such as approval of quarter and annual financial statements, board’s report, etc.

• Companies should effectively utilise the extended time given and plan their operations to ensure due compliance within the revised timelines.

(Source: SEBI circular SEBI/HO/CFD/CMD1/CIR/P/2020/38 dated 19 March 2020, SEBI/HO/DDHS/ON/P/2020/41 dated 23

March 2020, SEBI/HO/CFD/CMD1/CIR/P/2020/48 dated 26

March 2020, MCA notification G.S.R. 186(E). dated 19 March

2020, circular 10/2020 dated 23 March 2020, 11/2020 dated

24 March 2020, circular 15/10 dated 10 April 2020 and RBI

notification RBI/2019-20/186 dated 27 March 2020)


Other updates




Voices on Reporting


Relaxations


MCA issued norms for data bank of independent directorsSection 150 of the Companies Act, 2013 (2013 Act) provides that an independent director can be selected from a data bank maintained by any body, institute or association, as may by notified by the Central Government (CG). The data bank would contain names, addresses and qualifications of persons who are eligible and willing to act as independent directors. The company needs to ensure exercise of due diligence before selecting an independent director from the data bank. The CG has been authorised to prescribe the manner in which the aforesaid data bank should be created and maintained.

On 22 October 2019, the Ministry of Corporate Affairs (MCA) has issued certain notifications relating to the creation and maintenance of the data bank for independent directors. Additionally, MCA through its notification dated 28 February 2020 made further amendments. The notifications relates to the following:

I. Constitution of an institute for data bank of independent directors

The MCA has notified Indian Institute of

Corporate Affairs (the institute) at Manesar (Haryana), as an institute to create and maintain an online data bank of persons who are eligible and willing to act as independent directors for the use of the company making such appointment.

II. Notification of Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019 (Rules)

The Rules provide the manner of creation and maintenance of data bank by the institute along with its duties. The key requirements are as follows:

• Particulars of independent directors: The data bank would contain prescribed details of individuals who are eligible and willing to be appointed as independent directors which, inter alia, would include Director Identification Number (DIN), list of companies in which he/she was a director along with the nature of directorship and the pending criminal proceedings, if any.

• Data available online: The data bank so created would be an online data bank which

would be placed on the website of the institute for use by companies.

• Online proficiency test: The institute is required to conduct an online proficiency self-assessment test for persons willing and eligible to be appointed as independent directors. The test would cover the companies law, securities law, basic accountancy and such other areas relevant to the functioning of an individual acting as an independent director.

• Duties of the institute: Apart from conducting the online proficiency test, the institute would be responsible to prepare a basic study material, online lessons including audio visuals to assist individuals taking the online proficiency test. An option would be provided to individuals to take advanced tests in areas specified above (companies law, securities law, etc.) and accordingly, the institute would be required to prepare the necessary advanced study material.

Data bank norms

Liability of IDs Related parties threshold


Other updates




Voices on Reporting


MCA issued norms for data bank of independent directors• Others: Some of the other key points to be

considered are as follows:

– The information available in the data bank would be provided only to companies required to appoint independent directors after paying a reasonable fee to the institute.

– A person (whose name is included in the data bank) may restrict the personal information to be disclosed in the data bank.

– Any change in the particulars of the person whose name is included in the data bank can be made within 30 days of such change by the person through web-based framework available by the institute.

– A disclaimer would be placed on the website hosting the data bank reiterating the fact that the company should carry out its own diligence before appointment of any person as an independent director.

III. Compliances required by independent directors: The MCA has amended Rule 6 of the Companies (Appointment and Qualifications of Directors) Rules. The amended Rule prescribes the following compliances for the independent directors:

• Mandatory enrolment in the data bank:Following persons should apply online to the institute for inclusion of their names in the data bank for a period of one year, five years or for their life-time:

a) Every individual who has been appointed as an independent director in a company as on 1 December 2019: within five months i.e. upto 30 April 2020 (earlier it was within a period of three months from 1 December 2019 i.e. up to 29 February 2020) and

b) Every individual who intends to get appointed as an independent director in a company after 1 December 2019: Before his/her appointment.

An individual (including an individual who does not have a DIN) can also apply voluntarily to the institute.

• Qualifying an online proficiency test: An individual whose name has been included in the data bank is required to pass an online proficiency self-assessment test (with 60 per cent score in aggregate) conducted by the institute within a period of one year from the date of inclusion of his/her name in the data bank. In case he/she fails to undertake the test, his/her name would be removed from the data bank of the institute.

• Persons exempt from online proficiency test: An individual will not be required to pass the online proficiency test in case, he/she has served for a period of 10 years or more as on the date of inclusion of his/her name in the data bank as director or key managerial personnel in the following companies:

a) A listed public company

b) An unlisted public company with a paid-up share capital of INR10 crore or more


Other updates




Voices on Reporting

Data bank norms



MCA issued norms for data bank of independent directorsc) Body corporate listed on a recognised

stock exchange (effective 2 March 2020).

• Renewal of name in the data bank: In case of expiry of the period for which the name of an individual was initially included in the data bank, an application for renewal for a further period of one year, three years or for his/her life time has to be filed by the individual with the institute. Such a renewal should be applied within a period of 30 days from the date of expiry of period up to which the name was initially applied for.

An application for renewal would not be required in case an individual has paid life-time fees for inclusion of his/her name in the data bank.

• Declaration for compliance: The Data bank Rules require every independent director to submit an additional declaration for compliance with the norms relating to enrolment in the data bank and those relating to renewal of

name in the data bank each time declaration of independence under Section 149(7) is submitted by the independent director.

IV.Additional disclosure in board’s report

The MCA has amended Rule 8 of the Companies (Accounts) Rules. As per the amendment, the board’s report should also contain ‘a statement regarding opinion of the board of directors with regard to the integrity, expertise and experience (including the proficiency) of the independent directors during the year’.

Effective date: All the above amendments and rules are effective from 1 December 2019 (except rule pertaining to definitions and panel to be created for approving the courses and study material of the institute which are effective from 22 October 2019).

Key takeaways

• The notifications are expected to provide a repository of qualified independent directors at one place. The data bank would contain the names, addresses and qualifications of such individuals. However, while selecting individuals from the data bank, companies are required to ensure exercise of due diligence.

(Source: MCA notifications dated 22 October 2019 and KPMG in India’s First Notes MCA issues norms for data bank

of independent directors dated 8 November 2019 and MCA

notification no. G.S.R 145(E) dated 28 February 2020)


Other updates




Voices on Reporting

Data bank norms



MCA clarification on the liability of independent directors, non-promoters and non-KMP non-executive directorsThe MCA through its circular dated 2 March 2020 provides a clarification on both the prosecution filed as well as internal adjudication proceedings initiated by the Registrar of Companies (ROC) against Independent Directors (IDs), non-promoter and non- Key Managerial Personnel (KMP) Non-Executive Directors (NEDs).

As per the circular:

• Civil or criminal proceedings should not unnecessarily be initiated against IDs or NEDs (non-promoter and non-KMP) unless sufficient evidence exists against them, and

• ROCs are required to follow a standard operating procedure, as prescribed by MCA while initiating proceedings against ‘officers in default’.

The circular clarified following in detail:

Officers to be held in default

The circular reiterated Section 149(12) of the 2013 Act and clarified that IDs and NEDs (non-

promoter and non-KMP) should not be implicated in any criminal or civil proceedings under the 2013 Act, unless they were a part of a default/non-compliance committed by the company. A default/non-compliance would include such acts of omission or commission by a company which had occurred with the knowledge of the IDs or NEDs attributable through Board processes with their consent or connivance or where they did not act diligently.

Standard operating procedures to be followed by the registrar while initiating proceedings against IDs and NEDs

For all ongoing cases or cases where proceedings are to be initiated, the registrar should follow the below standard operating procedures:

• Ascertain the nature of the default: The registrar should determine the nature of default in a company.

• Ascertain officers in default: At the time of

serving notices to the company, during inquiry, inspection, investigation, or adjudication proceedings, registrar should seek necessary documents, to ascertain the involvement of the concerned officers of the company.

• Proceedings against IDs or NEDs: Where lapses are attributable to the decisions taken by the Board or its committees, all care must be taken to ensure that civil or criminal proceedings are not unnecessarily initiated against IDs or the NEDs unless sufficient evidence exists to the contrary.

• Guidance from MCA on proceedings: In case of any doubts with regard to the liability of any person, for proceedings to be initiated, guidance may be sought from MCA (through the office of the Director General of Corporate Affairs). Consequently, any such proceedings must be initiated after receiving due sanction from the MCA.


Other updates




Voices on Reporting

Data bank norms



MCA clarification on the liability of independent directors, non-promoters and non-KMP non-executive directorsCases which are already under prosecution, but which do not meet the criteria mentioned in the circular, then those cases should be submitted to MCA for necessary examination and further direction thereon.

Key takeaways

• The recent circular of MCA does not provide a blanket protection to IDs or NEDs (non-promoter and non-KMP) from prosecution under civil/criminal proceedings under the 2013 Act. It requires registrars to follow a principle-based approach and understand the nature of default before indicting IDs and NEDs (non-promoter and non-KMP). It lays down a standard operating procedure that should be followed by the registrar while dealing with any proceedings against them.

