The weekly messenger | Edition 09.21

ACCOUNTING NEWS

iteria for classification of non-company entities for applicability of Accounting Standards – 31 March 2021
 
The ICAI has issued the revised criteria for classification of non-company entities for applicability of Accounting Standards, wherein one major change that has been made by the ICAI is the creation of one new category i.e. Level IV for micro enterprises. The revised scheme would be applicable w.r.t. accounting periods commencing on or after 1 April 2020.
 
Further, this announcement would supersede the erstwhile announcements of ICAI on ‘Harmonisation of various differences between the Accounting Standards issued by the ICAI and the Accounting Standards notified by the Central Government’ issued in February 2008 to the extent it prescribes the criteria for classification of Non-company entities (Non-corporate entities) and applicability of Accounting Standards to non-company entities, and ‘Revision in the criteria for classifying Level II non-corporate entities’ issued in January 2013 respectively.
 
Moreover, this announcement is not relevant for non-company entities who may be required to follow Ind AS as per relevant regulatory requirements applicable to such entities.
 
For more information, click here.
 
Announcement providing Temporary Exceptions to Hedge Accounting prescribed under Guidance Note on Accounting for Derivative Contracts due to Interest Rate Benchmark Reform – 31 March 2021
 
The Ministry of Corporate Affairs (MCA) vide its Companies (Ind AS) Amendment Rules, 2020 had provided certain temporary exceptions from applying specific hedge accounting requirements. On the similar grounds, the ICAI has also provided the corresponding temporary relief to the entities not following Ind AS.
 
These temporary exceptions would be applicable for annual periods beginning on or after 1 April 2020. Further, the requirements of the Announcement would be applicable to only those hedging relationships that existed at the beginning of the reporting period in which an entity first apply these requirements or were designated thereafter, and to the amount accumulated in the cash flow hedge reserve that existed at the beginning of the reporting period in which an entity first applies these requirements.
 
For more information, click here.
 
FASB provides alternative to the goodwill triggering event assessment for certain private companies and organisations – 30 March 2021
 
The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that provides an accounting alternative, which is expected to reduce the complexity for private companies and not-for-profit organizations, while performing the goodwill triggering event evaluation.
 
The ASU will allow the aforesaid entities to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period is an interim or annual period.  Further, it will also eliminate the requirement for the above-mentioned entities that elect this alternative to perform this assessment during the reporting period, limiting it to the reporting date only.
 
For more information, click here.
 
IASB extends support for lessees accounting for COVID-19 related rent concessions – 31 March 2021
 
In order to help the lessees with the accounting for COVID-19 related rent concessions, the International Accounting Standards Board (IASB) has extended the application period of the practical expedient provided under IFRS 16 Leases w.r.t. rent concessions by further one year, thereby covering rent concessions that reduce only lease payments due on or before 30 June 2022.
 
The amendment would be effective for annual reporting periods beginning on or after 1 April 2021.
 
For more information, click here.

AUDITING NEWS

Technical Guide on Audit of Internal Financial Controls in case of Public Sector Banks – 19 March 2021
 
The Reserve Bank of India (RBI) vide its communications dated March 2020 and May 2020, has made the reporting on internal financial controls in public sector banks mandatory for the statutory auditors from the financial year 2020-21 onwards.
 
Therefore, in order to provide appropriate guidance to the auditors on this new reporting requirement in case of public sector banks, the ICAI has come up with a new publication namely ‘Technical Guide on Audit of Internal Financial Controls in case of Public Sector Banks’. The objective of this guide is to provide a supplementary resource to the auditors while carrying out audit of internal financial controls in case of public sector banks.
 
For more information, click here.
 
Guidance Note on Audit of Banks 2021 edition – 20 March 2021
 
The Auditing and Assurance Standards Board of the ICAI has issued the revised 2021 edition of the ‘Guidance Note on Audit of Banks’, which includes impact of various circulars issued by the RBI as well as important advisories, pronouncements of the ICAI which would be relevant for the bank audits for the financial year ending 31 March 2021.
 
For more information, click here.
 
Technical Guide on Revised Formats of Long Form Audit Report – 22 March 2021
 
In September 2020, the RBI has issued the revised formats of Long Form Audit Report (LFAR) which would be applicable for audits of financial year 2020-21 and onwards.
 
Now, in order to provide appropriate guidance to the auditors of banks on such revised formats of LFAR, the ICAI has issued a publication namely ‘Technical Guide on Revised Formats of Long Form Audit Report’, so that the members can discharge their reporting obligation more efficiently and effectively.
 
