Changes in New Syllabus For May 24 - Ca Final FR

CHANGES IN NEW SYLLABUS FOR MAY 24 : CA FINAL FINANCIAL REPORTING CA P. S.
BENIWAL
CA FINAL
FINANCIAL REPORTING
CHANGES IN NEW
SYLLABUS
FOR MAY 2024
CA P. S. Beniwal Faculty of CA Inter-Accounting and Advance Accounting

Faculty of CA Final-Financial Reporting
Member of IND AS Implementation Committee of ICAI
Contact Number: 9990301165, 9318445989
Telegram channel: “t.me/capsbeniwalclasses”
Website: capsbeniwal.com
Youtube: https://bit.ly/332doKz
Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 1

CHANGES IN NEW SYLLABUS FOR MAY 24 : CA FINAL FINANCIAL REPORTING CA P. S. BENIWAL
INDEX
Chapter Chapter Name Page No.
Number
0 Introduction of AS and Ind AS 4 to 6
1 IND AS 16 - Property, Plant and Equipment -
2 IND AS 23 – Borrowing Cost 7
3 IND AS 38 - Intangible Assets -
4 IND AS 36 – Impairment of Asset -
5 IND AS 2 - Valuation of Inventories -
6 IND AS 41 – Agriculture 7
7 Financial Instrument-IND AS 32,109 & 107 8
8 Share based Payment-IND AS 102 8
9 IND AS 12 - Income Tax 8 to 13
10 IND AS 20 - Accounting for Govt. Grants & -
disclosure of Govt. Assistance
11 IND AS 10 - Events after the reporting period 14
12 IND AS 33 - Earnings Per Share -
13 IND AS 19 - Employee Benefits -
14 IND AS 37 - Provisions, Contingent Liabilities and 14
Contingent Assets
15 IND AS 108 - Operating Segment -
16 Consolidated and Separate Financial Statements 14
17 Business Combinations and Accounting for 14
Corporate Restructuring (including demerger)
18 IND AS 115 - Revenue from contracts with 15 to 16
customers
19 IND AS 116 – Leases 17 to 19
20 IND AS 40 - Investment Property -
21 IND AS 101 - First-time adoption of Ind AS -
22 IND AS 21- The effects of changes in foreign -
exchange rates
23 IND AS 105 - Non-current assets held for sale and -
discontinued operations
24 IND AS 24 - Related party disclosures -
25 IND AS 1 - Presentation of Financial Statements -
26 IND AS 34 - Interim Financial Reporting 19 to 21

27 IND AS 8 - Accounting policies, changes in -
accounting estimates and errors
28 IND AS 7 - Cash flow statement 21 to 22
29 IND AS 113 - Fair Value Measurement 22
30 Framework for preparation and presentation of -
financial Statements in Accordance with IND AS
31 PROFESSIONAL AND ETHICAL DUTY OF A 23 to 39
CHARTERED ACCOUNTANT
32 ACCOUNTING AND TECHNOLOGY 40 to 54
33 Schedule III – Division II Including Analysis of -
Financial Statements and Common defects in
financial statements of corporate entities
34 Analysis of Financial Statements -
A. TOPICS DELETED:
1. INTEGRATED REPORTING
2. CORPORATE SOCIAL RESPONSIBILITY REPORTING
B. TOPICS ADDED:
1. ETHICS WITH ACCOUNTING CONCEPTS:
IDENTIFY AND EXPLAIN THE KEY ETHICAL ISSUES.
2. TECHNOLOGY AND ACCOUNTING:

EVOLUTION OF ACCOUNTING IN THE TECHNOLOGICAL ENVIRONMENT
3. DISCUSSION ON AS 7, AS 9, AS 19 AND AS 22 WILL BE GIVEN ALONG

WITH CORRESPONDING IND AS 115, IND AS 116 AND IND AS 12.
ALL THE BEST

CA P.S. Beniwal

INTRODUCTION OF AS AND IND AS

1. Following is a snapshot of audited balance sheet of company A as on 31st March 2014.
Company A’s equity shares are listed on Bombay Stock Exchange since 2010.
Liabilities ₹ in crores Assets ₹ in crores

