Ifrs 4

ACCOUNTING
AND AUDITING
UPDATE
April 2015
In this issue
Schemes of Amalgamation: Compatibility with GAAP p1

Accounting for investments in associates and joint
ventures p3
ICDS- A new paradigm for computing
taxable income p5
ICAI provides much awaited guidance on fraud
reporting p10
Common errors in Statement of Cash Flows
under U.S. GAAP financials p14
Aggregation of related party transactions
while seeking approval of shareholders
under Clause 49 (VII) of the equity listing
agreement p16
Year-end reminders p18
Regulatory updates p32
To be updated soon...
Editorial
2015 KPMG, an Indian Registered 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.
Jamil Khatri
Sai Venkateshwaran
Head of Audit,
KPMG in India
Global Head of Accounting
Advisory Services
Partner and Head,

Accounting Advisory Services,
KPMG in India
The end of March tends to have a surprise

(or a sting in the tail!) for companies in India.
This year is no different, with the Government
of India issuing the long awaited Income
Computation and Disclosure Standards (ICDS).
The Ministry has issued 10 ICDS that are
applicable from 1 April 2015 and will affect
all companies, whether or not they apply Ind
AS. Companies would need to immediately
start working with the ICDS and evaluate their
impact on their taxable income. In this issue
of the Accounting and Auditing Update, we
provide an overview of these standards and key
areas where they differ from the accounting
standards.
implementation of Indian Accounting Standards

(Ind AS) in India with respect to investments in
associates and joint ventures.
In India, for mergers and acquisitions, many

companies tend to follow the amalgamation
route through a court scheme. These schemes
sometimes may require companies to follow
certain accounting treatments that are not in
line with the generally accepted accounting
principles. In this months issue, we explain
the disclosure requirements of the accounting
standards and the Equity Listing Agreement on
the formulation of an amalgamation scheme.
Continuing with our series on Ind AS, this
month we highlight the major changes that
are expected to be introduced with the
The Companies Act, 2013 introduced stringent

requirements on auditors on fraud reporting.
The Institute of Chartered Accountants of India
has recently issued some guidance in this
regard. We capture in this issue, an overview
of the guidance note on fraud reporting.
Clause 49 of the Equity Listing Agreement
has been amended by the Securities and
Exchange Board of India (SEBI) to require
all material related party transactions to be
approved through a special resolution of the
shareholders. In this issue, we discuss whether
all types of related party transactions should be
aggregated for the purpose of seeking approval
of shareholders.
Finally, we also highlight the key amendments
for the year ending 31 March 2015 introduced
under the Indian GAAP, IFRS and U.S. GAAP by
the respective regulatory bodies in addition to
our regular round up of regulatory updates.
As always, we would like to remind you that
in case you have any suggestions or inputs on
topics we cover, we would be delighted to hear
from you.
Schemes of Amalgamation:
Compatibility with GAAP
marketing expenses) to securities
premium account
This article aims to:

Explain the disclosure requirements of the AS 14 and the Equity Listing Agreement when a
company formulates a scheme of amalgamation.
Mergers and acquisitions

are commonly used forms of
restructuring and expansion
exercised by corporates.
Companies carry-out mergers and
acquisitions with various objectives;
including, drawing synergies,
enhancing capacities, in-organic
growth, tax benefits, consolidation
of operations, etc. The accounting
for mergers and acquisitions
pose special challenges based on
arrangements between parties,
form of purchase consideration
exchanged, valuation of assets and
liabilities taken over, recognition of
goodwill/capital reserve, etc. This
is an area where Indian Generally
Accepted Accounting Principles
(GAAP) are significantly different
from International GAAP, not only
due to different accounting literature
(primarily, AS 14, Accounting for
Amalgamations), but also due to

accounting treatments specified in
the schemes of amalgamation by
Indian companies.
In the Indian context, the proposed
schemes of amalgamations
are required to be approved by
courts under the provisions of the
Companies Act, 1956. These schemes
contain accounting treatment to be
followed by the transferee as well
as transferor companies. In practice,
certain companies have specified
accounting treatments in their
schemes of amalgamations that are
is not consistent with the relevant
accounting standards and Indian
GAAP e.g.:

Transfer of revaluation reserve of

the transferor company into general
reserve of the transferee company
Adjustment of post merger period

expenses (such as brand building,
In an amalgamation in the nature of

merger where pooling of interests
method of accounting is required to
be followed, transfer of difference
between net assets assumed and
consideration to goodwill instead of
reserves
In an amalgamation in the nature of

purchase, assets and liabilities are
restated/fair valued but difference
is taken to general reserve
Adjustment of goodwill against

securities premium account
Expenses incurred on merger

debited directly to general reserve.
There may be several other examples.

It may be noted that once approved
by the court(s), the accounting
treatment specified in the scheme
becomes binding on the companies
even if it is inconsistent with the
relevant accounting standards. This
creates a peculiar situation in India
whereby the companies can follow
an accounting treatment through a
scheme of amalgamation which is
not otherwise permitted under Indian
GAAP. This has not only resulted
in divergent practices in India as
compared to international practices
but, in some cases, led to misuse of
such schemes of amalgamations.
Recognising the above peculiar
situation and with a view to
ensure comparability and greater
transparency, the Institute of
Chartered Accountants of India (ICAI),
made a limited revision to AS 14 way
back in 2004. As a result of limited
revision, AS 14 requires that if a
scheme of amalgamation sanctioned
under a statute prescribes a different
treatment to be given to the reserves
of the transferor company after
amalgamation as compared to the
requirements of AS 14 that would
have been followed had no treatment
been prescribed by the scheme, then
the following disclosures should be
made in the first financial statements
following the amalgamation:

A description of the accounting

treatment given to the reserves
and the reasons for following
the treatment different from that
prescribed in AS 14
Deviations in the accounting

treatment given to the reserves
as prescribed by the scheme
of amalgamation sanctioned
under the statute as compared
to the requirements of AS 14 that
would have been followed had no
treatment been prescribed by the
scheme
The financial effect, if any, arising

due to such deviation.
The ICAI also issued a general

announcement requiring disclosures,
similar to the above, in case an item in
the financial statement of a company
is treated differently pursuant to an
order made by the Court/Tribunal, as
compared to the treatment required
by an Accounting Standard.
Since the accounting treatment
specified in the scheme is approved
by the Court, based on the facts
and circumstances of each case, an
auditor should assess the impact

of the deviation in the accounting
treatment followed by the company
in the financial statements. If such
impact is material, the auditor should
include an emphasis of matter
paragraph in the audit report to draw
attention of the users.
The limited revision to AS 14,
announcement issued by the ICAI and
the requirement relating to emphasis
of matter paragraph in the audit report
only ensured certain disclosures
for the information of the users of
the financial statements. However,
these disclosure requirements do
not preclude the companies to adopt
the treatment as prescribed in the
scheme of amalgamation. To address
the instances wherein the accounting
treatment prescribed in the
proposed scheme of amalgamation
is significantly different from the
one which is prescribed by the
accounting standards, the Securities
and Exchange Board of India (SEBI)
requires all listed companies to
file with the stock exchanges, for
approval, any scheme/petition
proposed to be filed before any Court
or Tribunal under relevant sections of
the Companies Act, 1956, at least one
month before it is presented to the
Court or Tribunal. The Equity Listing
Agreement further requires that the
company, while filing for approval of
any draft scheme of amalgamation/
merger/reconstruction, etc. with
the stock exchange shall also file an
auditors certificate to the effect that
the accounting treatment contained
in the scheme is in compliance with
all the accounting standards specified
by the Central Government in Section
211(3C) of the Companies Act, 1956.
The SEBI has also prescribed a format
of the auditors certificate in this
regard vide its circular dated 25 March
2014.
The Companies Act, 2013, has

introduced a requirement that no
compromise or arrangement should
be sanctioned by the Tribunal unless
a certificate by the companys auditor
has been filed with the Tribunal to the
effect that the accounting treatment,
if any, proposed in the scheme of
compromise or arrangement is in
conformity with the accounting
standards prescribed under Section
133 of the Companies Act, 2013.
However, the above requirement
has not been made effective as yet.
Once made effective, this section
would bring in the same level of
compliance by unlisted companies as
has been introduced by the SEBI for
listed companies.
From the above it may be noted
that, from a regulatory perspective,
compliance with accounting
standards is increasingly becoming
a focus area even to the accounting
treatment specified under the
schemes of amalgamation.
Accordingly, companies and their
auditors need to examine the
accounting treatment specified
in such scheme carefully so as to
ensure compliance with the generally
accepted accounting principles.
In this context, it becomes

imperative for the listed companies
to carefully draft their proposed
scheme of amalgamation so as to
help ensure compliance of proposed
accounting treatment specified in the
scheme with GAAP.
It may also be noted that presently
the requirement to obtain certificate
from the auditors is applicable only
for the listed companies. While
there are disclosure requirements
for unlisted companies, there is no
requirement which can preclude such
entities from proposing accounting
treatment to the Courts which is not
in compliance with GAAP.
Accounting for investments in

associates and joint ventures

Provide an overview of the changes that are proposed to be introduced with Ind AS
implementation in India with respect to investments in associates and joint ventures
Highlight the areas of differences between Ind AS and the requirements under International
Financial Reporting Standards (IFRS).
Background
In recent years, with the advent
of globalisation more number of
companies are looking out for
avenues to extend their footprint
across the world and thereby
the accounting treatment for
subsidiaries, associates and joint
ventures has gained significant
prominence. With respect to
associates and joint ventures, the
current accounting standards under
Generally Accepted Accounting
Principles in India (Indian GAAP) are
AS 23, Accounting for Investments
in Associates in Consolidated
Financial Statements and AS 27,
Financial Reporting of Interests in
Joint Ventures.
Under Ind AS, the corresponding
standards for these topics are Ind
AS 28, Investments in Associates

and Joint Ventures and Ind AS 111,
Joint Arrangements.
There are certain significant
differences between the current
accounting practices under Indian
GAAP and the requirements under
Ind AS which are discussed in this
article.
Key impact areas on Ind

AS implementation
Classification
With respect to associates, while both
standards base the classification on
the concept of significant influence,
Ind AS also requires consideration of
the presently exercisable potential
voting rights through instruments
such as share warrants, share call
options, debt or equity instruments to
ascertain if the criteria is met. Indian
GAAP currently does not consider the

potential voting rights to determine
classification of significant influence.
Currently under Indian GAAP, the
accounting standard discusses three
types of arrangements and they
are jointly controlled operations,
jointly controlled entities and jointly
controlled assets. The accounting
of the three arrangements depends
on their legal form. Under Ind AS,
joint arrangements could either be
a joint operation or a joint venture,
the accounting is determined based
on the rights and obligations of the
parties rather than the legal form of
the arrangement.
Additionally, under Indian GAAP,
majority owned entities are generally
classified as subsidiaries without
giving due consideration to the
contractual arrangements that may
exist between the investors or the
rights of the investors which may
at times demonstrate joint control
and hence, the classification as a
subsidiary may not be appropriate.
On account of the above differences,
the classification of an investment as
a subsidiary/associate/ joint venture
would need to be revisited once Ind
AS is implemented in India.
Method of accounting
Currently, under Indian GAAP, in case
of a company that has an investment
in an associate and/or joint venture
but does not have a subsidiary,
preparation of consolidated financial
statements is not mandatory. Under
Ind AS, consolidated financial
statements are considered as the
primary financial statements. Hence
irrespective of whether an entity has
a subsidiary or not, consolidation of
investment in associates and joint
ventures would be required while
preparing consolidated financial
statements. This requirement would
become mandatory even under
current Indian GAAP from financial
year (FY) 2015-16 on account of the
requirements under the Companies
Act, 2013.
Under the current accounting
practices under Indian GAAP,
associates are required to be
accounted using the equity method
of accounting, whereas for joint
ventures, the standard requires
that the proportionate consolidation
method of accounting should be
followed. Under Ind AS, an investor is
required to account its investments
in both associates and joint ventures
by using only the equity method of
accounting.
Under Indian GAAP, the difference
between the acquisition cost of
the investment and the share of
the book value of the net assets
acquired is considered as goodwill
or capital reserve (as the case may
be) which is included in the carrying
amount of the investment and is
also disclosed separately. Under Ind
AS, the goodwill or capital reserve
is computed by comparing the
acquisition cost of the investment
with the share of the net fair value of
the identifiable assets and liabilities
rather than its book value. While the
goodwill is included in the carrying
value of the investment like Indian
GAAP, the capital reserve is required
to be shown in equity under Ind AS.
Loss of significant influence

Currently under Indian GAAP, on
loss of significant influence or joint
control in an associate or joint venture
respectively, the carrying value of
the remaining shareholding in the
consolidated financial statements
should be based on the value as
per equity method in consolidated
financial statements as on the date
the investor divests a part of the
investment. However under Ind AS,
1.
a loss of significant influence or joint

control is treated as a change in the
nature of the investment and requires
recognition of a profit or loss on sale
measured as the difference between
a. the fair value of any retained
interest, any proceeds from
disposing of a part interest in the
associate or joint venture and the
amount reclassified from other
comprehensive income and
b. the carrying amount of the
investment at the date the equity
method was discontinued.
Share of losses
Under Indian GAAP, recognition
of an entitys share of losses in
an associate or a joint venture
are restricted to its interest in the
associate or joint venture unless the
investor has a binding obligation to
make good the losses. While Ind
AS also provides similar guidance, it
requires restriction of the share of
losses to its interest in the associate
or joint venture which would also
include any long-term interests
that, in substance, form part of
the entitys net investment in the
associate or joint venture in addition
to the carrying amount of the
investment in the associate or joint
venture determined using the equity
method.
Difference in reporting periods
With respect to the difference in
the reporting periods between the
associate/joint venture and the
investors financial statements, Ind
AS prescribes a maximum period
of three months. While Indian
GAAP does not prescribe any such
periods with respect to associates, it
requires adjustment for the effect of
any significant transactions or events
that may have occurred between the
reporting date of the associate and
the investor. For joint ventures, Indian
GAAP requires that the difference
between the reporting date of the
investor and the joint venture should
not exceed six months.
Exemption from application of the
method of accounting prescribed
The current accounting principles
under Indian GAAP exempt
application of the equity method
for associates and proportional
consolidation method for joint
ventures in case the associate/
joint venture is acquired and held
exclusively with a view to dispose
in the near future or if they operate
under severe long term restrictions.