(Source: MCA general circular No.1/2020 dated 2 March 2020 and KPMG in India’s First Notes on ‘MCA provides clarification

on the liability of independent directors, non-promoters and

non-KMP non-executive directors’ dated 17 March 2020)


Other updates




Voices on Reporting

Data bank norms



Revised threshold for transactions with related partiesCurrently, Section 188 of the 2013 Act requires that the transactions with related parties that are not in the ordinary course of business and which are not at an arm’s length would require consent of the Board of Directors of the company. Additionally, Rule 15(3) of the Companies (Meetings of Board and its Powers)

Rules, 2014 (Board Meeting Rules) prescribes certain transactions (with specified thresholds) which would require prior shareholders’ approval by an ordinary resolution.

On 18 November 2019, MCA amended Rule 15(3) of the Board Meeting Rules and specified

revised thresholds for transactions with related parties which would require shareholders’ approval by an ordinary resolution.

The table below provides summary of revised thresholds:

Prescribed transaction categoriesAmount beyond which shareholders’ approval is required

Existing Revised

Sale, purchase, or supply of any goods or materials (directly or through an agent)

10 per cent or more of the turnover or INR100 crore, whichever is lower*

10 per cent or more of the turnover

Selling or otherwise disposing of, or buying, property of any kind (directly or through an agent)

10 per cent or more of the net worth or INR100 crore, whichever is lower*

10 per cent or more of the net worth

Leasing of property of any kind10 per cent or more of the net worth or 10 per cent or more of the turnover or INR100 crore, whichever is lower*


Availing or rendering of any services (directly or through an agent)

10 per cent or more of the turnover or INR50 crore, whichever is lower*



Other updates




Voices on Reporting

(*Applies to transaction or transactions to be entered into either individually or taken together with the previous transactions during a FY.)

Data bank norms



Revised threshold for transactions with related partiesPrescribed transaction categories

Amount beyond which shareholders’ approval is required

Existing Revised

Appointment to any office or place of profit in the company, subsidiary company or associate company

Remuneration exceeding INR2.5 lakh per month No change

Underwriting the subscription of any securities or derivatives of the company

Remuneration exceeding one per cent of net worth No change

(Source: KPMG in India’s analysis basis provisions of the 2013 Act and the MCA notification dated 18 November 2019)

The amendments are effective from 18 November 2019.

Key takeaways

The amendment issued by MCA removes the monetary threshold limit for the requirement relating to shareholders’ approval for related party transactions. The new thresholds are proportionate to the turnover and net worth of the company. The change would make the approval process for related party transactions easier.

Additionally, the revised thresholds have been majorly aligned with the materiality thresholds prescribed under SEBI Listing Regulations. Listing Regulations require all material transactions with a related party to be approved by shareholders. Further, it provides that a transaction with a related party would be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds 10 percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

Source: MCA notification dated 18 November 2019


Other updates




Voices on Reporting

Data bank norms



Amendments to Listing Regulations pursuant to Kotak Committee recommendations applicable from 1 April 2020On 28 March 2018, the SEBI considered the recommendations of the Kotak Committee on Corporate Governance (the committee) and made amendments to the SEBI Listing Regulations.

Following amendments are effective from 1 April 2020:

• Minimum number of directors on a Board:A minimum of six directors would be required on the Board of Directors (BoD) of top 2,000 listed entities, currently the requirement is applicable to top 1,000 listed entities.

• Gender diversity on the BoD: Top 1,000 listed entities would be required to appoint at least one independent woman director on their BoD, currently the requirement is applicable to top 500 listed entities.

• Maximum number of directorships: The maximum number of directorships (including any alternate directorships) in listed entities would be reduced to seven

effective 1 April 2020 (irrespective of whether the person is appointed as an independent director or not). Currently the maximum number of directorships limit is eight (applicable from 1April 2019).

• Quorum for board meetings: The quorum for every meeting of the BoD of the top 2,000 listed entities would be one-third of its total strength or three directors, whichever is higher, including at least one independent director, currently the requirement is applicable to top 1,000 listed entities. The participation of the directors by video conferencing or by other audio-visual means would also be counted for the purposes of such quorum.

• Disclosure of name of directors who have expertise/skill: With effect from financial year ending 31 March 2019, the corporate governance report includes a chart or a matrix setting out the list of core skills/expertise/competencies identified by the BoD as required in the context of its

business(es) and sector(s) for it to function effectively and those actually available with the board to be provided. However, with effect from financial year ended 31 March 2020 names of directors along with their skills/expertise/competence would also be required to be disclosed.

Kotak Committee

amendments

(Source: SEBI notification no. SEBI/LAD-NRO/GN/2018/10 dated 9 May 2018 and KPMG in

India’s publication on ‘Amendments to SEBI Listing

Regulations pursuant to Kotak Committee

recommendations’ issued in June 2018)

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Other updates




Voices on Reporting


SEBI defers the timeline for separation of the roles of non-executive chairperson and MD/CEO by two years Section 203 of the Companies Act, 2013 (2013 Act) provides that an individual should not be appointed/reappointed as the chairperson of a company, as well as its Managing Director (MD) or Chief Executive officer (CEO), unless allowed by articles of a company or such a company does not undertake multiple businesses.

SEBI in May 2018 through an amendment to Listing Regulations amended Regulation 17(1B) required that the chairperson of the board of top 500 equity listed entities (determined on the basis of market capitalisation) would be a non-executive director and not be related to the MD or CEO in accordance with the definition of ‘relative’ as per the 2013 Act. This requirement would not be applicable to listed entities that do not have any identifiable promoters as per the shareholding patterns filed with stock exchanges. This regulation was to be effective from 1 April 2020.

However, SEBI through its notification dated 10 January 2020, deferred the implementation of the above mentioned provision relating to separation of the roles of non-executive chairperson and MD/CEO by two years i.e. 1 April 2022.

Key takeaways

• This regulatory requirement would have compelled many companies to start looking at long term succession planning more effectively, especially in promoter run companies. The delay in implementation of the requirement on separation of roles of chairperson and MD/CEO upto 1 April 2022 provides additional time to companies to complete and implement their succession planning for these important positions.

(Source: SEBI notification no. SEBI/ LAD-NRO/GN/2020/02 dated 10 January 2020 and KPMG in India’s First Notes on ‘SEBI

defers the timeline for separation of the roles of non-executive

chairperson and MD/CEO by two years’ dated 17 January 2020)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Mandatory disclosure on loan defaults by listed entities SEBI through its circular dated 21 November 2019 mandated listed entities to provide disclosure to the stock exchanges when there is a default in payment of interest/instalment obligations on loans, including revolving facilities like cash credit, from banks/financial institutions and unlisted debt securities.

Applicability

The circular is applicable to all listed entities which have listed the following securities on a stock exchange:

• Specified securities (equity and convertible securities),

• Non-Convertible Debt securities (NCDs) and

• Non-Convertible Redeemable Preference Shares (NCRPS).

• The term ‘default’ for the purpose of this circular would mean non-payment of the interest or principal amount in full on the date when the debt has become due and payable (pre-agreed payment date). For revolving facilities like cash credit, an entity

would be considered to be in ‘default’ if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days.

Timing of disclosure

The circular lays down the timing of disclosure of default for the following situations:

• Loans from banks and financial institutions:The disclosures would be required to be provided to stock exchanges when an entity has defaulted in payment of interest/instalment obligations on loans, including revolving facilities like cash credit, from banks/financial institutions beyond 30 days. The disclosure would be made promptly but not later than 24 hours from the 30th day of such default.

• Unlisted debt securities i.e. NCDs and NCRPS: In case of default in payment of interest/instalment, the disclosure would be made promptly but not later than 24 hours from the occurrence of the default.

Additionally, a listed entity is required to report within seven days from the end of the quarter in case there is any outstanding amount in the following cases as on the last date of any quarter:

• Any loan including revolving facilities like cash credit from banks/financial institutions where the default continues beyond 30 days or

• There is any outstanding debt security under default.

Disclosure formats

The circular prescribes two different reporting formats for complying with the disclosure requirements:

• At the time of each instance of default

a) For loans including revolving facilities like cash credit from banks/financial institutions

b) For unlisted debt securities i.e. NCDs and NCRPS


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Mandatory disclosure on loan defaults by listed entities • At the end of each quarter: Disclosures in case there

is any outstanding amount under default as on the last day of the quarter (to be reported within seven days from the end of the quarter).

Effective date: The circular is effective from 1 January 2020.

Key takeaways

• The new approved norms increase the compliance requirements for the listed entities. Therefore, the listed entities should take note of the revised requirements and incorporate robust procedures to ensure compliance. The companies should develop a framework to ensure governance as well as compliance with the requirement of SEBI regulations.

