pwc reportinginbrief: year-end reminders - 31 march 2018 · deliberations of itfg on ind as issues...
TRANSCRIPT
PwC ReportingInBrief
Year-end reminders - 31 March 2018
A look at the accounting and financial reporting updates on Ind AS
www.pwc.com
March 2018
PwC
What’s inside?
Financial reporting updates
Ind AS roadmap 4
MCA 5
ICAI 6
ITFG 14
CBDT 25
SEBI 26
Publications
Ind AS 27
IFRS 32
Key takeaways 33
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PwC
What you need to know
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Welcome to our publication on year-end reminders designed to keep you informed about the latest accounting and financial reporting updates under Indian Accounting Standards (Ind AS).
This publication attempts to collate updates in Ind AS during the year ending March 2018 at one place for easy reference. We have also provided links to our previously issued publications on related topics.
We hope the information and insights in this publication will keep you updated and help companies navigate through various practical issues arising on implementation of Ind AS.
This publication includes the following:
Financial reporting updates
Ind AS roadmap
This includes Insurance Regulatory and Development Authority of India’s (IRDAI) circular on deferral of Ind AS for the insurance sector and Ministry of Corporate Affairs' (MCA) clarification on applicability of Ind AS to payment banks and small finance banks, which are subsidiaries of corporates.
MCA
This includes the updates from MCA on financial reporting.
Institute of Chartered Accountants of India (ICAI), Ind AS Transition FacilitationGroup (ITFG)
This rounds up all the publications and announcements issued by ICAI related to Ind AS, including deliberations of ITFG on Ind AS issues raised by preparers, users and other stakeholders.
Central Board for Direct Taxes (CBDT) and Securities and Exchange Board of India (SEBI)
We have included key notifications and circulars issued by these regulatory authorities relating to Ind AS.
Publications
This lists our various Ind AS/IFRS publications.
PwC
Ind AS roadmap
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Ind AS roadmap for insurance companies
Implementation of Ind AS by the insurance sector has been deferred by IRDAI by 2 years and the same shall now be implemented from 1 April 2020. However, the requirement of submitting Proforma Ind AS financial statements on a quarterly basis shall continue to be applicable as per the IRDAI circular reference IRDA/F&A/CIR/ACTSI 262112/2016 dated 30 December 2016.
Click here for the circular >>
https://www.irdai.gov.in/ADMINCMS/cms/Circulars_Layout.aspx?page=PageNo3188
Ind AS roadmap for payment banks and small finance banks
The MCA vide general circular no. 10/2017 dated 13 September 2017 has clarified applicability of Ind AS to payment banks and small finance banks which are subsidiaries of corporates.
As per the clarification, if the holding company which is covered under corporate sector roadmap for Ind AS implementation, has a payment bank or small finance bank as its subsidiary company, such bank shall follow the banking sector roadmap prescribed vide Reserve Bank of India (RBI) circular dated 11 February 2016 on "Implementation of Indian Accounting Standards" read with circular dated 6 October 2016 on "Operating Guidelines for Payment Banks". However, the payment bank or small finance bank shall provide Ind AS financial data to its holding company for the purpose of consolidation.
The link to the circular is given below:
http://www.mca.gov.in/Ministry/pdf/CompaniesIndianAccountingStandardsGSR365E_14092017.pdf
Issuance of IFRS 17, Insurance Contracts by the International Accounting Standard Board (IASB) led to IRDAI reviewing its position on the matter of implementation of Ind AS by the insurance sector in India. IFRS 17 is applicable from annual reporting periods beginning on or after 1 January 2021. Deferral is aimed at reducing the burden of additional compliance that would have to be undertaken by insurance companies, first upon transition to existing Ind AS and then again on adoption of IFRS 17. IRDAI has constituted a working group to perform a detailed examination of the provisions of IFRS 17. Recently, IRDAI has extended the time limit for the working group to review IFRS 17 till 30 June 2018.
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MCA
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Non-applicability of Ind AS 12, Income Taxes
The MCA vide notification S.O. 529(E) dated 5 February 2018 has directed that the provisions of IndAS 12 relating to deferred tax asset or deferred tax liability shall not apply, for seven years with effect from the 1 April 2017, to a Government company which:-
a) is a public financial institution under sub-clause (iv) of clause (72) of section 2 of the Companies Act, 2013;
b) is a Non-Banking Financial Company (NBFC) registered with the RBI under section 45-IA of the Reserve bank of India Act, 1934; and
c) is engaged in the business of infrastructure finance leasing with not less than seventy five per cent of its total revenue being generated from such business with Government companies or other entities owned or controlled by Government.
Click here for the notification: http://egazette.nic.in/WriteReadData/2018/182598.pdf
N0n-applicability of accounting standard of segment reporting to companies engaged in defence production
The MCA vide notification dated 23 February 2018 has exempted companies engaged in defence production from the accounting standard related to disclosure of segment reporting.
Refer link below for the notification:
https://www.mca.gov.in/Ministry/pdf/notificationSegment2302_26022018.pdf
The MCA has notified Form AOC-3A statement containing salient features of the financial statements. Form AOC-3A prescribes the format of abridged financial statements for companies which are required to comply with Ind AS.
Refer link below for the notification:
http://www.mca.gov.in/Ministry/pdf/CompaniesAccountsAmmendmentRule_01032018.pdf
Format of abridged financial statements for Ind AS compliant companies
PwC
ICAI
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Exposure drafts
Exposure draft on clarifications to Ind AS 115, Revenue from Contracts with Customers
Accounting Standards Board (ASB) of the ICAI issued an exposure draft on the clarificatory amendments to Ind AS 115, Revenue from Contracts with Customers, earlier notified by MCA through notification no G.S.R 111(E) dated 16 February 2015. The consequential changes to other Ind ASs arising due to reinstatement of Ind AS 115 which were part of the notification dated 16 February 2015 will also be made accordingly. Proposed effective date of Ind AS 115 is accounting periods beginning on or after 1 April 2018, subject to notification of the MCA.
Comment period of the exposure draft ended on 16 May 2017.
