The document outlines the provisions of financial reporting under the Companies Act, 2013, emphasizing the focus on stakeholder protection and corporate governance. It introduces the National Financial Reporting Authority (NFRA) for monitoring compliance with accounting and auditing standards, along with key definitions related to financial reporting, holding and subsidiary companies, and books of accounts. It details the responsibilities of companies regarding financial statements and the standards they must comply with, enhancing accountability and oversight in financial reporting.

1. CHARAK RAY
libra.charak@gmail.com
FINANCIAL
REPORTING
Under Companies Act, 2013

2. CONTENTS
Companies Act 2013
National Financial Reporting Authority (NFRA)
Key Definitions related to Financial Reporting
Holding & Subsidiary Company
Provisions related to Books of Accounts- Sec.128
Provisions on applicability Accounting Standards- Sec.133
Provisions related to Financial Statements- Sec.129,134,137
Revision of Financial Statements- Sec.130
Frame work for preparation of FS
Applicability of Ind AS
Presentation of FS- IND AS 1
Old AS vs New Ind AS
Example : Accounts of SECL

3. Act contains 470 Sections, 29 Chapters, 7 schedules
BACKGROUND
Companies Act,
2013
MCA has notified 282 Sections till date

4. BACKGROUND…
The Changed Approach:
Shift from Shareholders Protection to stakeholders protection
Corporate Governance /Investor Protection is Mantra
Widened disclosure requirements
Stricter penalties and Prosecution
Liability of Directors / Professionals increased
Increased coverage of the Act

5. BACKGROUND…
 Introduction of One Person Company & Small Company
 Internal Audit & Secretarial audit
 New Regulators (NFRA, SFIO, NCLT)
 New Committees - Nomination and Remuneration Committee
and Stakeholders Relationship Committee, Vigil Mechanism
 New definition for Associate company, Control, Small company,
Key managerial personnel, Related party, etc.
New Concepts

6. NATIONAL FINANCIAL REPORTING
AUTHORITY

7. NATIONAL FINANCIAL REPORTING
AUTHORITY
 NFRA to be constituted by Central Government (CG) to provide for dealing with
matters relating to accounting and auditing policies and standards to be followed by
companies and their auditors.
 The Chairperson and full time members of NFRA shall not be associated with any
audit firm (including related consultancy firms) during the course of their
appointment and 2 years thereafter.
 Functions of NFRA are as below:
 Make recommendations to CG on the formulation of accounting and auditing
policies and standards
 Monitor and enforce compliance with accounting and auditing standards
 Oversee the quality of service of the professions and suggest measures required
for improvement in quality of services and such other related matters as may be
prescribed;
 Perform other prescribed functions in relation to above as may be prescribed.

8. NATIONAL FINANCIAL REPORTING
AUTHORITY…
 Powers of NFRA include:
 Investigate into the matters of professional or other misconduct committed by member or
firm of CA.
 Powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a
suit.
 Where professional or other misconduct is proved, NFRA has the power to make order for
imposing monetary penalty or debarring the member or the firm from engaging himself or
itself from practice as member of the institute for a minimum period of 6 months or for
such higher period not exceeding 10 years.
 Any person aggrieved by the order of NFRA can prefer an appeal to NFRAA.
 Function of NFRA – Standard Setting, Monitoring, Compliance Review and
Overseeing Quality of Service, Enforcement and Investigation
 It has he power to investigate, suo moto or on reference made by Central
Government in matters of professional or other misconduct by CA or firm. No other
institute or body shall initiate or continue any proceedings in matters where NFRA

9. NATIONAL FINANCIAL REPORTING
AUTHORITY…
• For monitoring compliance with Accounting Standards by Companies, the
Committee on Accounting Standards shall conduct scrutiny of financial statements of
such class of companies and in such manner as may be decided by the Committee or
the Authority.
• For monitoring compliance with Auditing Standards, the Committee on Auditing
Standards shall monitor the compliance of auditors including individual auditors,
audit firms and audit LLPs, with the notified accounting standards and auditing
standards and submit such periodical report(s) to the Authority as the Authority may
specify.
• Class of companies covered for investigation and quality review of audit
• Listed Companies
• Unlisted companies with net worth not less than ` 500 crores or paid up capital not
less than `500 crores or annual turnover not less than ` 1,000 crores as on 31st
March of immediately preceding financial year or
• Companies having securities listed outside India

10. NATIONAL FINANCIAL REPORTING
AUTHORITY…
• Auditors to be covered under investigation by NFRA
• Auditors or audit firms which conduct the audit of the following category
of companies or their branches (including through the network or brand to
which it belongs), whether “directly or indirectly”, as defined in
Explanation to Sec. 144 of the Act -
a) audit of 200 companies or more in a year
b) audit of 20 or more listed companies
c) company or companies (including listed company or companies), having
net worth not less than ` 500 crores or paid up capital not less than `
500 crores or annual turnover not less than ` 1,000 crores as on 31st
March of immediately preceding financial year or
d) company or companies having securities listed outside India

11. NATIONAL FINANCIAL REPORTING
AUTHORITY…
 Act replaces NACAS with NFRA
 Legal sanctity for Auditing Standards
 Judicial powers to ensure independent oversight over CA’s
 NFRA can take action against those working in Companies as well as
Auditors

12. KEY
DEFINITIONS

13. KEY DEFINITIONS
“Financial Statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year
(ii) a profit and loss account, or in the case of a company carrying on any
activity not for profit, an income and expenditure account for the financial
year
(iii) cash flow statement for the financial year
(iv) a statement of changes in equity, if applicable and
(v) any explanatory note annexed to, or forming part of, any document
referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company,
small company and dormant company, may not include the cash flow
statement; Sec. 2(40)

