Impact of Ind AS on Cost computations & audit By CMA Milind Date M Com, FCMA, CMA (USA), Dip IFRS (ACCA UK)

Transcription

1 Impact of Ind AS on Cost computations & audit By CMA Milind Date M Com, FCMA, CMA (USA), Dip IFRS (ACCA UK) CMA Milind Date 1

2 Merging of two pillars Financial & Cost Accounting..we all are accountants first CMA Milind Date 2

3 Advent of IFRS India thru Ind AS Phase-wise implemented 1 st phase covering all companies with net worth above Rs 500 Cr 2 nd phase all other listed companies & companies in process of listing Unlisted companies with net worth above Rs 250 Cr. Banking & insurance companies 2019 & 2020 respectively SMEs not covered as yet Net worth = share capital + reserves (excl. revaluation reserves & amalgamation reserves) CMA Milind Date 3

4 Ind AS basket Ind AS 1 to Ind AS 41 (that align to IAS 1 to IAS 41) Ind AS 101 to Ind AS 116 (that align to IFRS 1 to IFRS 16) Include appendices as well CMA Milind Date 4

5 The Ind AS applicable currently Area Ind AS CAS Financial statements 1 6 to 22 Inventories 2 5, 6 Cash flows 7 Accounting policies, estimates, errors 8 Events after reporting dates 10 Construction contracts (will merge with Ind AS 115) 11 Income taxes 12 Property, plant & equipment (PPE) 16 Leases (will be replaced by Ind AS 116( 17 Revenue recognition (will merge with Ind AS 115) 18 Employee benefits 19 7 Government grants 20 Changes in forex rates CMA Milind Date 5

6 The Ind AS applicable currently Area Ind AS CAS Borrowing costs 23 Related party disclosures 24 Consolidated & separate FS 27 Investments in associates 28 Reporting in hyperinflationary economies 29 Interests in JVs 31 Financial instruments presentation 32 Earning per share 33 Interim financial reporting 34 Impairment of assets Provisions, contingent liabilities & assets 37 Intangible assets Financial instruments recognition & measurement CMA Milind Date 6

7 The Ind AS applicable currently Area Ind AS CAS Investment property 40 Agriculture 41 1 st time adoption 101 Share based payments Business combinations 103 Insurance contracts (will be replaced by Ind AS 117) 104 Assets held for sale & discontinued op. 105 Exploration & evaluation of mineral resources 106 Financial instruments disclosure 107 Operating segments 108 Financial instruments 109 Consolidated FS 110 Joint arrangements CMA Milind Date 7

8 The Ind AS applicable currently Area Ind AS CAS Disclosure of interests in other entities 112 Fair value 113 Regulatory deferral accounts 114 Revenue recognition (new from 1 st April 2018?) Leases (new from 1 st April 2019) 116 Insurance contracts (exposure draft issued) CMA Milind Date 8

9 Contents of each standard Objective prescribing accounting treatment for an type of transaction/event Scope exclusions Effective date compulsory applicability Definitions important terms used Recognition (when to include an item in FS?) Measurement (at what value?) Presentation (Which financial statement?) Disclosure (additional explanation in notes to accounts) Illustrative examples Implementation guidance CMA Milind Date 9

10 Transition date The 1 st day of the earliest comparative year for which the Ind AS compliant FS are made E.g. if the 1 st adoption of Ind AS is for the year , the previous comparative year will be , hence the date of transition will be 1 st April 2015 Ind AS compliant opening BS will be prepared as on 1 st April 2015 with retrospective effect CMA Milind Date 10

11 Opening Ind AS compliant Balance Sheet Recognise all assets and liabilities whose recognition is required by Ind AS Not recognise items as assets or liabilities if Ind AS do not permit such recognition Reclassify items that it recognised under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset liability or component of equity under Ind AS Apply Ind AS in measuring all recognised assets and liabilities CMA Milind Date 11

12 First time adoption General principle - the adopter to prepare FS as if it had always applied Ind AS Two types of departure from this principle Prohibition of retrospective application of some aspects (mandatory exceptions) Grant of exemptions from some of the requirements (voluntary exemptions) CMA Milind Date 12

13 Mandatary exceptions Retrospective application prohibited in areas that require judgements Redundant to make estimates about past events that have already occurred The areas for prospective application cover: Classification & measurement of financial assets (FV calculations) Impairment of financial assets (recoverable values) Derecognition of financial assets (if already derecognised under previous GAAP as the transaction occurred before transition, it should not to be recognised again!) Hedge accounting (no hedging relationship recognised in opening BS if it does not qualify under Ind AS 109) Non-controlling interests (TCI attributable to parent and NCI even if it results in NCI having deficit balance) CMA Milind Date 13