For more information, click here.

REGULATORY NEWS

AI Leads in Sustainability Reporting Benchmarking - Releases Sustainability Reporting Maturity Model (SRMM) Version 1.0 – 18 March 2021
 
In order to strengthen the sustainability reporting in the country, the ICAI has developed ‘Sustainability Reporting Maturity Model (SRMM) Version 1.0’ with an objective to bring out a comprehensive scoring tool based on report of the Committee on Business Responsibility Reporting constituted by the MCA in August 2020.  
 
This model would also allow the rating agencies and assurance providers to compare the sustainable nature of the Indian companies with other international companies.
 
For more information, click here.
 
MCA notifies commencement date of various sections of Companies (Amendment) Act, 2020– 18 March 2021 and 24 March 2021
 
The MCA has notified the commencement date of various sections of the Companies (Amendment) Act, 2020, the listing of which is as follows:
 

 
For Notification dated 18 March, click here.
 
For Notification dated 24 March, click here.
 
Amendment to Schedule V of the Companies Act, 2013 – 18 March 2021
 
The Companies (Amendment) Act, 2020 has brought in certain amendments in the provisions of Section 149(3) and Section 197(3) of the Companies Act, 2013, which relates to remuneration of Non-executive Directors (including Independent Directors) in case of absence or inadequate profits, which have been made effective from 18 March 2021.
 
Pursuant to the aforesaid changes, certain consequential changes have also been made in Schedule V ‘Conditions to be fulfilled for the Appointment of a Managing or WTD or a Manger without the Approval of Central Govt.’ of the Companies Act, 2013.  
 
For more information, click here.
 
MCA issues Amendments in Schedule III to the Companies Act 2013 - 24 March 2021
 
The MCA has amended the Schedule III to the Companies Act, 2013, wherein numerous new disclosure requirements have been added for all the three Divisions of the Schedule III.
 
Some of the important key matters for which new disclosure requirements have been added are as follows:

• Promoter’s Shareholding;
• Prescribed reconciliation for specified Property, Plant and Equipment and intangible assets in case of valuation;
• Unutilised borrowed funds;
• Loans or Advances granted to promoters, directors, Key Managerial Personnels and the related parties;
• Details of Benami Property held;
• Declared wilful defaulter by banks etc.;
• Compliance with approved Schemes of Arrangements;
• Details of undisclosed income in the tax assessments;
• Details of Crypto Currency or Virtual Currency.

These amendments would be effective from 1 April 2021.
 
For more information, click here.
 
Companies (Accounts) Amendment Rules, 2021 – 24 March 2021
 
The MCA vide its Companies (Accounts) Amendment Rules, 2021 has brought out certain new disclosure requirements w.r.t. ‘Maintenance of Books of Accounts’ and ‘Matters to be included in the Board’s Report’, which are as follows:

• In sub-rule (1) of Rule 3 ‘Manner of Books of Account to be kept in Electronic Mode’ - a proviso has been inserted, which states that every company using an accounting software for maintaining its books of account, shall use only such accounting software which has a feature of:

1. recording audit trail of each and every transaction,
2. creating an edit log of each change made in books of account along with the date when such changes were made and
3. ensuring that the audit trail cannot be disabled.

• In sub-rule (5) of Rule 8 ‘Matters to be Included in Board’s Report’ - two additional disclosures are to be provided in the board report on the following matters:

1. the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year along with their status as at the end of the financial year.
2. the details of difference between amount of the valuation done at the time of one-time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.

These Rules shall come into force w.e.f. 1 April 2021.
 
For more information, click here.
 
Company (Accounts) Second Amendment Rules, 2021 – 1 April 2021
 
The MCA vide its Companies (Accounts) Amendment Rules, 2021 has inserted a new requirement, wherein the companies were asked to maintain its books of account in an accounting software having a feature of recording audit trail w.e.f. 1 April 2021.
 
However, now the date of complying with the aforesaid requirement has been deferred by one year, which means that now the companies would be required to use such accounting software for the financial year commencing on or after 1 April 2022.
 
These Rules shall come into force w.e.f. 1 April 2021.
 
For more information, click here.
 
