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Exposure Draft of the Further Amendments to Indian Accounting Standards (Ind ASs): Consideration of Carve outs/ins (Comments to be received by October 15, 2014)
September, 24th 2014
         
Introduction

The 35 IFRS-converged Indian Accounting Standards (Ind ASs) hosted on Ministry of
Corporate Affairs' (MCA's) website contain certain carve-outs. However, the date of
notification of the Ind AS was not announced due to certain issues including tax issues.

Shri Arun Jaitley, Hon'able Finance Minister, Government of India, in his Union Budget
Speech 2014-15, proposed to implement Ind ASs from the financial year beginning on or
after April 01, 2015, on optional basis and from April 01, 2016, onwards on mandatory basis.
Accordingly, the Accounting Standards Board, at its 209th meeting, decided to reconsider the
carve-outs and certain other issues for further possible carve-outs/ins in Ind AS.

This Exposure Draft sets out amendments to Indian Accounting Standards (Ind ASs) as
decided by the Accounting Standards Board at its 212th meeting to finalise the Indian
Accounting Standards.




                                              
 
Standards addressed
The following table shows the topics addressed by these amendments.



Standard                                     Subject of amendment
Ind AS 21, The Effects of Changes in foreign Recognition   of   exchange   differences:
Exchange Rates                               paragraph 29A

Ind AS 110, Consolidated Financial Exemption from preparing consolidation
Statements                               Financial Statements: paragraph 4 (a)
Ind AS 27, Separate Financial Statements · Exemption from preparing consolidated
                                            financial statements
                                         · Removal of option of equity method in
                                            Separate financial statements
Ind AS 28, Investments in Associates and · Exemption from applying equity method
Joint Ventures




                                             
 
                                                                Exposure Draft
        Further Amendments to Indian Accounting Standards:
                  Consideration of Carve outs/ins
 The Accounting Standards Board had issued an Exposure Draft on September 17, 2014
 proposing amendments in certain Indian Accounting Standards (Ind ASs). This Exposure
 Draft proposes amendments to the following Indian Accounting Standards: Consideration of
 carve-outs/ins issued by the Accounting Standards Board of the Institute of Chartered
 Accountants of India, for comments:

       i)     Ind AS 21, The Effects of Changes in foreign Exchange Rates
      ii)    Ind AS 110, Consolidated Financial Statements
     iii)    Ind AS 27, Separate Financial Statements
     iv)     Ind AS 28, Investments in Associates and Joint Ventures

  The Board invites comments on any aspect of this Exposure Draft. Comments are most
 helpful if they indicate the specific paragraph or group of paragraphs to which they relate,
 contain a clear rationale and, where applicable, provide a suggestion for alternative
 wording.

 Comments should be submitted in writing to the Secretary, Accounting Standards Board. The
 Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
 Marg, New Delhi ­ 110 002, so as to be received not later than October 15, 2014. Comments
 can also be sent by e-mail at commentsasb@icai.in. Further clarifications on this exposure
 draft may be sought by e-mail to shilpi.hisaria@icai.in.

 (This Exposure Draft of the Indian Accounting Standard includes paragraphs set in bold type
 and plain type, which have equal authority. Paragraphs in bold type indicate the main
 principles. This Exposure Draft of the Indian Accounting Standard should be read in the
 context of its objective and the Preface to the Statements of Accounting Standards1)


 Amendments to
 Ind AS 21, The Effects of Changes in foreign Exchange Rates


 Paragraph 29A is proposed to be deleted; accordingly, Paragraphs 28, 29, 37, 45 and 52 are
 proposed to be amended. New text is underlined and the deleted text is struck through.

Recognition of exchange differences


 .....
                                                             
 1
   Attention is specifically drawn to paragraph 4.3 of the Preface, according to which accounting
 standards are intended to apply only to items which are material.

                                                                      
  
28 Exchange differences arising on the settlement of monetary items or on translating
   monetary items at rates different from those at which they were translated on initial
   recognition during the period or in previous financial statements shall be recognised
   in profit or loss in the period in which they arise, except: (i) exchange differences
   arising on a monetary item that forms part of a reporting entity's net investment in
   a foreign operation as described in paragraph 32;


         (ii)          where an entity exercises the option provided in paragraph 29A in respect of
                       long-term monetary items.


