CAclubindia News _ Cognizance to Ind-As in India by Introducing New CA 2013

Cognizance to Ind-AS in India by introducing newCA 2013

Introduction:

India has principally agreed to the implementation of Ind -AS by revamping Schedule VI ofCompanies Act 1956 being the first constructive step in the journey. Many of the new insertions andamendments in Companies Act 2013 augur well for going ahead with the implementation in Ind-AS. Thisarticle aims to bring out the amendments in Companies Act which are effective arm of Ind-AS in the comingdays.

Ind-AS

On 25th Feb 2011, MCA with its Press Release on new Accounting Standards (titled Ind-AS) made it clearwith the agenda of globalization in accounting in India. This process was kick started with introduction of 35new AS, however it could not be implemented from 1st Apr 2011 due to various reasons as per issuedaforesaid roadmap.

A revised roadmap for implementation of Ind-AS was issued at the meeting held on 20-22 Mar 2014 by theCouncil of ICAI. The first set of AS i.e., converged Ind AS shall be applicable for preparation of specifiedclass of companies for preparing their Consolidated Financial Statement for the accounting period beginningfrom Apr 1 2016 with comparatives for the year ending 31st Mar 2016.

Companies Act 2013: A Paradigm Shift

The long awaited Companies Bill 2012 got its assent in the Lok Sabha on 18th Dec 2012 and in the RajyaSabha on 8th August. After obtaining the assent of the President of India on 29th Aug 2013, it has nowbecome the much awaited Companies Act 2013. With 98 sections of the Act came in to force w.e.f. 12th Sept2013 and Further 190 sections of the Act have been notified and become effective from 1st April 2014 andare applicable to companies.

Following table provides a summary of comparison between Companies Act, 2013, Companies Act,1956 and Ind-AS:

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S. No. Point ofComparison Companies Act 2013 Companies Act 1956 Ind-AS

1.

Writing off ofPremium/Discount onRedemption ofPreferenceShare,Debentures andFCCB

Profit & Loss A/C is tobe used to w/offredemption premiumrelating to debenture,preference shares andFCCB by companieswhich are prescribedseparately and whosefinancial statementscomply with theaccounting standardsprescribed for such classof companies.

Securities Premium isto be used to w/offredemption premiumrelating to debenture,preference share andFCCB by anycompany.

As per Ind-AS 39 on‘Financial Instrument;Recognition &Measurement’, in caseof convertibleinstruments, liabilityand equity elementsare accountedseparately i.e., splitaccounting andpremium or discount iswritten off throughProfit & Loss Account.

2. ESOPDefinition

Companies Act 2013 inaddition to personmentioned in Old Actincludes option given todirectors, officers oremployees of holdingcompany or subsidiarycompany(s) which givessuch directors, officers oremployees, the benefit orright to purchase, or tosubscribe for, the sharesof the company at afuture date at a pre-determined price.

Companies Act 1956include option,benefit or right givento purchase orsubscribe at a futuredate, the securitiesoffered by thecompany at apredetermined priceto employees,directors, officers andwhole time directorsof a company onlyand not to employees,directors or offices ofholding or subsidiarycompany.

Ind-AS 102 ‘ShareBased Payment’already coversaccounting for suchtransactions in Para43A to 43D anddefinition of ‘Sharebased paymentagreement’ given inStandard includes suchagreement betweenentity and otherparty(including anemployee) that entitlesthe other party toreceive equityinstruments or cash orother asset.

3.

Statement

of Change in

Equity

Companies Act2013 defined

‘financial statements’ forthe first time as follows:

Financial Statement inrelation to companyshall, includes:

Preparation ofStatement of Changein Equity anddefinition of financialstatement is notcovered in the oldAct.

As defined in Ind-AS 1 on

‘Presentation ofFinancial Statements’,‘financialstatements’ comprises

‘Statement of Change in


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Balance Sheet1. P&L or Income &ExpenditureAccountwhicheverapplicable

2.

Cash FlowStatement

3.

Statement of

4.

Changes in Equity5. Explanatory notes.6.

However the Act doesn’tlays down any format forpreparation of Statementof Change in Equity.

Equity.

Further Ind-AS 1mandates to present“Statement of changein equity’ as a part ofBalance Sheet. It alsoprovides informationto be presented indetail in thisStatement.

4. Preparation ofCFS

A company with one ormore Subsidiary has toprepare CFS in additionto Stand Alone FinancialStatement. As per Sec

129(3), ‘Where acompany has one ormore subsidiaries, itshall, in addition tofinancial statements provided, prepare a CFSof the company’.

Companies Act 1956or AS doesn’tmandates preparationof CFS. CurrentlyClause 42 of listingagreement of SEBImandates preparationof CFS forCompanies whoseshares are listed on aStock Exchange.

Ind-AS 27 on ‘C &SFS’ compulsoryrequires preparation ofCFS and read asfollows:

A parent shall presentCFS in which itconsolidates itsinvestments insubsidiaries inaccordance with thisStandard. Where aparent is a company,the CFS shall be in theform set out in.

5. Associate

‘Associate company’ isdefined as in relation toanother company, meansa company in which thatother company has asignificant influence, butwhich is not a subsidiary

Existing Act doesn’t defines ‘Associatecompany’. AS 23defined Associate asan enterprise in whichthe investor hassignificant influence

Ind-AS 23 on‘Investment inAssociate’ definesassociate as an entity,including anunincorporated entitysuch as a partnership,


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company of the companyhaving such influenceand includes a jointventure company.

