Voices On Reporting

Voices on Reporting
20 January 2015
kpmg.com/in
Voices on Reporting
Welcome
Series of knowledge sharing calls
Covering current and emerging reporting issues
Scheduled towards the end of each month
Look out for our Accounting and Auditing Update,

IFRS Notes and First Notes publications
2015 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.
Voices on Reporting
Your speakers
Sai Venkateshwaran
Partner and Head
Accounting Advisory
Services
KPMG in India
Nirav Patel
Director
KPMG in India
Voices on Reporting
Topics for today
Ind AS implementation roadmap

Revised drafts of Income Computation and
Disclosure Standards (ICDS)
Exposure draft (ED) on Guidance Note (GN)
on Accounting for Derivative Contracts
Ind AS implementation in India:

Story so far
Started in the year 2007, with an intention to converge from April 2011, in line
with Indias commitment at the World Trade Organisation (WTO)
In 2009, the Securities and Exchange Board of India (SEBI) permitted voluntary
adoption of IFRS by listed entities for consolidated financial statements4
Roadmap issued by the Ministry of Corporate Affairs (MCA) in early 20101
The MCA published 35 IFRS-equivalent standards referred to as converged

Indian Accounting Standards (Ind AS) in February 20111; EDs under Ind AS for
the IFRS standards issued post 2011 were issued in December 20142
Despite the efforts made, IFRS convergence in India was deferred mainly on
account of:
unaddressed ambiguities with respect to impact on taxation
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non-alignment with other regulations such as the Companies Act
impending issuance of additional critical standards under IFRS
inadequate time for readiness and implementation by the Indian corporate sector which was attributed to
the delayed issuance of Ind AS and lack of regulatory clarity.
On 2 January 2015, the MCA issued a press release announcing the revised roadmap for implementation of
Ind AS for entities other than banks, NBFCs and insurance companies.3
Since the deferral in 2011, major road blocks faced earlier are being addressed and India is once again
gearing up for a successful Ind AS implementation.
Ind AS implementation from 2015-16
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In April 2014, the ICAI submitted a revised roadmap for implementation of Ind AS in
India to the MCA8
In July 2014, the Finance Minister in his budget speech announced the implementation
of Ind AS mandatorily from Financial Year (FY) 2016-17, with a voluntary option
available from FY 2015-165
In September 2014, the Accounting Standards Board (ASB) of the Institute of Chartered
Accountants of India (ICAI) has started revisiting the carve-outs that were issued earlier
under Ind AS with an objective to align them with the requirements under IFRS6
Road blocks faced in 2011 has been addressed with the introduction of the Companies
Act, 2013 effective from 1 April 2014 and its alignment with IFRS principles
MCAs press release on 2 January 2015 provides the revised roadmap for Ind AS
implementation in a phased manner. The details have been discussed on the next
slide3
Tax issues are being addressed through a separate issuance of Income Computation
and Disclosure Standards (ICDS) on 8 January 20157.
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Revised roadmap
Implementation in a phased manner

Phase I - All listed companies and unlisted
companies with net worth in excess of INR500
crores + related entities - mandatorily from 1
April 2016 and voluntarily from 1 April 2015
While the
final
notification
is still
awaited, the
revised
roadmap is
not expected
to change
Phase II - All listed companies and unlisted

companies with net worth in excess of INR250
crores + related entities mandatorily from 1
April 2017
Banks, NBFCs and insurance companies to
implement at a later date
Convergence expected for both standalone and
consolidated financial statements
Final notification from the government expected soon.

