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

1. CA P. C. SAINI ( ACA, CS, CMA-Inter)+91 9425531645FINANCIAL REPORTINGUnder Companies Act,2013

2. Contents

3. Act contains 470 Sections, 29 Chapters, 7 schedulesBackgroundCompanies Act, 2013MCA has notified 282 Sections till date

4. Background…The Changed Approach:Shift from Shareholders Protection to stakeholders protectionCorporate Governance /Investor Protection is MantraWidened disclosure requirementsStricter penalties and ProsecutionLiability of Directors / Professionals increasedIncreased coverage of the Act

5. Background…Introduction of One Person Company & Small CompanyInternal Audit & Secretarial auditNew Regulators (NFRA, SFIO, NCLT)New Committees - Nomination and Remuneration Committee and Stakeholders Relationship Committee, Vigil MechanismNew definition for Associate company, Control, Small company, Key managerial personnel, Related party, etc.New Concepts

6. NATIONAL FINANCIAL REPORTING AUTHORITY

7. National Financial Reporting AuthorityNFRA to be constituted by Central Government (CG) to provide for dealing with matters relating to accounting and auditing policies and standards to be followed by companies and their auditors.The Chairperson and full time members of NFRA shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and 2 years thereafter.Functions of NFRA are as below:Make recommendations to CG on the formulation of accounting and auditing policies and standardsMonitor and enforce compliance with accounting and auditing standardsOversee the quality of service of the professions and suggest measures required for improvement in quality of services and such other related matters as may be prescribed;Perform other prescribed functions in relation to above as may be prescribed.

8. National Financial Reporting Authority…Powers of NFRA include:Investigate into the matters of professional or other misconduct committed by member or firm of CA.Powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit.Where professional or other misconduct is proved, NFRA has the power to make order for imposing monetary penalty or debarring the member or the firm from engaging himself or itself from practice as member of the institute for a minimum period of 6 months or for such higher period not exceeding 10 years. Any person aggrieved by the order of NFRA can prefer an appeal to NFRAA.Function of NFRA – Standard Setting, Monitoring, Compliance Review and Overseeing Quality of Service, Enforcement and Investigation It has he power to investigate, suo moto or on reference made by Central Government in matters of professional or other misconduct by CA or firm. No other institute or body shall initiate or continue any proceedings in matters where NFRA has initiated an investigation and vise versa ( see para 81 of 13th Report of Standing Committee of 16th Lok Sabha.)

9. National Financial Reporting Authority…For monitoring compliance with Accounting Standards by Companies, the Committee on Accounting Standards shall conduct scrutiny of financial statements of such class of companies and in such manner as may be decided by the Committee or the Authority.For monitoring compliance with Auditing Standards, the Committee on Auditing Standards shall monitor the compliance of auditors including individual auditors, audit firms and audit LLPs, with the notified accounting standards and auditing standards and submit such periodical report(s) to the Authority as the Authority may specify.Class of companies covered for investigation and quality review of auditListed CompaniesUnlisted companies with net worth not less than ` 500 crores or paid up capital not less than `500 crores or annual turnover not less than ` 1,000 crores as on 31st March of immediately preceding financial year or Companies having securities listed outside India

10. National Financial Reporting Authority…Auditors to be covered under investigation by NFRAAuditors or audit firms which conduct the audit of the following category of companies or their branches (including through the network or brand to which it belongs), whether “directly or indirectly”, as defined in Explanation to Sec. 144 of the Act - a) audit of 200 companies or more in a yearb) audit of 20 or more listed companiesc) company or companies (including listed company or companies), having net worth not less than ` 500 crores or paid up capital not less than ` 500 crores or annual turnover not less than ` 1,000 crores as on 31st March of immediately preceding financial year ord) company or companies having securities listed outside India

11. National Financial Reporting Authority…Act replaces NACAS with NFRA Legal sanctity for Auditing Standards Judicial powers to ensure independent oversight over CA’s NFRA can take action against those working in Companies as well as Auditors

12. KEY DEFINITIONS

13. Key Definitions“Financial Statement” in relation to a company, includes—(i) a balance sheet as at the end of the financial year(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year(iii) cash flow statement for the financial year(iv) a statement of changes in equity, if applicable and(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;Sec. 2(40)

