Indian Accounting Standards (Ind AS) Overview

1 CA P R Ramesh23rdJanuary 2020 Indian Accounting Standards (Ind AS)OverviewCA P R Ramesh 23rdJanuary 2020 Contents Background and Roadmap for implementing Ind AS Ind AS -conceptual changes Key Takeaways of Ind AS Ind AS 115 Revenue Recognition Ind AS 116 LeasesBackground and Roadmap for implementing Ind ASBackground IndASwasintroducedwithaviewtoenhanceacce ptabilityandtransparencyofthefinancialin formationcommunicatedbytheIndiancorporat esthroughtheirfinancialstatementsthrough outtheglobe. ThismovetowardsIFRS wassubsequentlyacceptedbytheGovernmentof IndiaandwasannouncedbytheHon'bleFinanceM inisterofIndia,ArunJaitely,inhisBudgetSp eechinJuly2014. ThereisanurgentneedtoconvergethecurrentI ndianaccountingstandardswiththeInternati onalFinancialReportingStandards(IFRS).Ip roposeforadoptionofthenewIndianAccountin gStandards(IndAS) ,theregulatorswillseparatelynotifythedat eofimplementationofIndASfortheBanks.

2 Roadmap for implementing Ind AS20162017 AllScheduledcommercialbanks(otherthanUCB s&RRBs) AllIndiaTerm-lendingRefinancingInstituti ons I -NBFC20182019 Companieswhoseequityordebtsecuritiesarel istedorareintheprocessoflistingonanystoc kexchangeinIndiaoroutsideIndia(listedcom panies) Holding,subsidiary,jointventureorassocia tecompaniesofthelistedandunlistedcompani escoveredabovePhase I Holding,subsidiary,jointventureorassocia tecompaniesofthelistedandunlistedcompani escoveredabovePhase II AlllistedNBFCs(orintheprocessoflisting)& notcoveredinPhaseIabove II -NBFCR oadmap for implementing Ind AS :IRDAI videpressreleasedatedJune28,2017hasdefer redtheimplementationofIndASfortheInsuran ceSectorinIndiaforaperiodoftwoyearsandth esameshallnowbeimplementedeffectivefrom2 020-21 Scheduled Commercial Banks (excluding Regional Rural Banks):RBIvidepressreleasedatedApril05,2 018hasdeferredtheimplementationofIndASfo rtheScheduledCommercialBanks(excludingRe gionalRuralBanks) ,RBIvidenotificationdatedMarch22,2019has againdeferredtheimplementationofIndASfor theScheduledCommercialBanks(excludingReg ionalRuralBanks) AS conceptual changes Major Concepts in Ind ASFair Value Measurement (Ind AS 113)

3 DeterminewhetheritemisinscopeofIndAS113 Determineinputstovaluefairvalue Level1 Level2 Level3 Establishparameters Identifytheitembeingmeasured Identifyunitofaccount&unitofvaluation Identifythemarketparametersandidentifyth emarketMeasureFairvalue FVatinitialrecognition HighestandBestuse LiabilitiesandownEquipment Portfoliomeasurementexceptions InactivemarketsSelectappropriatevaluatio napproachesandtechniques Marketapproach Incomeapproach CostapproachDiscloseinformationaboutFVMM ajor Concepts in Ind AS Expectedcreditloss isacreditlossimpairmentmodelwhichfocuses onrecognizingtheprovisionsbasedonexpecte dlosses(orcreditlosses)andnotonincurredl osses. flow the entity expects to receive Cash flow due to the entity = Credit LossEffectiveInterestRate(IndAS109) Timevalueofmoney INR100receivednextyearislessinvaluecompa redtoINR100receivedtoday!Major Concepts in Ind AS Comprehensive Income IndASrequiresthestatementofprofitandloss tobepresentedintwoparts: Comprehensiveincomepart(CI) othercomprehensiveincomepart(OCI).

