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Voices on
Reporting
29 April 2014
kpmg.com/in
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 1
Welcome
Series of knowledge sharing calls
Covering current and emerging reporting issues
Scheduled towards the back end of each month
Look out for our Accounting and Auditing Update and First Notes
publications.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 2
Topics for today
Companies Act – Implementation questions 1
SEBI corporate governance norms 2
New IFRS standard expected – Revenue from
contracts with customers 3
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 3
Related party transactions: Points to consider
What will be the impact on existing contracts? Map all related parties
FAQs How to comply with the
new requirements
How are companies approaching the pre-approval
process?
Inventories all existing RPTs and estimate
RPTs in the foreseeable future
What constitutes ‘ordinary course of business’? Chart out what constitutes ‘ordinary course of
business’
Can arm’s length price be linked to transfer pricing
norms?
Develop policies on how to determine arm’s length
pricing
How would the approval process work in case of
transactions with fellow subsidiaries or joint venture
companies?
Obtain enabling resolutions for RPTs for transactions in
foreseeable future
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 4
Board and governance matters:
Points to consider
FAQs How to comply with the
new requirements
What should companies do with respect to new
requirements on independent director (ID)?
Assess the independence of existing IDs, roll out
appointment letters for IDs
What are compliances for appropriate constitution of
the various committees such as:
Audit committee
Nomination and remuneration committee
CSR committee?
Set out a revised charter for the board and various
committees and code of conduct for the IDs
What should companies do with respect to Board
evaluation?
Set up a framework for performance evaluation and
benchmark it with the comparable leading practices
How should companies gear up for internal financial
controls?
Document operating procedures, risk assessment,
document entity level and IT controls, test controls
and report
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 5
Financial Reporting : Points to consider
What is the impact of new definition of subsidiary
and associates?
Assess relationships after considering convertible
preference shares
Put in place processes to comply with the Act for
subsidiaries and associates based on the new
definition.
How would depreciation changes impact
profitability?
Assess useful lives of deprecation based on usage
pattern
Consider aligning with group rates of depreciation
How to ensure compliance with inter corporate
loans to companies other than wholly owned
subsidiaries ?
Ensure the group company is not accustomed to
act in accordance with the lending company
Consider whether lending is in the ordinary course
of business
FAQs How to comply with the
new requirements
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 6
Topics for today
Companies Act – Implementation questions 1
SEBI corporate governance norms 2
New IFRS standard expected – Revenue from
contracts with customers 3
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 7
SEBI corporate governance norm
17 April 2014 13 February 2014 4 January 2013
*except for clause on ‘risk management committee’ which is applicable to top100 listed companies by
market capitalisation as at the end of the immediately preceding financial year
SEBI published a
‘Consultative Paper on
Review of Corporate
Governance Norms in
India’
SEBI approved norms
on ‘corporate
governance’
Published revised
norms effective from 1
October 2014 to all
listed companies*
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 8
Revised clause 49 – an overview
To align with the Companies Act, 2013 (revised
clause 49 stringent in certain areas)
To adopt leading industry practices
To make corporate governance more effective
To provide greater transparency.
Broad principles laid down relate to:
• Rights of shareholders
• Role of stakeholders
• Disclosure and transparency
• Responsibilities of the board
In case of ambiguity, provisions of the revised
norms should be interpreted in accordance with
the principles laid down in the revised guidelines.
Objective Framework
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 9
Revised norms
Aligned with the 2013 Act
• Definition of ID excludes nominee director
• Stock options to IDs prohibited
• Separate meeting of IDs and BOD
• Performance evaluation of IDs
• Code of conduct for BOD and senior management.
Independent directors (IDs)
Aligned, but with differences from the 2013
Act
• Not to be material supplier, service provider,
customer, lessor or lessee
• Transition period
• Number of directorships
• Chairman of the audit committee to be an ID.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 10
Revised norms
Aligned, but with differences from the 2013 Act
• Scope of the definition of RPT widened and includes
person with joint control or significant influence on the
company and fellow joint ventures and associates
• Shareholders to approve all material RPTs (special
resolution)
• Enhanced disclosure of remuneration
• Applicable to prospective transactions. All existing
material related party contracts or arrangements that
would continue beyond 31 March 2015 should be
approved by shareholders at the first general meeting
after 1 October 2014.