While no such exemptions are
provided under Ind AS, equity
method needs to be discontinued
once the investment is classified
as held for sale under Ind AS 105,
Non-current Assets Held for Sale and
Discontinued Operations. Further,
venture capital organisations/
mutual fund/ unit trust and similar
entities are permitted to fair value
their investment under Ind AS 109,
Financial Instruments (fair value
through profit or loss category)
instead of applying the equity
method of accounting.
Separate financial statements of
the investor
Under Indian GAAP, investments in
associates/joint ventures are carried
at cost in the separate financial
statements of the investor. Under
Ind AS, in addition to carrying the
investment at cost, the investors
are also permitted to fair value the
investment in accordance with Ind
AS 109, Financial Instruments.
Key differences
between Ind AS and
IFRS
While Ind AS is largely based on IFRS,
there are a few critical carve - outs
which are discussed below:

Under IFRS, in case the investors

share of net assets in an associate
or a joint venture is more than
its acquisition cost, the excess
is recognised as a gain in the
statement of profit and loss. Under
Ind AS, the excess is treated as
capital reserve which would be
recognised as part of equity
Under IFRS, an investor in its

separate financial statements
is permitted to account for its
investment in associate or a joint
venture at cost, fair value or using
the equity method1. Under Ind AS,
the equity method is not permitted.
IFRS requires the financial

statements of the associate/joint
venture to be prepared on the
basis of the accounting policies
which are in conformity with
the accounting policies of the
investor with no exemptions for
impractability. While Ind AS also
requires application of uniform
accounting policies, it provides
an exemption to the investor for
impractability.
Applicable from accounting periods beginning on or after 1 January 2016
ICDS- A new paradigm for

computing taxable income

Provide an overview of key matters and roadmap for implementation of ICDS, along with our
brief comments.
The Ministry of Finance has

issued ten Income Computation
and Disclosure Standards (ICDS),
operationalising a new framework
for computation of taxable income
by all assessees in relation to their
income under the heads Profit and
gains of business or profession and
Income from other sources. The
Central Board of Direct Taxes (CBDT)
notified these standards under
section 145(2) of the Income tax Act,
1961 (the IT Act) vide Notification
No. 33/2015 [F. No. 134/48/2010-TPL]
/ SO 892(E) dated 31 March 2015.
The notification of these standards
comes as a follow up to the
announcement made by the Finance
Minister in his maiden budget
speech in July 2014 of the intent to
notify standards for computation of
tax.
ICDS are expected to fill up some gaps

that existed in the current taxation
set up by bringing in consistency
and clarity in computation of taxable
income and providing stability in tax
treatments of various items. ICDS
also address the significant issue
relating to taxability of assessees
when companies in India move
their financial reporting to Indian
Accounting Standards (Ind AS) that
are converged with International
Financial Reporting Standards (IFRS)
in a phased manner commencing 1
April 2015.
The genesis of ICDS

In 2010, when Ministry of Corporate
Affairs had announced a roadmap for
converging Indian financial reporting
with IFRS in a phased manner, one
of the biggest challenges faced by
corporate sector was how this change
in financial reporting would impact
taxable income, as many companies
would report using Ind AS while
others would report using the older
Accounting Standards (AS).
In response, the CBDT set up a
committee in 2010 to look at the
taxation related aspects of Ind
AS implementation. They also
recognised it as an opportunity to
address certain accounting issues
that have been a subject matter of
tax litigation due to either diversity in
accounting practices or divergence
in views between tax payers and tax
authorities.
While globally different approaches
have been adopted to deal with the
tax issues arising from IFRS adoption,
the CBDT has chosen to go down
the path of prescribing a separate
framework for computation of taxable
income, which is independent of
the financial reporting framework
followed by the company.
The CBDT Committee as part of
their report issued in October 2012,
also put out 14 draft tax accounting
standards for public comments. Over
two years since, and close on the
heels of the press release notifying
the roadmap for Ind AS convergence
on 2 January 2015, the Ministry of
Finance also published a revised set
of 12 draft ICDS on 8 January 2015
for final comments. The comment
period ended on 8 February 2015.
Finally, the notification with ten
ICDS has now been issued. With the
notification of ICDS, there is certainty
on the path that has been chosen
by the CBDT. With the adoption of
ICDS, irrespective of whether the
company reports its financial results
as per Ind AS or the existing AS, they
would compute their taxable income
in accordance with ICDS, ensuring
horizontal equity, although not
necessarily tax neutrality vis--vis the
earlier basis.
Facilitates Ind AS
adoption
The notification of these ICDS is
quite timely and important, especially
considering that the timelines
for adoption of Ind AS have also
been notified, which permits
voluntary adoption for financial year
2015-16. Providing a tax neutral

framework for transition to Ind
AS was a prerequisite for smooth
implementation of Ind AS from this
year. With the adoption of ICDS,
irrespective of whether the company
reports its financial results as per Ind
AS or the existing AS, they would
compute their taxable income in
accordance with ICDS, ensuring
horizontal equity, although not
necessarily tax neutrality vis--vis the
earlier basis.
These standards were developed
prior to the notification of Ind AS
and used the existing AS as a base,
and included modifications to make
them suitable for tax purposes. Now
that Ind AS has been notified, and
most large companies would switch
to Ind AS reporting from the year
2016-17, they will find significant
differences between the principles
used in ICDS and those in Ind AS. As
a result, the resultant computations
of taxable income and net income
as per financial statements could be
significantly different.
Applicability
These standards are applicable for
computation of income chargeable
under the head Profits and gains of
business or profession or Income
from other sources to all assessees
following the mercantile system of
accounting. These standards are
applicable for assessment year 20162017 (previous year 2015-2016) i.e.
applicable immediately with effect
from 1 April 2015.
Taxable profits would now be
determined after making appropriate
adjustments to the financial
statements (whether prepared
under existing AS or Ind AS) to
bring them in conformity with ICDS.
Considering that these standards
are already effective, it could have
an immediate impact on companies,
who would need to take this into
account when paying their advance
taxes for the first quarter of FY 20152016 as well as for accounting of tax
expense in the quarterly results.
ICDS also provides transitional
provisions to facilitate first time
adoption and consideration of the
resultant impact.
What you need to

consider?
The adoption of ICDS could
significantly alter the way companies
compute their taxable income, as
many of the concepts from existing
AS have been modified. These ICDS

have also been developed with a
view to minimise tax related disputes
by bringing greater consistency
in the application of accounting
principles governing the computation
of income.
ICDS in general do not have
prudence as a fundamental
assumption, and accordingly in
several situations this would result in
earlier recognition of income or gains
or later recognition of expenses or
losses as compared to that under
the accounting standards; this would
potentially have a direct impact
on the timing of tax related cash
outflows.
This article provides an overview
of key matters and roadmap for
implementation of ICDS, along
with our brief comments. There are
several areas which differ from the
current accounting and computation
practices followed under existing
AS which would require careful
consideration.
Key impact areas

Some of these significant impact
areas and differences from existing
AS are discussed under the following
heads:
Borrowing Costs
ICDS on borrowing costs prescribe
following key changes from the
current accounting:

Unlike Accounting Standard

(AS) 16, Borrowing Costs, ICDS
does not define any minimum
period for classification of an
asset as a qualifying asset (with
the exception of inventories).
Borrowing cost, would need to be
capitalised even if an asset does
not take substantial period of time
to construct
Unlike, AS 16, exchange

differences arising from foreign
currency borrowings to the extent
they are regarded as interest cost
are not considered as borrowing
cost under ICDS
ICDS has also prescribed a

new formula for capitalisation
of borrowing cost on general
borrowings which involves
allocating the total general
borrowing cost incurred in the ratio
of average cost of qualifying assets
on the first day and last day of the
previous year and the average cost
of the total assets on the first and
last day of the previous year (other
than those assets which are
directly funded out of specific

borrowings). The current formula
may require further clarification

ICDS states that, in case of a

specific borrowing, capitalisation
of borrowing cost should
commence from the date of the
borrowing and in case of general
borrowing, from the date of the
utilisation of funds
Further, ICDS require capitalisation
even if active development of a
qualifying asset is interrupted. Also,
in case of qualifying assets other
than inventories, capitalisation of
borrowing cost should cease when
the asset is put to use
In addition, under ICDS, income
from temporary deployment
of unutilised borrowed funds
would not be deducted from the
borrowing cost to be capitalised.
Rather, these will be treated as
income.
ICDS prescribe non-recognition of

margins during the early stages
of the contract and thus allows
contract revenue to be recognised
only to the extent of costs incurred.
It prohibits such deferral if the
stage of completion exceeds 25
per cent
ICDS does not contain detailed

guidance on recognition of revenue
as a principal or agent (gross vs.
net) which would impact turnover
computation under section 44AB
of the IT Act
In addition, ICDS on construction

contracts and revenue does not
permit the recognition of expected
losses on onerous contracts
The transitional provisions under

notified ICDS provide that ICDS
would apply to all open contracts
as at 31 March 2015. Cumulative
revenue and costs recognised
in the prior years have to be
considered for revenue recognition
of these contracts from the
transition date.
Accounting policies

ICDS does not recognise the

concept of prudence. Hence, it
disallows recognition of expected
losses or mark-to-market losses
unless specifically permitted by
any other ICDS. However, ICDS
remain silent on the treatment of
mark-to-market unrealised gains
Further, the concept of
materiality which is an important
consideration in preparing
financial statements has not been
considered under ICDS. This could
pose implementation challenges,
for instance, the treatment of
unadjusted audit differences in the
financial statements may need to
be considered while computing
taxable income.
ICDS does not permit changes in
accounting policies without
reasonable cause where
reasonable cause has not
been defined by the ICDS and
hence, would involve exercise of
judgement by the management
and the tax authorities.
Construction contracts and

revenue recognition

ICDS does not permit accounting

under the completed contract
method, and mandates that only
the percentage of completion
method should be applied
for recognition of revenue
from rendering of services or
construction contracts
Government grants

ICDS does not permit the capital

approach for recording of the
government grants
Accordingly, ICDS requires

accounting of all grants either to
be reduced from cost of assets
or recognised as income either
immediately or over a period of
time, depending on the nature of
grants
Further, ICDS prescribe that

accounting for foreign currency
option contracts and other similar
contracts should be similar to
forward exchange contracts.
When these contracts are entered
to hedge recognised assets or
liabilities, the premium or discount
is amortised over the life of the
contract and the spot exchange
differences are recognised in the
computation of taxable income
ICDS provides that the exchange

differences on translation of nonintegral foreign operations should
be recognised as an income or
expense unlike under existing AS.
Provisions, contingent liabilities

and contingent assets

Unlike existing AS, ICDS require

recognition of provisions only if it is
`reasonably certain. It excludes
from its ambit onerous contracts.
In addition, ICDS also require

recognition of contingent assets
when the inflow of economic
benefits is reasonably certain.
These changes presumably have

been made with the intention to
bring in consistency to the tax
treatment of losses and gains.
Other areas
The key areas of differences for the
other notified ICDS are summarised
below:

Existing AS states that techniques

for the measurement of the cost
of the inventories such as the
standard cost method may be
used for convenience if the results
approximate to the actual cost.
However, ICDS does not permit
use of the standard cost method
Existing AS permits capitalisation

of foreign exchange differences
along with the underlying asset
under certain circumstances.
ICDS reiterates the fact that
capitalisation of exchange
differences relating to fixed assets
shall be in accordance with section
43A and other similar provisions of
the IT Act
Unlike existing AS, ICDS only

covers securities held as stock in- trade. ICDS requires the
comparison of cost and net
realisable value for securities held
as stock-in-trade to be assessed
category wise and not for each
individual security. ICDS also
provides that securities that are
Initial recognition of government

grants can not be postponed
beyond the date of actual receipt
even though all the recognition
conditions in accordance with AS
has not been met.
Effects of changes in foreign

exchange rates

ICDS requires premium, discount

or exchange difference on forward
contracts that are intended for
trading or speculation purposes,
or that are entered into to hedge
the foreign currency risk of a
firm commitment or a highly
probable forecast transaction
to be recognised at the time
of settlement. This is different
from the current practice under
existing AS of either recognition
of gains and losses on mark-tomarket basis or recognition of only
losses in line with the principle of
prudence
seen, and there could be several

instances, where there are
conflicting positions
not quoted or are quoted

irregularly shall be valued at cost.
This could also represent a change
in practice for some entities. There
could be many other areas of
differences for specific transactions
and may vary from assessees to
assessees.
In addition, some of the judicial

pronouncements which were in
favour of the assessees might
no longer be operative. Suitable
amendments would also be
required to the IT Act to provide
certainty on some of these issues
ICDS has only considered

the existing AS currently. For
accounting purposes, companies
have also been relying upon
numerous other pieces of
literature issued by the Institute
of Chartered Accountants
of India such as Guidance
Notes, Accounting Standard
Interpretations, etc. These areas
needs to be carefully evaluated
as it has significant impacts
on reporting of numbers for
covered entities. They may impact
computation of taxable income
going forward
Transitional provisions
The overarching principles of the
transitional provisions are that no
income would escape taxation nor
would it suffer double taxation as a
result of the transition to this new
framework. As per the transitional
provisions, the assessees will be
required to do a retrospective catch
up at the date of transition in certain
cases, whereas in certain other
cases, the provisions apply only on a
prospective basis.
Our views
The much awaited ICDS is now a
reality, and India Inc. needs to gear
up for this change.

The taxable income now might

be visibly delinked from the
accounting income as both will
be computed under different set
of standards and principles. The
areas of significant differences
between the existing AS and the
corresponding tax positions would
be the key areas that assessees
would need to consider while
implementing ICDS
ICDS has been drafted keeping the
existing AS as a base. There are
significant differences between
Ind AS and existing AS. With
Indian companies moving into Ind
AS in phases from 1 April 2015
onwards, there would be additional
adjustments required to be made
to the accounting profit calculated
using Ind AS to arrive at the taxable
income as per the IT Act
ICDS has not adequately
addressed certain areas such as
financial instruments, share based
payments, etc., which are quite
prevalent in todays business
environment. The standards
have generally excluded those
topics where there is specific
guidance under the income tax
law. However, if there is a conflict
between the provisions of the IT
Act and ICDS, then the provisions
of the IT Act would prevail.
The interplay between judicial
precedents and the requirements
of these standards needs to be
Considering the current status

and divergent practices that are
in existence, the implementation
of new standards could result
in significant variations in tax
outflow. In many cases, the timing
of taxable income under the
new standards would differ from
the timing of recognition under
accounting standards
Appropriate modifications needs to
be made to the Income tax return
and Form No. 3CD to determine
taxable income computed as per
provision of ICDS
Another area that needs the
regulators attention are the
Minimum Alternate Tax (MAT)
provisions. Once Ind AS comes
in, some companies would
report based on Ind AS whereas
others would report based on
existing Indian GAAP, therefore,
the accounting profits based on
which MAT is to be calculated
would need to be clarified, and
may require consideration of
suitable adjustments to Ind AS
accounting profit. The CBDT
Committee did not address this
issue in its Final Report released
in October 2012, citing uncertainty
around the implementation
date for Ind AS. The Committee
had earlier recommended that
transition to Ind AS should be
closely monitored and appropriate
amendments relating to MAT
should be considered in the future
based on these developments.
Regulators would need to address

this matter shortly

While standard setters have

clarified that additional set of
books of account will not be
required for ICDS, there would
be several additional records
which might need to be prepared
and kept available going forward.
The differences between the
two standards may give rise
to additional computations
and reconciliations, which in
essence could result in the need
for maintaining additional set of
records especially for large and
multi-location companies
Considering the magnitude of

the changes involved, all the
stakeholders including assessees,
management and regulatory
officers would need to be
trained and educated on the new
framework. This is important to
ensure that there is a fair process
of assessment, and the objective
of minimising tax disputes is met.
Summary of major
changes in notified ICDS
vis--vis draft ICDS issued
in January 2015
The notified ICDS has certain
changes as compared to the draft
ICDS issued in January 2015. We
have summarised some of the
significant changes below:

ICDS on leases and intangible

assets which were earlier issued
has now been excluded from
the final list of notified ICDS. This
would come as a big relief for
many assessees. The draft ICDS
on leases was in line with the
current accounting practice as per
AS 19, Leases. ICDS proposed
that the depreciation on finance
leases to be claimed by the lessee
as against by the legal owner of
the asset. Similarly, the draft
ICDS on intangible assets has not
been notified. The IT Act already
contains guidance on intangible
assets and this exclusion should
not impact assessees in a big
way. The treatment of leases and
intangible assets would continue
to be as per the IT Act
Another major relief has been

provided in the notified ICDS on
tangible assets. The draft ICDS
required a Fixed Asset Register
(FAR) to be maintained for all
assets for all years. That would
have required additional records

to be maintained by assessees for
Income tax purposes and to keep
ready a reconciliation of FAR per
ICDS requirements with previous
submissions to IT departments.
This requirement has been
removed in the notified ICDS and
would be a welcome change for
the assessees