Companies (Audit and Auditors) Amendment Rules, 2021– 24 March 2021
 
The MCA has issued the Companies (Audit and Auditors) Amendment Rules, 2021, wherein the following modifications have been made in Rule 11 ‘Other Matters to be Included in Auditors Report’:

1. Clause (d) which deals with disclosure Specified Bank Notes (SBNs) has been omitted;
2. New reporting matters have been added on the following aspects:

• Whether the management has made representation that other than as disclosed in the notes to accounts, no funds have been:

1. Advanced or loaned or invested by the company to or in any other intermediaries to lend or invest or provide any guarantee or security directly or indirectly on company’s behalf;
2. Received by the company from any funding parties to lend or invest or provide any guarantee or security directly or indirectly on behalf of funding party.

• Based on such audit procedures performed, has anything come to the auditors notice that caused them to believe that the aforesaid representations contain any material mis-statement.
• Dividend declared or paid during the year by the company is in compliance with Section 123 of the Companies Act, 2013.
• Whether the company is using the accounting software having a feature of audit trail for the purpose of maintaining its books of accounts and the audit trail feature has not been tampered with.

These Rules shall come into force w.e.f. 1 April 2021.
 
For more information, click here.
 
Companies (Audit and Auditors) Second Amendment Rules, 2021 – 1 April 2021
 
The MCA vide its Companies (Audit and Auditors) Amendment Rules, 2021, has mandated the auditors to report in his report that whether a company is maintaining its books of accounts using a accounting software having a feature of recording audit trail w.e.f. 1 April 2021.
 
Now, the reporting requirement for this particular clause has been deferred by one year, which means that auditor will report on this clause in respect of financial years commencing on or after the 1 April 2022.
 
These Rules shall come into force w.e.f. 1 April 2021.
 
For more information, click here.
 
IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2021 – 15 March 2021
 
The Insolvency and Bankruptcy Board of India (IBBI) has issued the IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2021, wherein the following changes have been made:

• A new Regulation 12A ‘Updation of claim’ has been inserted, as per which a creditor shall update its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date.
• A new Sub-Regulation 40B (1A) has also been inserted, which states that; “Where any activity stated is not complete by the date specified therein, the interim resolution professional or resolution professional, as the case may be, shall file Form CIRP 7 within three days of the said date, and continue to file Form CIRP 7, every 30 days, until the said activity remains incomplete. Provided that subsequent filing of Form CIRP 7 shall not be made until thirty days have lapsed from the filing of an earlier Form CIRP 7.”
• Form C which deals with the submission of claim by financial creditors has been substituted with a new form.

These Regulations shall come into force w.e.f. 15 March 2021.
 
For more information, click here.
 
Handbook on Ethics for Insolvency Professionals – 19 March 2021
 
The IBBI has issued a publication namely ‘Handbook on Ethics for Insolvency Professionals’, to stimulate the highest standards of ethics and professionalism among the Insolvency Professionals (IPs). This Handbook will serve as a ready reckoner and a tool to assist the IPs and all other stakeholders in the insolvency ecosystem, for practicing an ethical code of conduct.
 
For more information, click here.
 
Dispensing with physical signatures on proposal forms – 23 March 2021
 
The Insurance Regulatory and Development Authority of India (IRDAI) vide its Circular dated November 2020, had allowed life insurer companies to obtain customers’ consent through electronic means on the proposal form till 31 March 2021.
 
Now, the IRDAI has extended the aforesaid exemption of obtaining customer’s consent through electronic means i.e. without requiring wet signatures on the proposal forms, for the business solicited by individual Insurance Agents and Insurance Intermediaries under all products, till 30 September 2021, subject to certain conditions.
 
For more information, click here.
 
CBDT further defers the applicability of clause 30C and 44 of Form 3CD – 25 March 2021
 
The Central Board of Direct Taxes (CBDT) has further deferred the applicability of the clause 30C (pertaining to General Anti – Avoidance Rules (GAAR) {Impermissible Avoidance Arrangements- As mentioned in Form 3CD}) and clause 44 (pertaining to GST) of the Form 3CD by one year, thereby keeping them both in abeyance till 31 March 2022.
 
For more information, click here.
 
Guidance Note as per Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 23(9) on disclosure of related party transactions – 1 April 2021
 
The Bombay Stock Exchange (BSE) has issued a Guidance Note as per Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 23(9) on disclosure of related party transactions, which comprises of guidance on the following aspects of related party disclosures:

• When to submit disclosure of Related Party Transaction?
• Whether to publish all related party transaction or submit material disclosure of related party transaction?
• Whether to publish all Related Party Transaction on standalone or consolidated basis?
• In case, no related party transaction are there, whether Company is required to submit the disclosure?
• Where to submitted related party transaction on BSE Listing Centre?
• In case there are no related party transaction except managerial salary then also related party disclosure, is required?

For more information, click here.