TRAINING PROGRAMS

• The exemption arises because many first-time adopters may not have all the information necessary to apply Ind AS 103 to past business combinations
• A first-time adopter has the following options:
  1. apply Ind AS 103 retrospectively to all past business combinations.
  2. apply Ind AS 103 to restate a past business combination and any later business combinations.
  3. not apply Ind AS 103 to any past business combinations.

Exemption only for ‘business combinations’

• Exemption applicable only to transactions that meet Ind AS 103’s definition of a business combination.
• The exemption is not applicable to acquisitions of assets including entities holding one or more assets that do not constitute a business
• Business: An integrated set of activities and assets that generally consists of a) inputs, b) processes and c) the ability to create outputs; rebuttable presumption that a group of assets in which goodwill is present is a business [Ind AS 103]

Asset purchase that is not a business

Example

• Prior to its transition date, a first-time adopter ABC acquired a group of assets.
• Under previous GAAP, this transaction was treated as a business combination.
• However as per Ind ASs this transaction should be treated as an asset purchase and not a business combination.
• Therefore, the exemption is not available to ABC in relation to this asset purchase.

Example

Approach when exemption is availed

• classification of the business combination as an acquisition by the legal acquirer, a reverse acquisition by the legal acquiree, or uniting of interests.
• the assets and liabilities acquired or assumed in the past business combination that are included in/excluded from the opening balance sheet.
• measurement in the opening balance sheet of assets and liabilities acquired or assumed in the past business combination.
• goodwill recognised in the past business combination.

Classification of business combination

• Same classification of the business combination as per previous GAAP is retained.
• The first time adopter does not restate the accounting using the purchase method.
• The requirements for recognising and measuring assets and liabilities are still applicable for assets acquired in business combination.

Recognition in the opening balance sheet

Items recognised under previous GAAP

Compound Financial Liabilities

As per Ind AS 32, an entity is required to split compound financial liability and equity components at inception.  An entity need not reassess the equity and liability components subsequently after the first assessment. Ind AS 101 provides an exception when the liability component no longer exists, retrospective application of Ind AS 32 may not be necessary as splitting would amount to merely separating two portions of equity and really does not serve any useful purpose.  The first portion is in retained earnings and represents the cumulative interest accreted on the liability component.  The other portion represents the original equity component. Hence the first time adopters need not separate these two portions if the liability component is no longer outstanding at the date of transition.

Designation of previously recognised Financial Liability

A financial liability is normally designated as measured at amortized cost.  However, a financial liability can be designated as a financial liability at Fair Value through Profit or Loss when it meets certain criteria i.e. it substantially eliminates or reduces amounting mismatch and such designation is made at the inception of the liability without any undue delay.  In spite of this requirement as per Ind AS 101, an entity is permitted to designate any financial liability as at Fair Value through Profit or Loss at the date of transition provided the liability meets the criteria mentioned above.

Designation of previously recognised Financial Asset

An entity is allowed to designate a Financial Asset as measured at Fair Value through Profit or Loss in accordance with the facts and circumstances that exist on initial recognition.  The designation is possible only if it reduces the accounting mismatch and done without any undue delay.  However as per Ind AS 101, an entity may designate based on the facts and circumstances that exist at the date of transition to Ind AS.

Designation of previously recognised Equity Instrument

An entity may designate an investment in equity investment either at Fair Value through Profit or Loss or at Fair Value through other comprehensive income depending upon the facts and circumstance that exist at the date of inception of such equity investment.  The entity is allowed to designate an investment in equity instrument as Fair Value through Other Comprehensive Income provided it is not held for trading purposes and such designation is made without undue delay.  In spite of this requirement, an entity is permitted as per Ind AS 101 to designate an Equity Instrument as Fair Value through Other Comprehensive Income on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

Fair Value of Financial Assets / Financial Liabilities at initial recognition

An entity may apply the requirements relating to fair value of financial assets and financial liabilities at initial recognition prospectively to transactions entered into on or after the date of transition to Ind ASs.

Extinguishing Financial Liabilities with Equity Instruments

A first-time adopter may apply the Appendix D of Ind AS 109 Extinguishing Financial Liabilities with Equity Instruments from the date of transition to Ind ASs.

Designation of contracts to buy or sell a non-financial item

Certain contracts to buy or sell a non-financial item can be designated at inception as measured at fair value through profit or loss.

