The weekly messenger | Edition 11.16

Accounting News

ITFG Clarification Bulletin 5 – 1 October 2016

Ind AS Transition Facilitation Group” (ITFG) of Ind AS (IFRS) Implementation Committee has been constituted to provide clarification on various issues related to applicability and/or implementation of Ind AS under the Companies (Ind AS) Rules,2015, raised by preparers, users and other stakeholders Recently, ITFG has issued the fifth set of clarifications. This bulletin contains clarifications on following matters:

• Consideration of consistent approach for preparation of financial statements and for determining the relationship with another entity for purpose of applicability of IND AS
• Classification of refundable security deposit under “current liability” or “non-current liability” by the electricity companies.
• Applicability of deemed cost on selective basis to some items of Property, Plant and Equipment (PP&E).
• Adjustment in the carrying amount of fixed assets as per the previous generally accepted accounting principles (GAAP) to reflect accounting treatment of capitalized processing fees on loan taken as per Ind AS 109.
• Adjustment in the carrying amount of fixed assets as per previous GAAP to reflect accounting treatment of the government grant as per Ind AS 20
• Amount at which spare parts should be recognized in first Ind AS financial statements and its depreciation criteria and explanation of words “more than one period” used in definition of PP&E.
• Whether straight lining of lease payments in case of operating lease is required or not under Ind AS 17 and whether escalation of lease rent is to be considered or general inflation is to be considered.
• Adjustment of profit share from Limited Liability Partnership (LLP) to the carrying amount of investment in LLP in separate financial statements of Company having equity investment and joint control in such LLP

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Amendment to AS 2, 4, 6, 10, 13, 14, 21 and 29 issued by the ICAI- 28 September 2016

Ministry of Corporate Affairs (MCA) had notified Companies (Accounting Standards) Amendment Rules, 2016 in the month of March 2016, whereby following Accounting Standards (AS) were amended and AS 6, Depreciation Accounting was omitted:

• AS 2, Valuation of Inventories
• AS 4, Contingencies and Events Occurring After the Balance Sheet Date
• AS 10, Property, Plant and Equipment
• AS 13, Accounting for Investments
• AS 14, Accounting for Amalgamations
• AS 21, Consolidated Financial Statements
• AS 29, Provisions, Contingent Liabilities and Contingent Assets

With the view to harmonise two sets of AS issued by the Institute of Chartered Accountants of India (ICAI) for non-corporate entities and AS notified by MCA for corporates, the ICAI has also incorporated these amendments after appropriate changes in the AS issued by the ICAI.
The amendments will come into effect from 1 April 2017.

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Ind AS: An Overview (Revised 2016) published – 26 September 2016

The ICAI has recently issued a publication-Indian Accounting Standards (Ind AS): An overview (2016). This publication aims to provide a bird’s eye view of each Ind AS, roadmap for implementation of Ind AS and other related aspects for the beginners like us. This publication inter-alia includes:

• Approach towards Ind AS
• Roadmap for implementation of Ind AS for Corporates
• Roadmap for implementation of Ind AS for Banks, Insurance Companies and Non-Banking Financial Corporations (NBFCs)
• Summary of Ind AS
• Major Differences between Ind AS and IFRS and reasons for the differences
• Carve-outs removed from Ind AS finalised in 2011
• Major Differences between Ind AS and Existing notified AS
• Various Appendices

For more information, click here

GN on Combined and Carve-Out Financial Statements – 28 September 2016

Recently, ICAI has issued a Guidance Note (GN) on Combined and Carve-Out Financial Statements which provides the meaning of combined/carve-out financial statements, indicative situations in which these will be required, its applicability and the procedure for its preparation and other required disclosures This GN inter-alia includes:

• Definitions of various terms used in this GN
• Circumstances in which these financial statements will be prepared
• Procedure for preparation of these financial statements in various situations
• Basis for allocating transaction amounts and balances
• Relationship with the remaining group
• Exceptional items
• Aspects common to Combined/Carve-out Financial Statements
• Disclosures

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FASB proposes changes to long-duration contract reporting for Insurance Companies – 29 September 2016

The Financial Accounting Standard Board (FASB) has issued a proposed accounting standards update (ASU) for improving the financial reporting for long term insurance contracts including life insurance, disability income, long term care and annuities. The ASU inter-alia includes the following:

• Proposals for improving the timelines of recognizing changes in the liability for future policy benefits.
• Eliminates the use of an asset rate to discount liability cash flows.
• Simplifies the accounting for certain options or guarantees in variable products by requiring those benefits to be measured at fair value instead of using two different measurement models.
• Simplify the amortization of deferred acquisition cost while aiming to improve the disclosure effectiveness.

