IND AS 1- PRESENTATION OF FINANCIAL STATEMENTS

IND AS 8- ACCOUNTING POLICIES, ERRORS AND ESTIMATES

IND AS CERTIFICATION COURSE – ONLINE 50TH BATCH DAY 1
OCTOBER 30 2023

Faculty : CA MOHAN R LAVI

Ind AS Certification Course Secretariat, Accounting Standards Board
The Institute of Chartered Accountants of India
New Delhi, India
Disclaimer: The views expressed herein are solely those of the Faculty/Presenter and not that of the ICAI or any of
its committees. The ICAI or the Faculty or Preparer of this material do not accept any responsibility for omission
or inadequacy of the contents in this document and also for loss caused to any person who acts or refrains from
acting in reliance on the contents of this document irrespective of the cause of / reason for the loss.
 ROAD-MAP

 Voluntary basis
 For any company which chooses to adopt Ind AS for
accounting period commencing on or after 1 April 2015
with the comparatives for the period ending 31 March
2015.

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MANDATORY

Criteria Time-line
(i) com p a n i e s w h o s e e q u i t y o r d e b t For accounting periods commencing on or after 1
securities are listed or are in the process of being April 2016 with the comparatives for the period
listed on any stock exchange in India or outside ending 31 March 2016
India and having net worth of Rs.500 crore or more;
(ii) all other companies having net worth of Rs.500
crore or more; and (iii) holding, subsidiary, joint
venture or associate companies of the class of
companies covered in (i) and (ii) above

(i) companies whose equity and/or debt securities For accounting periods commencing on or after 1
are listed or proposed to be listed on any stock April 2017 with the comparatives for the period
exchange in India or outside India and having a net ending 31 March 2017,
worth of less than Rs. 500 crore; (ii) unliste d
companies having a net worth of Rs.250 Crores or
more but less than Rs. 500 crore; and (iii) holding, 3
subsidiary, joint venture or associate companies of
the class of companies covered in (i) and (ii) above
ROADMAP

 the net worth shall be calculated in accordance with the stand-alone

financial statements of the company as on 31st March, 2014 or the first
audited financial statements for accounting period which ends after that
date;
 for companies which are not in existence on 31st March, 2014 or an
existing company falling under any of thresholds specified in sub-rule (1)
for the first time after 31st March, 2014, the net worth shall be calculated
on the basis of the first audited financial statements ending after that
date in respect of which it meets the thresholds specified in sub-rule (1).
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ROADMAP

 Explanation.- For the purposes of sub-clause (b), the companies meeting

the specified thresholds given in sub-rule (1) for the first time at the end
of an accounting year shall apply Indian Accounting Standards (Ind AS)
from the immediate next accounting year in the manner specified in sub-
rule (1).
 Illustration .- (i) The companies meeting threshold for the first time as on
31st March, 2017 shall apply Ind AS for the financial year 2017-18 onwards.
 (Ii) The companies meeting threshold for the first time as on 31st March,
2018 shall apply Ind AS for the financial year 2018-19 onwards and so on.
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ROADMAP

 Overseas subsidiary, associate, joint venture and other similar entities of

an Indian company may prepare its standalone financial statements in
accordance with the requirements of the specific jurisdiction:
 Provided that such Indian company shall prepare its consolidated
financial statements in accordance with the Indian Accounting Standards
(Ind AS) either voluntarily or mandatorily if it meets the criteria

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ROADMAP

 NBFC’s
 31st March 2019
 31st March 2020

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ROAD MAP

 Banks and Insurance Companies?

Would you go for a Voluntary adoption of Ind
AS?

9
 USEFUL FINANCIAL INFORMATION- CHARACTERISTICS

Fundamental Enhancing
 Comparability
 Relevance
 Verifiability

 Timeliness
 Faithful representation
 Understandability
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FRAMEWORK

 Underlying assumption- going concern

The Elements of Financial Statements
 Financial Position
 Assets
 Liabilities
 Equity
 Performance
 Income
 Expenses

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RECOGNITION

 Probability of future economic benefits

 Reliability of measurement
 Recognition of income, expenses, assets and liabilities
 Capital and capital maintenance

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ASSET

 Resource controlled by an entity as a result of past events and from which future economic
benefits are expected to flow
 Potential to contribute to the flow of cash or cash equivalents
 Physical form not necessary
 Right of ownership not essential
 Donated Assets