    29           When monetary items arise from a foreign currency transaction and there is a change
                 in the exchange rate between the transaction date and the date of settlement, an
                 exchange difference results. When the transaction is settled within the same
                 accounting period as that in which it occurred, all the exchange difference is
                 recognised in that period. However, when the transaction is settled in a subsequent
                 accounting period, the exchange difference recognised in each period up to the date
                 of settlement is determined by the change in exchange rates during each period.
                 Paragraph 29A provides an option to recognise unrealised exchange differences
                 arising on translation of certain long-term monetary assets and long-term monetary
                 liabilities from foreign currency to functional currency.


29A             An entity may exercise the option in respect of recognition of exchange differences
                arising on translation of long-term monetary items from foreign currency to functional
                currency as follows:



                (i)       Unrealised exchange differences arising on long-term monetary assets and
                          long-term monetary liabilities denominated in a foreign currency shall be
                          recognised directly in equity and accumulated in a separate component of
                          equity. The amount so accumulated shall be transferred to profit or loss over
                          the period of maturity of such long-term monetary items in an appropriate
                          manner. The separate component of equity shall be distinguished from any
                          other component of equity representing any other exchange difference
                          recognised in other comprehensive income and accumulated in equity.



                (ii)      The option provided in paragraph 29A(i) is not available for the long-term
                          monetary assets and long-term monetary liabilities during the period they are
                          classified as at fair value through profit or loss in accordance with Ind AS 39,
                          either because they are held for trading or because of their designation as at
                          fair value through profit or loss.






                                                           
 
           (iii)   The option provided in paragraph 29A(i) shall be exercised for the first time
                   when the exchange difference arising on a long-term monetary asset or a long-
                   term monetary liability mentioned in paragraph 29A(i) is recognised. The
                   option, once exercised, shall be irrevocable and shall be exercised in respect of
                   all the long-term monetary assets and long-term monetary liabilities
                   mentioned in paragraph 29A(i).



           (iv)    For the purpose of this paragraph, a monetary asset or a monetary liability
                   shall be treated as long-term, if that asset or liability has a maturity period of
                   twelve months or more from the date of the initial recognition of that asset or
                   liability.

......

Change in functional currency

......

37         The effect of a change in functional currency is accounted for prospectively. In other
           words, an entity translates all items into the new functional currency using the
           exchange rate at the date of the change. The resulting translated amounts for non-
           monetary items are treated as their historical cost. Exchange differences arising from
           the translation of a foreign operation previously recognised in other comprehensive
           income in accordance with paragraphs 32 and 39(c) are not reclassified from equity to
           profit or loss until the disposal of the operation. When the option provided in
           paragraph 29A is exercised, exchange differences previously recognised directly in
           equity and accumulated in a separate component of equity in accordance with that
           paragraph are not transferred to profit or loss immediately on change of the entity's
           functional currency. They shall continue to be transferred to profit or loss in the
           manner stated in that paragraph.
 

....... 

 

Translation of a foreign operation

..... 
45         The incorporation of the results and financial position of a foreign operation with those
           of the reporting entity follows normal consolidation procedures, such as the
           elimination of intragroup balances and intragroup transactions of a subsidiary (see
           Ind AS 27 110, Consolidated Financial Statements and Ind AS 31 Interests in Joint
           Ventures). However, an intragroup monetary asset (or liability), whether short-term or
           long-term, cannot be eliminated against the corresponding intragroup liability (or
           asset) without showing the results of currency fluctuations in the consolidated

                                                     
 
             financial statements. This is because the monetary item represents a commitment to
             convert one currency into another and exposes the reporting entity to a gain or loss
             through currency fluctuations. Accordingly, in the consolidated financial statements
             of the reporting entity, such an exchange difference is recognised in profit or loss or,
             if it arises from the circumstances described in paragraph 32, it is recognised in other
             comprehensive income and accumulated in a separate component of equity until the
             disposal of the foreign operation. When the option provided in paragraph 29A is
             exercised, in the consolidated financial statements of the reporting entity, such an
             exchange difference is directly recognised in equity and disposed of in the manner
             prescribed in that paragraph.

...... 

 

Disclosure
 




..... 

52           An entity shall disclose:

             (a)    the amount of exchange differences recognised in profit or loss except for
                    those arising on financial instruments measured at fair value through
                    profit or loss in accordance with Ind AS 109; and

             (b)    net exchange differences recognised in other comprehensive income and
                    accumulated in a separate component of equity, and a reconciliation of
                    the amount of such exchange differences at the beginning and end of the
                    period. ; and

             (c)    net exchange differences recognised directly in equity and accumulated in
                    a separate component of equity in accordance with paragraph 29A, and a
                    reconciliation of the amount of such exchange differences at the beginning
                    and end of the period.
 

..... 