14. Key Definitions…“Financial Year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clauseAs this provision is effective from April 1, 2014, companies shall align their financial years as per this provision within April 1, 2016.The exemption has not been provided for an associate or joint venture.Sec. 2(41)

15. Key Definitions…“Free Reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend:Provided that—(i) any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise, or(ii) any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value, shall not be treated as free reservesKey Points Definition excludes securities premium Instances of provisions where the definition of free reserves is referred:Sec.63 for Issue of Bonus SharesSec.68 for purchase of its own shares or specified securities by companiesSec.123 for declaration of dividend.Sec.180(1)(c) restriction on powers of the BoardSec.186 Loans and investment by a companySec. 2(43)

16. Key Definitions…“Net Worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.Instances of provisions where the definition of net worth is referred:Sec.76(1) relating to Acceptance of deposits by Companies, for determination of eligible company.Sec.135 determining criteria for Corporate Social ResponsibilitySec.148 where the Central Government shall specify audit of items of cost in respect of certain Companies.Limits for the purposes of approval by Special resolution – Related Party transactionsSec. 2(57)

17. Key Definitions…Related party with reference to a company means:Director or his relativeKMP or his relativea firm, in which a director, manager or his relative is a partnera private company in which a director or manager or his relative is a member or directorpublic company in which a director or manager is a director and holds along with his relatives, more than 2% of its paid-up share capitalany body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager (excluding advice given in professional capacity)any person on whose advice, directions or instructions a director or manager is accustomed to act (excluding advice given in professional capacity)any company which is—a holding, subsidiary or an associate company of such company ora subsidiary of a holding company to which it is also a subsidiarya director other than an independent director or KMP of the holding company or his relative with reference to a company, shall be deemed to be a related party. Sec. 2(76)

18. HOLDING & SUBSIDIARY COMPANIES

19. Holding & Subsidiary Companies “Holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies (Sec. 2(46))A Company shall make investments through not more than two layers of investment companies. (Sec.186 (1))The provisions of this section shall not effect the following:a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such countrya subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force

20. Holding & Subsidiary Companies…Subsidiary Company“Subsidiary Company” or “Subsidiary”, in relation to any other company (holding company), means a company in which the holding company—(i) controls the composition of the Board of Directors or(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companiesProvided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. (This proviso is not notified)As per the Companies (Specification of definitions details) Rules, 2014, Total share capital = paid up equity share capital + convertible preference share capital.Sec. 2(87)

21. Holding & Subsidiary Companies…Subsidiary Company…Explanation—For the purposes of this clause, (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to above is of another subsidiary company of the holding company(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors(c) the expression “company” includes any body corporate(d) “layer” in relation to a holding company means its subsidiary or subsidiaries Sec. 2(87)

22. Holding & Subsidiary Companies…As per Sec 2(27) of the Act, “control” “shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.”As per AS-21, Control is defined as:(a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise or(b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

23. BOOKS OF ACCOUNTS

24. Books of AccountsSec. 128Company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company.Such books shall be kept on accrual basis and according to the double entry system of accountingAll or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within 7 days thereof, file with the Registrar a notice in writing giving the full address of that other placeCompany may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.

25. Books of Accounts…Rule 3 of Companies (Accounts) Rules, 2014The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference. The books of account and other relevant books and papers shall be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered. The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches. The information in the electronic record of the document shall be capable of being displayed in a legible form.

26. Books of Accounts…There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or rendered unusable, unless permitted by law.The back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis. The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement- the name of the service provider the internet protocol address of service provider the location of the service provider (wherever applicable)where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider. Rule 3 of Companies (Accounts) Rules, 2014

27. Books of Accounts…Sec. 128If a company has a branch office in India or outside India proper books of account relating to the transactions effected at the branch office shall be kept at that office and proper summarised returns shall be periodically sent by the branch office to the company at its registered office.The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed.Inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Directors.