14. KEY DEFINITIONS…
“Financial Year”, in relation to any company or body corporate, means the period
ending on the 31st day of March every year, and where it has been incorporated on or
after the 1st day of January of a year, the period ending on the 31st day of March of the
following year, in respect whereof financial statement of the company or body
corporate is made up:
Provided that on an application made by a company or body corporate, which is a
holding company or a subsidiary of a company incorporated outside India and is
required to follow a different financial year for consolidation of its accounts outside
India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether
or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of
this Act, shall, within a period of two years from such commencement, align its
financial year as per the provisions of this clause
As this provision is effective from April 1, 2014, companies shall align their financial
years as per this provision within April 1, 2016.
The exemption has not been provided for an associate or joint venture.
Sec. 2(41)

15. KEY DEFINITIONS…
“Free Reserves” means such reserves which, as per the latest audited balance sheet of
a company, are available for distribution as dividend:
Provided that—
(i) any amount representing unrealised gains, notional gains or revaluation of assets,
whether shown as a reserve or otherwise, or
(ii) any change in carrying amount of an asset or of a liability recognised in equity,
including surplus in profit and loss account on measurement of the asset or the liability
at fair value, shall not be treated as free reserves.
Key Points
 Definition excludes securities premium
 Instances of provisions where the definition of free reserves is referred:
• Sec.63 for Issue of Bonus Shares.
• Sec.68 for purchase of its own shares or specified securities by companies.
• Sec.123 for declaration of dividend..
• Sec.180(1)(c) restriction on powers of the Board.
• Sec.186 Loans and investment by a company.
Sec. 2(43)

16. KEY DEFINITIONS…
“Net Worth” means the aggregate value of the paid-up share capital and all
reserves created out of the profits and securities premium account, after
deducting the aggregate value of the accumulated losses, deferred expenditure
and miscellaneous expenditure not written off, as per the audited balance sheet,
but does not include reserves created out of revaluation of assets, write-back of
depreciation and amalgamation.
Instances of provisions where the definition of net worth is referred:
 Sec.76(1) relating to Acceptance of deposits by Companies, for determination
of eligible company.
 Sec.135 determining criteria for Corporate Social Responsibility
 Sec.148 where the Central Government shall specify audit of items of cost in
respect of certain Companies.
 Limits for the purposes of approval by Special resolution – Related Party
transactions
Sec. 2(57)

17. KEY DEFINITIONS…
Related party with reference to a company means:
Director or his relative & KMP or his relative
a firm, in which a director, manager or his relative is a partner
private company in which a director/manager/his relative is a member/ director
public company in which a director or manager is a director and holds along with
his relatives, more than 2% of its paid-up share capital
any body corporate whose Board of Directors, managing director or manager is
accustomed to act in accordance with the advice, directions or instructions of a
director or manager (excluding advice given in professional capacity)
any person on whose advice, directions or instructions a director or manager is
accustomed to act (excluding advice given in professional capacity)
any company which is—
a holding, subsidiary or an associate company of such company or
a subsidiary of a holding company to which it is also a subsidiary
• a director other than an independent director or KMP of the holding company or his
relative with reference to a company, shall be deemed to be a related party.
Sec. 2(76)

18. HOLDING
&
SUBSIDIARY
COMPANIES

19. HOLDING & SUBSIDIARY COMPANIES
“Holding company”, in relation to one or more other companies, means a
company of which such companies are subsidiary companies (Sec. 2(46)
A Company shall make investments through not more than two layers of
investment companies. (Sec.186 (1))
The provisions of this section shall not effect the following:
 a company from acquiring any other company incorporated in a country
outside India if such other company has investment subsidiaries beyond
two layers as per the laws of such country
 a subsidiary company from having any investment subsidiary for the
purposes of meeting the requirements under any law or under any rule or
regulation framed under any law for the time being in force

20. HOLDING & SUBSIDIARY COMPANIES…
Subsidiary Company
“Subsidiary Company” or “Subsidiary”, in relation to any other company
(holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors or
(ii) exercises or controls more than one-half of the total share capital either at
its own or together with one or more of its subsidiary companies
Provided that such class or classes of holding companies as may be prescribed
shall not have layers of subsidiaries beyond such numbers as may be
prescribed. (This proviso is not notified)
As per the Companies (Specification of definitions details) Rules, 2014,
Total share capital = paid up equity share capital + convertible preference
share capital.
Sec. 2(87)

21. HOLDING & SUBSIDIARY COMPANIES…
Subsidiary Company…
Explanation—For the purposes of this clause,
(a) a company shall be deemed to be a subsidiary company of the holding
company even if the control referred to above is of another subsidiary
company of the holding company
(b) the composition of a company’s Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some
power exercisable by it at its discretion can appoint or remove all or a majority
of the directors
(c) the expression “company” includes any body corporate
(d) “layer” in relation to a holding company means its subsidiary or
subsidiaries
Sec. 2(87)

22. HOLDING & SUBSIDIARY COMPANIES…
As per Sec 2(27) of the Act, “control”
“shall include the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in any other manner.”
As per AS-21, Control is defined as:
(a) the ownership, directly or indirectly through subsidiary(ies), of more than
one-half of the voting power of an enterprise or
(b) control of the composition of the board of directors in the case of a
company or of the composition of the corresponding governing body in case of
any other enterprise so as to obtain economic benefits from its activities.

