The new standard on leases, Indian Accounting Standard (Ind AS) 116, Leases has been made applicable to companies following Ind AS framework from 1 April 2019. Lease definition is the new on/off balance sheet test for lessees and a key area of judgement in applying the standard. It brings a paramount shift in accounting of leases by lessees. Lessees will recognise most leases on balance sheet. Unlike Ind AS 17, Leases (erstwhile standard on leases), Ind AS 116 provides detailed guidance on when a capacity portion of a larger asset can be classified as an identified asset and assessment of substantive substitution rights held by a lessor. Recently, the IFRS Interpretations Committee (IFRIC) has also issued clarifications through its agenda decisions with respect to determination of incremental borrowing rate and assessment of subsurface rights under the new standard. In this edition of Accounting and Auditing Update (AAU), we aim to discuss some of the key issues relating to the implementation of Ind AS 116 along with the clarifications provided by IFRIC.
The Ind AS Technical Facilitation Group (ITFG) of the Institute of Chartered Accountants of India (ICAI) through its bulletins (bulletin 22 and 23) provided clarifications relating to implementation of various Ind AS. The key clarifications relate to determination of lease term and qualification of a lease as a short-term lease in specific scenarios under Ind AS 116, assessment of distribution of gifts under Ind AS 115, Revenue from Contracts with Customers and restatement of comparative information in case of common control business combination under Ind AS 103, Business Combinations. It also covers impact of the Taxation Laws (Amendment) Ordinance, 2019 in the interim results/financial statements particularly with respect to determination of deferred taxes. Our article on the topic aims to provide an overview of the key clarifications issued by the ITFG.
As is the case each month, we have also included a regular round-up of some recent regulatory updates in India and internationally.