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LIABILITY

 Present obligation from past events the settlement of which is expected to result in an outflow of
economic benefits
 Present obligation
 Different from future commitment
 Estimation

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EQUITY

 Residual interest in the entity after deducting all its liabilities

 Can be sub-classified

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INCOME AND EXPENSES

Income Expenses

 Increases in economic benefits in form

of inflows, increase in assets or  Decreases in economic benefits in the
decrease in liabilities form of outflows, depletion of assets or
increase in liabilities

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CAPITAL AND CAPITAL MAINTENANCE

 Reserves
 Revaluation Reserves

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THE STANDARDS

 Summary of Ind AS Standards

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SOME NEW STANDARDS

 Investment Property
 Agriculture
 Accounting for Hyper inflationary economies
 Business Combinations
 Exploration and Evaluation of Mineral Resources
 Share-based payments
 Consolidation

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 WHAT’S DIFFERENT IN IND AS?

 Concept of Fair Value

 Annual Review
 Concept of Componentization
 Discounting
 New Revenue Standard
 Useful lives
 No Prior Period
 No Extraordinary items
 Leases
 Insurance Contracts 20
WHAT’S DIFFERENT?

 Extensive Disclosures
 Compound Financial Instruments
 Presentation
 Customer loyalty programs
 Service concession agreements
 Website development costs

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IND AS 1
PRESENTATION OF FINANCIAL STATEMENTS

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OBJECTIVE

 This Standard prescribes the basis for presentation of

general purpose financial statements to ensure
comparability both with the entity’s financial statements
of previous periods and with the financial statements of
other entities. It sets out overall requirements for the
presentation of financial statements, guidelines for their
structure and minimum requirements for their content.
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SCOPE

 An entity shall apply this Standard in preparing and presenting general purpose
financial statements in accordance with Indian Accounting Standards (Ind ASs).
 Other Ind ASs set out the recognition, measurement and disclosure requirements for
specific transactions and other events.
 This Standard does not apply to the structure and content of condensed interim
financial statements prepared in accordance with Ind AS 34, Interim Financial
Reporting except for General Features of financial statements
 This Standard applies equally to all entities, including those that present consolidated
financial statements in accordance with Ind AS 110, Consolidated Financial Statements,
and those that present separate financial statements in accordance with Ind AS 27,
Separate Financial Statements.
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SCOPE

 terminology that is suitable for profit-oriented entities, including public sector

business entities. If entities with not-for-profit activities in the private sector or
the public sector apply this Standard, they may need to amend the descriptions
used for particular line items in the financial statements and for the financial
statements themselves.
 Similarly, entities whose share capital is not equity may need to adapt the
financial statement presentation of members’ interests.

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DEFINITIONS

 Indian Accounting Standards (Ind ASs) are Standards prescribed under Section 133
of the Companies Act, 2013.
 Material Omissions or misstatements of items are material if they could,
individually or collectively, influence the economic decisions that users make on
the basis of the financial statements. Materiality depends on the size and nature
of the omission or misstatement judged in the surrounding circumstances. The
size or nature of the item, or a combination of both, could be the determining
factor.
 Other comprehensive income comprises items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as required
or permitted by other Ind ASs.
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IND AS 109

 Business Objective of the entity

 Amortized Cost, FV through PL/OCI- Financial Assets
 Amortized Cost, FV through PL- Financial Liabilities
 Expected losses method
 Hedge Accounting is an option

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 OCI

 Changes in revaluation surplus

 Remeasurements of defined benefit plans
 gains and losses arising from translating the financial statements of a foreign
operation
 gains and losses from investments in equity instruments designated at FVTOCI
 gains and losses on financial assets measured at FVTOCI in accordance with Ind
AS 109.
 the effective portion of gains and losses on hedging instruments in a cash flow
hedge and the gains and losses on hedging instruments that hedge investments28

in equity instruments measured at fair value through other comprehensive

OCI

 For particular liabilities designated as at fair value through profit or loss, the
amount of the change in fair value that is attributable to changes in the liability’s
credit risk
 changes in the value of the time value of options when separating the intrinsic
value and time value of an option contract and designating as the hedging
instrument only the changes in the intrinsic value
 changes in the value of the forward elements of forward contracts when
separating the forward element and spot element of a forward contract and
designating as the hedging instrument only the changes in the spot element, and
changes in the value of the foreign currency basis spread of a financial
instrument when excluding it from the designation of that financial instrument
as the hedging instrument
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OCI

