IND AS Vs CAS. CMA KVN Lavanya

Transcription

1 IND AS Vs CAS CMA KVN Lavanya

2 Contents Structure of any IND AS Borrowing costs Non-current assets held for sale Share-based payments Revenue

3 STRUCTURE OF IND AS

4 Structure of any IND AS Objective Scope Definitions Recognition initial and subsequent Measurement at recognition (cost) Measurement after recognition De-recognition Disclosure Appendix integral / non-integral

5 Appendix Alphabetical A, B etc integral part of the standard Numbered 1,2 etc comparison

6 BORROWING COSTS

7 IND AS 23 Borrowing Costs (AS 16 Borrowing Costs) Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense. Qualifying assets: inventories, manufacturing plants, power generation facilities, intangible assets, investment properties, bearer plants If more than one source, then weighted average of all the borrowing costs Any income for temporary investments should be subtracted. Limited Review of CAS-17 says Interest and Financing Charges computed as per IND AS

8 NON-CURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS

9 IND AS 105 Non-current assets held for sale and Discontinued Operations (No equivalent Std. in Indian GAAP) Asset classified as held for sale to be presented separately in the balance sheet; Not to be depreciated though being used ; To be measured at lower of (carrying amount, FV-selling costs) Discontinued operations to be written separately in the PnL after the continuing operations ; a reco item Got to be careful with selling costs and depreciation;

10 SHARE-BASED PAYMENTS

11 IND AS 102 Share based payments (No equivalent Std. in Indian GAAP) In place to remove the inconsistency that occurs while recording a cash payment and a share-based payment (as the option has no intrinsic value) When the entity or the group entity receives goods or services; Goods or services as expense (debit) Equity or liability as increased (credit) Expense recorded in the PnL How these expenses will impact the cost sheet?

12 FAIR VALUE

13 IND AS 113- Fair Value Measurement (No. equivalent standard previously) A market-based measurement, not an entityspecific measurement. Focus on assets and liabilities and exit (selling) prices Takes into account market conditions The value to sell an asset for transfer a liability in an orderly transaction between knowledgeable parties Not settling a liability

14 Market Markets Principal -most liquid market Most advantageous - that maximizes the amount in the transaction TRANSACTION COSTS ARE NOT PART OF FAIR VALUE

15 Valuation Level 1 Quoted prices Eg: quoted prices of similar assets etc. Level 2 Inputs other than quoted prices that are observable directly or indirectly quoted prices for similar assets Eg: interest rates, credit spreads, yield curves Level 3 Unobservable inputs Entity s own assumptions

16 Example For a firm operating in Australia Volume of market - units Asian market European market Australasian market 4m 2m 1m Price Cost of entering into market -2-2 NA Potential FV Transaction costs Net Profit Principal market FV = 17 Most adv. Market FV = 22

17 RELATED PARTY DISCLOSURES

18 IND AS 24 - Related Party Disclosures Majorly a disclosure standard If a person has control or significant influence or is a KMP Spouse or domestic partner, sister, brother, parents, children Same group, JV, post employment benefit plan Exception to government entities Transaction, commitments, provisions for doubtful debts& expenses In the related party disclosures of the cost audit report

19 GOVERNMENT GRANTS

20 IND AS 20 Government Grants (No equivalent Std. in Indian GAAP) Grants Assets Income To be excluded from VAS? -Only income approach is followed -For depreciable assets, recognize as income on the same basis of depreciation -For non-depreciable assets, recognize as income when the cost is incurred -Asset related grants - deferred income or deducted from carrying value of the asset - Income related grants separate credit or deducted from expense

21 PROPERTY, PLANT AND EQUIPMENT

22 IND AS 16 Property, Plant & Eqp. (AS 10 and AS 6) Recognized as asset only if the economic flows are probable and can be measured reliably. Revaluation in OCI, then to PnL for the difference On disposal, transfer from reval. Surplus to retained earnings NOT made thru PnL. Profit / loss on disposal in PnL.