4 Itcontainsofincomeandexpense(includingre classificationadjustments)thatarenotreco gnizedinprofitandlossasrequiredorpermitt edbyotherIndAS. Thereasonforpresentationofothercomprehen siveincomeisthattherearewiderangeofactiv itieswhichareincidentaltotheoperationsof anorganizationinduecourseofitsbusinesswh ichleadtonon-cashincomeorlosses. OCIconsistoffollowingitems:Itemsthat can be recycledItems that cannot be recycledGain or losson change in Fair value of investment in Debt instrumentGain or losson change in Fair value of Equity instrumentChange in FV of cash flow hedge reserveActuary gain orlossExchangeon foreign operationsRevaluationreserveMajor Concepts in Ind AS (IndAS9andIndAS32) CompoundFinancialInstrumentisaninstrumen twhichcontainswhosetermsmaybestructuredi nawaythatitcontainsbothequityandliabilit ycomponents. BoththeLiabilityandEquitycomponentofaCFI isrequiredtobeseparatelyaccountedforwhic histhebestexampleoffollowingtheprinciple sof substanceoverform.

5 Example:Aconvertiblebond,eithermandatori lyorattheoptionoftheholder,intofixednumb erofequitysharesoftheissuer Atinitialrecognition,theinstrumentisreco gnizedasfollows: FVoftheliabilitycomponentiscalculated,an disconsideredastheinitialcarryingamounto ftheliabilitycomponent. FVoftheliabilitycomponentcalculatedabove isdeductedfromFVoftheinstrumentasawhole, componentCompound InstrumentMajor Concepts in Ind AS Hedgeaccountingisappliedbyidentification ofhedgeditem(exposedtooneormorerisks)the nidentifyingthehedginginstrument( ) : Fairvaluehedge Cashflowhedge HedgeofnetinvestmentinforeignoperationsK ey Takeaways of Ind ASKey takeaways of Ind ASInd AS 1 Presentation of Financial Statement: Componentsoffinancialstatements Trueandfairpresentationandcompliancewith IndAS Expenserecognitiononthebasisofnature, AS 2 Inventories: Inventoryforserviceprovidertobeincludedi nthescopeforexample:costofpersonnel,wage sandotherattributableoverheads.

6 TreatmentofMachinerysparesprovided Standardcostmethodandretailmethodformeas urementofinventoriesKey takeaways of Ind AS : InclusionofBankoverdraftrepayableondeman daspartofCashandcashequivalent Useofdirectmethod Norequirementforacashflowrelatingtoextra ordinaryitemsseparately Disposalofstakeinsubsidiarynotresultingi nlossofcontroltobecoveredinfinancialacti vitiesIndAS8 AccountingPolicies,ChangesinAccountingEs timatesandErrors: ChangeinAccountingpolicyisallowedforbett erpresentationorifchangeistoimplementanI ndASrequirement(earlierchangewasonlybrou ghtasperrequirementofstatutorycompliance ) Priorperioditemstoberectifiedretrospecti velyandeffectofsuchchangeonassetandliabi litytobeadjustedinretainedearningsandnot profitorlossaccount. Consistencyinapplyingselectedaccountingp olicyKey takeaways of Ind AS AS 16 Property, Plant and Equipment : PPEtoberecognizedinbooksif: Probabilityoffutureeconomicbenefittoflow totheenterprise;and Respectivecostcanbemeasuredreliably.

7 Initialexpenditureandsubsequentexpenditu retobetreatedinsamemanner. Componentapproachtobeappliedinrecognitio nofPPE Assetretirementobligationtobeconsidereda tthebeginningandasperpresentvaluetechniq ue,thecorrespondingliabilityamounttobein creasedeveryyearusingeffectiveinterestra te(EIR)andaccordinglysettlementtobemadea tthetimeofretirement CapitalizationofInspectionCost(alsodecap italizationofexistingamountofearlierinsp ectioncost) AfterinitialrecognitionofaPPE,IndAS16req uiressubsequentmeasurementat: TheCostModel:Assetcarriedatcostlessaccum ulateddepreciationandimpairmentlosses TheRevaluationModel:Theassetiscarriedata revaluedamount,beingitsfairvalueatthedat eoftherevaluation,lesssubsequentdeprecia tion,providedthatfairvaluecanbemeasuredr eliably Usefullife,residualvalueandmethodofdepre ciationtobereviewedeachyearandtheeffects houldbeprospectiveandtreatedaschangeinac countingestimateKey takeaways of Ind AS AS 19 Employee Benefits.

