KPMG in India is pleased to present Voices on Reporting – a monthly series of knowledge sharing calls to discuss current and emerging issues relating to financial reporting.
On 27 August 2014, we covered two topics:
(1) IFRS 9 (2014), Financial Instruments – an overview
(2) Approval process for related party transactions under the Companies Act, 2013 and the Equity Listing Agreement; and highlighted implementation challenges that the corporate India is expected to face.
IFRS 9 (2014)
On 24 July 2014, the International Accounting Standards Board (IASB) issued the completed version of IFRS 9, Financial Instruments (IFRS 9 (2014)), which substantially concluded the challenging project launched in 2008 to replace IAS 39, Financial Instruments: Recognition and Measurement.
IFRS 9 (2014) is a single and integrated standard. The IASB had divided the project to replace IAS 39 into three main phases namely a) Phase I: classification and measurement of financial assets and financial liabilities b) Phase II: impairment methodology, and c) Phase III: hedge accounting. To implement each of these phases, the IASB had issued various versions of IFRS 9 in 2009, 2010, and 2013. However, the final version i.e. IFRS 9 (2014) consolidates the previous three versions of IFRS 9 to replace IAS 39 in entirety.
The financial instruments requirements in IAS 39 were considered complex by many preparers of financial statements, their auditors and users of financial statements.
Under IFRS 9 (2014), classification of financial assets is based on an entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. For the classification and measurement of financial liabilities, the new standard retains almost all of the existing requirements from IAS 39.
IFRS 9 (2014) moves away from the ‘incurred loss’ model to the ‘expected credit loss’ model for providing impairment. The new model does not require occurrence of the loss event to recognise an allowance for impairment loss. The new hedge accounting requirements seek to deliver a more principles-based approach that aligns hedge accounting more closely with risk management.
We provided an overview on IFRS 9 (2014) in the call.
Related party transactions
The Companies Act, 2013 (the Act) was largely operationalised with effect from 1 April 2014. However, there are a number of implementation issues relating to related party transactions.
The requirements for related party transactions are different in the Securities and Exchange Board of India’s Equity Listing Agreement guidelines (SEBI guidelines). Both, the Act as well as SEBI guidelines require companies to adhere to stringent compliances surrounding the related party transactions.
Recently on 14 August 2014, the Ministry of Corporate Affairs (MCA) has amended the Companies (Meetings of Board and its Powers) Rules, 2014 (Rules). The amended Rules have removed the paid- up share capital criterion and have revised transaction level thresholds i.e. included an absolute monetary limit for certain transactions, beyond which the related party transactions would require shareholder's approval.
In our last call on 27 August 2014 we discussed the approval process for related party transactions under the Companies Act, 2013 and the SEBI guidelines and highlighted implementation challenges that corporate India is expected to face.
Click here to view the presentation and listen to the recording.