 Ind AS 117
 Changes in discount rates
 Disaggregation of finance income/expense between PL Account and OCI
PURPOSE OF FINANCIAL STATEMENTS

 Structured Presentation of
 Financial Position
 Financial Performance
 Results of Management Stewardship of the resources entrusted to it

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GENERAL FEATURES

 Presentation of true and fair view and compliance with Ind AS

 The application of Ind ASs, with additional disclosure when necessary, is presumed to
result in financial statements that present a true and fair view
 explicit and unreserved statement of such compliance in the notes.
 Accounting policies that are inappropriate cannot be rectified by their disclosure or in
the notes

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CAN AN ENTITY DEPART FROM IND AS?

 Extremely rare cases

 In conflict with the Framework
 Disclosure
- True and fair
- Which Ind AS it has departed from, nature of departure, Ind AS treatment
- Financial effect of the departure for each period

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GENERAL FEATURES

 Going concern
 Accrual basis
 Aggregation and materiality
 Off-setting
 Frequency of reporting
 Comparative information
 Balance Sheet, Profit or Loss, Cash Flow, Statement of Changes in Equity, Notes-Two
Minimum

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GENERAL FEATURES

 In case of restatement- a third Balance-Sheet at the beginning of the previous

period
 In case of reclassification, even comparatives are reclassified

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 STRUCTURE AND CONTENT

 General
 identification of financial statements
 clearly distinguished from other information
 reporting period
 at least annually,
 to explain if longer or shorter
 Information required
 Name and change, if any
 Individual or group financials
 Period covered
 Currency 36

 Level of rounding
 STRUCTURE AND CONTENT

 Balance sheet
 current vs. non-current distinction
 or, classify based on liquidity if more relevant
 obligatory line items on face of B/S
 disclosure required on face or in notes
 relevant sub-classifications of items above
 information on share capital and reserves
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MINIMUM ITEMS
 property, plant and equipment;
 trade and other payables;
 investment property;
 provisions;
 intangible assets;
 financial liabilities
 financial assets
 liabilities and assets for current tax, as defined in
 investments accounted for using the equity Ind AS 12, Income Taxes;
method;
 deferred tax liabilities and deferred tax assets, as
 biological assets within the scope of Ind AS 41 defined in Ind AS 12;
Agriculture;
 liabilities included in disposal groups classified as
 inventories; held for sale in accordance with Ind AS 105;
 trade and other receivables;  non-controlling interests, presented within
 cash and cash equivalents; equity; and

 the total of assets classified as held for sale  issued capital and reserves attributable to
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owners of the parent.
 STRUCTURE AND CONTENT

 Current vs. non-current Assets

 Realised/settled in the normal course of operating cycle or within
12 month of the balance sheet date
 Held primarily for the purpose of being traded
 Unrestricted cash or a cash equivalent
 All other assets are non-Current

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STRUCTURE AND CONTENT

 Current Vs. non Current Liabilities

 Settled in the normal course of operating cycle or due to be settled within 12 month of the
balance sheet date
 Held primarily for the purpose of being traded
 No unconditional right to defer settlement for at least 12 months
 post-balance sheet events (refinancing, correction of defaults) do not affect current vs. non-
current classification
 All other Liabilities are non-Current

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 STRUCTURE AND CONTENT

 Income statement
 obligatory line items on face of Profit or Loss
 To show as allocation
 Profit or loss attributable to Minority Interest
 Profit or loss attributable to equity holders of the parent
 expenses analysed on basis of
 Nature
 Dividends should be disclosed plus per share (or in statement of
changes in equity
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STRUCTURE AND CONTENT
 Minimum Items on the face of the income statement
(a) revenue, presenting separately interest revenue calculated
using the effective interest method;
(aa) gains and losses arising from the derecognition of financial
assets measured at amortised cost;
(b) finance costs;
(ba) impairment losses (including reversals of impairment losses or
impairment gains)
(c) share of the profit or loss of associates and joint ventures
accounted for using the equity method; 42

.
MINIMUM ITEMS

(ca) if a financial asset is reclassified out of the amortised cost measurement

category so that it is measured at fair value through profit or loss, any gain or loss
arising from a difference between the previous amortised cost of the financial
asset and its fair value at the reclassification date
(cb) if a financial asset is reclassified out of the fair value through other
comprehensive income measurement category so that it is measured at fair value
through profit or loss, any cumulative gain or loss previously recognised in other
comprehensive income that is reclassified to profit or loss;
(d) tax expense;
(ea) a single amount for the total of discontinued operations (see Ind AS 105)
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STRUCTURE AND CONTENT

 Income Statement presentation

 classification based on nature

 salaries, depreciation, transport, etc

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QUESTIONS

 Your company has no Investment Property. Would you present the line item
 Investment Property ….Nil
 or not show it at all?
 Your company has a Revenue of Rs 100 crores, Net Profit of Rs 15 crores and Finance Cost of Rs
1,45,000/-. Would you present the Finance Cost as a separate line item or merge it with “ Other
Costs”?
 Would your answer be different if the Finance Costs were appearing for the first time?

