Year-end considerations

Year-End Considerations: Key Updates for FY 2024-25

Economic and Regulatory Challenges

  • Geopolitical tensions, fluctuating commodity prices, and escalating inflation pose substantial challenges.
  • Companies must thoroughly evaluate the impact of these factors on their financial statements.
  • Additional disclosures are essential to ensure accuracy and transparency.

Amendments to Accounting Standards

  • Ind AS 117: Insurance Contracts
    • Replaces Ind AS 104; effective from April 1, 2024.
    • Insurers can continue using Ind AS 104 for consolidation purposes until IRDAI mandates Ind AS 117.
    • Applies to non-insurance entities with insurance-like contracts.
    • Defines an insurance contract as transferring significant insurance risk.
    • Excludes warranties, contingent rights, and obligations already covered by other Ind AS.
    • Offers accounting policy choices for fixed fee service contracts and financial guarantee contracts.
    • Measurement approaches include the General Model and Premium Allocation Approach (PAA).
  • Ind AS 116: Sale and Leaseback Transactions
    • Effective from April 1, 2024.
    • Affects variable lease payments not indexed or rate-linked.
    • Introduces paragraph 102A, specifying ROU asset measurement using a cost model.
    • Requires determining ‘lease payments’ to avoid gains or losses related to the retained right of use.
  • Key Amendment Highlights:
    • The MCA introduced amendments to Ind AS 116 focusing on sale and leaseback transactions.

Expert Advisory Committee (EAC) Opinions

  • EAC-1: Hybrid Annuity Projects under Ind AS Framework
    • Borrowing costs should be charged to the Statement of Profit and Loss, not included in contract/financial asset costs.
    • Borrowing costs not included in total cost for measuring contract progress.
  • EAC-2: Accounting for Major Spares
    • Major spares recognized as PPE when meeting PPE definition and recognition criteria per Ind AS 16.
    • Depreciation starts when spares are available for use, typically upon purchase.
  • EAC-3: Accounting for Additional Capitalization Due to Arbitration Award
    • Additional costs are treated as a change in accounting estimate, capitalized, and depreciated prospectively.
  • EAC-4: Method to Determine Fair Value of Investment
    • Fair value of investments in unlisted companies should be determined as per Ind AS 113, not based on book values.
  • EAC-5: Accounting for Social Security Scheme Fund
    • Classified as a defined benefit plan requiring actuarial valuation.
  • EAC-6: Accounting Treatment of Shareholder’s Loan
    • Financial assets/liabilities initially recognized at fair value if the transaction price differs.
  • EAC-7: Recognition of Windmill Plant
    • Unless the customer directs plant use, obtaining economic benefit doesn't trigger lease accounting under Ind AS 116.
  • EAC-8: Accounting for Debit Balance of Capital Reserve
    • Clarifies whether to carry forward goodwill in post-merger financial statements.
  • EAC-9: Classification of Portion in Common Office Complex
    • Provides guidance on accounting for property held for dual use as IP or PPE.

IFRS Interpretations Committee (IFRS IC) Discussions

  • Disclosure of revenues and expenses for reportable segments:
    • Entities must disclose amounts in paragraph 23(a)–(i) of IFRS 8 for each reportable segment.
  • Climate-related commitments
    • Whether commitments to reduce or offset greenhouse gas emissions meet recognition criteria in IAS 37.
  • Guidance: Accounting Guidance Under IFRS 9
    • IFRS Guidance on Accounting for Nature-dependent Electricity

Other Key Updates from IFRS

  • Amendments to IFRS 9 related to Date of initial recognition or derecognition of financial assets or liabilities
  • Classification of Liabilities Changes have been made to the criteria for classification of liabilities and there are no changes to the criteria applicable for current vs. non-current classification of assets.
  • Classification of debt covenants regarding Material and non Material.

Key Regulatory Changes by SEBI

  • Amendments to LODR Regulations
    • Clarification of market rumors by Top listed companies is now mandatory.
  • Framework to calculate material price movement has been prescribed
    • Verification of market rumors; The ISF has published Industry Standards Facilitate Uniformity For effective Implementation.
      Amendments to ICDR Regulations
      The removal of 1% security deposit expanded promoter contribution criteria.

Climate-Related Reporting and Disclosures

  • Evaluate the impact of climate-related risks.
  • Climate-related reporting and disclosures

Pillar Two Model Rules

  • The temporary exception from deferred tax recognition under IAS 12 provides relief.
  • Entities must proactively analyze exposure and ensure robust disclosures.
  • Companies should check whether it meets the needs for the provision.

Purchase Consideration in Business Combination

  • Payments determined to incentivize retention and ensure key executives remain with the business after the transaction.

Key considerations to check when classifying a payment as remuneration or contingent consideration.

Accounting for Payments Received from Suppliers

  • Entities must understand the nature of the payment as well as any related contracts to determine appropriate accounting treatment.