(Source: SEBI circular SEBI/HO/CFD/CMD1/CIR/P/2019/140 dated 21 November 2019 and KPMG in India’s First Notes “SEBI mandates

disclosure on loan defaults by listed entities and other updates”

dated 3 December 2019)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


SEBI mandates prompt disclosure by banks on NPA divergenceBackground

The Reserve Bank of India (RBI) requires banks to disclose material divergences in their asset classification and provisioning from the prescribed RBI norms. Banks are required to provide such disclosures in the notes to accounts to the annual financial statements under the category ‘Asset Quality (non-performing assets)’. As per RBI circular (RBI/2018-19/157) dated 1 April 2019, banks are mandated to disclose divergences in their annual financial statements, if either or both of the following conditions are satisfied:

a) The additional provisioning for Non-Performing Assets (NPAs) assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period

b) The additional gross NPAs identified by RBI exceed 15 per cent of the published incremental gross NPAs for the reference period.

Regulation 30 of SEBI Regulations requires listed entities to disclose to stock exchange(s) all events or information, which are material, as soon as reasonably possible and not later than 24 hours from the occurrence of event or information. Further, SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) mandates prompt disclosure of unpublished price sensitive information that would impact price discovery no sooner than credible and concrete information comes into being.

In view of above requirements, SEBI through its circular dated 31 October 2019 tightened the disclosure norms for banks (with listed specified securities) after consultation with RBI. As per the circular, listed banks should provide the disclosure to stock exchanges in case of NPA divergence and provisioning beyond specified threshold (as explained in the background section), as soon as reasonably possible and not later than 24 hours upon receipt of the RBI’s final risk assessment report. Therefore, disclosure would be provided in a format prescribed by

RBI circular (Annex-A to SEBI circular). They should not wait to publish these disclosures as part of their annual financial statements.

The provisions of the circular are effective from 31 October 2019.

Key takeaways

• Considering the requirements of Listing Regulations, PIT Regulations and RBI circulars, SEBI noted that disclosures in respect of divergence and provisioning are in the nature of material events or information and would be price sensitive. Hence SEBI has necessitated prompt disclosure. Accordingly, banks are mandated to disclose this information to stock exchange within 24 hours of the receipt of the RBI’s final risk assessment report .

(Source: SEBI circular CIR/CFD/CMD1/120/2019 dated 31 October 2019 and KPMG in India’s First Notes “SEBI

mandates prompt disclosure by banks on NPA

divergence” dated 25 November 2019)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


SEBI issued procedures and formats for limited review and audit reportsSEBI through its circular dated 29 March 2019 prescribed the procedures (to be followed by principal and component auditor) and formats for limited review report and audit report of the listed entity and its components. The revised procedures and formats would be required to be followed by the statutory auditors of listed entity and its components. These procedures are applicable from 1 April 2019.

Overview of the circular

The brief overview of the circular is as follows:

Scope: The circular is applicable to:

• All listed entities whose equity shares and convertible securities are listed on a recognised stock exchanges and their statutory auditors (principal auditors)

• All entities whose accounts are to be consolidated with the listed entity (subsidiaries, associates and joint ventures) and their statutory auditors (component auditors).

Financial reporting framework: The procedure highlighted in the circular is applicable for the

audit/limited review of Consolidated Financial Statements (CFS) or consolidated financial results of the parent company. Such procedures should be in accordance with the requirements of the following financial reporting framework:

• Ind AS: Under Ind AS CFS/consolidated financial results would be prepared based on Ind AS 110, Consolidated Financial Statements, Ind AS 28, Investments in Associates and Joint Ventures and Ind AS 111, Joint Arrangements.

• Accounting Standards: Under Accounting Standards CFS/consolidated financial results would be prepared based on AS 21, Consolidated Financial Statements, AS 23, Accounting for Investments in Associates in Consolidated Financial Statements and AS 27, Financial Reporting of Interests in Joint Ventures.

Compliance with auditing framework in India:The statutory auditor (principal auditor) undertaking the audit or review of the CFS or consolidated financial results of the parent entity should ensure compliance with the

following:

• SA 600, Using the Work of Another Auditor

• Standards on Review Engagements (SRE) i.e., SRE 2400, Engagements to Review Financial Statements or SRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity

• Guidance Note on Audit of Consolidated Financial Statements (Revised 2016) issued by ICAI.

The circular reiterates that the audit and limited review of the respective components that are being consolidated with the parent company would continue to be undertaken by the respective auditors of such components.

Procedure: The parent company management is responsible to ensure that there is coordination between principal and component auditor to comply with SA 600. The circular provides detailed procedures for principal auditor to consider while performing audit/review of the components of the listed entity. However, the procedures given in the circular should not be construed as complete.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


SEBI issued procedures and formats for limited review and audit reportsAudit and review instructions: The circular requires principal auditor to communicate the requirements of the audit/review to the component auditor on a timely basis. The communication should set out the work to be performed, the use of that work, and the form and content of the component auditor communication with the principal auditor.

Additionally, the circular requires principal auditors to include key matters in the audit and review instructions to be considered by the component auditors.

Responsibility of the component auditor: The component auditor should provide an acknowledgement to the principal auditor for the receipt of instructions and also provide a confirmation to the principal auditor regarding compliance with the instructions received, together with the applicable audit/review report.

Revised formats for financial results: The circular provides revised formats for limited review reports and audit reports to be submitted by the statutory auditors. These

formats would be applicable to listed entities including banks. Insurance companies are required to follow formats as prescribed by insurance sector regulator, Insurance Regulatory and Development Authority of India (IRDA).

The updated formats require principal auditor to assess that the audit/review of the components has been performed by the component auditor, and the principal auditor has performed the procedures as per the SEBI circular while relying on the work of the component auditor.

Key takeaways

The SEBI’s circular reinforces the requirements of SA 600 and the Guidance Note on Audit of Consolidated Financial Statements. The procedure highlighted in the circular is likely to result in change in practice and enhance focus on the substance of the responsibilities for principal auditors and component auditors. The steps prescribed for principal auditor would help to obtain sufficient audit/review information and rely on the work performed by component auditors.

The robust process explained in the circular is likely to improve the overall audit quality and governance environment in India. Companies and auditors would need to consider the impact of the circular on the audit/review, and plan for any changes in the approach that may be required.

(Source: SEBI circular CIR/CFD/CMD1/44/2019 dated 29 March 2019 and KPMG in India’s First Notes: SEBI issued

procedure and formats for limited review and audit reports

dated 9 April 2019)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


SEBI issues revised format for compliance report on corporate governanceRegulation 27(2) of the SEBI Listing Regulations requires every equity listed company to submit a quarterly compliance report on corporate governance (report) to the recognised stock exchange(s) within 15 days from the close of the quarter in the format specified by SEBI. On 16 July 2019, SEBI issued revised formats for compliance report on corporate governance. The modifications to the formats have been made based on the recent changes made to the Listing Regulations pursuant to Kotak Committee and other amendments.

The key compliances to be additionally reported in the report are as follows:

• Chairperson is related to the MD or CEO:The Listing Regulations require top 500 equity listed entities to ensure that the chairperson of the board of such listed entities should be a non-executive director and not related to the Managing Director (MD) or Chief Executive Officer (CEO). This requirement is effective from 1 April 2020.

Therefore, the revised compliance report requires every equity listed entity to

disclose whether chairperson is related to MD or CEO on a quarterly basis. Entities are required to ensure compliance with the requirement from 1 April 2020, however, they are required to disclose the fact, if chairperson is related to MD or CEO, from quarter ending September 2019.

• Quorum for the board meeting: Every equity listed entity is required to ensure that the quorum for every meeting of the board of directors should be one-third of its total strength or three directors, whichever is higher, including at least one independent director. The requirement has been made applicable to top 1,000 listed entities with effect from 1 April 2019.

Accordingly, the revised compliance report issued by SEBI requires compliance with the above requirement to be disclosed on a quarterly basis effective 30 September 2019 and will also form part of annual disclosures. The requirement is applicable to top 1,000 listed entities from 1 April 2019.

• Disclosure on websites: Following are the disclosure requirement to be made on the

website of equity listed entities:

a) Separate section for investors on the website for all information mandated under Regulation 46(2) of the Listing Regulations

b) Credit rating or revision in credit rating obtained for all outstanding instruments

c) Separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year, uploaded at least 21 days prior to the date of the Annual General Meeting (AGM) which has been called to, inter-alia, consider accounts of that financial year.

The above requirements have been made effective from 1 April 2019 and should be reported at the end of FY to the stock exchanges. Additionally, listed entities are required to furnish against each item, required to be disclosed on the website, the link of the website where it has been posted/uploaded.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


SEBI issues revised format for compliance report on corporate governance• Sign-off of the report: As per Regulation 27(2) of the

Listing Regulations, compliance report on corporate governance is required to be signed either by the compliance officer or the CEO of the listed entity. However, as per the revised format, the report can also be signed by the Chief Financial Officer (CFO) of the listed entity.

Effective date: The revised formats have been made effective from the quarter ending 30 September 2019.

Key takeaways

• SEBI undertook various amendments to the Listing Regulations pursuant to Kotak Committee recommendations. The amendments aim towards better corporate governance for listed entities. SEBI through the revised compliance report incorporated consequential changes to the format of the compliance report.

