Existing Accounting Standards (AS) as issued by ICAI Converged Accounting Standards (IND AS) as prepared by National Advisory Committee on Accounting Standards (NACAS) and MCA will notify the date of application of this standards International Financial Reporting Standards(IFRS) as issued by International Accounting Standards Board (IASB) Faithful Representation and substance over form
The Companies (Accounting Standards) Rules 2006 Accounting Standards will prevail over Company Law for Revised Schedule VI purpose The disclosure requirement under Revised Schedule VI is over and above what is being mandated by the relevant accounting standard for the particular financial item. The revised schedule VI has eliminated the concept of schedules and as such information will now be provided in the notes to accounts as done in IFRS. Meanings of terms used in schedule VI are as assigned in respective Accounting standards and unlike existing Schedule VI, no definitions of provision, reserve, trade, quoted, etc is there in revised schedule VI
Examples Basis of preparation of financial statements Revised Schedule VI is applicable to the company from accounting year 1st April,2011 for preparation and presentation of financial statement. The company has also reclassified the previous year figures in accordance with the requirements applicable in the current year The adoption of revised schedule VI does impact recognition and measurement principles followed for the preparation of financial statement. However it has significant impact on presentation and disclosures made in the financial statements.
Examples Basis of Preparation of Financial Statements All the assets and liabilities have been classified as current and non current as per company s normal operating cycle and other criteria mentioned in the revised schedule VI to the Companies Act,1956.Based on the nature of the products and the time between the acquisition of the assets for processing and their realization in cash or cash equivalents the company has ascertained its operating cycle as 12 months for the purpose of currentnon current classification of assets and liabilities.
Examples from published results (2012) Foreign Currency Transactions All transactions in foreign currency are recorded at the rates of exchange prevailing on the dates when the relevant transactions take place. Monetary assets and liabilities in foreign currency outstanding at the close of the year are converted in Indian currency at the appropriate rates of exchange prevailing on the date of the balance sheet. Resultant gain or loss except to the extent it relates to long term monetary items is recognized in the statement of Profit and Loss for the year. Gain or loss relating to long term foreign currency monetary items for financing acquisition of depreciable capital assets is adjusted to the acquisition cost of such assets and depreciated over its remaining useful life. At the reporting date non monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of transaction.
Examples from published results (2012) Forward Exchange transactions Premium or discount ( Difference between forward contract rate and spot rate) at the inception of the forward exchange contract entered into to hedge an existing asset or liability is amortized as expenses or income over the life of the contract. Exchange differences on such a contract is recognized in the statement of Profit and Loss in the reporting period in which the exchange rate changes. Further any cancellation or renewal of such a forward exchange contract are recognized as income or expenses for the period. Forward exchange contracts outstanding as at the year end on account of highly probable forecast or commitment such transactions are marked to market and losses if any are recognized in the statement of Profit and Loss and gains are ignored or they can be accumulated in Hedge reserves until the transaction occurs
Examples from published results (2012) Option Contracts Foreign exchange options are not used for trading or speculation purpose Outstanding foreign exchange option contracts on the reporting date are marked to market and any gains /Losses are recognized in the Profit and Loss account except for qualifying assets
Examples from published results (2012) Translation of foreign operations Exchange differences on a monetary item that is receivable from or payable to foreign operations for which a settlement is not planned and which forms a part of company s net investment in that foreign operation are accumulated in the foreign currency translation reserve till it is disposed off. The financial statements of the integral foreign operation are translated using the principle and procedures as if the transactions of the foreign operations are those of the company itself.
Examples from published results (2012) Revenue Recognition Sales are recognized/disclosed net of trade discounts, rebates, sales taxes and excise duties as per guidance note of ICAI Depreciation Depreciation has been provided on assets on Written down value / Straight line method at the rates prescribed in Schedule XIV to the Companies Act,1956, except for some assets for which the useful life has been separately assessed and the residual value has been considered. Depreciation on revalued assets Any additional charge of depreciation is withdrawn from revaluation surplus and credited to Profit and Loss
Examples from published results (2012) Research and Development Capital expenditure incurred on research and development is capitalized as fixed assets. Expenditure incurred on development phase where it is reasonable certain that the outcome of development will be commercially exploited to yield future benefits to the company is considered as an intangible assets.