Click here for the exposure draft >> https://resource.cdn.icai.org/45212asb35293.pdf
Basis existing paragraph D7AA of Ind AS 101, a first-time adopter may elect to continue with previous Indian GAAP carrying values for all of its PP&E as deemed cost, upon transition. As per the proposed amendment, a first-time adopter may elect to continue with previous Indian GAAP carrying values for a class of PP&E as its deemed cost. The proposed amendment also deletes the sentence from paragraph D7AA of Ind AS 101 ‘if an entity avails the option under this paragraph, no further adjustments to the deemed cost of the property, plant and equipment so determined in the opening balance sheet shall be made for transition adjustments that might arise from the application of other Ind ASs’.
Exposure draft on amendments to Ind AS 101, First-time Adoption on Indian Accounting Standards
ASB of the ICAI has issued an exposure draft on amendment to paragraph D7AA of Ind AS 101. Comment period for the exposure draft ended on 19 May 2017. Proposed effective date of the amendments is annual periods beginning on or after 1 April 2017, subject to notification of the MCA.
Click here for the exposure draft >> https://resource.cdn.icai.org/45262asb35316.pdf
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ICAIExposure draft on Ind AS 116, Leases
ASB of the ICAI has issued an Exposure Draft on Ind AS 116. Ind AS 116 is converged with IFRS 16, Leases. Ind AS 116 is expected to replace Ind AS 17, Leases. Proposed effective date of Ind AS 116 is annual reporting periods beginning on or after 1 April 2019, subject to notification of the MCA.
Comment period for the exposure draft ended on 31 August 2017.
Click here for the exposure draft > > https://resource.cdn.icai.org/45885asb36137.pdf
For an overview of the requirements of the exposure draft of Ind AS 116, refer PwC ReportingPerspectives October 2017 edition. Refer link below >>
https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportingperspectives-october-2017.pdf
Overview of the key principles of the new leasing standard are as below:
a) Ind AS 116 introduces a single lessee accounting model and requires recognition of right-of-use asset and a corresponding liability for almost all leases.
b) Exemption from recognising right-of-use asset and a corresponding liability is available for lessees wherein the lease term is not more than 12 months or if the underlying asset is of a low value.
c) Lessee measures right-of-use assets similar to other non-financial assets. Accordingly, lessee recognises depreciation on right-of-use assets in accordance with the requirements of Ind AS 16, Property, Plant and Equipment and Ind AS 38, Intangible Assets.
d) Lessor accounting remains largely similar to the requirements of Ind AS 17. Lessor will continue to classify its leases as operating leases or finance leases and account for it differently.
The new leasing standard will affect the balance sheet and related ratios. Balance sheets will grow, gearing ratios will increase, and capital ratios will decrease.
During the initial years of a lease contract, the combination of straight-line depreciation on right-of-use asset and effective interest method applied to lease liability will result in higher charge to profit or loss in the books of a lessee. The charge to profit or loss decreases during the later part of the lease period.
New lease standard will also result in a higher EBIDTA and cash flows from operating activities for lessees.
PwC
ICAI
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Exposure draft on amendments to Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance
The ASB of the ICAI issued an exposure draft of amendments to Ind AS 20. Among other matters, the exposure draft proposes to amend Ind AS 20 to incorporate the accounting alternative to (i) measure non-monetary government grants at nominal value and (ii) present government grants related to assets in the balance sheet by deducting the grant from the carrying amount of the asset. These amendments are proposed to be applicable for the annual periods beginning on or after 1 April 2018, subject to notification of the MCA. Comment period for the exposure draft ended on 24 January 2018.
The proposed amendments would align Ind AS 20 with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance issued by IASB.
Click here for the exposure draft >> https://resource.cdn.icai.org/48198asbicai38206.pdf
As per the exposure draft, an entity availing the option of presenting non-monetary government grants at nominal value and government grants related to assets by deducting the same from the carrying amount of the asset shall either: (i) adjust its financial statements for the change in accounting policy in accordance with Ind AS 8, Accounting Polices, Changes in Accounting Estimates and errors; or (ii) apply only to the grants or portions of grants becoming receivable or repayable after the effective date of the amendments.
Exposure draft of Appendix C, Uncertainty over Income Tax Treatments to Ind AS 12
The ASB of ICAI has issued an exposure draft of Appendix C to Ind AS 12. This appendix clarifies how to apply the recognition and measurement requirements in Ind AS 12 when there is uncertainty over income tax treatments.
The exposure draft is consistent with IFRIC 23, Uncertainty over income tax treatments issued by the IASB and proposed to be effective from annual reporting periods beginning on or after 1 April 2019, subject to notification of the MCA. Comment period for the exposure draft ended on19 February 2018.
PwC
ICAI
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Exposure draft of Appendix C, Uncertainty over Income Tax Treatments to Ind AS 12 contd…
Click here for the exposure draft >> https://resource.cdn.icai.org/48389asb32420.pdf
Exposure draft of Ind AS 117, Insurance Contracts
The ASB of ICAI has issued an exposure draft of Ind AS 117. The exposure draft of Ind AS 117 is similar to IFRS 17. Ind AS 117 is proposed to be effective from annual reporting periods beginning on or after 1 April 2020, subject to notification of the MCA. The comments on the exposure draft may be submitted by 31 March 2018.
Click here for the exposure draft >> https://resource.cdn.icai.org/48698asb32688.pdf
The exposure draft provides specific guidance in several areas where Ind AS 12 is silent. For example, the exposure draft specifies how to determine the unit of account and the recognition and measurement guidance to be applied to that unit. There is no specific guidance in Ind AS 12, and entities at present might be using different models to determine the unit of account and measure the consequences of tax uncertainties. An entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value methods, depending on which method the entity expects to better predict the resolution of the uncertainty.
PwC
ICAI
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Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013
MCA had notified amendments to Schedule III and inserted Division II – Ind AS Schedule III, which is a format of financial statements for companies that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015. Consequently, the Corporate Laws and Corporate Governance Committee of the ICAI has brought out the Guidance Note on Division II - Ind AS Schedule III to the Companies Act, 2013.
