ICAI SIRCAugust 21 2017CMA S. A.MuraliPrasad
Recent Amendments to CRAR
Feb 16 2015IndAS rules notified by MCAJuly 2016IndAS implemented for Q! financial results by Cos.March 2017Limited Revision to CAS based onIndAS by CASBApril 2017Annual financial Statements issued by Cos under IFRSAugust 2017 Draft Amendments to CRAR issued by MCAEffective for FY 2016-17!!!
The Limited Revision to CAS was limited in scope!The Amendment to Rules is sketchy!The management and the auditor left to fend for themselves while dealing with key issues.
The break-up of the Changes to CRA 1
Total of 41 changes14 of them deal with treatment of subsidies/ grants against various cost elements!19parasdeleted under depreciation and replaced with a terse reference to Companies Act
Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with thisIndAS when they meet the definition Of property, plant and equipment.Otherwise, such items are classified as inventory.(16.8)
…items such asspare parts, stand-by equipment and servicing equipment are recognised as property, plant and equipment when they meet the definition of property, plant and equipment and depreciated accordingly.Otherwise, such items are classified as Inventory
An entity shall recognise the components of defined benefit cost, as follows(19.120)(a) service cost (see paragraphs 66–112) in profit or loss;(b)net interest on the net defined benefit liability (asset) (see paragraphs 123–126) in profit or loss; and(c)remeasurementsof the net defined benefit liability (asset) (see paragraphs 127–130) in other comprehensive income.
“including the cost of retirement benefits charged in the financial statements in an accounting period” added.In case of companies to which Indian Accounting Standards apply, any re-measurement of such costs recognized in other comprehensive income shall not form part of the employee cost.
to be recognised in other comprehensive income, comprising:(i) actuarial gains and losses (see paragraphs 128 and 129);(ii) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) (see paragraph 130); and(iii) any change in the effect of the asset ceiling (see paragraph 64), excluding amounts included in net interest on the net defined benefit liability (asset).
Grants relating to Various Costs
Government grants related to assets, … shall be presented in the balance sheet by setting up the grant as deferred income. (20.24)The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset. (20.26)
In case of companies to which Indian Accounting Standards apply, any Grants recognized as deferred income shall be reduced from the cost in the financial year when such deferred income is recognised as income.
Grants relating to Various Costs
Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense. (20.29).A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable. (20.20)
Grants have to be only deducted from cost.Treatment of grants against Past costs and losses not clarified.
Grants relating to various costs
Non monetary grants will be accounted at fair value (20.23)
Fair value is offset to cost?
Changes relating to grants
MaterialsEmployee CostUtilitiesDirect ExpensesRepairs and MaintenanceOverheadsAdministration overheads
8. Royalty and technical Knowhow costs9. R & D expenses10. Quality Control ExpensesPollution ControlExpensessService Department ExpensesPacking CostsInterest and financing costs
Other Changes to CRA 1
Para on high value spare deleted.Amortisationadded to Depreciation.19parasdeleted under depreciation. Replaced with the following:The Depreciation and Amortisation shall be measured as per provisions contained in Companies Act, 2013 and Rules madethereunder.Reference to service included in impairment.Para on spares included under depreciation.
Other Changes to CRA 1
1. Openingparaunder Interest changed to:Interest and Financing Charges are interest and other costs incurred by an entity in connection with the financing arrangements which shall be measured in accordance with the provisions contained in Companies Act, 2013 and Rules madethereunder.Which rules?2. Services included in capacity determination.
Changes to CRA 3
Inclusion ofExceptional, Extra Ordinary and Other Comprehensive Income, if anyin place of extra ordinary income inProduct Service details for the company as a whole.Revenue to be net of taxes and duties forIndAs companiesProfit as per financial accounts in Recon to exclude OCI.PBT in ratio analysis to exclude OCI.
Changes to CRA 3.
VAS to include extraordinary, exceptional and other comprehensive income and extra ordinary and exceptional expenses.
What is Extra ordinary and exceptional
Extra ordinary items are those relating to ordinary activities of the entity and are not expected to recur.Exceptional items relate to ordinary activities of the entity but areexceptional in terms ofsizeorincidence.Pray, which of them correspond to “abnormal”?
Clarification needed that all OCI items will be treated as non cost.In first time adoption, treatment of “deemed cost” of PPE.To clarify on treatment of depreciation on revalued fixed assetsDepreciation/amortisationon fair value of assets acquired under Business Combinations.Loss on replacement of individual parts of PPE treated as cost?To clarify on treatment of FVTPL items.Implicit interest removed from material cost?Changes in fair value of stock options to employeesOmission of words “for use of non equity funds in definition of interest costs- treatment of share issue and equity raising costs.Implicit interest removal in Revenues.Treatment of expected credit losses