Source: Press release dated 2 January 2015, Ministry of Corporate Affairs
Certain points to consider
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Comparatives required
Unlike the earlier roadmap, no exemption from presentation of comparatives as per Ind AS
Wider coverage of entities

Covers related entities viz. holding, subsidiary, associate and joint venture even though they may not
be covered by the thresholds
Two phased implementation with lower thresholds
Unified threshsolds have been prescribed based on the net worth and implementation is prescribed in
two phases as against three phases in the earlier roadmap
Clarifications needed
On reference date for calculation of net worth
On whether net worth calculation is to be based on standalone financial statements (SFS) or
consolidated financial statements (CFS)
Lack of clarity on whether Ind AS is to be applied only to CFS or SFS as well.
First time implementation:

When and how to start (1/2)
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Voluntary implementation
First Ind AS financial statements
Date of transition
Ind AS opening
balance sheet
1 April 2014
30 June
2014
31 March 2015
30
September
2014
31
December
2014
30 June
2015
31 March 2016
30
September
2015
31
December
2015
For interim reporting, Ind AS may first be

applicable from the quarter ending 30 June 2015
Comparative period
Reporting date
Source: KPMG in India analysis

First time implementation:

When and how to start (2/2)
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Mandatory implementation
First Ind AS financial statements
Date of transition
Ind AS opening
balance sheet
1 April 2015
31 March 2016
30
September
2015
30 June
2015
31
December
2015
30 June
2016
31 March 2017
30
September
2016
31
December
2016
For interim reporting, Ind AS may first be

applicable from the quarter ending 30 June
2016
Comparative period
Reporting date
Mandatory implementation for entities covered in Phase II will have comparatives for the period
ending on 31 March 2017 and annual reporting period ending on 31 March 2018.
Source: KPMG in India analysis
10
Impact beyond accounting and

reporting
Accounting, Tax and Reporting
Efforts for converting opening balance
sheet
Develop new accounting policies and
practices
Increased judgement & estimates
Impact on taxation, along with the new
ICDS
Impact on earnings & net worth

communicating with internal & external
stakeholders
Segment reporting and MIS
Internal management reporting
Impact on contractual terms
Debt covenants
Business
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Systems and Processes

Identify information and data gaps for
implementation
Revised chart of accounts
Changes to IT systems
Extensive disclosures quantitative and
qualitative
Multi GAAP, including ICDS considerations
Training & development

Impact on compensation plans
Managing the first-time implementation
People and Change
11
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Topics for today
Revised drafts of ICDS

ED on GN on Accounting for Derivative
Contracts
12
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Stages towards adoption of ICDS
The CBDT constituted AS Committee to suggest the

following:
AS to be notified under the Act
Finance Bill 2014 amended section 145(2)

of the IT Act. TAS applicable from FY 1
April 2015
TAS to be notified separately
Amendments to the Act

Method to determine book profit for MAT purposes on
transition to Ind AS.
1996
December 2010 October 2012
The Central Government notified

two accounting standards under
Final report of the Committee

and 14 TAS issued for public
section 145(2) of the Income Tax

Act, 1961 (the IT Act)
comments
July 2014
January 2015
CBDT issued draft of 12 ICDS, after

incorporating suggestions by
stakeholders and providing
transitional provisions for these ICDS
The draft ICDS are open for
comments and suggestions up to 8
February 2015
13
Approach for formulation of ICDS
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Committee deliberated on 31 AS issued by the ICAI and notified

ICDS equivalent to 12 AS
Certain standards were relevant for disclosure purposes only (e.g. AS 17, AS 20)
Act separately contained specific provisions on issues covered by AS (e.g. AS 14)
AS on consolidation were not relevant for tax purposes (AS 21, AS 23, AS 27)
AS on financial instruments are not yet notified; hence not considered (AS 30, AS 31, AS 32).
Committee shall issue ICDS on the following topics in the

future
Share-based payment
Revenue recognition by real estate developers
Service concession arrangements
Exploration for and evaluation of mineral resources.
14
Overview of key revisions made in the

revised draft ICDS (2015)
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Transitional provisions
Transitional provisions proposed in all draft ICDS except for the
revised draft on Securities (2015)
Alignment with generally accepted accounting principles
Revenue should be recognised when there is reasonable certainty

of ultimate collection
In the 2012 draft no

transitional provisions were
provided
The 2012 draft did not permit

non-recognition of revenue
due to uncertainty of
collection in certain cases
Revised drafts of ICDS (2015) allows practical expedient to use

approximate exchange rate between foreign currency and reporting
The 2012 draft did not permit

the use of average rates
currency to record foreign exchange transactions
Revised drafts of ICDS (2015) proposes that inventory of a service

provider to be measured at lower of cost or net realisable value as
per general inventory valuation principles.
The 2012 draft required

inventories of service
provider to be measured at
cost
15
Overview of key revisions made in the

revised draft ICDS (2015)
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Formula for borrowing cost revised

