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Items That Do Not Appear in Financial Statement
Items That Do Not Appear in Financial Statement
Module 4
Provisions under Accounting Standards for Items That Do Not
Appear In Financial Statement
Scope:
1. This Accounting Standard shall apply to companies to which Accounting Standards
notified under Part I of the Companies (Accounting Standards) Rules _____- apply.
2. If an entity that is not required to apply this Indian Accounting Standard chooses
to disclose information about segments that does not comply with this Indian
Accounting Standard, it shall not describe the information as segment information.
3. If a financial report contains both the consolidated financial statements of a parent
that is within the scope of this Indian Accounting Standard as well as the parents
separate financial statements, segment information is required only in the
consolidated financial statements.
Guidelines
1. Identify operating segments
2. Aggregation of operating segments based on similar economic characteristics.
3. Identify reportable segments.
4. Preparation of segment reporting.
C. Quantitative thresholds
Separate financial information should be available for and presented for the
operating segments that meet the following criteria’s:
a. Revenue of that segment should be at least 10% of the total revenue.
(Revenue includes external as well as inter-segment revenue)
b. Profit or loss from that segment should be at least 10% of the total entity.
Eg: Whether profit or loss-it should be considered as absolute numbers
• Combined profits=240
• Combined losses=170
• Higher of the above is 240
• 10% of 240 is 24
Disclosure:
As per IND AS 108 Entity shall disclose the following :
a. General Information
b. Segment Revenue, Segment Expenses, Segment Assets and Segment Liabilities
and the basis of its measurements.
c. Reconciliation of totals of segment revenue, reported segment profit or loss,
segment assets, segment liabilities and other material segment items to corresponding
entity amounts.
a. General Information:
1. Factors used to identify entity’s reportable segment.
2. Judgments made by the management in applying aggregation criteria.
3. Types of products and services from which each reportable segment derives its
revenues.
b. Information about profit or loss, assets and liabilities:
a. Revenues from external customers;
b. Inter Segment revenue;
c. Interest revenue; (with certain exceptions)
d. Interest expenses; (with certain exceptions)
e. Depreciation and amortization;
f. material items of income and expenses disclosed in accordance with
paragraph 97 of IND AS 1.
g. Entity's interest in profits or loss of associates and joint ventures
accounted for equity method;
h. Income tax expenses or income; (with certain exceptions)
i. material non-cash items other than depreciation and amortization;
j. The amount of investment in associates and Joint ventures accounted for
by the equity method;
k. The amounts of additions to noncurrent assets other than financial
instruments, deferred tax assets, net defined benefit assets and rights
arising under insurance contracts.
Related Party Disclosures (Ind AS 24)
Indian Accounting Standard 24 requires disclosures to be made by a parent
entity regarding its transactions with associates, joint ventures or
subsidiaries, collectively referred to as Related party. Hence related party
refers to an entity or person that is related to the reporting entity.
Objective of the standard
The objective of this standard is to bring to notice the fact that an entity’s
financial statements and profit or loss can be affected by transactions with
the related party transactions and disclose outstanding balances including
commitments to such parties.
Scope of the standard
This standard shall be applied to:
• Identifying related parties and transactions with them.
• Identifying outstanding balance and commitments between the
reporting entity and related parties.
• Recognising the circumstances in which disclosures will be required
in the above-stated situations
• Determine the disclosures to be made.
The standard also requires disclosure of related party relationships
transactions, outstanding balances including commitments in the
consolidated financial statements, separate financial statements, and
individual financial statements. In case a statute or regulatory body or
similar competent authority governing an entity prohibits the entity from
disclosing certain information that is required by this standard, then the
disclosure of such information is not warranted. For instance banks, stock
broking entities are not permitted to disclose customer related information,
hence such information need not be disclosed.
Why should related party transactions be disclosed?
elated party transactions are an integral part of businesses in today’s world.
The transactions between the related parties are generally conducted at
negotiated terms and hence they must be disclosed. Additionally, for an
investor, knowledge of related parties facilitates a more informed decision to
invest in an entity. Also, for every reader of the financial statements
accurate disclosure of all the related party relationships, transactions, and
outstanding balances presents a correct picture of the risk and
opportunities for an entity.
Definitions
Related party is a person or entity that is related to the reporting entity
that is an entity that prepares financial statements. A person or close family
member is related to reporting entity if that individual:
• Has control or joint control over the reporting entity.