Some changes in ICDS on

securities have been made for
making it consistent with other
ICDS. These are exchange of
securities (in line with ICDS on
Tangible Assets) and valuation of
securities held as stock-in-trade for
business commenced during the
previous year (in line with ICDS on
Valuation of inventories)
One more change in the notified
ICDS has been made in ICDS
relating to borrowing costs. The
earlier draft of ICDS appeared to
have missed out borrowings for
the purposes of construction or
production of qualifying asset in
para 5 and para 6 of ICDS which
dealt with measurement of
specific and general borrowing
cost eligible for capitalisation.
There are similar inconsistencies

which have been rectified in the
notified ICDS.
Making it business as
usual
From a corporate perspective, as a
first step, companies should carry
out an impact assessment. The
impact assessment would provide
clarity on both the extent of impact
on taxable income, as well as the
system and process changes that
would be required to compute
taxable income each period in an
efficient manner. A thorough impact
assessment would then serve as
a blue print and drive the plan for
implementation.
framework, its implementation is

expected to throw up challenges.
With the extent of changes in
financial, corporate and tax reporting
regulations, corporates in India,
certainly have their task cut out for
2015.
(Source: KPMGs First Notes dated 4 April 2015)
Considering the extent of differences

between Ind AS and ICDS, most
large corporate would need to
consider the process and system
changes that may be warranted
to implement ICDS and maintain
records as per these two sets of
standards. Considering that the
information computed using ICDS
would be subject to audit through
the tax audit process, it becomes all
the more important for companies to
maintain information in a manner that
provides an audit trail.
ICDS is now a reality, and certainly a
step in the right direction to enable
smooth implementation of Ind
AS, and reduce tax litigation in the
medium term. As with any new
10
ICAI provides much awaited

guidance on fraud reporting

Provide an overview on the requirements of Section 143(12) of the Companies Act, 2013 relating
to reporting on fraud by auditors
Discuss key requirements of the recently issued Guidance Note on Reporting of Fraud under
Section 143(12) of the Companies Act, 2013 by the Institute of Chartered Accountants of India
(ICAI).
Fraud risk is often considered as a

stumbling block in an economys
growth as it has the capability to
shake the trust and confidence of
various stakeholders towards the
corporate world. The consideration
of fraud in financial reporting and the
auditors responsibility on reporting
on fraud has been an integral part
of an audit of financial statements
carried out in accordance with
Standards on Auditing. SA 240, The
Auditors Responsibilities relating
to Frauds in An Audit of Financial
Statements, deals with the auditors
responsibilities relating to fraud in

an audit of financial statements. As
per SA 240, the auditor is required
to consider fraud as a risk that could
cause a material misstatement
in the financial statements and
plan and perform such procedures
that mitigate the risk of material
misstatement due to fraud.
against the company by the officers

or employees of the company. With
the introduction of this section, the
Central Government seems to be
seeking the support of the auditors
in bringing in greater transparency
and discipline in the corporate
world to protect the interests of the
shareholders and also the public, at
large.
With this view, Section 143(12)

of the Companies Act, (2013 Act),
which is effective from 1 April 2014
introduced the requirement for
the statutory auditors to report to
the Central Government about the
fraud/suspected fraud committed
11
Reporting of frauds
In case an auditor has sufficient
reason to believe that an offence
involving fraud, is being or has been
committed against the company by
officers or employees of the company,
he is required to report the matter to
the Central Government immediately
but not later than 60 days of his
knowledge in the following manner:

He will forward his report to the

board or the audit committee, as
the case may be, immediately after
instance involving fraud comes
to his knowledge in order to seek
their reply or observations within
45 days
On receipt of such reply or
observations, the auditor is
required to forward his report
and the reply or observations to
the board or the audit committee
along with his comments (on
such reply or observations of the
board or the audit committee) to
the Central Government within
15 days of receipt of such reply or
observations
If the auditor fails to get any reply
or observations from the board
or audit committee within the
stipulated period of 45 days, he
should forward his report to the
Central Government along with
a note containing the details
of his report that was earlier
forwarded to the board or the audit
committee for which he failed to
receive any reply or observations
within the stipulated time
The report is required to be sent
to the Secretary, Ministry of
Corporate Affairs in Form ADT - 4.
The intention behind increasing the

reporting requirements of auditors
is to ensure that such matters are
brought to the attention of the
government/regulatory authorities.
However, the construct of the Rules
make these reporting requirements
very challenging. For instance, the
auditor is required to comment not
only on confirmed frauds but also on
suspected frauds.
In many instances where fraud or
suspected fraud exists, the auditor
may struggle to have adequate
or timely information to comply
with these reporting requirements.
Additionally, the current construct
of the Rules may push auditors
to report earlier than what may
be prudent/appropriate mainly
to avoid the risk that the auditor
is non-compliant and subject to

penalty provisions under the 2013
Act. In the case of entities with large
and widespread customer base
(e.g., electricity supply companies)
instances of frauds can not be totally
avoided and such situations could
lead to repetitive reports being sent
to the Central Government.
Keeping in view the challenges being
faced by auditors and considering
their onerous responsibility for
reporting frauds, the ICAI issued
the much awaited guidance note on
Reporting on Fraud under Section
143(12) of the 2013 Act. The guidance
note intends to address various open
issues in Section 143(12) to provide
appropriate guidance to members.
The following section of the article
aims to provide an overview of the
requirements of the guidance note.
Persons covered for

reporting on fraud under
Section 143(12) of the
2013 Act
The guidance note clarifies that the
following persons are required to
report under this section:

Statutory auditors of the company
Cost accountant in practice

conducting cost audit under
Section 148 of the 2013 Act
Company secretary in practice

conducting secretarial audit under
Section 204 of the 2013 Act
Branch auditor appointed under

Section 139 of the 2013 Act to the
extent it relates to the concerned
branch.
However, the provisions of Section

143(12) do not apply to other
professionals who are rendering
other services to the company
such as tax auditor appointed under
Income Tax Act, Sales tax or VAT
auditor appointed under respective
legislations. It may also be noted
that internal auditors covered under
Section 138 of the 2013 Act are also
not specified as persons to report
under Section 143(12).
Auditors responsible to
report fraud identified
during the course of
performance of his duties
Section 143(12) requires an auditor
to report on fraud if in the course
of performance of his duties as an
auditor, the auditor has reason to
believe that an offence involving

fraud is being or has been committed
against the company by its officers
or employees. The duty of an auditor
is to comply with the Standards on
Auditing (SAs) as per Section 143(9)
read with Section 143(10) of the
2013 Act. Therefore, according to
the guidance note, the term in the
course of performance of his duties
as an auditor, herein implies, in the
course of performing an audit as per
the SAs.
The definition of fraud as per SA
240 and the explanation of fraud as
per section 447 of the 2013 Act are
similar, except that under section 447,
fraud includes acts with an intent to
injure the interests of the company
or its shareholders or its creditors
or any other person, whether or
not there is any wrongful gain or
wrongful loss. However, an auditor
may not be able to detect acts that
have an intent to injure the interests
of the company or cause wrongful
gain or wrongful loss, unless the
financial effects of such acts are
reflected in the books of account/
financial statements of the company.
For example, an auditor may not be
able to detect if an employee has
received any pay-offs for favouring a
specific vendor, which is a fraudulent
act, since such pay-offs would not be
recorded in the books of account of
the company.
Therefore, the auditor is required to
consider the requirements of SAs,
insofar as they relates to the risk
of fraud, including the definition of
fraud as stated in SA 240, in planning
and performing his audit procedures
in an audit of financial statements
to address the risk of material
misstatement due to fraud.
Auditors to report fraud

under Section 143(12)
even if reported under any
other statute
The guidance note clarifies that
the requirements for reporting by
auditors under Section 143(12) would
apply even if the fraud is required
to be or has been reported under
any other statute or to any other
regulator. For example, in case of a
fraud identified in a bank, the auditor
of the bank should report the fraud
to the Reserve Bank of India (RBI)
as per the requirements of the RBI
regulations on audit of bank. If the
bank is a company and is governed
by the provisions of the 2013 Act, in
addition to the reporting to the RBI,
12
the auditor may also be required to

report the offence involving fraud
to the Central Government if such
instance is covered under section
143(12) of the 2013 Act.
to whether fraud involving immaterial

amounts is required to be reported
under section 143(12) in view of its
nature and impact on the financial
statements.
Materiality threshold for

reporting on fraud
Reporting requirement
under different scenarios
Currently, the 2013 Act does not

provide any threshold for reporting
of frauds by auditors. Enabling
provisions have been proposed to
prescribe thresholds beyond which
fraud should be reported to the
Central Government through the
Companies (Amendments) Bill, 2014
(Bill). The Bill has been introduced
and approved by the Lok Sabha.
The Bill includes an amendment to
the provisions of section 143(12)
relating to auditor reporting on frauds
according to which, in case of a fraud
involving lesser than a specified
amount, the auditor shall report
the matter to the audit committee
constituted under Section 177 or
to the board in other cases within
such time and in such manner as
may be prescribed. Accordingly, as
per the guidance note, only those
frauds, where the amount exceeds
the specified amount, should be
reported to the Central Government.
However, in the case of frauds that
are reported by the auditors only to
the audit committee or the board
of directors, where the amounts
involved are less than the threshold
that may be specified by the MCA ,
the details of such fraud will need to
be disclosed in the boards report in
such manner as may be prescribed.
It is to be noted that the primary

responsibility for prevention and
detection of fraud rests with the
management and those charged with
governance. The Board of directors
are required to include a statement
in the directors responsibility
statement for taking proper and
sufficient care for preventing and
detecting fraud.
The guidance note recognises

that materiality is fundamental for
setting up an appropriate system
of internal control, preparation of
financial statements and its audit. It
also reiterates the responsibility of
an auditor to comply with SA 240.
It further states that the guidance
given with respect to reporting to
the Central Government will become
applicable only for those frauds
that are in excess of the specified
threshold. Though the proposal
specifies a threshold for reporting, if
the auditor identifies a fraud wherein
management is involved, the auditor
should evaluate its impact on the
nature, timing and extent of audit
procedures in accordance with the
requirements of SA 240. In other
words, auditor should exercise
professional judgement in deciding as
The guidance note has highlighted

ways and extent of reporting
required by auditors in key cases.
They are summarised as below:
Reporting on suspected offence
involving frauds noted during
audit/limited review of interim
period financial statements/
results, other attest services and
permitted non-attest services
While Section 143 deals with auditors
duties and responsibilities under the
2013 Act with respect to financial
statements prepared under the 2013
Act, the auditors also perform certain
other attest services as auditors of
the company. For example, clause
41 of the Equity Listing Agreement
requires auditor to perform limited
review of the quarterly financial
statements published by the listed
companies. Performance of tax
audit, issuing certificates and audit of
interim financial statements as per AS
25, Interim Financial Reporting, could
be other examples of attest services
provided by an auditor.
As per the guidance note:

Wherever a statute or regulation

requires such attest services to
be performed by an auditor, the
provisions of Section 143(12)
should be complied with since
any such work carried out by the
auditor during such attest services
could be construed as being in the
course of performing his duties
as an auditor, albeit not under the
2013 Act
Fraud against the company by

its officers or employees that is
identified by an auditor during
the course of providing such
attest or non-attest services

becomes reportable only if the
amount involved is considered
to be material to the financial
statements of the company
prepared under the 2013 Act or if
the auditor uses or intends to use
the information that is obtained
in the course of performing such
attest or non-attest services
when performing the audit under
the 2013 Act. This would also
require exercise of professional
judgement on the part of an auditor
if the amount involved is material
to the financial statements to be
prepared under the 2013 Act.
Reporting on frauds detected by
the management or other persons
and already reported under section
143(12) by such other person
The guidance note states that Section
143(12) envisages the auditor to
report an offence involving fraud only
if he is the first person to identify/
note such instance in the course
of performance of his duties as an
auditor.
If fraud has already been detected by
the management through companys
vigil or whistle blower mechanism
and being remediated/dealt with
by them, then auditor will not be
required to report it as he has not
identified it.
Similarly, if instances of fraud have
already been reported by the cost
auditor or the company secretary and
the auditor becomes aware of such
suspected offence involving fraud, he
need not have to report it as he has
not identified the offence involving
fraud.
But in both the above mentioned
cases, auditor is required to review
the steps that have been taken by
the management with respect to
such offence involving fraud and if
he is not satisfied with such steps,
he should state the reasons for his
dissatisfaction and should request the
management to perform additional
procedures to enable the auditor
to satisfy that the matter has been
addressed appropriately. If, however,
the management failed to undertake
additional procedures within 45
days of his request, then he should
consider as to whether he should
report the matter to the Central
Government.
13
Reporting on frauds/suspected
offence involving fraud in case of
Section 129(4) of the 2013 Act
requires that the provisions relating
to audit of standalone financial
statements of the holding company
should also apply to the audit of the
consolidated financial statements.
The audit of consolidated financial
statements is also the duty of an
auditor (if so appointed). The guidance
note states that the auditor of the
parent company is not required
to report on frauds if the offence
involving frauds relates to:
a component of a parent company,
which is an Indian company since
the auditor of that Indian company is
required to report it:

a foreign corporate component or

a component that is not a company
since the component auditors of
such components are not covered
under section 143(12).
The guidance note further states
that the auditor of the parent
company in India is required to
report instances of frauds in the
component only if:
the suspected offence involving

fraud in the component is being or
has been committed by employees
or officers of the parent company,
and
if such offence is against the

parent company.
Reporting when the suspected

offence involving fraud relates to
periods prior to coming into effect
of the 2013 Act
The guidance note states that in
cases where the fraud identified by
auditor relates to years to which the
Companies Act, 1956 was applicable,
reporting under Section 143(12) will
arise only if the suspected offence
involving fraud is identified during the
financial years beginning on or after
1 April 2014 and to the extent it was
not dealt with in prior financial years
either in the financial statements or
in the audit report or in the boards
report under the Companies Act,
1956.
Reporting by auditor triggered

based on suspicion or reason
to believe or knowledge or on
determination of offence
The guidance note states that based
on a harmonious reading of Section
143(12), Rule 13 of the Companies
(Audit and Auditors) Rules, 2014 and
Form ADT - 4, reporting on fraud in
the course of performance of duties
as an auditor, is applicable only when
the auditor has sufficient reason to
believe and has knowledge that a
fraud has occurred or is occurring i.e.,
when the auditor has evidence that a
fraud exists.
The guidance note provides a clarity
to the auditors in case of suspected
frauds. It sets out that reporting
requirements are triggered only
when auditor has evidence that a
fraud exists.
Conclusion
Reporting of frauds is a sensitive
area, which any company aims to
avoid. The auditor is expected to
exercise significant judgement and
professional skepticism to conclude
that a fraud has been committed
especially considering significant
resistance and justification that
the management may try to frame.
The role could become more
onerous in cases of management
colluded frauds which may not be
easy to discover. The provision is a
welcome improvement if the same
is implemented appropriately. Failure
to report frauds will be punishable
with imprisonment for a term which
may extend to one year and with
minimum penalty of INR1 lakh which
may extend up to INR25 lakhs.
Reporting in case of corruption,

bribery, money laundering and
non-compliance with other laws
and regulations
The guidance note states that while
reporting cases consequent to
corruption, bribery, money laundering
and other intentional non-compliance
with other laws and regulations, the
auditor should consider whether
such acts have been carried
out by officers or employees of
the company and also take into
account the requirements of SA
250, Consideration of Laws and
Regulations in an audit of financial
statements.
Illustrative formats given

by the ICAI Guidance
Note
The guidance note provides
illustrative format for reporting to
Board or the audit committee on
fraud. It also includes an illustrative
management representation letter,
illustrative checklist for inquiries with
board/audit committee, management
and internal auditor, illustrative fraud
risk factors, illustrative possible audit
procedures to address the assessed
risks of material misstatement due
to fraud.
14
Common errors in Statement

of Cash Flows under US
GAAP financials

Highlight the common instances of errors in the statement of cash flows in practice.
In the AICPA National Conference

on Current SEC and PCAOB
Developments, held in December
2014, T. Kirk Crews, Staff of
the SECs Office of the Chief
Accountant (OCA) commented that
restatements of the statement of
cash flows continue to increase each
year and many of the restatements
are in areas considered to be less
complex in nature such as failure
to appropriately account for capital
expenditures purchased on credit.
Given the increasing instances of
cash flow restatement, the OCA staff
suggested that entities consider three
factors when evaluating their
processes and controls related to the

statement of cash flows, namely:

Information Entities should

evaluate how they collect the
data necessary to prepare the
statement of cash flows, identify
what controls they have to ensure
the data is complete and accurate
especially in respect of new or nonrecurring transactions that have
occurred.
the statement of cash flows have

required expertise to prevent
misstatements.

