Blog

7 Apr 2025

Part 1: Regulatory Expectations for ECL on Trade Receivables under Ind AS 109

SA 230 provides guidance to auditors on how to prepare audit documentation for an audit of financial statements. The purpose of audit documentation is to provide evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements, and to support the auditor's basis for their conclusions about the achievement of the overall objectives of the audit.

Accounting and Provisioning by Urban Co-operative Banks

Urban Co-operative Banks (UCBs) should recognize income on an accrual basis for: Government Securities and corporate bonds with regular interest payments and no arrears.

Accounting and Provisioning in AIFIs – Basel III

AIFIs should recognize income on an accrual basis for specific securities, including those guaranteed by the Central or State Government, provided interest is regularly serviced and not in arrears.

Balance Sheet Disclosure Guidelines for NBFCs in Middle Layer and Above

NBFCs must include certain items in their Notes to Accounts (NTA). These are additional to other disclosure requirements.

Capital Charge for Credit Risk – Basel III

In banking, managing credit risk is crucial, especially when it involves large amounts of money. The Standardized Approach is often used, where external credit ratings guide how much risk each credit carries.

Capital Charge for Market Risk – Basel - III

Market risk refers to the possibility of financial loss due to changes in market prices. It affects both on-balance sheet and off-balance sheet positions.

Classification of Investments

Urban Co-operative Banks (UCBs) must organize their investment portfolio, including both SLR and non-SLR securities, into three groups: 'Held to Maturity' (HTM), 'Available for Sale' (AFS), and 'Held for Trading' (HFT).

Credit Risk Mitigation – Basel III

In the realm of credit risk mitigation, when a financial institution (AIFI) invests in a security with a specific rating from an approved agency, the risk weight of that investment reflects the rating.

Directions for NBFC - Micro Finance MFIs

Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) and other NBFCs offering microfinance loans must follow specific guidelines. These are in addition to the general instructions they already comply with.

Disclosures in Financial Statements – Notes to Accounts of NBFCs

The disclosure formats provided here are designed for all types of Non-Banking Financial Companies (NBFCs), including Investment and Credit Companies, Housing Finance Companies, and Core Investment Companies.

Early Recognition of Financial Distress

Non-Banking Financial Companies (NBFCs) must quickly identify signs of stress in loan accounts. On detecting a default, these accounts should be categorized as special mention accounts (SMA) based on the duration of overdue payments.

Elements of Regulatory Capital – Basel III

The regulatory capital is divided into two main types: Tier 1 and Tier 2. Tier 1 Capital, also known as going-concern capital, includes Common Equity Tier 1 and Additional Tier 1 capital. Tier 2 Capital, or gone-concern capital, is another component.

Exemptions, Interpretations and Repeal – Basel III

The Reserve Bank has the authority to offer flexibility when it comes to following these Directions. If it finds that there's a significant reason - like preventing hardship or for other fair reasons - it can decide to give more time to an All-India Financial Institution (AIFI) to comply with these rules.

Fit and Proper Criteria for Directors of NBFCs

NBFCs need to ensure their Directors are suitable for their roles. This involves checking their qualifications, expertise, track record, and integrity.

Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries

Long-term loans, like those for 25 years, given to infrastructure or core industry projects, need to be structured carefully. First, we must ensure the project is financially viable.

2 Feb 2024Expected Credit Loss

Guidance for computation of ECL - NFRS-9

Banks must consider factors like Probability of Default, Loss Given Default, and Exposure at Default when computing ECL. They should use historical data, forward-looking information, and consider regulatory backstop measures.

Guidelines for Credit Default Swaps - NBFCs as Users

In these guidelines, we use specific terms. A 'Credit event payment' is what the credit protection seller pays to the buyer after a credit event. It's paid through physical settlement. The 'Underlying asset/obligation' is what the buyer wants to protect.

Guidelines for Entry of NBFCs into Insurance

NBFCs registered with the Reserve Bank can start insurance agency business without risk participation. They don't need approval from the Reserve Bank

Guidelines for Internal Capital Adequacy Assessment Process (ICAAP) – Basel III

The main goal of the supervisory review process is to make sure that financial institutions, specifically All India Financial Institutions (AIFIs), hold enough capital to cover all the risks in their business.

2 Feb 2024Auditing Standards

Guidelines for the SREP of RBI and ICAAP of AIFIs– Basel - III

The Basel capital adequacy framework is built on three pillars. The first pillar sets the minimum capital requirements, including operational, market, and credit risk. The second pillar, the Supervisory Review Process (SRP), focuses on establishing and reviewing risk management systems in AIFIs.

Guidelines on Distribution of Mutual Fund Products by NBFCs

They must adhere to SEBI's guidelines and code of conduct for mutual fund distribution. They should not force customers to choose any specific mutual fund product, especially if it's sponsored by the NBFC. Customers should have the freedom to choose.

Guidelines on Issue of Co-Branded Credit Cards

The Reserve Bank has decided to allow certain NBFCs to issue co-branded credit cards with banks. This is to diversify their business areas.

Guidelines on Liquidity Coverage Ratio (LCR)

These guidelines apply to non-deposit taking NBFCs with assets of ₹5,000 crore and above, and all deposit taking NBFCs, except for certain types like Core Investment Companies and others. They outline how to calculate the Liquidity Coverage Ratio (LCR).

Guidelines on Liquidity Risk Management Framework

Non-deposit taking NBFCs with assets of ₹100 crore and above, Core Investment Companies, and all deposit-taking NBFCs must follow these guidelines.

Guidelines on Perpetual Debt Instruments

Non-deposit taking NBFCs can issue Perpetual Debt Instruments (PDI) as bonds or debentures. These can be part of Tier 1 or Tier 2 capital for capital adequacy.

Guidelines on Private Placement of NCDs by NBFCs

NBFCs need to have a policy approved by their Board for planning their resources. This policy should include how often they will arrange private placements and for how long.

Introduction to RBI – NBFC Scale Based Regulation

The Reserve Bank of India's (RBI) regulations for Non-Banking Financial Companies (NBFCs) based on their size, activities, and risk levels.

Investment in Non-SLR Securities by Urban Co-operative Banks

Urban Co-operative Banks (UCBs) can invest in various non-SLR instruments: Corporate bonds rated "A" or higher.

Investment Portfolio of Primary (Urban) Co-operative Banks

Urban Co-operative Banks (UCBs) need to have a clear investment policy. This policy should be approved by their Board of Directors. It should match the bank's size, business complexity, risk management skills, staff, and technology.

Investments in Government Securities by Urban Co-operative Banks

Urban Co-operative Banks (UCBs) must follow these rules when dealing with Government Securities

Large Exposures Framework – Basel III

In this chapter, we discuss how regulators and financial entities use exposure limits to handle concentration risk. These guidelines focus on the prudential norms for credit and capital market exposures of All India Financial Institutions (AIFIs).

Leverage Ratio Framework – Basel III

The Leverage Ratio Framework is a key part of our approach to making the banking system safer. It was developed in response to the global financial crisis, where we saw that banks had too much debt, both on their books and in less visible ways.

Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs

Outsourcing in NBFCs involves using third parties to perform activities traditionally handled by the NBFC itself.

2 Feb 2024Expected Credit Loss

NFRS 9 - ECL Guidelines – Nepal Rastra Bank

Financial Instruments standard was initially set to be effective from July 16, 2021. However, challenges like the COVID-19 pandemic, limited time, and lack of technical expertise led to its full implementation being postponed to the fiscal year 2080/81 for banks and financial institutions.

Norms on Restructuring of Advances by NBFCs

Non-Banking Financial Companies (NBFCs) play a crucial role in the financial system, especially in the restructuring of advances.

Operational Aspects of ICAAP – Basel III

The operational aspect delves into the range of risks that All India Financial Institutions (AIFIs) should typically consider in their Internal Capital Adequacy Assessment Process (ICAAP).

Operational Risk Capital Charge Calculation Methods– Basel - III

There are three methods to calculate the capital needed for operational risks in financial institutions. These are: Basic Indicator Approach (BIA): This is the approach most financial institutions start with. Standardized Approach (TSA): A more complex method.

Permitted exposures & other prudential exposure limits – Basel III

Financial institutions should set their own internal limits for how much they commit to specific sectors, like textiles, chemicals, engineering, and so on. This helps ensure that their exposures are spread out across different areas.

Placement of Deposits with Other Banks/Institutions by Urban Co-operative Banks

Scheduled Urban Co-operative Banks (UCBs) that meet certain criteria can accept deposits from other UCBs. These deposits should be part of specific service arrangements like clearing, foreign exchange transactions, or non-fund based facilities.

Prudential Norms for Investment Portfolio Management by AIFIs – Basel III

The Reserve Bank provides guidelines for All India Financial Institutions (AIFIs) regarding their investment portfolios. These guidelines reflect the latest developments in financial markets and align with international practices.

Regulations applicable for NBFC-BL

A non-banking financial institution (NBFC), specific financial requirements must be met. The Reserve Bank of India (RBI) has set these requirements. For NBFCs like NBFC-ICC, NBFC-MFI, and NBFC-Factor, the required Net Owned Fund (NOF) is ₹10 crore.

Regulations applicable for NBFC-ML

Non-Banking Financial Companies (NBFCs) must maintain a minimum capital ratio. This ratio, made up of Tier 1 and Tier 2 capital, should be at least 15 percent of their risk-weighted assets.

Regulatory Guidance on Implementation of Ind AS by NBFCs

Companies wanting to do factoring business must apply to the Reserve Bank for a Certificate of Registration (CoR) as an NBFC-Factor.

Regulatory Instructions for NBFC-UL

NBFCs are required to maintain a Common Equity Tier 1 capital. This should be at least 9 percent of their Risk Weighted Assets. The CET1 ratio is calculated by dividing the Common Equity Tier 1 capital by the Total Risk Weighted Assets.

Resource Raising Norms – Basel III

All-India Financial Institutions (AIFIs) are key players in our financial markets. They help in gathering funds and allocating resources.

Restrictions on holding shares in other Co-operative Societies

The Banking Regulation Act of 1949, as it applies to Co-operative Societies, sets rules for co-operative banks about owning shares in other co-operative societies.

Scoring Methodology for Identification of NBFC as NBFC-UL

The top 50 NBFCs, excluding the ten largest by asset size (which are automatically in the Upper Layer), are selected based on their total exposure, including off-balance sheet exposure.

Self-Regulatory Organization (SRO) for NBFC-MFIs – Criteria for Recognition

The SRO should have at least one-third of registered NBFC-MFIs as its members at the time of seeking recognition.