23 Exploration and Evaluation of Mines

24 Accounting of Mine Properties Capitalizing despite not meeting the definition of an asset Only E&E costs are regulated by this standard

25 Extracts from NTPC Oil and gas exploration costs 1. Oil & gas exploration activities are accounted for on ''Successful Efforts Method''. 2. Cost of surveys and prospecting activities conducted in search of oil and gas is expensed off in the year in which it is incurred. 3. Acquisition and exploration costs are initially capitalized as ''Exploratory wells-in-progress'' under Capital work-in-progress. Such exploratory wells in progress are capitalized in the year in which the producing property is created or written off in the year when determined to be dry/abandoned. I. Development of coal mines Expenditure on exploration and development of new coal deposits is capitalized as ''Development of coal mines'' under capital work-inprogress till the mines project is brought to revenue account.

26 Thank you

27 IND-AS Vs. CAS

28 TCI Total comprehensive income comprises all components of profit or loss and of other comprehensive income. TCI P or L OCI

29 Presentation of Financial Statements The cycle

30 Cycling and recycling Recycling means follow the cycle go to retained earnings thru P or L No recycling means go to retained earnings directly w/o hitting the P or L

31 Follow the cycle? Items that will not be reclassified to PorL Gains on property revaluation Items that may be reclassified to PorL subsequently Exchange differences on translating foreign operations Inv. In equity inst. Cash flow hedges Actuarial g/l on DBP Income tax relating to the above Share of g/l of property revaluation of associates Income tax relating to the above

32 BS P or L OCI Transactions like revaluation surplus in the disposal of an asset

33 Ind AS 16 PPE - Definition Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.

34 Provisions only when there is an obligation Examples Warranties - yes Major repairs depreciate, do not provide Self-insurance no obligation exists till fire Environmental contamination - yes Decommissioning costs - yes Y1 Y2 Y3 Y4 Y5 Y6 Y7. Yn A B C D E F G. TOTAL

35 JEs To record the provision Dr Asset (oil well etc.) Cr Provision To unwind the discount Dr Finance cost Cr Provision

36 Example Initial cost of mine = 5m PV of decommissioning cost after 20 years = 1m Asset = 6m, depreciated over 20 years; initial provision = 1m Finance cost after the first year = 1m x 10% = 100k So P or L is like Dep. 300k Finance cost 100k

37 Our role as..? Auditor or a consultant?? Acting conservative or beat the market?

38 WRONG NUMBERS 15/04/2017 K.CH.A.V.S.N.MURTHY 42

39 MISLEADING LANGUAGE 15/04/2017 K.CH.A.V.S.N.MURTHY 43

40 LIFE PARTNERS 15/04/2017 K.CH.A.V.S.N.MURTHY 44

41 GO TOGETHER 15/04/2017 K.CH.A.V.S.N.MURTHY 45

42 Ek se bad kar ek 15/04/2017 K.CH.A.V.S.N.MURTHY 46

43 THEIR CHILDREN Wrong numbers Red flags Accounting frauds Difference between gross & net revenue Camouflage Sales manipulation 15/04/2017 K.CH.A.V.S.N.MURTHY 47

44 Tax evasion Material accounting manipulations Characterization of income Creative accounting Deferment Postponement Judgement Concealment 15/04/2017 K.CH.A.V.S.N.MURTHY 48

45 Window dressing Painting green Painting red Painting invisible Rapid accounting False accounting Misrepresentation 15/04/2017 K.CH.A.V.S.N.MURTHY 49

46 Pushing at the boundaries of law Innovative Aggressive Artificial Omission Not reporting Adapting unsuitable 15/04/2017 K.CH.A.V.S.N.MURTHY 50

47 Recasting Restatement Regrouping Re-classification Re-arrangement Sweet ignorance బ హ బల 15/04/2017 K.CH.A.V.S.N.MURTHY 51

48 SIMPLE CASE- ALTERNATIVES Purchased 10 Rs.50 per unit.(apr 1 st ) Purchased 10 per unit.(apr 2 nd ) Sold 6 per unit on credit(apr 3 rd ). Sold 9 Rs.65 per unit for cash (Apr 4 th ). 15/04/2017 K.CH.A.V.S.N.MURTHY 52

