IFRS Notes MCA issues amendments to Ind AS effective 1 April 2018 10 April 2018 KPMG.com/in
Introduction The Ministry of Corporate Affairs (MCA), on 28 March 2018, issued certain amendments to Ind AS. These amendments maintain convergence with IFRS by incorporating amendments issued by International Accounting Standards Board (IASB) into Ind AS. The IASB along with the IFRS Interpretations Committee, issues amendments to IFRS either as part of its annual improvement process or as specific amendments to IFRS, to resolve inconsistencies in the standards or to provide further clarifications. The amendments relate to the following standards: Ind AS 40, Investment Property Ind AS 21, The Effects of Changes in Foreign Exchange Rates Ind AS 12, Income Taxes Ind AS 28, Investments in Associates and Joint Ventures Ind AS 112, Disclosure of Interests in Other Entities This issue of IFRS Notes provides an overview of the amendments issued by MCA. Overview of amendments Ind AS 40, Investment Property The amendment lays down the principle regarding when a company should transfer asset to, or from, investment property. However, it was not clear whether the evidence of a change in use should be the one specifically provided in the standard. Accordingly, the amendment clarifies that a transfer is made when and only when: a) There is an actual change of use i.e. an asset meets or ceases to meet the definition of investment property b) There is evidence of the change in use. Applying this principle, an entity would transfer property under construction or development to, or from investment property when and only when there is a change in the use of such property, supported by evidence. Additionally, the amendment re-characterises the list of circumstances (evidence) as a non-exhaustive list of examples to be consistent with the principle described above. The examples of evidence in this case may include factors such as commencement or end of owner occupation, commencement of development with a view to sale or inception of an operating lease to another party. A change in management s intentions for the use of a property does not provide evidence of a change in use. 1
Overview of amendments (cont.) Effective date: The amendments are applicable for annual periods beginning on or after 1 April 2018. Transitional provisions A company has a choice on transition to apply: Prospective approach: Apply the amendments to transfers that occur after the date of initial application and also reassess the classification of property assets held at that date; or Retrospective approach: Apply the amendments retrospectively, but only if it does not involve the use of hindsight. Ind AS 21, The Effects of Changes in Foreign Exchange Rates Under current Ind AS, foreign currency transactions are recorded in the company s functional currency by applying the spot exchange rate on the date of the transaction i.e. on the date when the transaction first qualifies for recognition. However, when foreign currency consideration is paid or received in advance of the item it relates to which may be an asset, an expense or income Ind AS 21 is not clear on how to determine the date of the transaction. To address this issue, the IFRS Interpretations Committee has issued an IFRIC 22, Foreign Currency Transactions and Advance Consideration which has been incorporated as Appendix B to Ind AS 21. The Appendix B would apply when a company: Pays or receives consideration denominated or priced in a foreign currency, and Recognises a non-monetary prepayment asset or deferred income liability e.g. non-refundable advance consideration before recognising the related item at a later date. Establishing the date of the transaction The date of the transaction which is required to determine the spot exchange rate for translation would be the earlier of: the date of initial recognition of the non-monetary prepayment asset or deferred income liability, and the date that the related item is recognised in the financial statements. If the transaction is recognised in stages, then a transaction date would be established for each stage. The spot exchange rate for each date would be applied to translate each part of the transaction. Effective date: The appendix is applicable for accounting periods beginning on or after 1 April 2018 (retrospective application is permitted). Transitional provisions On initial application, an entity should apply Appendix B either: Retrospectively, or Prospectively to all assets, expenses and income in the scope of the Appendix initially recognised on or after: i. the beginning of the reporting period in which the entity first applies the Appendix, or ii. the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix. In case of prospective application, an entity should apply the Appendix to assets, expenses and income initially recognised on or after the beginning of the reporting period (provided in (i) or (ii) above) for which non-monetary assets or non-monetary liabilities, arising from advance consideration, have been recognised before that date. 2
