GAAP Advisors - Enabling Excellence in Financial Reporting in India | 80th Edition
CA Manish C. Iyer
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
Welcome to 80th Edition of?GAAP Advisors?TASK?Weekly newsletter
It gives me immense pleasure welcoming you to the 80th 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 Solo.?Readers who do not use android mobile can login / register on?https://gaapadvisors.com?and Start?TASK Solo.?
I thank all 11600+ subscribers on LinkedIn and request them to kindly provide feedback on what section of the newsletter you find informative and what changes you would like to have in the newsletter by adding your comments to the post publishing this newsletter.?
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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
+ 13th TASK Room
+ Free Webinar on Ind AS
+ From?Issue Repository?– Financial Guarantees
+ Standards Applied for Responding to Issues This Week
+ From?Review Repository?– EVA Statement
+ From?Accounting Policy Repository
+ From?Key Audit Matters Repository
+ Features of?TASK Solo
+?Top 5 TASK Solo?Rankers at the time of writing this section of newsletter
+ Note of Thanks
Why Register on?GAAP Advisors:
Registration is free. On registration, you get 48 hours 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.?17000+?Question Bank. Share your certificate and get recognised for your skills on?Ind AS?and?Indian GAAP
2.?Issue Repository?-?4400+?issues and responses on?Indian GAAP?and?Ind AS. Submit issues on?Indian GAAP?and?Ind AS?for?Free
3.?Accounting Policy Repository?-?7400+?Accounting Policies
4.?Key Audit Matters Repository?-?2200+?Key Audit Matters
5.?MCQ Repository?-?1200+?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.
13th TASK Room
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Free Webinar on Ind AS
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A candidate who has not subscribed online to all repositories on or after 1 April 2023 shall be considered as new candidate. Discount wallet balance and credit points not available if bulk discount is claimed. Referral bonus not available. All such new candidates enrolling in bulk will be provided 1-year free subscription access to all repositories on https://gaapadvisors.com. To avail bulk discount, payment can be made either by UPI or through bank transfer. Do not subscribe online for bulk discount. Organisations interested in availing bulk discount may mail their interest to [email protected].
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At the end, a TASK Room for each batch will be conducted with 50 questions and 2 minutes per question. Candidate securing Rank 1 will be awarded minimum ?20000. ?If more than 5 candidates are enrolled in a batch, the cash award will increase by ?1000 per candidate. If more than one candidate secure Rank 1, cash award to be shared equally among them. TDS u/s 194BA applicable.
For further information, please mail to [email protected]
From?Issue Repository?– Financial Guarantees -?Issue Id: 2524?- Framework: Indian Accounting Standards:
Facts of the Case as submitted by the querist:
A Ltd. (Holding Company) Give guarantee to the bank for providing loan to B Ltd. (Subsidary of A Ltd).
Issue/Query
1) Whether this financial guarantee is cover under IND AS 109 because we have not transferred any asset?
2) How we determine the fair value of the guarantee?
3) Also want to know that how to account for/present the same in?the balance sheet?
GAAP Advisors Response:
Appendix A of Ind AS 109?Financial Instruments?defines financial guarantee contract as under:
“A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.”
In the given case, A Ltd. (Holding Company) has given guarantee to the bank for providing a loan to B Ltd. (Subsidiary of A Ltd.). In absence of details on the amount, it is assumed that the guarantee is limited to reimburse the bank for the loss it may incur from B Ltd.’s default. Therefore, the guarantee given by A Ltd. is a financial guarantee contract as per the definition stated above. Accordingly, the guarantee will have to be recognised at fair value of the guarantee.
Ind AS 113?Fair Value Measurement?defines fair value as under:
“The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
Therefore, the fair value of the guarantee would be the price that the entity would be required to pay if the guarantee is transferred to an unrelated third party. For this purpose, the entity may use income approach or market approach.
The financial guarantee contract is initially measured at fair value and subsequently at the higher of:
Standards Applied for Responding to Issues This Week
领英推荐
From?Review Repository?– EVA Statement
Components Impacted: Notes
The company has disclosed the following as part of financial statements:
Paragraph 14 of Ind AS 1, Presentation of Financial Statements, states as under:
"Many entities also present, outside the financial statements, reports and statements such as environmental reports and value added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group. Reports and statements presented outside financial statements are outside the scope of Ind ASs."
Paragraph 49 of Ind AS 1 states as under:
"An entity shall clearly identify the financial statements and distinguish them from other information in the same published document."
Paragraph 50 of Ind AS 1 states as under:
"Ind ASs apply only to financial statements, and not necessarily to other information presented in an annual report, a regulatory filing, or another document. Therefore, it is important that users can distinguish information that is prepared using Ind ASs from other information that may be useful to users but is not the subject of those requirements."
Reading paragraphs 14, 49 and 50 of Ind AS 1, the presentation of economic value added statement as part of financial statements is not in accordance with Ind AS 1.
