GAAP Advisors - Enabling Excellence in Financial Reporting in India | 61st Edition
CA Manish C. Iyer
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
Welcome to 61st Edition of?GAAP Advisors?TASK?Weekly newsletter
It gives me immense pleasure welcoming you to the 61st 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.
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The views expressed herein are personal views of the author and is not binding on the reader. Reader is requested to seek the help of an expert before taking any action or refraining from any action based on the views expressed herein.
This edition of newsletter has the following sections:
+ Why register on?GAAP Advisors
+ Introducing TASK Rooms
+ Other updates on GAAP Advisors
+ Exposure Draft (ED) of Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants issued by the Institute of Chartered Accountants of India (ICAI)
+ ED of Guidance Note (GN) on Financial Statements of Limited Liability Partnerships (LLPs) issued by the ICAI
+ From?Issue Repository?– Employee Benefits as Intangible Assets
+ Standards Applied for Responding to Issues This Week
+ From?Review Repository?– Common Control Transactions
+ From?Accounting Policy Repository
+ From?Key Audit Matters Repository
+ From?Term Repository?– Individual
+ Features of?TASK
+?TASK?Statistics at the time of writing this section of newsletter
+?Top 5 TASK?Rankers at the time of writing this section of newsletter
+ Daily winners for this Week
+ Note of Thanks
Why Register on?GAAP Advisors :
Registration is free. On registration, you get subscription access to Wealth of Knowledge on Financial Reporting in India in your Pocket available anytime and anywhere:
1.?TASK Repository?- Play the learning?Game?on?Ind AS?and?Indian GAAP?with?TASK.?16000+?Question Bank. Share your certificate and get recognised for your skills on?Ind AS?and?Indian GAAP
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3.?Accounting Policy Repository?-?7300+?Accounting Policies
4.?Key Audit Matters Repository?-?2200+?Key Audit Matters
5.?MCQ Repository?-?1100+?Multiple Choice Questions and their responses
6.?Term Repository?-?900+?Terms defined with comparison between?Indian GAAP?and?Ind AS
7. Financial Statements Notes Repository – 100+ Notes tagged with applicable standards, paragraphs of standards, components of financial statements, related line item etc.
8. Active Standards Referencer – Text of all Ind AS and Indian GAAP tagged with relevant Issues and Notes
Further, if you update your profile with your birthdate, you get free access to all repositories on your birthday. Moreover, daily 2 registrants are selected randomly and awarded free access to all repositories. See the section on Daily Winners to know the names of the lucky ones.
Introducing TASK Rooms
A TASK Room is a Virtual Room. Group of participants can Test Accounting Standards Knowledge in Virtual Room. TASK Room is a virtual test centre on?https://gaapadvisors.com. TASK Rooms can be used:
a. during interviews to select candidates with skill sets on financial reporting standards in India;
b. as training tool to upgrade the skill sets of accounts and audit team;
c. in webinars or seminars as an instant test for participants and reward them;
d. by students to continuously check their skill sets on application of financial reporting standards in India; and
e. for many more purposes
Person who creates TASK Room is called Manager and person who participates is called Participant. To create TASK Room, after login, on Dashboard, click TASK Repository and then Create / Manage TASK Rooms. Name of Manager is the name as specified in the person’s profile.
Manager can add participants once the TASK Room is created. Also, Manager can display the TASK Room details on Open TASK Rooms page. Anyone interested to join TASK Room can send request by scanning the QR Code after login.
Participation in TASK Room is free. Subscription is required to create TASK Room as Manager and to access performance report as participant. Each participant receives TASK Room Certificate for free. Manager to receive certificate and performance report of each participant in that room after the test ends. To appear for the test, login and on Dashboard click Start TASK Rooms. Click Open TASK Rooms to see list of TASK Rooms available for participation.
First live run of TASK Room was done on 11 February 2023. Below are given certificates of participants who secured Rank 1 and therefore are eligible to receive cash award of ?2500. As more than one participant secured Rank 1, the award shall be distributed equally.
Looking at the success of the TASK Room and its benefits in spreading the knowledge and awareness of financial reporting standards in India and to let subscribers to this newsletter to also participate, we have created GAAP Advisors TASK Room 02. Test will start on 18 February 2023 at 3.00pm IST. Scan the QR Code given below to participate. Get cash award of ?2500 by securing Rank 1. If more than one participant secure Rank 1, the cash award shall be distributed equally among them.