Despite this requirement an entity is permitted to designate, at the date of transition to Ind ASs, contracts that already exist on that date as measured at fair value through profit or loss but only if they meet the other requirements for doing so and the entity designates all similar contracts.

Four ways of settlement

1. Terms permit either party to settle in net in cash.
2. Contract is readily convertible to cash.
3. Terms not explicit but net settlement is the practice.
4. Practice is to take delivery but sold within a short period with profit motive.

Scope

• All the four types of contracts are within the scope of Ind AS 109.

Exceptions:

• (c) and (d) is out of scope if usually meant to take/give delivery of non-financial asset.
• May now be included within the scope of Ind AS 109 subject to certain conditions i.e., irrevocable and reduces accounting mismatch.
• Written options is always within the scope even if it results in taking or giving delivery of non-financial asset.

An entity is required to take into account the following while considering the accounting policies as per Ind AS 101:

• Use the same accounting policies in its opening Ind AS Balance Sheet and throughout all periods presented in its first Ind AS financial statements
• Accounting policies to comply with each Ind AS effective at the end of its first Ind AS reporting period
• May apply a new Ind AS that is not yet mandatory if that Ind AS permits early application
• Not apply different versions of Ind ASs that were effective at earlier dates

Changes in accounting policies

• Ind AS 8 does not apply to the changes in accounting policies an entity makes when it adopts Ind ASs or to changes in those policies until after it presents its first Ind AS financial statements.
• Ind AS 8’s requirements about changes in accounting policies do not apply in an entity’s first Ind AS financial statements.

Accounting policies changes during the year

If an entity

• changes its accounting policies during the period covered by its first Ind AS financial statements or
• changes its use of the exemptions contained in this Ind AS

it shall explain the changes between its first Ind AS interim financial report and its first Ind AS financial statements, and it shall update the reconciliations.

Two categories of adjustments – Mandatory & Optional

Two categories of adjustments to the principle that an entity’s opening Ind AS Balance Sheet shall comply with each Ind AS

a) Prohibit retrospective application of some aspects of other Ind ASs [Mandatory exceptions]

1. derecognition of financial assets and financial liabilities
2. hedge accounting
3. non-controlling interests
4. classification and measurement of financial assets
5. impairment of financial assets
6. embedded derivatives and
7. government loans

b) Grant exemptions from some requirements of other Ind ASs [Optional exemptions]

1. share-based payment transactions
2. insurance contracts
3. deemed cost
4. leases
5. cumulative translation differences
6. investments in subsidiaries, joint ventures and associates
7. assets and liabilities of subsidiaries, associates and joint ventures
8. compound financial instruments
9. designation of previously recognised financial instruments
10. fair value measurement of financial assets or financial liabilities at initial recognition
11. decommissioning liabilities included in the cost of property, plant and equipment
12. financial assets or intangible assets accounted for in accordance with Appendix C to Ind AS 115 Service Concession Arrangements
13. borrowing costs
14. extinguishing financial liabilities with equity instruments
15. severe hyperinflation
16. joint arrangements
17. stripping costs in the production phase of a surface mine
18. designation of contracts to buy or sell a non-financial item
19. revenue from contracts with customers and
20. non-current assets held for sale and discontinued operations

 In its opening Ind AS Balance Sheet, an entity shall

1. recognise all assets and liabilities whose recognition is required by Ind ASs
2. derecognise items as assets or liabilities if Ind ASs do not permit such recognition
3. reclassify items that it recognised as per previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity as per Ind ASs
4. remeasure all recognised assets and liabilities as per Ind ASs

Possible Inclusions

• Embedded derivatives not identified so far
• All derivatives at fair value
• Impairment loss allowance on financial guarantee contracts

Possible Exclusions

• Deferred costs that do not meet the Ind AS definition of an asset.
• Restructuring provisions where there is no legal or constructive obligation.
• General provisions or reserves where there is no legal or constructive obligation.
• Receivables for revenue where the risks and rewards of ownership have not been transferred to the buyer or the service has not been provided.
• Deferred tax assets where it is not probable there will be sufficient profits in future periods to recover the asset.

Possible Reclassifications

• Amounts classified as equity under the previous GAAP that would meet the definition of a liability in Ind AS.
• Assets and liabilities shown net under previous GAAP that cannot be offset under Ind AS.
• Assets and liabilities that are not classified into those amounts that are current and those that are non-current in accordance with Ind AS.
• Investments that must be classified in accordance with Ind AS 109.

