Financial Reporting &

Analysis
Dr. K. Sampath Kumar
Senior Professor
Statement of changes in equity
• Ind AS Schedule III has introduced ‘Statement of changes in equity’ as
a part of financial statements
• Applies to both ‘equity’ and ‘other equity’
• Purpose is to present at a glance the movements during the year
affecting the opening equity and the closing equity
• Provides a reconciliation between the opening & closing equity
• Tells how the fortunes of the owners have changed over the
beginning of the year till its closing
A. Statement of changes in equity share
capital
Particulars 31.03.20CY 31.03.20PY
Numbers in … Rs. In … Nos. in … Rs. In …
Balance at the beginning of the reporting year
Changes in equity share capital during the year
Balance at the end of the reporting year
B. Statement of changes in other equity
Particulars 31.03.20CY Rs. … 31.03.20PY Rs. …
Balance at the beginning of the reporting year
Changes during the year
Balance at the end of the reporting year
Notes to the accounts
• Notes to the accounts are the additional information and
explanations that accompany the financial statements. They provide
more details and clarity about the items, amounts, and transactions
reported in the balance sheet, income statement, statement of
changes in equity, and cash flow statement.
• (i) Notes to accounts shall contain information in addition to that
presented in the Financial Statements and shall provide where
required (a) narrative descriptions or disaggregation of items
recognised in those statements; and (b) information about items that
do not qualify for recognition in those statements.
Contents
1.Identification information. ...
2.General information about the reporting entity. ...
3.Statement of compliance with IFRS. ...
4.Summary of significant accounting policies. ...
5.Risk management and other disclosures on capital management. ...
6.Disclosures on individual line items of financial statements. ...
7.Integral part.
Finolex industries
Accounting policies
• The new rules mandate that businesses have to disclose the “material
accounting policy information" in their financial statements,
replacing the earlier requirement of having to disclose “significant
accounting policies".
• Accounting policy information is material if, when considered
together with other information included in an entity's financial
statements, 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
Material information
• Examples of material information include information regarding
dividend changes, earnings estimates, changes in previously released
earnings estimates, significant merger or acquisition proposals or
agreements, major litigation, liquidity problems, and extraordinary
management developments.
Example – Tata Motors
• Background and operations
• Statement of compliance
• Basis of preparation
• Use of estimates & judgements
• Cost recognition
• Foreign currency
• Segments
• Going concern
• impairment
Segment reporting
• Applicable for a diversified company under Ind AS 108 – Operating
segments
• To enable the users to evaluate the nature and financial effects of the
business activities in which the company engages and the economic
environments in which it operates
• Different business lines may not generate the same level of profits
which is not disclosed in a balance sheet, since the same is
consolidated
Segment reporting for Titan company Ltd.
Particulars Revenue Profit / Loss
31.3.20CY 31.3.20PY 31.3.20CY 31.3.20PY
Watches
Jewellery
Eyewear
Others
Total
Finance costs xxx xxx
PBT xxx xxx
Notes: There is no intersegment revenue
Disclosure of related party transactions
• IFRS converged Ind AS 24 – Related party disclosures
• Related party is a person or entity that is related to the entity that is
preparing its financial statements
• Related party transaction means a transfer of resources, services or
obligations between a reporting entity and a related party, regardless
of whether a price is charged
• Entities frequently carry on parts of their activities through
subsidiaries, joint ventures and associates and this affects the
financial and operating policies of the investee through the presence
of control, joint control or significant influence
Disclosure of related party transactions
• Related party relationship could have an adverse effect on the P&L
and financial position of a company
• Objective of Ind AS 24
• An entity’s financial statements contain the disclosures necessary
• Draw attention to the possibility
• Financial position and P & L may have been affected by the existence
of related party transactions
• Transactions & outstanding balances include commitments with such
parties
Sample (Procter & Gamble)
Nature of transaction Ultimate holding Fellow Key Managerial
company subsidiary cos. remuneration
Interim financial reporting
• IFRS converged Ind AS 34 – Interim Financial reporting should contain
complete or condensed set of
Balance sheet
Statement of profit & Loss
Statement of changes in equity
Statement of cash flows
Select explanatory notes
Quarterly financial reporting
• As per SEBI (LODR)
• Required by Regulation 33
• Format for publication in newspapers as per Regulation 47
• Mandatory for both standalone as well as consolidated results
• Interim segment results also (only consolidated)
Sample for quarter ended Sept. 2023 (CP)
Quarter ended 6 months ended YEAR ended
Sept. 23 June 23 Sept. 22 Sept. 23 Sept. 22 31.3.22
Total income
Total Expenses
PBT
Tax expenses
NP
OCI
Total Comprehensive income
Paid up equity share capital
Reserves excl. Revaluation Res.
Basic EPS
Diluted EPS
Integrated reporting – Encompassing
Business Responsibility Reporting (BRR)
• Integrated reporting is integrating financial reporting with non
financial information
• Financial reporting predominantly serves the shareholders
• Annual reports should also disclose how the company is taking care of
the interests of the other stakeholders – customers, suppliers,
employees, society, environment and Govt.
• These put together is called BRR or ESG (Economic, Social and
Governance) reporting
• When these are reported, the Annual report is called as an integrated
annual report
Integrated reporting
• BRR requirements have set 9 business principles to be complied with by the
business entities on the basis of which the ESG performance can be
assessed
1. Businesses should conduct themselves with ethics, transparency &
accountability
2. Businesses should provide goods and services that are safe & contribute to
sustainability throughout their lifecycle
3. Businesses should promote the well being of the employees
4. Businesses should respect the interests of, and be responsive towards all
stakeholders, especially those who are disadvantaged, vulnerable and
marginalized
Integrated reporting
5. Businesses should respect and promote human rights
6. Businesses should respect, protect and make efforts to restore the
environment
7. Businesses should when engaged in influencing public and regulatory
policy, do so in a responsible manner
8. Businesses should support inclusive growth and equitable
development
9. Businesses should engage with and provide value to their customers
and consumers in a responsible manner
EVA – Economic value added
• Represents the convergence of economic theory & accounting practice
• Accountants view the equity capital to be free of cost and determines
the PAT
• Economists advocate that equity has an opportunity cost for the
shareholders
• Every shareholder wants a risk free return + a market risk premium
from his equity investments – this is the opportunity cost of equity for
the shareholders and therefore for the company also
• Hence economists opine that profit should be calculated after
providing for the cost
EVA – Economic value added
• This version of the profit is called EVA
• A company creates value for its customers when EVA is positive,
otherwise it destroys value
• Returns need to be more than the opportunity cost
Brand valuation
• A brand comprises tangible as well as intangible elements relating to
the company's style, culture, positioning, messages, promises and
value proposition
• Brands create economic value by generating higher returns and
growth and by mitigating risk
• Brand valuation is the process used to calculate the value of a brand
or the amount of money another party is prepared to pay for it
• Brands are not valued like PPE and hence not placed in BS
• Brand valuation is done before buying / selling