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Issue 25 | August 2018

The Central Board of Direct Taxes (CBDT) has published amendment rules in relation to Form 3CD on 20 July 2018. These amendment rules have made substantial changes to Form 3CD and have added new clauses as well as revised certain existing clauses. The new clauses relate to General Anti-Avoidance Rules (GAAR), thin capitalisation, Country-by-Country reporting, Goods and Services Tax (GST), etc. On 17 August 2018, CBDT deferred application of clauses relating to GAAR and GST due to certain implementation challenges.

Recently, on 22 August 2018, the Institute of Chartered Accountants of India (ICAI) released the ‘Implementation Guide on the amendments made to Form 3CD’. This implementation guide provides detailed guidance and is expected to help taxpayers and tax auditors to implement required disclosures. In this issue of Accounting and Auditing Update (AAU), we summarise key changes and implementation challenges with regard to the new and amended clauses. It also highlights the areas where the implementation guide of ICAI provides guidance that may help overcome the implementation challenges.

Under Ind AS 115, Revenue from Contracts with Customers, when an entity satisfies a performance obligation but does not have an unconditional right to consideration, an entity should recognise a contract asset. The standard setters have made a distinction between a contract asset and a receivable because doing so provides users of financial statements with relevant information about the risks associated with an entity's rights in a contract. That is because although both would be subject to credit risk, a contract asset is also subject to other risks, for example, performance risk. Additionally, while presenting financial statements under Ind AS, an entity needs to classify its assets into financial or non-financial assets category. Our article on this topic highlights the considerations to be assessed while classifying contract assets as financial or non-financial assets in the balance sheet.

Financial institutions may adjust contractual terms of loans advanced to borrowers for various purposes. Under Ind AS 109, Financial Instruments, when there is a change in the terms of financial assets due to renegotiation or modification of the contractual cash flows of a financial asset then the financial institution needs to assess whether such a financial asset needs to be derecognised. We have explained the factors to be considered for determining when modification of financial assets would lead to derecognition and the accounting for the same with the help of an illustration.

Entities may have an investment from a private equity or venture capital investors. Under Ind AS, whenever a new investor invests in an existing entity, it is a trigger to evaluate whether control of the entity has changed hands from its previous owners to new investors. One of the criteria to be evaluated for demonstrating control is the nature of rights with the new shareholders. In many situations, a private equity investor may take a minority stake but the contractual rights attached to that stake may impact the ability of the previous owners to demonstrate control over the entity. Our article on funding by private equity investor describes key considerations that should be assessed for the rights granted to a private equity or venture capital investor for evaluating if there is a change in control.

As is the case each month, we also cover a regular round-up of some recent regulatory updates in India.

We would be delighted to receive feedback/suggestions from you on the topics we should cover in the forthcoming edition of AAU.