ICDS 2012 required capitalisation of the cost of general
borrowings utilised for acquiring a qualifying asset in the ratio that
average cost of qualifying assets bore to the average total assets.
For the purposes of calculating the average it used the amounts
appearing in the balance sheet on the first and the last day of the
previous year
The 2012 ICDS did not

envisage situations when the
qualifying assets (capital
work in progress) did not
appear in the balance sheet
either on the first day and/or
last day of the previous year
ICDS 2015 amends the formula to cover qualifying assets that did
not exist at the first and the last day of the previous year.
Recognition and initial measurement requirements modified
ICDS 2015 proposes that in case of exchange transactions to

acquire tangible fixed assets/intangible asset/security, the actual
cost of such asset would be reocgnised at the value of asset
The 2012 draft had various

rules for measurement of
such assets in exchange
transactions including value
of the asset given up
acquired.
16
Overview of the key revisions made in

the revised draft ICDS (2015)
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Other key revisions

Spares: ICDS 2015 proposes machinery spares to be charged to
revenue when consumed
When such spares can be used only in connection with an item of
tangible fixed asset and their use is expected to be irregular, then
they should be capitalised
Intangible assets: ICDS 2015 proposes to include exchange
The 2012 ICDS required

machinery spares to be
charged to revenue when
such spare is consumed for
the purpose of preserving or
maintaining an existing
tangible fixed asset
fluctuations as an adjustment to cost of an intangible asset

subsequent to its acquisition.
Draft ICDS (2012) not re-issued
Events occurring after the previous year
Prior period expense.
17
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Next steps
Standard Setters
Final Standards to be
notified
Notify the changes to the
Income Tax Act
Transitional provisions
Internal implantation
Stakeholders
Impact assessment
Developing an
implementation plan
Changes to the information
systems and processes
Trainings
guidelines and training
18
Topics for today
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Revised drafts of ICDS

Contracts
19

Contracts
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Background and objective of the GN

Currently there is lack of mandatory guidance on accounting for derivative contracts
The current guidance is primarily governed by AS 11, The Effects of Changes in Foreign
Exchange Rates, AS 1, Disclosure of Accounting Policies, AS 30, Financial Instruments:
Recognition and Measurement, AS 31, Financial Instruments: Presentation and any
prescribed requirements of a regulator
This GN is an interim measure to provide recommendatory guidance
on accounting for derivative contracts and hedging activities and:
aims to bring uniformity in the accounting and presentation of

derivative contracts in the financial statements by providing
guidance on their recognition, measurement, presentation and
disclosure
is expected to help companies which will not be covered by the

roadmap for convergence with Ind AS with one set of guidance
for accounting for derivatives
to the extent possible will allow continued application with

minimal changes for entities that follow AS 30 type guidance.
20

Contracts
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Scope
Does not cover foreign exchange forward contracts

covered by AS 11
Does not cover derivatives that are covered by

regulations specific to a sector or specified set of entities
Accounting for embedded derivatives not covered
The GN will, however, be applicable to banking, NBFCs

and insurance entities to the extent the guidance
prescribed in this GN is not in conflict with the
regulations prescribed by the concerned regulator
Addresses some aspects of hedging activities, however,

the GN does not purport to provide guidance on all
hedging activities.
This GN also provides guidance on accounting for

assets covered by AS 2, Valuation of Inventories, AS 10,
Accounting for Fixed Assets, AS 13, Accounting for
Investments, etc., which are designated as hedged
items.
21