23. BOOKS OF
ACCOUNTS

24. BOOKS OFACCOUNTS..
• Company shall prepare and keep at its registered office books of account and
other relevant books and papers and financial statement for every financial
year which give a true and fair view of the state of the affairs of the
company.
• Such books shall be kept on accrual basis and according to the double entry
system of accounting
• All or any of the books of account aforesaid and other relevant papers may
be kept at such other place in India as the Board of Directors may decide and
where such a decision is taken, the company shall, within 7 days thereof, file
with the Registrar a notice in writing giving the full address of that other
place
• Company may keep such books of account or other relevant papers in
electronic mode in such manner as may be prescribed.
Sec. 128

25. BOOKS OFACCOUNTS..
The books of account and other relevant books and papers maintained in
electronic mode shall remain accessible in India so as to be usable for
subsequent reference.
The books of account and other relevant books and papers shall be retained
completely in the format in which they were originally generated, sent or
received, or in a format which shall present accurately the information
generated, sent or received and the information contained in the electronic
records shall remain complete and unaltered.
The information received from branch offices shall not be altered and shall be
kept in a manner where it shall depict what was originally received from the
branches.
The information in the electronic record of the document shall be capable of
being displayed in a legible form.
Rule 3 of Companies (Accounts) Rules, 2014

26. BOOKS OFACCOUNTS..
• There shall be a proper system for storage, retrieval, display or printout of the
electronic records as the Audit Committee, if any, or the Board may deem appropriate
and such records shall not be disposed of or rendered unusable, unless permitted by
law.
• The back-up of the books of account and other books and papers of the company
maintained in electronic mode, including at a place outside India, if any, shall be kept
in servers physically located in India on a periodic basis.
• The company shall intimate to the Registrar on an annual basis at the time of filing of
financial statement-
• the name of the service provider
• the internet protocol address of service provider
• the location of the service provider (wherever applicable)
• where the books of account and other books and papers are maintained on cloud, such
address as provided by the service provider.
Rule 3 of Companies (Accounts) Rules, 2014

27. BOOKS OFACCOUNTS…
• If a company has a branch office in India or outside India proper books of
account relating to the transactions effected at the branch office shall be kept
at that office and proper summarised returns shall be periodically sent by the
branch office to the company at its registered office.
• The books of account and other books and papers maintained by the company
within India shall be open for inspection at the registered office of the
company or at such other place in India by any director during business
hours, and in the case of financial information, if any, maintained outside the
country, copies of such financial information shall be maintained and
produced for inspection by any director subject to such conditions as may be
prescribed.
• Inspection in respect of any subsidiary of the company shall be done only by
the person authorised in this behalf by a resolution of the Board of Directors.
Sec. 128

28. BOOKS OFACCOUNTS…
• The books of account of every company relating to a period of not less than 8
FY’s immediately preceding a FY, or where the company had been in
existence for a period less than 8 years, in respect of all the preceding years
together with the vouchers relevant to any entry in such books of account
shall be kept in good order.
• If the MD, the WTD in charge of finance, the CFO or any other person of a
company charged by the Board with the duty of complying with the
provisions of this section, contravenes such provisions, such MD, WTD in
charge of finance, CFO or such other person of the company shall be
punishable with imprisonment for a term which may extend to one year or
with fine which shall not be less than ` 50,000 but which may extend to ` 5
lakh or with both.
Sec. 128

29. ACCOUNTING
STANDARDS

30. ACCOUNTING STANDARDS
The Central Government may prescribe the standards of accounting or any
addendum thereto, as recommended by the ICAI, constituted under section 3
of the Chartered Accountants Act, 1949, in consultation with and after
examination of the recommendations made by the NFRA.
Transitional provisions with respect to Accounting Standards (Rule 7 of
Companies (Accounts) Rules, 2014-
The standards of accounting as specified under the Companies Act, 1956
shall be deemed to be the accounting standards until accounting standards are
specified by the Central Government under section 133.
Till the NFRA is constituted under section 132 of the Act, the Central
Government may prescribe the standards of accounting or any addendum
thereto, as recommended by the ICAI in consultation with and after
examination of the recommendations made by the National Advisory
Committee on Accounting Standards constituted under section 210A of the
Sec. 133

31. FINANCIAL STATEMENTS

32. FINANCIAL STATEMENTS
• The financial statements shall give a true and fair view of the state of affairs
of the company or companies, comply with the accounting standards notified
under section 133 and shall be in the form or forms as may be provided for
different class or classes of companies in Schedule III.
• The items contained in such financial statements shall be in accordance with
the accounting standards.
• These provisions shall not apply to any insurance or banking company or any
company engaged in the generation or supply of electricity, or to any other
class of company for which a form of financial statement has been specified
in or under the Act governing such class of company:
Sec. 129

33. FINANCIAL STATEMENTS…
At every AGM of a company, the Board of Directors of the company shall lay
before such meeting financial statements for the financial year.
Where a company has one or more subsidiaries, it shall, in addition to
standalone financial statements prepare a consolidated financial statement
(CFS) of the company and of all the subsidiaries in the same form and
manner as that of its own which shall also be laid before the AGM of the
company along with the laying of its financial statement.
Subsidiary shall include associate company and joint venture.
Company shall also attach along with its financial statement, a separate
statement containing the salient features of the financial statement of its
subsidiary or subsidiaries in Form AOC I (Rule 5 of Companies (Accounts)
Rules, 2014)
Sec. 129

34. FINANCIAL STATEMENTS…
As per the proviso to Sec. 129(3), the Central Government may provide for
the consolidation of accounts of companies in such manner as may be
prescribed.
As per Rule 6 of Companies (Accounts) Rules, 2014 Manner of
consolidation of accounts.-
The CFS of the company shall be made in accordance with the
provisions of Schedule III of the Act and the applicable accounting
standards.
In case of a company covered under Sec. 129(3) which is not required
to prepare CFS under the Accounting Standards, it shall be sufficient if
the company complies with provisions on CFS provided in Schedule III
of the Act. As per Companies (Meetings of Board and its Powers)
Second Amendment Rules, 2014 consideration of financial statements,
including CFS, if any, shall not be dealt with in a meeting held through
video conferencing.

