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Thread: 22 - Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

  1. #11
    IND-AS
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    Thumbs up Materiality of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Materiality of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Materiality

    23. In deciding how to recognise, measure, classify, or disc lose an item for interim financial reporting purposes, materiality shall be assessed in relation to the interim period financial data. In making assessments of materiality, it shall be recognised that interim measurements may rely on estimates to a greater extent than measurements of annual financial data.

    24. Ind AS 1 and Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors define an item as material if its omission or misstatement could influence the economic decisions of users of the financial statements. Ind AS 1 requires separate disclosure of material items, including (for example)
    discontinued operations, and Ind AS 8 requires disclosure of changes in accounting estimates, errors, and changes in accounting policies. The two Standards do not contain quantified guidance as to materiality.

    25. While judgement is always required in assessing materiality, this Standard bases the recognition and disclosure decision on data for the interim period by itself for reasons of understandability of the interim figures. Thus, for example, unusual items, changes in accounting policies or estimates, and errors are recognised and disclosed on the basis of materiality in relation to interim period data to avoid misleading inferences that might result from non-disclosure. The overriding goal is to ensure that an interim financial report includes all information that is relevant to understanding an entity’s financial position and performance during the interim period.


  2. #12
    IND-AS
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    Thumbs up Disclosure in annual financial statements of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Disclosure in annual financial statements of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Disclosure in annual financial statements

    26. If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year but a separate financial report is not published for that final interim period, the nature and amount of that change in estimate shall be disclosed in a note to the annual financial statements for that financial year.

    27. Ind AS 8 requires disclosure of the nature and (if practicable) the amount of a change in estimate that either has a material effect in the current period or is expected to have a material effect in subsequent periods. Paragraph 16(d) of this Standard requires similar disclosure in an interim financial report. Examples include changes in estimate in the final interim period relating to inventory writedowns, restructurings, or impairment losses that were reported in an earlier interim period of the financial year. The disclosure required by the preceding paragraph is consistent with the Ind AS 8 requirement and is intended to be narrow in scope—relating only to the change in estimate. An entity is not required to include additional interim period financial information in its annual financial statements.


  3. #13
    IND-AS
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    Thumbs up Recognition and measurement of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Recognition and measurement of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting



    Recognition and measurement

    Same accounting policies as annual


    28. An entity shall apply the same accounting policies in its interim financial statements as are applied in its annual financial statements, except for accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements. However, the frequency of an entity’s reporting (annual, half - yearly, or quarterly) shall not affect the measurement of its annual results. To achieve that objective, measurements for interim reporting purposes shall be made on a year-to-date basis.

    29. Requiring that an entity apply the same accounting policies in its interim financial statements as in its annual statements may seem to suggest that interim period measurements are made as if each interim period stands alone as an independent reporting period. However, by providing that the frequency of an entity’s reporting shall not affect the measurement of its annual results, paragraph 28 acknowledges that an interim period is a part of a larger financial year. Year-to-date measurements may involve changes in estimates of amounts reported in prior interim periods of the current financial year. But the principles for recognising assets, liabilities, income, and expenses for interim periods are the same as in annual financial statements.

    30. To illustrate:


    (a) the principles for recognising and measuring losses from inventory write - downs, restructurings, or impairments in an interim period are the same as those that an entity would follow if it prepared only annual financial statements. However, if such items are recognised and measured in one interim period and the estimate changes in a subsequent interim period of that financial year, the original estimate is changed in the subsequent interim period either by accrual of an additional amount of loss or by reversal of the previously recognised amount;

    (b) a cost that does not meet the definition of an asset at the end of an interim period is not deferred in the balance sheet either to await future information as to whether it has met the definition of an asset or to smooth earnings over interim periods within a financial year; and

    (c) income tax expense is recognised in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year. Amounts accrued for income tax expense in one interim period may have to be adjusted in a subsequent interim period of that financial year if the estimate of the annual income tax rate changes.

