CAclubindia News - Cognizance To Ind-As in India by Introducing New CA 2013

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Cognizance to Ind-AS in India by introducing new

CA 2013
Introduction:
India has principally agreed to the implementation of Ind -AS by revamping Schedule VI of
Companies Act 1956 being the first constructive step in the journey. Many of the new insertions and
amendments in Companies Act 2013 augur well for going ahead with the implementation in Ind-AS. This
article aims to bring out the amendments in Companies Act which are effective arm of Ind-AS in the coming
days.
Ind-AS
On 25th Feb 2011, MCA with its Press Release on new Accounting Standards (titled Ind-AS) made it clear
with the agenda of globalization in accounting in India. This process was kick started with introduction of 35
new AS, however it could not be implemented from 1st Apr 2011 due to various reasons as per issued
aforesaid roadmap.
A revised roadmap for implementation of Ind-AS was issued at the meeting held on 20-22 Mar 2014 by the
Council of ICAI. The first set of AS i.e., converged Ind AS shall be applicable for preparation of specified
class of companies for preparing their Consolidated Financial Statement for the accounting period beginning
from Apr 1 2016 with comparatives for the year ending 31st Mar 2016.
Companies Act 2013: A Paradigm Shift
The long awaited Companies Bill 2012 got its assent in the Lok Sabha on 18th Dec 2012 and in the Rajya
Sabha on 8th August. After obtaining the assent of the President of India on 29th Aug 2013, it has now
become the much awaited Companies Act 2013. With 98 sections of the Act came in to force w.e.f. 12th Sept
2013 and Further 190 sections of the Act have been notified and become effective from 1st April 2014 and
are applicable to companies.
Following table provides a summary of comparison between Companies Act, 2013, Companies Act,
1956 and Ind-AS:
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S. No.
1.
2.
Point
of
Companies Act 2013
Comparison
Writing off of
Premium/
Discount
on
Redemption of
Preference
Share,
Debentures and
FCCB
ESOP
Definition
3.
of Change in
Equity
Companies Act 1956 Ind-AS
Profit & Loss A/C is to

be
used
to
w/off
redemption
premium
relating to debenture,
preference shares and
FCCB by companies
which are prescribed
separately and whose
financial
statements
comply
with
the
accounting
standards
prescribed for such class
of companies.
Securities Premium is
to be used to w/off
redemption premium
relating to debenture,
preference share and
FCCB
by
any
company.
As per Ind-AS 39 on
Financial Instrument;
Recognition
&
Measurement, in case
of
convertible
instruments, liability
and equity elements
are
accounted
separately i.e., split
accounting
and
premium or discount is
written off through
Profit & Loss Account.
Companies Act 2013 in

addition
to
person
mentioned in Old Act
includes option given to
directors, officers or
employees of holding
company or subsidiary
company(s) which gives
such directors, officers or
employees, the benefit or
right to purchase, or to
subscribe for, the shares
of the company at a
future date at a predetermined price.
Companies Act 1956

include
option,
benefit or right given
to
purchase
or
subscribe at a future
date, the securities
offered
by
the
company
at
a
predetermined price
to
employees,
directors, officers and
whole time directors
of a company only
and not to employees,
directors or offices of
holding or subsidiary
company.
Ind-AS 102 Share

Based
Payment
already
covers
accounting for such
transactions in Para
43A to 43D and
definition of Share
based
payment
agreement given in
Standard includes such
agreement
between
entity
and
other
party(including
an
employee) that entitles
the other party to
receive
equity
instruments or cash or
other asset.
Companies
2013
defined
Statement
Act
Preparation
of
financial statements for Statement of Change
the first time as follows: in
Equity
and
definition of financial
statement
is
not
covered in the old
Financial Statement in
Act.
relation to company
shall, includes:
As
defined
Ind-AS 1 on
in
Presentation
of
Financial Statements,
financial
statements
comprises
Statement
of
Change in
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S. No.
Point
of
Companies Act 2013
Comparison
1. Balance Sheet
2. P&L or Income &
Expenditure
Account
whichever
applicable
3. Cash
Flow
Statement
4. Statement
of
5. Changes in Equity
6. Explanatory notes.
Equity.
Further
Ind-AS
1
mandates to present
Statement of change
in equity as a part of
Balance Sheet. It also
provides information
to be presented in
detail
in
this
Statement.
However the Act doesnt

lays down any format for
preparation of Statement
of Change in Equity.
A company with one or

more Subsidiary has to
prepare CFS in addition
to Stand Alone Financial
Statement. As per Sec
4.
5.
Preparation of 129(3),
Where
a
CFS
company has one or
more subsidiaries, it
shall, in addition to
financial statements
provided, prepare a CFS
of the company.
Associate
Associate company is
defined as in relation to
another company, means
a company in which that
other company has a
significant influence, but
which is not a subsidiary
Ind-AS 27 on C &
SFS
compulsory
requires
preparation
of
Companies Act 1956
or
AS
doesnt CFS and read as
mandates preparation follows:
of CFS. Currently A parent shall present
Clause 42 of listing CFS in which it
agreement of SEBI consolidates
its
mandates preparation
investments
in
of
CFS
for subsidiaries
in
Companies
whose accordance with this
shares are listed on a Standard. Where a
Stock Exchange.
parent is a company,
the CFS shall be in the
form set out in.
Existing Act doesnt
defines
Associate
company. AS 23
defined Associate as
an enterprise in which
the
investor
has
significant influence
Ind-AS
23
on
Investment
in
Associate
defines
associate as an entity,
including
an
unincorporated entity
such as a partnership,
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S. No.
Point
of
Companies Act 2013
Comparison

and which is neither a
subsidiary nor a joint
venture
of
the
investor.
company of the company

having such influence Significant
and includes a joint influence is the
venture company.
power to participate
in
the
financial
/operating
policy
decisions
of
the
investee
but
not
control over those
policies
For the purposes of this
definition,
significant
influence means control
of at least 20% of total
share capital, or of
business decisions under
an agreement.
6.
As per new Companies