• Has significant influence over the reporting entity.
• Is a member of the key personnel of the reporting entity or of the
parent of the reporting entity.
A Close member of the family includes person’s children, spouse or
domestic partner, brother, sister, father and mother, children of that
person’s spouse or domestic partner and dependants of that person’s or
person’s spouse or domestic partner. An entity is related to a reporting
entity if the following conditions are met:
• Both the reporting entity and the entity belonging to the same group.
• An associate or joint venture of the other entity or of the same third
party.
• The entity is a post-employment benefit plan for the reporting entity or
any entity related to the reporting entity.
• The entity is controlled or jointly controlled by the person mentioned
above or the person mentioned has significant influence over the
entity.
• The entity or any member of the group provides key management
personnel service to the reporting entity or parent of reporting entity.
Related party transactions are the transfer of services or obligations,
resources between a reporting entity, and related party irrespective of the
fact that a price is charged.
The Government refers to government, government agencies, and similar
bodies whether local, national, or international.
A government-related entity is an entity that is controlled, jointly
controlled, or significantly influenced by the government.
Compensation includes all employment benefits such as short-term
employment benefits, post-employment benefits, other long-term employer
benefits, termination benefits, and share-based payments.
Disclosures to be made
Let’s have a look at the disclosures that need to be made:
• Relationships between parent and subsidiaries should be disclosed
irrespective of whether there have been any transactions or not. If the
entity’s parent or the ultimate controlling party does not produce
consolidated financial statements, then the next senior parent must
be named in the consolidated financial statements for public use.
• An entity must report the compensation to the key management
personnel in total and each of the categories such as short term
employee benefits, post-employment benefits, termination benefits,
share-based payment, and other long-term benefits.
• If key management services are obtained from another entity, then
only the amounts incurred for the provision of such services shall be
disclosed.
• If the entity has transactions with the related party during the
financial year, then it shall disclose the nature of such transactions,
and also all the details such as amount, outstanding balances
including commitments, provision for doubtful debts, and the expense
recognised in respect of bad and doubtful debts.
• The above disclosures will be made separately in respect of a parent,
subsidiaries, associate, entities with joint control or significant
influence over the other entity, joint ventures in which the entity is
the venturer, and key management personnel of the entity or parent
and other related parties.
The disclosures for similar items can be made in aggregate except when
separate disclosure is necessary to understand the effects of related party
transactions on the financial statements. Examples of related party
transactions are purchase and sale of goods, assets, rendering, or receiving
of services, leases, transfers, and so on.
Events after the Reporting Period (Ind AS 10)
Definitions
Events after the reporting period are those events, favourable and
unfavourable, that occur between the end of the reporting period and the
date when the financial statements are authorised for issue. Two types of
events can be identified:
Non Adjusting Events:- Those that are indicative of conditions that arose
after reporting period.
Non - Adjusting Events:
Example:
1. a major business combination after the reporting period Ind AS
103, ‘Business Combination’ ;
2. Announcing a plan to discontinue an operation;
3. Entering into significant commitments or contingent liabilities, for
example – by issuing significant guarantees;
4. Major purchases of assets, classification of assets as held for sale
in accordance with Ind AS 105, ‘Non Current Asset Held for Sale and
Discontinued Operations’ or exploration of major assets by
government;
5. The destruction of a major production plant by a fire after the
reporting period;
6. Announcing or commencing the implementation of, a major
restructuring;
7. major ordinary share transactions and potential ordinary share
transaction after the reporting period;
8. abnormally large changes after the reporting period in asset prices
or foreign exchange rates;
9. changes in tax rates or tax laws enacted or announced after the
reporting period that have a significant effect on current and deferred
tax assets and liabilities;
Proposed Dividends
Disclosure –
(a) Date of authorization for issue – An entity shall disclose the date when
the financial statements were authorized for issue and who gave that
authorization. If the entity’s owners or others have the power to amend the
financial statements after issue, the entity shall disclose that fact.
(b) Updating disclosure about conditions at the end of the reporting
period: If an entity receives information after the reporting period about
conditions that existed at the end of the reporting period, it shall update
disclosures that relate to those conditions, in the light of the new
information.