28. Books of Accounts…The books of account of every company relating to a period of not less than 8 FY’s immediately preceding a FY, or where the company had been in existence for a period less than 8 years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order. If the MD, the WTD in charge of finance, the CFO or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such MD, WTD in charge of finance, CFO or such other person of the company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ` 50,000 but which may extend to ` 5 lakh or with both.Sec. 128

29. ACCOUNTING STANDARDS

30. Accounting StandardsSec. 133The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the NFRA.Transitional provisions with respect to Accounting Standards (Rule 7 of Companies (Accounts) Rules, 2014- The standards of accounting as specified under the Companies Act, 1956 shall be deemed to be the accounting standards until accounting standards are specified by the Central Government under section 133. Till the NFRA is constituted under section 132 of the Act, the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendations made by the National Advisory Committee on Accounting Standards constituted under section 210A of the Companies Act, 1956.

31. FINANCIAL STATEMENTS

32. Financial StatementsSec. 129The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III.The items contained in such financial statements shall be in accordance with the accounting standards.These provisions shall not apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:

33. Financial Statements…Sec. 129At every AGM of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.Where a company has one or more subsidiaries, it shall, in addition to standalone financial statements prepare a consolidated financial statement (CFS) of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM of the company along with the laying of its financial statement.Subsidiary shall include associate company and joint venture.Company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in Form AOC I (Rule 5 of Companies (Accounts) Rules, 2014)

34. Financial Statements…As per the proviso to Sec. 129(3), the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.As per Rule 6 of Companies (Accounts) Rules, 2014 Manner of consolidation of accounts.- The CFS of the company shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards.In case of a company covered under Sec. 129(3) which is not required to prepare CFS under the Accounting Standards, it shall be sufficient if the company complies with provisions on CFS provided in Schedule III of the Act. As per Companies (Meetings of Board and its Powers) Second Amendment Rules, 2014 consideration of financial statements, including CFS, if any, shall not be dealt with in a meeting held through video conferencing.

35. Financial Statements…The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the CFS.Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.The Central Government may, on its own or on an application by a class or classes of companies, by notification, exempt any class or classes of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notificationSec. 129

36. Financial Statements…If a company contravenes the provisions of this section, the MD the WTD in charge of finance, the CFO or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ` 50,000 but which may extend to ` 5 lakhs, or with both.Sec. 129

37. Financial Statements…Consolidated Financial Statements – Key PointsCompanies having one or more subsidiaries, shall also prepare CFS and the same shall be laid before the AGM of the Company along with standalone financial statements.A separate statement containing salient features of the financial statement of subsidiaries to be attached to the holding company’s financial statements. – Form AOC - I‘Subsidiary’ includes ‘associate company’ and ‘joint venture’ Associate means a company other than a subsidiary company and joint venture company, in which the other company has a significant influence.Significant influence means control of at least 20% of total share capital or of business decisions under an agreement.In case of a company covered u/s 129(3), which is not required to prepare CFS under the Accounting Standards, it shall be sufficient if the company complies with provisions on CFS provided in Schedule III of the Act.

38. 1. Sl. No. 2. Name of the subsidiary 3. Reporting period for the subsidiary concerned, if different from the holding company’s reporting period 4. Reporting currency and Exchange rate as on the last date of the relevant Financial year in the case of foreign subsidiaries. 5. Share capital 6. Reserves & surplus Form AOC-IPart A – SubsidiariesInformation in respect of each subsidiary to be presented with amounts in ` 7. Total assets 8. Total Liabilities 9. Investments 10. Turnover 11. Profit before taxation 12. Provision for taxation 13. Profit after taxation 14. Proposed Dividend 15. % of shareholding 1. Names of subsidiaries which are yet to commence operations 2. Names of subsidiaries which have been liquidated or sold during the year. Financial Statements…

39. Form AOC-IPart B – Associates and Joint Ventures1. Names of associates or joint ventures which are yet to commence operations 2. Names of associates or joint ventures which have been liquidated or sold during the year. Name of Associates/Joint Ventures Name 1Name 21. Latest audited Balance Sheet Date 2. Shares of Associate/Joint Ventures held by the company on the year end No.Amount of Investment in Associates/ Joint Venture Extend of Holding % 3. Description of how there is significant influence 4. Reason why the associate/joint venture is not consolidated 5. Net worth attributable to Shareholding as per latest audited Balance Sheet 6. Profit / Loss for the year i. Considered in Consolidation ii. Not Considered in Consolidation Financial Statements…

40. Financial Statement - SigningSec. 134(1)The financial statement, including CFS, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board at least by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the Company Secretary of the company, wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon.The auditors’ report shall be attached to every financial statement.