Click here for the guidance note > > https://resource.cdn.icai.org/45991clcgc36214.pdf
Also refer our publication PwC ReportingInBrief – ICAI Guidance note on Ind AS Schedule III >>
http://www.pwc.in/publications/2017/pwc-reportinginbrief-icai-guidance-note-on-ind-as-schedule-iii.html
Educational material on Ind AS 16, Property Plant and Equipment
Ind AS 16 prescribes the accounting treatment for PP&E so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. This educational material contains summary of Ind AS 16 discussing the key requirements of the standard and the Frequently Asked Questions (FAQs) covering the issues, which are expected to be encountered frequently while implementation of Ind AS 16.
Click here for the publication > > https://resource.cdn.icai.org/46263indas36370.pdf
The Guidance Note on Division II – Ind AS Schedule III provides guidance to preparers and auditors on each of the line items in the Balance Sheet and the Statement of Profit and Loss of entities that are required to comply with Ind AS. The Guidance Note also highlights the major differences between Division I and Division II to Schedule III, including illustrative formats of standalone and consolidated primary financial statements.
PwC
ICAI
11
Revised publication on Indian Accounting Standards (Ind AS): An Overview
The Ind AS implementation committee of the ICAI has revised its publication on ‘Indian Accounting Standards (Ind AS): An Overview’. This publication contains an overview of various aspects related to Ind AS such as roadmap for the applicability of Ind AS, carve-outs from IFRS, difference between Indian GAAP and Ind AS, summary of all the Ind AS etc. It also captures all the amendments to Ind AS notified by the MCA in March 2017.
Click here for the publication >> https://resource.cdn.icai.org/47062indas36911.pdf
Revised Educational Material on Ind AS 18, Revenue
The Ind AS implementation committee of the ICAI revised its educational material on Ind AS 18. The publication contains a summary of Ind AS 18 and 31 FAQs which explain the principles enunciated by Ind AS 18.
Click here for the publication >> https://resource.cdn.icai.org/47061indas36910.pdf
Educational material on Ind AS 18 provides a summary of the requirements of Ind AS 18 while also providing practical guidance, in the form of FAQs, to preparers and auditors covering most commonly noted issues in practice. Amongst others matters the educational material provides guidance on following areas:
i. Distinction between revenue and income
ii. Accounting for revenue by real estate developers
iii. Accounting for customer incentives
iv. Impact of GST on measurement and presentation of revenue
v. Presentation of export incentives
PwC
ICAI
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Expert Advisory Committee (EAC) opinion
The EAC of the ICAI published an opinion clarifying whether deferred debts in the nature of retention money need to be discounted under Ind AS. The facts of the case and opinion are summarised below:
Facts of the case:
1. ABC Ltd is an integrated power plant equipment manufacturer engaged in designing, engineering, manufacture, construction, testing and commissioning of power projects.
2. The projects have a long gestation period where the normal execution period of a contract ranges between 3 to 5 years.
3. Progress billing contains a retention element which ranges from around 5% to 10% of the bill amount. The retention money will become contractually due for payment by the customer on the happening of certain events such as trial operation and performance of guarantee tests.
Query:
Should deferred debts in the nature of retention money be discounted?
Opinion:
The EAC opined that where the effect of time value of money is material, deferred debts in the nature of retention money should be discounted in order to arrive at the fair value of the consideration receivable from the contract in accordance with para 12 of Ind AS 11, Construction contracts. The link of the EAC opinion is given below:
https://resource.cdn.icai.org/47574eac37373-11.pdf
IFRS convergence status
The ASB of ICAI has published a statement showing the status of convergence with IFRS. Basis the same, Ind AS 115 corresponding to IFRS 15 has been approved by NACAS with an effective date of 1 April 2018 and has been submitted to MCA for final notification. Refer link for the IFRS convergence status >> https://resource.cdn.icai.org/48671asb32658.pdf
EAC of ICAI has opined that where the effect of time value of money is material, deferred debts in the nature of retention money should be discounted to arrive at the fair value of consideration receivable from the contract in accordance with para 12 of Ind AS 11.
PwC
ICAI
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ASB FAQ on treatment of securities premium account under Ind AS on the date of transition –updated June 2017
Facts:Under the previous Indian GAAP, an entity had provided for the full redemption premium on the date of the issue of redeemable debentures by adjusting the securities premium (as permitted under Companies Act; 1956). The Company had also written off debenture issue expenses against the securities premium.
Query:What adjustments are required to the carrying value of debentures on transition to Ind AS, if the liability is subsequently measured at amortised cost as per Ind AS 109, Financial Instruments?
Response:The ASB clarified that the entity will have to arrive at the amortised cost of the liability on the date of transition by applying effective interest rate method retrospectively from the date of issue of debentures.
Amortised cost computation includes transaction costs that are directly attributable to the acquisition or issue of debentures, such as, expenses incurred on issue of debentures and premiums and discounts.
As a result of the utilisation of securities premium, carrying value of debentures shall be higher under Previous Indian GAAP as compared to the amortised cost as per Ind AS 109. This excess amount should be reversed by crediting capital reserve under other equity.
Click here for the FAQ: https://resource.cdn.icai.org/45130asb35158.pdf
PwC
ITFG
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Clarifications on technical bulletins
ITFG Bulletin 8 clarifications
1. Provision may not be required in the financial statements for shortfall in the amount that was expected to be spent as per the provisions of Section 135(5) of the Companies Act, 2013 on CSR activities.
2. Entities are not required to make disclosures prescribed by Ind AS 8 with respect to Ind AS 115for the financial year ended 31 March 2017, since Ind AS 115 has been omitted from the Companies (Indian Accounting Standards) Rules, 2015.
3. As per Ind AS 101, balance sheet as on the date of transition will be prepared for the financial position as at the beginning of the business on 1 April 2016 (or equivalently, close of business on 31 March 2016) instead of close of business on 1 April 2016.
4. Entities cannot use the deemed cost exemption available as per paragraph D7AA of Ind AS 101 for assets arising from incorrect capitalization of items of PP&E which did not meet the definition of asset under previous GAAP.