Possible differences

• Deferred taxes in accordance with Ind AS 12.
• Provisions in accordance with Ind AS 37.
• Effect of business combinations.
• Changes in accounting policies requiring retrospective adjustments.
• Accounting errors requiring adjustment in earlier years.
• Use of functional currency which is different than the recording currency.
• Deferred Tax impact on consolidation.
• Fair Value measurements.
• PPE and intangible assets where the depreciation or amortisation period under previous GAAP does not comply with Ind AS.
• Capitalisation of borrowing costs and exchange differences.
• Intangible assets having indefinite useful life.
• Financial assets and liabilities that are measured in accordance with the requirements of Ind AS 109.

Retained earnings

• The accounting policies that an entity uses in its opening Ind AS Balance Sheet may differ from those that it used for the same date using its previous GAAP.
• The resulting adjustments arise from events and transactions before the date of transition to Ind ASs.
• Those adjustments are recognised directly in retained earnings at the date of transition to Ind ASs.

First Ind AS financial statements are the first and only financial statements in which the entity adopts Ind ASs as per the Ind ASs notified in the Companies Act 2013 and makes an explicit and unreserved statement in those financial statements of compliance with Ind ASs.
It should be noted that the entire set of standards notified by the Ministry of Corporate Affairs should be complied with by the entity without any exception for any standard.

Opening Ind AS balance sheet:

An entity should prepare opening Ind AS balance sheet at the date of transition to Ind AS. This becomes the starting point for its accounting as per the Ind ASs.

Roadmap – Phase I

Phase I

1. 1st April 2015 or thereafter: Voluntary Basis for all companies
2. 1st April 2016: Mandatory Basis

• Companies listed on Stock Exchange having net worth equal to or more than Rs.500 Crore
• Unlisted Companies having net worth equal to more than Rs.500 Crore
• Parent, Subsidiary, Associate and Joint Venture of above

Roadmap – Phase II

Phase II 1st April 2017 (Mandatory Basis)

1st April 2017 (Mandatory Basis)

• Parent, Subsidiary, Associate and JV of above
• Unlisted Companies having net worth equal to or more than Rs.250 Crore up to Rs.500 Crore
• All Listed Companies not covered in Phase I
• Other companies will continue to follow existing ASRoadmap for banks, NBFCs and insurance companies still to be decided
• Banks, Insurance Companies, MBFC’s, RRB’s not yet covered in Phase I and Phase II. Roadmap is notified subsequently

Requirements of an entity applying Ind AS for the first time

• The end of entity A’s first Ind AS reporting period is 31 March 2017 (For companies covered under Phase 1).
• Entity A decides to present comparative information in those financial statements for one year only.
• Its date of transition to Ind ASs is the beginning of business on 1 April 2015 (or, equivalently, close of business on 31 March 2015).
• Entity A presented financial statements in accordance with its AS (previous GAAP) annually to 31 March each March 2016.year up to, and including, 31

Entity A is required to apply the Ind ASs effective for periods ending on 31 March 2017 in preparing & presenting:
1. Its opening Ind AS balance sheet at 1 April 2015.
2. Balance sheet for 31 March 2017 (comparative for YE 31 March 2016).
3. Statement of profit and loss.
4. Statement of changes in equity.
5. Statement of cash flows for the year to 31 March 2017 (comparative for YE 31 March 2016).
6. Disclosures (including comparative information for YE 31 March 2016).

First Ind AS financial statements

An entity’s first Ind AS financial statements shall include at least
1. Three Balance Sheets
2. Two Statements of profit and loss
3. Two Statements of cash flows and
4. Two Statements of changes in equity and
5. Related notes
6. Includes comparative information for all statements presented

Non Ind AS info and historical summaries

• Historical summaries are sometimes presented for prior periods before the first period for which they present full comparative information in accordance with Ind ASs.
• Such summaries need not comply with the recognition and measurement requirements of Ind ASs.

Non-Ind AS comparative information

• Some entities present comparative information in accordance with previous GAAP as well as the comparative information required by Ind AS 1.
• In any financial statements containing historical summaries or comparative info as per previous GAAP, an entity shall:

1. label the previous GAAP information prominently as not being prepared as per Ind ASs and
2. disclose the nature of the main adjustments that would make it comply with Ind ASs.