41. Financial Statement – Circulation of AccountsA listed company shall also place its financial statements including CFS, if any, and all other documents required to be attached thereto, on its website.As per the Rule 11, of Companies (Accounts) Rules, 2014, Manner of circulation of financial statements in certain cases.- In case of all listed companies and such public companies which have a net worth of more than ` 1 crore and turnover of more than ` 10 crore rupees, the financial statements may be sentby electronic mode to such members whose shareholding is in dematerialised format and whose email Ids are registered with Depository for communication purposes; where Shareholding is held otherwise than by dematerialised format, to such members who have positively consented in writing for receiving by electronic mode; and by dispatch of physical copies through any recognised mode of delivery as specified under section 20 of the Act, in all other cases.

42. Copy of Financial Statement to be Filed with RegistrarA copy of the financial statements, including CFS, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the AGM of the company, shall be filed with the Registrar within 30 days of the date of AGM in Form AOC-4 - Rule 12(1).Where the financial statements are not adopted at the AGM or adjourned AGM, such unadopted financial statements along with the required documents shall be filed with the Registrar within 30 days of the date of AGM and the Registrar shall take them in his records as provisional till the financial statements are filed with him after their adoption in the adjourned AGM for that purpose.The financial statements adopted in the adjourned AGM shall be filed with the Registrar within 30 days of the date of such adjourned AGM.Financial Statement – Copy to be filedSec. 137

43. Copy of Financial Statement to be Filed with Registrar…Along with its financial statements to be filed with the Registrar, attach the accounts of its subsidiary or subsidiaries which have been incorporated outside India and which have not established their place of business in India.Where the AGM of a company for any year has not been held, the financial statements along with the documents required to be attached, duly signed along with the statement of facts and reasons for not holding the AGM shall be filed with the Registrar within 30 days of the last date before which the AGM should have been held. Financial Statement - Copy to be filed…Sec. 137

44. REVISION OF FINANCIAL STATEMENTS

45. Revision of Financial StatementsMandatory reopening or recasting (Sec.130)A Company can reopen its books of accounts and recast its financial statements if: The relevant accounts were prepared in fraudulent manner orAffairs of the Company were mismanaged during the relevant period casting a doubt on the reliability of the financial statementsOn an application by Central Government, IT authorities, SEBI or any regulatory body and an order being made by Court or Tribunal.Voluntary Revision (Sec.131)The Company may, if it appears to the directors that the Financial Statements or Board’s Report are not in compliance with the provisions of the Act, may prepare revised financial statement or a revised Board’s Report with the approval of Tribunal.Not Notified

46. Revision of Financial Statements…Key PointsRevision / Reopening of financial statements for a period earlier than immediately preceding financial year may impact financial statements for subsequent years also.Presently, as per circular issued by SEBI in August 2012, SEBI is empowered to require revision of financial statements, if the audit report is qualified. Complications may arise when revision/ reopening pertains to companies which have already amalgamated / amalgamation is pending Court’s approval.Detailed process for revision, including involvement of current and previous auditors , may lead to frivolous litigations.May require current auditor to re-audit entire financial statements for one or more previous periods.Revision / reopening might have an impact on taxation as well.

47. Framework for the Preparation and Presentation of Financial Statements

48. The Framework is the conceptual framework upon which the Ind AS are based and determine how financial statements are prepared and the information they contain. It provides the general principles upon which Ind AS will be based . The framework is the standard of all standards, but is not an accounting standard. It is issued in July 2000. In case of conflict between Framework and Ind AS, Ind AS shall prevail over the Framework, as Ind AS contains specific principles with respect to items of financial statement whereas framework contains general principles with respect to items of financial statement.Framework for the Preparation and Presentation of Financial Statements

49. The Framework deals with:the objective of financial statements;the qualitative characteristics that determine the usefulness of information provided in financial statements;definition, recognition and measurement of the elements from which financial statements are constructed; andconcepts of capital and capital maintenance.Scope

50. Objective of financial statementsThe objective of financial statements is to provide information about Financial position, Financial performance, and Cash flows of an entity that is useful to a wide range of users in making economic decisions.