Shifting Among Categories in the Investment Portfolio of UCBs

Urban Co-operative Banks (UCBs) can move investments to or from the Held to Maturity (HTM) category. This requires approval from the Board of Directors and can be done once a year, at the start of the accounting year.

Significant Investments of AIFIs – Basel III

AIFIs need to develop investment policies approved by their Board. These policies should address investments in financial entities, considering the limits set in the Large Exposure Norms.

Specific Directions for Infrastructure Debt Funds IDFs-NBFC

An IDF can be established either as a trust or a company. A trust-based IDF is known as IDF-Mutual Fund (MF) and comes under the regulation of SEBI. On the other hand, a company-based IDF is registered as an IDF-NBFC and is regulated by the Reserve Bank.

Specific Directions for NBFC-Factors and NBFC-ICCs

Existing NBFC-ICCs that want to start factoring must also apply if they meet certain criteria like not holding public deposits, having assets of ₹1,000 crore or more, and meeting the Net Owned Funds (NOF) requirement.

Valuation of Investments of Urban Co-operative Banks

Investments in HTM don't need market valuation. They are carried at acquisition cost if it's less than face value.

6 Jan 2024Banking and Regulation

RBI’s Directions for the Investment Portfolio of Commercial Banks

The Reserve Bank of India's Directions for the Classification, Valuation, and Operation of the Investment Portfolio of Commercial Banks, established in 2023.

16 Dec 2023Banking and Regulation

Simple Guide on Minimum Capital Requirements - Basel III

Financial institutions like banks and investment firms around the world follow certain rules to manage risks. These rules are pretty similar everywhere. One popular set of rules is Basel III. It's like a safety net for these institutions. It helps them stay strong in tough times and keeps an eye on risks in the financial world.

Statement on developmental and regulatory policies

The introduction of securities lending and borrowing in government securities, which refers to a process where investors temporarily transfer securities to another investor in exchange for a fee or collateral. This process can help to add depth and liquidity to the market by allowing investors to borrow securities that they need for short periods of time, which can aid in efficient price discovery.

Standard on Quality Control

A standard on Quality Control (SQC) issued by the Auditing and Assurance Standards Board (AASB) for firms conducting audits, reviews of historical financial information, and other assurance and related services engagements. The SQC establishes standards and provides guidance on a firm’s responsibilities for its system of quality control.

SA 810 - Statement on Auditing Standards

SA 810 is a standard that provides guidance to auditors when reporting on summary financial statements. Summary financial statements are a condensed version of an entity's financial statements and contain less detail, but still provide a structured representation of an entity's economic resources or obligations at a point in time or changes over a period.

SA 805 - Statement on Auditing Standards

SA 805 provides definitions for key terms used in the standard, such as "historical financial information," "financial statements," and "element of a financial statement."

Audit trail in software requirements

The audit trail notes that there is no similar reporting obligation for auditors globally, so there is no international guidance available to prescribe specific guidance for compliance.

Statement on Auditing Standards - SRS 4410

SRS 4410 applies specifically to "compilation engagements," which are engagements where the practitioner helps management with financial information without providing any assurance on that information.

Statement on Auditing Standards - SRS 4400

The Standard on Related Services (SRS) provides guidance and standards for auditors when they undertake engagements to perform agreed-upon procedures regarding financial information. This means that the auditor is engaged by the client to perform certain procedures concerning specific financial data, such as accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity or a financial statement, such as a balance sheet or a complete set of financial statements. The auditor then issues a report of factual findings based on the specified procedures performed on the specified subject matter.

Statement on Auditing Standards - SRE 2410

The purpose and scope of the Standard on Review Engagements (SRE) is which provides guidance on the auditor's responsibilities when reviewing an audit client's interim financial information. Interim financial information refers to financial statements prepared for a period that is shorter than the entity's financial year. The auditor should perform the review in accordance with the SRE 2410, which includes updating their understanding of the entity and its environment through inquiries made during the review process. If a practitioner who is not the auditor of the entity is engaged to perform a review of interim financial information, they should follow SRE 2400 instead. The SRE 2410 can also be applied to review historical financial information other than interim financial information.

Statement on Auditing Statement - SRE 2400

The Scope of the Standard on Review Engagements (SRE) which outlines the responsibilities of a practitioner when performing a review of financial statements. The SRE 2400 outlines the practitioner's responsibilities when engaged to perform a review of historical financial statements, when the practitioner is not the auditor of the entity’s financial statements. The SRE also defines the form and content of the practitioner's report on the financial statements.

Statement on Auditing Standards - SAE 3420

SAE 3420, the Standard on Assurance Engagements (SAE) which provides guidance to practitioners who are conducting reasonable assurance engagements to report on pro forma financial information that is included in a prospectus.

Statement on Auditing Standards - SAE 3402

SAE 3402 - the standard on assurance engagements undertaken by professional accountants in public practice to provide a report on the controls at a service organization that provides a service likely to be relevant to user entities' internal control as it relates to financial reporting.

Statement on Auditing Standards - SAE 3400

A Standard on Assurance Engagement (SAE) that provides guidance for auditors who are engaged to examine and report on prospective financial information. This type of information is based on assumptions about future events and possible actions by an entity and can take the form of a forecast, projection, or combination of both.

Statement on Auditing Standards - SA 800

The auditing standards are a set of guidelines that auditors must follow when conducting an audit of financial statements. This SA 800 specifically deals with audits of financial statements that have been prepared using a special purpose financial reporting framework. A special purpose financial reporting framework is a framework that has been designed to meet the financial information needs of specific users. It may be a fair presentation framework, which means that it presents the financial statements fairly in accordance with the applicable financial reporting framework, or a compliance framework, which means that it meets the requirements of a specific set of regulations or contracts.

Statement on Auditing Standards - SA 720

The responsibilities of auditors regarding "other information" that is included in an entity's annual report, which refers to any financial or non-financial information (excluding financial statements and the auditor's report) presented in a single document or a combination of documents that serve the same purpose. The objectives of the auditor in relation to other information are to consider whether there is a material inconsistency between the other information and the financial statements, and whether there is a material inconsistency between the other information and the auditor's knowledge obtained in the audit. The auditor must respond appropriately when material inconsistencies appear to exist, or when the auditor becomes aware that other information appears to be materially misstated. The auditor must also report in accordance with the SA 720.

Statement on Auditing Standards - SA 710

The Auditing standards outline the auditor's responsibilities regarding comparative information in an audit of financial statements. Comparative information is essentially information that presents the financial results and position of an entity for one or more prior periods for comparison with the current period. The nature of the comparative information presented in an entity's financial statements depends on the requirements of the applicable financial reporting framework.

Statement on Auditing Standards - SA 706

The auditing standards that deals with additional communication in the auditor's report when the auditor considers it necessary to draw users' attention to a matter that is of such importance that it is fundamental to users' understanding of the financial statements or any other matter that is relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report. This SA 706 establishes requirements and provides guidance when the auditor determines key audit matters and communicates them in the auditor's report.

Statement on Auditing Standards - SA 705

The auditing standards that are being summarized here deals with the auditor's responsibility to issue an appropriate report when the auditor concludes that a modification to the auditor's opinion on the financial statements is necessary. In other words, this SA provides guidance on how an auditor should modify their report when they encounter significant issues or errors in the financial statements that require a modification to the opinion.

Statement on Auditing Standards - SA 701

The Auditing standards for communicating key audit matters in an auditor's report. The purpose of communicating key audit matters is to enhance transparency and provide additional information to users of financial statements about the most significant matters in the audit of the financial statements of the current period. The significance of a matter is judged by the auditor in the context of quantitative and qualitative factors, such as relative magnitude, nature, effect, and the expressed interests of intended users or recipients.

Statement on Auditing Standards - SA 700

The responsibilities of auditors in forming an opinion on financial statements and issuing a report based on their audit. The SA 700 is applicable to audits of complete sets of general-purpose financial statements, which are financial statements prepared in accordance with a general-purpose framework designed to meet the common financial information needs of a wide range of users. The SA 700 aims to strike an appropriate balance between the need for consistency and comparability in auditor reporting globally and the need to increase the value of auditor reporting by making the information provided in the auditor’s report more relevant to users. It promotes consistency in the auditor’s report while also recognizing the need for flexibility to accommodate particular circumstances of individual jurisdictions.

Statement on Auditing Standard - SA 620

The scope of auditing standards that deals with the auditor's responsibilities regarding the use of an individual or organization's work in a field of expertise other than accounting or auditing when that work is used to assist the auditor in obtaining sufficient appropriate audit evidence. The SA 620 makes it clear that it does not deal with situations where the engagement team includes a member with expertise in a specialized area of accounting or auditing (which is dealt with in SA 220) or the auditor's use of the work of an individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to prepare the financial statements (a management's expert), which is dealt with in SA 500.

Statement on Auditing Standards - SA 610

The auditing standards explains that the standard applies to situations where the external auditor plans to use the work of internal auditors in obtaining audit evidence, or to use internal auditors to provide direct assistance under the direction, supervision, and review of the external auditor. The standard clarifies that if an entity does not have an internal audit function, then this standard does not apply. Similarly, the standard does not apply if the responsibilities and activities of the internal audit function are not relevant to the audit or if the external auditor does not expect to use the work of the function in obtaining audit evidence.

Statement on Auditing Standards - SA 600

The purpose and scope of the Auditing standards related to the use of the work of other auditors by the principal auditor in auditing the financial information of an entity. The principal auditor is responsible for forming and expressing their opinion on the financial information, even when work is delegated to assistants or performed by other auditors or experts. However, they are entitled to rely on the work performed by others, as long as they exercise adequate skill and care and have no reason to believe otherwise. This Standard establishes standards for situations where the principal auditor uses the work of another auditor with respect to the financial information of one or more components included in the financial information of the entity.

Statement on Auditing Standards - SA 580

The auditing standards that deal with the auditor's responsibility to obtain written representations from management and, where appropriate, those charged with governance. Written representations are statements provided by management to confirm certain matters or to support other audit evidence. While written representations are an important source of audit evidence, they do not provide sufficient appropriate audit evidence on their own, and the auditor must obtain other audit evidence to support the conclusions on which the audit opinion is based.

Statement on Auditing Standards - SA 570

The responsibilities of auditors in relation to the "going concern" basis of accounting, which is the assumption that a company will continue to operate for the foreseeable future. The first point made is that this Auditing standards deals with the auditor's responsibilities in the audit of financial statements relating to going concern and the implications for the auditor's report. The financial statements are typically prepared on the going concern basis of accounting, unless management intends to liquidate the entity or has no realistic alternative but to do so. If the going concern basis is appropriate, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.