4 participants have already joined. Only 6 seats left. If you are not comfortable with scanning QR Code, please specify your name, mail id and mobile number in comments to this newsletter on LinkedIn.
Other Updates on GAAP Advisors
·??????Subscription packages with Offers displayed on home page
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·??????Active Standards Referencer is now available in TASK. You will find questions from Active Standards Referencer in TASK from now. By this all repositories are made available in TASK.
ED of Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants issued by the ICAI
The Institute of Chartered Accountants of India has issued an Exposure Draft on Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants corresponding to the amendments to IAS 1 issued by IASB. The Exposure Draft proposes removal of carve-out that let defaulters present their liabilities as non-current regardless of conditions existing at the end of the reporting period. Consequential amendments to Ind AS 10, Events after the Reporting Period, has also been proposed. These amendments, if notified, will align Ind AS 1 and Ind AS 10 with IFRS. Apart from aligning with IFRS, these amendments will meet the objective of financial statements which is to provide information to users enabling them to make proper economic decisions. Last date for comments on the Exposure Draft is 28 February 2023. Exposure draft can be downloaded and comments can be submitted by clicking ICAI - The Institute of Chartered Accountants of India.
ED of GN on Financial Statements of LLPs issued by the ICAI
The Institute of Chartered Accountants of India has issued exposure draft of Guidance Note on Financial Statement of LLPs. Last date for comments is March 8, 2023. The GN shall supersede the Technical Guide on Financial Statements of LLPs issued by the ICAI. The Guidance Note similar to the Technical Guide considers partners’ current account as equity rather than as liability though the GN adopts the definitions of assets, liabilities and equity given in the Framework for the Preparation and Presentation of Financial Statements issued by ICAI (Framework). A partner can withdraw the amount from his / her current account and therefore, the partners’ current account does not meet the definition of equity. Therefore, partner’s current account is a liability for the LLP. The profits of the LLP is transferred to the partner’s current account in the ratio as mentioned in the LLP agreement. Therefore, the profits do not result in increase in equity of LLP. The profits represent increase in liability of LLP. The exposure draft adopts the definition of incomes and expenses as given in Framework. An item to be income must result in increase in equity other than contributions from equity participants. An item to be expense must result in decrease in equity other than distributions to equity participants. Income and expense of LLP result in profits that are withdrawable by partners from their current accounts. Therefore, neither income nor expense result in increase or decrease in equity respectively. The GN must amend either the definition of equity or the definition of liability to permit balances in partners’ current account and profits to be recognised as equity. This amendment will also meet the definition of income and expense. The GN may include an exception to the definition of liability such that amounts representing partners’ fund shall be equity regardless of the absence of unconditional right of LLP to refuse withdrawal of funds at will of the partners. The ED may define Partners’ Fund as Amounts that are available for distribution to partners. Exposure draft can be downloaded and comments can be submitted by clicking ICAI - The Institute of Chartered Accountants of India.
From?Issue Repository?– Employee Benefits as Intangible Assets ?-?Issue Id: 1632??- Framework: Indian Accounting Standards:
Facts of the Case as submitted by the querist:
An Indian Company having a subsidiary in Mexico. As per law in Mexico, some companies are under the provisions of National Labour Union and have to compensate their workers as per rate decided by the union, which is higher as compare to the normal market rate. Due to which Company was incurring labour cost equal to 15-16% to the sales. Whereas if company does not pay according to the rate decided by the union labour cost would reduce by 50%. The Company has taken a step to come out under the provisions of such National Labour Union with the help of the Govt. Accordingly they have retired all the employees of the company on a particular day and paid all the dues to the workers along with retirement benefit and compensation.
Now, as per new dispensation agreement, the company has a sole prerogative to employee work force at lower rate. The company is going to enjoy this benefit till perpetuity.
Now the total amount paid by the Company to the workers is treated as intangible assets as it is going to realise benefits for the Mexico Company. The Auditor of the Company has also accepted this view.
Issue/Query
You are requested to please give your valuable input; whether the treatment being done by the company is correct since this company will be consolidated in India as per Ind AS.
GAAP Advisors Response:
Paragraph 8 of Ind AS 19?Employee Benefits?contains the definition of various terms used in the Standard. The term ‘employee benefit’ is defined as under:
“Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment”
Therefore, the amount paid by the subsidiary company in Mexico for termination of the employment of employees is an employee benefit as defined in Ind AS 19.
Paragraph 2 of Ind AS 19, inter alia, states as under regarding the scope of the Standard:
“2?????????This Standard shall be applied by an employer in accounting for all employee benefits, except those to which Ind AS 102, Share-based Payment applies….”