Objective
The objective of this Standard is to prescribe the minimum content of an
interim financial report and to prescribe the principles for recognition and
measurement in complete or condensed financial statements for an interim
period. Timely and reliable interim financial reporting improves the ability of
investors, creditors, and others to understand an entitys capacity to
generate earnings and cash flows and its financial condition and liquidity.
Scope.
1. This Standard does not mandate which entities should be required to
publish interim financial reports, how frequently, or how soon after the end
of an interim period. However, governments, securities regulators, stock
exchanges, and accountancy bodies often require entities whose debt or
equity securities are publicly traded to publish interim financial reports1.
This Standard applies if an entity is required or elects to publish an interim
financial report in accordance with Indian Accounting Standards. [Refer to
Appendix 1]
2. Each financial report, annual or interim, is evaluated on its own for
conformity to Indian Accounting Standards. The fact that an entity may not
have provided interim financial reports during a particular financial year or
may have provided interim financial reports that do not comply with this
Standard does not prevent the entitys annual financial statements from
conforming to Indian Accounting Standards if they otherwise do so.
Definitions
The following terms are used in this Standard with the meanings specified:
Interim period is a financial reporting period shorter than a full financial
year.
Interim financial report means a financial report containing either a
complete set of financial statements (as described in Ind AS 1 Presentation
of Financial Statements or a set of condensed financial statements (as
described in this Standard) for an interim period.
Content of an interim financial report
Ind AS 1 defines a complete set of financial statements as including the
following components:
(a) a balance sheet as at the end of the period (including statement of
changes in equity for the period which is presented as a part of the balance
sheet);
(b) a statement of profit and loss for the period;
(c) a statement of cash flows for the period;
(d) notes, comprising a summary of significant accounting policies and other
explanatory information; and
(e) a balance sheet as at the beginning of the earliest comparative period
when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
reclassifies items in its financial statements.
Minimum components of an interim financial report
An interim financial report shall include, at a minimum, the following
components:
(a) A condensed balance sheet (including condensed statement of changes in
equity for the period which is presented as a part of the balance sheet);
(b) A condensed statement of profit and loss,;
(c) A condensed statement of cash flows; and
(d) Selected explanatory notes.
Significant events and transactions.
A. An entity shall include in its interim financial report an explanation of
events and transactions that are significant to an understanding of the
changes in financial position and performance of the entity since the end of
the last annual reporting period.
B. The following is a list of events and transactions for which disclosures
would be required if they are significant: the list is not exhaustive
i. the write-down of inventories to net realizable value and the reversal of
such a write down;
ii. recognition of a loss from the impairment of financial assets, property,
plant and equipment, intangible assets, assets arising from contracts with
customers, or other assets, and the reversal of such an impairment loss;
iii. The reversal of any provisions for the costs of restructuring;
iv. Acquisitions and disposals of items of property, plant and equipment
v. commitments for periods purchase of property, plant and equipment
vi. Litigation settlements
vii. Corrections of prior period errors
viii. Any loan default or breach of a loan agreement that has not been
remedied on or before the end of the reporting period
ix. Related party transactions
x. changes in contingent liabilities or contingent assets.
b. Cost incurred unevenly during the financial year. Costs that are
incurred unevenly during the entity’s financial year should be
anticipated or deferred for interim reporting purposes, if, and only if, it
is also appropriate to anticipate or defer that type of cost at the end of
the financial year.
c. Seasonal, Cyclic or Occasional Revenue : Revenues that are
received seasonally, cyclically or occasionally within a financial year
shall not be anticipated or deferred as of an interim date if
anticipation or deferred would not be appropriate at the end of the
entity’s financial year. Such revenues are recognized when they occur.
Disclosures.
1. Periods for which interim financial statements are required to be
presented.
2. Materiality.
In deciding how to recognize measure, classify or disclose an item for
interim financial reporting purposes, materiality shall be assessed in
relation to the interim period financial data. Ind AS 1 defines material
information and requires separate disclosure of material items,
including (for example) discontinued operations, and Ind AS 8,
Accounting Policies, Changes in Accounting Estimates and Errors
requires disclosure of changes in accounting estimates, errors, and
changes in accounting policies. The two Standards do not contain
quantified guidance as to materiality.
3. Disclosure in annual financial statements
If an estimate of an amount reported in an interim period is changed
significantly during the final interim period of the financial year but a
separate financial report is not published for that final interim period,
the nature and amount of that change in estimate shall be disclosed
in a note to the annual financial statements for that financial year.