Statement on Auditing Standards - SA 560

The Auditing standards that deal with the auditor's responsibilities related to subsequent events in an audit of financial statements. Subsequent events are events that occur between the date of the financial statements and the date of the auditor's report that may require adjustments or disclosures in the financial statements. The SA 560 explains that financial statements may be affected by events that occur after the date of the financial statements. There are two types of subsequent events: those that provide evidence of conditions that existed at the date of the financial statements, and those that provide evidence of conditions that arose after the date of the financial statements. The SA 560 requires the auditor to obtain sufficient appropriate audit evidence about whether subsequent events that require adjustment or disclosure in the financial statements are appropriately reflected in those financial statements. The SA 560 also requires the auditor to respond appropriately to facts that become known to the auditor after the date of the auditor's report, which, if known at the time, may have caused the auditor to amend the auditor's report. The SA 560 defines several terms used in the standard, including the date of the financial statements, the date of approval of the financial statements, the date of the auditor's report, and the date the financial statements are issued. The date of the financial statements is the date at the end of the latest period covered by the financial statements. The date of approval of the financial statements is the date on which all the statements that comprise the financial statements, including the related notes, have been prepared and those with the recognized authority have asserted that they have taken responsibility for those financial statements. The auditor's report cannot be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements. The date of the auditor's report cannot be earlier than the date of approval of the financial statements. The date the financial statements are issued depends on the regulatory environment of the entity. In some circumstances, the date the financial statements are issued may be the date that they are filed with a regulatory authority.

Statement on Auditing Standards - SA 540

The auditing standards related to accounting estimates and fair value accounting estimates, and the responsibilities of auditors regarding them. SA 540 defines accounting estimates as financial statement items that cannot be measured precisely but can only be estimated. The nature and reliability of information available to management to support the making of an accounting estimate vary widely, which affects the degree of estimation uncertainty associated with accounting estimates. This estimation uncertainty affects the risks of material misstatement of accounting estimates, including their susceptibility to unintentional or intentional management bias. The further describes different examples of accounting estimates, including fair value accounting estimates and non-fair value accounting estimates, and discusses the degree of estimation uncertainty associated with each of them. For example, accounting estimates arising in entities that engage in business activities that are not complex, or accounting estimates derived from data that is readily available, may involve lower estimation uncertainty and lower risks of material misstatements. On the other hand, accounting estimates based on significant assumptions, such as those related to the outcome of litigation, may involve higher estimation uncertainty and higher risks of material misstatements SA 540 also highlights the responsibility of auditors to evaluate the management bias associated with accounting estimates. The financial reporting frameworks require neutrality, but the imprecise nature of accounting estimates can be influenced by management judgment, which may involve unintentional or intentional management bias. The auditor is responsible for assessing the risks of material misstatement associated with management bias and for designing audit procedures to address those risks Overall, SA 540 provides guidance and requirements on how auditors should approach accounting estimates and fair value accounting estimates, evaluate the risks of material misstatements associated with them, and address the management bias that may influence accounting estimates.

Statement on Auditing Standards - SA 530

The auditing standards that apply when an auditor uses audit sampling in performing audit procedures. Audit sampling involves testing a subset of items within a population of audit relevance, with the goal of providing the auditor with a reasonable basis on which to draw conclusions about the entire population. The objective of audit sampling is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected. To achieve this objective, the auditor must consider both sampling risk and non-sampling risk. Sampling risk is the risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure. Non-sampling risk is the risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk, such as using inappropriate audit procedures or misinterpreting audit evidence.

Statement on Auditing Standards - SA 520

The Auditing standard being discussed in the auditors how use analytical procedures during financial statement audits. Analytical procedures refer to the evaluation of financial information by analysing plausible relationships between both financial and non-financial data. This type of analysis helps auditors to obtain relevant and reliable audit evidence when using substantive analytical procedures.

Statement on Auditing Standards - SA 510

The Auditing standards are a guideline that outlines the responsibilities of auditors when conducting an initial audit engagement. An initial audit engagement refers to an audit of financial statements that have not been audited before, or were audited by a different auditor in the prior period. The SA sets out the requirements for auditors to examine opening balances, which include financial statement amounts, contingencies, and commitments, that existed at the beginning of the period being audited.

Statement on Auditing Standards - SA 505

The Auditing standards that provides guidance to auditors on using external confirmation procedures to obtain relevant and reliable audit evidence. External confirmation procedures involve the auditor obtaining direct written responses from third parties (known as confirming parties) in paper form, electronic form, or another medium. The purpose of this SA 505 is to help auditors design and perform external confirmation procedures to obtain relevant and reliable audit evidence.

Statement on Auditing Standards - SA 501

The Scope of Auditing standards and its effective date. SA 501 deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence with respect to inventory, litigation and claims involving the entity, and segment information in an audit of financial statements. The SA 501 applies to audits of financial statements for periods beginning on or after April 1, 2010, and its objective is to enable the auditor to obtain sufficient appropriate audit evidence to evaluate the existence and condition of inventory, the completeness of litigation and claims involving the entity, and the presentation and disclosure of segment information in accordance with the applicable financial reporting framework. In SA 501 provides guidance to auditors on how to effectively and appropriately evaluate inventory, litigation and claims, and segment information in financial statements during an audit to obtain sufficient and appropriate audit evidence.

Statement on Auditing Standards - SA 500

The Auditing standards provides guidance to auditors on the concept of audit evidence and the procedures to obtain sufficient appropriate evidence to support the auditor's opinion on the financial statements. The objective of the auditor is to design and perform audit procedures that enable them to obtain evidence that is of sufficient quality and quantity to draw reasonable conclusions on which to base their opinion. The SA 500 applies to all audit evidence obtained during the audit, including evidence derived from the entity's accounting records and information obtained from other sources. However, specific SA 500 deal with different aspects of the audit, such as obtaining audit evidence related to specific topics, procedures to obtain evidence, and evaluation of the sufficiency and appropriateness of the evidence obtained.

Statement on Auditing Standards-SA 450

This auditing standard outlines the auditor's responsibility for evaluating the impact of misstatements on the financial statements during an audit. Misstatements can arise from errors or fraud, and the SA 450 provides examples of how misstatements can occur, such as inaccurate data gathering or processing, omission of amounts or disclosures, incorrect accounting estimates, and inappropriate accounting policies. The SA 450 defines misstatements as a difference between reported financial statement items and the amount, classification, presentation, or disclosure required by the applicable financial reporting framework. This means that if there is a discrepancy between what is reported in the financial statements and what should have been reported based on the applicable financial reporting framework, it is considered a misstatement. The SA 450 specifies that the auditor must evaluate the effect of identified misstatements on the audit and uncorrected misstatements on the financial statements. Uncorrected misstatements are misstatements that the auditor has accumulated during the audit and that have not been corrected. The auditor must also consider the impact of uncorrected misstatements on the financial statements when forming an opinion on the financial statements' overall accuracy. The SA 450 is effective for audits of financial statements for periods beginning on or after April 1, 2010. The objective of the auditor is to ensure that financial statements are free from material misstatements and that reasonable assurance has been obtained that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Statement on Auditing Standards-SA 402

The Auditing standards provide guidance on the auditor's responsibility to obtain sufficient appropriate audit evidence in these cases, by applying SA 315 and SA 330. SA 402 specifies that the services provided by a service organization are relevant to the audit of the user entity's financial statements if they affect certain aspects of the user entity's information system, including classes of transactions, procedures for initiating and processing transactions, accounting records, and controls around journal entries. The extent of work required by the auditor will depend on the significance of these services to the user entity.

Statement on Auditing Standards - SA 330

The Auditing standards provides guidance to auditors on their responsibilities in designing and implementing responses to the risks of material misstatement identified in a financial statement audit. The effective date of this SA 330 is for audits of financial statements for periods beginning on or after April 1, 2008. The objective of the auditor is to obtain sufficient appropriate audit evidence about the assessed risks of material misstatement by designing and implementing appropriate responses to those risks.

Statement on Auditing Standards - SA 320

The concept of materiality in the context of an audit of financial statements. Materiality refers to the level at which a misstatement or omission in the financial statements could influence the economic decisions of users of those statements. The auditor's responsibility is to apply the concept of materiality appropriately in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

Statement on Auditing Standards-SA 315

The SA 315 is effective for audits of financial statements for periods beginning on or after April 1, 2008. The objective of the auditor is to identify and assess the risks of material misstatement, which can occur due to fraud or error, at the financial statement and assertion levels. To accomplish this objective, the auditor must have a comprehensive understanding of the entity and its environment, including its internal control. This understanding provides a basis for designing and implementing responses to the identified risks of material misstatement, which helps the auditor to reduce the risk of material misstatement to an acceptably low level.

Statement on Auditing Standards - SA 300

This Auditing standard discusses the importance of planning an audit of financial statements and outlines the responsibilities of the auditor in this regard. The purpose of planning is to ensure that the audit is performed in an effective and efficient manner. Adequate planning can help the auditor to identify and resolve potential problems on a timely basis, devote appropriate attention to important areas of the audit, and properly organize and manage the audit engagement.

Statement on Auditing Standards-SA 299

Joint audits involve the appointment of two or more auditors who work together to issue an audit report on the financial statements of an entity.

Statement on Auditing Standards-SA 265

The scope and objective of the auditing standards related to the auditor's responsibility to communicate deficiencies in internal control to those charged with governance and management. The SA 265 applies when the auditor identifies deficiencies in internal control during the audit of financial statements. The auditor is required to obtain an understanding of internal control relevant to the audit when identifying and assessing the risks of material misstatement. However, the auditor is not required to express an opinion on the effectiveness of internal control.

Statement on Auditing Standards-SA 260

The Auditing standard that outlines the auditor's responsibility to communicate with those charged with governance during an audit of financial statements. The SA applies regardless of an entity's governance structure or size, but specific considerations apply for entities where all those charged with governance are involved in managing the entity, and for listed entities.

Statement on Auditing Standard-SA 250

The Auditing standard applies to auditors who are responsible for performing an audit of financial statements, but it does not apply to other assurance engagements.

Statement on Auditing Standard – SA 240

The SA 240 defines fraud as a deliberate action resulting in misstatements in financial statements. The standard distinguishes between two types of intentional misstatements relevant to the auditor: misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets.

8 May 2023Auditing Standards

Statement on Auditing Standard – SA 230

8 May 2023Auditing Standards

Statement on Auditing Standard SA 210

The Accounting standards discusses a specific auditing standard, Standard on Auditing (SA) 210, which outlines the auditor's responsibilities when agreeing to the terms of an audit engagement with management and those charged with governance. An audit engagement is an agreement between an auditor and an entity (usually a company) to conduct an audit of the entity's financial statements.