(Source: SEBI circular no. SEBI/HO/CFD/CMD1/CIR/P/2019/78 dated 16 July 2019 and KPMG in India’s First Notes on ‘SEBI issues revised

format for compliance report on corporate governance by listed

entities’ dated 31 July 2019)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Format for statement of deviation/variation of end use of issue proceeds Regulations 32 of the SEBI Listing Regulations requires listed entity to submit, a statement of deviation or variation, pursuant to review by the audit committee, to the stock exchange on a quarterly basis for public issue, rights issue, preferential issue etc. The statement should indicate following:

• Deviations, if any, in the use of proceeds of public issue, rights issue, preferential issue etc. and

• The category wise variation between projected utilisation of funds and the actual utilisation of funds.

Such a statement of deviation or variation is to be submitted till the issue proceeds have been fully utilised or the purpose for which these proceeds were raised has been achieved.

Further, Regulation 52 of the Listing Regulations requires listed entities to submit to the stock exchange(s) on a half-yearly basis, a statement of deviation or variation in the use of proceeds of issue from NCDs or NCRPs. However, the Listing Regulations do not

prescribe any format for statement of deviation for listed entities for submission to the stock exchange(s).

In order to address this concern, SEBI through its circular dated 24 December 2019, issued a format in compliance with Regulations 32 of Listing Regulations and on 17 January 2020 issued a format for statement of deviation in the issue proceeds from NCDs or NCRPs.

The key features of the circulars are as below:

• Applicability: The format issued on 24 December 2019 is applicable to every listed entity which has raised funds through public issue, rights issue, preferential issue, QIPs etc. Further, the format issued on 17 January 2020 would be applicable to every listed entity which has raised funds through issue of NCDs or NCRPs.

• Frequency of Disclosure: Listed entities with specified securities would disclose on a quarterly basis along with the declaration of financial results (within 45 days of end of each quarter/60 days from the end of the

last quarter of the financial year) until such funds are fully utilised or the purpose for which these proceeds were raised has been achieved.

Whereas, listed entities with NCDs or NCRPs would disclose the statement of deviation on a half-yearly basis within 45 days of end of half-year until funds are fully utilised or the purpose for which these proceeds were raised has been achieved.

• Role of the Audit Committee: The statement of deviation report should be reviewed by the audit committee and after such review, the comments of audit committee along with the report would be disclosed/submitted to the stock exchange, as part of the format. In cases where the listed entity is not required to form an audit committee under the provisions of Listing Regulations or the 2013 Act, then such a report should be reviewed by the board of directors.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Format for statement of deviation/variation of end use of issue proceeds Effective date: The first such submission shall be made by the listed entities for the quarter ending 31 December 2019, subsequent submissions would be on quarterly basis. However, listed entities with NCDs or NCRPs would be required to make first such submission for the half-year ending 31 March 2020 and subsequent submissions would be on half-yearly basis.

(Source: SEBI circular CIR/CFD/CMD1/162/2019 dated 24 December 2019 and circular SEBI/HO/DDHS/08/2020 dated

17 January 2020.)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


New requirements with regard to an auditor’s resignation With effect from 1 April 2019, Listing Regulations also cast responsibility on the listed entities in relation to an auditor’s resignation. The listed entities are required to disclose detailed reasons to the stock exchanges when there is a resignation by an auditor as soon as possible but not later than 24 hours of receipt of such reasons from the auditor.

On 18 October 2019, SEBI issued a circular clarifying mandatory conditions to be complied with in case of resignation of the statutory auditor of a listed entity or its material subsidiary with respect to the limited review or auditor’s report. The circular prescribed following conditions to be complied by a listed entity/material subsidiary while appointing/re-appointing an auditor are as following:

• Auditor resigns within 45 days from the end of a quarter: An auditor should, before resignation, issue the limited review/audit report for such quarter.

• Auditor resigns after 45 days from the end of a quarter: An auditor should, before resignation, issue the limited review/audit report for such quarter and the next quarter.

• Auditor has signed the limited review/audit report for the first three quarters of a financial year: An auditor should, before resignation, issue the limited review/audit report for the last quarter of such financial year and the audit report for the financial year.

The above conditions would be included in the terms of appointment of the statutory auditor at the time of appointment/re-appointment. In case the statutory auditor has already been appointed, the terms of appointment should be modified accordingly.

The circular also prescribes the manner in which the matters of concern, if any, with the management of the listed entity/material subsidiary, which are expected to hamper the audit process, are to be reported by an auditor.

Additionally, the circular specifies the format in which the listed entity/its material subsidiary should obtain information from the auditor on resignation which includes the detailed reason for such resignation. The listed entity should disclose the same to the stock exchange(s) (as part of material deemed events) within 24 hours from the receipt of information.

Further during the period from when the auditor proposes to resign till the auditor submits the report for such quarter/financial year as specified above, the listed entity and its material subsidiaries are required to continue to provide all such documents/information as may be necessary for the audit/limited review.

Additionally, ICAI through its announcement dated 9 December 2019 clarified that that statutory auditors of listed entities and their material subsidiaries are required to comply with the aforesaid SEBI circular.

The provisions of the circular are effective from 18 October 2019.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


New requirements with regard to an auditor’s resignation Key takeaways

• The listed entities should take note of the circular as additional onus is cast on them for disclosure of information in case of resignation of statutory auditors. The steps undertaken by SEBI are aimed at strengthening the corporate governance framework and protecting the interests of the investors. The circular does not prohibit resignation of auditors but aims at an orderly resignation after the relevant period end review/audit is completed and discourages resignations without communicating appropriate reasons.

(Source: SEBI circular number CIR/CFD/CMD1/114/2019 dated 18 October 2019 and KPMG in India’s First Notes “SEBI issued new

requirements with regard to an auditor’s resignation” dated 6

November 2019)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


BRR applicable to top 1,000 listed companiesRegulation 34(2)(f) of the Listing Regulations requires mandatory submission of Business Responsibility Report (BRR) for top 500 listed entities based on market capitalisation(calculated as on 31 March of every year) along with the annual report. The BRR should describe the initiatives taken by the said listed entities from an environmental, social and governance perspective, in the format specified by SEBI.

On 26 December 2019, SEBI has issued SEBI Listing Regulations (Fifth Amendment) Regulations, 2019 which inter-alia extends the requirement of submitting BRR as part of annual reports to top 1,000 listed companies based on market capitalisation.

The requirements are applicable from 26 December 2019.

(Source: SEBI notification SEBI/LAD-NRO/GN/2019/45 dated 26 December 2019.)


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Updates relating to Insider Trading RegulationsA. Standardised reporting of violations

related to code of conduct under SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations)

Regulation 9(1) and 9(2) of SEBI PIT Regulations requires the board of directors of every listed company and the board of directors/head(s) of the organisation of every intermediary and fiduciary to formulate a code of conduct to regulate, monitor and report trading by Designated Persons (DP) and their immediate relatives and monitor its compliance and promptly inform SEBI about any violations of the code of conduct.

SEBI observed that the information provided in compliance with the above requirement, is either incomplete or inadequate in terms of nature of violation, designation and functional role of designated persons who have committed the violation, frequency of such violations in the past, the actions taken and reasons thereof etc. Such information would be considered crucial for examining the reported violations and taking any further necessary action, if required.

SEBI through circular dated 19 July 2019, with an objective to standardise the process relating to dealing with such violations of the code of conduct, mandated all listed companies, intermediaries and fiduciaries to:

a. Report such violations by the DPs and immediate relatives of DPs in the standardised format to SEBI

b. Maintain a database of the violation of code of conduct by DPs and immediate relatives of DPs that would entail initiation of appropriate action against them.

Standardised format issued by SEBI includes, inter alia, information to be reported such as functional role of DP, details of violation observed, actions taken, reasons recorded in writing for taking actions and details of previous instances of violation etc.

The above requirement are effective from 19 July 2019.

(Source: SEBI circular no. SEBI/HO/ISD/ISD/CIR/P/2019/82 dated 19 July 2019)

B. FAQs on SEBI PIT Regulations

On 4 November 2019, SEBI issued Frequently Asked Questions (FAQs) to clarify certain aspects relating to the provisions of the SEBI PIT Regulations.

The clarifications are as follows:

• Information to be maintained in a structured digital database: Currently, Regulation 3(5) of the PIT Regulations require board of directors of a listed company to maintain a structured digital database. Such a database would contain the names of persons/entities who receive Unpublished Price Sensitive Information (UPSI) (designated persons) (along with Permanent Account Number (PAN) or other unique identifier authorised by law,, in case PAN is not available).

The FAQ clarifies that in case the designated person is a fiduciary or intermediary, the data base of the listed entity should contain the names of the fiduciary or intermediary with whom they have shared information along with the


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Updates relating to Insider Trading RegulationsPAN or other unique identifier, in case PAN is not available. Further, the fiduciary or intermediary will be required to maintain details of persons with access to UPSI as specified in Schedule C to the PIT Regulations.

• Resignation of a designated person: In case of resignation of a designated person, the listed company/ intermediary/fiduciary would be required to maintain the updated address and contact details of such designated person for one year after resignation. Such data should be preserved by the company/intermediary/fiduciary for a period of five years.

