CORPORATE FINANCIAL REPORTING FINAL
60117SYLLABUS-2FINAL : PAPER -CORPORATEFINANCIALREPORTINGSTUDY NOTESFINAL(Incorporating IND-AS)The Institute of Cost Accountants of IndiaCMA Bhawan, 12, Sudder Street, Kolkata - 700 016
First Edition : August 2016Reprint : January 2018Revised : November 2018Revised Edition : January 2019Edition : August 2019Published by :Directorate of StudiesThe Institute of Cost Accountants of India (ICAI)CMA Bhawan, 12, Sudder Street, Kolkata - 700 016www.icmai.inPrinted at :M/s. Aravali Printers & Publishers (P) Ltd.W-30, Okhla Industrial Area, Phase-IINew Delhi - 110 020Copyright of these Study Notes is reserved by the Institute of CostAccountants of India and prior permission from the Institute is necessaryfor reproduction of the whole or any part thereof.
Syllabus- 2016PAPER 17: CORPORATE FINANCIAL REPORTING (CFR)Syllabus StructureThe syllabus comprises the following topics and study weightage:AGAAP and Accounting Standards20%BAccounting of Business Combinations & Restructuring20%CConsolidated Financial Statements20%DDevelopments in Financial Reporting25%EGovernment Accounting in India15%E15%D25%C20%A20%B20%ASSESSMENT STRATEGYThere will be written examination paper of three hours.OBJECTIVESTo understand the recognition, measurement, disclosure and analysis of information in an entity’s financialstatements to cater the needs of the stakeholders.Learning AimsThe syllabus aims to test the student’s ability to: D emonstrate the financial statements for understanding of stakeholders ; A nalyze the impact of GAAP and its application for reporting and compliance ; E valuate financial statements for strategic decision - making ; I nterpret and apply the ongoing developments for financial reporting.Skill set requiredLevel C: Requiring skill levels of knowledge, comprehension, application, analysis, synthesis and evaluation.Section A : GAAP and Accounting Standards20%1. Accounting StandardsSection B : Accounting of Business Combinations & Restructuring20%2. Accounting of Business Combinations & RestructuringSection C : Consolidated Financial Statements (Ind AS)20%3. Group Financial StatementsSection D : Developments in Financial Reporting and other item of Reporting25%4. Recent Trends in Financial Reporting5. Valuation, Accounting and Reporting of Financial Instruments and others (Ind AS)6. Share Based Payments (Ind AS)7. Reporting through XBRL (Extended Business Reporting Language)Section E : Government Accounting in India8. Government Accounting Procedure and Standards15%
SECTION A: GAAP AND ACCOUNTING STANDARDS [20 MARKS ]1.Accounting Standards(a) Generally Accepted Accounting Principles in India(b)Overview of Accounting Standards (AS)(c)International Financial Reporting Standards(d)Over View of Ind ASSECTION B: ACCOUNTING OF BUSINESS COMBINATIONS & RESTRUCTURING [20 MARKS ]2.Accounting of Business Combinations & Restructuring (as per Ind AS)(a) Relevant Terms, Types of merger, methods of accounting, treatment of Goodwill arising on merger,Purchase consideration and settlement(b)Accounting in books of vendor/ transferor and transferee(c)Accounting for investment in subsidiary(d) Accounting for Mergers / Acquisitions (including chain holdings, cross holdings, multiple holdings)(e)Corporate Financial restructuring, Reconstruction Schemes, De-merger, Reverse merger(g)Notes to Accounts & related disclosures under amalgamationSECTION C: CONSOLIDATED FINANCIAL STATEMENTS [20 MARKS ]3.Group Financial Statements(a) Concept of a group, Purposes of consolidated financial statements, Consolidation procedures, Noncontrolling interest, Goodwill, Treatment Pre-acquisition profit and Postacquisition profit and conceptof Fair value at the time of acquisition.(b)Consolidation with two or more subsidiaries, consolidation with foreign subsidiary.(c) Consolidated Income Statement, balance Sheet and Cash Flow Statements for Group of companies.(d)Impact on group financial statements at the point of acquisition(e) Treatment of investment in associates in consolidated financial statements. Compare and contrastacquisition and equity methods of accounting(f)Treatment of investment in joint ventures in consolidated financial statementsSECTION D: DEVELOPMENTS IN FINANCIAL REPORTING AND OTHER ITEM OF REPORTING [25 MARKS ]4.Recent trends in Financial Reporting(a) Sustainability Reporting(b)Tripple Bottom Line Reporting(c)Corporate Social Responsibility Reporting (CSR Reporting)(d)Fair Value Measurement
(e)Integrated Reporting (IR)(f)Business Responsibility Reporting5. Valuation, Accounting and Reporting of Financial Instruments and others(a) Recognition & Valuation Financial Instruments (Ind AS)(b)GST Accounting(c)NBFC – Provisioning Norms and Accounting(d)Valuation of Shares(e)Valuation of Goodwill6. Share Based payments transactions (Ind AS)7. Reporting Through XBRL (Extended Business Reporting Languate)SECTION E: GOVERNMENT ACCOUNTING IN INDIA [15 MARKS]8.Government Accounting(a)General Principles and comparison with commercial accounting(b)Role of Comptroller and Auditor General of India(c)Role of Public Accounts Committee, Review of Accounts(d) Government Accounting Standards issued by Government Accounting Standards Advisory Board(GASAB)(e)Government Accounting and Reporting