9 Mar 2023Auditing Standards

Statement on Auditing Standards - SA 220

The Standard on Auditing (SA) that provides guidance to auditors on quality control procedures for an audit of financial statements. The SA sets out the specific responsibilities of the auditor and engagement quality control reviewer in relation to quality control systems, policies, and procedures.

7 Mar 2023

What is the difference between operating lease and finance lease?

An operating lease is a short-term lease in which the lessor (the owner of the asset) rents the asset to the lessee (the user of the asset) for a specific period of time, usually less than the useful life of the asset.

2 Mar 2023Banking and Regulation

Large Exposures Framework for NBFCs - Upper Layer - NBFC-UL

Prudential guidelines aim to address credit risk concentration in non-banking financial companies (NBFCs). These guidelines focus on identifying and managing large exposures, which refer to the sum of all exposure values of an NBFC-UL (an NBFC placed in the upper layer) to a counterparty or group of connected counterparties.

27 Feb 2023Banking and Regulation

Basel III Reforms - Introduction

Basel III reforms strengthen the rules for individual banks to make them more resilient during tough times. They also focus on reducing risks across the banking sector and over time. These regulations raise the quality and amount of capital that banks must have to handle losses, introduce a backstop for measuring risk, and set higher standards for how banks are supervised and must report their financial information. The regulations also include buffers to protect against excessive credit growth.

23 Feb 2023Banking and Regulation

Introduction to Basel III

The Basel III reforms are an international regulatory framework that was introduced by the Basel Committee on Banking Supervision (BCBS) in December 2010 to strengthen the resilience of banks and banking systems in times of financial and economic stress

3 Feb 2023Accounting and Compliance

Everything You Need to Know About Ind AS Accounting Standards 2023

Ind AS (Indian Accounting Standards) are a set of accounting standards that have been adopted from IFRS (International Financial Reporting Standards). Ind AS is designed to meet the needs of Indian companies by helping them to manage their financial reporting obligations in a fair and transparent manner.

1 Feb 2023Auditing Standards

Understanding Ind AS Accounting Standards 2023

Ind AS are the Indian version of International Financial Reporting Standards (IFRS). The standards were developed by the Ministry of Corporate Affairs (MCA) as a way to bring India’s financial reporting in line with global best practices. They are meant to provide more consistency, transparency, and accuracy when it comes to financial statements.

31 Jan 2023Accounting Standards

Deferred Tax Liabilities

Deferred tax liabilities refer to the income taxes that companies need to pay at a future date, but are calculated and recorded in their current financial statements.

28 Jan 2023Banking and Regulation

Guidelines on implementation of Ind AS by NBFCs

The Reserve Bank of India has released guidelines for the implementation of Indian Accounting Standards (Ind AS) by Non-Banking Financial Companies (NBFCs) and Asset Reconstruction Companies (ARCs).

23 Jan 2023Expected Credit Loss

Effective Rate of Interest - EIR

Effective Interest Rate (EIR) as per Indian Accounting Standards (Ind AS) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

29 Jun 2022Accounting and Compliance

C – BRR vs. BRSR Other details and Business Responsibility Information

29 Jun 2022Accounting and Compliance

Principles and principle-wise performance disclosures

PRINCIPLE 1: Businesses should conduct and govern themselves with Ethics, Transparency and Accountability

A – BRR vs. BRSR General information and general disclosures

B – BRR vs. BRSR Financial disclosures Vs. Management and process disclosures

Foundation stone for BRSR

There are various international and local frameworks used by organisations across the globe for their corporate sustainability reporting.

28 Jun 2022

Ind AS Accounting Standards

Ind AS (Indian Accounting Standards) are a set of accounting standards developed by the Institute of Chartered Accountants of India (ICAI) and adopted by companies in India for preparing their financial statements.

Key disclosures in BRSR

A few of the key disclosures sought in the BRSR are highlighted below: a. An overview of the entity's material ESG risks and opportunities, approach to mitigate or adapt to the risks along-with financial implications of the same

Role of Chartered Accountants in BRSR

“The focus on sustainable investing among equity market participants is expected to rise with more companies and countries implementing policies to meet ESG targets, particularly with respect to carbon emissions…….Stocks in Asia with high ESG scores on the MSCI are trading at a 40% premium to stocks with low ESG scores

What is BRSR?

Sustainability Reporting is an emerging discipline encompassing the disclosure and communication of an entity’s non -financial - environmental, social, and governance (ESG) performance and its overall impact.

1 May 2022Accounting and Compliance

CA Kamal Garg

CA Kamal Garg (Kamal) is a Fellow Member of The Institute of Chartered Accountants of India (ICAI) and a First Class Commerce Baccalaureate from Deen Dayal Upadhyaya College, University of Delhi

22 Mar 2022Expected Credit Loss

What is SPPI test?

SPPI test means Solely Payment of Principal and Interest.

Accounting for fair value hedge

The hedge should be designated at the inception of the hedging relationship and a formal designation and documentation of the same required. The documentation should contain the entity’s risk management strategy and objective for undertaking the hedge. The effect of the credit risk involved in the hedging instrument, viz, the counterparty credit risk should not be such that it would vitiate the fair value changes of the hedging instrument.

Accounting for net investment hedge – Only functional currency

Hedge accounting is applicable only to the foreign exchange differences arising between the functional currency of the foreign operation and the parent entity’s functional currency. It is not applicable for translation differences arising on account of presentation currency.

Accounting for the forward element

Change in the fair value of the forward element of a forward contract that hedges a transaction related hedged item should be recognised in other comprehensive income to the extent it relates to the hedged item. The cumulative change in the fair value arising from the forward element of the forward contract shall be accounted for as follows:

Accounting for the time value of options

The time value of options contract may be separated from the fair value of options contracts and the entity can designate only the change in the intrinsic value of the option. If the entity chooses to do so, then the time value of the option contract is dealt with in the following manner:

28 Jan 2022Expected Credit Loss

Are RBI circulars relevant for ECL computation as per Ind AS 109?

The Reserve Bank of India (RBI) vide its notification dated 12th Nov 2021, has prescribed a revised criteria for classifying NPAs. The question is whether the Reserve Bank of India circulars that prescribe the criteria for classification of loans as non performing should be considered for computation of expected credit loss according to Ind AS 109?

Disclosures in respect of hedge accounting

An entity shall apply the disclosure requirements for those risk exposures that an entity hedges and for which it elects to apply hedge accounting. Hedge accounting disclosures shall provide information about:

Discontinuance of hedge accounting

As per the new requirements, hedge accounting cannot be voluntarily discontinued. Hedge accounting can be discontinued only if the hedge effectiveness requirements are not met or that the hedging instrument is liquidated. Even when the hedge effectiveness requirements are not met, the entity should adjust the hedge ratio through the process of rebalancing and continue with hedge accounting so long as the hedging relationship continues to meet the risk management objectives of the enterprise.

Hedge effectiveness requirements

Rebalancing is permitted for the purpose of maintaining the hedge ratio to comply with the hedge effectiveness requirements. Changes to designate quantities of a hedged item or hedging instrument for a different purpose do not constitute rebalancing.

Hedges of a net investment in a foreign operation

As per Ind AS 21, net investment in any foreign operation is the amount of the reporting entity’s interest in the net asset of that operation. Such foreign operations may be subsidiaries, associates, joint ventures or branches. Ind AS 21 requires an entity to determine the functional currency of each of its foreign operations as the currency of the primary economic environment of that operation. When translating the results and financial position of a foreign operation into a presentation currency, the entity is required to recognise foreign exchange differences in other comprehensive income until the foreign operation is disposed off.

Hedging a net position – cash flow hedge

The previous conversion of IFRS 9, viz, IAS 39 did not allow a net position to be hedged. However, for several group companies, it is a normal practice for the risks to be transferred to one central business unit within the enterprise and take hedging position on a net basis. The risks transferred to the central business unit usually off sets one another’s risk. This enables the entity to reduce the transaction cost and also minimise the counter party credit risk. Ind AS 109 effectively allows hedging on the basis of net position for fair value hedge and for cash flow hedges. This enables hedge on a net position basis to cover foreign exchange risk

Hedging fixed rate debt instrument with IRS

To calculate the change in the value of the hedged item for the purpose of measuring hedge ineffectiveness, an entity may use a derivative that would have terms that match the critical terms of the hedged item (this is commonly referred to as a ‘hypothetical derivative’), and, for example, for a hedge of a forecast transaction, would be calibrated using the hedged price (or rate) level.

Illustration of a net investment hedge by a parent entity

Entity A is the Parent having INR as its functional currency. Subsidiary B has Euro as its functional currency. Subsidiary C has GBP as its functional currency and the functional currency of Subsidiary D is USD. Subsidiary B has ECB amounting to $ 50 million. The following diagram best illustrates the hierarchy with corresponding investments in the subsidiary entities.

Rebalancing by changing the hedge ratio

Rebalancing is a new concept introduced by a major amendment to IFRS 9 during November 2013. Rebalancing means adjustments made to the quantities of the hedged item or the hedging instrument of an existing hedging relationship for the purpose of maintaining a hedge ratio that complies with the hedge effectiveness requirements.

Relationship between components – cash flow hedge

If a component of the cash flows of a financial or a non-financial item is designated as the hedged item, that component must be less than or equal to the total cash flows of the entire item. However, all of the cash flows of the entire item may be designated as the hedged item and hedged for only one particular risk (for example, only for those changes that are attributable to changes in LIBOR or a benchmark commodity price).

Steps in a cash flow hedge

Steps in a cash flow hedge Identify the hedged item Identify the hedging instrument Designation/qualifying criteria of the hedge Hedge effectiveness requirements to be fulfilled Account for the hedging relationship Rebalancing and discontinuance of hedge accounting

Steps involved in fair value hedge accounting

Steps involved in a fair value hedge accounting Identify the hedged item Identify the hedging instrument Designation/qualifying criteria of the hedge Hedge effectiveness requirements to be fulfilled Account for the hedging relationship Rebalancing and discontinuance of hedge accounting

Treatment of time value /forward points in derivatives

An entity is allowed to designate only the change in the intrinsic value of an option contract in a hedging instrument. Similarly an entity can also designate only the change in the spot value of a forward contract in a hedging instrument. In such cases, the time value of the option/forward points is accounted for depending upon the type of the hedged item that the option/forward contract hedges. The option/forward contract could be to either to hedge a transaction-related hedged item or a time-period-related hedged item.