5. Entities may elect to measure its PP&E at its deemed cost measured as per previous GAAP revaluation on or before date of transition, if the revaluation is broadly comparable to the fair value; or cost or depreciated cost in accordance with Ind AS (para D6 of Ind AS 101). Provision for impairment provided before the date of such measurement as per previous GAAP cannot be reversed in later years. However, impairment loss, if any, recognised during the period between the date of revaluation under previous GAAP to the date of transition can be reversed, if permitted by Ind AS 36.
6. If any entity elects to apply the exemption for business combination as per Appendix C to Ind AS 101, in respect of all business combinations that occurred before the date of transition, then the entity shall apply the requirement of attributing the total comprehensive income to the owners of the parent and non-controlling interests prospectively.
Impairment loss, if any, recognised during the period between the date of revaluation under previous GAAP to the date of transition can be reversed, if permitted by Ind AS 36, Impairment of Assets.
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ITFG
ITFG Bulletin 8 contd…
7. When an entity has availed the deemed cost exemption (Ind AS 101 paragraph D7AA) for its PP&E and elected the cost model for subsequent measurement then the balance outstanding in the revaluation reserve should be transferred to retained earnings or any another category of equity.
8. Capitalisation of exchange differences (including exchange differences capitalised prior to the date of transition) represents subsequent measurement of the liability which has been adjusted to the cost of the asset. Accordingly, in such situations, initial recognition exemption will not be available and deferred tax is required to be recognised on temporary difference arising from such capitalized exchange differences.
9. Dividend income on an investment in debt instrument shall be recognised in the form of interest. Recognition of income will depend on the category of investment in debt instrument (e.g. amortised cost, fair value through other comprehensive income, or fair value through profit or loss) determined as per the requirements of Ind AS 109.
Click here for ITFG Bulletin 8 >>> https://resource.cdn.icai.org/45310asb35387.pdf
Refer PwC ReportingPerspectives July 2017 edition, where we have shared our insights on ITFG Bulletin 8 >>https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportingperspectives-july-2017.pdf
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PwC
ITFG
ITFG has clarified that upon merger of a subsidiary with its parent, the assets, liabilities and reserves of the subsidiary, as appearing in the consolidated financial statements of its parent, would be recognised in the separate financial statements of the parent. Guidance is required on other possible scenarios wherein this method of accounting would be acceptable.
ITFG Bulletin 9 clarifications
1. Dividend Distribution Tax (DDT) paid by the subsidiary shall be recognised as expense in the consolidated financial statements of the Parent. If DDT paid by the subsidiary is allowed as a set off against DDT liability of the parent, then the amount of DDT paid by the subsidiary should be recognised in the consolidated statement of changes in equity of the Parent.
2. Where DDT paid by the subsidiary on the distribution of its accumulated undistributed profits is allowed as a set off against parent’s own DDT liability, then the amount of such DDT can be recognised in the consolidated statement of changes in equity of the Parent by crediting an equivalent amount to deferred tax expense in the consolidated statement of profit or loss of the Parent in the period in which set-off is availed of. Tax credit is not recognised until the conditions required to receive such tax credit are met.
3. Upon amalgamation/legal merger of fellow subsidiaries, assets, liabilities and reserves as appearing in the standalone financial statements of the entities being combined shall be recognised in the separate financial statements of the acquirer.
4. Separate financial statements are to be considered as continuation of the consolidated group to the extent of common control business combination, wherein a subsidiary merges with its parent. Accordingly, upon merger of a subsidiary with its parent, it would be appropriate to recognise in the separate financial statements of the parent, the carrying values of assets, liabilities and reserves of the subsidiary as appearing in the consolidated financial statements of the parent.
5. Entities have to consider the substance of the transaction and determine whether contributions received from Government, which is also a shareholder, is in the nature of a shareholder contribution or a grant. Shareholder contributions are recognised in equity whereas grants affect Statement of Profit or Loss. Where contributions in the nature of shareholder contributions were recognised in capital reserve under previous Indian GAAP, then the same shall be transferred to an appropriate category under ‘other equity’ at the date of transition.
Click here for ITFG Bulletin 9 >>> https://resource.cdn.icai.org/45372indas35456.pdf
Refer PwC ReportingPerspectives July 2017 edition, where we have shared our insights on ITFG Bulletin 9 >>https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportingperspectives-july-2017.pdf
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PwC
ITFG
ITFG Bulletin 10 clarifications
1. In case of interest free loan given by the parent to its subsidiary, the difference between the carrying amount of loan under previous Indian GAAP and its fair value shall be added to the investment in subsidiary despite the parent has elected to measure its investment in the subsidiary at previous Indian GAAP carrying amount at the date of transition.
2. To the extent that it is probable that the undisbursed term loan will be drawn down in the future, processing fee is deferred and deducted from the carrying value of the financial liability when the draw down occurs and is considered in the effective interest rate calculations. Where it is not probable that the undisbursed term loan will be drawn down in the future, then the fees are recognised as an expense on a straight line basis over the loan term.
3. Deferred tax is to be recognised for assets and liabilities which have a tax base but no carrying value in the financial statements. Accordingly, deferred tax asset is to be recognised in the consolidated financial statements of the Parent for tax deductible goodwill (arising due to amalgamation of step down subsidiaries) but has no financial reporting carrying value in the consolidated financial statements.
4. Deemed cost exemption (as per paragraph D7AA of Ind AS 101) is also available for non-current assets which were presented separately as held for sale under previous Indian GAAP but on transition did not meet the criteria of assets held for sale, in accordance with Ind AS 105 Non-current Assets Held for sale and Discontinued Operations.
5. Exchange differences that are being debited to foreign currency monetary item translation difference account are in accordance with the requirements of Ind AS and, therefore, the same are not required to be reduced from profit or loss for the purpose of calculating earnings per share.
6. If the entity is acting as a principal, then it shall recognise the revenue at gross amount and the expense for providing free third-party goods will be included in the cost of goods sold. If the entity is acting as an agent, then it shall measure its revenue at the net amount, being the amount of consideration allocated to award credits and the amount payable to the third party.
Click here for ITFG Bulletin 10 >>> https://resource.cdn.icai.org/45802indas36018.pdf
Refer PwC ReportingPerspectives July 2017 edition, where we have shared our insights on ITFG Bulletin 10 >>https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportingperspectives-july-2017.pdf
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Tax base is determined by reference to tax returns of each entity in the Group. Accordingly, deferred tax may be recognised for assets or liabilities having a tax base but no carrying value in the financial statements.