49 Possible alternatives 1. Profit Rs.125 (FIFO & accrual basis),value of stock =Rs.350 (5 units ). 2. Profit Rs.25 (LIFO & accrual basis),value of stock=rs.250 (5units). 3. Profit Rs.75(Weighted average &accrual basis),value of stock =Rs.300(5 units). 4. Profit Rs.135(FIFO & cash basis),value of stock=rs.750(11 units). 15/04/2017 K.CH.A.V.S.N.MURTHY 53

50 5.Loss Rs.45(LIFO & cash basis),value of stock=rs.570(11 units) 6.Profit Rs.45(weighted average &cash basis),value of stock=rs.660(11 units) 15/04/2017 K.CH.A.V.S.N.MURTHY 54

51 INCOME RECOGNITION-5 STEPS Identify the contract with a customer Identify the performance obligations (PO) in the contract Determine the transaction price (TP) Allocate the TP to the PO in the contract Recognise revenue when (or as) an entity satisfies a PO 15/04/2017 K.CH.A.V.S.N.MURTHY 55

52 HUGE IMPLICATIONS Huge constitution Huge change Huge challenge Huge cost Huge complications Huge controversy 15/04/2017 K.CH.A.V.S.N.MURTHY 56

53 Huge confusion Huge computation Huge compulsion Huge compromise Huge concealment Huge concentration 15/04/2017 K.CH.A.V.S.N.MURTHY 57

54 Huge conceptualisation Huge conciliation Huge conditions Huge confirmation Huge conformity Huge connection 15/04/2017 K.CH.A.V.S.N.MURTHY 58

55 Huge consolidation Huge conspiracy Huge conflict Huge construction Huge consultations Huge contemplation 15/04/2017 K.CH.A.V.S.N.MURTHY 59

56 Huge contention Huge continuation Huge contradictions Huge convention Huge conversation Huge co-ordination 15/04/2017 K.CH.A.V.S.N.MURTHY 60

57 Huge co-partnership Huge correction Huge correlation Huge correspondence Huge creation 15/04/2017 K.CH.A.V.S.N.MURTHY 61

58 4 IMPORTANT INDUSTRIES Telecommunications Manufacturers Software development Real estate and property developement 15/04/2017 K.CH.A.V.S.N.MURTHY 62

59 MANUFACTURING Contract modifications Post delivery rebates Volume discounts Year end bonuses Warranty charges Incentives to sales staff 15/04/2017 K.CH.A.V.S.N.MURTHY 63

60 SOFTWARE DEVELOPEMENT Diversity of operations Long term contracts Work in progress Licences to use Licence to access One big service many deliveries 15/04/2017 K.CH.A.V.S.N.MURTHY 64

61 REAL ESTATE Long term contracts Years of construction Completion of construction 15/04/2017 K.CH.A.V.S.N.MURTHY 65

62 TELECOMMUNICATIONS Huge contracts Typical contracts Multiple offerings Contract modifications Time value of money & discounting Sales promotion cost 15/04/2017 K.CH.A.V.S.N.MURTHY 66

63 REVENUE RECOGNITION DIFFERS REVENUE TATA BSNL AIRTEL Service income Usage /accrual cash Usage/accrual Installation charges Amortised Year of receipt amortised DOT services Not applicable Not accounted Not applicable Prepaid services Usage Cash usage 15/04/2017 K.CH.A.V.S.N.MURTHY 67

64 FIXED ASSETS AND DEPRECIATION ITEM TATA BSNL AIRTEL Basis SLM WDV SLM Asset life Sch-II Sch-II Every year Goodwill 5 years Software 3-6 yrs Licence period subjected to 10 yrs Licence period DEP Machinery & Tools for project & maintenance P & L a/c Partition & paintings 2,00,000 P & L a/c 15/04/2017 K.CH.A.V.S.N.MURTHY 68

65 CAS Methods of classification 2. Measurement 3. Treatment 4. Assignment 5. Presentation 6. Disclosure 15/04/2017 K.CH.A.V.S.N.MURTHY 69

66 FLEXIBILITY 1. Revenue as per accounting standards 2. Methods of classification - not defined anywhere 3. Treatment not defined anywhere 15/04/2017 K.CH.A.V.S.N.MURTHY 70

67 AWARE BEWARE CARE RARE SHARE 15/04/2017 K.CH.A.V.S.N.MURTHY 71