• Pre-clearance for sale of shares under employee stock options: The PIT Regulations requires use of a notional trading window to monitor trading by the designated persons. The trading window should be closed when the compliance officer determines that a designated person can reasonably be expected to have possession of UPSI. Designated persons

and their immediate relatives should not trade in securities when the trading window is closed. However, trading window restriction is not applicable to certain specified transactions subject to pre-clearance by the compliance officer, for instance, transaction undertaken pursuant to the exercise of stock options. The FAQ further clarified that the sale of shares by designated employees obtained after exercise of stock options would not require any pre-clearance from the compliance officer.

• Trading in depository receipts by designated persons: It has been clarified that trading in American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) of listed companies is covered under PIT Regulations. Accordingly, employees of listed companies including foreign nationals (designated persons) are required to follow the code of conduct for trading in ADRs and GDRs.

(Source: FAQs on SEBI (PIT) Regulations, 2015 dated 4 November 2019)

C. SEBI introduced an informant policy under insider trading laws

On 17 September 2019, SEBI issued SEBI PIT (Third Amendment) Regulations, 2019 to amend provisions relating to insider trading. The amendment introduced a new chapter that deals with the informant policy in relation to insider trading. The chapter institutes a formal process that enables timely reporting of instances of insider trading violations. It also provides for grant of reward with adequate checks and balances that could incentivisetimely reporting of information relating to insider trading to SEBI at the first available opportunity.

Additionally, on 24 December 2019, SEBI through its press release highlighted the key features of the informant policy including manner of submission of information to SEBI. The amended regulations are effective from 26 December 2019


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Updates relating to Insider Trading RegulationsThe following section discusses the key provisions of the informant policy relating to insider trading:

I. New definitions: The amendment has introduced various new definitions. Following are the key definitions inserted:

• Informant: An ‘informant’ is any individual who voluntarily provides original information to SEBI relating to any violation of insider trading laws that has occurred, is occurring or has a reasonable belief that it is about to occur. Voluntarily providing information means the voluntarily submission of information to SEBI not being at the instance of SEBI, Central or State authorities or any other authority.

• Original information: It is defined as any relevant information submitted in accordance with the Regulations pertaining to any violation of insider trading laws that is:

a) Derived from the independent knowledge and analysis of the

informant;

b) Not known to the SEBI from any other source, except where the informant is the original source of the information;

c) Is sufficiently specific, credible and timely to (1) commence an examination, an inquiry, or an audit, (2) assist in an ongoing examination or investigation or an inquiry or an audit, (3) open or re-open an investigation or inquiry, or (4) inquire into a different conduct as part of an ongoing examination or investigation, inquiry, or audit directed by the SEBI;

d) Not exclusively derived from an allegation made in a judicial or administrative hearing, in a Governmental report, hearing, audit, or investigation, or from the news media, except where the informant is the original source of the information;

e) Not irrelevant, frivolous, or vexatious; and

f) Information which does not in the opinion of the SEBI add to the information already possessed by the SEBI is not original information.

• Reward: ‘Reward’ means any gratuitous monetary amount for which an informant is declared eligible as per the provisions of these regulations.

II. Submission of information: An informant may voluntarily submit original information pertaining to any violation of insider trading laws to the Office of Informant Protection (OIP), through a Voluntary Information Disclosure (VID) form. The information may be submitted by the informant directly in which case his/her identity would be required to be revealed at the time of submission of the VID form. In case, the information is submitted through a legal representative, the identity of the informant is not required to be revealed at the time of submission of VID form. However, the identity of the informant would be required to be revealed prior to payment of reward, if any.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


Updates relating to Insider Trading RegulationsIII. Office of Informant Protection (OIP): OIP

has been established by SEBI as an independent office for receiving and processing VID forms.

IV.Informant confidentiality: The regulations provides policy to ensure confidentiality of the informant. The original information and the identity of the informant is required to be held in confidence by SEBI and is exempted from disclosures under the Right to Information Act, 2005. Further, prohibition is also prescribed that no person would compel on disclosure of the identity, existence of an informant or of the information provided by an informant.

V. Reward: An informant may become eligible to claim a reward or an interim reward (payable out of the total reward) from SEBI. The reward may extend upto 10 per cent of the monetary sanctions collected or recovered, but not exceeding INR1,00,00,000 and an interim reward may extend upto INR10,00,000.

VI.Protection against retaliation and victimisation: Every entity is required to establish a code of conduct and ensure that the code provides for suitable protection against any discharge, termination, demotion, suspension, threats, harassment or discrimination, directly or indirectly, against any employee who submits information to SEBI. Further it provides right to informant to proceed legal recourse if the such informant has been subjected to retaliation or victimisation by his or her employer. The employers on violating the provisions may be made liable for penalty, debarment, suspension, and/or criminal prosecution by SEBI.

Source: SEBI PIT (Third Amendment) Regulations, 2019 dated 17 September 2019.


Other updates




Voices on Reporting

Kotak Committee

amendments

Separation of

MD/CEO

Loan defaults

disclosure

Prompt NPA

disclosure

Audit procedure

and formats

Corporate

governance format

Statement

of deviation

Auditor's

resignation

BRR

applicability

Insider trading

updates


MCA clarifies ‘appointed date’ and ‘acquisition date’ in a scheme of arrangement Requirements of the Companies Act, 2013 (2013 Act)

Currently, a company undertaking a scheme of arrangement is governed by the provisions of Section 230 and 232 of the 2013 Act. The schemes of arrangement are required to be approved by the National Company Law Tribunal (NCLT). In certain cases a scheme filed with NCLT may relates to:

a) Reconstruction of the company or merger/amalgamation between companies and

b) It involves transfer of undertaking, property or liabilities of one company to another or is proposed to be divided among and transferred to two or more companies

If yes, then, as per Section 232(6) of the 2013 Act, the scheme should indicate an appointed date from which it would be deemed to be effective. However, the term ‘appointed date’ has not been defined under the 2013 Act.

Requirements of Ind AS

As per Ind AS 103, Business Combinations, an acquirer needs to identify an ‘acquisition date’ which is the date on which it obtains control of an acquiree. Such a date is generally the closing date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree. However, an acquirer could obtain control on a date earlier or later than the closing date (e.g. a written agreement provides that the acquirer obtains control of the acquiree on a date before closing date).

Issue under consideration

The Ministry of Corporate Affairs (MCA) received various queries on determination of ‘appointed date’ and ‘acquisition date’ such as whether it is mandatory to indicate a specific calendar date as an ‘appointed date’ in a scheme of arrangement. Also, whether acquisition date for the purpose of Ind AS 103 would be the appointed date as referred in Section 232(6) of the 2013 Act.

Clarification issued by MCA

To provide clarity relating to the matter, on 21 August 2019, MCA issued a circular which provides that the provision of Section 232(6) of the 2013 Act is an enabling provision which allows the companies in the scheme to decide and agree upon an appointed date from which the scheme should come into force. Accordingly, the concerned companies can choose and state the agreed appointed date in the scheme.

Appointed date

clarification

FAQ on DDT Ind AS deferment

for insurers

Ind AS guidance

for NBFCs


Other updates




Voices on Reporting


MCA clarifies ‘appointed date’ and ‘acquisition date’ in a scheme of arrangement The MCA provided following clarification:

The scheme specifies a calendar date as an appointed date

The appointed date may precede the date of filing of the application for scheme of merger/amalgamation with NCLT. However, if the appointed date specified in the scheme is ante-dated beyond a year from the date of filing of the scheme, then the company is required to disclose the reasons for the chosen date in the scheme itself which should not be prejudicialto the public interest.

The appointed date is based on occurrence of an event

The scheme may identify the appointed date based on the occurrence of a trigger event which is key to the proposed scheme and agreed upon by the parties to the scheme. The event on the occurrence of which the scheme would become effective should be indicated in the scheme. In case such event-based date is a date subsequent to the date of filing the order with the ROC under Section 232(5) of the 2013 Act, then the company should file an intimation of the same with the ROC within 30 days of such scheme coming into force.

Appointed date and acquisition date

The MCA also clarified that appointed date identified in the scheme would be deemed to be the acquisition date and date of transfer of control for the purpose of conforming to accounting standards (including Ind AS 103).

Key takeaways

The MCA clarification is expected to bring uniformity in practices followed by companies in India in determining the ‘appointed date’ while undertaking schemes of amalgamation/merger. As per the clarification, companies would identify an appointed date which could be a specific calendar date or can also be based on occurrence of an event which is key to the proposed scheme. Further, the date specified in the scheme could also be different from the date of order of the NCLT approving the scheme.

(Source: MCA circular 9/2019 dated 21 August 2019 and KPMG in India’s First Notes MCA clarifies ‘appointed date’ and ‘acquisi tion date’ in a scheme of arrangement dated 9 September 2019)


Other updates




Voices on Reporting

Appointed date

clarification


for insurers

Ind AS guidance

for NBFCs


ICAI revised FAQ on presentation of dividend and dividend distribution taxOn 17 September 2019, the Accounting Standards Board (ASB) of the ICAI revised its Frequently Asked Question (FAQ) presentation of dividend and Dividend Distribution Tax (DDT) and clarified the treatment of DDT. The ASB considered following two indicators to evaluate whether DDT is a portion of tax paid by a company on behalf of its shareholders:

• Dividend received with an imputed tax credit: As per the ASB, dividend is received by the shareholders in India with an imputed tax credit i.e. it will not be charged to further tax by the taxation authorities in the hands of shareholders. Therefore, DDT is covered by situation of paragraph 65A of Ind AS 12, Income Taxes as per ASB.

