Know Your Rights!!

An Appeal Dear Companion, This is to bring to your kind notice that my nomination for the Central Council Elections have been accepted.  The elections are on 7 th and 8 th December, 2012 in Ahmedabad, Pune and Mumbai and on 8 th December, 2012 in other parts of the region. I had begun my journey in the year 2000 which forever changed the way I’d perceived access to my fellow professionals. My journey is far, far from finished! I need your support and able guidance to finish what I have started. My Profile Chartered Accountant by qualification; Teacher by profession; Author by choice.. A qualified Chartered Accountant, Company Secretary, LL.B and Masters in Finance from University of Frankfurt, Germany., now I’m pursuing Doctorate of Philosophy (PhD) from Central University of Gujarat. In my professional path; I come from leading multinational banks (Standard Chartered Bank & Societe Generale Bank) at senior positions in Mumbai and in Spain...

In the Part 1 and Part 2 of the ‘Ten Minutes’ series of New Schedule VI an overview of the Balance sheet and Profit and Loss account changes were dealt with. In this last Part I’d like to touch upon my perspective of certain practical issues in putting Schedule VI in place. Issue 1: The aggregate amount of both long term and shot term loans guaranteed by directors or “others” under each head is to be disclosed. Who does this “others” signify? Solution: The words “others” would mean any person or entity other than a director. It is therefore, not restricted to mean only promoters or related parties. In the normal course, a person or entity will generally guarantee a loan of the company only if it is associated with the company in some manner. Issue 2: A liability is to be classified as current if the company has an unconditional right to defer its settlement for at least 12 months after the reporting date. How will a 5-year loan which the company has taken is r...

New Schedule VI – Profit & Loss Account The old version of Schedule VI did not have any format for Profit and Loss account. The New Schedule VI lays down a format for the presentation of P& L account. This format of P& L does not list any appropriation item on its face. Further, the New Schedule VI format prescribes that below the line adjustments to be presented under “Reserves and Surplus” in the balance sheet. The classification of expenses is based on their nature and not on their function. What is classification of expenses based on nature or function? In nature based classification of expenses an entity aggregates expenses within profit or loss according to their nature, for example; purchases of materials, transport costs, employee benefits, depreciation, marketing costs, etc and the expenses are not reallocated among functions within the entity. The main advantage of using this “nature of expense” method is that it is simple to apply because allocati...

The New Schedule VI introduces many new concepts and disclosure requirements. It also does away with several statutory disclosure requirements. The practical application of the New Schedule VI throws up several questions, the answers to which may not be straight forward. Through the medium of the blog I intend to set out an overview of the key changes and implications, critical issues and some perspectives thereon. In three parts I will first list down some important changes related to the Balance Sheet, second part will cover key changes to Profit and Loss account and the last part will be some practical issues and perspectives. Ten Important Changes to the Balance Sheet –  New Schedule VI way 1.         The new schedule VI prescribes a  vertical format  for presentation of balance sheet. Thus, a company will not have an option to use horizontal format for presentation of financial statements. 2.          Th...

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...