Financial Reporting (FR) Amendments | CA Final | November 2023

Level of Amendment

1.

Chapter 2 Unit 1

Ind AS 1

Minor

2.

Chapter 4 Unit 1

Ind AS 8

Minor

3.

Chapter 10 Unit 1

Ind AS 12

Minor

4.

Chapter 6

Ind AS 101

Minor

Replacing “Significant” Accounting Policy with “Material” Policy Disclosures

The word ‘significant’ accounting policies has been replaced with ‘material’ accounting policies.

Ind AS 1 deals with presentation of financial statements, hence, disclosure of accounting policies has been modified and discussion as to which accounting policy information should be considered as material has been made.

As per the amendment, ‘Accounting Policy Information’ is considered material when it can reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements.

Along with the disclosure of material accounting policy information or other notes, an entity is also required to disclose the judgements that management has made in the process of applying the entity’s accounting policies which have the most significant effect on the amounts recognised in the financial statements.

Changing the definition and manner to develop “Accounting Estimates” by an Entity

Ind AS 8 defines the term ‘Change in Accounting Estimate’ as an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.

Amendment

As per the amendment, the term ‘Change in Accounting Estimate’ has been replaced with ‘Accounting Estimates’. The revised definition of the same states as follows:

“Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.”

The company develops an accounting estimate to achieve the objective set out by the accounting policy. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information. Examples of accounting estimates are:

(a) a loss allowance for expected credit losses, applying Ind AS 109;

(b) the net realisable value of an item of inventory, applying Ind AS 2;

(c) the fair value of an asset or liability, applying Ind AS 113;

(d) the depreciation expense for an item of property, plant and equipment, applying Ind AS 16; and

(e) a provision for warranty obligations, applying Ind AS 37.

To develop an accounting estimate, an entity has to use measurement techniques and inputs. Measurement techniques include estimation techniques and valuation techniques.

Adding Exception to Recognition of Deferred Tax Liability and Asset on temporary differences

Deferred tax liabilities and deferred tax assets need to be recognised in most of the cases. But the recognition of deferred tax liabilities or deferred tax assets are subject to exceptions with respect to the following items:

(a) Exception 1 – the initial recognition of goodwill arising in a business combination;

(b) Exception 2 – the initial recognition of an asset or liability in a transaction which:

(i) is not a business combination; and

(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss)

(c) Exception 3 – temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures.

Amendment

An exception has been added to the recognition of deferred tax liability or deferred tax assets on taxable temporary difference or deductible temporary difference respectively, arising on account of the initial recognition of an asset or liability in a transaction which at the time of the transaction, does not give rise to equal taxable and deductible temporary differences.

Narrowing the scope of Initial Recognition Exemption with regard to Leases and Decommissioning Obligations

Amendment in Ind AS 101 has narrowed the scope of Initial Recognition Exemption with regard to leases and decommissioning obligations. As per the amendment, the entity will need to recognise a deferred tax asset and a deferred tax liability for deductible and taxable temporary differences arising on transactions such as initial recognition of a lease and a decommissioning provision.

According to the amendment, a first-time adopter of Ind AS shall recognise a deferred tax asset — to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised — and a deferred tax liability for all deductible and taxable temporary differences associated with:

(a) right-of-use assets and lease liabilities; and

(b) decommissioning, restoration and similar liabilities and the corresponding amounts recognised as part of the cost of the related asset.

• Appendix B – Stripping Costs in the Production Phase of a Surface Mine

• Appendix A: Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
• Appendix B: Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment

• Ind AS 29 ‘Financial Reporting in Hyperinflationary Economies’
• Ind AS 104 ‘Insurance Contracts’
• Ind AS 106 ‘Exploration for and Evaluation of Mineral Resources’
• Ind AS 114 ‘Regulatory Deferral Accounts’