8 Actuarialgainsandlossestobeaccountedfori nOCI Discountratetobeusedforforeignsubsidiary ,associates,JointVenturetobehighqualityc orporatebondrateifavailable,orelsegovern mentbondratetobeused Presentationofthreecomponentsof definedbenefitcost : Servicecost(current,past,curtailmentloss /(gain),andsettlementloss/(gain)inprofit orloss NetInterestinprofitorloss Re-measurements(actuarialgains,thereturn onplanassets( ),changeintheeffectoftheassetceiling)ino thercomprehensiveincome(OCI).Key takeaways of Ind AS : ExclusionofFinancialinstrumentssuchasfor wardcontractfromitspurviewandprovidedinI ndAS9 FinancialInstruments Nodistinctionbetweenintegralandnon-integ ralforeignoperations Conceptoffunctionalcurrencyandpresentati oncurrencyintroduced Translationdifferencetoberecordedanddisc losedinOCIKey takeaways of Ind AS : Consideringsubstantialperiodoftimeleftat thediscretionofthemanagement Nomentionofamortizationofotherancillaryc ost,discountsandpremiumrelatedtoborrowin gsinceIndASusesEffectiveInterestRate(EIR )MethodandconsiderstheloantobeaHeldtomat urity(HTM)Liability Capitalizationrateoftheborrowingtobedisc losedinthenotestoaccountsKey takeaways of Ind AS.)

9 Alterationinthedefinitionofclosemembers KMPoftheparenttobeincludedinRelatedparty relationship TwoJointVentures(JV)ofthesameco-venturea rerelatedpartiestoeachother AssociateandJVofthesamepartyarerelated DefinedbenefitPlans(enterprisesmanagingr etirementbenefitplansoftheemployees)ofan entitytobeincludedinthelistofrelatedpart ies. RemunerationtoKeyManagementPersonneltobe disclosedsectionwise MeaningofControl,significantInfluence,jo intcontrolderivedfromIndAS110,IndAS28and IndAS111respectivelyKey takeaways of Ind AS : NorequirementofreportingEPSincludingextr aordinaryitemsandEPSexcludingextraordina ryitemsseparately. PresentationofseparateEPSforcontinuingop erationsanddiscontinuingoperationsIndAS3 4 InterimFinancialReporting: Prescribedtheminimumcontentofaninterimfi nancialreportandtoprescribetheprinciples forrecognitionandmeasurementincompleteor condensedfinancialstatementsforaninterim period Interimperiod financialperiodshorterthanfullyear Interimfinancialreport eitheracomplete(asdescribedinINDAS1)orco ndensedsetoffinancialstatementsKey takeaways of Ind AS : Goodwilltobeputtotestofimpairmenteveryye ar, GoodwilltobeallocatedwithparticularCashG eneratingUnit(CGU)Key takeaways of Ind AS : Providesdetailedguidelinesontheaccountin gofInvestmentProperty.

10 Initiallytobevaluedatcost,subsequentlyto bevaluedusingcostmodel. Revaluationmodelisnotallowedhowever, takeaways of Ind AS : Anintangibleassetwithinfinitelifemustbep uttotestofimpairmenteveryyear IftheLegallifeislongerthanusefullife,sti llusefullifetobeusedforpurposeofamortiza tion Intangiblestobesubsequentlymeasuredateit her: CostModel RevaluationModelKey takeaways of Ind AS : IndAS41covers: Biologicalassets Agriculturalproduce Governmentgrants takeaways of Ind AS : IndAS101appliestothefirstsetoffinancials tatementsthatcontainanexplicitandunreser vedstatementofcompliancewithIndAS IndAS101appliestoanyinterimfinancialstat ementsforaperiodcoveredbythosefirstfinan cialstatementsthatarepreparedunderIndAS PreviousGAAP isdefinedasthebasisofaccountingthatafirs t-timeadopterusedforitsreportingrequirem entsinIndiaimmediatelybeforeadoptingINDA S Recognizeallassetsandliabilitieswhoserec ognitionisrequiredbyIndAS takeaways of Ind AS.