Overview of amendments (cont.) Ind AS 12, Income Taxes Ind AS 12 specify that a difference between the carrying amount of an asset measured at fair value and its higher tax base gives rise to a deductible temporary difference. This is because the calculation of a temporary difference in Ind AS 12 is based on the premise that the entity will recover the carrying amount of an asset, and hence economic benefits will flow to the entity in future periods to the extent of the asset's carrying amount at the end of the reporting period. Consequently, decreases below cost in the carrying amount of a fixed-rate debt instrument measured at fair value for which the tax base remains at cost give rise to a deductible temporary difference. This applies irrespective of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use, i.e. continuing to hold it, or whether it is probable that the issuer will pay all the contractual cash flows. The amendments explain that determining temporary differences and estimating probable future taxable profit against which deductible temporary differences are assessed for utilisation are two separate steps and the carrying amount of an asset is relevant only to determining temporary differences. The carrying amount of an asset does not limit the estimation of probable future taxable profit. In its estimate of probable future taxable profit, an entity includes the probable inflow of taxable economic benefits that results from recovering an asset. This probable inflow of taxable economic benefits may exceed the carrying amount of the asset. The amendments considers that: Tax law determines which deductions are offset against taxable income in determining taxable profits. No deferred tax asset is recognised if the reversal of the deductible temporary difference will not lead to tax deductions. Consequently, if tax law offsets a deduction against taxable income on an entity basis, without segregating deductions from different sources, an entity carries out a combined assessment of all its deductible temporary differences relating to the same taxation authority and the same taxable entity.. However, if tax law offsets specific types of losses only against a particular type, or types, of income (for example, if tax law limits the offset of capital losses to capital gains), an entity assesses a deductible temporary difference in combination with other deductible temporary differences of that type(s), but separately from other deductible temporary differences. Segregating deductible temporary differences in accordance with tax law and assessing them on such a basis is necessary to determine whether taxable profits are sufficient to utilise deductible temporary differences. Effective date: The amendments are applicable retrospectively for annual periods beginning on or after 1 April 2018. Transition relief On initial application, an entity may recognise the change in the opening equity of the earliest comparative period in opening retained earnings without allocating the change between opening retained earnings and other components of equity. The entity should disclose the fact if it applies the transitional relief. Ind AS 28, Investments in Associates and Joint Ventures When an investment in an associate or joint venture is held by, or is held indirectly through, a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect, in accordance with Ind AS 28, to measure that investment at fair value through profit or loss. However, it was not clear whether the entity is able to choose between applying the equity method or measuring the investment at fair value for each investment, or whether instead the entity applies the same accounting to all of its investments in associates and joint ventures. Accordingly, Ind AS 28 has been amended to clarify that a venture capital organisation, or a mutual fund, unit trust and similar entities may elect, at initial recognition, to measure investments in an associate or joint venture at fair value through profit or loss separately for each associate or joint venture. 3
Overview of amendments (cont.) In addition, Ind AS 28 permits an entity that is not an investment entity to retain the fair value measurement applied by its associates and joint ventures (that are investment entities) when applying the equity method. Therefore, this choice is available, at initial recognition, for each investment entity associate or joint venture. Effective date: The amendments are applicable retrospectively for annual periods beginning on or after 1 April 2018. Ind AS 112, Disclosure of Interests in Other Entities The amendments clarify that disclosure requirements for interests in other entities also apply to interests that are classified (or included in a disposal group that is classified) as held for sale or as discontinued operations in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations. Effective date: The amendments are applicable retrospectively for annual periods beginning on or after 1 April 2018. Our comments The amendments issued with reference to Ind AS are in line with the IFRS amendments to improve the practical application of these standards. The amendments are effective for annual period beginning on or after 1 April 2018. However, some of the amendments are mandatorily required to be applied on a retrospective basis whereas others provide an option to adopt retrospectively. The entities in India that are required to comply with Ind AS should make a note of these amendments and accordingly consider the information that would be required to be in compliance with these amendments. 4