• Receipt of net/full amount of dividend declared and ‘grossing up’ of DDT: As per ASB, in India, the amount of dividend is grossed up by the company for computation of DDT and shareholders receive a net amount of the dividend after deducting tax. Thus, DDT is a portion of the

dividends paid to taxation authorities on behalf of its shareholders. Considering that ASB concludes that DDT in substance is payment by the company on behalf of the shareholders and thus, will be covered under paragraph 65A.

With respect to presentation of the DDT, the ASB is of the view that an entity should consider the relevant guidance in paragraph 61A of Ind AS 12. Para 61A states that ‘current tax and deferred tax shall be recognisedoutside profit or loss if the tax relates to items that are recognised, in the same or a different period, outside profit or loss.

Accordingly, the ASB clarified that the presentation of DDT paid on dividends should be consistent with the presentation of the transaction that creates those income tax consequences, as follows:

• Dividend charged to statement of profit and loss: Charge DDT to the statement of profit and loss.

• Dividend recognised in statement of changes in equity: Recognise DDT in the statement of changes in equity.

(Source: FAQ on presentation of dividend and dividend distribution tax issued by ICAI on 17 September 2019 and Chapter 3, Presentation of dividend distribution tax of KPMG in India’s Accounting and Auditing Updated, September 2019)


Other updates




Voices on Reporting

Appointed date

clarification


for insurers

Ind AS guidance

for NBFCs


IRDAI defers implementation of Ind AS in the insurance sector till further notice Ind AS was initially applicable to companies in the insurance sector from accounting periods beginning from 1 April 2018. Later, the Insurance Regulatory and Development Authority of India (IRDAI) through its circular dated 28 June 2017, deferred the implementation of Ind AS by two years i.e. up to 31 March 2020. However, such companies were required to submit proforma Ind AS financial statements to IRDAI on a quarterly basis effective 31 December 2016.

New development

The IRDAI through its circular dated 21 January 2020, has further deferred the implementation of Ind AS in the insurance sector until finalisation of International Financial Reporting Standard (IFRS) 17, Insurance Contracts by the International Accounting Standards Board (IASB). Also, the requirement to submit proforma Ind AS financial statements by insurance companies on a quarterly basis to IRDAI has been withdrawn.

Key takeaways

The deferment of applicability of Ind AS is expected to provide some relief to the insurers in India, they should utilise this additional time to identify and address the key challenges involved in implementation of Ind AS. Insurance companies should continue with identification of the implementation issues on the necessary changes on account of transition to Ind AS, including IT system and legislative change requirements.

(Source: IRDAI circular no. IRDAI/F&A/CIR/ACTS/023/01/2020 dated 21 January 2020 and KPMG in India’s First Notes on

‘IRDAI defers the effective date for implementation of Ind AS

in the insurance sector till further notice’ dated 24 January

2020.)


Other updates




Voices on Reporting

Appointed date

clarification


for insurers

Ind AS guidance

for NBFCs


RBI issues regulatory guidance on Ind AS for NBFC and ARCThe Reserve Bank of India (RBI) through its circular dated 13 March 2020 has issued regulatory guidance on Ind AS for NBFCs and Asset Reconstruction Companies (ARCs). The circular provides that since large NBFCs and Asset Reconstruction Companies (ARCs) reported their first Ind AS financial statements for the financial year ended 31 March 2019, it has affected various regulatory provisions applicable to NBFCs and ARCs. These guidelines aim to promote high quality and consistent implementation of Ind AS (pertaining to specific prudential aspects), and to facilitate comparison and better supervision. The RBI guidelines are applicable to NBFCs and ARCs for preparing their financial statements for financial years 2019-20 and onwards.

Overview of the guidelines

The RBI guidelines focus on the need to ensure consistency in the application of the accounting standards in specific areas, including asset classification and provisioning, and provide clarifications on regulatory capital in the light of Ind AS implementation.

The guidelines provide clarifications on the following aspects of Ind AS:

Business model assessment: Considering the criticality of the nature of business model in determining classification of financial assets and restrictions in subsequent reclassifications, NBFCs/ARCs are advised to:

a) Put in place board of directors approved policies that clearly articulate and document their business models and portfolios

b) Articulate the objectives for managing each portfolio and

c) Frame policies for sales out of amortisedcost business model portfolios and disclose the same in notes to financial statements.

Expected Credit Loss (ECL) model: The RBI guidelines prescribe that the BoD should approve sound methodologies for computation of ECL. The methodology so approved should define the policies, procedures and controls for assessing and measuring credit risk on all lending exposures.

The parameters and assumptions considered for computing ECL, as well as their sensitivity to the ECL output should be documented.

Further, changes should not be made in the parameters, assumptions and other aspects of the ECL model for the purpose of profit smoothening. In case of a change in the ECL model, the rationale and justification for the same should be documented and approved by the Board. The management should seek the approval of the audit committee for adjusting the ECL model output

Prudential floor for ECL: While NBFCs/ARCs are required to compute and record impairment allowances in accordance with Ind AS 109, Financial Instruments, they should simultaneously maintain asset classification and compute provisions as per extant prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP). A comparison between the provisions required under the IRACP and the impairment allowance computed as per Ind AS 109 should be disclosed in the notes to the financial statements in the prescribed format annexed to the notification.


Other updates




Voices on Reporting

Appointed date

clarification


for insurers

Ind AS guidance

for NBFCs


RBI issues regulatory guidance on Ind AS for NBFC and ARCComputation of regulatory capital and ratios: The RBI also provides detailed guidance for determining owned funds, net owned funds and regulatory capital of NBFCs and ARCs. Regulatory ratios, limits and disclosures should be based on Ind AS figures. Impaired and restructured assets should be considered as Non-Performing Assets (NPA) for calculation of NPA ratios.

(Source: RBI notification no. RBI/2019-20/170 dated 13 March 2020 and KPMG in India’s First Notes on ‘The Reserve Bank of India issues regulatory guidance on Ind AS for NBFCs and ARCs’ dated 20 March 2020)


Other updates




Voices on Reporting

Appointed date

clarification


for insurers

Ind AS guidance

for NBFCs


Stressed assets

resolution

Taxation

Amendment Act

ICAI publications ICAI EACs

Prudential framework for resolution of stressed assetsOn 7 June 2019, RBI issued the Prudential Framework for Resolution of Stressed Assets (Prudential Framework), which comes into force with immediate effect. This has been issued to provide directions for early recognition, reporting and time bound resolution of stressed assets. With the introduction of the Prudential Framework, all the earlier schemes and guidelines issued by RBI in this respect4 have been repealed.

Overview of the Prudential Framework

Applicability

The Prudential Framework is applicable to the following entities (collectively called ‘lenders’):

• Scheduled Commercial Banks (SCBs) (excluding Regional Rural Banks)

• All India Term Financial Institutions (AITFIs)

• Small Finance Banks (SFBs), and

• Systemically Important Non-Deposit taking Non- Banking Financial Companies (NBFCs) and Deposit taking NBFCs (together termed as ‘NBFCs’).

The circular deals with various aspects related to early identification and reporting of stressed assets and timely implementation of a resolution plan.

Early identification and reporting of stress

Lenders are required to recognise incipient stress in loan accounts, immediately on default, by classifying the accounts as Special Mention Accounts (SMA) based on the number of days they are overdue. The accounts can be classified as SMA-0, SMA-1 and SMA-2.

Additionally, all credit information, SMA classification and defaults with regard to borrowers having an aggregate exposure (fund based and non-fund based) of INR5 crore or above should be reported to the Central Repository of Information on Large Credits (CRILC) through weekly and monthly reports.

Implementation of Resolution Plan

All lenders are required to put in place Board-approved policies for resolution of stressed assets, which include the timelines for resolution. The Resolution Plan (RP) may

include any action, plan, and reorganisationsuch as regularisation of accounts, assignment, and change in ownership, restructuring or any other planned action, which should be clearly documented.

• Review period: As soon as a borrower is reported to be in default by either the SCBs, AITFIs or SFBs, the lenders are provided with 30 days review period, within which they are required to undertake a prima facie review of the borrower’s account. During this period, lenders may decide the resolution strategy, including the nature of the RP, approach for implementation of RP, etc.

4. These include the framework for revitalising distressed assets, corporate debt restructuring scheme, flexible structuring of existing long-term project loans, Strategic Debt Restructuring (SDR) scheme, change in ownership outside SDR and the Scheme for Sustainable Structuring of Stressed Assets (S4A). These schemes have been withdrawn with immediate effect. Additionally, the Joint Lenders’ Forum (JLF) which was a mandatory institutional mechanism for resolution of stressed accounts also stands discontinued.


Other updates




Voices on Reporting


Prudential framework for resolution of stressed assets• Inter-Creditor Agreement (ICA): For

borrowers with multiple-creditor facilities, where RP is to be implemented, all lenders concerned are mandated to enter into an ICA during the review period. The ICA, inter alia, prescribe the ground rules for finalisation and implementation of the RP.

Decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities5 and 60 per cent of lenders by number, would be binding upon all lenders. The ICA should also protect the rights of dissenting lenders.

• Timelines for implementation of RP and additional provisions: The RP should be implemented within 180 days from the end of the review period. The commencement of the review period (termed as ‘reference date’) would depend on the aggregate exposure of the borrower, as below:

5. Fund based and non-fund based 6. RBI’s Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated 1 July 2015.

Aggregate exposure of the borrower to SCBs, AITFIs and SFBs Reference date

INR2,000 crore and above • 7 June 2019 (if borrower is in default on that date), or

• The date of first default after 7 June 2019

INR1,500 crore and above, but less than INR2,000 crore • 1 January 2020 (if borrower is in default on that date), or

• The date of first default after 1 January 2020

Less than INR1,500 crore Not declared yet

Certain RPs involving restructuring/change in ownership would require Independent Credit Evaluation (ICE) of residual debt by specifically authorised Credit Rating Agencies (CRA) to be considered for implementation. For accounts with aggregate exposure of INR100 crore and

above, one ICE is required and for accounts with aggregate exposure of INR500 crore and above, two ICEs are required. The credit opinion in all ICE(s) obtained (even if more than those prescribed) should be RP4 or better.

A delay in implementation of the RP would result in additional provisions over and above the total provisions held or required to be made as per the IRAC norms6.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



Prudential framework for resolution of stressed assetsThese are as below:

7. Date of quashing of the erstwhile circular.

Timeline for implementation of RP Additional provisions as a percentage of total outstanding

180 days from end of RP 20%

365 days from the commencement of RP 15% (i.e. total additional provision of 35% (20+15))

The additional provisions may be reversed as under:

• When RP includes regularisation of account:If the borrower is not in default for a period of six months from the date of clearing of overdue amounts with all lenders

• RP includes restructuring/change in ownership outside IBC upon implementation of RP

• RP includes restructuring/change in ownership under IBC in the following cases:

– Half of the additional provision is reversed on filing of insolvency application

– Remaining additional provision is reversed on admission of the borrower into the insolvency resolution process under IBC

– RP includes assignment or recovery: On completion of assignment/recovery.

• Provision as on 2 April 2019: The Prudential Framework specifies that the provisions maintained as on 2 April 2019 in respect of any borrower should not be reversed, unless the reversal is required by the IRAC norms or on account of recovery or resolution following the instruction of the Prudential Framework.

• RBI’s direction for insolvency proceedings:RBI may from time to time issue specific

instructions for initiation of insolvency proceedings under IBC. The provisions of the Prudential Framework would not apply in those cases.

Prudential norms

The Prudential Framework prescribes the norms that all restructurings/change in ownership (whether under or outside IBC) would be subject to:

• Asset classification: On restructuring, all accounts would be immediately downgraded as Non- Performing Assets (NPAs) (i.e. substandard to begin with), and accounts classified as NPA would be retained in the same category.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



Prudential framework for resolution of stressed assets• Upgrade of accounts: Accounts would be

upgraded only when they demonstrate satisfactory performance during the prescribed period and for certain large accounts, when they are rated as investment grade (BBB- or better) at the time of upgrade by CRAs accredited by RBI for the purpose. Specific criteria is prescribed for accounts where there has been a change in ownership. Provisions held on restructured assets may be reversed when they are upgraded to standard category.

• Additional and interim finance: The classification of additional and interim finance advanced under the RP would depend on the performance of the account as specified in the Prudential Framework.

• Provisioning norms: The accounts restructured under the Prudential Framework are required to follow the IRAC norms for provisioning. For accounts

referred to IBC, the provisioning should be at least equal to the provisioning required in the normal course upon implementation of RP. The provisions in this case would be frozen for a prescribed period, subsequent to which, the IRAC norms would apply.

Other provisions: The Prudential Framework provides guidelines for other provisions such as:

• Recognition of income (on cash or accrual basis) for restructured assets

• Asset classification and provisioning for Funded Interest Term Loans (FITL), debt and equity instruments created by conversion of principal/ unpaid interest

• Principles for classifying sale and lease back transactions and refinancing of exposures to borrowers as ‘restructuring’

• Provides regulatory exemptions from certain provisions of RBI and SEBI.

Exceptions to the Prudential Framework

The Prudential Framework would not apply in certain cases:

• Projects under implementation involving deferment of Date of Commencement of Commercial Operations (DCCO)- these would be covered under the RBI Master Circular dated 1 July 2015 Micro, Small and Medium Enterprises (MSMEs)- these would be covered under the RBI circular dated 17 March 2016

• Borrower entities in respect of which specific instructions have been issued by RBI for initiation of insolvency proceedings under IBC

• Restructuring of loans in the event of natural calamity.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



Prudential framework for resolution of stressed assetsKey takeaways

• The Prudential Framework brings the focus on speedy resolution of stressed assets and creation of loan loss provision against those assets.

• The aim of the Prudential Framework is to initiate a resolution process, even before a default takes place. Accordingly, the review period for review of the borrower account would start immediately when a borrower is reported to be in default by either the SCBs, AITFIs or SFBs.

• The provision of the 30 days review period would provide time to borrowers to make good a default, before any action is taken by the lenders. It also provides lenders time to review the account of the borrower and to develop an RP and strategies its implementation.

• The ICA provides for a majority decision making criteria which is a new requirement.

(Source: RBI notification no. RBI/2018-19/203 dated 7 June 2019)


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



The Taxation Laws (Amendment) Act, 2019 On 20 September 2019, the Ministry of Law and Justice issued the Taxation Laws (Amendment) Ordinance, 2019 (Ordinance 2019) to made substantial amendments in the Income-tax Act 1961 (IT Act) and the Finance (No. 2) Act 2019 with effect from financial year 2019-20. Further, on 11 December 2019, the Taxation Laws (Amendment) Act, 2019 (the Tax Amendment Act) replaced the Ordinance 2019 and has been made effective from 20 September 2019. In addition to the changes made by the Ordinance 2019, the Tax Act has introduced certain other amendments to the IT Act and the Finance (No.2) Act, 2019.

The provisions introduced through the Ordinance 2019 and the Tax Amendment Act are as follows:

Tax concession for domestic companies

A new Section 115BAB has been inserted in IT Act with effect from financial year 2019-20. This Section provides an option to domestic companies to pay income-tax at the rate of 22 per cent subject to a condition that they will not avail any other exemption/incentive. The effective tax rate for these companies will be

25.17 per cent inclusive of surcharge and cess. Also, such companies would not be required to pay Minimum Alternate Tax (MAT). For companies which do not opt for the concessional tax rate and avail the tax exemptions/incentives would continue to pay tax at the pre-amended rate. However, such companies would be able to opt for the concessional tax rate after expiry of their tax holiday/exemption period. After the exercise of the option they would pay tax at the rate of 22 per cent and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of MAT has been reduced from existing 18.5 per cent to 15 per cent from 1 April 2020 (FY2019-20).

Tax concession for new domestic manufacturing companies

A new section 115BAB has been inserted in IT Act with effect from financial year 2019-20. The new provision allows any new domestic company incorporated on or after 1 October 2019 and would commence manufacturing on or before the 31 March 2023. Such a company would have an option to pay income-tax at the

rate of 15 per cent subject to certain conditions. This benefit is available to companies which do not avail any other exemption/incentive. The effective tax rate for these companies would be 17.01 per cent inclusive of surcharge and cess. Also, such companies would not be required to pay MAT.

Buy back provisions

Listed companies which have already made a public announcement of buy-back before 5 July 2019, the tax on buy-back of shares in case of such companies would not be charged. This amendment would be deemed to have been inserted with effect from 5 July 2019.

MAT

With effect from 1 April 2020 (financial year 2019-20):

• MAT rate has been reduced to 15 per cent from 18 per cent

• MAT provisions will not apply to a person who has exercised the option to avail the concessional tax rate of 22 per cent or concessional tax rate of 15 per cent to new manufacturing companies.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



The Taxation Laws (Amendment) Act, 2019 Other clarification includes:

a) Business of manufacture - Specific exclusions:

The Tax Amendment Act clarified that the business of manufacture or production of any article or thing referred in Section 115BAB of the IT Act would not include business of:

• Development of computer software in any form or in any media

• Mining

• Conversion of marble blocks or similar items into slabs

• Bottling of gas into cylinder

• Printing of books or production of cinematograph film or

• Any other business as may be notified by Central Government (CG) in this behalf.

b) Set-off of unabsorbed depreciation/loss not allowed from total income

In order to avail the option to pay tax at concessional rates under Section 115BAA/Section 115BAB of the IT Act, the total income of the company should, inter alia, be computed without set-off of any loss or allowance for unabsorbed depreciation deemed so under Section 72A, if such loss or depreciation is attributable to any of the prescribed ineligible deductions.

c) Failure to comply with the conditions specified for concessional tax rates

As per the Tax Amendment Act, in case a person fails to satisfy the conditions specified under Section 115BAA/Section 115BAB of the IT Act in any previous year, then the option (to pay tax at the reduced rate of 22 per cent/15 per cent) would become invalid in respect of assessment year relevant to that previous year and subsequent assessment years.