Timing Entities should consider

ways in which to accelerate
preparing the statement of cash
flows, which could allow additional
review time.
People Entities should determine

whether the professionals
responsible for preparing the
statement of cash flows have the
appropriate understanding and
requisite training to apply FASB
ASC Topic 230, Statement of Cash
Flows and professionals reviewing
15
In practice, some of the instances

where errors are commonly noted in
statement of cash flows are as
discussed below:
equipment occurring soon after

purchase to acquire property, plant,
and equipment.
Gross vs net receipts and

payments
Cash receipts and payments for

interest
ASC 230-45-7 states, Generally,

information about the gross amounts
of cash receipts and cash payments
during a period is more relevant than
information about the net amounts
of cash receipts and payments. For
statement of cash flow presentation
purposes, information about net
changes in assets and liabilities
during the period may be more
meaningful to understand in entitys
operating, investing and financing
activities than gross payments and
receipts. Generally, original maturity
of the asset or liability of three
months or less would qualify for net
reporting in the statement of cash
flows.
ASC paragraphs 230-10-45-16 and

45-17 state that cash receipts and
payments for interest represent cash
flows from operating activities.
For example, an entity enters into

buyers credit facility with the bank
towards purchase of inventory from
the vendor, which is repayable to the
bank within three months. An entity
regularly enters into buyers credit
facility contract with the bank. In the
current case, disclosing net receipts
(payments) during the period in the
statement of cash flows would be
more appropriate than gross receipts
(payments) due to its nature of short
maturity, amounts being large and
turnover being quick.
Settlement of initial measurement
of liability-classified contingent
consideration arrangements
related to a business combination
The portion of payment towards
contingent consideration included in
the initial purchase price allocation in
a business combination transaction
is a financing activity (as the
arrangement is a method of financing
the purchase price) while the
payment of contingent consideration
in excess of amount included in
initial purchase price allocation is
recognised in earnings and classified
as operating cash flows. However,
if the payment of contingent
consideration is less than the amount
included in the initial purchase price
allocation, the payment is classified
as financing cash flows. Payment of
contingent consideration occurring
soon after the acquisition date could
be classified as investing cash flows
by analogy to payment towards
purchase of property, plant, and
Effect of non-cash transactions

and entries
Some transactions are partly cash
and partly non-cash. The effect of
non-cash element in a transaction
is eliminated in statement of cash
flows. Examples of non-cash
investing and financing transactions
are unpaid purchases of property,
plant, and equipment, converting
debt to equity; obtaining an asset by
entering into a capital lease, issue of
equity shares to a creditor towards
supply of inventory or purchase
of property, plant and equipment,
issue of bonus shares etc. Such
transactions are reported on the
same page as the statement of cash
flows or may be disclosed elsewhere
in the financial statements, clearly
referencing them to the statement of
cash flows.
Investments measured at fair
value and on interest rate swaps
not designated as hedges
Unrealised gains (losses) on
investments measured at fair value
and on interest rate swaps not
designated as hedges should be
reported as a reconciling item within
cash flows from operations. This
is consistent with the FASB ASC
paragraphs 230-10-45-28(b) which
states that all items whose cash
effects are related to investing or
financing cash flows, such as gains
or losses on sales of property, plant,
and equipment and discontinued
operations (which relate to investing
activities), and gains or losses on
extinguishment of debt (which relate
to financing activities) are included in
net income and net cash flow from
operating activities.
16
Aggregation of related party transactions

while seeking approval of shareholders
under Clause 49 (VII) of the Equity Listing
Agreement

Discuss the issue relating to aggregation of the related party transactions entered into by a
company for determining the materiality threshold for shareholders approval.
Clause 49 of the Equity Listing
Agreement was amended by the

Securities and Exchange Board of
India (SEBI) in April and September
2014, and the revised requirements
were applicable from 1 October
2014. The amendments contain
stricter requirements than the
requirements of the Companies Act,
Following are the main changes:

Clause 49(VII)(B) was revised to

include an entity related under
section 2(76) of the Companies
Act, 2013 or a related party as per
applicable Accounting Standards
Clause 49(VII)(E) requires that all

material related party transactions
should be approved through
a special resolution by the
shareholders.
Clause 49(VII)(C) was also

amended to revise the materiality
threshold for related party
transactions. A transaction with
a related party is considered
as material if the transaction/
2013.
There are various amendments to
Clause 49 and one of the amendment
relates to regulations regarding related
party transactions. The amendment
mainly relates to the definition of
related party.
transactions to be entered into

individually or taken together with
previous transactions during a
financial year exceeds ten percent
of the annual consolidated turnover
of the company as per the last
audited financial statements of the
company. Prior to the amendment,
the materiality threshold was based
on 5 per cent of the annual turnover
or 20 per cent of the net worth,
whichever is higher. Consequent to
revision, the criteria of net worth
has since been deleted.
17
Basically, the essence of the revised

Clause 49 (VII)(C) is that it provides
a single materiality threshold for
transaction and does not make a
distinction between transactions
recognised in the balance sheet and
in the statement of profit and loss.
In this article, we are discussing
the issue relating to aggregation
of transactions entered into by a
company while seeking its approval
of shareholders for determining
materiality i.e. whether all types
of transactions with a related
party should be aggregated or
transactions of similar (each category/
type of transaction) nature with a
related party be aggregated for the
purpose of seeking approval from
shareholders.
The Explanation to Clause 49 (VII)
of the Equity Listing Agreement
stipulates that a transaction with a
related party shall be construed to
include single transaction or a group
of transactions in a contract. The
definition of the term transaction
plays an important role in determining
the threshold for seeking approval of
shareholders.
The issue is debatable due to lack of
clarity in the regulations of the Equity
Listing Agreement and there can be
two possible views on this matter.

2.
Aggregation of transaction of
similar nature (each category/
type of transaction) with a
related party: One view is
that it would be appropriate to
aggregate transactions of a similar
nature with a related party, while
applying the materiality threshold
for seeking the approval of the
shareholders. The definition
of transaction indicates that it
refers to a single transaction or a
group of transactions in a contract.
For example, the company may
enter into different contracts for
transactions like sale of goods,
purchase of fixed assets, loans
taken, etc. with a related party.
For the purpose of determining
materiality, aggregation of each
category/type of transactions in a
contract with a particular related
party should be used to apply the
materiality threshold
Aggregation of all types of
transactions with a related
party: Another view is that all
transactions across all contracts
(irrespective of the nature of the
transactions i.e. category/type
of transaction) with a related

party should be aggregated
while applying the materiality
threshold for seeking approval of
shareholders.
Clause 49(VII)(C) does not clarify the
manner of aggregation of related
party transactions i.e. by nature/
type or aggregation of all types of
transactions, for the purpose of
determining the materiality threshold.
This requirement of Clause 49
is unlike AS 18, Related Party
Disclosures, which clearly states
that items of a similar nature may
be disclosed in aggregate by type
of related party except when
separate disclosure is necessary
for an understanding of the effects
of related party transactions on the
financial statements of the reporting
enterprise. AS 18 also provides
guidance on materiality while
providing disclosures for related
party transactions. It states that
depending on the circumstances,
either the nature or the size of the
item could be the determining factor.
As regards size, for the purpose
of applying the test of materiality,
ordinarily a related party transaction,
the amount of which is in excess of
10 per cent of the total related party
transactions of the same type (such
as purchase of goods), is considered
material, unless on the basis of facts
and circumstances of the case it can
be concluded that even a transaction
of less than 10 per cent is material.
As regards nature, ordinarily the
related party transactions which
are not entered into in the normal
course of the business of the
reporting enterprise are considered
material subject to the facts and
circumstances of each case.
49 by the SEBI. In this regard, the

SEBIs consultative paper on review
of corporate governance norms in
India, states:
Abusive RPTs2 are real concerns
as they can be used for personal
aggrandisement of controlling
shareholders, especially in Asian
jurisdictions, which are characterised
by concentrated shareholdings. This
would dent the confidence of the
investors and jeopardise the process
of channelising savings into capital
market/investment
Accordingly, it may be advisable,
pending any clarification from the
SEBI and keeping in view the intent
of the law, all transactions across all
contracts (irrespective of the nature
of transactions) with a related party
should be aggregated while applying
the threshold for seeking approval of
shareholders.
If the aggregation of transactions

is only by type/category (e.g. sale
transactions, purchase transactions,
financing transactions, etc.), it could
be possible that such aggregated
amounts do not meet the materiality
threshold for shareholders approval.
This could lead to situations where
various related party transactions
may not require shareholders
approval.
It is important to note that the focus
of AS 18 is to provide guidance on
disclosures regarding related party
transactions whereas the intention of
the SEBI is to protect the interests
of shareholders. Therefore, it would
be appropriate to consider the intent
of the legislation in revision of Clause
Related party transactions
18
Year-end reminders

Provides a reminder of the recently issued financial reporting and regulatory developments
that may affect financial statements as at 31 March 2015.
The year- end review highlights major developments in accounting, disclosure and regulatory matters in India
along with the new accounting and disclosure matters in International Financial Reporting Standards and United
States Generally Accepted Accounting Principles. The year-end review is intended to be a reminder to our readers
of developments that may affect financial statements for companies during the year ending 31 March 2015 or in
future periods. We would recommend the readers refer to the official standards or other information for complete
descriptions of the new requirements and their respective provisions.
Indian Generally Accepted Accounting Principles (IGAAP)

I. MCA developments
Revision in the rules on creation
of Debenture Redemption Reserve
(DRR)
The Companies (Share Capital and
Debentures) Rules, 2014 (Rules)
issued by the Ministry of Corporate
Affairs (MCA) on 27 March 2014,
required companies to create DRR
equivalent to at least 50 per cent
of the amount raised through the
debenture issue. Subsequently, from
1 April 2014, the Rules have changed
the requirement for creation of DRR.
The Rules have exempted following

companies:

All India Financial Insititutions

regulated by the Reserve Bank of
India (RBI) and banking companies
in relation to public and privately
place debentures
non-banking financial companies

(NBFCs) and other financial
institutions covered by section
2(72) of the Companies Act, 2013
for privately placed debentures.
The Rules have reduced the

percentage of DRR from 50 per
cent to 25 per cent for following

companies:

NBFCs and other financial

institutions covered by section
for publicly issued debentures
other companies (listed or unlisted)

for public and privately placed
debentures.
For a detailed overview of this change,

please refer to KPMGs First Notes
dated 19 May 2014.
19
The MCA vide notification dated

6 June 2014 has notified the
Companies (Acceptance of Deposits)
Amendment Rules, 2014 under
the Companies Act, 2013 where
companies have been permitted
to accept deposits without deposit
insurance till 31 March 2015. The
amendment came into force from 6
June 2014.
Additionally, the MCA vide notification
dated 6 June 2014 has notified
Section 74(2) and Section 74(3) of the
Companies Act, 2013 relating to
power of the Tribunal to extend time
period for companies for repayment
of deposits accepted under the 1956
Act with an effective date of 6 June
2014. The MCA has also notified
that until the National Company Law
Tribunal is constituted under the
Companies Act, 2013 the Board of
Company Law Administration shall
continue to exercise powers in this
regard.
till provisions relating to registered

valuer are implemented,
valuation report is to be made
by an independent merchant
banker (registered with the
SEBI) or independent Chartered
Accountant in practice (minimum
experience of 10 years) in case
of preferential offer of shares/
other securities for non-cash
consideration
Clarifications regarding Corporate

Social Responsibility (CSR)
Some of the important clarifications
relating to CSR are as follows:
The MCA vide notification dated

12 June 2014 has notified the
Companies (Declaration and Payment
of Dividend) Amendment Rules,
2014. Amended rules require set-off
of carried over previous losses and
also the depreciation against the
profit of the current year, in order to
declare dividend instead of earlier
requirement to set-off lower of
carried over previous year losses or
depreciation. Rules became effective
from 12 June 2014.
For a detailed overview of this change,
dated 18 June 2014.
For a detailed discussion on this,

please refer to KPMG Firsts Notes
dated 23 June 2014.
Amendment to rules relating to

payment of dividend
The MCA vide notification dated 18

June 2014 has issued the Companies
(Share Capital and Debentures)
Amendment Rules, 2014. As per this:

equity shares with differential

voting rights issued under
Companies Act 1956 will continue
to be regulated as per the
provisions of the Companies Act,
1956/Rules
the price of shares or other
securities to be issued on
preferential basis shall not be
less than the price determined on
classes of companies allowed

to issue secured debentures
for a period upto 30 years, now
include (i) infrastructure finance
companies (ii) infrastructure
debt fund non banking finance
companies.
Schedule VII: The MCA vide

general circular dated 18 June
2014 has provided clarifications
regarding provisions related to
CSR under the Companies Act,
2013. The clarification illustrates
the activities which capture the
essence of items included in
schedule VII of the Companies Act,
2013. In this regard, the MCA also
provided that the CSR activities
should be undertaken by a
company as a project/ programme
in accordance with its approved
CSR policy. One- off events such
as awards/charitable contribution,
etc. would not qualify as CSR
expenditure.
Amendment to rules relating to

issue of shares and debentures
CSR staff as well as to volunteers

of the companies (in proportion
to companies time/hours spent
specifically on CSR) can be
factored in to the CSR project cost
as part of CSR expenditure stands
withdrawn.
the basis of valuation report of a

registered valuer
Amendment of rules relating to

acceptance of deposits
CSR expenditure: Rule 4(6) of

the Companies (Corporate Social
Responsibility Policy), Rules 2014,
has been amended by MCA vide
circular dated 12 September
2014. The amendment states
that expenditure on building
CSR capacities of their own
personnel as well as those of their
implementing agencies including
expenditure on administrative
overheads should not exceed
five per cent of the total CSR
expenditure of the company in
one financial year. In this regard,
the MCA also clarified that its
earlier clarification that salaries
paid by the companies to regular
Penalty for non-compliance

with CSR provisions: The MCA
vide its press release dated 9
December 2014 has stated that in
case a company does not comply
with the provisions relating to
CSR under Section 135 of the
Companies Act 2013, penalty
provisions under Section 134(8)
of the Companies Act, 2013 will
be applicable. As per Section
134(8) of the Companies Act,
2013, if a company contravenes
the provisions of this section, the
company shall be punishable with
a fine which shall not be less than
INR50,000 but which may extend
to INR25 lakh and every officer of
the company who is in default shall
be punishable with imprisonment
for a term which may extend to
three years or with fine which shall
not be less than INR50,000 but
which may extend to INR5 lakh, or
with both.
Provisions for related party

transactions modified/ clarified
The MCA vide notification dated 9
July 2014 has issued the Companies
(Removal of Difficulties) Fifth Order,
2014. The order makes the following
corrections with regard to the
definition of related parties:

Related party with reference

to a company means a public
company in which a director is a
director and holds along with his
relatives more than two per cent
of paid up share capital (previously
all directors or all holders of two
percent shares were related
parties)
Similarly, the MCA vide

notification dated 24 July 2014
further amended the definition
of related parties under the
Companies Act, 2013 to mean a
private company in which relative
of a director is a member or
director
Further, the MCA vide general

circular dated 17 July 2014
provided clarifications regarding
(i) restriction on voting by a
related party to apply only for the
contracts it is interested in
20
(ii) Section 188 of the Companies