Equity Share Capital 160 Fixed Assets 455
Securities Premium 200 Investments 200
General Reserve 150 Current Assets 50
Revaluation Reserve 40 Miscellaneous Expenditure not 80
written off
Profit and Loss A/c 75
Liabilities 160
Total 785 Total 785
• As per roadmap, which Phase company A fall into?
• Will your answer change if Company A is an unlisted company? (Illustration 1)
Solution:
Calculation of Net Worth:
Particulars ₹ in crores
Equity Share Capital 160
Securities Premium 200
General Reserve 150
Profit and Loss A/c 75
Miscellaneous Expenditure not written off (80)
Net Worth as per Section 2(57) of The Companies Act, 2013 505
Note – Revaluation Reserve would not be included in the calculation of net worth as per definition mentioned in
section 2(57) of The Companies Act, 2013
The company is a listed company and it does meet the net worth threshold of ₹ 500 Crores. Hence it would be
covered under phase I. Hence Ind AS would be applicable to the company for accounting periods beginning on
or after 1st April 2016.
Even if Company A is an unlisted company as company A’s net worth is more than 500 Crores, it would be
covered under Phase I of the road map and hence Ind AS would be applicable for the accounting periods
beginning on or after 1st April 2016.
2. Let’s say in above question, the balance of profit and loss account is negative ₹ 375 crores. When Ind AS should
be applicable to Company A? Will you answer change if Company A is an unlisted company? (Illustration 2)
Solution: If the balance of Profit and Loss A/c is negative 375 Crores, the net worth as per section 2(57) of The
Companies Act, 2013 would be ₹ 55 Crores (Equity share capital ₹ 160 Cr + Securities Premium ₹ 200 Cr +
General Reserve ₹ 150 Cr – Debit balance of P&L ₹375 Cr – Miscellaneous expenditure not written off ₹ 80 Cr).
Hence, it does not meet the criteria as mentioned in Phase I i.e. Listed company or Net worth of ₹ 500 Cr or
more.
However, as Company A is a listed company, it will irrespective be covered under Phase II as the first criteria of
phase II states “companies whose equity or debt securities are listed or are in the process of being listed on any
stock exchange in India or outside India and having net worth of less than rupees five hundred crore”. Hence,
Ind AS would be applicable to Company A for the accounting periods beginning on or after 1st April 2017.
If Company A is an unlisted company, Ind AS would not be applicable until it breaches the net worth criteria
mentioned in the roadmap.
3. The net worth of Company B (an unlisted company) was ₹ 600 crores as on 31st March 2014. However due to
losses incurred in FY 14-15, the net worth of the company was ₹ 400 Crores as on 31st March 2015. From when
company B shall apply Ind AS? (Illustration 3)

Solution: Here the company’s net worth as on cut-off date was greater than ₹ 500 crores, which suggests that it
should be covered under phase I of the roadmap. A question may however arise in mind that since, the net worth
as on immediately preceding year-end was ₹ 400 crores, would the company be covered under phase II of the
roadmap?
“It may be noted that the net worth shall be calculated in accordance with the stand-alone financial statements of
the company as on 31st March, 2014. Accordingly, if the net worth threshold criteria for a company are once
met, then it shall be required to comply with Ind AS, irrespective of the fact that as on later date its net worth
falls below the criteria specified.”
In view of the above, the Company B will be required to follow Ind AS for accounting periods beginning on or
after 1st April 2016.
4. The net worth of Company C (an unlisted company) was ₹ 400 crores as on 31st March 2014. However, the net
worth of the company was ₹ 600 Crores as on 31st March 2015. From when company B shall apply Ind AS?
(Illustration 4)
Solution: Similar issue has been encountered in ITFG Bulletin 1, Issue 1 which gives reference to clause 2b of
the notification wherein it is stated that:
“For companies which are not in existence on 31st March, 2014 or an existing company falling under any of
thresholds specified in sub-rule (1) for the first time after 31st March, 2014, the net worth shall be calculated on
the basis of the first audited financial statements ending after that date in respect of which it meets the thresholds
specified in sub-rule (1)”
Hence, any company that meets the thresholds as specified in the Companies (Indian Accounting Standards)
Rules, 2015 in a particular financial year, Ind AS will become applicable to such company in immediately next
financial year. Hence, in the present case, Company C is covered by Phase I of the roadmap and accordingly, Ind
AS will be applicable to Company C for accounting periods beginning on or after 1st April 2016.
5. Company D is the parent company of group A. Company A is an unlisted company having net worth of 60
crores as on 31st March 2014. Following are the other companies of the group.
Name of the company Relationship Net worth as on 31st March 2014
Company B (Unlisted) Subsidiary of Company A ₹ 600 Crore
Company C (Unlisted) Subsidiary of Company B ₹ 150 Crore
Whether Ind AS be applicable to companies A, B and C? (Illustration 5)
Solution: Company A and C are unlisted and do not exceed the net worth criteria. However, the net worth of
Company B exceeds ₹ 500 Crore hence it would be covered under Phase I of the roadmap.
As Ind AS be applicable to Company B, the parent company of Company B i.e. Company A and subsidiary of
Company B i.e. Company C would also get covered under Ind AS irrespective of net worth criteria.
Hence Ind AS would be applicable to all three companies i.e. Company A, B and C
6. Following is the structure of Company D
Company D
Company E Company H
(Subsidiary of D) (Subsidiary of D)
Company F Company G Company I