(Source: The Taxation Laws (Amendment) Act, 2019 issued by the Ministry of Law and Justice dated 12 December 2019)


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



List of publications released during the year ending 31 March 2020Publications Overview

Compendium of Ind AS effective 1 April 2019

ICAI has released e-version of Compendium of Ind AS. The compendium is a comprehensive up-to-date version of Ind AS which encompasses all the Ind AS issued by MCA, mandatory for accounting year beginning on or after 1 April 2019.

Guidance Note on Division III to Schedule III to the Companies Act 2013 for NBFC that is required to comply with Ind AS

The guidance note is based on the recently notified Division III to Schedule III to the 2013 Act, and contains format of financial statements as well as disclosure requirements for Non-Banking Financial Companies (NBFCs) that are required to comply with the Ind AS.

It provides guidance on each of the items of the balance sheet and statement of profit and loss along with few illustrations on application of the principles provided in the Guidance Note.

Quick Referencer on Ind AS Provides an overview of the basic aspects of Ind AS to provide a basic understanding on Ind AS.

Educational material on Ind AS 116, Leases

To provide guidance by way of Frequently Asked Questions (FAQs) and illustrations explaining the principles enunciated in the standard. It provide guidance to the stakeholders in accounting for various lease contracts the reporting entity enters into.

Educational material on Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance.

To provide guidance by way of FAQs and illustrations explaining the principles enunciated in the standard including amendments dated 20 November 2018. It provide guidance to the stakeholders in accounting and to reporting entities in disclosure of various government grants and government assistances received.

Ind AS: Disclosures Checklist as on 1 April 2019 (Revised February 2020)

The checklist provides a ready reckoner to entities in preparing the financial statements in accordance with Ind AS applicable as on April 1, 2019. It envisages all the presentation and disclosures required by Ind AS at one place for the assistance of members and other stakeholders including requirements of new standard on leases Ind AS 116, Leases.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act



Publications Overview

Revised guidance notes on Schedule III to the Companies Act, 2013

The revised guidance notes on:

• Division I – Non Ind AS Schedule III to the Companies Act, 2013.

• Division II – Ind AS of Schedule III to the Companies Act, 2013.

COVID-19 disruptions: ICAI advisory on accounting and assurance related issues

The advisory ensures that the potential impact of COVID-19 is suitably considered in preparing and reporting financial statements for the year ended 31 March 2020.

Handbook of auditing pronouncements – 2019 edition

The handbook contains the text of various engagement and quality control standards, guidance notes and statements on auditing and would be one point reference document for auditing related matters.

Implementation Guide to Standard on Auditing (SA) 720 (Revised) The Auditor’s Responsibilities Relating to Other Information

Revised SA 720 casts a new reporting requirement on the auditors of listed entities to include a separate section on “Other Information” in their audit reports. The Standard also contains several new requirements regarding auditors’ work effort on other information and is effective for audits of financial statements for periods beginning on or after 1 April 2018.

The implementation guide provides supplementary guidance relating to SA 720 (Revised) to members so that they can discharge their responsibilities in an effective manner.

The guide addresses relevant aspects envisaged in the standard through FAQs and incorporates illustrations of Auditor’s Reports relating to Other Information.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act


List of publications released during the year ending 31 March 2020



Implementation Guide to SA 570 (Revised), Going Concern

The Auditing and Assurance Standards Board of ICAI issued revised edition of Implementation Guide to SA 570 pursuant to revision of SA 570 which is applicable for audits of financial statements for periods beginning on or after 1 April 2017

The implementation guide provides a framework to assist in determining whether the use of going concern basis of accounting in preparation of the financial statements and the related disclosures are appropriate and in making balanced, proportionate and clear disclosures.

The guide incorporates practical case studies, illustrative examples and template for the format of auditor’s report under different scenarios related to going concern.

Report on Audit Quality Review (2018-19) of the Quality Review Board (QRB)

The QRB issues periodic reports to provide guidance to the Audit firms for ensuring improvement in audit quality by providing key audit quality review findings and necessary guidance.

The publication includes key findings, analysis and summary of observations made by the technical reviewers for reviews completed during the financial year 2018-19.

Updated background material on GST

Contains analysis of the GST law including Rules, recent notifications, etc. upto 30 October 2019 issued by the government.

Handbook on GST annual return The handbook on GST annual return contains the analysis of Form GSTR-9 (annual return to be filed by all registered taxpayers under GST) and Form GSTR-9A (annual return for composition scheme taxpayers).

Technical guide on GST audit (second edition).

The Technical Guide on GST Audit contains guidance on GST audit and provides clause by clause analysis of Form GSTR-9C.


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act





Guide to cloud computing for accountants

A guide to cloud computing for accountants which inter-alia provides an overview of basic concepts of cloud computing and focuses on this emerging technology with the perspective of chartered accountants.

Ready referencer on Engagement and Quality Control Standards (EQCS).

To provide basic understanding of EQCS to the readers as on 1 December 2019. The referencer explains the important principles, as enunciated, in various standards in a summarized, simplified and lucid manner.

Frequently Asked Questions on Valuation

The publication is expected to enable stakeholders in understanding of nuisances of valuation and to have conceptual clarity on the various valuation aspects The publication is in a question and answer format and addresses issues that are being faced while undertaking valuation of securities or financial assets. It also contains a sample valuation report.

(Source: ICAI announcements dated/month 29 July 2019, 9 April 2019, 30 April 2019, 21 May 2019, 31 May 2019, 21 August 2019, 14 August 2019, 29 July 2019, 29 November 2019, 7 November 2019, 5 November 2019, January 2020, 14 January 2020, 18 February 2020, February 2020, 24 September 2019, 17 Februar y 2020, 3 July 2019, 27 March 2020)


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act




Topic Month

Provision for wage revision under Ind AS 19, Employee Benefits April 2019

Presentation of deferred tax recoverable from beneficiaries (customers) accounted as ‘Deferred Asset for Deferred Tax

Liability’ under Ind AS

May 2019

Accounting for provision to be created for onerous contract under Ind AS 37, Provisions, Contingent Liabilities and

Contingent Assets

June 2019

Computation of Effective Interest Rate on Borrowings under Ind AS 109, Financial Instruments August 2019

Disclosure of Government Grants September 2019

Classification of consumer deposits collected for LPG connections under Ind AS October 2019

Company’s policy on transfer price for segment revenue and segment results under segment reporting under Ind AS 108,

Operating Segments

November 2019

Deferred Tax under Ind AS 12, Income Taxes on fair value changes of investments under Section 112A of IT Act December 2019

Accounting treatment of expenditure relating to employee benefits expenses, rent expenses, travelling expenses and

house-keeping expenses which are compulsorily required to be incurred for construction of the project

January 2020

Whether the arrangement is in nature of operating lease or finance lease under Ind AS 116, Leases February 2020

Classification of grant related to assets in the statement of cash flows as per Ind AS 7, Statement of Cash Flows March 2020

(Source: The Chartered Accountant - ICAI journal for the year 2019-20)


Other updates




Voices on Reporting

Stressed assets

resolution

Taxation

Amendment Act


Expert Advisory Committee (EAC) opinions issued by ICAI


Voices on Reporting

Accounting and Auditing Update: Issue no. 44/2020

In this edition of Accounting and Auditing Update (AAU), we cast our lens on some of the key accounting and financial reporting impacts of the outbreak to be considered by companies in India. The COVID-19 outbreak is also expected to create a number of potential challenges for companies to conduct, and auditors to attend inventory counts. Through our article on the topic, we aim to discuss the key considerations while performing and observing inventory count in some of the possible situations.

Additionally, this edition of AAU covered an analysis of the disclosures provided by NBFCs in their Ind AS financial statements for the year ended 31 March 2019. The analysis is based on annual reports of 48 NBFCs with 15 debt securities listed on BSE and 33 equity listed NBFCs as on 1 April 2019.

The publication also included a regular round-up of some recent regulatory updates in India and internationally.

First NotesCOVID-19: Potential impact on financial reporting

The rapid outbreak of COVID-19 presents an alarming health crisis that the world is grappling with. The impacts of the COVID-19 pandemic are unfolding in real time. The COVID-19 outbreak has already had a significant effect on the economies of affected countries and international financial markets. As the companies in India approach their year-end, there is an urgent need to evaluate the impacts of the outbreak on their accounting and financial reporting.

The financial reporting impacts of the COVID -19 outbreak will depend on facts and circumstances, including the degree to which a company’s operations are exposed to the impacts of the outbreak.

This issue of First Notes discusses key accounting and financial reporting impacts of COVID-19 to be considered by companies.

Our publications

Follow us on: home.kpmg/in/socialmedia

Sai VenkateshwaranPartner and Head CFO AdvisoryT: +91 20 3090 2020E: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

This document is meant for e-communication only. (001_NEWS0420_RG)

home.kpmg/in

Feedback/queries can be sent to

[email protected]

Previous editions are available to download from:

home.kpmg/in

Ruchi Rastogi Partner Assurance T: +91 124 334 5205E: [email protected]

KPMG in India contacts:

Voices on Reporting...Voices on Reporting - April 2020 4 Key impacts on financial reporting The financial reporting impacts of the COVID-19 outbreak will depend on facts and circumstances,

Documents