Schedule VI and IAS 1 Operating Cycle Equity and Liabilities Net Worth Reserves and Surplus / Profit and Loss Appropriation A/c Business Combinations Misc Expenditure to the extend not written off P & L A/c Revaluation Intangible Assets Ultimate Parent
Ind AS -1 Presentation of Financial Statements Current and Non Current presentation of Assets and Liabilities. Operating Cycle Case One Operating Cycle is 36 months and term loan for 24 months Case Two Abnormal Credit Periods Case Three Trade payables to be settled in 12 months or expected to be settled within operating cycle but with the unconditional right of deferment
Operating Cycle It is the time between the acquisition of assets for processing and their realization in cash or cash equivalents Types of operating cycles a) Cash operating cycle b) Net operating cycle c) Negative operating cycle Cash Conversion Cycle or Cash Operating Cycle It can be defined as the number of days or period from acquisition of inventory till cash is received from the sale of this inventory
Net Operating Cycle Computation of length of Net operating cycle: Period covered 1 year of 365 days Average credit period allowed by creditors 10 days Average total of debtors outstanding Rs 25 i.e. 22 days ( 25/400*365) Total consumption of raw materials per annum Rs 120 Total production cost per annum Rs 100 Total cost of sales Rs 200 Sales during the year Rs 400 Value of stock maintained: Raw materials Rs 10 i.e. 30 days ( 10 /120 *365) Work in progress Rs 5 i.e. 18 days ( 5/ 100*365 ) Finished goods stock Rs 20 i.e. 36 days ( 20/200*365) Net Operating Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding Net Operating Cycle =30+36+18+22-10 = 96 days
Negative Operating Cycle A turns its inventory in 15 days B turns its inventory in 55 days A Day 0 Day 15 Day 17 Cash Float Day 37 Product Customer buys Customer Product Paid Ordered pays 17 days Day 0 Day 45 Day 55 Cash Debt Day 60 B Product Product Paid Customer Customer Ordered For Buys Pays
Operating Cycle -AS 7 Operating cycle analysis by construction companies recognizing revenue applying AS 7- Percentage completion method Fixed Contract and Cost plus contract Example: Company A is executing two projects and one project is completed and revenue recognized in 12 months and second project requires 7 years and revenue is generated from 3rd Year. Distinct Lines of business Example: A company will get bonus of 20 % of contract Value if it completes the project within a year. The company has completed 75 % of work in 9 months i.e. 31st March and most likely to complete in next 2 months. Recognize the revenue?
Revenue Recognition AS 9 Completed service contract method is a method of accounting which recognizes revenue in the statement of profit and loss only when the rendering of services under a contract is completed or substantially completed. Proportionate completion method is a method of accounting which recognizes revenue in the statement of profit and loss proportionately with the degree of completion of services under a contract.
Operating Cycle - AS 9 Proportionate Completion Method Performance consists of the execution of more than one act. Revenue is recognized proportionately by reference to the performance of each act. The revenue recognized under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognized on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance.
Current and Non Current distinction An Asset is classified as current asset when it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; it holds the asset primarily for the purpose of trading; it expects to realize the asset within twelve months after the reporting period; or the asset is cash or a cash equivalent An entity shall classify all other assets as non-current.
Current and Non Current distinction Thus we can say that current assets and liabilities are those which are expected to be realized and settled by the entities in normal trading cycle or within next 12 months. Usually both the above rules are satisfied by a particular item at the same time. In some cases this may not happen and if it satisfies any one rule then it is treated as current. Examples: 1. Current Investments Non-trade, unquoted mutual funds Long Term Investments Non trade, unquoted shares Subsidiaries Cooperative Society Disclosure Long term investments are stated at cost less provision for diminution Current investments are stated at cost or market value, which ever is lower 2. loans and Advances Sister concern balances Inter-corporate deposits Loans n Advances to staff Other Deposits
Examples How should a slow moving stock of stores and spares be classified when it will neither be consumed within the normal operating cycle nor will be sold within 12 months from the balance sheet date? How should land shown as stock be classified if it remains unsold /not developed for last 10 years? A company has taken a three-year loan specifically for a business whose operating cycle is four years. Hence, it needs to classify the three -year loan as current liability.