Further, paragraph 2 of Ind AS 38?Intangible Assets?states as under with regard to the scope of the Standard:
“2?????????This Standard shall be applied in accounting for intangible assets, except:
Paragraph 3 of Ind AS 38 explains the principle enunciated in paragraph 2(a) as under:
“3?????????If another standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard, For example, this standard does not apply to:
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Therefore, as the consideration paid for termination of employment is an employee benefit to which Ind AS 19 applies, the said amount cannot be treated as intangible asset. Accordingly, the treatment done by the subsidiary company in Mexico is not in accordance with Ind AS. Under Ind AS, the amount paid is an employee benefit which shall be accounted for in accordance with Ind AS 19.
Standards Applied for Responding to Issues This Week
From?Review Repository?– Common Control Transactions
Components Impacted: All except Balance Sheet
The company has disclosed the following as its accounting policy on Common Control Transactions:
The company has disclosed that transfers of interest in entities that are under common control are accounted at historical cost. The difference between any consideration paid / received and the aggregate historical carrying amounts of assets and liabilities of the interest acquired / disposed is recorded in retained earnings.
Paragraph 12 of Appendix C, Business Combinations of Entities under Common Control, of Ind AS 103, Business Combinations, states as follows:
The identity of the reserves shall be preserved and shall appear in the financial statements of the transferee in the same form in which they appeared in the financial statements of the transferor. Thus, for example, the General Reserve of the transferor entity becomes the General Reserve of the transferee, the Capital Reserve of the transferor becomes the Capital Reserve of the transferee and the Revaluation Reserve of the transferor becomes the Revaluation Reserve of the transferee. As a result of preserving the identity, reserves which are available for distribution as dividend before the business combination would also be available for distribution as dividend after the business combination. 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 shall be transferred to capital reserve and should be presented separately from other capital reserves with disclosure of its nature and purpose in the notes.?
Therefore paragraph 12 of Appendix C of Ind AS 103 requires any difference between the consideration and the carrying amount of assets and liabilities transferred to capital reserve and presented separately from other capital reserves. The company is however recognising the difference in retained earnings which is not in accordance with Ind AS 103. Further, with regard to interest disposed off, any gain or loss is derecognition of assets and liabilities which must be recognised in profit or loss. Please see 49th edition of our newsletter for detailed discussion on accounting for demerger of business. The company is recognising this difference too in retained earnings which is not in accordance with respective Ind AS.
From?Accounting Policy Repository?– Non-current Assets Held for Sale and Discontinued Operations -?Policy Id:?7484
As reported by Company (No views expressed – Views of readers are invited):
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying value and fair value less costs to sell.
Assets and disposal groups are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through continuing use. This condition is only met when the sale is highly probable and the asset, or disposal group, is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. The Company must also be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Where a disposal group represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, then it is treated as a discontinued operation. The post-tax profit or loss of the discontinued operation together with the gain or loss recognised on its disposal are disclosed as a single amount in the statement of profit and loss, with all prior periods being presented on this basis.
From?Key Audit Matters Repository?- Key Audit Id: 2261 – Impairment Allowance on Loan Assets - As reported (No views expressed – Views of readers are invited):
Key Audit Matter:
(Refer Note No. 52.1.3 to the consolidated Ind AS Financial Statements read with accounting policy No.3.13)
The Company follows a Board approved methodology wherein assessment for allowance is carried out by an external agency for impairment based on certain criterion/framework classifying the assets into various stages depending upon credit risk and level of evidence of impairment.
Impairment allowance is measured as product of the Probability of Default, Exposure at Default and Loss Given Default being the key parameters for assessing the impairment allowance.
The key indicators underlying for assessment of impairment allowance are appraised on an ongoing basis by the management.
Further the management has adopted a methodology which in addition to the model adopted as above is further analyzed on case-to-case basis and wherever impairment impact need to be changed the same is considered in the financial statements.
Since the company is an non-banking finance company involved in business of financing and if any of the key parameter / criteria / assumptions mentioned as above is applied improperly, it can result in impacting the carrying value of loan assets materially either individually or collectively. In view of the significance of the amount of loan assets in the consolidated Ind AS Financial Statements i.e. 91.12% of total assets, the impairment of loan assets thereon has been considered as Key Audit Matter in our audit.
How was the matter addressed by auditor:
We have applied following audit procedures in this regard
According to the provisions of Ind AS 109 “Financial Instruments”, we have obtained the report of the third party and verified the criterion/framework with various regulatory updates alongwith Company’s internal guidelines and procedures in respect of the impairment allowance.