Act, 2013 does not apply to
corporate restructuring and
amalgamation transactions
(iii) past contracts which were
in compliance with section 297
of the Companies Act, 1956 will
not require fresh approvals under
section 188 of the Companies Act,
2013 till expiry of original term of
the contract. If any modification is
made in such contracts on or after
1 April 2014, then requirements as
per section 188 of the Companies
Act, 2013 need to be complied
with.
For detailed clarifications, please refer
to KPMGs First Notes dated 18 July
2014.
Amendment to the norms
relating to useful life and residual
value; clarifies certain aspects of
capitalisation of costs
Amendments to schedule II of the
Companies Act, 2013
Useful life prescribed in schedule
II of the Companies Act, 2013 are
indicative
At present schedule II requires the
following:
(i) the useful life of an asset should
not be longer than the useful life
prescribed in Part C of schedule II,
and
(ii) the residual value of an asset
should not be more than five per cent
of its original cost
unless the company adopting a useful
life or using a residual value different
from the above limits, discloses the
justification for the difference in the
financial statements.
The amendments made by the MCA
now prescribe the following:
(i) the useful life of an asset should
not ordinarily be different from those
prescribed in Part C of schedule II,
(ii) if a company adopts a useful life
different from those prescribed in
Part C of schedule II or uses a residual
value higher than five per cent of the
original cost of the asset, the financial
statements would need to disclose
the fact and provide a justification for
different useful life or residual value
duly supported by technical advice.
Component approach mandatory
from 1 April 2015
Schedule II currently requires
that companies should determine
significant components of their
assets and if useful life of such
significant components is different

from useful life of the asset then
the useful life of that significant
component would be determined
separately (i.e. follow a component
approach).
The MCA has amended the

applicability date for following the
component approach. As per the
amendment, component approach
would be voluntary in respect of the
financial year commencing on or after
1 April 2014, and will be mandatory
for the financial statements in respect
of financial years commencing on or
after 1 April 2015.
Based on the above principle, the

MCA has clarified that in case one
of the units of a power project is
ready for commercial production
and is capable of being used, while
the other units are still under
construction, costs incurred upto
the point the unit becomes ready
for commercial production are
eligible for capitalisation. Cost
incurred after the unit is ready for
use can not be capitalised even
though other units are still under
construction.
Adjustment to opening retained

earnings not mandatory
Currently, schedule II prescribes
specific transitional guidance to
enable companies to comply with the
provisions of the Act. The transition
requires that on 1 April 2014 the
carrying amount of the asset:
(i) would be depreciated over the
remaining useful life of the asset as
per the schedule II,
(ii) after considering the residual

value, would be adjusted against the
opening balance of retained earnings
where the remaining useful life of an
asset is nil.
The MCA has amended the
requirement for adjustment of the
opening balance of the retained
earnings by making it optional for
companies.
Capitalisation of costs by
companies constructing power
projects
After consulting the Accounting
Standards Board of the Institute
of Chartered Accountants of India,
the MCA has provided following
clarifications for companies involved
in the construction of power projects:

The MCA has further clarified that

principles of AS 10 and AS 16 is
applicable to all power projects i.e.
whether the power project is a
cost plus project or a competitive
bid project.
For an overview of these
amendments, please refer to
KPMGs First Notes dated 1
September 2014.
Rationalisation of norms
relating to consolidated financial
statements and internal financial
controls systems
The MCA has vide notifications dated
14 October 2014 amended/ clarified
provisions relating to:

Intermediate wholly owned

subsidiary (WoS) incorporated in
India would be exempted from
preparing consolidated financial
statements (CFS). However, this
exemption is not available for
WoS whose immediate parent is
a company incorporated outside
India
Preparation of complete CFS by

a company that does not have
one or more subsidiaries but have
just an associate or joint
venture- amended to grant a
transition period for the financial
year commencing 1 April 2014 and
ending on 31 March 2015. After
31 March 2015, this relief is not
available
Under AS 10, Accounting for Fixed

Assets and AS 16, Borrowing
Costs, only costs that increase the
worth of the assets are eligible for
capitalisation.
Based on this principle, the
MCA has clarified that the costs
incurred during any periods of
extended delay in commencement
of commercial production (for
reasons beyond the control of the
developer) after the power plant is
ready for use does not increase the
worth of fixed assets. Therefore,
cost during such periods should
not be capitalised as costs of the
power project.
AS 16 provides that when

the construction of an asset
is completed in parts and a
completed part is capable of being
used while construction continues
for the other parts, capitalisation
of borrowing costs in relation to
the completed part should cease
when substantially all the activities
necessary to prepare that part
for its intended use or sale are
complete.
21
Reporting on the internal

financial control systems by the
auditors, mandatory for financial
years commencing on or after 1
April 2015 amended to grant a
transition period
The Schedule III related

disclosures made in stand-alone
financial statements which are not
to be repeated in CFS.
These amendments/ clarifications

have been applicable from 14 October
2014. For an overview of these
amendments, please refer to KPMGs
First Notes dated 16 October 2014.
The Companies Act, 2013, vide
Section 129(3), prescribes the
requirements for preparation of the
(CFS). Through a notification issued
on 16 January 2015, the MCA
has provided transitional relief to
companies that have one or more
subsidiaries incorporated outside
India from preparation of CFS for
the purpose of reporting for the first
financial year under the Companies
Act, 2013.
whether it could be treated as a

small company if either the paid up
capital or turnover threshold is met
despite exceeding the monetary
limit criteria of the other. In view of
this, the definition of small company
has been amended to provide that a
company would be considered as
a small company provided it meets
the monetary limits, both, for turnover
and paid up capital.
Further, Section 186 of the
Companies Act, 2013 has been
amended to provide that any
acquisition of securities in the
ordinary course of business, made
by a banking company or an
insurance company or a housing
finance company will not attract the
provisions of Section 186 (except
sub-section 1 relating to investments
through not more than two layers).
For a summary of these

amendments, please refer to
KPMGs First Notes dated 17
September 2014.

II. SEBI developments

SEBIs amendments to corporate
governance norms


First Notes dated 22 January 2015.
Clarification regarding foreign
currency convertible bonds
(FCCBs) and foreign currency
bonds (FCBs)
The MCA vide general circular dated
13 November 2014 has clarified that
issue of FCCBs and FCBs exclusively
to persons resident outside India
would continue to be governed by
Issue of Foreign Currency Convertible
Bonds and Ordinary Shares (through
depository receipts mechanism)
scheme, 1993 and RBI directions/
regulations. Provisions of Chapter
III of the Companies Act, 2013 will,
however, be applicable if specifically
required by such regulations.
MCA amends definition of small
company
The Securities and Exchange

Board of India ( SEBI) vide circular
dated 17 April 2014 amended
the corporate governance norms
for listed companies in India
to be effective from 1 October
2014. Although, many 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. The revised
norms, inter-alia, have significantly
revised the requirements relating
to independent directors, their
compensation, related party
transactions, etc. The revised
norms have also introduced
several new requirements such as:
governing principles for corporate
governance, limit on number of
directorships of independent
directors, new disclosure
requirements such as appointment
letter and resignation letter of
directors, etc.
For a clause by clause comparison
with the pre-revised corporate
governance norms along with
comparison with Companies Act,
2013 please refer to KPMGs First
Notes dated 22 April 2014.
The MCA vide order dated 13

February 2015 issued the Companies
(Removal of Difficulties) Order, 2015.
The Companies Act, 2013 required
that a company, other than a public
company, could be classified as a
small company if its paid up share
capital does not exceed INR5 million
(or such other amount as may be
prescribed) or its turnover as per the
last profit and loss account does
not exceed INR20 million. Many
companies faced difficulties on
to the appointment of a woman

director, independent directors,
nomination and remuneration
committee, material subsidiaries,
risk and management committee,
related party transactions, certain
disclosures and certification of
financial statements by the CEO.
The clause 49 continues to be
applicable to all listed companies
with effect from 1 October 2014
except for appointment of woman
director which will be applicable
from 1 April 2015.
The Clause 49 of the Equity

Listing Agreement was further
amended on vide circular
dated 15 September 2014. The
amendments provide amended
applicability criteria along with
amendments to clauses related
Additionally, the SEBI has also

amended clause 35B of the Equity
Listing Agreement extending the
e-voting facility to all shareholders
resolutions to be passed at
the general meeting instead of
such facility being open to only
businesses transacted through
postal ballot as per the pre-revised
clause 35B.
SEBI releases new norms for public

issue of debt securities
The Securities and Exchange Board
of India (SEBI) vide circular dated 17
June 2014 has issued new norms
for public issue of debt securities.
Some of these relate to details
regarding minimum subscription
of debt securities which has been
specified as 75 per cent of the issue
size. Similarly, issue size should be a
minimum of INR1 billion or more. It
also provides for detailed disclosures
in prospectus.
SEBI (Share Based Employee
Benefits) Regulations, 2014
On 28 October 2014, the Securities
and Exchange Board of India, (SEBI)
has notified SEBI (Share Based
Employee Benefits) Regulations,
2014. These regulations replace
the existing SEBI (Employee Stock
Option Scheme and Employee Stock
purchase Scheme) guidelines, 1999
(erstwhile guidelines).

As compared to the erstwhile

guidelines, the new regulations
are also applicable to a) stock
appreciation rights schemes
b) general employee benefits
schemes c) retirement benefit
schemes in addition to employee
stock option schemes and
employee stock purchase
schemes
22
The regulations contain detailed

requirements in case of
implementation of schemes
through trusts
The requirement of composition
of compensation committee has
been aligned with that of the
Companies Act, 2013
Additional items requiring
shareholders approval have been
specified including secondary
acquisition for implementation
of the schemes and secondary
acquisition by the trust in case
the share capital expands due to
capital expansion undertaken by
the company
The regulations provide that any
company following any of the
share base schemes should follow
the requirements of the
Guidance Note on accounting for
employee share based payments
or accounting standards as may
be prescribed by the Institute of
Chartered Accountants of share
based payments or accounting
standards as may be prescribed
by the Institute of Chartered
Accountants of India (ICAI),
including disclosure requirements
prescribed therein
These regulations are effective

from 28 October 2014. The
regulations have specified
provisions to transition to the
regulations.
III. RBI developments

Impact of unhedged foreign
currency exposure on borrowing
costs
RBI vide circular dated 3 June 2014
has issued certain clarifications with
regard to certain provisions of the
guidelines on capital and provisioning
requirements for exposures to
entities with Unhedged Foreign
Currency Exposure (UFCE). These
guidelines were applicable from 1
April 2014. Though the requirements
pertain to banks, they impact
relevant companies since ultimately
the banks will pass on the cost of
compliance through lending rates
to the companies. Companies need
to gear up their systems and foreign
currency policies in order to manage
their borrowing costs.
For detailed clarifications issued by
RBI, please refer to KPMGs First
Notes dated 5 June 2014.
RBI changes regulatory framework

for NBFCs
The Reserve Bank of India (RBI) vide
circular dated 10 November 2014
made certain amendments to the
regulatory framework governing the
Non- Banking Finance Companies
(NBFCs). Key revised requirements
relate to:

minimum net owned funds
deposit acceptance
criteria for classifying non- deposit

taking NBFCs and systematically
important non- deposit taking
NBFCs
prudential norms related to

different categories of NBFCs
asset classification
percentage of provision required

for standard assets
corporate governance and

disclosure related norms.
IV. Other regulatory

developments
Enhancement of wage ceiling for
schemes under EPF Act
The Ministry of Labour and
Employment vide notifications
dated 22 August 2014 made certain
amendments to the Employees
Provident Funds Scheme, 1952.
These include raising the statutory
wage ceiling for mandatory provident
fund (PF) contribution from INR6,500
to INR15,000 per month. Similar
changes have also been made
under Employees Pension Scheme,
1995 and Employees DepositLinked Insurance Scheme, 1976.
Contribution in case of higher salaries
is voluntary.
V. Guidance Notes/
Application Guides
issued by the
Institute of Chartered
Accountants of India
(ICAI)
Following guidance notes has been
issued by the ICAI during the year
2014-15:
from accounting period beginning on

or after 1 April 2015. Early adoption of
the guidance note is also permitted.
Guidance Note on Reporting on
Fraud under Section 143(12) of the
Companies Act, 2013
The ICAI has issued the Guidance
Note on Reporting on Fraud under
Section 143(12) of the Companies Act,
2013 on 2 March 2015.
Application guide on the
provisions of schedule II to the
Companies Act, 2013
The ICAI has issued an application
guide on 10 April 2015 which includes
provisions of the Companies Act,
2013 and Schedule II relating to
depreciation. It provides application
guidance for implementing the
requirements of the Schedule II and
it is applicable to all companies for
preparation of its financial statements
commencing on or after 1 April 2014.
The Guidance Note on Accounting for
Depreciation in Companies and the
Guidance note on Some Important
Issues Arising from the Amendment
to Schedule XIV to the Companies
Act, 1956 will continue to also
apply to the extent applicable post
implementation of Schedule II of the
Companies Act, 2013.
This application guide provides
clarifications and examples for
issues arising on implementation of
Schedule II.
VI. Expert Advisory

Committee Opinions
ICAI has recently issued opinions on:

Accounting for expenditure on

shared infrastructure facilities and
depreciation thereon (ICAI Journal
the Chartered Accountant April
2014)
Accounting treatment of
subsequent expenditure on
technological upgradation/
Improvements on capital assets
(ICAI Journal the Chartered
Accountant May 2014)
Treatment of commission
cost paid to agent in relation
to projects (ICAI Journal the
Chartered Accountant June 2014)
Accounting treatment of dividend

declared by mutual fund in debt
fund scheme under dividend reinvestment plan (ICAI Journal the
Chartered Accountant July 2014)
Guidance Note on Accounting for

Rate Regulated Activities
The ICAI has issued the Guidance
Note on Accounting for Rate
Regulated Activities on 18 February
2015. The guidance note is effective
23
expenditure incurred on stamp
duty and registration fees for
increase in authorised capital (ICAI
Journal the Chartered Accountant
August 2014)
Accounting treatment of liquidated

damages on unexecuted portion
of contract (ICAI Journal the
Chartered Accountant September
2014)
Accounting treatment of raw

materials sent to manufacturer
by the company for getting
finished product (ICAI Journal the
Chartered Accountant October

2014)

Disclosure of revenue as per AS

9 (ICAI Journal the Chartered
Accountant November 2014)
Determination of stage of
completion in construction
contracts (ICAI Journal the
Chartered Accountant December
2014)
Applicability of tax rate in quarterly

financial results (ICAI Journal the
Chartered Accountant February
2015).
Presentation of write-back of
provisions no longer required
in the statement of profit and
loss (ICAI Journal the Chartered
Accountant March 2015)
contribution to a cluster project
(ICAI Journal the Chartered
Accountant January 2015)
International Financial Reporting Standards (IFRS)

Investment Entities (Amendments
to IFRS 10, IFRS 12 and IAS 27)
On 31 October 2012, the IASB
published the Investment Entities
(Amendments to IFRS 10, IFRS
12, and IAS 27), according to which
a qualifying investment entity is
required to account for investments
in controlled entities, as well as
investments in associates and joint
ventures at fair value through profit
or loss with some exceptions. The
consolidation exception is mandatory
and not optional. The amendments
became applicable for annual periods
beginning on or after 1 January
2014. For details on this topic, please
refer to the Accounting and Auditing
Update June 2013 issue.
(Source: First Impressions: Consolidation relief
for investment funds; Accounting and Auditing
Update September 2014)
Offsetting Financial Assets and

Financial Liabilities - Amendments
to IAS 32
Para 42 of IAS 32, Financial
instruments Disclosure and
Presentation, provides A financial
asset and a financial liability shall be
offset and the net amount presented
in the statement of financial position
when, and only when, an entity:

Currently has a legally enforceable

right to set off the recognised
amounts; and
Intends either to settle on a net

basis, or to realise the asset and
settle the liability simultaneously.
According to the amendment,

an entity currently has a legally
enforceable right to set-off if that right
is:

Not contingent on a future event;

and
Enforceable both in the normal

course of business and in the
event of default, insolvency or
bankruptcy of the entity and all
counterparties.
Further, to meet the criterion in

paragraph 42(b) an entity must intend
either to settle on a net basis or to
realise the asset and settle the liability
simultaneously.
The amendment clarifies that if an
entity can settle amounts in a manner
such that the outcome is, in effect,
equivalent to net settlement, the
entity will meet the net settlement
criterion in paragraph 42(b). This
will occur if, and only if, the gross
settlement mechanism has features
that eliminate or result in insignificant
credit and liquidity risk, and that will
process receivables and payables in a
single settlement process or cycle.
These amendments became
applicable for annual periods
beginning on or after 1 January 2014
and should be applied retrospectively.
(Source: Accounting and Auditing Update
September 2014)
Defined benefit plans: Employee

contributions (amendments to IAS
19)
IAS 19, Employee Benefits, as
released in 2011 required companies
to forecast future service related
contributions from employees
and attribute those contributions
to periods of service as negative
benefits under the plans benefit
formula or on a straight-line basis. As
a result such contributions would be
included when calculating net current
service cost and the defined benefit
obligation. This could require complex
actuarial calculations.
IAS 19 as amended now permit

companies to reduce such
contributions from the service cost
in the period in which the related
service is rendered provided such
contributions:

are set out in the formal terms of

the plan
linked to service
independent of number of
years of service for example,
contributions that are a fixed
percentage of the employees
salary.
The amendment is relevant for

defined benefit plans that involve
contributions from employees or
third parties meeting the criteria as
mentioned above. For example
certain provident fund plans which
are classified as defined benefit
plans.
The amendments are required to be
retrospectively applied for annual
periods beginning on or after 1 July
2014. Earlier application is permitted.
(Source: In The Headline 2013-20; Accounting
and Auditing Update September 2014)
IFRIC 21, Levies

IFRIC 21, Levies, lays guidance for
accounting for a liability to pay a levy
in accordance with the requirements
of IAS 37, Provisions, Contingent
Liabilities and Contingent Assets.
IFRIC 21 defines a levy as an
outflow of resources embodying
economic benefits that is imposed
by governments on entities in
accordance with legislation.
24
This IFRIC scopes out liabilities to pay

income taxes as per IAS 12, Income
taxes fines or penalties imposed for
breaches in legislation and liabilities
arising from emission trading
schemes.
IFRIC 21 aims to address the
timing of recognition of such a
levy. Accordingly it requires entities
to identify triggering event that
necessitates the payment of levy
in accordance with the legislation,
which is when the liability should be
recognised. It clarifies that an entity
does not recognise a liability at an
earlier date, even if it has no realistic
opportunity to avoid the triggering
event.
To illustrate, an entity is liable to pay
a levy if it generates revenues in a
specific market on 1 January 2015.
Under the interpretation, it does not
recognise a liability at 31 December
2014,even if it is economically
compelled to operate in 2015 and
prepares financial statements on a
going concern basis.
This IFRIC explains further that the
liability to pay a levy is recognised
progressively if the obligating
event occurs over a period of time.
Similarly, if an obligation to pay a
levy is triggered when a minimum
threshold is reached, then no liability
is recognised until this minimum
threshold is reached.
The amendments equally apply to
interim financial statements. The
amendments became applicable
for annual periods beginning on or
after 1 January 2014. Any changes
in accounting policies from the initial
application of IFRIC 21 should be
accounted for retrospectively as per
IAS 8.
(Source: In the Headlines- Issue 2013/09;
Accounting and Auditing Update September
2014)
Significant developmentsannual improvements

2010-12 cycle
Amendment to IFRS 2, Sharebased Payment
These amendments clarified the
definition of vesting conditions
by adding definitions for service
condition and performance condition.
The amendments also clarified the
definition of market condition.
Performance condition:
According to the new definition, for
a condition to be a performance
condition, it needs to meet both of
the following criteria:
a. Requirement for the counterparty
to complete service condition,
which may be explicit or implicit
b. Meeting specified performance
target while the counterparty
is rendering the service as
mentioned in (a) above
The amendments clearly state
that the period for achieving the
performance target(s) cannot
extend beyond the end of the
service period, but it may start
before the service period provided
that the commencement date
of the performance target is
not substantially before the
commencement of the service period.
As such, performance targets
achieved after the requisite service
period would not be accounted for as
a performance condition, but would
instead be accounted for as a nonvesting condition. The amendment
also clarifies both:

how to distinguish between

a market and a non-market
performance condition and
the basis on which a performance

condition can be differentiated
from a non-vesting condition.
For example, a share market index

target would be a non-vesting
condition even if an entitys shares
form part of that index because
such an index, reflects not only the
performance of the entity, but also
the performance of other entities
outside the group.
Any failure to complete a specified
service periodeven due to the
entity terminating an employees
employmentwould represent a failure
to satisfy a service condition.
Market condition: The definition of
market condition is amended to clarify
that it requires the counter party to
complete service condition which
may be explicit or implicit. Further it
is clarified that a market condition
can be used on the market price of
the entitys equity instruments or the
equity instruments of another group
entity.
The IASB considered that changes in

the definitions as above may result in
changes to the grant date fair value
of share based payments for which
grant date was in previous periods.
Thus to avoid the use of hindsight,
these amendments in IFRS are
applicable prospectively for share
based payments transactions for
which the grant date is on or after 1
July 2014.
(Source: KPMGs IFRS The Balancing
Items-2013-06; Accounting and Auditing Update
September 2014)
Amendment to IFRS 3, Business

Combinations
IFRS 3, Business combinations, has
been amended to clarify that the
classification as a liability or equity
of any contingent consideration
in a business combination, that is
a financial instrument, should be
determined as per IAS 32 Financial
Instruments: Disclosure and
Presentation, rather than as per any
other IFRSs.
Further, contingent consideration that
is classified as an asset or a liability is
always subsequently measured at fair
value (rather than being measured at
amortised cost), with changes in fair
value recognised in profit or loss.
Consequential amendments are also
made to IAS 39 Financial Instruments:
Recognition and Measurement
and IFRS 9 Financial Instruments.
In addition, IAS 37 Provisions,
Contingent Liabilities and Contingent
Assets is amended to exclude
provisions related to contingent
consideration of an acquirer.
The amendment became applicable
prospectively to business
combinations for which the
acquisition date is on or after 1 July
2014 .
(Source: Annual improvements 2010-2012 cycle
as published by the IASB and KPMGs IFRS
The Balancing Items -Issue 6; Accounting and
Auditing Update September 2014)
25
Amendment to IFRS 8, Operating

Segments
IFRS 8, Operating Segments, has
been amended to explicitly require
the disclosure of judgements made
by management in applying the
aggregation criteria. The disclosures
include:

a brief description of the operating

segments that have been
aggregated; and
the economic indicators that have

been assessed in determining
that the operating segments share
similar economic characteristics.
In addition, this amendment clarifies

that a reconciliation of the total of
the reportable segments assets to
the entitys assets is required only if
this information is regularly provided
to the entitys chief operating
decision maker. The amendments
are applicable for annual periods
beginning on or after 1 July 2014.
Earlier application is permitted.
The Balancing Items -Issue 6;Accounting and
Amendment to IAS 24, Related

Party Disclosures
IFRS 13, Fair Value Measurement

Measurement of short-term
receivables and payables
The IASB has clarified that in issuing
IFRS 13 and making consequential
amendments to IAS 39 and IFRS 9, it
did not intend to prevent entities from
measuring short- term receivables
and payables that have no stated
interest rate at their invoiced amounts
without discounting, if the effect of
not discounting is immaterial.
as published by the IASB and KPMGs IFRS The
Balancing Items -Issue 6)
IAS 16, Property, Plant and

Equipment and IAS 38, Intangible
Assets
The amendments clarify the
requirements of the revaluation
model in IAS 16 and IAS 38,
recognising that the restatement
of accumulated depreciation
(amortisation) is not always
proportionate to the change in the
gross carrying amount of the asset.
Accordingly, IAS 16 and IAS 38 have
been amended to clarify that, at the
date of revaluation:

the gross carrying amount:
is adjusted in a manner that is

consistent with the revaluation
of the carrying amount of
the asset- e.g restated in
proportion to the change in
the carrying amount or by
reference to observable market
data; and
the accumulated depreciation

(amortisation) is adjusted to
equal the difference between
the gross carrying amount and
the carrying amount of the
asset after taking into account
accumulated impairement
losses; or
IAS 24, Related Party Disclosures

has been amended to include a
management entity that provides key
management (KMP) services to the
reporting entity or to the parent of the
reporting entity in the definition of
related party.
In this regard amounts incurred
by the reporting entity for the
provision of KMP services by such
management entity should be
separately disclosed. However, it is
clarified that the reporting entity is not
required to disclose compensation
paid by the management entity to
the individuals providing the KMP
services. Nevertheless, the reporting
entity will also need to disclose other
transactions with the management
entity under the existing disclosure
requirements of IAS 24 e.g. loans.
The amendments are applicable for
annual periods beginning on or after
1 July 2014. Earlier application is
permitted.
The Balancing Items -Issue 6; Accounting and
the accumulated depreciation

(amortisation) is eliminated against
the gross carrying amount of the
asset.
The amendment is applicable for

annual periods beginning on or after
1 July 2014. Earlier application is
permitted. If an entity applies that
amendment for an earlier period it
shall disclose that fact.
as published by the IASB and KPMGs IFRS The
Balancing Items -Issue 6)
Others
Recoverable Amount Disclosures
for Non- Financial Assets
(Amendments to IAS 36)
The IASB has issued amendments to
reverse the unintended requirement
in IFRS 13 Fair Value Measurement to
disclose the recoverable amount of
every cash-generating unit to which
significant goodwill or indefinite-lived
intangible assets have been allocated.
Under the amendments, recoverable
amount is required to be disclosed
only when an impairment loss has
been recognised or reversed.
The amendments apply
retrospectively for annual periods
beginning on or after 1 January 2014
(Source: IFRS Breaking News)
IFRS 9, Financial Instruments

On 24 July 2014, the International
Accounting Standards Board
(IASB) issued the completed
version of its new standard on
financial instruments- IFRS 9
Financial Instruments. IFRS 9 (2014)
consolidates the previous three
versions of IFRS 9 to replace IAS
39 in entirety. The new standard
includes revised guidance on the
classification and measurement of
financial assets, including impairment,
and supplements the new hedge
accounting principles published in
2013.
Classification and measurement
Although the permissible
measurement bases for financial
assets- amortised cost, fair value
through other comprehensive
income (FVOCI) and fair value through
profit and loss (FVTPL)- are similar
to IAS 39 Financial Instruments:
Recognition and Measurement,
the criteria for classification into
appropriate measurement category
are significantly different. Embedded
derivatives are no longer separated
from financial asset hosts, instead,
the entire hybrid instrument
is assessed for classification.
For financial liabilities, IFRS 9
retains almost all of the existing
requirements from IAS 39. However,
the gain or loss on a financial
liability designated at FVTPL that is
attributable to changes in its
26
credit risk is usually presented in

OCI; the remaining amount of change
in fair value due to asset specific
performance risk is presented in
profit or loss.
Impairment
The new impairment model is similar
to the model proposed in 2013. IFRS
9 replaces the incurred loss model
in IAS 39 with an expected credit
loss model, which means that a loss
event will no longer need to occur
before an impairment allowance is
recognised. The standard aims to
address concerns about too little, too
late provisioning for loan losses, and
will accelerate recognition of losses.
Hedge accounting
The new hedge accounting
requirements seek to deliver a more
principles based approach that aligns
hedge accounting more closely with
risk management.
One of the major changes that the
new standard has brought about is
that now the components of the nonfinancial items may also be hedged.
Another major change is the
elimination of bright lines to assess
hedge effectiveness. Hitherto hedge
was considered to be highly effective
if the changes in the fair value or cash
flow of the hedging instrument and
the hedged item are within the range
of 80 to 125 per cent. However, the
new standard has replaced such
rule based approach with more
qualitative, forward-looking hedge
effectiveness assessments.
The new standard has a mandatory
effective date of 1 January 2018,
but may be adopted early. As the
standard has been completed in
stages, the relatively few entities that

have adopted a previously released
version of IFRS 9 can continue to
use it until then. In addition, entities
can adopt in isolation the part of the
standard that allows them to reflect
the effects of changes in credit risk
on certain marked-to-market liabilities
outside of profit or loss. For an
overview of the complete standard,
please refer to the August 2014
edition of Accounting and Auditing
Update (AAU).
(Source: First impressions: IFRS 9 Financial
Instruments)
IFRS 15, Revenue from Contracts

with Customers
On 28 May 2014, the IASB and FASB
issued IFRS 15/ASC 606 Revenue
from Contracts with Customers. This
new standard will apply to every
entity under IFRS and US GAAP.
The new standard replaces IAS
11 Construction Contracts, IAS 18
Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreement
for the Construction of Real Estate,
IFRIC 18 Transfers of Assets from
Customers, SIC-31 Revenue- Barter
Transactions Involving Advertising
Services.
The new standard provides a single
converged framework for revenue
recognition, replacing existing
revenue guidance in IFRS and US
GAAP. It moves away from the
industry and transaction specific
requirements under US GAAP,
which was also used by some IFRS
preparers in the absence of specific
IFRS guidance. New qualitative and
quantitative disclosure requirements
aim to enable financial statement
users to understand the nature,
amount, timing and uncertainity of
revenue and cash flows arising from

contracts with customers.
A five-step model has been
introduced to determine when to
recognise revenue and at what
account. The model specifies that
revenue should be recognised when
(or as) an entity transfers control
of goods or services to a customer
at the amount to which the entity
expects to be entitled. Depending
on whether certain criteria are met,
revenue is recognised:

over time, in a manner that depicts

the entitys performance; or
at a point in time, when control

of the goods or services is
transferred to the customer.
The new standard provides

application guidance on numerous
topics, including warranties and
licenses. It also provides guidance on
when to capitalise costs of obtaining
or fulfilling a contract that are not
addressed in other accounting
standards- e.g. for inventory.
For entities applying IFRS, the new
standard is effective for annual
periods beginning on or after 1
January 2017. Early adoption is
permitted only under IFRS.
For an overview of the complete
standard, please refer to the July
2014 edition of Accounting and
Auditing Update.
(Source: First impressions: Revenue from
contracts with customers 2014)
27
Year end reminders

United States Generally Accepted Accounting Principles (U.S. GAAP)
Service concession arrangements
ASU 2014-05 deals with accounting
for service concession arrangements
(SCA) and states that an operating
entitys rights resulting from public-toprivate SCAs that meet the following
conditions should be accounted for
as a service arrangement rather than
a lease:

The public sector entity controls or

has the ability to modify or approve
what services the operating
entity must provide with the
infrastructure, to whom it must
provide them, and at what price;
and
The public sector entity controls
any residual interest in the
infrastructure at the end of the
arrangement through ownership,
beneficial entitlement, or another
arrangement.
The arrangement may result in

recognition of a financial asset, an
intangible asset, or both by the
private sector entity. The private
sector entity would be precluded
from recognising property, plant,
and equipment (PPE) for payments
it makes to the public sector entity,
even if those payments are for
construction or renovations of PPE.
The effective date for public entities
is for interim and annual periods
beginning after 15 December
2014. The effective date for nonpublic entities is for annual periods
beginning after 15 December 2014
and interim periods thereafter.
Discontinued operations
ASU 2014-08 changes the definition
of discontinued operations under
U.S. GAAP to bring it closer to
IFRS guidance. The ASU defines
discontinued operations as either:

a component of an entity (or a

group of components) that:
has been disposed of, meets

the criteria to be classified
as held-for-sale, or has been
abandoned/spun-off, and
represents a strategic shift that

has (or will have) a major effect
on an entitys operations and
financial results, or
is a business or nonprofit activity

that, on acquisition, meets the
criteria to be classified as held-forsale.
As per the ASU, continuing

involvement in the disposed
component is no longer relevant for
evaluating discontinued operations
presentation. However, the ASU
requires specific disclosures about
an entitys continuing involvement
with discontinued operations and
disposals of individually insignificant
components that do not qualify as
discontinued operations.
Disposals of equity method
investments (or those held-forsale), among other items, are now
eligible for discontinued operations
presentation if they meet the new
definition. However, discontinued
operations presentation continues to
be precluded for disposals of oil and
gas properties that are accounted for
using the full-cost method.
For public business entities and
certain not-for-profit entities, the ASU
is effective prospectively for disposals
(or classifications as held-for-sale)
occurring within annual periods
beginning on or after 15 December
2014, and interim periods within
those annual periods. For other
entities, the guidance is effective
for disposals (or classifications as
held-for-sale) occurring within annual
periods beginning on or after 15
December 2014 and interim periods
thereafter.
Early application is permitted, but only
for those disposals (or classifications
as held-for-sale) that have not been
reported in financial statements
previously issued or available for
issuance. While companies may early
adopt prospectively in a quarter other
than their first quarter, they are not
permitted to retrospectively apply
the new standard to disposals (or
classifications as held-for-sale) that
have been reported in previously
issued financial statements under the
previous guidance.
Repurchase agreements
ASU 2014-11 issues a new standard
that requires repurchase-to-maturity
transactions and repurchase financing
arrangements to be accounted for as
secured borrowings.
Transfers of financial assets executed

with a contemporaneous repo will
no longer be evaluated to determine
whether they should be accounted
for on a combined basis as forward
contracts.
The ASU requires new disclosures for
transactions similar to repos in which
the transferor retains substantially
all of the exposure to the economic
return on the transferred financial
assets. It also requires additional
disclosures about the nature of
collateral pledged in repos that are
accounted for as secured borrowings.
For public business entities, the
accounting changes and certain
disclosure requirements are effective
for the first interim or annual period
beginning after 15 December 2014.
Other disclosure requirements are
effective for annual periods beginning
after 15 December 2014 and for
interim periods beginning after 15
March 2015. Early application is
prohibited.
For entities other than public business
entities, all changes are effective for
annual periods beginning after 15
in fiscal years thereafter. An entity
that is not a public business entity
may elect to apply the requirements
for interim periods beginning after 15
December 2014.
Transitioning to the Committee of
Sponsoring Organisations of the
Treadway Commission (COSO)
2013
In May 2013, COSO released its
updated Internal Control Integrated
Framework (2013 Framework).
The changes made to update the
1992 Framework are evolutionary,
not revolutionary. The 2013
Framework updates the original
COSO Framework released in 1992.
The 2013 Framework contains 17
principles and related points of
focus that bring additional structure
and rigor to the five components of
internal control and demonstrates
that the control environment is the
foundation for a sound system of
internal control. Further, the 2013
Framework includes more extensive
discussion about the types of fraud
(fraudulent financial reporting,
misappropriation of assets, and illegal
28
acts) and management override

of controls and the organisations
response to fraud risk. The 2013
Framework also includes other
updates to reflect changes in the
business environment since the 1992
Framework was released.
Transition - timeline
COSO Board had announced that the
2013 Framework will supersede the
1992 Framework on 15 December
2014. At the 2014 AICPA SEC
Conference, the SEC staff stated
that they do not intend to question
registrants who continue to use
the COSO 1992 Framework in their
ICFR assessment for this calendar
year-end. The SEC staff is more likely
to question the use of a superseded
framework with the passage of time.
Registrants are required to disclose
which COSO Framework is used in
managements annual assessment
of ICFR. While it remains uncertain
whether the SEC will ultimately set
a transition date, questions as to
why a registrant continues to use a
superseded framework will become
more legitimate with the passage of
time.
Changes to pension mortality
tables
The Society of Actuaries (SOA)
updated its mortality tables and
mortality improvement scale
in October 2014. The updated
mortality data reflect increasing life
expectancies in the United States.
Companies should consider the SOAs
new mortality data for U.S. based
defined benefit pension and other
postretirement benefit plans when
making their mortality assumptions
for year-end 2014 financial reporting.
For companies that adopt the new
mortality tables or revise their
projection scale, the effect on the
pension or other postretirement
benefit obligation may be material.
Plan sponsors will need to document
how they considered available
mortality information and applied it
to the facts and circumstances of the
plan to arrive at their best estimates
when measuring their defined benefit
retirement obligations.
New option for push down
accounting
ASU 2014-17 provides an option of
pushdown accounting for acquired
entities upon acquisition by a new
controlling parent. The decision
on whether to apply pushdown
accounting would be made

independently for each acquisition
by a new parent. Once pushdown
accounting is applied to a particular
change-in-control event, that election
is irrevocable.
Entities that elect to apply this ASU
upon acquisition by a new parent
would reflect in their separate
financial statements the new basis
of accounting established by the
acquirer for the individual assets and
liabilities of the acquired entity by
applying ASC Topic 805- Business
Combinations.
An acquired entity would
recognise goodwill that arises
from the application of ASC Topic
805- Business Combinations in
its separate financial statements.
However, a bargain purchase gain, if
any, would not be recognised in the
acquired entitys income statement,
and would instead be recorded
in equity. Acquisition-related debt
incurred by an acquirer would be
recognised in the separate financial
statements of the acquired entity
only if that entity is required to do so
under other U.S. GAAP.
A consolidated subsidiary of an
acquired parent would also have
the option to apply the ASU in
its separate financial statements
whether or not the acquired parent
applies pushdown accounting in its
consolidated financial statements.
The ASU was effective on 18
November 2014. Acquired companies
electing to apply the guidance must
do so prospectively for transactions
in which the acquirer has obtained
control after 18 November 2014. If
the financial statements for the
period including the most recent
change-in-control event already have
been issued or made available to
be issued, the acquired entity may
still be able to retroactively apply
the new guidance, but application
would be a change in accounting
principle and therefore, subject to a
preferability analysis. Entities are not
allowed to retrospectively eliminate
pushdown accounting applied to prior
transactions.
would reduce the NOL or other carry

forward under the tax law and the
entity intends to use the deferred tax
asset for that purpose.
ASU became effective for public
companies from 15 December 2013.
For non - public companies, the ASU
is effective annual and interim periods
Early adoption and retrospective
application are permitted.
Accounting Standards
affecting Companies in
2015 and beyond
Accounting for goodwill
The amendments brought by ASU
14 - 02, apply to all entities except for
public business entities and not-forprofit entities as defined in the Master
Glossary of the Accounting Standards
Codification (ASC) and employee
benefit plans within the scope of
Topics 960 through 965 on plan
accounting.
The amendments allow an accounting
alternative for the subsequent
measurement of goodwill. Thus,
an entity within the scope of
the amendments that elects the
accounting alternative should
amortise goodwill on a straight-line
basis over 10 years, or less than 10
years if the entity demonstrates that
another useful life is more appropriate.
An entity that elects the accounting
alternative is further required to make
an accounting policy election to test
goodwill for impairment at either the
entity level or the reporting unit level.
The accounting alternative, if elected,
should be applied prospectively to
goodwill existing as of the beginning
of the period of adoption and new
goodwill recognised in annual periods
beginning after 15 December 2014,
and interim periods within annual
periods beginning after 15 December
2015. Early application is permitted,
including application to any period for
which the entitys annual or interim
financial statements have not yet
been made available for issuance.
Presentation of certain
unrecognised tax benefits
ASU 2013-11 requires entities to
present the unrecognised tax benefit
as a reduction of the deferred tax
asset for a net operating loss (NOL),
similar tax losses or tax credit carry
forward rather than as a liability
when the uncertain tax position
29
Accounting for goodwill

14 - 02, apply to all entities except for
Glossary of the Accounting Standards
Codification (ASC) and employee
accounting.
The amendments allow an accounting
alternative for the subsequent
measurement of goodwill. Thus,
an entity within the scope of
the amendments that elects the
accounting alternative should
amortise goodwill on a straight-line
basis over 10 years, or less than 10
years if the entity demonstrates that
another useful life is more appropriate.
An entity that elects the accounting
alternative is further required to make
an accounting policy election to test
goodwill for impairment at either the
entity level or the reporting unit level.
The accounting alternative, if elected,
should be applied prospectively to
goodwill existing as of the beginning
of the period of adoption and new
goodwill recognised in annual periods
beginning after 15 December 2014,
and interim periods within annual
2015. Early application is permitted,
including application to any period for
which the entitys annual or interim
financial statements have not yet
been made available for issuance.
The simplified hedge accounting

approach provides entities with a
practical expedient to qualify for cash
flow hedge accounting under Topic
815. The simplified hedge accounting
approach will be effective for annual
2014, and interim periods within
December 2015, with early adoption
permitted. Private companies
have the option to apply these
amendments using either a modified
retrospective approach or a full
retrospective approach.
Please refer to our March 2014 issue
of the Accounting and Auditing
Update for a detailed discussion on
this topic.
Common control leasing
ASU 2014-07 gives an option to
private entity lessees to not apply
the variable interest entity (VIE)
consolidation guidance in FASB
Accounting Standards Codification
Topic 810 to some lessor entities
under common control. A private
entity lessee can elect not to apply
the VIE consolidation guidance to
a lessor if all the four conditions
mentioned in the ASU are met.
A private entity that elects the
alternative would, instead of providing
VIE disclosures, be required to
disclose:

Simplified hedge accounting

approach
14-03 apply to all entities, except for
Glossary of the FASB ASC, employee
accounting, and financial institutions.
The amendments allow the use of the
simplified hedge accounting approach
to account for swaps that are entered
into for the purpose of economically
converting a variable-rate borrowing
into a fixed-rate borrowing. Under
this approach, the income statement
charge for interest expense will be
similar to the amount that would
result if the entity had directly entered
into a fixed-rate borrowing instead
of a variable-rate borrowing and a
receive-variable, pay-fixed interest
rate swap. Alternatively, that entity
may continue to follow the current
guidance in Topic 815.
Amount and key terms of liabilities

recognized by the lessor that
expose the private entity to
providing financial support to the
lessor, and
A qualitative description of
circumstances (e.g., certain
commitments and contingencies)
not recognised in the financial
statements of the lessor that
expose the private entity to
providing financial support to the
lessor.
The guidance is effective for annual

2014 and interim periods within
December 2015. Early adoption is
allowed and retrospective application
is required.
Going concern
ASU 2014- 15 issues a new standard
on going concern which describes
how entities should assess their
ability to meet their obligations
and sets disclosure requirements
about how this information should
be communicated. As per the new

guidance, entities must perform
a going concern assessment by
evaluating their ability to meet
their obligations for a look-forward
period of one year from the financial
statement issuance date (or date the
financial statements are available to
be issued).
The ASU amended the Master
Glossary of the FASBs Accounting
Standards Codification to specifically
define substantial doubt in the
context of assessing going concern
uncertainties. Substantial doubt
about an entitys ability to continue as
a going concern exists if it is probable
that the entity will be unable to meet
its obligations as they become due
within one year after the date the
annual or interim financial statements
are issued or available to be issued
(assessment date). Management
needs to consider known (and
reasonably knowable) events and
conditions at the assessment date.
Disclosures are required if it is
probable an entity will be unable
to meet its obligations within the
look-forward period. Incremental
substantial doubt disclosure is
required if the probability is not
mitigated by managements plans.
The ASU applies to all entities for the
first annual period ending after 15
thereafter, with early adoption
permitted.
Accounting for share- based
payments with certain
performance targets
ASU 2014-12 clarified that
performance targets that could
be achieved after the requisite
service period should be treated
as performance conditions. Those
performance conditions would not be
reflected in estimating the grant date
fair value of the award, but instead
would be accounted for when the
achievement of the performance
condition becomes probable. Any
previously recognised compensation
cost would be reversed if the
performance target was previously
determined to have been probable
of being achieved but later is
determined to no longer be probable
of being achieved or the award is
forfeited before the service condition
is met.
30
Similar treatment would be

required when grants are made to
retirement-eligible employees who
may receive their awards without
providing any future service to the
entity if achievement of the awards
performance target subsequently
becomes probable.
For all companies, the ASU is
effective for annual periods, and
interim periods within those annual
periods, beginning after 15 December
2015. Early adoption is permitted.
The ASU may be adopted either
prospectively for share-based
payment awards granted or modified
on or after the effective date, or
retrospectively, using a modified
retrospective approach. The modified
retrospective approach would apply
to share-based payment awards
outstanding as of the beginning of the
earliest annual period presented in
the financial statements on adoption,
and to all new or modified awards
thereafter.
FASB eliminates extraordinary
items concept
ASU 2015-01 eliminates the separate
presentation of extraordinary items,
net of tax and the related earnings
per share. The concept of an event or
transaction being unusual in nature
or infrequent in its occurrence is
not impacted by the release of the
ASU. The ASU does not affect the
requirement to disclose material
items that are unusual in nature or
infrequently occurring.
Entities will continue to evaluate
whether items are unusual in nature
or infrequent in their occurrence for
presentation and disclosure purposes
and when estimating the annual
effective tax rate for interim reporting
purposes.
Revenue recognition standard

released
ASU 2014-09 issues a new standard
on revenue recognition. For U.S.
GAAP, the standard generally
eliminates transaction and industry
specific revenue recognition guidance.
This includes current guidance
on long-term construction-type
contracts, software arrangements,
real estate sales, telecommunication
arrangements, and franchise sales.
The new standard substantially
converged revenue recognition under
U.S. GAAP and IFRS.
The ASU is effective for public entities
(public business entities and certain
not-for-profit entities and employee
benefit plans) for fiscal years, and
interim periods within those years,
beginning after 15 December 2016
(1 January 2017 for calendar year
end public entities), and for other
entities for years beginning after 15
December 2017, and interim and
annual periods thereafter. Early
adoption is not permitted for public
entities under U.S GAAP. (It is
permitted under IFRS.) Early adoption
is permitted for nonpublic entities
but no earlier than the public entities
adoption date. Entities may adopt
the guidance retrospectively for all
years presented (with certain optional
practical expedients available) or
make a cumulative effect adjustment
to retained earnings on the date
of adoption. Entities planning to
adopt retrospectively may want to
begin gathering data and consider
running parallel accounting systems
for current guidance and the new
guidance beginning 1 January 2015.
Cumulative effect adopters will need
to evaluate open contracts as of the
adoption date.
The ASU is effective for interim

and annual periods in fiscal years
The ASU allows prospective or
retrospective application provided
certain conditions are met. Early
adoption is permitted if applied from
the beginning of the fiscal year of
adoption. The effective date is the
same for both public entities and all
other entities.
31
32
Regulatory
updates
The MCA clarifies the continuance
of provisions of Schedule XIII of
Companies Act, 1956 relating
to payment of managerial
remuneration under the
Companies Act, 2013
According to the provisions of
schedule XIII (sixth proviso to Para
(C) of Section ll of Part ll) of the
Companies Act, 1956, every listed
company or a subsidiary of a listed
company was allowed to make
payment of remuneration to the
managerial person in excess of limits
specified in para II Para (C) of such
schedule without approval of the
Central Government if the managerial
person meets the conditions
specified therein.
In order to address the concerns
raised by various stakeholders as
to whether such provisions would
be applicable under the Companies
Act, 2013, the MCA clarifies that
the managerial person will continue
to receive remuneration for his
remaining term in accordance with
the terms and conditions approved
by company as per relevant
provisions of schedule XIII even if
the part of his/her tenure falls after 1
April 2014.
(pdf) or in such other format as has

been specified under the Companies
Act, 2013 to the Registrar through
the portal maintained by the Central
Government on its website or
through any other website notified
by the Central Government. Once
filed, the registrar shall examine every
application or e-form and can call for
more information or explanations. The
Ministry of Corporate Affairs (MCA)
vide notification dated 24 February
2015 issued amended rules called the
Companies (Registration Offices and
Fees) Amendment Rules, 2015 where
sub-rule 7 has been added under Rule
10(6) which states that any further
information or documents called for,
in respect of application or e-form or
document, filed electronically with
the MCA shall be furnished in Form
No. GNL - 4 as an addendum. In the
annexure, a new form GNL - 4 has
been added after GNL - 3.
not more than 49 per cent of

the paid up capital of an Indian
insurance company to be held
by foreign investors by way of
foreign equity investment in its
equity shares, including portfolio
investors
at all times, ownership and control

of an Indian insurance company
shall remain with resident indian
entities
Foreign direct investment (FDI)

through automatic route to be
allowed upto 26 per cent of the
total paid-up equity of the Indian
insurance company
FDI investments more than 26

per cent upto 49 per cent shall be
on Foreign Investment Promotion
Board (FIPB) route and require
appropriate FIPB approvals
Foreign portfolio investment in

an Indian insurance company
to be governed by the relevant
provisions under the FEMA
Regulations, 2000 and provisions
of the Securities Exchange Board
of India (SEBI) (Foreign Portfolio
Investors) Regulations
Further, any increase of foreign

investment of an Indian insurance
company will be in accordance
with the pricing guidelines
specified by RBI under the FEMA.
(Source - Notification by Ministry of