What is a Cash flow hedge?

A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a component thereof. It covers future interest payments on variable-rate debt. It also covers a highly probable forecast transaction. The requirement is that such cash flows should affect the profit and loss account.

What is a fair value hedge?

Fair value hedging as the name implies strives to hedge the fair value of an existing asset or liability and certain other firm commitments. In a fair value hedge, the fair value changes to the hedging instrument and the hedged item are recognised in profit and loss account.

28 Jan 2022Expected Credit Loss

Key takeaways from the RBI notification dated 12th Nov 2021

The Reserve Bank of India vide its notification dated 12th Nov 2021 regarding Prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) pertaining to Advances have provided clarifications which is likely to have a significant impact on the provisioning for all financial institutions including Banks and NBFCs.

9 Jan 2022

Lease accounting, lease period extended after year 1 - Journal entries

Lease accounting, lease period extended after year 1 - Journal entries: When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed.

8 Jan 2022

Lease accounting, interest-free deposit lease period extended after year 1

Lease accounting, interest-free deposit lease period extended after year 1 - Journal entries: When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed.

12 Aug 2021

Lease accounting Journal Entries for Modification

When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed.

Lease accounting with an interest-free deposit

Journal entries for a practical case in lease accounting Sets out the principles for recognition, measurement, presentation and disclosure of leases; Objective is to ensure that lessees and lessors provide relevant information that faithfully represents those transactions

Journal entries for lease accounting

Sets out the principles for recognition, measurement, presentation and disclosure of leases; Objective is to ensure that lessees and lessors provide relevant information that faithfully represents those transactions Enables users to assess the effect that leases have on the financial position, financial performance and cash flows of an entity; Consistently applied to contracts with similar characteristics and in similar circumstances

Steps in lease accounting

What are the various steps in lease accounting as per the new accounting standard. The following are the key steps.

Operating lease vs financing lease

Leases are classified as either finance lease or operating lease. A finance lease is like buying an asset with the finance provided by an external party. It allows a lessee to own an asset with the help of finance from the lessor. The lessee has the option to be the permanent owner of the asset at the end of the lease term , subject to certain terms. An operating lease is like an asset rental. It allows the lessee to use the leased asset for a specific period of time. The specified period of time usually less compared to the useful life of the asset.

Lease Accounting as per IFRS 16 vs. AS 19

Specific provisions dealing with leases of land and building exists in Ind AS 116; Inception of lease and commencement of lease are different as per Ind AS 116

7 Aug 2021

Lease modifications

A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of its original terms and conditions. Examples of lease modifications are as follows: increasing the scope of the lease by adding the right to use additional underlying assets; decreasing the scope of the lease by removing the right to use of some underlying assets; increasing the scope of the lease by extending the contractual lease term changing the consideration in the lease by increasing or decreasing the lease payments

7 Aug 2021

Presentation & Disclosure – lease accounting standard

A lessee should either present in the balance sheet, or disclose in the notes: right-of-use assets separately from other assets. If a lessee does not present right-of-use assets separately in the balance sheet, the lessee should:include right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they were owned; and disclose which line items in the balance sheet include those right-of-use assets.

6 Aug 2021

How to compute right-to-use asset

At the commencement date, a lessee should recognise a right-of-use asset and a lease liability. At the commencement date, a lessee should measure the right-of-use asset at cost.The cost of the right-of-use asset should comprise:

5 Aug 2021

How to determine the lease term as per the standard

An entity should determine the lease term as the non-cancellable period of a lease, together with both: periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

4 Aug 2021

How to separate the components of a lease contract

An entity should account for each lease component as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient guidance An entity should assess whether a contract contains a lease for each potential separate lease component.

3 Aug 2021

How to identify a lease contract as per the lease accounting standard

At inception of a contract, an entity should assess whether the contract is a lease or contains a lease The contract should convey the right to control the use of an identified asset for a period of time in exchange for consideration A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce). Should reassess only if the terms and conditions of the contract are changed

2 Aug 2021

Lease Accounting as per Ind AS 116

A lease is an agreement by which the owner known as ‘lessor’, of a specific asset allows another person known as the ‘lessee’ to use the asset for a specified period in exchange for ‘lease rentals’.

1 Aug 2021

Lease Accounting as per IFRS 16

IFRS 16 - A lease is an agreement by which the owner known as ‘lessor’, of a specific asset allows another person known as the ‘lessee’ to use the asset for a specified period in exchange for certain periodic payments known as ‘lease rentals’ to the lessor.

31 Jul 2021

What is the new lease accounting standard

IFRS 16 / Ind AS 116 is the most significant change to lease accounting in the last several years. IFRS 16 is introduced with effect from 1 January 2019, while Ind AS 116 is applicable from 1st April 2019. This new standard will affect most companies reporting and will have a significant impact on the financial statements of lessees of property and high-value equipment.

30 Jul 2021

Extracts from Annual reports - Lease Accounting

The Group’s lease asset classes primarily consist of leases for land, buildings and computers. The Group assesses whether a contract contains a lease at the inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

29 Jul 2021

Exemptions that can be availed in lease accounting

A lessee can avail exemption in respect of the following items: short-term leases; leases for which the underlying asset is of low value If a lessee elects not to apply then the lessee should recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis;

25 Jul 2021

Lease Accounting as per IFRS 16 vs. IAS 17

As per IFRS 16, a lease is a contract that conveys the right to control the use of an underlying asset for a period of time in exchange for a consideration Throughout the period of use, the customer should have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset

18 Jul 2021Accounting and Compliance

Observations about financial assets and liabilities

Note payable in government bonds: A note payable in government bonds gives the holder the contractual right to receive and the issuer the contractual

18 Jul 2021Expected Credit Loss

What is a Financial instrument?

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

13 Jul 2021Accounting and Compliance

Is the bitcoin worth ZERO?

There is an article by Nassim Nicholas Taleb who is a distinguished Professor of Risk Engineering at NYU's Tandon School of Engineering.

1 Jun 2021Financial Instruments

Discontinuation of hedge accounting

Discontinuation of hedge accounting applies prospectively from the date on which the qualifying criteria are no longer met.

27 May 2021

Objective & Scope of lease accounting standard

Journal entries for another practical case in lease accounting - Sets out the principles for recognition, measurement, presentation and disclosure of leases; Objective is to ensure that lessees and lessors provide relevant information that faithfully represents those transactions

19 May 2021

Lease Accounting Software Modification and Termination

1. Processing is done on a quarterly basis. 2. Journal entries are passed on a monthly basis always. All entries will be dated the end of each month. Exception is the payment of lease rental and other payments which will be the actual date of such payment. 3. There may be some modifications in the lease term when we receive the data for the next quarter.

17 May 2021

Lease Accounting Software – Deposit Management

Let us call the sum total of these two as ‘Rate for Deposit’. 2. For the first line, where the advance amount is given the discount factor is found by the number of days from the start date to the end date in the formula: 3. For the subsequent lines, the number of days is the current date less the start date. 4. The initial carrying value is the same as the present value.

15 May 2021

Lease Accounting Software Computation Process

Based on the start date, effective date, end date, frequency of the lease, payable at beginning or end etc, cash flows for the entire period is generated as

14 May 2021

Lease Accounting Software - Data Input Process

Data Input process for the lease accounting software provided by RVSBELL Analytics.

Acceptable Use Policy

These acceptable use policy (“Acceptable Use Policy”, “AUP”, “Policy”) is an agreement between Website Operator (“Website Operator”, “us”, “we” or “our”) and you (“User”, “you” or “your”). This Policy sets forth the general guidelines and acceptable and prohibited uses of the rvsbell.com and rvsbell.com/academy website and any of its products or services (collectively, “Website” or “Services”).

Accounting for a cash flow hedge

If the hedged item is an existing asset or a liability, then the carrying amount of the hedged item is adjusted for the fair value changes of that instrument.

Accounting for a cash flow hedge on first-time adoption

If the forecast transaction which is not highly probable is expected to occur, the deferred gains or losses are recognised in the cash flow hedge reserve.

Accounting for a fair value hedge

A fair value hedge is accounted for as follows:

Accounting for an undesignated fair value hedge

At the transition date, it is likely that hedging instruments may not be recognised or valued. So, an entity as on the date of transition should measure the

Accounting for Investments – Volume 1

Accounting for Investments Volume 1 attempts to give an exhaustive treatment of various accounting entries that should be recorded by any entity holding any financial instrument. Over the past two decades there have been several innovative financial instruments from the ‘Street’ that calls for special treatment from the accounting, legal and regulatory perspective.

Accounting for Investments – Volume 2

Accounting for Investments – Fixed Income Securities & Interest Rate Derivatives is the second volume of the Accounting for Investments series. This volume covers the financial instruments of fixed income securities and interest rate derivatives viz. interest rate swaps, caps, floors, collars, reverse collars and cross currency swaps. As in the first volume, this book provides an exhaustive treatment of accounting, presentation and disclosure aspects of any entity dealing with such financial instruments.

Accounting treatment for FVOCI Instruments

Is there any difference between the accounting treatment for equity instruments and debt instruments classified as Fair Value Through Other Comprehensive Income (FVOCI)? The answer is ‘yes’. Frequently participants in my class ask me the underlying reason for such a difference in the accounting treatment when both these types of financial assets are classified as FVOCI.

Additional reporting by Multinational companies - Transfer pricing

The OECD had devised many action plans to combat BEPS. OECD also recommended a three-tier documentation approach for transfer pricing under Action Plan 13

Advance Pricing Agreements (APA)

APA is an agreement between the taxpayer and the taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. Section 92CC empowers the Board to enter into APA with any person undertaking an international transaction.

Appendix to Ind AS 37

The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as ‘decommissioning funds’ or ‘funds’, is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as ‘decommissioning’

Approaches for assessing credit risk

The Standard explains that an entity may apply various approaches to determine whether the credit risk on a financial instrument has increased significantly since initial recognition or when measuring expected credit losses. The entity is also allowed to apply different approaches for different financial instruments. The approach should normally include an explicit PD as an entity.

Arm’s Length Principle – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing

Arunachalam Rajaraman

Arunachalam Rajaraman (Arun) is a Consulting Actuary and Cost & Management Accountant from Chennai with about 25+ years of work and consulting experience. His experience is spread across Consulting, Technology, Investments, Pensions, Life Insurance and General Insurance. He had earlier been elected and served as the Vice President and Honorary Secretary of the Institute of Actuaries of India (IAI).