45
STRUCTURE AND CONTENT

 Statement of changes in equity

 separate component of financial statements
 On the face
 (a) Profit or loss for the period
 (b) gains and losses not reflected in income statement
 (a)+(b) attributable to each of Minority Interest and equity holders of the parent
 also in statement or in the notes
 capital transactions with owners
 movements in accumulated profit
 movements in capital and reserves
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STRUCTURE AND CONTENT

 Role of statement of changes in equity

 broader performance indicator
 ‘total recognised gains and losses’ or
 ‘comprehensive income’
 Cash flow statement in accordance with Ind AS 7

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DIFFERENCES WITH AS 1/AS 5

Ind AS AS
Components of Financial Statements 1. SOFP 1. Revised Schedule VI
2. SOCI 2. Different Regulators
3. SOCF
4. SOCIE
5. Explanatory Notes
Formats Illustrative only Revised Schedule VI
Presentation Expenses by nature or function Expenses by nature. 1% of revenue
from operation or Rs 100,000 needs
to be disclosed

OCI Clearly defined items hit OCI Directly in Equity

Different terms

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INDIAN PRESENTATION

 Ind AS Compliant Schedule III to Companies Act

49
QUESTIONS

 Equity, Liability and Assets are components of Financial Statements. – True or False
 What are the components of Other Comprehensive Income?

50
MCQ

 Which of the following is not required to be presented as minimum

information on the face of the balance sheet, according to Ind AS 1
a) Investment property.
b) Investments accounted for under the equity method
c) Biological assets.
d) Contingent liability.
d)

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MATERIAL ACCOUNTING POLICIES

 2023-24 financial year

 Only material accounting policies to be disclosed
 “material accounting policy information” has been defined as
information that can potentially impact the decisions of users of
financial statements based on the overall information presented.
MATERIAL

 GST
 Income Tax
 Business Combinations
 Provisions
ACCOUNTING POLICIES, CHANGES IN ACCOUNTING
ESTIMATES AND ERRORS:
IND AS 8

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RELATED STANDARDS

 Ind AS 1 Presentation of financial statements

 Framework for the preparation and presentation of financial statements

55
IND AS 8 – OVERVIEW

 Objective and scope

 Selection and application of accounting policies
 Changes in accounting policies
 Changes in accounting estimates
 Corrections of errors

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 IND AS 8 – OBJECTIVE AND SCOPE

 Key is comparability

 Objectives:
 How to choose accounting policies
 Reporting changes in accounting policies
 Reporting changes in estimates
 Reporting the correction of errors

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 IND AS 8 – ACCOUNTING POLICIES

 When an Ind AS specifically applies to a transaction, other event or

condition, the accounting policy or policies applied to that item shall be
determined by applying the Ind AS.
 In the absence of an Ind AS that specifically applies to a transaction,
other event or condition, management shall use its judgement in
developing and applying an accounting policy that results in information
that is:
(a) relevant
(b) reliable

58
 IND AS 8 – SELECTION AND APPLICATION OF ACCOUNTING
POLICIES

⚫ If no specific Ind AS that applies:

 Use judgment
 Develop a policy that results in relevant and reliable information
 Hierarchy of sources to use judgement
⚫ Other Ind AS with similar situations and issues
⚫ Conceptual framework basics
⚫ If not in conflict with above, use other sources:
⚫ Pronouncements of other standard setters with similar frameworks, accounting literature, accepted
industry practice, etc.