• An entity need not quantify those adjustments.

Explanation & reconciliations

• An entity shall explain how the transition from previous GAAP to Ind ASs affected its reported Balance sheet, financial performance and cash flows.
• An entity’s first Ind AS financial statements shall include:

a) reconciliations of its equity as per previous GAAP to its equity as per Ind ASs for both of the following dates:
i. the date of transition to Ind ASs.
ii. the end of the latest period presented in the entity’s most recent annual financial statements in accordance with previous GAAP.

Reconciliations

• A reconciliation to its total comprehensive income as per Ind ASs for the latest period in the entity’s most recent annual financial statements.
• The starting point for that reconciliation shall be total comprehensive income as per previous GAAP for the same period or, if an entity did not report such a total, profit or loss under previous GAAP.
• The reconciliations shall give sufficient detail about material adjustments to the Balance Sheet and Statement of profit and loss.
• If an entity presented a Statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the Statement of cash flows.
• If an entity becomes aware of errors made under previous GAAP, it shall distinguish the correction of those errors from changes in accounting policies.

 Introduction

When an entity following accounting standards (AS) as per iGAAP gets transitioned into Ind AS, there would be some challenges faced by the entity. The initial issue is to have a proper starting point for preparation of the accounts as per Ind AS. The entity that wants to adopt Ind AS, should prepare an opening balance sheet that is consistent with Ind ASs.

Objective

The objective of Ind AS 101 is to ensure that the first Ind AS financial statements and interim financial reports contain high quality information and is transparent for the users and comparable over all the periods that are presented.
The standard also provides guidance to prepare the opening balance sheet so as to get a suitable starting point for accounting as per Indian Accounting Standards (Ind ASs). In all of these, the objective is that the high quality information should be generated at a cost that does not exceed the benefits.

Overview of Ind AS 101

• IFRS 1 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting IFRS.
• However, Ind AS 101 defines previous GAAP as the basis of accounting that a first-time adopter used for its reporting requirement in India immediately before adopting Ind AS.
• The change makes it mandatory for Indian entities to consider the financial statements prepared in accordance with existing notified Indian accounting standards as was applicable to them as previous GAAP when it transitions to Ind ASs.

Scope

Ind AS 101 applies to entities during its first Ind AS financial statements and also during each interim financial report under Ind AS 101. 

Scope exception:

• Ind AS 101 is applicable for the first time adoption of Ind AS only and does not apply to changes in accounting policies made by an entity that already applies Ind AS.
• Ind AS 101 is different from transition adjustment that is provided in each standard. When a new accounting standard is introduced, the standard provides as to how the issues relating to transitioning the standards from existing GAAP to
• Ind AS is mentioned in the respective standards. The transition adjustments will not be applicable to entities in India, as the entire set of 39 accounting standards are applicable with effect from the date on which it is set to be mandatorily applicable by the Ministry of Corporate Affairs.
• When an Ind AS is applicable, ipso facto it is applicable with effect from the date of inception of the entity and not from the date on which the standard becomes mandatorily applicable. In order to avoid the hardship caused to the entities
• while applying the same on a retrospective basis, every accounting standard contains a section known as ‘transition adjustments’ which specifies the way in which the entity can avail certain exceptions and exemptions from the rigors of implementing the standard on a retrospective basis.

Training on financial instruments

Training on financial instruments and accounting standards for financial instruments are important for all officers of the bank. As an endeavour to enable the banks in India to adopt the complex Indian Accounting Standards, especially accounting standards for financial instruments, we are happy to announce training program for the officers of the banks. The training is done as a workshop model with extensive hands on problems and solutions from real life scenarios. The interactive training program assumes no prior knowledge of accounting for the participants. As the entire subject may be relatively new to several participants, training is imparted from the basics. Training on the new set of standards is imperative, as this will enable the officers to understand the impact of convergence to Ind AS. Also, it will enable them to evaluate Ind AS based financial statements of their customers which will effectively improve the process of credit appraisal before granting such facilities to them. Needless to say that this knowledge will be useful in their responsibility of monitoring the financial performance of their customers on a periodical basis.

