Know Your Rights!!

While reading through the annual report of one of the listed company (TRF Ltd – A Tata Enterprise) in India my attention was drawn to a small paragraph in the ANNEXURE TO NOTICE - Explanatory Statements pursuant to Section 173(2) of the Companies Act, 1956. Although, the paragraph was concise but it provided enormous information on the company’s profitability. Reasons for loss or inadequate profits: The financial mis-statements were noticed in a particular division for earlier years. This was done by a group of officers who were discharged from the Company and Company has initiated necessary legal proceedings against them. A new team, who had taken charge of the division had reviewed the costs of the projects under execution and corrected the same where ever necessary. Consequently, the Company had to book losses in the division bringing down the overall profits of the Company. This paragraph quite evidently mentions “mis-statements” by group of officers in a division. The compan...

The Ministry of Corporate Affairs (MCA as it is called generally) has given the accounting fraternity 2 notifications just before the new year's eve as a welcome gift. The notifications deal with AS - 11 relating to "The Effects of Changes in Foreign Exchange rates". http://www.mca.gov.in/Ministry/notification/pdf/Companies_Amendent_AS_Rules_2011.pdf In the first notification (link above), two changes are introduced: 1. The Companies (Accounting Standards) Rules 2006 will be rechristened as the "Companies (Accounting Standards) Amendment Rules, 2011" and; 2. The foreign exchange gains/ losses can now be capitalised till 2020 (31-3-2020). Earlier the capitalisation was allowed till 31-3-2012. http://www.mca.gov.in/Ministry/notification/pdf/Companies_Second_Amendent_AS_Rules_2011.pdf The notification now called "The Companies (Accounting Standards) (Second Amendment) Rules, 2011 inserted a new paragraph in AS 11. The paragraph 46A is reproduced as under:...

Because investors rely on accounting information to make their investment decisions, it is important for accounting information to present items according to their substance, and not merely their legal form. Some financial instruments have the legal form of equity but are in substance, liabilities. Under IFRS the issuer should classify the instrument, or its component parts, as a financial liability or equity in accordance with the ‘substance’ of contractual arrangement on initial recognition, and the definitions of financial liability and an equity instrument . The classification is made at the date of issue and is not revised later. The critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation on one party to the financial instrument (the issuer) either to deliver cash or another financial asset to the other party (the holder) or to exchange another financial instrument with the holder under potentially unf...

This post is abstracts of a chapter from a book What the CEO wants you to know? Understanding business in today’s times has been a myth and this book ensures that for being a successful businessperson you know what it takes to conduct a business. The fundamentals of business understanding stands true in every environment and economy. Business acumen requires understanding the building blocks of money making. Think back to how you learned physics or chemistry. First you had to understand the parts of an atom: electrons, protons and neutrons. Once you understood the parts and how they interact, you were ready to develop your knowledge. It’s the same in business. When 2 business people talk, whether or not they are in the same industry, whether or not they talk openly, they always try to gauge: Is her business making money? How is her business making money? Business people have an insatiable desire to cut through the complexity to the fundamental building blocks of money making. Mon...

The transaction price (i.e. consideration given towards assets and consideration received towards liabilities) is normally the best evidence of the fair value of a financial instrument at initial recognition. An exception to this general rule exists where the fair value of an instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on valuation technique whose variables include only data from observable markets. Where there is strong, market-based evidence of the fair value of the financial instrument, the instrument is initially recognized at the fair value and an immediate day 1 profit and loss may arise. Using unobservable inputs to calculate a fair value different to the transaction price on day 1 involves a high degree of subjectivity and therefore this cannot be used as fair value on initial recognition of a financial instrument. In such a situation, the instrument is in...

As a part of the disclosure requirements for fair value measurements, an entity should classify the financial instruments measured at fair value using a ‘fair value hierarchy’ that reflects the significance of the inputs used in making the measurements. IFRS 7 consist of fair value hierarchy in its required disclosures to increase the comparability and consistency. A new standard “Fair Value Measurements” by IASB is expected to come by April 2011 on the lines of Statement No. 157 or ASC 820 of the US GAAP as a part of joint project of FASB and IASB. As per existing IFRS 7, the fair value hierarchy has three different levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available, except as follows: In some situ...

http://mca.gov.in/Ministry/pdf/Schedule_VI_28feb2011.pdf The Ministry of Corporate Affairs (MCA) has issued a revised Schedule VI to the Companies Act 1956 on the 28th February 2011. This revised Schedule VI has nothing to do with the converged Indian Accounting Standards (IND AS) as notified by the Ministry earlier. The Schedule has been framed been framed as per the existing non-converged Indian Accounting Standards (AS) notified under the Companies (Accounting Standards) Rules, 2006. This Schedule will apply to all the companies registered with ROC for the financial statements to be prepared for the financial year 2010 - 2011 and onwards. The highlights of the Revised Schedule VI is as follows: 1. Applies to all companies following non-converged Indian Accounting Standards 2. No possibility of conflict between Accounting Standard and Schedule VI as on modification of accounting standards prescribed under the companies act, Schedule VI would stand modified accordin...

http://economictimes.indiatimes.com/news/economy/finance/govt-deferred-ifrs-implementation/articleshow/7578251.cms A news article in Economic Times - 26 February 2011 which states that as per the press note of MCA dated 25-02-2011 the implementation of IFRS will miss the deadline of 1-April-2011 but is sure to come some day......;). Hopeful still coz the headline reads deferred and not cancelled!!!! The government has deferred the implementation of international financial reporting standards , acknowledging industry demand to extend the April 1 deadline to remove ambiguities on taxation issues. The decision has come as a relief for over 300 large companies, which were to submit their financials as per the global accounting standards, commonly called IFRS. The ministry of corporate affairs on Friday said it remained committed to the transition as it notified 35 accounting standards that are in line with IFRS. “After detailed consultations, it was felt necessary that industry should be g...

http://pib.nic.in/newsite/erelease.aspx?relid=70248 Finally, we have a press note specifiying that the Converged Indian Accounting Standards (IND AS) are notified by MCA dated 25-February 2011. The IND ASs (35 standards notified) are converged with International Financial Reporting Standards (IFRS). The verbatim script of the press note as released by the MCA is as under: QUOTE Reliable, consistent and uniform financial reporting is important part of good corporate governance practices worldwide in order to enhance the credibility of the businesses in the eyes of investors to take informed investment decisions. In pursuance of G-20 commitment given by India, the process of convergence of Indian Accounting Standards with IFRS has been carried out in Ministry of Corporate Affairs through wide ranging consultative exercise with all the stakeholders. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notif...

Source: http://pib.nic.in/newsite/erelease.aspx?relid=69867 Ministry of Corporate Affairs 17-February, 2011 16:56 IST Convergence of Indian Accounting Standards with International Financial Reporting Standards Availability of essential financial information about a company to its shareholders and other stakeholders in accordance with internationally accepted financial norms is considered as an integral and important part of good corporate governance. To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the Government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning with April, 2011 in accordance with the roadmap suggested by Core Group and Technical Groups set up by the Government. India's commitment to the policy of 'convergence' of Indian Accounting Standards with IFRS would allow it to consider local economic conditions and environment whil...