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 IND AS 8

Accounting policies -

 “specific principles, bases, conventions, rules and practices

applied by an entity in preparing and presenting financial
statements”
 Source of changes in accounting policy:
 required by a new or revised Ind AS (most common)
 voluntary change to reliable and more relevant information

60
 IND AS 8

⚫ If change due to:

 different economic conditions
 new events or conditions
 previously immaterial effects
⚫ Then NOT a change in accounting policy

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IND AS 8

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 IND AS 8 – CHANGES IN ACCOUNTING
POLICIES

 Initial application of an Ind AS

 if transitional accounting method provided – follow it
 if no transitional method – retrospective application
 Voluntary change in policy
 retrospective application
 Retrospective (retroactive) application
 means apply new policy as if it had always been applied
 change past amounts 63
 IND AS 8 – CHANGES IN ACCOUNTING POLICIES

⚫ Retrospective application:
 for the earliest prior period presented
 adjust opening balance of equity affected
 adjust opening balance of other comparative amounts disclosed
⚫ Unless
 impracticable to determine effects on specific prior periods or cumulative effect
of change

64
 IND AS 8 – CHANGES IN ACCOUNTING
POLICIES

 Impracticable: not able to determine adjustments needed after making reasonable effort, i.e.,
 effects of retroactive changes not determinable
 assumptions needed about management’s intentions in the prior period
 cannot make estimates without knowing circumstances that existed in the prior period; can only do using
hindsight
 Example: need to estimate fair value of private company three years ago. Need to know expectations that
existed then regarding cash flows and risk-adjusted discount rate. Not possible in many situations.

65
 IND AS 8 – CHANGES IN ACCOUNTING POLICIES

⚫ If impracticable to apply full retrospective treatment, then

 apply the change to assets, liabilities and equity accounts at beginning of earliest possible
period for which effects are known
⚫ If impracticable to determine cumulative effect even on current period opening balances, then
 apply new policy prospectively

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 IND AS 8 – CHANGES IN ACCOUNTING
POLICIES

 For all changes in accounting policy, disclose

 nature of the change
 amounts of adjustments to all F/S items, EPS, and to prior periods
 if judged impracticable to apply retrospectively, explain why, and how applied

 If on application of a new/revised Ind AS , also report

 name of Ind AS , that transitional provisions are applied, any likely future effects

 Also disclosures about new Ind AS released but not yet effective

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 IND AS 8 – CHANGES IN ACCOUNTING ESTIMATES

 Change in accounting estimate – adjustment to carrying amount of an A/L or amount of asset

consumed in period resulting from its present status and the expected future benefits/obligations
associated with it.
 Results from new information or new developments
 If uncertain whether a change in policy or a change in estimate, account for it as a change in
estimate

68
IND AS 8 – CHANGES IN ACCOUNTING
ESTIMATES

 Estimates are fundamental to the accounting process

 Changes are expected and recurring
 Therefore, account for prospectively
 Prospective application – recognize effect of change in current and
future periods
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 IND AS 8 – CHANGES IN ACCOUNTING
ESTIMATES

⚫ Disclose
 Nature of the change
 Amount of the change, unless effect on future periods impracticable to estimate

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IND AS 8 – CORRECTIONS OF ERRORS

 Prior period error – an omission or misstatement in previously reported financial statements from
failing to use/misuse of reliable information that
 Was available when F/S were authorized, and
 Could reasonably be expected to have been used in preparing those F/S
 e.g., arithmetic mistakes, mistakes in applying accounting policies, oversights, misrepresentation
of facts, fraud

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IND AS 8 – CORRECTIONS OF ERRORS

 Accounting for correction of an error –

 Retrospective restatement
 As if error had never been made
 If impracticable to determine period-specific adjustments, use partial retrospective application,
or even prospective treatment (see change in accounting policy)

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IND AS 8 – CORRECTIONS OF ERRORS

⚫ Disclose
 Nature of the error
 Amount of correction for each F/S item, EPS, and to prior periods
 If judged impracticable to apply retrospectively, explain why, how applied and date from
which error is corrected

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DIFFERENCES WITH INDIAN GAAP

 No detailed guidance on accounting policies

 Accounting estimate vs Accounting Policy
 Prior Period items

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ISSUES

 Lack of “ Indian” case studies

 Very few Illustrative Examples in the Standards
 Where are the Valuers?
 Tax Terrors
 Training and retraining
 IFRS for SME’S

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SUGGESTED READING

 Bold portions of all Ind- AS Standards.

 IASB Online Quiz.

 Annual Report of BP Limited.

76
 Ind AS Course
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 Ind AS Course
ICAI

Faculty Contact Details: CA Mohan R Lavi

Mohan.lavi@gmail.com
ICAI Contact for more details : indascourse@icai.in
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