Appendix 1
Comparison with IAS 21, The Effects of Changes in Foreign Exchange
Rates

    ......
2             Ind AS 21 permits an option to recognise exchange differences arising on translation
              of certain long-term monetary items from foreign currency to functional currency
              directly in equity. In this situation, Ind AS 21 requires the accumulated exchange

                                                      
 
          differences to be transferred to profit or loss in an appropriate manner. IAS 21 does
          not permit such a treatment. Consequentially a new paragraph 29A has been added in
          Ind AS 21 as compared to IAS 21.


Reason for Amendments

The Accounting Standards Board noted that as per IFRS 9, only those exposures can
qualify for hedge accounting which have impact on the statement of profit and loss. Where
an entity follows the option provided in the above paragraph by not recognising the gains
and losses on foreign exchange fluctuations in profit or loss but directly in equity, such an
entity would not be able to use hedge accounting as per IFRS 9. It was felt that, in any
case, the option is conceptually inappropriate as the entity is able to defer the gains/losses
arising from foreign exchange risks. Therefore, the Board felt that paragraph 29A of Ind
AS 21 should be removed as the impact is not on profit or loss.


Amendments to
Ind AS 110, Consolidated Financial Statements

Paragraph 4(a) is proposed to be added. New text is underlined and the deleted text is struck
through.

4   An entity that is a parent shall present consolidated financial statements. This Ind AS
    applies to all entities, except as follows:

    (a)   [Refer Appendix 1] a parent need not present consolidated financial statements if it
          meets all the following conditions:

          (i)    it is a wholly-owned subsidiary or is a partially-owned subsidiary of another
                 entity and all its other owners, including those not otherwise entitled to vote,
                 have been informed about, and do not object to, the parent not presenting
                 consolidated financial statements;

          (ii)   its debt or equity instruments are not traded in a public market (a domestic or
                 foreign stock exchange or an over-the-counter market, including local and
                 regional markets);

          (iii) it did not file, nor is it in the process of filing, its financial statements with a
                securities commission or other regulatory organisation for the purpose of
                issuing any class of instruments in a public market; and

          (iv)    its ultimate or any intermediate parent produces consolidated financial
                 statements that are available for public use and comply with Ind ASs.


    (b) ......

                                                   
 
         (c)     .....


 Appendix 1
 Comparison with IFRS 10, Consolidated Financial Statements


1              Paragraph 4(a) has been deleted as the applicability or exemptions to the Indian
               Accounting Standards is governed by the Companies Act and the Rules made there
               under. However, paragraph number 4 has been retained in Ind AS 110 to maintain
               consistency with paragraph numbers of IFRS 10.

..........

 Reason for Amendments

 The Accounting Standards Board considered the carve-out and noted that Paragraph 4 (a) of
 IFRS 10 does not exempt any listed entities, the exemption from consolidation is only to
 unlisted entities. The Board was of the view that the consolidated financial statements
 prepared by the intermediary subsidiaries do not provide useful information, in case their
 ultimate parent is preparing consolidated financial statements that are publically available.
 Considering this the Board felt that paragraph 4 (a) of IFRS 10 may be retained in Ind AS
 110.



 Consequential amendments to other Indian Accounting Standards (Ind
 ASs) from the amendments to Ind AS 110, Consolidated Financial
 Statements
 The following amendments to other Ind ASs are necessary to ensure consistency with the
 revised Ind AS 110.


 Amendments to
 Ind AS 27, Separate Financial Statements

 Paragraphs 8 and 16 are proposed to be added and paragraphs 6, 15 and 17 are proposed to be
 amended. New text is underlined and the deleted text is struck through.


      


                                                      
  
    Definitions 
.....
6          Separate financial statements are those presented in addition to consolidated financial
           statements or in addition to financial statements in which investments in associates or
           joint ventures are accounted for using the equity method, other than in the
           circumstances in which preparation of consolidated financial statements or application
           of equity method is exempt under law set out in paragraphs 8-8A. Separate financial
           statements need not be appended to, or accompany, those statements. unless required
           by law.

......

8        [Refer to Appendix 1] An entity that is exempted in accordance with paragraph 4(a) of
           Ind AS 110 from consolidation or paragraph 17 of Ind AS 28 from applying the
           equity method may present separate financial statements as its only financial
           statements.

......

    Disclosure 


15         An entity shall apply all applicable Ind ASs when providing disclosures in its
           separate financial statements, including the requirements in paragraphs 16 and
           17.