Corporate Affairs dated 24 February 2015)
RBIs prior approval for change

in shareholding of registered
securitisation companies/
reconstruction companies
In order to safeguard the interests
of investors, the Reserve Bank of
India (RBI) vide notification dated
24 February 2015 has provided that
all securitisation companies (SC)
or reconstruction companies (RC)
need to obtain prior approval of the
RBI for any substantial change in
management by way of transfer of
shares only in the following cases:

any transfer of shares by which the

transferee becomes a sponsor
(Source: General Circular No. 15/07 dated 10

April 2015)
any transfer of shares by which the

transferor ceases to be a sponsor
The Companies (Registration

Offices and Fees) Amendment
Rules, 2015
an aggregate transfer of ten per

cent or more of the total paid up
share capital of the SC/RC by a
sponsor during the period of five
years commencing from the date
of certificate of registration.
Companies (Registration Offices

and Fees) Amendment Rules, 2014
requires every company including
a foreign company carrying on
business through electronic mode to
file application, financial statements,
prospectus, return, declaration,
memorandum, articles, particulars
of charges, or any other particulars
or document or any notice, or any
communication or intimation required
to be filed or delivered or served
under the Companies Act, 2013 and
rules to be filed or delivered or served
in computer readable electronic
form, in portable document format
The rules are effective from 19

February 2015.
(Source - Notification by Ministry of Finance
dated 19 February 2015)
The MCA clarifies applicability of

lending norms on loans and/or
advances to employees
Section 186 (2) of the Companies Act,
2013 provides that no company shall
directly or indirectly:

give any loan to any person or

other body corporate
give any guarantee or provide

security in connection with a loan
to any other body corporate or
person
acquire by way of subscription,

purchase or otherwise, the
securities of any other body
corporate.
(Source - Notification by RBI dated 24 February

2015)
Indian Insurance Companies

(Foreign Investment) Rules, 2015
Based on extensive consultation
with relevant organisations and
departments, the Ministry of Finance
vide notification dated 25 February
2015 issued the Indian Insurance
Companies (Foreign Investment)
Rules, 2015. Key highlights of these
rules are as under:
exceeding 60 per cent, of its paid up

share capital, free reserves
33
per the approved changes now,

disclosure is to be made to the
stock exchange(s) first, as soon
as reasonably practicable and not
later than 24 hours of occurrence
of event/information.
and securities premium account

or 100 per cent of its free reserves
and securities premium account,
whichever is more.
The Ministry of Corporate Affairs
vide general circular dated 10 March
2015 has clarified that loans and/ or
advances made by the companies
to their employees, other than the
managing or whole time directors
(which is governed by section 185
of the Companies Act) would not be
governed by provisions of section 186
provided the prescribed conditions
are met.
For an overview of this clarification,

dated 12 March 2015.
(Source - MCA General Circular No. 04/2015
dated 10 March 2015)
MCA revamps e-voting norms;

relaxes compliance requirements
(MCA) issues new rules relating
to shares capital and debentures;
revamps e-voting norms and relaxes
compliance requirements for
preferential offers, requirements
for creation of charge/mortgage and
procedures have been relaxed for
certain powers of the board.
The approved changes now

requires the listed entities to
provide specific and adequate
reply to the queries of stock
exchange(s) with respect to
rumours and on its own initiative
also, confirm or deny any
reported information to the stock
exchange(s). No such requirement
was present in the earlier
proposed regulations.
Earlier, there were no prescribed

parameters for determining
materiality except in cases of
related party transactions and
subsidiaries. However, the
approved changes have specifically
provided following two criterias
for a listed entity to determine
whether a particular event/
information is material:
SEBI in its meeting held on 22 March

2014 has inter alia taken the following
important decisions:
Review of continuous disclosure
requirements for listed entities
Earlier, the listed entity needed

to immediately notify/ inform
the stock exchange of all events
which will have a bearing on
the performance/ obligations
of the listed entity as well as
price sensitive information. As
Currently, the listed entity should

disclose on its website all events/
information which is material. The
approved changes additionally
require that such information shall
be hosted for a minimum period of
5 years and thereafter as per the
archival policy of the listed entity,
as disclosed on its website.
The amendments to the proposed
regulations now specifically
requires disclosure of all material
events or information with respect
to subsidiaries.
SEBI board meeting
On 5 May 2014, SEBI had issued

draft SEBI (Listing Obligations
and Disclosures Requirements)
Regulations, 2014 specifying
disclosure requirements for listed
entities. The SEBI has continuously
been reviewing the disclosure
requirements and in its board
meeting on 22 March 2015 have
approved the following changes to the
proposed SEBI (Listing Obligations
and Disclosures Requirements)
Regulations:
Approved changes requires the

updation of disclosure on material
developments on a regular
basis till such time the event/
information is resolved/closed with
explanations wherever necessary
in addition to current requirement
of making disclosure at the time of
occurrence and after the cessation
of the event.

First Notes dated 26 March 2015.
(Source - Notification by Ministry of Corporate
Affairs dated 18 March 2015)
The timeline for disclosure of

outcome of board meetings has
been extended from 15 minutes
to 30 minutes from the closure of
the meeting as per the approved
changes.
the omission of an event/

information, which is likely
to result in discontinuity /
alteration of information already
available publicly; or result in
significant market reaction if the
said omission came to light at a
later date
if in the opinion of the Board of

Directors of the listed entity, the
event /information is considered
material.
Also, the listed entity is now

required to formulate a policy for
determination of materiality and
should display it on its website.
The new disclosure requirements
require rationalisation, consolidation,
enhancement and categorisation of
the existing list of events into two
parts:

Events which are by nature

material i.e. those that necessarily
require disclosure without any
discretion by the listed entity.
Events which shall be construed to

be material based on application
of the guidelines for materiality, as
specified by SEBI.
Further, the SEBI to specify an

indicative list of information which
may be disclosed upon occurrence of
an event as per the approved changes
to regulations.
Conversion of debt into equity by
banks and financial institutions (FIs)
The SEBI after consultation with
the RBI has decided to relax the
applicability of certain provisions
of the SEBI (Issue of Capital
and Disclosure Requirements)
Regulations, 2009 and the SEBI
(Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 in cases
of conversion of debt into equity of
listed borrower companies in distress
by the lending institutions. Such
relaxation in terms of pricing will be
subject to the allotment price being
as per a fair price formula prescribed
and not being less than the face
value of shares. Other requirements
would be available if conversions are
undertaken as part of the proposed
Strategic Debt Restructuring (SDR)
scheme of RBI.
Other key decisions taken in the
meeting were related to SEBI
guidelines on International Financial
Services Centres (IFSC), SEBI (Issue
and Listing of Debt Securities by
Municipalities) Regulations, 2015 and
certain amendments to SEBI (Mutual
Funds) Regulations, 1996 regarding
managing/ advising of offshore
pooled funds by local fund managers.
(Source - SEBI Board Meeting dated 22 March
2015; PR No. 70/2015)
34
It has further been amended that

companies are permitted to accept
deposits without deposit insurance
contract till 31 March 2016 instead
of 31 March 2015 or till the
availability of a deposit insurance
product, whichever is earlier.
Clarification regarding applicability

of Companies (Acceptance of
Deposits) Rules 2014
vide its notification dated 31 March
2015, has issued the Companies
(Acceptance of Deposits)
Amendment Rules, 2015 which
inter alia include the following
amendments:

Treatment of past application

money pending allotmentEarlier, amounts received by way
of subscriptions to shares, stock,
certain bonds or debentures
pending allotment and calls in
Treatment of past application
money pending allotment- Earlier,
amounts received by way of
subscriptions to shares, stock,
certain bonds or debentures
pending allotment and calls in
advance on shares were not
considered as deposits under
section 58A of the Companies
Act, 1956. The Ministry of
Corporate Affairs vide circular
dated 31 March 2015 has clarified
that unless otherwise required
under the Companies Act, 1956
or the Securities and Exchange
Board of India Act 1992 or Rules
or Regulations made thereunder
to allot any share, stock, bond
or debenture within a specified
period, if a company had
received any amount by way of
subscriptions to shares, stock,
bonds or debentures before 1
April 2014 and had disclosed in the
balance sheet for the financial year
ending on or before the 31 March
2014 against which the allotment
was pending on 31 March 2015,
the company shall, by 1 June 2015,
either:
return such amounts to the

persons from whom these
were received,
allot shares, stock, bonds or

debentures, or
comply with the deposits Rules

- 2014.
Credit ratings for deposits and

insurance cover- The notification
also provides that every eligible
company as prescribed in the
deposit Rules- 2014 shall obtain at
least once in a year, credit rating
for deposits accepted and file a
copy of the rating to the Registrar
of companies along with the return
of deposits in the prescribed form.
Clarification for amounts

received by private companies
from their members, directors
or their relatives prior to 1 April
2014- Such amounts should not
be treated as deposits under the
Act and the deposit Rules - 2014
provided the company discloses
in the notes to its financial
statements for the financial year
commencing on or after 1 April
2014, the figure of such amounts
and the accounting head in which
such amounts have been shown
in the financial statements. Any
renewal or acceptance of fresh
deposits on or after 1 April 2014
should be in accordance with
the provisions of the Act and the
deposit Rules - 2014
For detailed overview of the

clarifications, please refer to KPMGs
First Notes dated 2 April 2015.
(Source - General Circular 05/2015 dated 30
March 2015 and notification dated 31 March
2015 issued by the Ministry of Corporate Affairs)
Revised regulatory framework for

non-banking financial companies
(NBFCs)
The Reserve Bank of India (RBI), vide
notification dated 27 March 2015,
has issued various notifications
for meticulous compliance of the
revised regulatory framework for
NBFCs. Amongst others, the RBI has
specified that in order to commence
business or carry on the business
of an NBFC, all NBFCs are required
to have two hundred lakhs as the
net owned funds. However, an
NBFC already holding a certificate
of registration issued by the RBI and
having net owned fund of less than
INR20 million may continue to carry
on business of an NBFC provided:

it achieves the limit of INR10

million of net owned funds by 1
April 2016, and
limit of INR20 million of net owned

funds by 1 April 2017.
(Source - Notification by the RBI dated 27 March

2015)
35
36
KPMG in India offices

Ahmedabad
Commerce House V
9th Floor, 902 & 903
Near Vodafone House,
Corporate Road, Prahlad Nagar
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Kochi
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Fax: +91 484 302 7001
Chandigarh
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Tel: +91 172 393 5777/781
Fax: +91 172 393 5780
Kolkata
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Mumbai
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www.kpmg.com/in
Introducing KPMG in India IFRS Institute

KPMG in India is pleased to re-launch IFRS Institute - a web-based platform, which seeks
to act as a wide-ranging site for information and updates on IFRS implementation in India.
The website provides information and resources to help board and audit committee
members, executives, management, stakeholders and government representatives
gain insight and access to thought leadership publications that are based on the evolving
global financial reporting framework.
IFRS Notes
IFRS convergence a reality now!
MCA notifies Ind AS standards and
implementation roadmap
This issue of our
IFRS Notes provides
a high level analysis
of the much awaited
Indian Accounting
Standards (Ind AS) that
are converged with
International Financial
Reporting Standards
(IFRS), which was
finally notified by the
Ministry of Corporate
Affairs on 16 February 2015.
The notification of these IFRS converged
standards aims to fill up significant gaps
that exist in the current accounting
guidance, and India can now claim to
have financial reporting standards that are
contemporary and virtually on par with
leading global standards. This in turn may
improve Indias place in global rankings on
corporate governance and transparency in
financial reporting.
With the notification of 39 Ind AS standards
together with the implementation roadmap,
coupled with the progress made on finalising
the Income Computation and Disclosure
Standards (ICDS), the government has
potentially addressed several hurdles
which possibly led to deferment of Ind AS
implementation in 2011.
Companies should make an impact
assessment and engage with stakeholders,
both internal and external, to deal with their
respective areas of impact and ensure a
smooth transition.
Missed an issue of Accounting and Auditing

Update or First Notes?
ICDS A new paradigm
for computing taxable
income
On 31 March 2015,
The Ministry of Finance
has issued ten Income
Computation and
Disclosure Standards
(ICDS), operationalising
a new framework for
computation of taxable
income by all assesses.
All assesses would be required to adopt these
standards for the purposes of computation of
taxable income under the heads Profit and
gains of business or profession and Income
from Other Sources. These standards are
applicable for previous year commencing from
1 April 2015, i.e., Assessment Year 2016-17
onwards.
KPMG in India is
pleased to present
Voices on Reporting
a monthly series of
knowledge sharing
calls to discuss current and emerging issues
relating to financial reporting
On 18 March 2015, we covered the following
topics :
I. Overview of section 143(12) of the
Companies Act, 2013
II. Persons covered for reporting under section
III. Reporting on frauds in various scenarios.
The notification of these ICDS is quite timely

and important, especially considering that
the timelines for adoption of Ind AS (IFRS
converged standards) have also been notified,
which permits voluntary adoption for financial
year 2015-16. Providing a tax neutral framework
for transition to Ind-AS was a prerequisite for
smooth implementation of Ind AS from this
year.
The adoption of ICDS will significantly alter
the way companies compute their taxable
income, as many of the concepts from existing
Indian GAAP have been modified. This may
also require changes to existing process and
systems. Our First Notes provides an overview
of key matters and roadmap for implementation
of ICDS, along with our brief comments.
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The information contained herein 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
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ACCOUNTING

Schemes of Amalgamation: Compatibility with GAAP p1

Partner and Head,

The end of March tends to have a surprise

implementation of Indian Accounting Standards

In India, for mergers and acquisitions, many

The Companies Act, 2013 introduced stringent

This article aims to:

Mergers and acquisitions

Amalgamations), but also due to

Transfer of revaluation reserve of

Adjustment of post merger period

In an amalgamation in the nature of

In an amalgamation in the nature of

Adjustment of goodwill against

Expenses incurred on merger

There may be several other examples.

A description of the accounting

Deviations in the accounting

The financial effect, if any, arising

The ICAI also issued a general

auditor should assess the impact

The Companies Act, 2013, has

In this context, it becomes

Accounting for investments in

AS 28, Investments in Associates

Key impact areas on Ind

GAAP currently does not consider the

Loss of significant influence

a loss of significant influence or joint

under severe long term restrictions.

Under IFRS, in case the investors

Under IFRS, an investor in its

IFRS requires the financial

Applicable from accounting periods beginning on or after 1 January 2016

ICDS- A new paradigm for

The Ministry of Finance has

ICDS are expected to fill up some gaps

The genesis of ICDS

2015-16. Providing a tax neutral

What you need to

AS have been modified. These ICDS

Key impact areas

Unlike Accounting Standard

Unlike, AS 16, exchange

ICDS has also prescribed a

directly funded out of specific

ICDS states that, in case of a

ICDS prescribe non-recognition of

ICDS does not contain detailed

In addition, ICDS on construction

The transitional provisions under

ICDS does not recognise the

Construction contracts and

ICDS does not permit accounting

ICDS does not permit the capital

Accordingly, ICDS requires

Further, ICDS prescribe that

ICDS provides that the exchange

Provisions, contingent liabilities

Unlike existing AS, ICDS require

In addition, ICDS also require

These changes presumably have