Mandatory application of Ind AS

The Ministry of Corporate Affairs on 18th January 2016 announced the road map for implementation of Ind AS for scheduled commercial banks, insurance companies and non-banking financial companies (NBFCs). They are required to prepare the Ind AS based financial statements beginning from 1st April 2018 onwards. It should be noted that Banks are prohibited from adopting Ind AS voluntarily from an earlier date other than the dates mentioned above.
Subsequently, in a notification issued by the Reserve Bank of India (RBI) on 11th February, 2016, Banks are required to assess the impact of implementing Ind AS and are required to submit quarterly progress reports to their respective boards. Banks are also required to be in preparedness to submit proforma Ind AS financial statements to the RBI from the half year ended September 30, 2016.

As per the said notification, banks are also required to disclose in their annual reports the strategy for implementing Ind AS and the progress made in such implementation from the financial year 2016-17 until the implementation process is completed.

Pursuant to the above mentioned regulatory requirements, banks are mandatorily required to comply with Indian Accounting Standards (Ind AS) for financial statements beginning from 1st April 2018 onwards with comparatives for the periods ending 31st March 2018 or thereafter. Ind AS would be applicable to both standalone financial statements and consolidated financial statements.

Consequences of introducing Ind AS

The requirement by the RBI ensuring Ind AS compliance by banks, insurance companies and NBFCs casts enormous amounts of responsibility on their part. While the RBI recommendation is a welcome development in the backdrop of the global perspective, it requires significant learning at various levels for the officers, managers and other top officials of every bank, so that they understand the importance of the new regulatory requirements thrust on them.

Financial instruments as per Ind AS

Financial instruments which probably are the most complex topic in the entire literature of accounting standards are one of the key areas from the perspective of a bank. Most line items in a balance sheet of a bank are invariably financial instruments and hence it is extremely important to understand the requirements of financial instruments accounting standards. Banks may not have the recourse to any precedence as the financial instruments standard viz. IFRS 9 is applicable for accounting periods beginning on or after 1st January 2018 onwards globally wherever IFRS is adopted. It is pertinent to note that IFRS 9 underwent a major revision in several of the key conceptual areas viz., recognition, classification, derecognition and impairment amongst other concepts. Hedge accounting underwent a major overhaul which is now part of the new IFRS 9 that is adopted in India and converged as Ind AS 109.

Customised training

The training program would be customised based on the bank’s requirements.

Program Duration

The suggested program is for a three day course and a model session plan is given below which can be modified depending upon your specific requirements.

Faculty

We have expert trainers who have hands on experience for more than 30 years in handling accounting standards. Depending upon the Bank’s requirement additional topics can be covered by respective trainers who have specialised knowledge on the subject selected.

Model session plan

Three day training course on Financial Instruments as per Ind AS requirements

I have known R. Venkata Subramani for more than two decades now and he is known for his penchant for topics on financial instruments. He has dumped down the complex topic on the treatment of financial instruments as per Ind AS which I am sure is completely new for most of the professional accountants both in India and elsewhere. The timing of the release of the book coincides with the standards on financial instruments becoming applicable for the top corporate India including Banks and finance companies as per the road map issued by the MCA. I am sure this publication would be found quite useful for all professionals in their regular day-to-day official work, be it in practice or in Industry. My best wishes for the success of this publication.

CA P.B. Sampath
Director & Secretary
Tractors and Farm Equipments Limited

Description About the Book

The book covers financial instruments from the perspective of the issuer as well as the investor. It explains the concept of recognition, classification and subsequent measurement of financial assets and liabilities, de-recognition of financial assets and liabilities and impairment model. It also covers fair value and cash flow hedge accounting, disclosures required for financial instruments, fair value concepts and effects of fluctuations in foreign exchange. It includes lucid commentary on Financial Instruments as per Ind AS, discussing Ind AS 32, Ind AS 109, Ind AS 107, and some portions of Ind AS 113 and Ind AS 21. As we all know, Financial Instruments accounting is a new concept in India. The Indian Accounting Standards relating to financial instruments are quite complex and voluminous. The said standards (along with other 34 standards) are applicable from 1st April 2016 for Phase 1 companies, while the rest of the world would be adopting the equivalent standard IFRS 9 only from 1st Jan 2018. This book includes the basics of financial instruments and also dwells deep into the Indian Accounting Standards mentioned above with several practical case studies along with solutions for the same. Key Features Discussion based on Ind AS 32, 109, 107, 113 & 21 Elucidating topics with practical case studies Includes lucid explanation on hedge Accounting A guide to the certificate course in Ind AS (ICAI) and Dip in IFRS (ACCA, UK).

See: LearnAccountingStandards