From?Accounting Policy Repository?– Contingent Liabilities -?Policy Id:?7597
As reported by Company:
In the normal course of business, contingent liabilities arise from litigations and claims. It is a possible obligation that arises from the past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognised because it cannot be measured reliably. The Company does not recognise a contingent liability but discloses the same.
Analysis:
1.????Whether the accounting policy relates to material transactions, events or conditions – Yes. Omission or misstatement in contingent liabilities could influence the economic decisions of users.
2.????Whether the company changed its accounting policy during the period – No.
3.????Whether the company chose the accounting policy from one or more options permitted by Ind AS – No.
4.????Whether the company developed the policy in accordance with Ind AS 8 – No.
5.????Whether the accounting policy relates to an area for which the company is required to make significant judgements or assumptions in applying an accounting policy – No. The company has not disclosed that the application of the accounting policy required significant judgements or assumptions.
6.????Whether the accounting policy requires more than one standard to be applied – No. The company has largely reproduced the requirements of Ind AS 37.
As only 1 condition is met, the company shall not disclose the policy on contingent liabilities for annual reporting periods beginning on or after 1 April 2023.
From?Key Audit Matters Repository?- Key Audit Id: 2288 – Revenue recognition and accrual of regulatory deferrals – Views of readers are invited):
Key Audit Matter:
(as described in Note 19, Note 31, Note 40(a), (b), (c) and (e) of the standalone Ind AS financial statements)
In the regulated generation, transmission and distribution business of the Company, tariff is determined by the regulator on cost plus return on equity basis wherein the cost is subject to prudential norms. The Company invoices its customers on the basis of pre-approved tariff which is based on budget and is subject to true up.
The Company recognizes revenue as the amount invoiced to customers based on pre-approved tariff rates agreed with regulator. As the Company is entitled to a fixed return on equity, the difference between the revenue recognized and entitlement as per the regulation is recognized as regulatory assets / liabilities. The Company has recognized Rs.1,578.01 crore for generation and transmission business and Rs.1,913.22 crore for distribution business as accruals as at March 31, 2023.
Accruals are determined based on tariff regulations and past tariff orders and are subject to verification and approval by the regulators. Further the costs incurred are subject to prudential checks and prescribed norms. Significant judgements are made in determining the accruals including interpretation of tariff regulations.
As at March 31, 2023, the total outstanding amount under litigation in relation to the Mumbai Regulatory business is Rs.1,566.88 crore.
Mundra power plant:
The Company sells power to customers in accordance with the long-term Power Purchase Agreement (PPA) entered into with them.
As per the PPA, the Companies entitlement to capacity revenue is dependent on availability declared. Accordingly, the Company accrues capacity revenue based on the actual declared capacity.
During the current year, the Company has supplied power to customers under various arrangements and certain matters under such arrangements are under litigation. As at March 31, 2023, the total outstanding amount under litigation in relation to the Mundra Plant is Rs.1,445.79 crore.
However, based on management assessment, legal opinion obtained for some disputed matters and favourable orders by the Regulatory Authorities in respect of disputed matters, management believes that no significant reversal of revenue is expected.
Revenue recognition and accrual of regulatory deferrals is a key audit matter considering the significance of the amount, interpretation of clauses in PPA and tariff regulations and significant judgements involved in the determination of revenue and regulatory accruals.
How was the matter addressed by auditor:
Our procedures included the following:
? Read the Company's accounting policies with respect to revenue recognition and accrual of regulatory deferrals and assessing its compliance with Ind AS 114 “Regulatory Deferral Accounts” and Ind AS 115 “Revenue from Contract with Customers”;
? Performing test of controls over revenue recognition and accrual of regulatory deferrals through inspection of evidence of performance of these controls;
? Performing substantive audit procedures including:
o Read the executed PPAs with the customer, tariff regulations and tariff orders and evaluating relevant clauses to understand management's assessment of the Company's right vis-a-vis the customers;
o Evaluating the key assumptions used by the Company by comparing it with prior years, past precedents and the legal opinion obtained by the management;
o Considering the independence, objectivity and competence of management’s expert;
o Assessing management’s evaluation of the likely outcome of the key disputes based on past precedents and / or advice of management’s expert;
o Assessing the impact recognized by the Company in respect of tariff orders received, revenue adjustment on account of actual declared capacity and revenue recognized based on ongoing discussion in relation to proposed amendments in PPA;
o Reading the legal opinion obtained by the management for assessing the Company’s right with respect to power supply to customer for the period wherein terms of PPA are under discussion;
o Assessing the disclosures in accordance with the requirements of Ind AS 114 “Regulatory Deferral Accounts” and Ind AS 115 “Revenue from Contract with Customers”.
Features of?TASK Solo:
Top 5 TASK Solo?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 Solo now and be part of the Top 5 Rankers list in the next edition of the newsletter.
Note of Thanks
GAAP Advisors?thanks all 11600+ 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. I request all subscribers to kindly provide feedback as to what made you subscribe this newsletter, what sections of the newsletter you read the most and what changes you would like to have in the newsletter by adding your comments to the post publishing this newsletter.?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?2600+?registrants?for their faith on the repository services rendered by?GAAP Advisors.
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
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Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
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