(Subsidiary of E) (Associate of E) (Subsidiary of H)

All the companies in above structure are unlisted companies and the net worth of company E is ₹ 300 Crores and
net worth of all the other companies is below ₹ 250 crores. To which company would Ind AS be applicable?
(Illustration 6)
Solution: As mentioned in the Companies (Indian Accounting Standards) Rules, 2015, if Ind AS is applicable to
a company, it would also be applicable to its Holding Company, subsidiary company, associate company and
Joint Venture.
As the net worth of company E is above ₹ 250 crores, it would be covered under Phase II of the roadmap. Hence,
its subsidiary (Company F), associate (Company G) and Holding (Company D) would also be covered under Ind
AS with effect from 1st April 2017.
With respect to other companies of the group, following guidance is given in ITFG clarification bulletin 15,
Issue 10: “It may be noted that Ind AS applies to holding, subsidiary, joint venture and associate companies of
the companies which meet the net worth/listing criteria. This requirement does not extend to another fellow
subsidiary of a holding company which is required to adopt Ind AS because of its holding company relationship
with a subsidiary meeting the net worth/listing criteria. Holding company will be required to prepare separate
and consolidated financial statements mandatorily under Ind AS, if one of its subsidiaries meets the specified
criteria and therefore, such subsidiaries may be required by the holding company to furnish financial statements
as per Ind AS for the purpose of preparing Holding company’s consolidated Ind AS financial statements. Such
fellow subsidiaries may, however, voluntarily opt to prepare their financial statements as per Ind AS.”
Hence the other companies of the group i.e. Company H and Company I would not be covered under Ind AS.
However, as mentioned in ITFG, Company H and I would be required to prepare its financial statements under
Ind AS so as to facilitate Company D for preparation of its consolidated financial statements. Hence, though
statutorily Company H and I may continue to prepare its financial statements under AS, but it will also have to
converge to Ind AS. Moreover, they may also opt to voluntarily adopt Ind AS and prepare its statutory accounts
under Ind AS too.
7. ABC Inc., incorporated in a foreign country has a net worth of ₹ 700 Crores. It has two subsidiaries Company X
whose net worth as on 31st March 2014 is ₹ 600 Crores and Company Y whose net worth is ₹ 150 Crores. Whether
Company X and Y would be required to follow Ind AS from accounting periods commencing on or after 1st April
2016 on the basis of their own net worth or on the basis of the net worth of ABC Inc.? (Illustration 7)
Solution: Similar issue has been dealt in ITFG Clarification Bulletin 2, Issue 2. ITFG noted that as per Rule
4(1)(ii)(a) of the Companies (Indian Accounting Standards) Rules, 2015, Company X having net worth of ₹ 600
crores at the end of the financial year 2015-16, would be required to prepare its financial statements for the
accounting periods commencing from 1st April, 2016, as per the Companies (Indian Accounting Standards)
Rules, 2015. While Company Y Ltd. having net worth of ₹ 150 crores in the year 2015-16, would be required to
prepare its financial statements as per the Companies (Accounting Standards) Rules, 2006.
Since, the foreign company ABC Inc., is not a company incorporated under the Companies Act, 2013 or the
earlier Companies Act, 1956, it is not required to prepare its financial statements as per the Companies (Indian
Accounting Standards) Rules, 2015. As the foreign company is not required to prepare financial statements
based on Ind AS, the net worth of foreign company ABC would not be the basis for deciding whether Indian
Subsidiary Company X Ltd. and Company Y Ltd. are required to prepare financial statements based on Ind AS.
8. As per the roadmap, Ind AS is applicable to Company X from the financial year 2017-18. Company X (non-
finance company) is a subsidiary of Company Y (NBFC). Company Y is an unlisted NBFC company having net
worth of ₹ 400 crores. What will be the date of applicability of Ind AS for company X and company Y? If Ind
AS applicability date for parent NBFC is different from the applicability date of corporate subsidiary, then, how
will the consolidated financial statements of parent NBFC be prepared? (Illustration 8)
Solution: In accordance with the roadmap, it may be noted that NBFCs having net worth of less than 500 crore shall
apply Ind AS from 1 April, 2019 onwards. Further, the holding, subsidiary, joint venture or associate company of such
an NBFC other than those covered by corporate roadmap shall also apply Ind AS from 1 April, 2019.
Accordingly, in the given case, Company Y (NBFC) shall apply Ind AS for the financial year beginning 1 April,
2019 with comparative for the period ended 31 March, 2019 . Company X shall apply Ind AS in its statutory
individual financial statements from financial year 2017-2018 (as per the corporate roadmap). However, for the
purpose of Consolidation by Company Y for financial years 2017-2018 and 2018-2019, Company X shall also
prepare its individual financial statements as per AS.
IND AS 23 – BORROWING COST