16        [Refer to Appendix 1] When a parent, in accordance with paragraph 4(a) of Ind
           AS 110, elects not to prepare consolidated financial statements and instead
           prepares separate financial statements, it shall disclose in those separate
           financial statements:
            (a)   the fact that the financial statements are separate financial statements;
                  that the exemption from consolidation has been used; the name and
                  principal place of business (and country of incorporation, if different) of
                  the entity whose consolidated financial statements that comply with Ind
                  ASs have been produced for public use; and the address where those
                  consolidated financial statements are obtainable.

            (b)   a list of significant investments in subsidiaries, joint ventures and
                  associates, including:
                  (i)   the name of those investees.


                                                   
 
                    (ii)     the principal place of business (and country of incorporation, if
                             different) of those investees.
                    (iii) its proportion of the ownership interest (and its proportion of the
                          voting rights, if different) held in those investees.
          (c) a description of the method used to account for the investments listed under
               (b).



    17     When a parent (other than a parent covered by paragraphs 16-16A) or an
          investor with joint control of, or significant influence over, an investee prepares
          separate financial statements, the parent or investor shall identify the financial
          statements prepared in accordance with Ind AS 110 (unless preparation of
          consolidated financial statements is exempt under law), Ind AS 111 or Ind AS
          28 (as amended ) to which they relate. The parent or investor shall also disclose
          in its separate financial statements:


          (a)         the fact that the statements are separate financial statements

          (b)         a list of significant investments in subsidiaries, joint ventures and
                      associates, including:


                      (i)   the name of those investees.
                      (ii)  the principal place of business (and country of incorporation, if
                            different) of those investees.
                      (iii) its proportion of the ownership interest (and its proportion of the
                            voting rights, if different) held in those investees.

          (c)       a description of the method used to account for the investments listed
                    under (b).

          .......


     
    Appendix 1 
           

    Comparison with IAS 27, Separate Financial Statements 

    1    Paragraphs 8 and 16 have been deleted and paragraphs 6, 16A and 17 have been
         modified as the applicability or exemptions to the Indian Accounting Standards is
         governed by the Companies Act and the Rules made thereunder. However, paragraphs

                                                     
 
        number 8 and 16 have been retained in Ind AS 27 to maintain consistency with
        paragraph numbers of IAS 27

    1   Paragraph 17 (a) of IAS 27 requires to disclose the reason for preparing separate
        financial statements if not required by law. As the Companies Act mandates
        preparation of separate financial statements, paragraph 17 (a) has been modified to
        remove such requirement.

2       IAS 27 allows the entities to use the equity method to account for investment in
        subsidiaries, joint ventures and associates in their Separate Financial Statements
        (SFS). Such option is not given in Ind AS 27, as the equity method is not a
        measurement basis like cost and fair value but is a manner of consolidation and
        therefore would lead to inconsistent accounting conceptually.



Amendments to
Ind AS 28, Investments in Associates and Joint Ventures

A paragraph 17 is proposed to be added and paragraph 16 is proposed to be amended. New
text is underlined and the deleted text is struck through.


Application of the equity method
16 An entity with joint control of, or significant influence over, an investee shall account for
   its investment in an associate or a joint venture using the equity method except when that
   investment qualifies for exemption in accordance with paragraphs 18 17­19.


Exemptions from applying the equity method

17 [Refer to Appendix 1] An entity need not apply the equity method to its investment in an
   associate or a joint venture if the entity is a parent that is exempt from preparing
   consolidated financial statements by the scope exception in paragraph 4(a) of Ind AS
   110 or if all the following apply:
         (a)   The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of
               another entity and its other owners, including those not otherwise entitled to
               vote, have been informed about, and do not object to, the entity not applying
               the equity method.
         (b)   The entity's debt or equity instruments are not traded in a public market (a
               domestic or foreign stock exchange or an over-the-counter market, including
               local and regional markets).
         (c)   The entity did not file, nor is it in the process of filing, its financial statements

                                                  
 
                         with a securities commission or other regulatory organisation, for the purpose
                         of issuing any class of instruments in a public market.

                   (d)   The ultimate or any intermediate parent of the entity produces consolidated
                         financial statements available for public use that comply with Ind ASs.




Appendix 1

Comparison with IAS 28 (as amended in 2011), Investments in Associates
and Joint Ventures


    1         Paragraph 16 has been modified and paragraph 17 has been deleted as the applicability
               or exemptions to the Indian Accounting Standards is governed by the Companies Act
               and the Rules made thereunder. However, paragraph numbers have been retained in
               Ind AS 28 (as amended) to maintain consistency with IAS 28 (as amended in 2011).



        ........




                                                         
 

 
 
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