51. UnderstandabilityRelevanceReliabilityComparabilityMaterialityFaithful RepresentationSubstance Over FormNeutralityPrudenceCompletenessQualitative characteristics are the attributes that make the information provided in financial statement useful to users.Qualitative Characteristics of Financial Statement

52. The elements of financial position are Assets,Liabilities, Equity Element of Financial Position

53. The elements of financial performance :IncomeExpensesElement of Financial Performance and their definition

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

55. Historical cost: Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of cash or cash equivalents expected to be paid to satisfy the liability or at the amount of proceeds received in exchange for the obligation, in the normal course of business.(b) Current cost: Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset were acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.Measurement Basis

56. (c) Realisable (settlement) value: Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values, that is, the undiscounted amount of cash or cash equivalents expected to be required to settle the liabilities in the normal course of business.(d) Present value: Assets are carried at the present value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.Measurement Basis

57. Capital and Capital maintenanceThere are two concepts of capital:Financial concept: Under the financial concept, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity.Physical concept: Under the physical concept, such as operating capability, capital is regarded as the productive capacity of the entity. This productive capacity may be defined in terms of volume of production. For eg.- Units of output per annum.

58. Underlying Assumptions Under Going concern, it is assumed that the entity will continue inoperation for the foreseeable future and has neither the intention nor the need to liquidate or curtail materially the scale of its operations. Under Accrual basis, the effects of transactions are recognised on mercantile basis i.e. when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statement of the periods to which they relate. Under Consistency, same accounting policies are followed from one period to another so that comparability of the financial statement can be achieved.

59. Applicability of Ind AS

60. NW - Rs. 500 Crore or moreNW - Less than Rs. 250 CroreNW - Rs. 250 Crore or more but less than Rs. 500 Crore1st April 2016NA1st April 2017LISTED COMPANYNW – Less than Rs. 500 Crore1st April 2017UNLISTED COMPANYNW - Rs. 500 Crore or more1st April 2016Applicability of Ind-AS to Companies Listed comapany means company whose equity and /or debt securities are listed or are in the process of listing on any stock exchange in or outside India. NW stands here for Net WorthSlide 2 of 7

61. All Companies can voluntarily adopt Ind AS from 1st April 2015.Ind AS is applicable to Banks, NBFCs and Insurance Companies from 1st April, 2018.Ind AS is not applicable to Unlisted companies with net worth of less than Rs. 250 Crore and Companies listed on SME exchange. They are required to comply with existing Accounting Standards.Holding, Subsidiary, Associate and Joint Venture of above are also required to follow Ind-AS from respective date.Apply to both consolidated and stand-alone financial statements.Comparatives of previous year are also required to be Ind AS compliant.Ind ASs are notified by MCA on 16th February, 2015.Once opt to follow Ind AS, cannot switch back.In case of conflict between Ind AS and law, the provisions of law shall prevail.

62. Companies having paid up share capital of Rs. 25 Crore or less are listed on Small and Medium Enterprises (SME) exchange. What is net worth and how to calculate? When to calculate? Net worth is the agreegate value of the paid up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellanous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation. Net worth will be determined based on the standalone accounts of the company as on 31st March, 2014 or the first audited period ending after that date.Companies listed on SME Exchange & Net Worth

63. Old AS vs. New Ind ASInd AS study begins here...

64. Principle-based StandardsApplicable on separate as well as consolidated financial statements.Give more importance to concept of ‘substance over form’, i.e., economic reality of a transaction.Rely more on fair valuation approach, and measurements based on time value of money.Require more disclosures of all the relevant information and assumptions used.Require higher degree of judgment and estimates.Salient Features of Ind AS

65. IND AS ARE BASED MORE ON SUBSTANCE OVER FORM :Sale of Goods on Extended Credit Terms, i.e., goods sold on terms extending more than normal credit period.Financing element inbuilt in price is segregated and considered as ‘interest’ income.Say, goods normally sold at price at Rs. 100 for 3 months creditIf sold for Rs. 110 for 15 months credit: Rs. 10 considered as ‘interest’ incomeThis has VAT and TDS implicationsUnderstanding Ind AS from AS

66. Fixed assets or inventories purchased on deferred credit terms having financing element:Financing element, viz., ‘interest’ to be segregated from the ‘purchase price’Implications: What would be the original cost of the fixed asset/inventories for tax?Substance over form (Contd.)