35. FINANCIAL STATEMENTS…
• The provisions of this Act applicable to the preparation, adoption and audit of
the financial statements of a holding company shall, mutatis mutandis, apply
to the CFS.
• Where the financial statements of a company do not comply with the
accounting standards, the company shall disclose in its financial statements,
the deviation from the accounting standards, the reasons for such deviation
and the financial effects, if any, arising out of such deviation.
• The Central Government may, on its own or on an application by a class or
classes of companies, by notification, exempt any class or classes of
companies from complying with any of the requirements of this section or the
rules made thereunder, if it is considered necessary to grant such exemption
in the public interest and any such exemption may be granted either
unconditionally or subject to such conditions as may be specified in the
notification
Sec. 129

36. FINANCIAL STATEMENTS…
If a company contravenes the provisions of this section, the MD the WTD in
charge of finance, the CFO or any other person charged by the Board with the
duty of complying with the requirements of this section and in the absence of
any of the officers mentioned above, all the directors shall be punishable with
imprisonment for a term which may extend to one year or with fine which
shall not be less than ` 50,000 but which may extend to ` 5 lakhs, or with both.
Sec. 129

37. FINANCIAL STATEMENTS…
Consolidated Financial Statements – Key Points
 Companies having one or more subsidiaries, shall also prepare CFS and the same
shall be laid before the AGM of the Company along with standalone financial
statements.
 A separate statement containing salient features of the financial statement of
subsidiaries to be attached to the holding company’s financial statements. – Form
AOC - I
 ‘Subsidiary’ includes ‘associate company’ and ‘joint venture’.
 Associate means a company other than a subsidiary company and joint venture
company, in which the other company has a significant influence.
 Significant influence means control of at least 20% of total share capital or of
business decisions under an agreement.
 In case of a company covered u/s 129(3), which is not required to prepare CFS under
the Accounting Standards, it shall be sufficient if the company complies with
provisions on CFS provided in Schedule III of the Act.

38. FINANCIAL STATEMENTS…
1. Sl. No.
2. Name of the subsidiary
3. Reporting period for the subsidiary concerned, if
different from holding company’s reporting period
4. Reporting currency and Exchange rate as on the
last date of the relevant Financial year in the case of
foreign subsidiaries.
5. Share capital
6. Reserves & surplus
Form AOC-I
Part A – Subsidiaries
Information in respect of each subsidiary to be presented with amounts in `
7. Total assets
8. Total Liabilities
9. Investments
10. Turnover
11. Profit before taxation
12. Provision for taxation
13. Profit after taxation
14. Proposed Dividend
15. % of shareholding
1. Names of subsidiaries which are yet to commence operations
2. Names of subsidiaries which have been liquidated or sold during the year.

39. Form AOC-I
Part B – Associates and Joint Ventures
1. Names of associates or joint ventures which are yet to commence operations
2. Names of associates or joint ventures which have been liquidated or sold during the year.
Name of Associates/Joint Ventures Name 1 Name 2
1. Latest audited Balance Sheet Date
2. Shares of Associate/Joint Ventures held by the company on the year end
No.
Amount of Investment in Associates/ Joint Venture
Extend of Holding %
3. Description of how there is significant influence
4. Reason why the associate/joint venture is not consolidated
5. Net worth attributable to Shareholding as per latest audited Balance Sheet
6. Profit / Loss for the year
i. Considered in Consolidation
ii. Not Considered in Consolidation
FINANCIAL STATEMENTS…

40. FINANCIAL STATEMENT - SIGNING
 The financial statement, including CFS, if any, shall be approved by the
Board of Directors before they are signed on behalf of the Board at least by
the chairperson of the company where he is authorised by the Board or
by two directors out of which one shall be managing director and
the Chief Executive Officer, if he is a director in the company,
the Chief Financial Officer, &
the Company Secretary of the company,
wherever they are appointed, or in the case of a One Person Company, only by
one director, for submission to the auditor for his report thereon.
 The auditors’ report shall be attached to every financial statement.
Sec. 134(1)

41. FINANCIAL STATEMENT – CIRCULATION OF
ACCOUNTS
 A listed company shall also place its financial statements including CFS, if any, and
all other documents required to be attached thereto, on its website.
As per the Rule 11, of Companies (Accounts) Rules, 2014, Manner of circulation of
financial statements in certain cases.-
In case of all listed companies and such public companies which have a net worth of
more than ` 1 crore and turnover of more than ` 10 crore rupees, the financial
statements may be sent
by electronic mode to such members whose shareholding is in dematerialised
format and whose email Ids are registered with Depository for communication
purposes;
where Shareholding is held otherwise than by dematerialised format, to such
members who have positively consented in writing for receiving by electronic
mode; and
by dispatch of physical copies through any recognised mode of delivery as

42. FINANCIAL STATEMENT – COPY TO BE FILED
Copy of Financial Statement to be Filed with Registrar
 A copy of the financial statements, including CFS, if any, along with all the
documents which are required to be or attached to such financial statements
under this Act, duly adopted at the AGM of the company, shall be filed with
the Registrar within 30 days of the date of AGM in Form AOC-4 - Rule
12(1).
 Where the financial statements are not adopted at the AGM or adjourned
AGM, such unadopted financial statements along with the required
documents shall be filed with the Registrar within 30 days of the date of
AGM and the Registrar shall take them in his records as provisional till the
financial statements are filed with him after their adoption in the adjourned
AGM for that purpose.
 The financial statements adopted in the adjourned AGM shall be filed with
the Registrar within 30 days of the date of such adjourned AGM.
Sec. 137