1. Is interest on a finance lease of a qualifying asset capitalised as borrowing costs? (Illustration 5)
Solution: Yes, interest incurred for a finance lease is specific to an asset. Interest is capitalised if the asset is a
qualifying asset or is used solely for the construction of a qualifying asset. For example, a crane or a dockyard is
leased for the purpose of constructing a ship. The ship is a qualifying asset. The interest on the finance lease of the
crane or dockyard is capitalised as borrowing costs. Borrowing costs on the finance lease can only be capitalised up to
the point when the construction of the qualifying asset is complete.
2. A subsidiary (or jointly controlled entity or associate) finances the construction of a qualifying asset with an inter-
company loan. Are borrowing costs incurred on the inter-company loan capitalised in the separate financial statements
of the subsidiary (or jointly controlled entity or associate)? (Illustration 11)
Solution: Yes. Borrowing costs are capitalised to the extent of the actual costs incurred by the subsidiary (or jointly
controlled entity or associate).
IND AS 41 – AGRICULTURE
1. Agro Foods Ltd. runs a poultry farm business. It has received a government grant from the government for setting up
a new poultry unit in a backward area. Agro Foods Ltd used the amount of government grants to buy the first batch of
broiler birds, incubators etc. The broiler birds are measured at fair value less costs to sell. However, the incubator
machine is measured as per the cost model in Ind AS 16.
As such there are no conditions attached to the release of the government grants pertaining to purchase of poultry
birds. However, as regards the investment in incubators and other related plant and machinery items, the government
grant contains a condition that the plant and machinery item should be used for a minimum period of 3 years. The
useful life of the incubator machine has also been determined to be 3 years in accordance with the management
estimate of the time period over which the economic benefits embedded in the incubator machine shall be consumed.
Advise the accounting requirements prescribed in Ind AS 41 Agriculture and Ind AS 20 Accounting for Government
Grants and Disclosure of Government Assistance in respect of both the government grants? (Illustration 4)
Solution: Ind AS 41 requires an unconditional government grant related to a biological asset measured at its fair value
less costs to sell to be recognised in profit or loss when, and only when, the government grant becomes receivable.
Accordingly, the amount of government grant attributable to the broiler birds which qualify as a biological bird shall
be recognized in profit or loss account when the grant becomes receivable.
If a government grant is conditional, including when a government grant requires an entity not to engage in specified
agricultural activity, an entity should recognize the government grant in profit or loss when, and only when, the
conditions attaching to the government grant are met. This provision of Ind AS 41 is not applicable as we have been
informed that there are no conditions attached to the release of the government grant pertaining to broiler birds. In the
given case, the grant related to broiler birds has already been received for the purpose of providing immediate
financial support to the entity with no future related conditions to be fulfilled. Accordingly, the grant relating to
broiler birds is to be recognized in profit and loss in the period in which it is received.
If a government grant relates to a biological asset measured at its cost less any accumulated depreciation and any
accumulated impairment losses, the entity applies Ind AS 20 Accounting for Government Grants and Disclosure of
Government Assistance. The incubator machine does not qualify as a biological asset as it is specifically covered by
Ind AS 16 which states that plant and machinery items used to develop or maintain biological assets is covered by Ind
AS 16. Therefore, the provisions relating to Government grants contained in Ind AS 41 will not apply to the incubator
machine. Therefore, we have to apply directly the provisions contained in IAS 20. Ind AS 20 contains two methods of
presentation in financial statements of grants (or the appropriate portions of grants) related to assets are regarded as
acceptable alternatives:
 One method recognises the grant as deferred income that is recognized in profit or loss on a systematic basis
over the useful life of the asset.
 The other method deducts the grant in calculating the carrying amount of the asset. The grant is recognized in
profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Therefore, the grant relating to incubator machine will have to be accounted as a deferred income that is recognized in
Profit or loss on a systematic basis over a period of 3 years in line with the condition attached to the grant.
Alternatively, the grant may be deducted in determining the carrying amount of the incubator. In such a case the grant
is recognised in Profit or Loss over the 3-year useful life of the depreciable incubator machine as a reduced
depreciation expense.
IND AS 32,109 & 107 - FINANCIAL INSTRUMENT