PwC
ITFG
ITFG Bulletin 11 clarifications
1. Employee stock option plan (ESOP) reserve is required to be included in calculating the net-worth whilst assessing the applicability of Ind AS to an entity.
2. Deferred tax in respect of temporary differences which reverse during the tax holiday period is not recognised to the extent the entity’s gross total income is subject to deduction during the tax holiday period.
3. Earnings per share in the separate financial statements shall be calculated based on the profit or loss attributable to its equity shareholders.
4. The deemed cost exemption as per paragraph D15 of Ind AS 101 related to investment in subsidiaries, joint ventures and associates is available only in cases where an entity chooses to subsequently measure the investment at cost in accordance with Ind AS 27, Separate Financial Statements.
5. Customs duty exemption on capital goods provided to entities under the EPCG Scheme is in the nature of a government grant. Entities need to apply judgement to determine whether the grant is related to assets or income and accordingly account for it.
6. Selection of a depreciation method is an accounting estimate and not an accounting policy. Accordingly, each member of a consolidation group can choose a depreciation method which closely reflects the expected pattern of consumption of future economic benefits embodied in the assets and apply it consistently.
7. Ind AS are not applicable to non-corporate entities. Non-corporate entities cannot adopt Ind AS voluntarily.
8. Expenditure incurred on PP&E without ownership rights (enabling assets) can be capitalised as part of the overall project where such expenditure is directly attributable to bringing the project to the location and condition necessary for it to be capable of operating in a manner intended by the management.
9. Sitting fees paid to non-executive directors, who are covered under the definition of ‘key management personnel’ is required to be disclosed under Ind AS 24 Related Party Transactions.
Click here for ITFG Bulletin 11 >>>https://resource.cdn.icai.org/46114indas36253.pdf
Refer PwC ReportingPerspectives October 2017 edition, where we have shared our insights on ITFG Bulletin 11 >> https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportingperspectives-october-2017.pdf
ITFG clarified that customs duty exemption on capital goods provided to entities under the Export Promotion Capital Goods (EPCG) Scheme is in the nature of a government grant. Entities should carefully evaluate similar benefit schemes provided by governments and determine the appropriate accounting treatment.
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PwC
ITFG
ITFG Bulletin 12 clarifications
1. Immovable property such as land or building which meet the definition of PP&E as per Ind AS 16shall be subsequently measured at cost or revaluation model. If an item of PP&E is revalued, the entire class of PP&E to which that asset belongs needs to be revalued. Immovable properties which meet the definition of investment property as per Ind AS 40, Investment Property shall be subsequently measured at cost only.
2. Where a first time adopter of Ind AS has elected to apply fair value as the deemed cost of an item of PP&E, then government grant related to that asset needs to be recognised on the date of transition by setting up the grant as deferred income. The resulting adjustment will be made in retained earnings or, if appropriate, another category of equity at the date of transition to Ind AS.
3. Paragraph D7AA of Ind AS 101 permits an entity to continue with previous Indian GAAP carrying values as the deemed cost for all of the items of PP&E. Any intra-group profits or losses forming part of the deemed cost needs to be eliminated while preparing consolidated financial statements of the parent entity
4. Previous GAAP carrying value used as the deemed cost under Ind AS 101 can only be adjusted for those adjustments which are consequential and arise as a result of applying the transition requirements of Ind AS 101.
5. Where a loan borrowed from one bank has been prepaid by availing a new loan from another bank, the prepayment would result in extinguishment of the old loan. The prepayment premium paid shall be recognised in profit or loss as part of the gain or loss on extinguishment of the loan. loan processing fees paid on the origination of the new loan will be included in the computation of the effective interest rate (EIR) of the new loan.
6. The branch office of a foreign company established in India is not incorporated under the Indian Company Law. It is only an establishment of a foreign company in India. Accordingly, the branch office of a foreign company is not required to comply with Ind AS.
7. Where a first-time adopter has availed the business combination exemption under Appendix C of Ind AS 101, the deemed cost of the financial assets and liabilities (acquired as part of the past business combination) for Ind AS shall be their carrying amounts in accordance with the previous Indian GAAP immediately following the business combination.
ITFG clarified that previous GAAP carrying value used as deemed cost on transition to Ind AS can only be adjusted for those adjustments which are consequential and arise as a result of applying the transition requirements of Ind AS 101.
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PwC
ITFG
ITFG Bulletin 12 contd…
8. Where a first-time adopter has applied the exception under paragraph B10 of Ind AS 101, then it shall not recognise the benefit of government loan at below-market rate of interest as a government grant with respect to government loans existing on the date of transition. Previous Indian GAAP carrying amount of the government loan on the date of transition shall be the carrying amount under Ind AS. The exception available under paragraph B10 of Ind AS 101 also applies to sales tax deferral schemes.
9. Entities should evaluate the terms and conditions of the comfort letter to assess whether it can be considered as a financial guarantee as per Ind AS 109. A comfort letter shall be accounted as a financial guarantee contract if it creates a contractual obligation to make specified payments to the holder of the guarantee in case of default by the specified debtor.
10. Financial guarantee issued shall be initially recognised at fair value. Where the financial guarantee has been issued on arms-length terms, fair value is likely to be equal to the commission received. Financial guarantee should subsequently be measured at the higher of the amount of loss allowance as per Ind AS 109 and the amount initially recognised less cumulative amount of income recognised in accordance with Ind AS 18.
11. Where the date from which the amalgamation is proposed to be effected in the books of the accounts of the amalgamated company is different from the acquisition date as per Ind AS 103,the auditor shall state this fact in the certificate as required to be issued under Section 232 (3) of the Companies Act, 2013. If NCLT approves the scheme of amalgamation with a different appointed date as compared to the acquisition date as per Ind AS 103, the appointed date approved by the NCLT will be the acquisition date.