For the purposes of thisdefinition, ‘significantinfluence’ means controlof at least 20% of totalshare capital, or ofbusiness decisions underan agreement.

and which is neither asubsidiary nor a jointventure of theinvestor.

‘Significantinfluence’ is ‘thepower to participatein the financial/operating policydecisions of theinvestee but notcontrol over thosepolicies’

There is a rebuttablepresumption thatholding of 20% ormore of voting powerof investee constitutessignificant influence.However, in certaincircumstances, acompany maydemonstrate that 20%share ownership doesnot constitutesignificant influence.

over which the investorhas significantinfluence and that isneither a subsidiary noran interest in a jointventure.

Significant influencemeans the same asexplained in existingAS 23.

6.Useful life andResidual valueof asset

As per new CompaniesAct 2013 useful life of anasset and residual valuewill not be higher thanthose specified in thePart C of Schedule IIexcept for the prescribedcompanies whosefinancial statementscomply with ASprescribed for such class

Companies Act 1956gave the rates ofdepreciation and thosewere the minimumrates for chargingdepreciation.

Ind-AS 16 on‘Property, plant &Equipment’ andcurrent AS 6 on‘Depreciation’ alsocontemplate thatUseful life and residualvalue of asset is anestimationof Management.


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of companies.

7. Componentaccounting

Schedule III ofCompanies Act 2013 hasmade it mandatory forthe companies to identifyand depreciatesignificant componentwith different usefullives separately.

Companies Act1956 doesn’tcontemplateanywhere in regard ofprovidingdepreciation oncomponent basis.

Ind-AS 16 on‘Property, plant andEquipment’ as well asAS 10 on ‘Fixed Asset’ ensures‘componentaccounting’. HoweverInd-AS mandatescomponent accountinglike Companies Act2013 while AS 10makes it discretionaryfor the company.

8. Definition ofControl

Definition of Control isimportant forestablishing HoldingSubsidiary definition.Companies Act 2013gives the followingdefinition :

‘Control’ shall includethe right to appointmajority of the Directorsor to control themanagement or policydecisions exercisable bya person or personsacting individually or inconcert, directly orindirectly.

Existing Act doesn’tdefine ‘control’though it explains themeaning of Holding& Subsidiary.

The definition given byCompanies Act 2013 ismuch wider than givenin AS 21 and also inconsonance withInd-AS 27 on ‘C &SFS’. Ind-AS defines‘control’ as the powerto govern the financialand operating policiesof an entity so as toobtain benefits from itsactivities.

9. Voluntary

The Companies Act 2013contains provisions for:

Voluntary changein AccountingPolicy, errors &reclassification.

1.

Currently there isn’t aconcept of “VoluntaryRevision ofAccounts”. MCACircular allowed toreopen & revise itsaccounts:

Ind-AS 8 on ‘Accounting Policies, changes inAccounting Estimates & Errors’ already dealswith Voluntary changein accounting policies, errors andreclassification.


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Reopening ofaccounts oncourt/tribunalorders.

1.

To comply withtechnicalrequirement ofany other law.

1.

To exhibit true& fair view.

1.

In case of change inaccounting policy, theentity shall adjust theopening balance ofeach affectedcomponent of equityfor earliest prior periodpresented and the othercomparative amountsdisclosed for each priorperiod presented as ifthe new accountingpolicy had always beenapplied.

However Ind AS givesexemption fromretrospectiveapplication wherever itis impractical toretrospectively applythe changes.

10.

Depreciationon basis ofUnits ofProduction

Companies Act 2013defines useful life of anasset as the number ofproduction or similarunits expected to beobtained from the assetby the entity.

This indicates that acompany may be able touse UOP method ofdepreciation.

Companies Act 1956prohibits depreciationon UOP method forthose assets which arecovered underSchedule XIV.

As per Ind-ASdepreciation issystematic allocationof depreciable amountof an asset over itsuseful life and usefullife is number ofproduction or similarunits expected to beobtained from the assetby entity.

11.Presentation ofMinorityInterest

Schedule III of the NewCompanies Act 2013provides the format forpreparation of ‘CFS’ andas per Schedule IIIMinority Interest is to beshown within equityseparately from the

Revised Schedule VIof Old Act was silentabout the preparationof ‘CFS’ and as suchno format was given.However minorityinterest was disclosedin ‘Non-Current

Format for additionaldisclosure given inSchedule III is same asformat given in Ind AS‘C & SFS’. Treatmentof Minority interest isalso similar toSchedule III by which


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equity of the owners ofthe Parent Shareholder’sequity.

Liabilities’.

minority interest isshown with in equityseparately from ParentShareholder’s equity.

Conclusion:

Preparation of Financial Statements as per the new Ind-AS will be a challenging task involving variouspractical issues. The major changes in the new Companies Act 13 are aiming at adoption of InternationalFinancial Reporting practices in India thereby globalizing the accounting system in India and it is definitely apath breaking initiative.

List of Abbreviations used in the article:

CFS Consolidated Financial Statement

C & SFS Consolidated & Separate Financial Statement

FCCB Foreign Currency Convertible Bond

ICAI Institute of Chartered Accountants of India

Ind-AS Indian Accounting Standards notified by MCA as Indian Equivalent ofIFRS

SEBI Securities Exchange Board of India

UOP Unit of Production

Source : -


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CAclubindia News _ Cognizance to Ind-As in India by Introducing New CA 2013