KPMG in India Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad 380 051. Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre, 11-12/1, Inner Ring Road, Koramangala, Bengaluru 560 071. Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor), Sector 8C, Madhya Marg, Chandigarh 160 009. Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai KRM Tower, Ground Floor, No 1, Harrington Road Chetpet, Chennai 600 031 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Gurugram Building No.10, 8th Floor DLF Cyber City, Phase II, Gurugram, Haryana 122 002, Tel: +91 124 307 4000. Fax: +91 124 254 9101 Hyderabad Salarpuria Knowledge City, ORWELL, 6th Floor, Unit 3, Phase III, Sy No. 83/1, Plot No 2, Serilingampally Mandal, Raidurg Ranga Reddy District, Hyderabad, Telangana 500081 Tel: +91 40 6111 6000 Fax: +91 40 6111 6799 Jaipur Regus Radiant Centres Pvt Ltd., Level 6, Jaipur Centre Mall, B2 By pass Tonk Road Jaipur, Rajasthan, 302018. Tel: +91 141 7103224 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 604, 6th Floor, Tower 1, Godrej Waterside, Sector V, Salt Lake, Kolkata 700 091. Tel: +91 33 4403 4000 Fax: +91 33 4403 4199 Mumbai Lodha Excelus, Apollo Mills, N. M. Joshi Marg, Mahalaxmi, Mumbai 400 011. Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Noida Unit No. 501, 5th Floor, Advant Navis Business park, Tower-B, Plot# 7, Sector 142, Expressway Noida, Gautam Budh Nagar, Noida 201305. Tel: +91 0120 386 8000 Fax: +91 0120 386 8999 Pune 9th floor, Business Plaza, Westin Hotel Campus, 36/3-B, Koregaon Park Annex, Mundhwa Road, Ghorpadi, Pune 411001. Tel: +91 20 6747 7000 Fax: +91 20 6747 7100 Vadodara iplex India Private Limited, 1st floor office space, No. 1004, Vadodara Hyper, Dr. V S Marg, Alkapuri, Vadodara 390 007. Tel: +91 0265 235 1085/ 232 2607/232 2672 You can reach out to us for feedback and questions at: in-fmkpmgifrsinst@kpmg.com
KPMG in India s IFRS institute Missed an issue of our Accounting and Auditing Update or First Notes Visit KPMG in India s IFRS Institute - a web-based platform, which seeks to act as a wide-ranging site for information and updates on IFRS implementation in India. The website provides information and resources to help board and audit committee members, executives, management, stakeholders and government representatives gain insight and access to thought leadership publications that are based on the evolving global financial reporting framework. Voices on Reporting KPMG in India is pleased to present Voices on Reporting a series of knowledge sharing calls to discuss current and emerging issues relating to financial reporting. In our recent session of Voices on Reporting webinar on 4 April 2018, we covered key financial reporting and regulatory matters that are expected to be relevant for stakeholders for the quarter ended 31 March 2018. Click here to access the audio recording (mp3) and presentation (pdf). Issue no. 20/2018 March 2018 In this edition of Accounting and Auditing Update (AAU), we highlights the significant areas where revenue recognition under real estate and construction sector is expected to change due to implementation of Ind AS 115, Revenue from Contracts with Customers. This standard is applicable to Indian companies covered in the Ind AS road map from 1 April 2018. The article on SA 701, Communicating Key Audit Matters in the Independent Auditor s Report aims to explain significant changes expected in the auditor s report due to communication of key audit matters. The SA would be applicable to listed companies and certain other companies from 1 April 2018. The publication carries an article securitisation transactions which describes with the help of an illustrative whether a certain securitisation transaction would meet the criteria for derecognition of a financial instrument and application of control definition on such special purpose entities or trusts. This publication also cast lens on accounting for income taxes. The article covers two practical scenarios: accounting for income taxes in any interim period accounting for deferred taxes in a business combination. Our publication also carries a regular synopsis of some recent regulatory updates in India and internationally. SEBI relaxes norms governing schemes of arrangements by listed entities 18 January 2018 The listed entities that desire to undertake a scheme of arrangement or are involved in a scheme of arrangement need to follow the regulations laid down by the Securities and Exchange Board of India (SEBI). On 10 March 2017, SEBI issued a circular number CFD/DIL3/CIR/ 2017/21 which laid down a revised regulatory framework for schemes of arrangements by listed entities and relaxation under Rule 19(7) of the Securities Contract (Regulation) Rules, 1957. The SEBI received representations to improve the existing framework governing schemes of arrangements. Additionally, SEBI wanted to expedite the processing of draft schemes and prevent misuse of schemes to bypass regulatory requirements. Therefore, on 3 January 2018, SEBI issued a circular number CFD/DIL3/ CIR/2018/2 (the circular) to make certain amendments to the circular dated 10 March 2017. The recent circular is applicable from the date of its issue i.e. 3 January 2018. In this issue of First Notes, we have provided an overview of the key amendments/ relaxations given in the circular. Previous editions are available to download from: www.kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. This document is meant for e-communication only.