Click here for ITFG Bulletin 12 >>> https://resource.cdn.icai.org/47468indas37250.pdf
Refer our publication PwC ReportingInBrief - ITFG Bulletin 12, on this topic >>
https://www.pwc.in/publications/2017/pwc-reportinginbrief-itfg-bulletin-twelve.html
If National Company Law Tribunal (NCLT) approves the scheme of amalgamation with an appointed date which is different as compared to acquisition date as per Ind AS 103, Business Combinations, then the appointed date approved by NCLT will be the acquisition date. In such case, the Company should provide appropriate disclosures in financial statements and auditor should consider the implications in the audit report as per the relevant auditing standards.
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ITFG
ITFG Bulletin 13 clarifications
1. Dividend distribution tax (DDT) on dividend payable on preference shares classified as liability in accordance with Ind AS 32, Financial Instruments: Presentation will be treated as borrowing cost eligible for capitalisation under Ind AS 23, Borrowing Costs.
2. Ind AS 109 does not provide any specific accounting for beneficiary of a financial guarantee. A personal guarantee provided by a director to the lenders of a company, without any premium or fees, is not required to be accounted by the company i.e. the beneficiary. The fair value of the borrowing is expected to be the face value of the loan proceeds received considering the unit of account as being the guaranteed loan.
3. Disclosure specified in paragraph 34 of Ind AS 108 relating to information about the extent of reliance on major customers, also apply to an entity with a single reportable segment.
4. A Company which carries on the activity of NBFC but is not registered with the RBI shall also comply with Ind AS as per the Ind AS roadmap for NBFCs.
5. Ind AS and Ind AS Schedule III do not permit classification of expenses by function. Further, disclosure of operating profit would result in change in the format of statement of profit and loss as prescribed by Ind AS Schedule III. Accordingly, it may not be appropriate to present operating profit measure as a sub-total on face of statement of profit and loss. Entities may provide such additional information in the financial statements.
6. Modification gain or loss arising on renegotiation of terms of borrowings should be recognised in profit or loss of the period in which the renegotiation has contractually taken place.
7. A deemed disposal of a parent’s equity interest in a subsidiary without loss of control (e.g. when another investor invests in the equity of the subsidiary thereby reducing the parent’s ownership percentage) has no accounting impact in the separate financial statements of the parent. In the consolidated financial statements of the parent, such deemed disposal is accounted as an ‘equity transaction’. No gain or loss is recognised in profit or loss.
8. Market risk disclosures relating to foreign exchange risk, required by Ind AS 107, Financial Instruments: Disclosures, shall also be provided in respect of exchange differences capitalisedwith the cost of the asset as per paragraph D13AA of Ind AS 101.
Entity-wide segment disclosures specified in paragraph 31 of Ind AS 108, Operating Segments are required even if an entity has a single reportable segment.
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ITFG
ITFG Bulletin 13 contd…
9. Impact of dividend distribution tax (DDT) paid by a partly owned subsidiary in the consolidated financial statements of the parent:
i. Where no dividend is declared by the parent company: In consolidated financial statements, dividend income earned by the parent from the subsidiary and the equivalent amount recorded by the subsidiary in its equity shall be eliminated. DDT paid by the subsidiary attributable to the parent’s share of dividend (which is eliminated in the consolidated financial statements) shall be charged to the consolidated statement of profit and loss as ‘tax expense’. Dividend paid by the subsidiary to non-controlling interests (NCI) along with the attributable DDT thereon would be recorded in the consolidated statement of changes in equity as a reduction in NCI balance;
ii. Where dividend is declared by the parent company: DDT paid by the subsidiary claimed as set off against the DDT liability of the parent under tax laws shall be recognised in the consolidated statement of changes in equity. DDT not claimed/utilised as set off shall be charged to consolidated statement of profit and loss as ‘tax expense’. Accounting of dividend paid by the subsidiary to NCI and DDT thereon shall be as per 9(i) above.
10. DDT paid by an associate is not allowed as set off against the DDT liability of the investor under tax laws. Accordingly, investor’s share of DDT paid by the associate would be accounted by the investor by crediting its investment in the associate and recording a corresponding debit adjustment towards its share of profit or loss from the associate.
11. Debentures compulsorily convertible into fixed number of equity shares (CCDs) with mandatory interest payment is classified as compound financial instrument from the issuer’s perspective. Such compound financial instrument is required to be separated into two components i.e. financial liability and equity. When allocating the initial carrying amount of the compound instrument into financial liability and equity, an entity first determines the fair value of the liability component. The fair value of the financial liability is determined with reference to the fair value of a similar stand-alone debt instrument. The amount allocated to the equity component is residual amount after deducting the fair value of the financial liability component from the fair value of the entire compound instrument. The above principle would also apply to CCDs issued at off-market coupon.
Click here for ITFG Bulletin 13 >>> https://resource.cdn.icai.org/48318indas32383.pdf
Refer our publication PwC ReportingInBrief - ITFG Bulletin 13, on this topic >>
https://www.pwc.in/publications/2018/pwc-reporting-reporting-inbrief-inbrief-ind-as-transition-facilitation-group-itfg-clarification-bulletin-13.html
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ITFG
ITFG Bulletin 14 clarifications
1. Loan processing fees is considered as an integral part of the EIR of a borrowing. Where such borrowing is in connection with the construction or acquisition of a qualifying asset, processing fees to the extent amortised as per the EIR method, shall be capitalised as part of the cost of the asset till the period of capitalisation permitted under Ind AS 23.
2. Accounting for site restoration cost in case of a leasehold land depends on whether the lease is a finance or an operating lease.
(i) If the lease is determined to be a finance lease, present value of the estimated restoration costs shall be capitalised on initial recognition along with the property, plant and equipment (PP&E) and a corresponding liability shall be recognised. PP&E along with the capitalisedrestoration costs shall be depreciated over the estimated useful life.
(ii) If the lease is determined to be an operating lease, present value of the estimated restoration costs to remove the leasehold structure or improvement shall be capitalised with the leasehold structure or improvement and depreciated over the lease term or the estimated useful life of the structure or improvement, whichever is lower.
3. Where advances received from customers for supply of goods or services constitute a significant financing component, entity shall adjust the consideration (including advance payments) for the effects of time value of money.
