The weekly messenger | Edition 03.16

Accounting news

Implementation of Ind AS by AIFIs- 4 August 2016

The Ministry of Corporate Affairs (MCA) had notified the Indian Accounting Standards (Ind AS) in February 2015. In January 2016, MCA had further issued the roadmap for implementation of Ind AS for banks, non-banking financial companies, select All India Term Lending and Refinancing Institutions and insurance entities (AIFIs). In this connection, it is now advised that select AIFIs (Exim Bank, NABARD, NHB and SIDBI), shall follow Ind AS subject to any guideline or direction issued by the Reserve Bank of India (RBI) in this regard, in the following manner:

• AIFIs shall comply with the Ind AS for financial statements for accounting periods beginning from 1 April 2018 onwards, with comparatives for the periods ending 31 March 2018 or thereafter.
• Ind AS shall be applicable to both standalone financial statements and consolidated financial statements.
• AIFIs shall apply Ind AS only as per the above timelines and shall not be permitted to adopt Ind AS earlier. 
• each AIFI is advised to set up a Steering Committee to immediately initiate the implementation process.
• the Audit Committee of the Board shall oversee the progress of the Ind AS implementation process and report to the Board at quarterly intervals.
• AIFIs shall assess the impact of the Ind AS implementation on their financial position, taking into account the Basel III capital requirements, and submit quarterly progress reports to their Boards. AIFIs also need to be in preparedness to submit proforma Ind AS financial statements in the prescribed formats to the RBI from the half-year ended 30 September 2016, onwards (to be submitted latest by 30 November 2016).
• AIFIs shall disclose in their Annual Report, the strategy for Ind AS implementation, including the progress made in this regard. These disclosures shall be made from the financial year 2016-17 until full implementation.

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Exposure Draft on amendment in Ind AS 102, Share Based Payments- 4 August 2016

The Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) has recently proposed certain amendments to IND AS 102, Share Based Payments.  The suggested changes inter alia includes:

• amendments to the vesting conditions with respect to equity-settled share-based payment transactions
• amendments to certain provisions of cash-settled share-based payment transactions
• adding treatment of vesting and non-vesting conditions with respect to cash-settled share-based payment transactions
• adding treatment of share based payment transaction with a net settlement feature for withholding tax obligations with respect to cash-settled share-based payment transactions
• amendments to certain disclosures
• adding transitional provisions
• adding certain guidance to Appendix B-Application Guidance

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ED of the GN on Accounting for Oil and Gas Producing Activities (for entities to whom Ind AS is applicable) 2 August 2016

The research committee of ICAI has issued an Exposure Draft (ED) of Guidance Note (GN) on accounting for Oil and Gas Producing Activities (for entities to whom Ind AS is applicable). This guidance note applies to:

• costs incurred on acquisition of mineral interests in properties, exploration, development and production of oil and gas activities, i.e., upstream operations
• other accounting aspects such as accountingfor abandonment costs and impairment of assets that are peculiar to the entities carrying onoil and gas producing activities.

 The guidance note inter alia includes:

1. definition of Acquisition Activities & Costs, Exploration and Evaluation costs, Development Activities and Development Costs, Production Activities and Production Costs.
2. accounting for “Acquisition”, “Exploration and Evaluation” and “Development Costs” and provisions about depreciation
3. accounting for production costs, abandonment costs and capitalization of Borrowing Costs
4. provisions relating to impairment of assets

Comments to be received by 31 August 2016.

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ED of the GN on Combined Financial Statements-5 August 2016

ICAI has issued GN on combined financial statements in order to curb diverse prevailing practices. The GN inter alia provides for:

• the meaning of combined financial statements
• indicative situations in which they may be required to be prepared
• procedure for preparation of financial statements
• carve-out financial statements
• required disclosures.

Comments to be received by 5 September 2016

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Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11)- 1 August 2016

International Accounting Standards Board (IASB) has issued an ED on Definition of a business and accounting for previously held interests (proposed amendments to IFRS 3 Business Combinations and IFRS 11 Joint Arrangements). 

The aforementioned Exposure Draft clarifies both the definition of a business and how to account for previously held interests. The proposed amendments provide:

• clearer application guidance to help distinguish between a business and a group of assets when applying IFRS 3; and
• clarification on how an entity should account for previously held interest in a business, if acquiring control, or joint control, of that business.

Comments are to be received by 15 September 2016.

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Proposed ASU —Not-for-Profit Entities—Consolidation (Subtopic 958-810)- 3 August 2016

Financial Accounting Standards Board (FASB) has issued proposed Accounting Standard Update (ASU) clarifying when a not-for-profit entity that is a general partner should consolidate a for-profit Limited Partnership or similar Entity.

Comments are to be received by 3 October 2016.

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Report on MAT for Ind AS compliance companies-5 August 2016

A committee had been constituted, with the approval of the Finance Minister, to suggest the framework for computation of book profit for the purposes of levy of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961 for Ind AS compliant companies in the year of adoption and thereafter. This committee has issued a report on MAT for Ind AS compliant companies. This report inter-alia provides recommendations/ suggestions on the following issues related to first time adoption:

• Fixed assets- Adjustment to Retained Earnings
• Leases- Straight lining of lease rentals
• Investments- Fair value adjustments through profit and loss account
• Unrealized gains and losses- Adjustment to Retained Earnings

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Regulatory news

Issuance of rupees bonds to overseas investors by Indian companies- Clarification regarding applicability of provisions of Chapter III of the Companies Act, 2013- 3 August 2016

It has been clarified by MCA that the provisions of Chapter III of the Act and rule 18 of Companies (Share capital and Debenture) Rules, 2014 would not apply to issue of rupee denominated bonds made exclusively to persons resident outside India in accordance with applicable sectorial regulatory provisions.

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