Related party transactions (RPTs)
Aligned with the 2013 Act
• Prior approval of audit committee for all RPTs
• Related party to abstain from voting.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 11
Revised norms
Aligned with the 2013 Act
• Whistle blower mechanism
• Nominations and remuneration committee
• At least one woman director
• Expanded role of the audit committee
• Constitution of stakeholders relationship committee.
New proposals
• Disclosure of the letter of appointment of independent
directors and the letter of resignation of IDs on the
company’s website and stock exchanges
• Risk management norms - BOD would be responsible
for framing, implementing and monitoring the norms
• Training to be imparted to IDs
• Companies to formulate a policy for determining
‘material’ subsidiaries, and disclose to stock exchanges
and in the annual report
• Exercise significant oversight over the material
subsidiaries.
Others
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 12
Topics for today
Companies Act – Implementation questions 1
SEBI corporate governance norms 2
New IFRS standard expected – Revenue
from contracts with customers 3
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 13
Revenue from Contracts with Customers
Develop a single framework to deal with all types
of revenue contracts and business sectors
Improve comparability
Improve disclosure requirements
Converge IFRS and U.S. GAAP.
IAS 11 Construction contracts
IAS 18 Revenue
IFRIC 13 Customer Loyalty Programmes
IFRIC 15 Agreements for the Construction of Real
Estate
IFRIC 18 Transfers of Assets from Customers
SIC-31 Revenue – Barter Transactions Involving
Advertising Services.
Joint project between
the FASB and the IASB
The new standard will
replace the following
IFRS literature:
Objectives
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 14
Five-step model
Step 1:
Identify the contract Contract
Step 2:
Identify POs in the contract PO 1
Step 3:
Determine the TP TP for the contract
Step 4:
Allocate the TP to POs
TP allocated to PO
1
Step 5:
Revenue as POs satisfied
Revenue on
PO 1
PO 2
TP allocated to PO
2
Revenue on
PO 2
PO: Performance obligation TP: Transaction price
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 15
Five notable differences from current
requirements
Guidance contained in multiple standards and
interpretations All guidance contained in a single standard
Current guidance New standard
Risk and rewards based model Control based model. Risk and rewards is retained as
indicator of control transfer.
Consideration measured at fair value Consideration measured as the amount the entity
expects to be entitled to.
Limited guidance on identifying performance
obligations in a contract
Specific guidance on identifying performance
obligations in a contract.
Limited guidance for recognising revenue over time. Specific guidance provided for recognising revenue
over time.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 16
Who is likely to be impacted
Real estate and construction
Aerospace and defence
Contract manufacturers
Asset managers
Software
Licensors – pharma, film and entertainment, franchisors
Telecommunication.
Following sectors are expected to be impacted:
...but everyone needs to evaluate the impact, because
it is a new model with new disclosure requirements.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 17
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 18
Topics discussed in AAU and First Notes
Accounting
and Auditing
update
Real estate and construction
Aerospace and defence
Contract manufacturers
Asset managers
Software
Licensors – pharma, film and entertainment, franchisors
Telecommunication.
First notes
The SEBI Board has on 17 April 2014, amended the corporate
governance norms for listed companies in India to be effective
from 1 October 2014. Although, most of these amendments are in
line with the requirements of the Companies Act, 2013, some of
the changes are more stringent under the amended norms. Our
First Notes gives an overview of this amendment.
© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. 19
Others
COMING UP NEXT?
May 2014
• New Issue of Accounting and Auditing
Updates
• First Notes
• Voices on Reporting
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Accounting and
Auditing Update?
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First Notes?
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© 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International Cooperative (“KPMG International”)
The views and opinions expressed herein are those of the presenters to the topics covered in today’s ‘Voices on Reporting’ knowledge sharing call and do not necessarily represent the views
and opinions of KPMG in India. The information contained in the slide pack is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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