ContentsSECTION A – GAAP AND ACCOUNTING STANDARDSStudy Note 1 : Accounting Standards1.121.251.3891.4921.593SECTION B – ACCOUNTING OF BUSINESS COMBINATIONS& RESTRUCTURINGStudy Note 2 : Accounting of Business Combinations and Restructuring2.1Introduction1632.2Types of Meger1632.3Concept of Business Combination1642.4Ind AS: 103 Business Combination1652.5Scheme of Reconstruction1922.6Business Combination under Common Control2002.7Demerger – Concpet2032.8Reverse Acquisition209SECTION C – CONSOLIDATED FINANCIAL STATEMENTSStudy Note 3 : Consolidated Financial Statements3.1Holding Company2133.2Transactions and Accounting2143.3Ind AS 110: Consolidated Financial Statement – Summarised2213.4Accounting Requirements2233.5Equity Method2363.6Preparation of Group Cash Flow Statement2383.7Ind AS 27: Separate Financial Statements251
3.8Ind AS 28: Investments in Associates and Joint Ventures2523.9Ind AS 105: Non-current Assets held for sale and Discontinued Operations2523.10Ind AS 111: Joint Arrangements2543.11Ind AS 112: Disclosure of Interests in Other Entities256SECTION D – DEVELOPMENTS IN FINANCIAL REPORTING ANDOTHER ITEM OF REPORTINGStudy Note 4 : Recent Trends in Financial Reporting4.1Sustainability Reporting2594.2Concept of Triple Bottom Line (TBL)2614.3Concept of Triple Bottom Line Reporting2614.4Benefits of Triple Bottom Line Reporting2624.5Implementation of Triple Bottom Line Reporting2634.6Forms of TBL Reporting2634.7Users of TBL Reporting2634.8Financial Reporting vis-à-vis Triple Bottom Line Reporting2644.9Challenges of Triple Bottom Line Reporting Framework2644.10Corporate Social Responsibility Reporting (CSR Reporting)2654.11Ind AS 113: Fair Value Measurement2664.12Integrated Reporting (IR)2694.13Business Responsibility Reporting271Study Note 5 : Valuation, Accounting and Reporting of Financial Instruments and Others.15.1Recognition & Valuation of Financial Instruments (Ind AS-32, Ind AS-107 & Ind AS-109)2755.2Goods and Services Tax (GST) Accounting2805.3NBFC - Provisioning Norms and Accounting2865.4Valuation of Shares3025.5Valuation of Goodwill324Study Note 6 : Share Based Payments6.1Introduction3316.2Share Based Payment3316.3Employee Share Based Payment Plans332
6.4Share Based Payment Transaction3336.5Recognition of Share Based Payment in Financial Statement3336.6Measurement of Share Based Payment3346.7Disclosure3346.8Accounting335Study Note 7 : Reporting through XBRL (Extended Business Reporting Language)7. 1Concept of XBRL3457.2Meaning of XBRL3467.3Definition of XBRL3467.4Important XBRL Related Concepts3467.5Myths Regarding XBRL3477.6.Features of XBRL Reporting3487.7Benefits of XBRL Reporting3487.8Users of XBRL3497.9XBRL International3507.10XBRL in India350SECTION E – GOVERNMENT ACCOUNTING IN INDIAStudy Note 8 : Government Accounting8.1Government Accounting – an Overview3538.2General Principles of Government Accounting3558.3Comparison between Government Accounting and Commercial Accounting3558.4Government Accounting & Reporting3568.5Comptroller and Auditor General of India (C&AG)3588.6Public Accounts Committee (P.A.C)3618.7Review of Accounts3628.8Government Accounting Standards Advisory Board (GASAB)3638.9Government Accounting Standards Issured by Government AccountingStandards Advisory Board (GASAB)3648.10Indian Government Accounting Standards (IGAS)3648.11Indian Government Financial Reporting Standards (IGFRS)379
Section AGAAP and Accounting Standards(Syllabus - 2016)
Study Note - 1ACCOUNTING STANDARDSThis Study Note includes1.1Generally Accepted Accounting Principles in India1.2Overview of Accounting Standards1.3International Financial Reporting Standards1.4Applicability of Indian Accounting Standards1.5Overview of Indian Accounting Standards (Ind AS)INTRODUCTIONAccounting is the language of business. The primary function of the discipline of accounting is to provide financialinformation to the users of the financial statements. For this purpose, it is required to record the transactions enteredinto by a concern during an accounting period in different books of accounts. However, different organisationsmay practice it in different ways. Thus, to ensure uniformity among different entities and to ensure consistencyover a period of time, a framework has been developed over the time period. This framework is referred to as‘Generally Accepted Accounting Principles’ (GAAP).Indian GAAP is nothing but a set of accounting standards that every company operating in India has to followwhen reporting its financial results. Generally Acceptable Accounting Standards differ for each country as theyincorporate policies and procedures that have to be followed for financial disclosures as per the standards set ineach