CU-MCOM-SEM-III-International Financial Reporting Standards

 www.mca.gov.in  www.icai.org 151 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 12- IAS RELATING TO DISCLOSURE AND ANALYSIS II Structure 12.0. LearningObjectives 12.1. Introduction 12.2. Events after the reporting period 12.3. Related party disclosures 12.4. Interim financial reporting 12.5. Summary 12.6. Keywords 12.7. Learning Activity 12.8. Unit End Questions 12.9. References 12.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Identify qualifying asset for capitalization.  Explain components of borrowing cost.  Learn about Lease.  Evaluate Intangible Assets  Understand about Investment Properties. 12.1 INTRODUCTION In this unit we shall learn about Events after the reporting period, related party disclosures, interim financial reporting. 12.2 EVENTS AFTER THE REPORTING PERIOD IAS 10 Events After the Reporting Period contains requirements for when events after the end of the reporting period should be adjusted in the financial statements. Adjusting events are those providing evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are indicative of conditions arising after the reporting period 152 CU IDOL SELF LEARNING MATERIAL (SLM)

(the latter being disclosed where material). IAS 10 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005. Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue. [IAS 10.3] Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3] Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period. [IAS 10.3] 12.3 RELATED PARTY DISCLOSURES IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding balances with an entity's related parties. The standard defines various classes of entities and people as related parties and sets out the disclosures required in respect of those parties, including the compensation of key management personnel. IAS 24 was reissued in November 2009 and applies to annual periods beginning on or after 1 January 2011. Objective of IAS 24 The objective of IAS 24 is to ensure that an entity's financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties. Who are related parties? A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the 'reporting entity') [IAS 24.9]. (a) A person or a close member of that person's family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity 153 CU IDOL SELF LEARNING MATERIAL (SLM)

or of a parent of the reporting entity. (b) An entity is related to a reporting entity if any of the following conditions applies: (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment defined benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity*. * Requirement added by Annual Improvements to IFRSs 2010–2012 Cycle, effective for annual periods beginning on or after 1 July 2014. The following are deemed not to be related: [IAS 24.11] two entities simply because they have a director or key manager in common two venturers who share joint control over a joint venture providers of finance, trade unions, public utilities, and departments and agencies of a government that does not control, jointly control or significantly influence the reporting entity, simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process) a single customer, supplier, franchiser, distributor, or general agent with whom an entity transacts a significant volume of business merely by virtue of the resulting economic dependence What are related party transactions? A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is charged. [IAS 24.9] 12.4 INTERIM FINANCIAL REPORTING IAS 34 Interim Financial Reporting applies when an entity prepares an interim financial report, without mandating when an entity should prepare such a report. Permitting less information to be reported than in annual financial statements (on the basis of providing an update to those financial statements), the standard outlines the recognition, measurement and disclosure requirements for interim reports. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

IAS 34 was issued in June 1998 and is operative for periods beginning on or after 1 January 1999. Interim period: a financial reporting period shorter than a full financial year (most typically a quarter or half-year). [IAS 34.4] Interim financial report: a financial report that contains either a complete or condensed set of financial statements for an interim period. [IAS 34.4] Matters left to local regulators IAS 34 specifies the content of an interim financial report that is described as conforming to International Financial Reporting Standards. However, IAS 34 does not mandate: which entities should publish interim financial reports, how frequently, or how soon after the end of an interim period. Such matters will be decided by national governments, securities regulators, stock exchanges, and accountancy bodies. [IAS 34.1] However, the Standard encourages publicly-traded entities to provide interim financial reports that conform to the recognition, measurement, and disclosure principles set out in IAS 34, at least as of the end of the first half of their financial year, such reports to be made available not later than 60 days after the end of the interim period. [IAS 34.1] Minimum content of an interim financial report The minimum components specified for an interim financial report are: [IAS 34.8] a condensed balance sheet (statement of financial position) either (a) a condensed statement of comprehensive income or (b) a condensed statement of comprehensive income and a condensed income statement a condensed statement of changes in equity a condensed statement of cash flows selected explanatory notes 155 CU IDOL SELF LEARNING MATERIAL (SLM)

If a complete set of financial statements is published in the interim report, those financial statements should be in full compliance with IFRSs. [IAS 34.9] If the financial statements are condensed, they should include, at a minimum, each of the headings and sub-totals included in the most recent annual financial statements and the explanatory notes required by IAS 34. Additional line-items or notes should be included if their omission would make the interim financial information misleading. [IAS 34.10] If the annual financial statements were consolidated (group) statements, the interim statements should be group statements as well. [IAS 34.14] The periods to be covered by the interim financial statements are as follows: [IAS 34.20] balance sheet (statement of financial position) as of the end of the current interim period and a comparative balance sheet as of the end of the immediately preceding financial year statement of comprehensive income (and income statement, if presented) for the current interim period and cumulatively for the current financial year to date, with comparative statements for the comparable interim periods (current and year-to-date) of the immediately preceding financial year statement of changes in equity cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year statement of cash flows cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year If the company's business is highly seasonal, IAS 34 encourages disclosure of financial information for the latest 12 months, and comparative information for the prior 12-month period, in addition to the interim period financial statements. [IAS 34.21] 12.5 SUMMARY 12.6 KEYWORDS 156  IFRIC – International Financial Reporting Interpretations Committee  SIC – Standing Interpretations Committee.  NFRA – National Financial Reporting Authority.  IFIAR – International Forum of Independent Audit Regulators.  IASB – International Accounting Standards Board.  XBRL – eXtensible Business Reporting Language. CU IDOL SELF LEARNING MATERIAL (SLM)

12.6 LEARNING ACTIVITY 1. Learn more about NFRA and record your observation, for implementation of NFRA in full scale. ___________________________________________________________________________ _______________________________________________________________ 2. Lean about XBRL reporting in context of Indian companies. ___________________________________________________________________________ _______________________________________________________________ 12.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Exposure Draft? 2. What is Discussion Paper? 3. Examine the applicability of IFRS in United States of America. 4. What are the advantages of Taxonomies? 5. Which class of companies is NFRA applicable? Long Questions 1. Explain in detail the standard setting process. 2. Discuss the need for NFRA. 3. Having uniform reporting framework increases comparability. Critically Analyse. 4. Explain International Harmonization. 5. Distinguish between Exposure Draft and Discussion Paper. B. Multiple ChoiceQuestions 1. XBRL Means? a. Xtensible Business Result List b. Xtra Business Report List c. eXtensible Business Reporting Language d. eXtraordinary Business Reporting Language 157 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Section 132 of Companies Act, 2013 speaks about 158 a. Accounting Standards b. National Financial Reporting Authority c. Annual Auditing Requirements d. Accounting Principles and Double entry System 3. ________ is an international independent audit regulator. a. IFIAR. b. IASB c. FASB d. IFRS Foundation. 4. _________ makes information computer readable. a. XBRL b. IFRS c. Taxonomy d. Tagging 5. Standard setting process has _________ number of phases? a. Three b. Two c. Four d. Six Answers 1 – c, 2 – b, 3 – a, 4 – d, 5 – a 12.8 REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill. CU IDOL SELF LEARNING MATERIAL (SLM)

 International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books:  Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 159 CU IDOL SELF LEARNING MATERIAL (SLM)