voices on reporting - kpmg...sebi corporate governance norm 13 february 2014 17 april 20144 january...

Voices on

Reporting

29 April 2014

kpmg.com/in

© 2014 KPMG, an Indian 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. 1

Welcome

Series of knowledge sharing calls

Covering current and emerging reporting issues

Scheduled towards the back end of each month

Look out for our Accounting and Auditing Update and First Notes

publications.



Topics for today

Companies Act – Implementation questions 1

SEBI corporate governance norms 2

New IFRS standard expected – Revenue from

contracts with customers 3



Related party transactions: Points to consider

What will be the impact on existing contracts? Map all related parties

FAQs How to comply with the

new requirements

How are companies approaching the pre-approval

process?

Inventories all existing RPTs and estimate

RPTs in the foreseeable future

What constitutes ‘ordinary course of business’? Chart out what constitutes ‘ordinary course of

business’

Can arm’s length price be linked to transfer pricing

norms?

Develop policies on how to determine arm’s length

pricing

How would the approval process work in case of

transactions with fellow subsidiaries or joint venture

companies?

Obtain enabling resolutions for RPTs for transactions in

foreseeable future



Board and governance matters:

Points to consider


new requirements

What should companies do with respect to new

requirements on independent director (ID)?

Assess the independence of existing IDs, roll out

appointment letters for IDs

What are compliances for appropriate constitution of

the various committees such as:

Audit committee

Nomination and remuneration committee

CSR committee?

Set out a revised charter for the board and various

committees and code of conduct for the IDs

What should companies do with respect to Board

evaluation?

Set up a framework for performance evaluation and

benchmark it with the comparable leading practices

How should companies gear up for internal financial

controls?

Document operating procedures, risk assessment,

document entity level and IT controls, test controls

and report



Financial Reporting : Points to consider

What is the impact of new definition of subsidiary

and associates?

Assess relationships after considering convertible

preference shares

Put in place processes to comply with the Act for

subsidiaries and associates based on the new

definition.

How would depreciation changes impact

profitability?

Assess useful lives of deprecation based on usage

pattern

Consider aligning with group rates of depreciation

How to ensure compliance with inter corporate

loans to companies other than wholly owned

subsidiaries ?

Ensure the group company is not accustomed to

act in accordance with the lending company

Consider whether lending is in the ordinary course

of business


new requirements



Topics for today



New IFRS standard expected – Revenue from

contracts with customers 3



SEBI corporate governance norm

17 April 2014 13 February 2014 4 January 2013

*except for clause on ‘risk management committee’ which is applicable to top100 listed companies by

market capitalisation as at the end of the immediately preceding financial year

SEBI published a

‘Consultative Paper on

Review of Corporate

Governance Norms in

India’

SEBI approved norms

on ‘corporate

governance’

Published revised

norms effective from 1

October 2014 to all

listed companies*



Revised clause 49 – an overview

To align with the Companies Act, 2013 (revised

clause 49 stringent in certain areas)

To adopt leading industry practices

To make corporate governance more effective

To provide greater transparency.

Broad principles laid down relate to:

• Rights of shareholders

• Role of stakeholders

• Disclosure and transparency

• Responsibilities of the board

In case of ambiguity, provisions of the revised

norms should be interpreted in accordance with

the principles laid down in the revised guidelines.

Objective Framework



Revised norms

Aligned with the 2013 Act

• Definition of ID excludes nominee director

• Stock options to IDs prohibited

• Separate meeting of IDs and BOD

• Performance evaluation of IDs

• Code of conduct for BOD and senior management.

Independent directors (IDs)

Aligned, but with differences from the 2013

Act

• Not to be material supplier, service provider,

customer, lessor or lessee

• Transition period

• Number of directorships

• Chairman of the audit committee to be an ID.



Revised norms

Aligned, but with differences from the 2013 Act

• Scope of the definition of RPT widened and includes

person with joint control or significant influence on the

company and fellow joint ventures and associates

• Shareholders to approve all material RPTs (special

resolution)

• Enhanced disclosure of remuneration

• Applicable to prospective transactions. All existing

material related party contracts or arrangements that

would continue beyond 31 March 2015 should be

approved by shareholders at the first general meeting

after 1 October 2014.