67. Unbundling of multiple elements from the sale price where required: Sale of Automobile on Extended WarrantyAn automobile dealer sells a car for extended warranty of 3 years instead of normal 1 yearExtended warranty element of 2 years required to be separated under Ind AS from the selling price based on Fair Value of warranty.Revenue from warranty service recognised in the year when the service is rendered, i.e., revenue recognition is deferred.Substance over form (Contd.)

68. Implications:Tax: Income from sale of car to be recognised when car soldVAT: To be levied on invoice price exclusive of value of extended warrantyService Tax: To be levied on value of extended warrantySubstance over form (Contd.)

69. Redeemable preference shares carrying fixed rate of dividend considered a liability under Ind AS Dividend paid/payable considered as ‘interest’Charged to statement of profit and loss and not to be considered as an appropriation of profit as at presentImplications:TDS on interest MAT implication as Book ProfitSubstance over form (Contd.)

70. Certain transfers in substance considered as finance lease under Ind AS Accordingly, only receivable is recognised in the Balance Sheet by the transferorPresently, the transferor recognises it as its fixed asset and charges depreciationImplications:MAT implication as Book ProfitWhere lease more than 12 years, will be considered as sale for VAT purposeSubstance over form (Contd.)

71. Measurement of interest at Effective Interest Rate rather than the contracted rate to recognise interest income and expenseIllustration:A company issues bond of Rs. 100 carrying interest rate at 10% to be redeemed at Rs. 110 after five years.Presently , interest expense recognised at Rs. 10 per year and Rs. 10 premium paid at the time of redemption recognised in the year of redemption (though some companies amortise this Rs. 10 over the five year term on straight line basis)Time value of money as a measurement basis

72. Under Ind AS, interest rate is recomputed to recognise Rs. 10 premium payable at the end of the term of the bond. Accordingly, interest is recognised every year, at the effective rate of 11.43%Implications:TDS MAT on account of change in Book ProfitTime value of money as a measurement basis

73. Certain investments (e.g., held for trading in normal course of business) required under Ind AS to be measured at FV and changes in FV, gains and losses, recognised in profit or loss.Presently, only FV changes resulting in losses recognised in profit or loss; gains ignored Implications:MAT implications on Book ProfitGreater use of Fair Value (FV) as Measurement Basis

74. Service Concession Arrangement, e.g., Build-Operate-Transfer arrangement of a roadRevenue is required to be recognised at FV of the construction services rendered during construction periodEven though actual receipts start when the road is put under operation, i.e., toll is collectedImplications:Should the income be taxed during construction period?MAT implications on Book ProfitFair Value as Measurement Basis (Contd.)

75. Component approach and concept of useful life of charging depreciationInd AS require depreciation to be charged on significant parts of a fixed asset where useful lives of the parts and the remaining asset are differentPresently, depreciation required to be charged on the complete asset at a single rateInd AS also confer primacy to useful life concept for charging depreciation, rather than statutory minimum depreciation concept hitherto followedImplications: MAT on Book ProfitOther significant differences

76. Effects of Changes in Foreign Exchange RatesInd AS based on ‘functional currency’ concept, existing AS is notWhere functional currency of an entity other than INR, impact on profit or loss different from existing ASConsequential tax impactAfter transitioning to Ind AS, option of capitalising/deferring foreign exchange differences under existing AS no longer available,Such differences would be recognised in profit or lossImplications: Consequential tax impact on Book ProfitOther significant differences

77. 77AS No.Existing Indian StandardIFRS No.Ind AS No.Converged IFRSAS 1Disclosure of Accounting PoliciesIAS 1Ind AS 1Presentation of Financial StatementsAS 2Valuation of InventoriesIAS 2Ind AS 2InventoriesAS 3Cash Flow StatementsIAS 7Ind AS 7Statements of Cash FlowsAS 4Events Occurring after the Balance Sheet DateIAS 10Ind AS 10Events after the Reporting PeriodComparative Summary of Indian Accounting Standards, IFRS & Present AS

78. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 5Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting PoliciesIAS 8Ind AS 8Accounting Policies, Changes in Accounting Estimates and ErrorsAS 6Depreciation Accounting---AS 7Construction ContractsIAS 11Ind AS 115RevenueComparative Summary of Indian Accounting Standards, IFRS & Present AS

79. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 9Revenue RecognitionIAS 18Ind AS 115Revenue AS 10Accounting for Fixed AssetsIAS 16Ind AS 16Property, Plant and EquipmentAS 11The Effects of Changes in Foreign Exchange RatesIAS 21Ind AS 21The Effects of Changes in Foreign Exchange RatesComparative Summary of Indian Accounting Standards, IFRS & Present AS

80. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 12Accounting for Government GrantsIAS 20Ind AS 20Accounting for Government Grants and Disclosure of Government AssistanceAS 13Accounting for InvestmentsIAS 40IAS 27Ind AS 40Ind AS 27Investment PropertySeparate Financial StatementsComparative Summary of Indian Accounting Standards, IFRS & Present AS

81. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 14Accounting for amalgamationsIFRS 3Ind AS 103Business combinationsAS 15Employee BenefitsIAS 19Ind AS 19Employee BenefitsAS 16Borrowing costsIAS 23Ind AS 23Borrowing costsAS 17Segment Reporting IFRS 8Ind AS 108Operating SegmentsComparative Summary of Indian Accounting Standards, IFRS & Present AS

82. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 18Related Party DisclosuresIFRS 12Ind AS 24Disclosure of Interests in other EntitiesAS 19LeasesIAS 17Ind AS 17LeasesAS 20Earnings Per ShareIAS 33Ind AS 33Earnings Per ShareComparative Summary of Indian Accounting Standards, IFRS & Present AS

83. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 21Consolidated Financial StatementsIFRS 10IAS 27IFRS 12Ind AS 110 Ind AS27Ind AS 112Consolidated Financial Statements Separate Financial StatementsDisclosure of Interest in other entitiesAS 22Accounting for Taxes on IncomeIAS 12Ind AS 12Income taxesComparative Summary of Indian Accounting Standards, IFRS & Present AS

84. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 23Accounting for Investments in Associates in Consolidated Financial Statements IAS 28Ind AS 28Investments in Associates and Joint VenturesAS 24Discontinuing operationsIFRS 5Ind AS 105Non Current Assets Held for Sale and Discontinued operationsAS 25Interim financial reportingIAS 34Ind AS 34Interim Financial ReportingComparative Summary of Indian Accounting Standards, IFRS & Present AS

85. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 26Intangible assetsIAS 38Ind AS 38Intangible AssetsComparative Summary of Indian Accounting Standards, IFRS & Present AS

86. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 27Financial Reporting of Interests in Joint Ventures IAS 28IAS 27IFRS 11IFRS 12Ind AS 28Ind AS27Ind AS 111Ind AS 112Investments in Associates and Joint VenturesSeparate Financial StatementsJoint ArrangementsDisclosure of Interest in other entitiesComparative Summary of Indian Accounting Standards, IFRS & Present AS

87. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 28Impairment of assetsIAS 36Ind AS 36Impairment of assetsAS 29Provisions, Contingent Liabilities and Contingent AssetsIAS 37Ind AS 37Provisions, Contingent Liabilities and Contingent AssetsAS 30Financial Instruments AccountingIAS 39Ind AS 109Financial InstrumentsAS 31Financial Instruments PresentationIAS 32Ind AS 32Financial Instruments – PresentationComparative Summary of Indian Accounting Standards, IFRS & Present AS

88. AS No.Indian StandardIFRS No.Ind-AS No.IFRSAS 32Financial Instruments-DisclosuresIFRS 7Ind AS 107Financial Instruments: Disclosures--IFRS 2Ind AS 102Share based payment--IAS 29Ind AS 29Financial Reporting in hyperinflationary Economies--IFRS 6Ind AS 106Exploration for and Evaluation of Mineral ResourcesComparative Summary of Indian Accounting Standards, IFRS & Present AS

89. AS No.Indian StandardIFRS No.Ind-AS No.IFRS--IAS 26Ind AS 26Accounting and Reporting of Retirement Benefit Plans*--IAS 41Ind AS 41Agriculture--IFR S4Ind AS 104Insurance Contracts--IFRS 1Ind AS 101First Time Adoption of Indian Accounting StandardsComparative Summary of Indian Accounting Standards, IFRS & Present AS

90. AS No.Indian StandardIFRS No.Ind-AS No.IFRS--IFRS 12Ind AS 114Regulatory Deferral Accounts--IFRS 13Ind AS 113Fair Value MeasurementComparative Summary of Indian Accounting Standards, IFRS & Present AS

91. Ind AS 1: Presentation of Financial StatementIn India, Presentation of Financial Statement is always governed by Companies Act instead of Accounting Standard. Earlier there is Schedule VI, now Schedule III is there for Presentation of Financial Statement as per Accounting Standard.Recently Ministry of Corporate affairs had issued Format of Financial Statement as per Ind AS. (As per notification dated 06/04/2016).