Comments to be received by 15 December 2016.

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New lease AS proposed for Federal entities – 28 September 2016

FASB has proposed a new lease AS for federal entities. Under the proposed standard federal lessees would recognize a lease liability and a leased asset at the beginning of the lease. A federal lessor would recognize a lease receivable and deferred revenue. Intra governmental lease and a short term lease are an exception to it.
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Auditing Updates

GN on Reports and Certificates for special purposes (Revised 2016) – 1 October 2016

A GN has been issued by Auditing and Assurance Standards Board of ICAI regarding engagements of “practitioners” to issue reports or certificates in support of statements or other information provided by an entity. Such reports or certificates can also be required to be issued to fulfill a contractual reporting obligation or may be required by the management or those charged with governance of an entity for its own special purposes.

This GN supersedes the earlier GN on Audit Reports and Certificates for Special Purposes, issued by the ICAI in 1984.

For more information, click here

Clarification on the difference in requirements relating to auditor’s rotation under SQC 1 vis-à-vis Companies Act, 2013 – 30 September 2016

The Council of ICAI has issued a clarification regarding difference in requirements relating to auditor’s rotation under SQC 1 and the Companies Act, 2013 (The Act 2013). Following points were noted regarding this:

• In case of listed entities, SQC 1 requires rotation of engagement partner after normally not more than seven years. Since SQC 1 is applicable from 1 April 2009, the provisions regarding the rotation of engagement partner would be due from 1 April 2016.
• The Act 2013 being applicable from 1 April 2014 has provided relaxation of 3 years to comply with auditor’s rotation. Therefore, the auditor’s rotation would be due from 1 April 2017. 

Therefore, there is a difference of 1 year in the requirement of auditor’s rotation between SQC 1 vis-à-vis the Act 2013 during the transition phase of implementation of the Act 2013. Hence a relaxation has been provided for one year with respect to rotation of engagement partner under SQC (i.e. for the financial year 2016-17).

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Regulatory News

Issuance of Master Directions by RBI for NBFCs-29 September 2016

The Reserve Bank of India (RBI) has recently issued three sets of master directions for NBFCs which are as follows:

• Master Directions-Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016 - In order to enable the banks to regulate the credit system to the advantage of the country and in supersession of the Master Circular Frauds-Future Approach Towards Monitoring of Frauds in NBFCs, RBI has issued these directions which inter alia includes:
  • Applicability of these directions
  • Classification of Frauds
  • Reporting prospects
  • Filing of quarterly returns
  • Reports to the board
  • Guidelines for Reporting Frauds to Police
  • Interpretations
  • Repeal Provisions
  • Reports on Actual or Suspected Frauds in NBFCs
  • Quarterly Report on Frauds Outstanding
  • Quarterly Progress Report on Frauds of Rs.1.00 lakh & Above

For more information, click here

• Master Directions- NBFCs Auditor’s Report (Reserve Bank) Directions, 2016- In supersession of the earlier NBFCs Auditor’s Report (Reserve Bank) Directions, 2008 RBI has issued these directions to every auditor of every NBFC which inter alia includes:
  • Applicability of these directions
  • Submission of additional report to the Board of Directors by the auditors
  • Submission of Exception Report to the Bank by the auditors
  • Repeal Provisions

For more information, click here 

• Master Directions- NBFCs Returns (Reserve Bank) Directions, 2016- In order to enable the banks to regulate the credit system to the advantage of the country and in supersession of the Master Circular on returns submitted by the NBFCs, RBI has issued these directions which inter alia includes:
  • Timelines and methodology of filing returns
  • Types of returns to be submitted by NBFCs
  • Reporting by Miscellaneous Non-Banking Company
  • Interpretations
  • Repeal Provisions
  • Format of Statutory Auditor’s Certificate (SAC)
  • Format of Quarterly Return to be submitted by NBFCs having overseas Investment
  • Format of Half-yearly Statement of Interest Rate Futures transactions for the purpose of hedging by NBFCs

For more information, click here

Companies Incorporation (Fourth) Amendment Rules- 1 October 2016

MCA has issued Companies Incorporation (Fourth) Amendment Rules, which inter-alia include: 

• Simplified requirements with respect to filing of approval received from the Tribunal with the Registrar in case of conversion of public company into private company and vice versa.
• Addition of certain new rules, as follows:
• Simplified Proforma for Incorporating Company Electronically (SPICE)
• Rules for conversion of a company limited by guarantee into a company limited by shares

For more information, click here