The weekly messenger | Edition 08.23

Accounting news

FASB improves Accounting for Investments in Tax Credit Structures – 29 March 2023

The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that improves the accounting and disclosures for investments in tax credit structures. The ASU allows the reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

For public business entities, the amendments would be effective for fiscal years beginning after 15 December 2023, including interim periods within those fiscal years. For all other entities, the amendments would be effective for fiscal years beginning after 15 December 2024, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period.

For more information, click here.

Auditing news

FAQs on Important Principles enunciated in Standards on Auditing w.r.t. Auditor’s Opinion and Audit Sampling – 25 March 2023

The Auditing and Assurance Standards Board of the ICAI has issued certain Frequently Asked Questions (FAQs) on ‘Important Principles enunciated in Standards on Auditing w.r.t. Auditor’s Opinion and Audit Sampling’ which inter alia includes:

• When shall the auditor express an unmodified (clean) opinion?

• Which circumstances require auditor to express modified opinion?

• When auditor is required to express a qualified opinion or an adverse opinion or a disclaimer of opinion?

• What is a ‘material misstatement’ of financial statements?

• What is meant by sampling risk?

• How should auditor determine sample size?

For more information, click here.

Implementation Guide on Reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 – 28 March 2023

The Ministry of Corporate Affairs vide its notification dated 24 March 2021 had issued the Companies (Audit and Auditors) Amendment Rules, 2021, wherein three new sub-rules i.e. (e), (f) and (g) were introduced in Rule 11 of the aforesaid Rules.

In order to guide the members on the aforesaid reporting requirements, the ICAI had already issued an ‘Implementation Guide on Reporting under Rule 11(e) and Rule 11(f) of the Companies (Audit and Auditors) Rules, 2014’, in the month of April, which deals with reporting on lending or receiving funds through pass through entities marked for ultimate beneficiary and reporting on the payment/declaration of dividend respectively.

Now, the ICAI has issued the Implementation Guide on reporting under Rule 11(g) of the above-mentioned Rules, which mandates the auditors to report on the use of accounting software that maintains an audit trail by companies.

For more information, click here.

Regulatory news

NFRA issues instances of non - compliance with Ind AS policies on Accounting Policies for measurement of Revenue from Contracts with Customers and Trade Receivables – 29 March 2023

Pursuant to the Companies Act requirements, the National Financial Reporting Authority (NFRA) monitors the compliance with the accounting standards by the Companies, as part of its review of published financial statements of companies.

During its recent review, the NFRA came across certain instances of apparent non-compliance with the prescriptions of the Ind ASs in some of the critical areas of Revenue Recognition and Measurement, and Initial Measurement of corresponding Trade Receivables. Therefore, in order to ensure adherence to high-quality Ind AS Reporting Framework, the NFRA has highlighted such instances of non-compliance for the urgent attention of the Company Management/Audit Committees and the Statutory Auditors, which are as follows:

• Incorrect disclosures of accounting policies w.r.t. revenue recognition and measurement and initial measurement of trade receivables.

• Inconsistency between the accounting policy for initial measurement of trade receivables and the accounting policy for measurement of corresponding revenue leading to misleading and confusing information to the users of the financial statements.

For more information, click here.