Unit 3: Illustration 13 and 14 deleted
IND AS 102: SHARE BASED PAYMENT
Illustration 4 removed and merged into IND AS 103 as TYK 14
IND AS 12: INCOME TAXES
1. H Ltd. is a manufacturing company, wanting to calculate its taxable profit or loss for the year ended 31 March 20X8.
The statement of profit and loss and other comprehensive income, the balance sheet and the notes are given below.
Tax rate for the financial year 20X7-20X8 is 30%, but the new tax rate of 32%, for the year 20X8-20X9 and beyond,
has already been enacted before the year end.
Calculate taxable profit for the financial year 20X7-20X8 and the related current tax expense.
Balance Sheet as of 31 March 20X8
₹
ASSETS
Non-current assets
Property, plant and equipment 4,20,00,000
Product development costs 21,00,000
Investment in subsidiary – S Ltd. 1,54,00,000
Current assets
Trading investments 72,80,000
Trade receivables 2,19,10,000
Inventories 1,06,40,000
Cash and cash equivalents 63,00,000
TOTAL ASSETS 10,56,30,000
EQUITY & LIABILITIES
Equity
Share capital 4,20,00,000
Accumulated profits 2,86,24,330
Revaluation surplus 30,80,000
Non-current liabilities
Deferred income - government grants 14,00,000
Liability for product warranty costs 5,60,000
Deferred tax liability(from 20X6-20X7) 7,75,670
Current liabilities
Trade payables 2,67,40,000
Medical benefits for employees 24,50,000
TOTAL EQUITY & LIABILITIES 10,56,30,000
Extract of Statement of profit and loss for the year ended 31 March 20X8
Revenue 16,81,40,000
Cost of sales (13,44,00,000)
Gross profit 3,37,40,000
Operating costs (2,68,80,000)
Profit from operations 68,60,000