country.Institute of Chartered Accountants of India (ICAI), Ministry of Corporate Affairs (MCA) are the bodies in Indiathat have set the Accounting standards(Indian Accounting Standards) that need to be followed while financialreporting, So Indian Accounting Standards are termed as Indian GAAP.MEANING OF ACCOUNTINGAccounting may be defined as the process of recording, classifying, summarising, analysing and interpretingfinancial transactions and communicating the results thereof to the users interested in such communication. Inother words, accounting can be defined as an information system that provides information to users about theeconomic activities and condition of an entity for the purpose of decision-making.From the above definition, the following attributes of accounting can be observed: Identification of monetary transactions and events. Measurement of the identified transactions and events. Recording of such transactions. Classifying and summarising of the recorded transactions. Obtaining the results of operations. Analysing and interpreting the results to help in decision-making. Communicating such information to the users (both, internal and external).Primarily the focus of Accounting is limited upto to the preparation of financial statement, later on the communicatingfunction was incorporated in the definition of accounting. It is a service activity to provide qualitative financialinformation and it is useful in making economic decision.THE INSTITUTE OF COST ACCOUNTANTS OF INDIA1
CORPORATE FINANCIAL REPORTING1.1 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN INDIAMEANING OF GAAPThe various factors that have led to difference in accounting practices comprise widely of the culture, traditions,economic development, economic growth mode, inflation, legal system etc.The diversity demands unification to the extent possible to develop Generally Accepted Accounting Practices(GAAP). GAAP are the common set of accounting principles, standards and procedures that are used byaccountants to prepare the financial statements. They are derived from practice, and on being useful getaccepted into the accounting system. These principles are developed by the professional accounting bodies ofdifferent countries of the world, with the aim of attaining uniformity in accounting practiced by the entities of therespective countries. As such different GAAP have developed in different countries of the world.Indian GAAP comprises of a set of pronouncement issued by various regulatory authorities mostly in consultationwith the ICAI. The Accounting Standards and the Indian Accounting Standards i.e. Indian GAAP is supplementedby Guidance notes, Interpretation, General Clarification and/or revision from time to time.The Accounting Standards and the Indian Accounting Standards will apply to “General Purpose Financialstatement” e.g. Balance Sheet, Statement of Profit & Loss, Schedules and Notes forming Integral part, issued foruse by the Shareholders, Members, Creditors, Employees, and Public at large.Generally Accepted Accounting Principles (GAAP) refers to accounting policies and procedures that are widelyused in practice. It incorporates the body of principles that governs the accounting for financial transactionsunderlying the preparation of a set of financial statements.GAAP includes principles on: Recognition: It deals with the items should be recognized in the financial statements (e.g. assets, liabilities,revenues, and expenses). Measurement: It determines the amounts should be reported for each of the elements included in financialstatements. Presentation: It states regarding the line items, subtotals and totals should be displayed in the financialstatements and how might items be aggregated within the financial statements. Disclosure: It states about the specific information that is most important to the users of the financial statements.ACCOUNTING PRINCIPLESAccounting Principle is the ‘grammar’ of accounting language. It refers to those rules of action which are universallyadopted by the accountants for recording accounting transactions. They act as the guidelines for recording andreporting transactions. These have evolved out of assumptions made and conventions followed in accounting.These provide explanations to the current accounting practices.Accounting Principles can be classified into two categories:(a) Accounting Concepts; and(b) Accounting Conventions.Accounting PrinciplesAccounting Concepts2Accounting ConventionsTHE INSTITUTE OF COST ACCOUNTANTS OF INDIA