Bifurcation of compound financial instruments

A compound financial instrument should be evaluated for the terms of the financial instrument to determine whether it contains both a liability and an equity

Business Combination – Context of Ind AS 12

Generally, the identifiable assets acquired, and liabilities assumed in a business combination are recognised at their fair values at the acquisition date. Temporary differences arise when the tax bases of the identifiable assets acquired, and liabilities assumed are not affected by the business combination or are affected differently.

CA Sanjay Sisodia

A senior Chartered Accountant professional with broad knowledge of fund accounting, financial business principles of asset management, hedge fund industry including role performed by service providers in middle & back office, fund administration, reconciliation, custodians, prime brokers, broking, dealers etc.

CA Viral Shah

CA Viral Shah, a fellow Member of ICAI, also holds bachelor’s and Master’s in Commerce from Gujarat University, Ahmedabad. He holds a USA CPA license from Arizona State Board of Accountancy. He also has successfully passed the certified course of Ind AS conducted by ICAI. He also has cleared CS (Company Secretary) Professional exam

Can a corporate entity still follow settlement date accounting?

As per Ind AS 109, a regular way purchase or sale of financial assets shall be recognised, as applicable, using trade date accounting or settlement date

Can hedging instrument be a non-derivative

Hedging instrument need not necessarily be a derivative instrument even though mostly derivative instruments are used as hedging instruments. The key feature

Carrying amount of a monetary item

The carrying amount of an item is determined in conjunction with other relevant Standards. For example, property, plant and equipment may be measured in terms

Carrying amount of a non-monetary item

The carrying amount is determined by comparing the cost or carrying amount, as appropriate, translated at the exchange rate at the date when that amount was

Cash flow hedge Vs fair value hedge

A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability or

Change in contractual cash flows

A proper assessment should be made afresh whenever there could be contractual term potentially changing the timing or amount of the contractual cash flows. A

Change in Provisions and Use of Provisions – Ind AS 37

Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed

Changes in the Tax Status of an Entity or its Shareholders - Ind AS 12

Ind AS Accounting Standards

Classification of derivative instruments

Derivative instruments are a subset of financial instruments. In the definition of financial asset, we have the following phrase, viz, “to exchange financial

Classification of Foreign Currency Convertible Bond (FCCB)

Contracts that will be settled by an entity delivering a fixed number of its own equity instruments in exchange for a fixed amount of foreign currency are treated as a liability as per IFRS 9. Accordingly, contracts which include a conversion option in a foreign currency denominated convertible bond are liabilities.

Commencement of capitalization – Ind AS 23

On April 1, 2019, Compassionate Inc. began construction of homes for those families that were hit by the Typhoon and were homeless. The construction is

Consequence of not de-recognising an asset after the sale

When an entity continues to recognise an asset to the extent of its continuing involvement, the entity also recognises an associated liability. The

Consequences of treating equity vs liability

The consequences of treating particular contract as equity are as follows:

Contingent Liability & Contingent Asset – Ind AS 37

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability

Contract is settled through the entity’s own equity instrument

A contract that will be settled by the entity receiving or delivering a fixed number of its own shares for no future consideration or exchanging a fixed

Contract meant for own use

If the derivative contract is a purchased call option or a future contract to buy a non-financial item, this may be covered under the own use exemption, as a

Contract to deal in non-financial item

A contract to deal with a non-financial item is not a financial instrument. However, there are certain contracts to buy or sell a non-financial item that may

Contractual cash flows & effective interest rate

When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the

Cookie Policy

This cookie policy (“Policy”) describes what cookies are and how Website Operator (“Website Operator”, “we”, “us” or “our”) uses them on the rvsbell.com and rvsbell.com/academy website and any of its products or services (collectively, “Website” or “Services”).

Credit adjusted effective interest rate

The credit adjusted effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the

Criteria for classifying as either financial liability or equity

The core criteria while classifying a financial instrument is to examine whether there exists a future obligation on the part of the entity to part with

Current standards for financial instruments as per AS?

Currently there are no accounting standards that specifically address financial instruments except for certain forward foreign exchange contracts covered by

Current Tax & Deferred Tax – Ind AS 12

Current tax, to the extent unpaid, should be recognised as a liability. If the amount already paid exceeds the amount due to be paid, the excess shall be recognised as an asset. In some jurisdictions, tax losses can be carried back to recover taxes paid in previous periods. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period shall be recognised as an asset.

Debt instrument measured at FVOCI

For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for this is the objective of categorising a debt instrument as FVOCI is that both the contractual cash flows characteristic and the fair value of the instrument are relevant as the asset is held to receive contractual cash flows as well as to buy or sell such assets.

Definition of derivative instruments

A derivative instrument is a subset of financial instrument with mainly three characteristics, viz, its value changes in response to a change in the

Derecognise financial assets/financial liabilities retrospectively

Financial assets and liabilities that are derecognised as per the previous GAAP requirements should not be recognised as per Ind AS merely because the

Derecognition of a financial asset

An entity shall derecognise financial assets when and only when the contractual rights to the cash flows from the financial assets expire or it transfers the

Designate a previously recognised financial instrument

A financial liability may be designated as a liability measured at fair value through profit or loss provided it eliminates or significantly reduces the

Designation of contracts deal a non-financial item on first time adoption

Ind AS 109 allows a contact to buy or sell a non-financial item to be designated at fair value through profit or loss provided it is done at inception without

Determination of ALP – Transfer Pricing

Under Transfer pricing, actual transaction price or profit margin would be accepted if it falls in the range of

Difference between amortised cost & held-to-maturity

A financial asset shall be measured at amortised cost if both of the following conditions are met:

Difference between AS 11 and Ind AS 21?

In AS 11, there is no concept of functional currency. Foreign currency is a currency other than the reporting currency. Also, there is no concept of

Difference between forward contract & futures contract

A forward contract is a derivative instrument between two parties to buy or to sell an asset at a specified future time at a price agreed upon today. A

Difference between futures contract & options contract

Both futures contract and options contract are known as derivative contracts. In a futures contract, there is an underlying, the notional amount and an expiry

Difference between FX translation and FX revaluation

Foreign currency translations are first recorded initially in the units of the foreign currency. Foreign currency is a currency other than the functional

Difference between hedging and speculation

If an investor takes a derivative position by holding the corresponding underlying, it is called hedging. The derivative position should be in the opposite

Difference between mandatory exceptions and optional exemptions

Whenever an entity follows an accounting standard as prescribed by Ind AS, then the entity is required to comply with the standard from the inception of the

Difference between monetary and non-monetary items

Monetary items are those assets and liabilities that are cash or readily convertible into cash. However, the essential feature is the existence of a right to

Difference between speculation and gambling

Both speculation and gambling involves taking a position in the derivative segment without having any corresponding underlying. In the case of speculation,

Difference between time value of money and modified time value of money

Time value of money is the element of interest that provides consideration for only the passage of time. That is, the time value of money element does not

Disclaimer Policy

This disclaimer (“Disclaimer”, “Agreement”) is an agreement between Website Operator (“Website Operator”, “us”, “we” or “our”) and you (“User”, “you” or “your”). This Disclaimer sets forth the general guidelines, terms and conditions of your use of the rvsbell.com and rvsbell.com/academy website and any of its products or services (collectively, “Website” or “Services”).

Disclosures - Ind AS 37

For each class of provision, an entity shall disclose the carrying amount at the beginning and end of the period, additional provisions made in the period, including increases to existing provisions, amounts used (ie incurred and charged against the provision) during the period etc

Disclosures – Ind AS 40

Disclosures: its accounting policy for measurement of investment property when classification is difficult, the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business; the extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall be disclosed

Dispute Mitigation strategies in transfer pricing

What would be the operating margin under safe harbor rules where value of KPO services with insignificant risk is Rs.300 crores?

Dr. K. Sriram

Sriram is a Consulting Actuary engaged in Employee Benefits Consulting Practice since 2007. He is also an Actuarial Consultant- Trainer to some of the leading analytics firms in the area of actuarial analytics.

Economic analysis – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing

Effective rate of interest during the first-time adoption

Effective interest rate is a key concept that runs through the entire gamut of Ind AS standards, more so for the financial instruments, as the interest

Entities that are required to follow the guidance note

Banking, non-banking finance companies (NBFCs), housing finance companies and insurance entities follow derivative accounting promulgated by the respective

Equity derivatives and interest rate derivatives

The important difference between futures contract and options contract is that in the case of a futures contract, the risk-reward is symmetric, whereas in an options contract, the risk reward is asymmetric. In other words, if a person enters into a futures contract, he or she stands to gain or lose exactly the same amount if the price of the underlying moves up or down.

Exchange differences from non-monetary items

Non-monetary items

Exchange differences from the presentation currency

How are the exchange differences arising from the presentation currency dealt with?

Exchange differences on monetary items

the settlement of monetary items at a subsequent date to initial recognition; remeasuring an entity’s monetary items at rates different from those at which they were initially recorded (either during the reporting period or at the previous reporting periods); Such exchange differences must be recognised as income or expenses in the period in which they arise

Existing asset or liability as a hedged item

This statement is not correct, as the hedged item in a fair value hedge can be in addition to the above an unrecognised firm commitment or an identified portion of an asset, liability or firm commitment that is attributable to a particular risk and could affect the income statement.

Fair value and how it is defined

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

Fair value hedge on discontinuation of hedge accounting

Fair value hedge accounting as per the approach mentioned in the guidance note is significantly different from the fair value hedge accounting as per Ind AS

Fair value hierarchy mentioned as per Ind AS 113

Ind AS 113 establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. The fair value

FAR Analysis – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing

Financial asset categorised as FVOCI

A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met:

Financial Instruments Book Series as per Ind AS 109 (indas109)

This book being the first in this series, gives an introduction about the accounting standards relevant from the perspective of accounting for financial instruments. This gives a basic overview of the three main accounting standards that are covered in this book viz., Ind AS 32, Ind AS 109 and Ind AS 107.

Financial statements presented in any currency

Yes, an entity can present its financial statements in any currency of its choice which is known as presentation currency. Needless to say that these

First-time adoption while classifying a financial instrument

The conditions for classification and measurement of financial assets are based on the facts and circumstances that exist at the date of transition to Ind AS

Foreign currency risk in a firm commitment as a fair value hedge

No. A hedge of the foreign currency risk associated with such firm commitments may be designated as a cash flow hedge or as a fair value hedge. The reason is

Foreign operations - Ind AS 21

Basically, there are four factors to be considered. Let us see those factors one by one. The first factor to be considered is the degree of autonomy. The question that needs to be asked is whether the foreign operation is conducted as an extension of the reporting entity. Are the activities in such foreign operation carried out without significant autonomy? If the answer is ‘No’, then the local currency would be the functional currency of such foreign operation. However, if the answer is ‘Yes’, then the reporting entity’s currency would be the functional currency of the foreign operation.