43. FINANCIAL STATEMENT - COPY TO BE FILED…
Copy of Financial Statement to be Filed with Registrar…
Along with its financial statements to be filed with the Registrar, attach the
accounts of its subsidiary or subsidiaries which have been incorporated
outside India and which have not established their place of business in India.
Where the AGM of a company for any year has not been held, the financial
statements along with the documents required to be attached, duly signed
along with the statement of facts and reasons for not holding the AGM shall
be filed with the Registrar within 30 days of the last date before which the
AGM should have been held.
Sec. 137

44. REVISION OF
FINANCIAL
STATEMENTS

45. REVISION OF FINANCIAL STATEMENTS
Mandatory reopening or recasting (Sec.130)
 A Company can reopen its books of accounts and recast its financial
statements if:
• The relevant accounts were prepared in fraudulent manner or
• Affairs of the Company were mismanaged during the relevant period
casting a doubt on the reliability of the financial statements
 On an application by Central Government, IT authorities, SEBI or any
regulatory body and an order being made by Court or Tribunal.
Voluntary Revision (Sec.131)
 The Company may, if it appears to the directors that the Financial Statements
or Board’s Report are not in compliance with the provisions of the Act, may
prepare revised financial statement or a revised Board’s Report with the
approval of Tribunal.
Not Notified

46. REVISION OF FINANCIAL STATEMENTS…
Key Points
Revision / Reopening of financial statements for a period earlier than
immediately preceding financial year may impact financial statements for
subsequent years also.
Presently, as per circular issued by SEBI in August 2012, SEBI is empowered
to require revision of financial statements, if the audit report is qualified.
Complications may arise when revision/ reopening pertains to companies
which have already amalgamated / amalgamation is pending Court’s
approval.
Detailed process for revision, including involvement of current and previous
auditors , may lead to frivolous litigations.
May require current auditor to re-audit entire financial statements for one or
more previous periods.
Revision / reopening might have an impact on taxation as well.

47. Framework for
the Preparation
and Presentation
of Financial
Statements

48. The Framework is the conceptual framework upon which the Ind AS are based and
determine how financial statements are prepared and the information they contain.
 It provides the general principles upon which Ind AS will be based .
 The framework is the standard of all standards, but is not an accounting standard.
 It is issued in July 2000.
 In case of conflict between Framework and Ind AS, Ind AS shall prevail over the
Framework, as Ind AS contains specific principles with respect to items of financial
statement whereas framework contains general principles with respect to items of
financial statement.
Framework for the Preparation and Presentation of Financial
Statements

49. The Framework deals with:
1. the objective of financial statements;
2. the qualitative characteristics that determine the usefulness of information
provided in financial statements;
3. definition, recognition and measurement of the elements from which financial
statements are constructed; and
4. concepts of capital and capital maintenance.
Scope

50. Objective of financial statements
The objective of financial statements is to provide information about
 Financial position,
 Financial performance, and
 Cash flows
of an entity that is useful to a wide range of users in making economic decisions.

51. Understandability Relevance Reliability Comparability
Materiality
Faithful
Representation
Substance
Over Form
Neutrality Prudence Completeness
Qualitative characteristics are the attributes that make the information provided in
financial statement useful to users.
Qualitative Characteristics of Financial Statement

52. The elements of financial position are
1. Assets,
2. Liabilities,
3. Equity
Element of Financial Position

53. The elements of financial performance :
1. Income
2. Expenses
Element of Financial Performance and their definition

54. Measurement is the process of determining the monetary amounts at
which the elements of financial statement are recognised and carried in the
Financial Statement.
Measurement Basis
Historical
cost
Current
cost
Realisable
value
Present
value

55. (a) Historical cost:
 Assets are recorded at the amount of cash or cash equivalents paid or the fair
value of the other consideration given to acquire them at the time of their
acquisition.
 Liabilities are recorded at the amount of cash or cash equivalents expected to
be paid to satisfy the liability or at the amount of proceeds received in exchange
for the obligation, in the normal course of business.
(b) Current cost:
 Assets are carried at the amount of cash or cash equivalents that would have to
be paid if the same or an equivalent asset were acquired currently.
 Liabilities are carried at the undiscounted amount of cash or cash equivalents
that would be required to settle the obligation currently.
Measurement Basis

56. (c) Realisable (settlement) value:
 Assets are carried at the amount of cash or cash equivalents that
could currently be obtained by selling the asset in an orderly
disposal.
 Liabilities are carried at their settlement values, that is, the
undiscounted amount of cash or cash equivalents expected to be
required to settle the liabilities in the normal course of business.
(d) Present value:
 Assets are carried at the present value of the future net cash
inflows that the item is expected to generate in the normal course
of business.
 Liabilities are carried at the present value of the future net cash
outflows that are expected to be required to settle the liabilities in
the normal course of business.
Measurement Basis

57. Capital and Capital maintenance
There are two concepts of capital:
1. Financial concept: Under the financial concept, such as invested
money or invested purchasing power, capital is synonymous with the
net assets or equity of the entity.
2. Physical concept: Under the physical concept, such as operating
capability, capital is regarded as the productive capacity of the entity.
This productive capacity may be defined in terms of volume of
production. For eg.- Units of output per annum.

