Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2020 dated 24 July 2020. The rules are effective from the date of publication in the Official Gazette of India i.e. 24 July 2020.
All amendments are effective for periods beginning 1 April 2020 or later. However, amendments relating to Ind AS 116, Leases, can be applied for financial year beginning 1 April 2019 or later if the financial statements for that period have not yet been authorized for issue. Accordingly, the amendments apply to the financial results for the quarter ended 30 June 2020, where such financial results have not yet been declared.
| Standard | Summary of amendments |
| Ind AS 1, Presentation of Financial Statements and Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors | Refined definition of term ‘material’ and related clarifications. Consequential amendments to other standards basis refined definition of material. |
| Ind AS 103, Business Combinations | Revised definition of a ‘business’.Introduction of an optional concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. Additional guidance on how to assess whether an acquired process is substantive, if the acquired set of activities and assets does not have outputs and if it does have outputs. |
| Ind AS 107, Financial Instruments: Disclosures | Additional disclosures pertaining to interest rate benchmark reforms. |
| Ind AS 109, Financial Instruments | Modification to some specific hedge accounting requirements to provide relief to the potential effects of uncertainty caused by the interest rate benchmark (IBOR) reform. |
| Ind AS 116, Leases | Practical expedient which permits lessees not to account for COVID-19 related rent concessions as a lease modification. |
Ind AS 103, Business Combinations (Ind AS 103)
The definition of “business” and related guidance included in the standard for the purposes of identifying where an acquisition is a business, to apply business combination accounting, has been amended.
| Previous definition of business | The amended definition of business |
| “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants”. | “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generate other income from ordinary activities”. |
Key change is that the definition of business is narrowed to focus on providing goods or services to customers, generating investment income or generate other income from ordinary activities instead of the earlier wider focus of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants.
The amendment also provides that an entity can apply a ‘concentration test’ that, if met, eliminates the need for further assessment. Under this optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.
The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions across all industries, particularly real estate, pharmaceutical, and oil and gas.
Ind AS 107, Financial Instruments: Disclosures (Ind AS 107)
Ind AS 107 has been amended to require disclosure of the nominal amount of hedging instruments to which the reliefs are applied, any significant assumptions or judgements made in applying the reliefs, and qualitative disclosures about how the entity is impacted by IBOR reform and is managing the transition process.
The disclosures are applicable to companies applying exceptions in respect of interest rate benchmark reforms as inserted in Ind AS 109, Financial Instruments.
Ind AS 109, Financial Instruments (Ind AS 109)
Hedge accounting requirements included in Ind AS 109 have been amended to provide temporary relief to financial statement preparers from the effects of the forthcoming IBOR (Interbank Offered Rate, also called interest rate benchmark) reform. )
The amendments provide as follows:
The amendments shall be applied to all hedging relationships directly affected by interest rate benchmark reform. Exceptions to hedge accounting are as specified in the amendments. Companies will have to continue to apply all other hedge accounting requirements to hedging relationships directly affected by interest rate benchmark reform.
Ind AS 116, Leases (Ind AS 116)
Ind AS 116 has been amended to provide limited relief to lessees in respect of rent concessions arising due to Covid-19 pandemic. No relief has been allowed to the lessors.
The amendments provide a practical expedient that lessees may elect to not treat any rent concessions, provided by lessors as a direct consequence of Covid-19 pandemic, as lease modifications. However, to be eligible for this relief,
The revised consideration for the lease should be less than or equal to the lease consideration immediately before the change,
- the rent concession should be for a period that does not extend beyond 30 June 2021 (for example, lease rents are reduced for a period upto 30 June 2021 and increased for periods thereafter), and
- there is no substantial modification to the other terms and conditions of the lease. This means that such rent concessions can be taken by the lessees directly to the statement of profit and loss. However, the lessees will have to continue to account for interest expense and depreciation on right-of-use assets as before. Lessees are required to apply this practically expedient retrospectively, recognising the cumulative effect of initially applying the amendment as an adjustment to the opening balance of retained earnings. However, in the Indian context, since the impact of Covid-19 was felt on business only in the later part of March 2020, the cumulative impact may not be significant.
Lessees are also required to provide disclosures about application of the practical expedient and its impact on profit or loss.
Ind AS 1, Presentation of Financial Statements (Ind AS 1) and Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)
The definition of “materiality” and related guidance has been amended in Ind AS 1.
| Previous definition of materiality | The amended definition of materiality |
| “Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor”. | “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity”. |
The amendments clarify that the information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information.
Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)
The existing amendment of materiality has been deleted from Ind AS 8. Instead, now a reference has
been made to the amended definition of materiality in Ind AS 1.
Ind AS 10, Events after the Reporting Period (Ind AS 10)
Only consequential amendment made based on amendments in the definition of materiality in Ind AS 1.
Ind AS 34, Interim Financial Reporting (Ind AS 34)
Only consequential amendment made based on amendments in the definition of materiality in Ind AS 1.
Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37)
Only consequential amendment made to the requirement for disclosure of a restructuring announced or implemented after the reporting period, based on amendments in the definition of materiality in Ind AS 1.
For Detail study material refer link:- http://www.mca.gov.in/Ministry/pdf/Rule_24072020.pdf
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