Act 2013 useful life of an
asset and residual value
will not be higher than
Useful life and those specified in the
Residual value Part C of Schedule II
except for the prescribed
of asset
companies
whose
financial
statements
comply
with
AS
prescribed for such class
There is a rebuttable
presumption
that
holding of 20% or
more of voting power
of investee constitutes
significant influence.
However, in certain
circumstances,
a
company
may
demonstrate that 20%
share ownership does
not
constitute
significant influence.
Companies Act 1956

gave the rates of
depreciation and those
were the minimum
rates for charging
depreciation.
over which the investor

has
significant
influence and that is
neither a subsidiary nor
an interest in a joint
venture.
Significant influence
means the same as
explained in existing
AS 23.
Ind-AS
16
on
Property, plant &
Equipment
and
current AS 6 on
Depreciation
also
contemplate
that
Useful life and residual
value of asset is an
estimation
of Management.
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S. No.
Point
of
Companies Act 2013
Comparison
of companies.
7.
Component
accounting
Schedule
III
of
Companies Act 2013 has
made it mandatory for
the companies to identify
and
depreciate
significant
component
with different useful
lives separately.
Companies
Act
1956
doesnt
contemplate
anywhere in regard of
providing
depreciation
on
component basis.
Definition of Control is
important
for
establishing
Holding
Subsidiary
definition.
Companies Act 2013
gives
the
following
definition :
8.
9.
Definition
Control
Voluntary
Existing Act doesnt

define
control
of
Control shall include though it explains the
the right to appoint meaning of Holding
majority of the Directors & Subsidiary.
or
to
control
the
management or policy
decisions exercisable by
a person or persons
acting individually or in
concert,
directly
or
indirectly.
The Companies Act 2013 Currently there isnt a
contains provisions for:
concept of Voluntary
Revision
of
Accounts.
MCA
Circular allowed to
1. Voluntary change reopen & revise its
in
Accounting accounts:
Policy, errors &
reclassification.
Ind-AS
16
on
Property, plant and
Equipment as well as
AS 10 on Fixed
Asset
ensures
component
accounting. However
Ind-AS
mandates
component accounting
like Companies Act
2013 while AS 10
makes it discretionary
for the company.
The definition given by

Companies Act 2013 is
much wider than given
in AS 21 and also in
consonance
with
Ind-AS 27 on C &
SFS. Ind-AS defines
control as the power
to govern the financial
and operating policies
of an entity so as to
obtain benefits from its
activities.
Ind-AS 8 on
Accounting Policies,
changes
in
Accounting Estimates
& Errors already deals
with Voluntary change
in
accounting
policies,
errors and
reclassification.
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S. No.
Point
of
Companies Act 2013
Comparison
1. Reopening
accounts
court/tribunal
orders.
of
on
In case of change in
accounting policy, the
entity shall adjust the
opening balance of
each
affected
component of equity
1. To comply with for earliest prior period
presented and the other
technical
requirement of comparative amounts
disclosed for each prior
any other law.
period presented as if
the new accounting
policy had always been
1. To exhibit true applied.
& fair view.
However Ind AS gives
exemption
from
retrospective
application wherever it
is
impractical
to
retrospectively apply
the changes.
10.
Companies Act 2013

defines useful life of an
asset as the number of
production or similar
units expected to be Companies Act 1956
Depreciation
obtained from the asset prohibits depreciation
on basis of by the entity.
on UOP method for
Units
of
those assets which are
Production
covered
under
Schedule XIV.
This indicates that a
company may be able to
use UOP method of
depreciation.
As
per
Ind-AS
depreciation
is
systematic allocation
of depreciable amount
of an asset over its
useful life and useful
life is number of
production or similar
units expected to be
obtained from the asset
by entity.
11.
Schedule III of the New

Companies Act 2013
provides the format for
Presentation of preparation of CFS and
Minority
as per Schedule III
Interest
Minority Interest is to be
shown within equity
separately
from
the
Format for additional

disclosure given in
Schedule III is same as
format given in Ind AS
C & SFS. Treatment
of Minority interest is
also
similar
to
Schedule III by which
Revised Schedule VI
of Old Act was silent
about the preparation
of CFS and as such
no format was given.
However
minority
interest was disclosed
in
Non-Current
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S. No.
Point
of
Companies Act 2013
Comparison
equity of the owners of

the Parent Shareholders Liabilities.
equity.
minority interest is
shown with in equity
separately from Parent
Shareholders equity.
Conclusion:
Preparation of Financial Statements as per the new Ind-AS will be a challenging task involving various
practical issues. The major changes in the new Companies Act 13 are aiming at adoption of International
Financial Reporting practices in India thereby globalizing the accounting system in India and it is definitely a
path breaking initiative.
List of Abbreviations used in the article:
CFS
Consolidated Financial Statement
C & SFS
Consolidated & Separate Financial Statement
FCCB
Foreign Currency Convertible Bond
ICAI
Institute of Chartered Accountants of India
Ind-AS
Indian Accounting Standards notified by MCA as Indian Equivalent of

IFRS
SEBI
Securities Exchange Board of India
UOP
Unit of Production
Source : -
22-Feb-15 5:15 PM

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Cognizance to Ind-AS in India by introducing new

Companies Act 2013: A Paradigm Shift