58. Underlying Assumptions
 Under Going concern, it is assumed that the entity will continue in
operation for the foreseeable future and has neither the intention nor the need to
liquidate or curtail materially the scale of its operations.
 Under Accrual basis, the effects of transactions are recognised on mercantile basis
i.e. when they occur (and not as cash or a cash equivalent is received or paid) and they
are recorded in the accounting records and reported in the financial statement of the
periods to which they relate.
 Under Consistency, same accounting policies are followed from one period to
another so that comparability of the financial statement can be achieved.
Going concern Accrual basis Consistency

59. Applicability of
Ind AS

60. NW - Rs.
500 Crore
or more
NW -
Less than
Rs. 250
Crore
NW - Rs. 250
Crore or more
but less than
Rs. 500 Crore
1st April
2016
NA
1st April
2017
LISTED COMPANY
NW – Less
than Rs.
500 Crore
1st April
2017
UNLISTED COMPANY
NW - Rs.
500 Crore
or more
1st April
2016
Applicability of Ind-AS to Companies
 Listed comapany means company whose equity and /or debt
securities are listed or are in the process of listing on any stock
exchange in or outside India.
 NW stands here for Net Worth

61. All Companies can voluntarily adopt Ind AS from 1st April 2015.
Ind AS is applicable to Banks, NBFCs and Insurance Companies
from 1st April, 2018.
Ind AS is not applicable to Unlisted companies with net worth of
less than Rs. 250 Crore and Companies listed on SME exchange.
They are required to comply with existing Accounting
Standards.
Holding, Subsidiary, Associate and Joint Venture of above are
also required to follow Ind-AS from respective date.
Apply to both consolidated and stand-alone financial statements.
Comparatives of previous year are also required to be Ind AS
compliant.
Ind ASs are notified by MCA on 16th February, 2015.
Once opt to follow Ind AS, cannot switch back.
In case of conflict between Ind AS and law, the provisions of law
shall prevail.

62.  Companies having paid up share capital of Rs. 25 Crore or less are
listed on Small and Medium Enterprises (SME) exchange.
 What is net worth and how to calculate? When to calculate?
 Net worth is the agreegate value of the paid up share capital and all
reserves created out of the profits and securities premium account, after
deducting the aggregate value of the accumulated losses, deferred
expenditure and miscellanous expenditure not written off, as per the
audited balance sheet, but does not include reserves created out of
revaluation of assets, write-back of depreciation and amalgamation.
 Net worth will be determined based on the standalone accounts of
the company as on 31st March, 2014 or the first audited period ending
after that date.
Companies listed on SME Exchange & Net Worth

63. Old AS
vs.
New Ind AS

64. • Principle-based Standards
• Applicable on separate as well as consolidated financial
statements.
• Give more importance to concept of ‘substance over form’,
i.e., economic reality of a transaction.
• Rely more on fair valuation approach, and measurements
based on time value of money.
• Require more disclosures of all the relevant information and
assumptions used.
• Require higher degree of judgment and estimates.
Salient Features of Ind AS

65. IND AS ARE BASED MORE ON SUBSTANCE OVER FORM :
Sale of Goods on Extended Credit Terms, i.e., goods sold on terms extending more
than normal credit period.
 Financing element inbuilt in price is segregated and considered as ‘interest’
income.
 Say, goods normally sold at price at Rs. 100 for 3 months credit
 If sold for Rs. 110 for 15 months credit: Rs. 10 considered as ‘interest’ income
This has VAT and TDS implications
Understanding Ind AS from AS

66. • Fixed assets or inventories purchased on
deferred credit terms having financing element:
• Financing element, viz., ‘interest’ to be segregated
from the ‘purchase price’
• Implications: What would be the original cost of
the fixed asset/inventories for tax?
Substance over form (Contd.)

67. Unbundling of multiple elements from the sale price where
required:
Sale of Automobile on Extended Warranty
 An automobile dealer sells a car for extended warranty of 3 years
instead of normal 1 year
 Extended warranty element of 2 years required to be separated under
Ind AS from the selling price based on Fair Value of warranty.
 Revenue from warranty service recognised in the year when the
service is rendered, i.e., revenue recognition is deferred.
Substance over form (Contd.)

68. Implications:
 Tax: Income from sale of car to be recognised when car sold
 VAT: To be levied on invoice price exclusive of value of extended
warranty
 Service Tax: To be levied on value of extended warranty
Substance over form (Contd.)

69. • Redeemable preference shares carrying fixed rate of dividend
considered a liability under Ind AS
• Dividend paid/payable considered as ‘interest’
• Charged to statement of profit and loss and not to be considered as an
appropriation of profit as at present
• Implications:
• TDS on interest
• MAT implication as Book Profit
Substance over form (Contd.)

70. • Certain transfers in substance considered as finance lease under
Ind AS
• Accordingly, only receivable is recognised in the Balance Sheet by
the transferor
• Presently, the transferor recognises it as its fixed asset and charges
depreciation
• Implications:
• MAT implication as Book Profit
• Where lease more than 12 years, will be considered as sale for VAT
purpose
Substance over form (Contd.)

71.  Measurement of interest at Effective Interest Rate rather than
the contracted rate to recognise interest income and expense
Illustration:
 A company issues bond of Rs. 100 carrying interest rate at 10% to
be redeemed at Rs. 110 after five years.
 Presently , interest expense recognised at Rs. 10 per year and Rs. 10
premium paid at the time of redemption recognised in the year of
redemption (though some companies amortise this Rs. 10 over the
five year term on straight line basis)
Time value of money as a measurement basis

72.  Under Ind AS, interest rate is recomputed to recognise Rs. 10
premium payable at the end of the term of the bond.
Accordingly, interest is recognised every year, at the effective
rate of 11.43%
Implications:
 TDS
 MAT on account of change in Book Profit
Time value of money as a measurement basis

73. Certain investments (e.g., held for trading in normal course of
business) required under Ind AS to be measured at FV and
changes in FV, gains and losses, recognised in profit or loss.
Presently, only FV changes resulting in losses recognised in profit
or loss; gains ignored
Implications:
MAT implications on Book Profit
Greater use of Fair Value (FV) as Measurement Basis

74. Service Concession Arrangement, e.g., Build-Operate-
Transfer arrangement of a road
Revenue is required to be recognised at FV of the construction
services rendered during construction period
Even though actual receipts start when the road is put under
operation, i.e., toll is collected
Implications:
Should the income be taxed during construction period?
MAT implications on Book Profit
Fair Value as Measurement Basis (Contd.)