AS 5 - Prior Period Items Prior Period Items The term prior period items, as defined refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods This is reflected in Reserves and Surplus and a disclosure is made in notes Extraordinary items to be shown on face of Profit and loss account Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly. infrequent in nature unpredictable/unusual and so material in amount that it cannot be reported in aggregate with other amounts
Exceptional Items Exceptional items to be shown on face of Profit and loss account These are items of income and expenditure from ordinary course of business, but because of there size, nature or incidence they become exceptional Examples: Disposal o fixed assets/ long term investments, litigation settlements (IFRS- paragraph 85, 97 and 98 of IAS 1)
AS 14-Amalgamations Business Combinations A transaction or other event in which an acquirer obtains control of one or more businesses Identify business Combination Acquisition of business or Assets Goodwill or Gain on bargain Date of acquisition Any acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversal shall be disclosed separately. Gain on bargain is credited directly to profit and loss account Fair Value Concept
Fixed Assets Tangible Assets Cost and Revaluation Model Cost Model (cost less any accumulated depreciation and impairment losses ) Revaluation Model 1. Useful Life 2. Future economic benefits Accounting under revaluation model
Intangible Assets Intellectual Capital Assets =Market capitalization - Net worth Market capitalization is the total value of a company's issued share capital as determined by its share price in the stock market Net Worth = total assets - total liabilities
Intangible Assets A separate category of intangible assets is mentioned in Fixed assets wherein these are recognized,measured and separately accounted Goodwill Brands Computer Software Mastheads and publishing titles Mining Rights Copyrights, Patents and intellectual property rights and operating rights Recipes, formulae, models,designs and prototypes License and Franchise Others
Intangible Assets Amortization is done over definite life of asset Revaluation of assets Assets having indefinite life can be tested for impairment
Accounting for Research and Development-AS 26 Expenses on research to be written off as expenditure Intangible assets under development should be shown in Balance sheet AS 3-Cash Flow Statement Format of Cash flow statement not prescribed under Revised Schedule VI Inventories -AS 2 A disclosure in financial statement with respect to Inventories will be given along with other disclosures already covered under AS 2 Accounting Policy Classification of inventory with total carrying amount Revised Schedule VI Mode of Valuation Revised Schedule VI Amount of Inventory expensed out Inventory pledged for any liability, etc
Xbrl - Introduction XBRL is a world-wide standard, developed by an international, non-profitmaking consortium, XBRL International Inc. It is made up members, including government agencies, accounting firms, software companies, academics and business reporting experts from worldwide. It has agreed the basic specifications which define how XBRL works.
Benefits More efficient data collection and reporting Easier data consumption and analysis Save costs by preparing data in one form and automatically generating many outputs Consolidate results across divisions and subsidiaries with much greater speed and reliability Improved accuracy and reliability of financial data Analysis, forecasting and decision making Quicker and more efficient decisions Improved relationships and communication with investors
Controls Risk of tagging errors Electronic tagging Independent review after tagging Periodic user training Risk of hardware and software failure Disaster recovery plan Physical security Uninterruptible / back-up power supplies
Controls Risk of inappropriate / missing authorizations Internal audit review of selected transactions Periodic user training Up-to-date procedures manuals Risk of inappropriate taxonomies Periodic review and approval Centralized approval process
Meta Data Metadata is defined as data providing information about one or more aspects of the data, such as: Means of creation of the data Purpose of the data Time and date of creation Creator of data Placement on a computer network where the data was created
Tags Computers can treat information that has been tagged using XBRL intelligently ; they can recognize, process, store, exchange and analyze it automatically using software. As XBRL tags are formed in a universally accepted way, they can be read and processed by any computer that has XBRL software. XBRL tags are defined and organized using categorization schemes called taxonomies. New tags can be created as per need of Taxonomy
Terminology Extensible The quality of XBRL (Extensible Business Reporting Language) that allows users to create new tags as the need arises Taxonomy A way to organize knowledge. XBRL contains several taxonomies, most of which are organized around industry groups
Xtensible Business Reporting Language Phase wise Implementation Taxonomy is defined by ICAI MCA has given phase wise implementation Reporting can be Industry wise Draft Taxonomy for 2012 on ICAI website
ICAI Taxonomy Structure Industry-based classification Commercial and Industrial companies Banking companies Non-Banking Financial companies Power companies Insurance companies Core Schema Exhaustive list of all element declarations Common elements defined once Distinct extended links for each industry