Related party transactions (RPTs)


• Prior approval of audit committee for all RPTs

• Related party to abstain from voting.



Revised norms


• Whistle blower mechanism

• Nominations and remuneration committee

• At least one woman director

• Expanded role of the audit committee

• Constitution of stakeholders relationship committee.

New proposals

• Disclosure of the letter of appointment of independent

directors and the letter of resignation of IDs on the

company’s website and stock exchanges

• Risk management norms - BOD would be responsible

for framing, implementing and monitoring the norms

• Training to be imparted to IDs

• Companies to formulate a policy for determining

‘material’ subsidiaries, and disclose to stock exchanges

and in the annual report

• Exercise significant oversight over the material

subsidiaries.

Others



Topics for today



New IFRS standard expected – Revenue

from contracts with customers 3



Revenue from Contracts with Customers

Develop a single framework to deal with all types

of revenue contracts and business sectors

Improve comparability

Improve disclosure requirements

Converge IFRS and U.S. GAAP.

IAS 11 Construction contracts

IAS 18 Revenue

IFRIC 13 Customer Loyalty Programmes

IFRIC 15 Agreements for the Construction of Real

Estate

IFRIC 18 Transfers of Assets from Customers

SIC-31 Revenue – Barter Transactions Involving

Advertising Services.

Joint project between

the FASB and the IASB

The new standard will

replace the following

IFRS literature:

Objectives



Five-step model

Step 1:

Identify the contract Contract

Step 2:

Identify POs in the contract PO 1

Step 3:

Determine the TP TP for the contract

Step 4:

Allocate the TP to POs

TP allocated to PO

1

Step 5:

Revenue as POs satisfied

Revenue on

PO 1

PO 2

TP allocated to PO

2

Revenue on

PO 2

PO: Performance obligation TP: Transaction price



Five notable differences from current

requirements

Guidance contained in multiple standards and

interpretations All guidance contained in a single standard

Current guidance New standard

Risk and rewards based model Control based model. Risk and rewards is retained as

indicator of control transfer.

Consideration measured at fair value Consideration measured as the amount the entity

expects to be entitled to.

Limited guidance on identifying performance

obligations in a contract

Specific guidance on identifying performance

obligations in a contract.

Limited guidance for recognising revenue over time. Specific guidance provided for recognising revenue

over time.



Who is likely to be impacted

Real estate and construction

Aerospace and defence

Contract manufacturers

Asset managers

Software

Licensors – pharma, film and entertainment, franchisors

Telecommunication.

Following sectors are expected to be impacted:

...but everyone needs to evaluate the impact, because

it is a new model with new disclosure requirements.



Topics discussed in AAU and First Notes

Accounting

and Auditing

update

Real estate and construction

Aerospace and defence

Contract manufacturers

Asset managers

Software

Licensors – pharma, film and entertainment, franchisors

Telecommunication.

First notes

The SEBI Board has on 17 April 2014, amended the corporate

governance norms for listed companies in India to be effective

from 1 October 2014. Although, most of these amendments are in

line with the requirements of the Companies Act, 2013, some of

the changes are more stringent under the amended norms. Our

First Notes gives an overview of this amendment.



Others

COMING UP NEXT?

May 2014

• New Issue of Accounting and Auditing

Updates

• First Notes

• Voices on Reporting

Missed an issue of the

Accounting and

Auditing Update?

Missed an issue of the

First Notes?

Download from

www.kpmg.com/in

Download from

www.kpmg.com/in

Thank you

Contact:

kpmg.com/in

© 2014 KPMG, an Indian 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, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International Cooperative (“KPMG International”)

The views and opinions expressed herein are those of the presenters to the topics covered in today’s ‘Voices on Reporting’ knowledge sharing call and do not necessarily represent the views

and opinions of KPMG in India. The information contained in the slide pack is of a general nature and is not intended to address the circumstances of any particular individual or

entity. Although we endeavour 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.

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voices on reporting - kpmg...sebi corporate governance norm 13 february 2014 17 april 20144 january...

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