    31. Under the Framework for the Preparation and Presentation of Financial Statements (the Framework) issued by the Institute of Chartered Accountants of India, recognition is the ‘process of incorporating in the balance sheet or statement of profit and loss an item that meets the definition of an element and satisfies the criteria for recognition’. The definitions of assets, liabilities, income, and expenses are fundamental to recognition, at the end of both annual and interim financial reporting periods.

    32. For assets, the same tests of future economic benefits apply at interim dates and at the end of an entity’s financial year. Costs that, by their nature, would not qualify as assets at financial year-end would not qualify at interim dates either.

    Similarly, a liability at the end of an interim reporting period must represent an existing obligation at that date, just as it must at the end of an annual reporting period.

    33. An essential characteristic of income (revenue) and expenses is that the related inflows and outflows of assets and liabilities have already taken place. If those inflows or outflows have taken place, the related revenue and expense are recognised; otherwise they are not recognised. The Framework says that ‘expenses are recognised in the statement of profit and loss when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably… [The] Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.’

    34. In measuring the assets, liabilities, income, expenses, and cash flows reported in its financial statements, an entity that reports only annually is able to take into account information that becomes available throughout the financial year. Its measurements are, in effect, on a year -to-date basis.

    35. An entity that reports half-yearly uses information available by mid -year or shortly thereafter in making the measurements in its financial statements for the first six - month period and information available by year -end or shortly thereafter for the twelve-month period. The twelve-month measurements will reflect possible changes in estimates of amounts reported for the first six -month period. The amounts reported in the interim financial report for the first six-month period are not retrospectively adjusted. Paragraphs 16(d) and 26 require, however, that the nature and amount of any significant changes in estimates be disclosed.

    36. An entity that reports more frequently than half -yearly measures income and expenses on a year-to-date basis for each interim period using information available when each set of financial statements is being prepared. Amounts of income and expenses reported in the current interim period will reflect any changes in estimates of amounts reported in prior interim periods of the financial year. The amounts reported in prior interim periods are not retrospectively adjusted. Paragraphs 16(d) and 26 require, however, that the nature and amount of any significant changes in estimates be disclosed.


  4. #14
    IND-AS
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    Thumbs up Revenues received seasonally, cyclically, or occasionally of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Revenues received seasonally, cyclically, or occasionally of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Revenues received seasonally, cyclically, or occasionally

    37. Revenues that are received seasonally, cyclically, or occasionally within a financial year shall not be anticipated or deferred as of an interim date if anticipation or deferral would not be appropriate at the end of the entity’s financial year.

    38. Examples include dividend revenue, royalties, and government grants. Additionally, some entities consistently earn more revenues in certain interim periods of a financial year than in other interim periods, for example, seasonal revenues of retailers. Such revenues are recognised when they occur.



  5. #15
    IND-AS
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    Thumbs up Costs incurred unevenly during the financial year of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Costs incurred unevenly during the financial year of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Costs incurred unevenly during the financial year

    39. Costs that are incurred unevenly during an entity’s financial year shall be anticipated or deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year.

  6. #16
    IND-AS
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    Thumbs up Applying the recognition and measurement principles of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Applying the recognition and measurement principles of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Applying the recognition and measurement principles

    40. Illustration B of Appendix B provides examples of applying the general recognition and measurement principles set out in 28 –39.

  7. #17
    IND-AS
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    Thumbs up Use of estimates of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Use of estimates of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Use of estimates

    41. The measurement procedures to be followed in an interim financial report shall be designed to ensure that the resulting information is reliable and that all material financial information that is relevant to an understanding of the financial position or performance of the entity is appropriately disclosed. While measurements in both annual and interim financial reports are often based on reasonable estimates, the preparation of interim financial reports generally will require a greater use of estimation methods than annual financial reports.