Phase 1 The following class of companies have to file the Financial Statements in XBRL form from the financial year 2010-2011 (i) All companies listed in India and their Indian subsidiaries; (ii) All companies having a paid up capital of Rs. 5 Crore and above (iii) All companies having a turnover of Rs. 100 crore and above. However, banking companies, Insurance companies, power companies and Non Banking Financial Companies (NBFCs) are exempted for XBRL filing,
Methodology Automated Extraction Patch to existing Software Service Providers Conversion of data into XBRL format
Taxonomy categorization Company Information Financial Information Disclosures Notes
General Features Validation Mandatory, Data, Business rules Parent and child Footnotes Tuples - Tuples are type of elements which have multiple values for a given reporting period Edit Collapse / Expand features Save / Validate each page
Steps for e Filing of XBRL documents: 1.Creation of XBRL instance document 2. Download XBRL validation tool 3. Load the instance document 4. Validate the instance document 5. Pre-scrutiny of the instance document 6. Convert to pdf and verify the contents of the instance document. 7. Attach instance document to the Form 23AC-XBRL and Form 23ACA-XBRL 8. Submitting the Form 23AC-XBRL and Form 23ACA-XBRL on the MCA portal
Taxonomy categorization Company Information Name CIN PAN Consolidated / Standalone Reporting Period Reporting Authority Address Industry Type
Taxonomy categorization Financial Information Sources And Application Of Funds Total Assets Liabilities Schedule Share Capital Schedule Reserves And Surplus Schedule Fixed Assets Schedule Fixed Assets Net Gross Classification Schedule Investments Additional Details Balance Sheet Income Statement Main Income Statement Alternative Schedule Income Schedule Expenditure Additional Details Income Statement Statement Of Cash Flows Indirect Method
ICAI Guidance Note Example Based on our aforesaid examination and to the best of our knowledge and belief and according to the information, explanations and representations given to us by the management of the Company, we certify that these XBRL financial statements fairly present, in all material respects, the aforementioned audited financial statements of the Company for the year ended March 31, 2011, in accordance with the taxonomy specified by the Ministry of Corporate Affairs for filing of the financial statements in the XBRL mode
ICAI Guidance note Example We have noted certain material departures from the MCA Taxonomy and on which we have a disagreement with the management. These XBRL financial statements do not fairly present, in all material respects, the aforementioned audited financial statements of the Company for the year ended March 31, 2011, in accordance with the taxonomy specified by the Ministry of Corporate Affairs for filing of the financial statements in the XBRL mode.
XBRL and Revised Schedule VI Draft 2012 Taxonomy Example: Revenue from Services Gross income from services rendered Revenue communication services Revenue roadway operations Revenue waterway operations Revenue airway operations Revenue logistics transport services Revenue courier services Revenue infrastructure services Revenue software development
XBRL and Revised Schedule VI Revenue hardware maintenance Revenue information technology consultancy Revenue information technology services Revenue hotels Revenue hospitals healthcare clinics Revenue entertainment Revenue repairs maintenance Revenue educational activities Revenue membership subscriptions fees Revenue admission fees Revenue erectioning commissioning Revenue agencies
XBRL and Revised Schedule V Revenue advertising publicity Revenue value added services Revenue real estate property development Revenue other services Revenue lease rentals Revenue hire charges Revenue job work Revenue royalties Revenue technical knowhow Revenue franchise Revenue licenses Revenue contractual rights Revenue intangible assets
XBRL and Revised Schedule VI Draft 2012 Taxonomy Example 2 Financial Instruments AS 29,30 and 31 Disclosures related to recognition, accounting and reporting of financial Instruments Financial Instruments-Kinds of Risk covered in sensitivity analysis Credit Risk Liquidity Risk Market Risk Currency Risk Interest Rate Risk Other Price Risk Equity Price Risk Commodity Price Risk Prepayment Risk Residual Value Risk Changes In Objectives,Policies and Processes for Managing Risk
XBRL and Revised Schedule VI Changes in methods used to measure risk Summary quantitative data about Entity s Exposure to risk Concentrations of Risk Description of how Management determines concentrations Risk Exposure Associated With Instruments Sharing Characteristic for concentrations Additional Information About Entity Exposure To Risk Sensitivity Analysis For Each Type Of Market Risk
XBRL Draft Formats Equity And liabilities Shareholders' funds Share capital Reserves and surplus Money received against share warrants Employee stock options outstanding Deferred employee compensation Share application money pending allotment Deferred government grants Minority interest Non current liabilities Long term borrowings Deferred tax liabilities (net) Foreign currency monetary item translation difference on liability account Other long term liabilities Long term provisions
XBRL Draft Formats Current liabilities Short term borrowings Trade payables Other current liabilities Short term provisions
XBRL Draft Formats Assets Non current assets Fixed assets Tangible assets Intangible assets Capital work in progress Intangible assets under development Non current investments Deferred tax assets (net) Foreign currency monetary item translation difference asset account Long term loans and advances Other non current assets
XBRL Draft Formats Current assets Current investments Inventories Trade receivables Cash and cash equivalents Short term loans and advances Other current assets
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