4. Preference shares which are redeemable or convertible at issuer’s option with discretionary dividend shall be classified as equity provided the conversion option is substantive. This is because the issuer has the ability to avoid making cash payment or settling the instrument through issue of variable number of its own shares.
5. Court or NCLT order approving a scheme of amalgamation involving entities under common control with retrospective effect, subsequent to the balance sheet, is an adjusting subsequent event.
6. Financial instruments which are held as stock-in-trade shall be recognised and measured in accordance with Ind AS 109. Disclosures in accordance with Ind AS 107 shall also be provided in respect of such financial instruments.
ITFG clarified that Court or NCLT order approving a scheme of amalgamation involving entities under common control with a retrospective effect, subsequent to the balance sheet, is an adjusting subsequent event.
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ITFGITFG Bulletin 14 contd…
7. Where an entity upon transition elects to apply fair value as the deemed cost of the PP&E or IndAS 16 retrospectively and subsequently measures the PP&E based on the revaluation model as per Ind AS 16, then any revaluation surplus recognised in accordance with previous Indian GAAP shall be transferred to retained earnings or another category of equity. Revaluation gain or loss as determined as per Ind AS 16 shall be recognised on the date of transition to Ind AS in equity as revaluation reserve. Any subsequent changes in revaluation after the date of transition to Ind AS shall be recognised in other comprehensive income.
Click here for ITFG Bulletin 14 >>> https://resource.cdn.icai.org/48587indas32600.pdf
Refer our publication PwC ReportingInBrief - ITFG Bulletin 14, on this topic >>
https://www.pwc.in/publications/2018/pwc-reportinginbrief-ind-as-transition-facilitation-group-itfg-clarification-bulletin-14.html
Compendium of ITFG Bulletins
The Ind AS Implementation Committee has issued a compendium of ITFG clarification bulletins. The compendium covers the clarifications from all 14 bulletins issued by ITFG till date.
Click here for compendium of ITFG bulletins>>> https://resource.cdn.icai.org/48657compendium-itfg-icai.pdf
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CBDT
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Clarification on computation of book profit under Section 115JB of the Income Tax Act, 1961 by Ind AS compliant companies
An expert committee of Central Board of Direct Taxes (CBDT) has issued a circular based on representations received from various stake holders seeking clarification on matters arising in the context of computation of book profits under Section 115JB of the Income Tax Act, 1961. These clarifications have been issued in the form of Frequently Asked Questions (FAQs).
Click here to access the circular from CBDT > >
http://www.incometaxindia.gov.in/communications/circular/circular_24_%202017.pdf
Refer our publication PwC ReportingInBrief - Clarifications on MAT for Ind AS reporters, on this topic >>
http://www.pwc.in/publications/2017/pwc-reportinginbrief-clarifications-on-mat-for-ind-as-reporters.html
Also refer to our earlier publications PwC ReportingInBrief - MAT framework for Ind AS compliant companies >> http://www.pwc.in/publications/2017/pwc-reportinginbrief.html and PwC Reporting InBrief MAT – Amendment >> https://www.pwc.in/publications/2017/pwc-reportinginbrief-mat-amendment.html
Revised Form No.29B applicable for Ind AS compliant companies
Sub-section (4) to Section 115JB of the Income Tax Act requires every company which is liable to pay MAT to furnish a report from an accountant certifying that book profits have been determined in accordance with Section 115JB of the Income Tax Act, 1961. Report from the accountant in ‘Form No. 29B – Report under Section 115JB of the Income Tax Act for computation of book profits of the Company’ (“Form No. 29B” or “the Form”) is required to be filed along with the return of income filed under Section 139(1) of the Income Tax Act. In order to facilitate Ind AS compliant companies to report appropriately and for accountants to certify, Central Board of Direct Taxes (CBDT) has issued an amended Form No. 29B.
Refer here for the updated Form No.29B issued by CBDT > >
http://www.incometaxindia.gov.in/communications/notification/notification80_2017.pdf
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SEBIDisclosure by Listed Companies of defaults on payment of interest/ principalamounts on loans from banks, financial institutions, debt securities etc.
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR regulations”) require specific disclosure in certain matters such as delay/ default in payment of interest/ principal on debt securities, including listed non-convertible debentures, listed non-convertible redeemable preference shares, foreign currency convertible bonds etc. Similar disclosures are presently not stipulated with respect to loans from banks and financial institutions.
In order to address this critical gap in the availability of information to investors, SEBI issued a circular requiring all listed entities (equity, and convertible securities, non-convertible debt securities, non-convertible and redeemable preference shares) to make certain specific disclosures upon default in repayment of interest or principal within one working day of the first instance of default.
The circular was to be effective from 1 October 2017. However, SEBI deferred the implementation of the circular on 30 September 2017 until any further notice.
Click here for the SEBI circular >>
http://www.sebi.gov.in/legal/circulars/aug-2017/disclosures-by-listed-entities-of-defaults-on-payment-of-interest-repayment-of-principal-amount-on-loans-from-banks-financial-institutions-debt-securities-etc_35538.html
Click here for press release announcing the deferral > >
http://www.sebi.gov.in/media/press-releases/sep-2017/deferment-of-implementation-of-circular_36143.html
PwC
Publications
PwC ReportingInbrief - ITFG Bulletin 14
This InBrief provides an overview of the clarifications issued by the ITFG in its bulletin 14 and our insights on these clarifications and related interpretative issues.
https://www.pwc.in/publications/2018/pwc-reportinginbrief-ind-as-transition-facilitation-group-itfg-clarification-bulletin-14.html
PwC ReportingInbrief - ITFG Bulletin 13
This InBrief provides an overview of the clarifications issued by the ITFG in its bulletin 13 and our insights on these clarifications and related interpretative issues.
https://www.pwc.in/publications/2018/pwc-reporting-reporting-inbrief-inbrief-ind-as-transition-facilitation-group-itfg-clarification-bulletin-13.html
PwC ReportingInbrief - ITFG Bulletin 12
This InBrief provides an overview of the clarifications issued by the ITFG in its bulletin 12 and our insights on these clarifications and related interpretative issues.
https://www.pwc.in/publications/2017/pwc-reportinginbrief-itfg-bulletin-twelve.html
Ind AS interim reporting disclosure checklist
This disclosure checklist outlines the minimum disclosures required by Ind AS 34, ‘Interim financial reporting’, and other Ind ASs notified under the Companies (Indian Accounting Standards) Rules, 2015 up to and including March 2017 insofar as they affect interim reports.
https://www.pwc.in/assets/pdfs/publications/2017/ind-as-interim-reporting-disclosure-checklist.pdf
We have summarised our Ind AS publications issued during the year, which you may find useful while preparing the 31 March 2018 Ind AS financial Statements.