    42. Illustration C of Appendix B provides examples of the use of estimates in interim periods.



  8. #18
    IND-AS
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    Thumbs up Restatement of previously reported interim periods of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Restatement of previously reported interim periods of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Restatement of previously reported interim periods

    43. A change in accounting policy, other than one for which the transition is specified by a new Indian Accounting Standard, shall be reflected by:

    (a) restating the financial statements of prior interim periods of the current financial year and the comparable interim periods of any prior financial years that will be restated in the annual financial statements in accordance with Ind AS 8; or
    (b) when it is impracticable to determine the cumulative effect at the beginning of the financial year of applying a new accounting policy to all prior periods, adjusting the financial statements of prior interim periods of the current financial year, and comparable interim periods of prior financial years to apply the new accounting policy prospectively from the earliest date practicable.

    44. One objective of the preceding principle is to ensure that a single accounting policy is applied to a particular class of transactions throughout an entire financial year. Under Ind AS 8, a change in accounting policy is reflected by retrospective application, with restatement of prior period financial data as far back as is practicable. However, if the cumulative amount of the adjustment relating to prior financial years is impracticable to determine, then under Ind AS 8 the new policy is applied prospectively from the earliest date practicable. The effect of the principle in paragraph 43 is to require that within the current financial year any change in accounting policy is applied either retrospectively or, i f that is not practicable, prospectively, from no later than the beginning of the financial year.

    45. To allow accounting changes to be reflected as of an interim date within the financial year would allow two differing accounting policies to be applied to a particular class of transactions within a single financial year. The result would be interim allocation difficulties, obscured operating results, and complicated analysis and understandability of interim period information.


  9. #19
    IND-AS
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    Thumbs up Appendix - A of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Appendix - A of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Appendix - A


    Interim Financial Reporting and Impairment

    This appendix is an integral part of Indian Accounting Standard (Ind AS) 34.

    Background

    1. An entity is required to assess goodwill for impairment at the end of each reporting period, to assess investments in equity instruments and in financial assets carried at cost for impairment at the end of each reporting period and, if required, to recognise an impairment loss at that date in accordance with Ind AS 36 and Ind AS 39. However, at the end of a subsequent reporting period, conditions may have so changed that the impairment loss would have been reduced or avoided had the impairment assessment been made only at that date. This appendix provides guidance on whether such impairment losses should ever be reversed.

    2. The appendix addresses the interaction between the requirements of Ind AS 34 and the recognition of impairment losses on goodwill in Ind AS 36 and certain financial assets in Ind AS 39, and the effect of that interaction on subsequent interim and annual financial statements.

    Issue

    3. Ind AS 34 paragraph 28 requires an entity to apply the same accounting policies in its interim financial statements as are applied in its annual financial statements. It also states that ‘the frequency of an entity’s reporting (annual, halfyearly, or quarterly) shall not affect the measurement of its annual results. To achieve that objective, measurements for interim reporting purposes shall be made on a year-to-date basis.’

    4. Ind AS 36 paragraph 124 states that ‘An impairment loss recognised for goodwill shall not be reversed in a subsequent period.’

    5. Ind AS 39 paragraph 69 states that ‘Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit or loss.’

    6. Ind AS 39 paragraph 66 requires that impairment losses for financial assets carried at cost (such as an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured) should not be reversed.

    7. The appendix addresses the following issue:

    Should an entity reverse impairment losses recognised in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost if a loss would not have been recognised, or a smaller loss would have been recognised, had an impairment assessment been made only at the end of a subsequent reporting period?

    Accounting Principle

    8. An entity shall not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost.

    9. An entity shall not extend this accounting principle by analogy to other areas of potential conflict between Ind AS 34 and other Indian Accounting Standards.


  10. #20
    IND-AS
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    Thumbs up Appendix - B -Illustrations of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25) - Interim Financial Reporting

    Appendix - B -Illustrations of Indian Accounting Standard (Ind AS) 34 - Earlier Accounting standard - (25)

    Interim Financial Reporting


    Appendix - B

    Illustrations


    Illustration - A

    Illustration of periods required to be presented


    This illustration, which accompanies, but is not part of, Ind AS 34, provides examples to illustrate application of the principle in paragraph 20.


    For Full Detail You can download this from PDF Format

    Attached Files Attached Files
    Last edited by IND-AS; 08-02-2011 at 06:17 PM.

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