Contracts
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Key accounting principles
Key definitions such as derivative, hedged item, hedging

instrument are largely comparable with those used internationally
All derivative contracts should be recognised on the balance sheet

and measured at fair value (FV)
Fair value should represent:

the exit price i.e. the price that would be paid to transfer a
liability of the price that would be received when transferring an
asset to a knowledgeable, willing counterparty and
the effect of credit risk associated with the fulfillment of future
obligations and the availability of the collateral should be
considered while arriving at the FV.
Hedge accounting continues to be optional
If hedge accounting is not chosen, then derivatives should be recognised at FV with changes
in FV to be recognised in profit or loss
Synthetic accounting is not permitted by the GN.
22

Contracts
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Hedge accounting
The GN recognises three types of hedge accounting i.e. fair

value hedge, cash flow hedge and hedge of a net
investment in a foreign operation
The concepts and application are consistent with the current

international guidance
Application of principles of hedge accounting requires strict

documentation requirements regarding identification of risk
management objectives, hedged item, effectiveness testing,
etc.
The GN clarifies that permissibility (e.g. by the RBI) of a

product is not adequate to qualify for hedge accounting
To judge hedge effectiveness the GN removes bright line

80:125 tests and allows for qualitative assessments
The GN allows basis adjustments for hedges relating to

recognition of non-financial items
No voluntary hedge de-designation is permissible.
23

Contracts
Voices on Reporting
Presentation in financial statements
The GN lays down principles for presentation of derivative assets and liabilities as current and
non-current e.g.
Derivatives that are intended for trading or speculative purposes should be reflected as
current assets and liabilities
Derivatives that are hedges of recognised assets or liabilities should be classified as

current or non-current based on the classification of the hedged item
Derivatives that are hedges of forecasted transactions and firm commitments should be
classified as current or non-current based on the settlement date/maturity dates of the
derivative contracts
The GN also includes detailed disclosure requirements.
Potential impact
Comment
period
ends 21
January
2015
The GN represents significant move forward in the reporting guidance for companies
Expected to bring much needed transparency in the area of derivative and hedge accounting
using such derivative instruments
Companies to gear up and undertake impact assessment.
24
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Q&A
25
Sources
1.
2.
3.
4.
5.
6.
7.
8.
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The Ministry of Corporate Affairs website

The ICAIs website - http://www.icai.org/post.html?post_id=9258 and http://www.icai.org/post.html?post_id=7680
Press release dated 2 January 2015, Ministry of Corporate Affairs
SEBI circular CIR/CFD/DIL/1/2010 http://www.sebi.gov.in/circulars/2010/cfddilcir01.pdf
The Budget Speech of the Finance Minister dated 10 July 2014
ICAI exposure drafts on Amendments to Indian Accounting Standards consideration of carve-outs/ins
Draft Income Computation and Disclosure Standards released by the Ministry of Finance on 8 January 2015
The ICAIs announcement dated 9 April 2014.
26
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Introducing IFRS Notes
Issue 2015/01
Issue 2014/02
Government announces roadmap for implementation of Ind AS

On 2 January 2015 the Ministry of Corporate Affairs issued a press
release announcing a revised roadmap for implementation of Indian
Accounting Standards (Ind AS), converged with International
Financial Reporting Standards (IFRS). This roadmap is applicable to
companies other than banking companies, insurance companies and
non-banking finance companies.
In this issue of IFRS Notes, we have provided an overview of the
revised roadmap of implementation of Ind AS along with our points of
view.
IFRS Convergence: ICAI issues exposure drafts on financial

instruments and revenue recognition
As part of the initiatives towards Indias convergence with IFRS from
2016-17, the Accounting Standards Board of the Institute of
Chartered Accountants of India has recently issued exposure drafts
on Ind AS 109, Financial Instruments (ED on financial instruments)
and Ind AS 115, Revenue from Contracts with Customers (ED on
revenue). In this issue of IFRS Notes, we have provided an overview
of these exposure drafts along with key impact areas.
27
Topics discussed in AAU and First

Notes
Accounting
and Auditing
update
First Notes
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The Companies Act, 2013