Verification of loan assets with respect to monitoring thereof for recovery / performance aspects and assessment of the loan impairment.
Recoveries are verified applying the standard audit procedures. Loan balances are confirmed and quality of the borrower is evaluated and tested with key control parameters.
Assessment of performance of the loan assets is carried out on the basis of available documents comprising loan papers, financial data, valuation reports, progress report, periodical financial information, information on public domain, procedure applied by the management e.g. inspection of loans, physical verification, assessing borrower past records etc. Recoveries in the loan assets are verified to ascertain level of stress thereon and impact as impairment allowance on financial statement.
We have discussed with the management wherever underlying weakness is observed and management assessment is carried out in detail in such cases.
Components and calculations in the study for impairment allowance carried out by third party are relied upon by us and test checks are carried out for the same. Such components are credit rating of borrowers, calculation of probability of default/loan given defaults etc. Our audit procedure in the same are limited in view of not sharing certain parameters of study being considered confidential by such third party.
Further, the Management, pursuing a board approved methodology reviews the impairment allowance in the report of the third party and modified the impairment on case-to-case basis. We have obtained a detailed analysis from the management for such modification. Our audit procedure in this regard is constrained by the management appraisal and we have relied upon the same.
Verification of the amount maintained as Impairment reserve in terms of Income Recognition, Assets classification and provisioning norms (IRACP) of Reserve Bank of India in pursuance of RBI Notification No. DOR (NBFC).CC.PD. No.109/22.10.106/2019-20 dated 13th March 2020.
From?Term Repository?– Individual:
Features of?TASK:
·??????Play the learning game on Ind AS and Indian GAAP. Take TASK to attempt 25 questions daily and experience the improvement in skills on application of Ind AS and Indian GAAP
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TASK?Statistics at the time of writing this section of newsletter
Top 5 TASK?Rankers at the time of writing this section of Newsletter:
1.???Vishant Shah
2.???CA Pintoo Sethia
3.???Sagar Shah
4.???Hemant Kumar
5.???Pankaj Arora
Start TASK now and be part of the Top 5 Rankers list in the next edition of the newsletter.
Daily winners:
Daily two registrants are awarded free access to all repositories on random basis. You can see the daily winners for last seven days on?home page of GAAP Advisors. This week following were awarded free access to all repositories:
Collaborative Model Creating Value for All:
GAAP Advisors?is based on collaborative model. Your subscription benefits all registrants including resource persons and approvers who devote their time and share their knowledge for development of repositories. Below is given the view of collaborative model:
You get credit points for submitting issues, accessing the contents of repositories, participating in?TASK?and on subscription. These credit points result in amounts in discount wallet and cash wallet on 1st of every month based on the subscriptions received and shared in immediately preceding month. For example, amounts in discount and cash wallet will be loaded on 1st March based on subscriptions received and shared in the month of February. Till date?GAAP Advisors?has distributed??8,98,567?in discount wallet and cash wallet of all registrants including resource persons and approvers who devote their time and share their knowledge to enable excellence in financial reporting. GAAP Advisors gives registrants more as they learn more on Ind AS and Indian GAAP accessing its repositories. GAAP Advisors?acknowledges contribution of subscribers by awarding them certificate which displayed on?home page of GAAP Advisors. Given below are the name of top 5 users with highest credit points. GAAP Advisors appreciates their interest in learning financial reporting in India and their faith on the repository services of GAAP Advisors:
Contribution to the Collaborative Model Creating Value for All Registrants were received in the month of January 2023 from the following registrants. GAAP Advisors thanks them for the same:
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Note of Thanks
GAAP Advisors?thanks all 9100+ subscribers on LinkedIn and other readers of newsletter for taking their time out in knowing how?GAAP Advisors?enables?Excellence in Financial Reporting in India.?GAAP Advisors?thanks all subscribers of repositories for contributing to support the mission of spreading the knowledge and awareness of financial reporting standards in?Collaborative Manner Creating Value For All.?GAAP Advisors?thanks all participants of?TASK?for spending time in learning financial reporting in India.?GAAP Advisors?also thanks all?2500+?registrants?for their faith on the repository services rendered by?GAAP Advisors.
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Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
6 个月@Shubham Jain and Mandeep Rawal Thank you so much for spreading the word
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
1 年Sanjeev Prasad Thank you so much for spreading the word on #GAAPAdvisors #TASK