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Issue 24 | July 2018

In this issue of the Accounting and Auditing Update (AAU), we discuss the key proposals of the Discussion Paper (DP) – Financial Instruments with Characteristics of Equity (FICE) recently published by International Accounting Standards Board (IASB). This DP seeks to improve information about financial instruments issued by entities. Currently, IAS 32, Financial Instruments: Presentation (Ind AS 32) sets out how an issuer distinguishes between a financial liability and equity. This standard works well for many simpler financial instruments. However, the classification requirements of IAS 32 results in significant practice issues when applied to complex financial instruments e.g. those with characteristics of equity. Therefore, the DP lays down clearer classification principles that are meant to help issuers distinguish between liability and equity.

The publication also carries an article on accounting for change in control or significant influence in an investee. Ind AS provides detailed guidance to account for changes in loss of control or new acquisitions. The article explains the accounting requirements under Ind AS when there is a loss of control in a subsidiary and step acquisition in an associate leading to control with the help an illustration.

The Expert Advisory Committee of the Institute of Chartered Accountants has considered the issue on the classification of temporary income in relation to a construction contract. The article on this topic summarises the guidance that is available under Indian GAAP and also compares it with the Ind AS. Additionally, the article highlights the guidance under Ind AS 115, Revenue from Contracts with Customers in relation to the financing component.

Our publication also carries a regular synopsis of some recent regulatory updates.