Accounting StandardsACCOUNTING CONCEPTSAccounting Concepts refers to the assumptions on the basis of which the transactions are recorded in the booksof accounts and financial statements are drafted. They are perceived, presumed and accepted in accounting toprovide a unifying structure and internal logic to the accounting process. They are also referred to as AccountingPostulates. These are the necessary assumptions and ideas which are fundamental to accounting practice. Theseare the ideas which have been accepted universally.E.g. Entity concept, Going concern concept, Money measurement concept etc.ACCOUNTING CONVENTIONSAccounting conventions are the traditions or customs that are observed by the accountants for preparation offinancial statements. They have evolved out the different accounting practices followed by different entities overa period of time. They have been developed over a period of time by the accountants by usage and practice.E.g. convention of conservatism, convention of consistency, convention of materiality etc.It should be noted that the terms ‘Concepts’ and ‘Conventions’ are usually used interchangeably. However,the basic difference between them is that ‘Concepts’ are primarily concerned with maintenance of books ofaccounts, while ‘Conventions’ are applied for preparation of financial statements.NEED FOR GAAP FOR FINANCIAL REPORTINGThe accounting standards developed and established by the standard-setting bodies determine how thosefinancial statements are prepared. The standards are known collectively as Generally Accepted AccountingPrinciples or GAAP.GAAP is based on established concepts, objectives, standards and conventions that have evolved over timeto guide how financial statements are prepared and presented. GAAP is set with the objective of providinginformation that is useful to investors, lenders, or others that provide or may potentially provide resources to aprofit-seeking concern or not-for-profit organization. Investors, lenders, and other users of financial information relyon financial reporting based on GAAP to make decisions about how to allocate their capital and to help financialmarkets operate as efficiently as possible.While establishing GAAP, the standard setting bodies are mainly concerned about the end users of financialstatements. End users include people like investors, banks, lenders who use third party financial statements toevaluate business decisions. For instance, an investor will look at a company’s financial statements in order todecide whether to invest. The standard setting bodies wants to make consistent standards that help end usersunderstand and use the company’s financial data. GAAP’s primary intent is not to help businesses. It is intended tohelp the end users. All of the objectives that MCA and the prior accounting standard setting body(ICAI) wantedto accomplish can be simplified to one main objective: to make financial statements universally understandableand usable for all of their users.REGULATORY BODIES IN INDIA The Ministry of Corporate Affairs (MCA): MCA is an Indian Govt. Ministry. The Ministry is primarily concernedwith administration of the Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act,2008 & other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of thecorporate sector in accordance with law. It is responsible mainly for regulation of Indian enterprises in Industrialand Services sector.Presently, they are entrusted with the development of India ASs. The Ind AS are named and numbered inthe same way as the corresponding International Financial Reporting Standards (IFRS). National AdvisoryCommittee on Accounting Standards (NACAS) recommend these standards to the Ministry of CorporateAffairs (MCA). MCA has to spell out the accounting standards applicable for companies in India. As on dateMCA has notified 39 Ind AS. This shall be applied to the companies of financial year 2015-16 voluntarily andfrom 2016-17 on a mandatory basis. The Institute of Chartered Accountants of India (ICAI): ICAI is the national professional accounting bodyof India. It was enacted by the Parliament (acting as the provisional Parliament of India) to regulate theprofession of Chartered Accountancy in India. It recommends the accounting standards to be followed bycompanies in India to The National Financial Reporting Authority (NFRA) and sets the accounting standardsto be followed by other types of organisations. ICAI is solely responsible for setting the auditing and assuranceTHE INSTITUTE OF COST ACCOUNTANTS OF INDIA3
CORPORATE FINANCIAL REPORTINGstandards to be followed in the audit of financial statements in India. It also issues other technical standardslike Standards on Internal Audit (SIA), Corporate Affairs Standards (CAS) etc. to be followed by practicingChartered Accountants. It works closely with the Government of India, Reserve Bank of India and the Securitiesand Exchange Board of India in formulating and enforcing such standards. SEBI: Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of securities market.SEBI promotes orderly and healthy development in the stock market but initially SEBI was not able to exercisecomplete control over the stock market transactions. It was left as a watch dog to observe the activities butwas found ineffective in regulating and controlling them. As a result in May 1992, SEBI was
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