14 Voluntary exemptions Areas where entity may choose to apply the standards prospectively: Business combinations (can you determine FV in hindsight?) Share based payments (FV vs intrinsic value) Leases (FV of the leased asset) Deemed costs for PPE (cost or revalued amount as deemed cost) Compound financial instruments (convertibles) FV measurement of financial assets or liabilities at initial recognition CMA Milind Date 14

15 Impact of Ind AS on cost records & Audit Influences on CAS, CRA1 & CRA CMA Milind Date 16

16 Ind AS 1 Presentation of FS Accounting for OCI items Revaluation gains/losses Remeasurement gains/losses on employee benefits Financial instruments gains/losses (FVTOCI) Tax effect thereon Sr no. 4 of part D impact on computation of ratio (arising from Ind AS 101) Suggestions Consider in reconciliation statement (Sr. 2 of part D annexure to CRA 3) CMA Milind Date 17

17 Ind AS 2 Inventories Sr. no 3 of annexure to CRA 3 Cost Accounting policy Basis of inventory valuation (will affect cost of production ) Cost should be net of trade discounts, refundable taxes & duties Use of LIFO method not permitted (only FIFO & Weighted average permitted) WIP cost of conversion direct labour, systematic allocation of variable & fixed production overheads (normal capacity) Same cost formula for all items of similar nature or use NRV determination Inventory write-down & Reversal thereof CMA Milind Date 18

18 Ind AS 8 A/c policies, a/c estimates & errors Consider treatment of retrospective nature due to changes in a/c policies Comparison of costs due to changes in a/c estimates (e.g. changes in estimated NRV, cost to complete) Could affect various cost items CMA Milind Date 19

19 Ind AS 12 Income Taxes Consider the effect of deferred taxes on ratios (Sr no 4 of part D annexure to CRA 3) CMA Milind Date 20

20 Ind AS 16 - PPE Effect of use of fair value or revaluation as on date of transition as deemed cost Consider for commenting on cost a/c policy & abridged cost statement: Effect on depreciation of cost of initial estimate of dismantling & restoration costs Revaluation surplus or deficit (OCI item reconciliation item, release for excess depreciation RE reconciliation) Componentisation of PPE Depreciation based on revenue not permitted Effect of stripping costs e.g. waste removal in surface mining (recognition of asset) CMA Milind Date 21

21 Ind AS 19 Employee Benefits Impact on employment cost of long term benefits Current & past service cost (employee cost in SOPL) Net interest cost (SOPL, to be considered in reconciliation) Remesurement (actuarial) gain/loss (OCI) in reconciliation CMA Milind Date 22

22 Ind AS 23 Borrowing costs Effect on depreciation due to capitalisation of borrowing costs Effect of borrowing costs included in the cost of inventory Charging of borrowing costs to projects CMA Milind Date 23

23 Ind AS 24 related party disclosures Para 24 of the CRA 1 Compare definition of related party as per section 2 (76) of Companies Act 2013 & definition as per Ind AS 24 Only disclosure impact CMA Milind Date 24

24 Ind AS 36 Impairment of assets Para 6, clause (d) to CRA 1, impairment loss to be excluded from cost of production Will for part of reconciliation statement CMA Milind Date 25

25 Consideration of Ind AS 37 - provisions Constructive provision Restructuring provisions Onerous contract provisions Respective expense heads or reconcilitation CMA Milind Date 26

26 Ind AS 38 Intangible assets Amount of R & D expensed out to SOPL to be compared with items of costs mentioned in para 11 of CRA 1 & amount mentioned in sr. no. 9 of abridged cost statement v/s Ind AS 38 (R & D) CMA Milind Date 27

27 Ind AS 40 Investment property Consideration for Fair value gain/loss when revaluation model is used Depreciation on investment property to be excluded from CRA 1 & 3, to be input in reconciliation statement CMA Milind Date 28

28 Ind AS 101 First time adoption Selection of a/c policies & impact thereof Choice of voluntary exemptions from retrospective accounting Reconciliation of equity & SOPL for 2 years CMA Milind Date 29

29 Ind AS 102 Effect of equity settled & cash settled SBPs on employee costs Impact of change in FV for cash settled SBP CMA Milind Date 30

30 Ind AS 113 Fair value Effect of changes in FV of assets, inventories and liabilities CMA Milind Date 31

31 Ind AS 115 Revenue recognition ( ) Amount of revenue recognised in SOPL will be different from the one for cost records due to: Use of FV for splitting multiple performance obligations in a contract not being same as revenue considered for GST GST is not included in the revenue amount CMA Milind Date 32

32 Ind AS 116 Leases ( ) All right-to-use assets to be part of BS, thus amortisation impact Treating Sale & leaseback transactions as one single transaction & not two separate transactions CMA Milind Date 33

33 Questions? CMA Milind Date 34

34 CMA Milind Date 35