Foreword by Shri T N Manoharan

Mr R. Venkata Subramani, known for his expertise in the field of Financial Instruments accounting, has come up with a new series of books on Financial Instruments as per Ind AS, incorporating all the relevant aspects of accounting for financial instruments.

Functional Currency - Ind AS 21

Functional currency is determined based on the primary economic environment in which it operates. The primary economic environment is determined based on two primary factors as specified in the Standard viz., the currency in which cash is generated and the currency in which major expenses are incurred by the entity.

FVOCI (equity instruments) and FVOCI (debt instruments)

Debt instruments are classified as FVOCI if and only if both the following conditions are satisfied, viz, (a) financial asset is held within the business

Gains and losses from liabilities designated as FVTPL

An entity shall present a gain or loss on a financial liability that is designated as at fair value through profit or loss as follows:

Gains and losses on a financial instrument

A gain or loss on a financial asset or financial liability that is measured at fair value should be recognised in profit or loss account. For an investment in

Gains and losses on assets measured at FVOCI

A gain or loss on a financial asset measured at fair value through other comprehensive income shall be recognised in other comprehensive income, except for

Guiding principle in guidance note on accounting for derivatives?

The main accounting principle enshrined in this guidance note is that all derivative contracts should be accounted for in the books of accounts and the same

Hedge Accounting as per indas109 / IFRS 9

It may be useful to understand the genesis of hedge accounting as to how the process itself matured over the last two decades. Even though this may not be relevant in the context of Indian Accounting Standards as we in India have inherited the accounting standards relating to financial instruments in general and hedge accounting in particular based on the accounting standards issue by the International Accounting Standards Board (IASB) as on 24 July, 2014.

Hedge accounting be applied only prospectively

To implement hedge accounting, there should be a complete set of documentation available that fully describes a hedging relationship including designation of

Hedge ratio in hedge accounting requirements

Hedge ratio refers to the number of units that are used as hedging instrument for the purpose of hedging a hedged item. Usually, the ratio is 1:1 for most of

Hedging instruments and hedged items

A hedging instrument should normally have one or more of the following characteristic features. It should help minimise risk. It should protect the profit still unrealised by locking the same. It should not have the effect of realising the unrealised profit. It should not increase the existing risk by taking a changed exposure or additional exposure to risk. It should usually have a positive net present value, ie, it should be an asset in the books and should not be a liability at any point of time. It usually has a zero cost or a cost that is very low at the inception of the instrument. It should normally be a derivative instrument, even though there are exceptions for this too.

How is the expected credit loss measured

An entity shall measure expected credit losses of a financial instrument in a way that reflects: an unbiased and probability-weighted amount

Impact of COVID 19 on Ind AS 37

Onerous contracts are those contracts for which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Unavoidable costs under a contract are the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

Impact of impairment requirements on first-time adoption

At the date of transition to Ind ASs, an entity shall use reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised (or for loan commitments and financial guarantee contracts the date that the entity became a party to the irrevocable commitment and compare that to the credit risk at the date of transition to Ind ASs.

Impairment for debt instruments classified as FVOCI

Debt instruments that are classified as fair value through other comprehensive income are also subjected to impairment test. This is because while the

Impairment loss allowance on performing assets

The expected credit loss is required to be applied on day one for all types of financing assets. The expected credit losses are the present value of all cash

Impairment model for different categories of financial assets

No. Ind AS 109 has a single impairment model that applies to all financial instruments within its scope. As per the previous version of IFRS 9, viz, IAS 39,

Importance of functional currency?

The determination of functional currency is extremely important as incorrectly determining the same will affect the financial statements in a big way, causing

Income from transaction with Non-Residents – Transfer Pricing

While determining ALP under the provisions of TPR, if the income works out to a figure lower than the income shown in the books of accounts or if the expense

Ind AS 12 – Income Taxes - Introduction

Ind AS 12, as the name suggests, prescribes the accounting treatment for income taxes. Under the accounting standards, the relevant corresponding standard is AS 22 Taxes on Income. AS 22 required entities to account for deferred taxes using the income statement approach. Ind AS 12, on the other hand, requires the balance sheet approach to be followed for accounting for income taxes.

Ind AS for financial instruments replica of IFRS?

Ind AS 32 is the converged standard of IAS 32. Ind AS 109 is the converged Ind AS of IFRS 9. Ind AS 107 is the converged Ind AS of IFRS 7. As on date, it may

Ind ASs relating to financial instruments

Financial instruments are primarily governed by three standards as per Ind AS, viz, Ind AS 32, Ind AS 109 and Ind AS 107.

Initial recognition of an asset or liability – Ind AS 12

Temporary differences arise when the carrying amount of investments in subsidiaries, branches and associates or interests in joint arrangements (namely the

Interest rate swap as a hedging instrument

At the outset, it may seem rather strange that an interest rate swap which has the potential of having a fair value that oscillates between positive and

International Transaction [Section 92B] – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing

Introduction by Shri M P Vijayakumar

Mr. R. Venkata Subramani (Venkat) authoring a book focused on financial instruments is highly commendable and I thank him for the effort. Venkat has explained the subject and made it look so simple by his hands-on experience on financial instruments as part of his previous assignments.

Introduction to Transfer Pricing

“Transfer Price” is the price at which an enterprise charges for its transaction within its group entities International transaction involves more than one tax jurisdiction, and due to disparity in tax rates and method of computing income, the parties may try to adjust the transfer prices Since the parties are related there is a possibility that the price at which the transactions are carried out can be fixed in such a way that profits can be parked in the country which has less tax and entity in high tax country earns less or no profits

Is hedge accounting mandatory?

Hedge accounting is not mandatory. However, considering the benefits of complying with hedge accounting, entities would want to follow hedge accounting when

Is there a choice to designate as FVTPL?

The option to designate a financial asset at fair value through profit or loss (FVTPL) is not without restrictions. There are certain conditions to be

Key accounting principles in the guidance note?

All derivatives should be accounted for at the inception and measured at fair value too at the inception as well as at every reporting period. If hedge accounting is not applied, then the derivatives should be measured at fair value. Fair value changes should be recognised in P&L.

Limitation of interest deductions - transfer pricing

ABC LLP, a partnership firm has made provision towards interest on loan to its group entity. The EBITDA is Rs 100 crores and interest payment of AE is 40

Link between hedge accounting & risk management objective

The objective of hedge accounting is to manage the risk that an entity faces. In the context of hedge accounting, the entity manages effectively the risk by

Long-term financial liability classified as FVTPL

Yes. An entity may, on initial recognition, designate a financial liability as measured at fair value through profit or loss. If an entity exercises this

Loss allowance as per Ind AS 109

Previously entities used to provide for losses on certain financial assets on an ad hoc basis that means several practices which are now prohibited expressly

Measurement after Recognition – Ind AS 40

An entity shall adopt as its accounting policy the cost model per Ind AS 16to all of its investment property. This Standard requires all entities to measure the fair value of investment property, for the purpose of disclosure even though they are required to follow the cost model.

Measurement categories for financial assets

Principal measurement categories for financial assets are amortised cost, fair value through other comprehensive income – FVOCI and fair value through

Measurement of deferred tax assets and liabilities - Ind AS 12

Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Measurement of Provision – Ind AS 37

The amount of the provision should be measured at the best estimate of the expenditures required to satisfy the obligation at the end of the reporting period As you can see, here’s some judgment and estimates involved. Management should really incorporate all available information in their estimates, and they must not forget about: Risks and uncertainties (like inflation)

Message / Review from CA P. R. Ramesh

Financial Instruments is by far the most complex and difficult subject in the field of accounting. The varied nature of such instruments with a wide range of derivatives and associated risk makes the task of measuring and reporting extremely challenging even for experts in the subject. A number of books have been written on IFRS and more recently on Ind AS but very few books have dwelt at length on the subject of financial instruments.

Message from Shri Yagnesh Mohanlal Desai

CA R Venkata Subramani (Venkat), has rich and varied experience spanning across the entire gamut of Financial Instruments. He has helped implementation of IFRS / Ind AS especially hedge accounting for several international banks in Europe/APAC region. He is also known for his expertise in computing Expected Credit Loss (ECL) for non-banking financial companies. His hands-on experience has helped him understand the nuances of the subject in great detail.

Miscellaneous items - Ind AS 21

While following the normal consolidation process, intra-group balances and intra-group transactions of a subsidiary are eliminated, thereby incorporating the results and the financial position of the foreign operation with that of the reporting entity.

Modification of contractual cash flows

The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets) or, when applicable, the revised effective interest rate calculated after a fair value hedge. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.

Mohan R. Lavi

Mohan R. Lavi (Mohan) has over 25 years of experience in industry across a variety of industries, qualified as Chartered Accountant in 1989. Mohan is the author of books on US GAAP, IFRS and the Sarbanes Oxley Act. He writes frequently on IFRS and other topics for major publications including the London based http://ifrs.wiley.com

Mutual Agreement Procedure

Mutual Agreement Procedure (‘MAP’) is a procedure set out in most treaties which permit designated Government representatives to work together to resolve international tax disputes including issues involving double taxation, questions regarding residential status, tax recovery etc.

Need for the guidance note on accounting for derivatives

Currently, none of the notified accounting standards prescribe the proper accounting treatment for derivative contracts. Foreign exchange forward contracts,

New impairment methodology

Yes. The new impairment methodology is completely new and this is the one instance where the accounting bodies on both sides of the Atlantic agreed to

Objective and Scope – Ind AS 23

Imputed cost of equity may not be eligible for capitalization as borrowing costs under Ind AS 23? True / False?

Objective behind the valuation techniques Ind AS 113

The objective is to maximise the use of relevant observable inputs and minimise the use of unobservable inputs. Exchange markets, dealer markets, brokered

Objective of the fair value as per Ind AS 113

Ind AS 113 sets out a framework for measuring fair value including the definition of the fair value and the necessary disclosures about fair value

Objective, Scope and Key terms – Ind AS 40

The prime two objectives of the Ind AS 40 are as follows: to prescribe the accounting treatment for investment property and to prescribe the related disclosure requirements

Objectives and Scope – Ind AS 37

Objectives, Scope & Benefits Ind AS 21

To prescribe how to include foreign currency transactions and foreign operation in the financial statements of an entity. To specify which exchange rates to use and how to report the effects of such changes in exchange rates in the financial statements. How to translate financial statements into a presentation currency

Own use exemption as per the Accounting Standard

Contracts that are entered into for the purpose of the receipt or delivery of a non-financial item for the entity's own use is excluded from the scope of

Penalties for non-compliance - Transfer Pricing

International group shall maintain information and documents in Master file when Consolidated group revenue of the International group is (as reflected in

Presentation and Disclosure – Ind AS 12

An entity shall offset current tax assets and current tax liabilities if, and only if, the entity: has a legally enforceable right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Presentation Currency - Ind AS 21

Presentation currency is the currency in which the financial statements are prepared. This can be in a currency chosen by the entity as the entity is free to choose its own currency. This is mainly for the purpose of presenting the financial statements to the stake holders who are located in another geographical area having a different local currency.

