GAAP Advisors - Enabling Excellence in Financial Reporting in India | Thirty Seventh Edition
CA Manish C. Iyer
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
Welcome to Thirty Seventh Edition of?GAAP Advisors?TASK?Weekly newsletter
It gives me immense pleasure welcoming you to the Thirty Seventh edition of?GAAP Advisors?TASK?Weekly newsletter.?Hope you have installed GAAP Advisors Android App and took TASK (Test Accounting Standards Knowledge). If not, request you to?Download and Install GAAP Advisors App and Start TASK.?Readers who do not use android mobile can login / register on?https://gaapadvisors.com?and Start?TASK. This edition of newsletter has the following sections:
+ Why register on?GAAP Advisors
+ From?Issue Repository?– Disclosure of Other Long-Term Employee Benefits
+ Standards Applied for Responding to Issues This Week
+ From?Review Repository?– Obscuring Presentation
+ From?Accounting Policy Repository
+ From?Key Audit Matters Repository
+ From?Term Repository?- Way
+ Features of?TASK
+?TASK?Statistics at the time of writing this section of newsletter
+?TASK?Ranker No.1 at the time of writing this section of newsletter
+ Daily winners for this Week
+ Note of Thanks
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From?Issue Repository?– Disclosure of Other Long-Term Employee Benefits -?Issue Id: 328??- Framework: Indian Accounting Standards (Ind AS):
Facts of the Case as submitted by the querist:
A Ltd. provides leave encashment benefit to its employees. A Ltd. has accounted for leave encashment as other long-term employee benefits. A Ltd. has not disclosed any information on other long-term employee benefits claiming that Ind AS 19 does not require disclosures for other long-term employee benefits.
Issue/Query as submitted by the querist:
Whether the claim of A Ltd. is proper?
GAAP Advisors?Response:
Paragraph 158 of Ind AS 19?Employee Benefits?states as under:
“158??????Although this Standard does not require specific disclosures about other long-term employee benefits, other Ind ASs may require disclosures. For example, Ind AS 24 requires disclosures about employee benefits for key management personnel. Ind AS 1 requires disclosure of employee benefit expense.”
Therefore, the claim of A Ltd. that Ind AS 19 does not require disclosure for other long-term employee benefits is proper. However, it might have to peep into the disclosures required by other standards especially Ind AS 24?Related Party Disclosures?and Ind AS 1 Presentation of Financial Statements.
Paragraph 17 of Ind AS 24 requires the following disclosure:
“17????????An entity shall disclose key management personnel compensation in total and for each of the following categories:
Paragraph 112 of Ind AS 1 states as under:
“112??????The notes shall:
Therefore, apart from disclosing other long-term employee benefits included in key management personnel compensation, A Ltd. should evaluate whether not providing disclosures of other long-term employee benefits like post-employment benefits does not impair understandability of financial statements. If not providing disclosures of other long-term employee benefits like post-employment benefits impairs understandability of financial statements, it should disclose the information on other long-term employee benefits to make the financial statements understandable.
Standards Applied for Responding to Issues This Week
领英推荐
From?Review Repository?- Obscuring Presentation
The company has presented (Increase)/Decrease in Long-term Loans and Advances in Statement of Cash Flows. However, no such line item is reported in Balance Sheet. Paragraph 7 of Ind AS 1, Presentation of Financial Statements, explains -
?Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following are examples of circumstances that may result in material information being obscured:-
In the given case, it is unclear as to how the company reported (increase)/decrease in short-term loans and advances in statement of cash flows when the same is not reported in balance sheet. Therefore, such presentation is considered as obscuring.
Components Impacted:?Balance Sheet and Statement of Cash Flows
From?Accounting Policy Repository?– Business Combinations under Common Control -?Policy Id:?7483 - Applicable Standards:?Ind AS 103, Business Combinations
As reported by Company:
Business combinations involving entities or businesses under common control are accounted for using the pooling of interest method. Under pooling of interest method, the assets and liabilities of the combining entities or businesses are reflected at their carrying amounts after making adjustments necessary to harmonise the accounting policies. The financial information in the financial statements in respect of prior periods is restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination. The identity of the reserves is preserved in the same form in which they appeared in the financial statements of the transferor and the difference, if any, between the amount recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve.
From?Key Audit Matters Repository?- Key Audit Id: 2235 - Revenue recognition - As reported:
Key Audit Matter:
The Company’s contracts with customers include contracts with multiple products and services. The Company derives revenues from IT services comprising software development and related services, maintenance, consulting and package implementation, licensing of software products and platforms across the Company’s core and digital offerings and business process management services. The Company assesses the services promised in a contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligations to determine the deliverables and the ability of the customer to benefit independently from such deliverables involves significant judgment.
In certain integrated services arrangements, contracts with customers include subcontractor services or third-party vendor equipment or software. In these types of arrangements, revenue from sales of third-party vendor products or services is recorded net of costs when the Company is acting as an agent between the customer and the vendor, and gross when the Company is the principal for the transaction. In doing so, the Company first evaluates whether it controls the products or service before it is transferred to the customer. The Company considers whether it has the primary obligation to fulfil the contract, inventory risk, pricing discretion and other factors to determine whether it controls the products or service and therefore, is acting as a principal or an agent.
Fixed price maintenance revenue is recognized ratably either on (1) a straight-line basis when services are performed through an indefinite number of repetitive acts over a specified period or (2) using a percentage of completion method when the pattern of benefits from the services rendered to the customer and the Company’s costs to fulfil the contract is not even through the period of contract because the services are generally discrete in nature and not repetitive. The use of method to recognize the maintenance revenues requires judgment and is based on the promises in the contract and nature of the deliverables.
As certain contracts with customers involve management’s judgment in (1) identifying distinct performance obligations, (2) determining whether the Company is acting as a principal or an agent and (3) whether fixed price maintenance revenue is recognized on a straight-line basis or using the percentage of completion method, revenue recognition from these judgments were identified as a key audit matter and required a higher extent of audit effort.
Refer Notes 1.4 and 2.18 to the standalone financial statements.
How was the matter addressed by auditor?:
Our audit procedures related to the (1) identification of distinct performance obligations, (2) determination of whether the Company is acting as a principal or agent and (3) whether fixed price maintenance revenue is recognized on a straight-line basis or using the percentage of completion method included the following, among others:
? We tested the effectiveness of controls relating to the (a) identification of distinct performance obligations, (b) determination of whether the Company is acting as a principal or an agent and (c) determination of whether fixed price maintenance revenue for certain contracts is recognized on a straight-line basis or using the percentage of completion method.
? We selected a sample of contracts with customers and performed the following procedures:
– Obtained and read contract documents for each selection, including master service agreements, and other documents that were part of the agreement.
– Identified significant terms and deliverables in the contract to assess management’s conclusions regarding the (i) identification of distinct performance obligations (ii) whether the Company is acting as a principal or an agent and (iii) whether fixed price maintenance revenue is recognized on a straight-line basis or using the percentage of completion method.
From?Term Repository?– Way:
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TASK?Statistics at the time of writing this section of newsletter
TASK?Ranker no. 1 at the time of writing this section of Newsletter:
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Note of Thanks
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Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
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