75. • Component approach and concept of useful life of charging
depreciation
• Ind AS require depreciation to be charged on significant parts
of a fixed asset where useful lives of the parts and the
remaining asset are different
• Presently, depreciation required to be charged on the
complete asset at a single rate
• Ind AS also confer primacy to useful life concept for
charging depreciation, rather than statutory minimum
depreciation concept hitherto followed
• Implications: MAT on Book Profit
Other significant differences

76. • Effects of Changes in Foreign Exchange Rates
• Ind AS based on ‘functional currency’ concept, existing AS is
not
• Where functional currency of an entity other than INR,
impact on profit or loss different from existing AS
• Consequential tax impact
• After transitioning to Ind AS, option of capitalising/deferring foreign
exchange differences under existing AS no longer available,
• Such differences would be recognised in profit or loss
• Implications: Consequential tax impact on Book Profit
Other significant differences

77. 77
AS
No.
Existing Indian
Standard
IFRS
No.
Ind AS
No.
Converged IFRS
AS 1 Disclosure of
Accounting
Policies
IAS 1 Ind AS 1 Presentation of
Financial Statements
AS 2 Valuation of
Inventories
IAS 2 Ind AS 2 Inventories
AS 3 Cash Flow
Statements
IAS 7 Ind AS 7 Statements of Cash
Flows
AS 4 Events Occurring
after the Balance
Sheet Date
IAS 10 Ind AS
10
Events after the
Reporting Period
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

78. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 5 Net Profit or Loss for
the Period, Prior
Period Items and
Changes in
Accounting Policies
IAS 8 Ind AS
8
Accounting
Policies, Changes
in Accounting
Estimates and
Errors
AS 6 Depreciation
Accounting
- - -
AS 7 Construction
Contracts
IAS 11 Ind AS
115
Revenue
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

79. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 9 Revenue
Recognition
IAS 18 Ind AS
115
Revenue
AS 10 Accounting for
Fixed Assets
IAS 16 Ind AS
16
Property, Plant and
Equipment
AS 11 The Effects of
Changes in Foreign
Exchange Rates
IAS 21 Ind AS
21
The Effects of
Changes in Foreign
Exchange Rates
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

80. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 12 Accounting for
Government
Grants
IAS 20 Ind AS
20
Accounting for
Government Grants
and Disclosure of
Government
Assistance
AS 13 Accounting for
Investments
IAS 40
IAS 27
Ind AS
40
Ind AS
27
Investment Property
Separate Financial
Statements
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

81. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 14 Accounting for
amalgamations
IFRS 3 Ind AS
103
Business
combinations
AS 15 Employee Benefits IAS 19 Ind AS
19
Employee
Benefits
AS 16 Borrowing costs IAS 23 Ind AS
23
Borrowing costs
AS 17 Segment Reporting IFRS 8 Ind AS
108
Operating
Segments
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

82. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 18 Related Party
Disclosures
IFRS
12
Ind AS
24
Disclosure of Interests
in other Entities
AS 19 Leases IAS 17 Ind AS
17
Leases
AS 20 Earnings Per Share IAS 33 Ind AS
33
Earnings Per Share
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

83. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS
21
Consolidated
Financial
Statements
IFRS
10
IAS
27
IFRS
12
Ind AS
110
Ind AS
27
Ind AS
112
Consolidated
Financial Statements
Separate Financial
Statements
Disclosure of Interest
in other entities
AS
22
Accounting for
Taxes on Income
IAS
12
Ind AS
12
Income taxes
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

84. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 23 Accounting for
Investments in
Associates in
Consolidated Financial
Statements
IAS
28
Ind AS
28
Investments in
Associates and Joint
Ventures
AS 24 Discontinuing
operations
IFRS
5
Ind AS
105
Non Current Assets
Held for Sale and
Discontinued
operations
AS 25 Interim financial
reporting
IAS
34
Ind AS
34
Interim Financial
Reporting
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

85. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 26 Intangible assets IAS 38 Ind AS
38
Intangible
Assets
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

86. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 27 Financial Reporting of
Interests in Joint Ventures
IAS 28
IAS 27
IFRS
11
IFRS
12
Ind AS
28
Ind AS
27
Ind AS
111
Ind AS
112
Investments in
Associates and
Joint Ventures
Separate
Financial
Statements
Joint
Arrangements
Disclosure of
Interest in other
entities
Comparative Summary of Indian Accounting Standards, IFRS &
Present AS

87. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 28 Impairment of assets IAS 36 Ind AS
36
Impairment of
assets
AS 29 Provisions, Contingent
Liabilities and
Contingent Assets
IAS 37 Ind AS
37
Provisions,
Contingent
Liabilities and
Contingent Assets
AS 30 Financial Instruments
Accounting
IAS 39 Ind AS
109
Financial
Instruments
AS 31 Financial Instruments
Presentation
IAS 32 Ind AS
32
Financial
Instruments –
Presentation
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

88. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
AS 32 Financial
Instruments-
Disclosures
IFRS 7 Ind AS
107
Financial Instruments:
Disclosures
- - IFRS 2 Ind AS
102
Share based payment
- - IAS 29 Ind AS
29
Financial Reporting in
hyperinflationary
Economies
- - IFRS 6 Ind AS
106
Exploration for and
Evaluation of Mineral
Resources
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

89. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
- - IAS 26 Ind AS
26
Accounting and Reporting
of Retirement Benefit
Plans*
- - IAS 41 Ind AS
41
Agriculture
- - IFR S4 Ind AS
104
Insurance Contracts
- - IFRS 1 Ind AS
101
First Time Adoption
of Indian Accounting
Standards
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

90. AS
No.
Indian Standard
IFRS
No.
Ind-AS
No.
IFRS
- - IFRS
12
Ind AS
114
Regulatory Deferral
Accounts
- - IFRS
13
Ind AS
113
Fair Value
Measurement
Comparative Summary of Indian Accounting Standards,
IFRS & Present AS

91. Ind AS 1: Presentation of Financial Statement
In India, Presentation of Financial Statement is always governed by
Companies Act instead of Accounting Standard.
Earlier there is Schedule VI, now Schedule III is there for Presentation of
Financial Statement as per Accounting Standard.
Recently Ministry of Corporate affairs had issued Format of Financial
Statement as per Ind AS. (As per notification dated 06/04/2016).

92. Financial Statement comprises of:-
(a) Balance Sheet as at the end of the period;
(b) Statement of Profit and Loss for the period;
(c) Cash Flow Statement for the period; and
(d) Notes.
Financial
Statement
Balance
Sheet
Statement of
Profit and Loss
Cash Flow
Statement
Notes

93. Comparative Information
1. Should have comparatives with all the amounts reported in current period
financial statements
2. When Change in Accounting policy retrospectively, Retrospective
restatement / Reclassifies items
Present 3 balance sheets and two statements
 Current period end
 Previous period end
 Beginning of earliest comparative period end
3. When the entity changes the presentation or classification of items in its
financial statements, the entity shall reclassify comparative amounts unless
reclassification is impracticable and disclose Nature, amount and reasons
of Reclassification in Notes.
4. When impossible to reclassify, disclose the reason for not reclassifying the
amounts and Nature of the adjustments that would have been made if the
amounts had been reclassified.

94. Balance Sheet
 Balance sheet include Statement of change in equity which is presented as a
part of the Balance Sheet.
Statement of Profit and Loss
 Statement of Profit and Loss include other comprehensive income
which is presented as part of a single statement of profit and loss.
 There is no concept of extraordinary item in Ind AS.
Notes
 Notes comprises of summary of accounting policies and other
explanatory information about items of financial statement.

95. • Reason: Definition of Income
• Enhancement of an Asset or reduction of a Liability (other
than transactions with owners)
• Accordingly, any increase in asset, e.g., upward
revaluation of asset, is an ‘income’ even though not
realised
• Earlier, such increase transferred directly to Revaluation
Reserve in Balance Sheet
• Now, transferred to Reserve through OCI
Ind AS use ‘Other Comprehensive Income’ (OCI) concept

96. Statement of profit and loss is, therefore, divided into two
sections:
 Profit or loss section:
Containing items of revenue/income and expenses which are
hitherto normally included in the statement of profit and loss
with a few exceptions (e.g. actuarial gains & losses on
measurement of defined benefit obligations now not included)
Other comprehensive income comprises items of income and
expense (including reclassification adjustments) that are not
recognised in profit or loss as required by other Ind ASs.
OCI concept (Contd.)

97. OCI section contains generally unrealised gains and
losses arising from re-measurements of assets &
liabilities
On realisation, with few exceptions, gains & losses
are recognised in profit or loss section
Exceptions:
Sale of revalued assets
Equity Instruments opted to be measured at Fair
Value through OCI
97
OCI concept (Contd.)

98. COMPONENTS OF OCI
The components of other comprehensive income include:
(a) changes in revaluation surplus (see Ind AS 16 Property, Plant and Equipment and Ind AS 38
Intangible Assets);
(b) actuarial gains and losses on defined benefit plans (see Ind AS 19 Employee Benefits);
(c) gains and losses arising from translating the financial statements of a foreign operation (see
Ind AS 21 The Effects of Changes in Foreign Exchange Rates);
(d) gains and losses on remeasuring available-for-sale financial assets (see Ind AS 39 Financial
Instruments: Recognition and Measurement);
(e) the effective portion of gains and losses on hedging instruments in a cash flow hedge (see
Ind AS 39 Financial Instruments: Recognition and Measurement).
Reclassification adjustments are amounts reclassified to profit or loss in the current
period that were recognised in other comprehensive income in the current or previous
periods.

99. For MAT purposes ‘profit or loss’ as per that section may
be considered for the sake of simplicity
Since OCI mostly comprises unrealised gains &
losses, may be ignored
profit or loss section also includes certain unrealised
gains and losses on operating items, e.g., fair value
changes in held for trading investments; should be
tax neutral, i.e., if unrealised gains included for MAT
then unrealised losses also should be allowed as
deduction
99
Implication : OCI concept (Contd.)

100. FORMAT OF FINANCIAL STATEMENT AS PER Ind AS
ENCLOSED
Double click on
Format
FORMAT NOTIFIED BY MCA ON
06.04.2016

101. Example- Accounts of SECL in New Format
Double click on
Format
Accounts of SECL - Old Format
Accounts of SECL - New Format

102. Compliance with Ind ASs
 Financial statements complying with Ind ASs shall make an explicit
and unreserved statement of such compliance in the notes.
 Financial statements shall not be described as complying with Ind ASs
unless they comply with all the requirements of applicable Ind ASs.

103. THANK YOU