Presentation of impairment loss for debt instruments at FVOCI

For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for

Privacy Policy

Rvsbell.com and rvsbell.com/academy website and any of its products or services (collectively, “Website” or “Services”). It also describes the choices available to you regarding our use of your Personal Information and how you can access and update this information. This Policy does not apply to the practices of companies that we do not own or control, or to individuals that we do not employ or manage.

Provisions – Ind AS 37

Provision is a liability of uncertain timing or amount.The word “uncertain” is very important here, because if timing and amount are certain or almost certain, then you don’t deal with the provision but with a payable or an accrual. To understand provisions better, let’s break down the definition of a liability in Ind AS 37.

Qualifying criteria for hedge accounting

At the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements

Reasons for revamping hedge accounting by IASB

The main reason for revamping the accounting standards relating to financial instruments by the IASB is the direct outcome of the shock that sent shivers

Rebalancing and discontinuation of cash flow hedge

If the hedged expected future cash flows are not expected to occur, then to that extent it is immediately recognised in profit and loss account.

Rebalancing to achieve hedge effectiveness

Rebalancing is a new concept introduced by a major amendment to IFRS 9 during November 2013. Rebalancing means adjustments made to the quantities of the

Reclassification of a financial asset

When, and only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets to reflect the

Recognition – Ind AS 23

As per Ind AS 23, Borrowing Costs are always capitalized, when they are directly attributable to the acquisition, construction or production of any asset as

Recognition and measurement - Ind AS 21

Foreign currency transaction is a transaction in a currency other than the functional currency of the entity. A foreign currency transaction is the one that is denominated in foreign currency that requires settlement in such foreign currency. Let us look at the requirements for recognising a foreign currency transaction initially.

Recognition and measurement – Ind AS 40

An owned investment property shall be recognized as an asset when, and only when: it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and the cost of the investment property can be measured reliably

Recognition of financial instruments on first-time adoption

An entity is required to measure a financial asset or financial liability at its fair value. Where the fair value at initial recognition differs from the

Recognition of interest revenue during all three stages

Interest revenue is always recognised based on the effective interest rate. The effective interest rate is applied on the opening carrying value of a

Relevance of fair value for non-financial assets

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its

1 May 2021Auditing Standards

Returns, Audit and other miscellaneous provisions - Transfer pricing

Each person who has entered into international transaction has to maintain certain information and documents in respect thereof as may be prescribed by Central Board of Direct Taxes (‘CBDT’)

Risk management objective & risk management strategy

The risk management strategy of an entity should be distinguished from its risk management objective. The risk management strategy is established at the

Scopes of the three standards for financial instruments

Ind AS 32 is the converged standard of IAS 32. Ind AS 109 is the converged Ind AS of IFRS 9. Ind AS 107 is the converged Ind AS of IFRS 7. While the scope of

Secondary Adjustment - transfer pricing

Secondary adjustment means:

Separately accounting for an embedded derivative

When a hybrid contract contains a host contract and it is not a financial asset, the embedded derivatives portion should be separated from the host and

Simplified Approach for ECL for trade receivables

An entity shall always measure the loss allowance at an amount equal to lifetime expected credit losses for: (a) trade receivables or contract assets that result from transactions that are within the scope of Ind AS 115, and that: (i) do not contain a significant financing component (or when the entity applies the practical expedient for contracts that are one year or less) in accordance with Ind AS 115

Specified Domestic Transactions – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing

SPPI test & business model objective test

SPPI test refers to the evaluation of contractual cash flows that analyses if such cash flows represent solely payments of principal and interest on the

Sumit Dhadda

Chartered accountant, member since 2003 & secured gold medal in CA Inter exams (AIR 25th), Diploma in Information System Audit & Risk Management, Certified Anti Money Laundering Specialist, Certified Concurrent Auditor

Suspension of capitalization – Ind AS 23

An entity shall suspend capitalization of borrowing costs during extended periods in which it suspends active development of a qualifying asset An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale

Terms & Conditions

These terms and conditions (“Terms”, “Agreement”) are an agreement between Website Operator (“Website Operator”, “us”, “we” or “our”) and you (“User”, “you” or “your”). This Agreement sets forth the general terms and conditions of your use of the rvsbell.com and rvsbell.com/academy website and any of its products or services (collectively, “Website” or “Services”).

Time value of forward points in hedge accounting

An entity is allowed to designate only the change in the intrinsic value of an option contract in a hedging instrument. Similarly, an entity can also

Transaction are covered by Ind AS 21

Accounting for transactions and balances in foreign currencies Translating the results and financial position of foreign operations, included in the financial statements of the entity by consolidation or the equity method Translating an entity’s results and financial position into a presentation currency

Transaction are outside the scope of Ind AS 21

Does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. Ind AS 109 applies to hedge accounting. Does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation.

Transaction not representing the fair value

If at initial recognition the transaction value is different from the fair value, then the difference between the fair value at initial recognition and the

Transactions within the scope of this guidance note

All transactions covered by AS 11, accounting for embedded derivative contracts and accounting for non-derivative financial assets/liabilities designated as

Transfer pricing adjustment and consequence

Once the TPO passes the order, which of the following is correct

1 May 2021Auditing Standards

Transfer pricing audit cycle

Which of the following statement is correct?

Translation to presentation currency- Ind AS 21

Let us see how the financial statements are translated to presentation currency

Treatment of collateral value for expected credit losses

For the purpose of measuring expected credit losses, the estimate of expected cash shortfalls shall reflect the cash flows expected from collateral and other

Treatment of embedded derivatives on first-time adoption?

As per Ind AS 101, the assessment of embedded derivative that requires to be separated from the host contract and accounted for as a derivative should be

Treatment of exchange differences - Ind AS 21

The FX revaluation is converting every transaction in foreign currency into functional currency at the exchange rate on the date of transaction. This means that there will be an entry in functional currency for each and every transaction in foreign currency.

Treatment of transaction costs

Ind ASs relating to financial instruments

Treatment when hedge accounting not qualified

If a hedging relationship does not qualify for hedge accounting as per Ind AS 109, such hedge accounting should be discontinued on first-time adoption of Ind

Uncertainty over Income Tax Treatments - Ind AS 12

It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the taxation authority may affect an entity’s accounting for a current or deferred tax asset or liability.

Voluntary discontinuation of hedge accounting

As per the new requirements, hedge accounting cannot be voluntarily discontinued. Hedge accounting can be discontinued only if the hedge effectiveness

What are Ind AS accounting standards?

The Ministry of Corporate Affairs (MCA) on 16th February 2015 notified the Companies (Indian Accounting Standards) Rules, 2015 containing 39 Indian Accounting

What are the three stages of impairment loss

At the first stage, a portion of the expected credit loss is recognised on day one for all financial assets. This is calculated as the present value of cash

What are treasury shares and how are these presented

If an entity acquires its own equity instruments, these instruments are known as ‘treasury shares’ and are deducted from equity. No gain or loss shall be

What does Interest represent?

While interest is predominantly the consideration for time value of money, it also includes consideration for the credit risk associated with the principal

What is a hybrid contract?

A hybrid contact is one that includes a non-derivative host and an embedded portion. An embedded derivative is a component of a hybrid contract. The cash

What is an embedded derivative?

An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest

What is meant by significant increase in credit risk

Lifetime expected credit losses should be recognised based on significant increases in the risk of default occurring since initial recognition. The timing of such recognition should not be based on the evidence of financial asset being credit impaired or on actual default occurring. The reason for recognising lifetime expected credit losses on this basis is that there will be a significant increase in credit risk before the financial asset becomes credit impaired or on actual default occurring on such asset.

What is the concept of effective interest method?

Effective interest method is a new concept that is introduced through the Ind AS standards. Effective interest rate is relevant not merely for financial

What is the new Expected Credit Loss Model

As per the revised requirements, an entity should always account for the expected credit losses and changes in those expected credit losses. The amount of expected credit losses is computed at each reporting period to reflect changes in the credit risk since initial recognition. This is expected to provide more timely information about the expected credit losses as opposed to ‘incurred credit loss model’ which provide for the loss allowance that was considered to be too little and too late.

What is the significance of Ind AS 32?

Ind AS 32 deals with financial instruments from the perspective of an issuer and provides guidance as to how an entity should present a financial instrument

Written options as a hedging instrument

The objective of hedging is to minimise the risk and/or to protect the unrealised profits. A hedging instrument should typically restrict the exposure to

Yagnesh Mohanlal Desai

Professional Accountant practicing since August 1983. Actively participated in the process of formulation of IFRS in India. Advising and implementing Indian Accounting Standards (Ind AS). Imparting training in the field of Accounting and Auditing Standards. Helping big corporates select and implement accounting policies and help them prepare annual reports and notes to accounts from the perspective of Companies Act.

30 Apr 2021Accounting Standards

Anti-Avoidance measures in certain jurisdictions - Transfer pricing

Specific anti-avoidance measures in respect of transactions with persons located in Notified Jurisdictional area was introduced in the Act under sec 94A We have seen in earlier sections that transactions with the AEs are subject to transfer pricing provisions.

30 Apr 2021Expected Credit Loss

Effective interest Rate

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

30 Apr 2021Accounting Standards

Fundamentals of Base Erosion and Profit Shifting - Transfer Pricing

In the past few decades, the world has seen large movement of capital and investment from developed and developing countries. This has resulted in huge economic development, boosted trade and increases foreign direct investment in various countries. Many developing countries (low - cost locations) saw boon in their manufacturing activity and become operation hub for many MNEs.

30 Apr 2021Accounting and Compliance

Main Features of Ind AS 102

Indian Accounting Standard Ind AS 102 deals with Share based payment trans-actions. This is one of the standards announced by MCA

30 Apr 2021Accounting and Compliance

Roadmap for implementing Ind AS

The roadmap for implementing Ind AS in a phased manner is given below.