Increased reporting framework
Emphasis on investor protection
Impact on auditors
Corporate social responsibility: an analysis
Enhanced responsibility for directors
The impact on M&A/restructurings
A step closer to reporting on internal financial control: On path of
better governance
Regulatory updates
The Ministry of Corporate Affairs had earlier announced a roadmap for

transition to Indian Accounting Standards (Ind AS) from 1 April 2011. To
address lack of clarity of tax implications on adoption of Ind AS by the
companies, the Central Board of Direct Taxes (CBDT) constituted a
committee to harmonise the accounting standards issued by the Institute
of Chartered Accountants of India with the provisions of the Act. In August
2012, the committee, after deliberations issued 14 draft tax accounting
standards. These accounting standards are now termed as Income
Computation and Disclosure Standards (ICDS). Considering the draft
ICDS (2012) by the CBDT had significant differences with generally
accepted accounting principles, the Ministry of Finance reworked on the
standards and on 8 January 2015 issued revised drafts of 12 ICDS
(2015) for public comments. Our First Notes provides an overview of key
revisions made in the revised draft ICDS (2015).
28
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Others
Missed an issue of the

Accounting and
Auditing Update?
Missed an issue of the

First Notes?
Coming up next
January 2015
New Issue of Accounting and Auditing

Update
First Notes
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IFRS Notes
Download from www.kpmg.com/in
29
Thank you
www.kpmg.com/in
Sai Venkateshwaran
Partner and Head, Accounting Advisory
Services,
KPMG in India
E-mail: saiv@kpmg.com
Nirav Patel
Director
KPMG in India
E-mail: niravp@kpmg.com
Feedback/queries can be sent

to aaupdate@kpmg.com
The views and opinions expressed herein are those of the presenters to the topics covered in todays 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.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International)
2015 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.

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Series of knowledge sharing calls

Covering current and emerging reporting issues

Scheduled towards the end of each month

Look out for our Accounting and Auditing Update,

Topics for today

Ind AS implementation roadmap

Ind AS implementation in India:

Roadmap issued by the Ministry of Corporate Affairs (MCA) in early 20101

The MCA published 35 IFRS-equivalent standards referred to as converged

unaddressed ambiguities with respect to impact on taxation

non-alignment with other regulations such as the Companies Act

impending issuance of additional critical standards under IFRS

Ind AS implementation from 2015-16

Implementation in a phased manner

Phase II - All listed companies and unlisted

Final notification from the government expected soon.

Certain points to consider

Wider coverage of entities

First time implementation:

For interim reporting, Ind AS may first be

Source: KPMG in India analysis

First time implementation:

For interim reporting, Ind AS may first be

Impact beyond accounting and

Impact on earnings & net worth

Systems and Processes

Training & development

People and Change

Topics for today

Ind AS implementation roadmap

Revised drafts of ICDS

Stages towards adoption of ICDS

The CBDT constituted AS Committee to suggest the

Finance Bill 2014 amended section 145(2)

TAS to be notified separately

Amendments to the Act

December 2010 October 2012

The Central Government notified

Final report of the Committee

section 145(2) of the Income Tax

CBDT issued draft of 12 ICDS, after

Approach for formulation of ICDS

Committee deliberated on 31 AS issued by the ICAI and notified

Committee shall issue ICDS on the following topics in the

Revenue recognition by real estate developers

Service concession arrangements

Exploration for and evaluation of mineral resources.

Overview of key revisions made in the

Revenue should be recognised when there is reasonable certainty

In the 2012 draft no

The 2012 draft did not permit

Revised drafts of ICDS (2015) allows practical expedient to use

The 2012 draft did not permit

currency to record foreign exchange transactions

Revised drafts of ICDS (2015) proposes that inventory of a service

The 2012 draft required

Overview of key revisions made in the

Formula for borrowing cost revised

The 2012 ICDS did not

ICDS 2015 proposes that in case of exchange transactions to

The 2012 draft had various

Overview of the key revisions made in