92. Financial Statement comprises of:-Balance Sheet as at the end of the period;Statement of Profit and Loss for the period;Cash Flow Statement for the period; andNotes.Financial StatementBalance SheetStatement of Profit and LossCash Flow StatementNotes

93. Comparative Information1. Should have comparatives with all the amounts reported in current period financial statements2. When Change in Accounting policy retrospectively, Retrospective restatement / Reclassifies itemsPresent 3 balance sheets and two statementsCurrent period endPrevious period endBeginning of earliest comparative period end3. When the entity changes the presentation or classification of items in its financial statements, the entity shall reclassify comparative amounts unless reclassification is impracticable and disclose Nature, amount and reasons of Reclassification in Notes.4. When impossible to reclassify, disclose the reason for not reclassifying the amounts and Nature of the adjustments that would have been made if the amounts had been reclassified.

94. Balance Sheet Balance sheet include Statement of change in equity which is presented as a part of the Balance Sheet.Statement of Profit and Loss Statement of Profit and Loss include other comprehensive income which is presented as part of a single statement of profit and loss. There is no concept of extraordinary item in Ind AS.Notes Notes comprises of summary of accounting policies and other explanatory information about items of financial statement.

95. Reason: Definition of IncomeEnhancement of an Asset or reduction of a Liability (other than transactions with owners)Accordingly, any increase in asset, e.g., upward revaluation of asset, is an ‘income’ even though not realisedEarlier, such increase transferred directly to Revaluation Reserve in Balance SheetNow, transferred to Reserve through OCIInd AS use ‘Other Comprehensive Income’ (OCI) concept

96. Statement of profit and loss is, therefore, divided into two sections:Profit or loss section: Containing items of revenue/income and expenses which are hitherto normally included in the statement of profit and loss with a few exceptions (e.g. actuarial gains & losses on measurement of defined benefit obligations now not included)Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required by other Ind ASs.OCI concept (Contd.)

97. OCI section contains generally unrealised gains and losses arising from re-measurements of assets & liabilitiesOn realisation, with few exceptions, gains & losses are recognised in profit or loss sectionExceptions:Sale of revalued assetsEquity Instruments opted to be measured at Fair Value through OCI97OCI concept (Contd.)

98. COMPONENTS OF OCIThe components of other comprehensive income include:(a) changes in revaluation surplus (see Ind AS 16 Property, Plant and Equipment and Ind AS 38 Intangible Assets);(b) actuarial gains and losses on defined benefit plans (see Ind AS 19 Employee Benefits);(c) gains and losses arising from translating the financial statements of a foreign operation (see Ind AS 21 The Effects of Changes in Foreign Exchange Rates);(d) gains and losses on remeasuring available-for-sale financial assets (see Ind AS 39 Financial Instruments: Recognition and Measurement);(e) the effective portion of gains and losses on hedging instruments in a cash flow hedge (see Ind AS 39 Financial Instruments: Recognition and Measurement). Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods.

99. For MAT purposes ‘profit or loss’ as per that section may be considered for the sake of simplicitySince OCI mostly comprises unrealised gains & losses, may be ignoredprofit or loss section also includes certain unrealised gains and losses on operating items, e.g., fair value changes in held for trading investments; should be tax neutral, i.e., if unrealised gains included for MAT then unrealised losses also should be allowed as deduction99Implication : OCI concept (Contd.)

100. FORMAT OF FINANCIAL STATEMENT AS PER Ind AS ENCLOSEDDouble click on FormatFORMAT NOTIFIED BY MCA ON 06.04.2016

101. Example- Accounts of SECL in New FormatDouble click on FormatAccounts of SECL - Old FormatAccounts of SECL - New Format

102. Compliance with Ind ASs Financial statements complying with Ind ASs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with Ind ASs unless they comply with all the requirements of applicable Ind ASs.

103. THANK YOU