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Publications
PwC Reporting Perspectives – January 2018
Our quarterly newsletter covers the latest developments in financial reporting as well as other regulatory updates.
https://www.pwc.in/publications/2018/pwc-reportingperspectives-january-2018.html
Among other matters, the January 2018 edition provides guidance on practical challenges on application of Ind AS 23 and accounting implications of the US tax reform.
PwC Reporting Perspectives – October 2017
Our quarterly newsletter covers the latest developments in financial reporting as well as other regulatory updates.
https://www.pwc.in/publications/2017/pwc-reportingperspectives-october-2017.html
Among other matters, the October 2017 edition discusses the key requirements of exposure draft of Ind AS 116 issued by ICAI and the change in the accounting of leases from Ind AS 17.
PwC ReportingInBrief: Half year-end reminders 30 September2017
This publication includes updates provided by regulators such as MCA, ICAI, SEBI, CBDT, RBI and IRDA relating to financial reporting under Ind AS for the half year-end 30 September 2017. It also includes a gist of clarifications provided by ITFG on financial reporting issues faced by users and preparers of Ind AS financial statements.
https://www.pwc.in/assets/pdfs/publications/2017/pwc-reportinginbrief-half-yearly-reminders.pdf
Ind AS Interim financial reporting
The publication presents an illustrative interim financial report of a fictional listed company.
https://www.pwc.in/assets/pdfs/services/ifrs/illustrative-interim-financial-reporting-december-2017.pdf
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Publications
PwC ReportingInbrief – ICAI guidance note on Ind AS Schedule III
The publication provides an overview of the key requirements of the guidance note. It also presents our perspectives on certain practical issues that may arise in the implementation of Ind AS Schedule III.
http://www.pwc.in/publications/2017/pwc-reportinginbrief-icai-guidance-note-on-ind-as-schedule-iii.html
PwC ReportingInBrief - Clarifications on MAT for Ind AS reporters
The publication provides an overview of the clarifications issued by CBDT and proposed amendments to Section 115JB of the Income Tax Act, 1961.
http://www.pwc.in/assets/pdfs/publications/2017/pwc-reportinginbrief-clarifications-on-mat-for-ind-as-reporters.pdf
PwC Reporting Perspectives July 17
Our quarterly newsletter covers the latest developments in financial reporting as well as other regulatory updates.
http://www.pwc.in/publications/2017/pwc-reportingperspectives-july-2017.html
Among other mattes, our PwC Reporting Perspectives (July 2017) edition contains an overview of key requirements of Ind AS 111 relating to classification and accounting of joint arrangements.
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Publications
PwC ReportingInBrief- Impact of GST on Ind AS reporting
This publication discusses some frequently asked questions on accounting impact of GST for companies reporting under Ind AS.
http://www.pwc.in/publications/2017/pwc-reportinginbrief-impact-of-gst-on-ind-as-reporting.html
PwC ReportingInBrief - Ind AS 109, Financial Instruments for corporates
This publication provides an overview and practical insights into the key classification, measurement and impairment requirements of Ind AS 109 for corporates.
http://www.pwc.in/publications/2017/pwc-reportinginbrief-ind-as-109-financial-instruments-for-corporates.html
IFRS, US GAAP, Ind AS and Indian GAAP: Similarities and differences
This publication provides an understanding of the major differences between IFRS, US GAAP, Ind AS and Indian GAAP as well as insight into the level of change on the horizon.
It is designed to alert companies, investors and other capital market participants to the significant differences between IFRS, US GAAP, Ind AS and Indian GAAP as they exist today, and to the timing and scope of accounting changes that the standard-setting agendas of the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) and Institute of Chartered Accountants of India (ICAI) will bring.
https://www.pwc.in/publications/2017/ifrs-us-gaap-ind-as-and-indian-gaap-similarities-and-differences.html
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Publications
PwC Ind AS impact analysis: Corporate India’s transition to Ind AS
This report looks at the impact of transition to Ind AS from previous Indian GAAP by evaluating various transition provisions applied by corporate India in preparing their first Ind AS financial statements.
http://www.pwc.in/publications/2017/pwc-ind-as-impact-analysis-corporate-indias-transition-to-ind-as.html
Transfer pricing: Impact of Ind AS
This white paper touches upon various impact areas and interplay between Ind AS and tax transfer pricing rules. The paper should also assist you in identifying and addressing issues such as revenue and expense accounting, comparability, etc. arising on account of such interplay.
http://www.pwc.in/publications/2017/transfer-pricing-impact-of-ind-as.html
PwC ReportingPerspectives April 2017
Our quarterly newsletter covers the latest developments in financial reporting as well as other regulatory updates. Among other matters, the April 2017 edition sets out our views on some of the key considerations in fair value measurement as per Ind AS 113, Fair Value Measurement.
http://www.pwc.in/publications/2017/pwc-reportingperspectives-april-2017.html
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IFRS publications
March 2018 year-end accounting reminders - IFRS
This publication summarises the key developments in IFRS.
https://inform.pwc.com/s/March_2018/informContent/1809022603103301#ic_1809022603103301
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Key takeaways
In the year ending 31 March 2018, there have been a number of updates, guidance and clarifications issued by various regulators to help preparers with the practical application of the Ind AS and facilitate the Ind AS transition effort of companies in Phase I and II. In this publication, we have attempted to summarise various Ind AS developments during year ending 31 March 2018. The publication incorporates updates till 16 March 2018.
We hope you find this publication informative and of continued interest.
We welcome your feedback at [email protected]
For a variety of additional resources offering more in-depth perspectives on the impact and other aspects of Ind AS, please visit our website at www.pwc.in
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