Finance costs (9,10,000)
Profit before taxation 59,50,000
Notes:
1. Depreciation expense for the year financial year 20X7-20X8 allowable as per the Income Tax Rules is
72,10,000. Depreciation as allowed for the purposes of financial reporting included in operating costs is
59,50,000. Cost of PPE is 5,60,00,000 and H Ltd. deducted expenses of 1,45,60,000 in its tax returns prior
to financial year 20X7-20X8. Further, as of 31 March 20X8, H Ltd. for the first time revalued its property,
plant and equipment to market value of 4,20,00,000 (revaluation surplus = 30,80,000).
2. In 20X4-20X5, H Ltd. incurred product development costs of 35,00,000. These costs were recognized as an
asset and amortized over period of 10 years. For tax purposes, H Ltd. deducted full product development
costs when they were in 20X4-20X5.
3. Trading investments were acquired in the preceding year at a cost of 80,50,000. These investments are
classified as at fair value through profit or loss and thus recognized in their fair value. Fair value adjustments
are not allowable by the tax authorities.
4. Bad debt provision amounts to 45,50,000 and relates to 2 debtors: debtor A – 28,00,000 (receivable
originates in 20X5-20X6 and 100% provision was recognized in the preceding year) and debtor B –
17,50,000 (receivable originates in 20X6-20X7 and 100% provision was recognized in F.Y. 20X7-20X8).
Tax law allows deduction of 20% of provision for debtorsoverdue for more than 1 year, another 30% for
debtors overdue for more than 2 years and remaining 50% for debtors overdue for more than 3 years.
5. H Ltd. created a provision for inventory obsolescence in accordance with Ind AS 2 requirements. New
provision created in 20X7-20X8 was 3,78,000 (total provision:6,30,000). Being a general provision, this
provision is not tax deductible.
6. Government grants are not taxable. Full government grant received in 20X7-20X8 is included in the balance
sheet.
7. In 20X7-20X8, H Ltd. increased a liability for product warranty costs by 1,75,000. Product warranty costs
are not tax deductible until the company pays claims. Claims paid in 20X7-20X8 amounted to 2,17,000.
8. During the year, H Ltd. introduced health care benefits for employees. The expenses are allowable for tax
purposes only when benefits are paid but in line with Ind AS 19, recognized in profit or loss when
employees provide service.
9. Penalties towards violation of laws included in operating expenses amount to 63,000. These are not
deductible for tax purposes.
10. Tax law allows to deduct expenses for petrol only up to 1,40,000 per vehicle per year. H Ltd. had 4 vehicles
in 20X7-20X8 and its total petrol expenses amounted to 7,21,000.
Note: This illustration is prepared for the purposes of understanding the computation of current tax and is in no
way based on the provisions of the Income Tax Act, 1961. For the purposes of Financial Reporting, the tax
treatments will be given in the question. (Illustration 1A)
Solution: Calculation of current tax expense
Accounting profit (A) 59,50,000

Add back:
Accounting depreciation 59,50,000
Amortization of product development costs (W.N.1) 3,50,000
Revaluation of trading investments 7,70,000
Bad debt provisions - 20X7-20X8 17,50,000
Inventory obsolescence provision 3,78,000
Product warranty costs provision - 20X7-20X8 1,75,000
Provision for health care benefit costs 24,50,000
Fines and Penalties disallowed for tax purposes 63,000
Petrol over limit (W.N.3) 1,61,000
Total (B) 120,47,000

Deduct:
Tax depreciation (72,10,000)
Tax allowance for bad debt provisions (W.N.2) (11,90,000)
Product warranty costs provision - claims paid (2,17,000)
Total (C) (86,17,000)
Taxable profit / loss: (A+B-C) 93,80,000
Tax rate is 30%
Current income tax (93,80,000 x 30%) 28,14,000
Journal Entry
Profit or loss - Current income tax expense Dr. 28,14,000

To Credit Current income tax liabilities 28,14,000
Working Notes:
(1) Product development costs:

Annual amortization ( 35,00,000/ 10) 3,50,000
(2) Bad debt provisions:

Debtor A - 28,00,000 from 20X5-20X6
> 2 years - 30% deductible in 20X7-20X8 8,40,000
Debtor B - 17,50,000 from 20X6-20X7
> 1 year - 20% deductible in 20X7-20X8 3,50,000
Total - tax deductible in 20X7-20X8 11,90,000
(3) Petrol expenses
Actual expenses 7,21,000
Tax deductible (4 x 140,000) 5,60,000
Excess 1,61,000
2. Based on the balance sheet and notes of H Ltd. from previous question, calculate tax base of its assets and
liabilities as of 31 March 20X8. Note that balance sheet has been adjusted by current tax expense and liability.
Balance Sheet as of 31 March 20X8
ASSETS
Non-current assets
Property, plant and equipment 420,00,000
Product development costs 21,00,000
Investment in subsidiary – S Ltd. 154,00,000
Current assets
Trading investments
Trade receivables 72,80,000
Inventories 219,10,000
Cash and cash equivalents 106,40,000
Total Assets 63,00,000
10,56,30,000
EQUITY & LIABILITIES
Equity Share capital
Accumulated profits 420,00,000
Revaluation surplus 258,10,330
30,80,000

Long-term liabilities
Deferred income - government grants 14,00,000
Liability for product warranty costs 5,60,000
Deferred tax liability (from 20X6-20X7) 7,75,670
Current liabilities
Trade payables 267,40,000
Medical benefits for employees 24,50,000
Current Tax Liability 28,14,000
Total Equity & Liabilities 10,56,30,000
Remaining information are same as per above question. (Illustration 1B)
Solution: Determination of Tax Base
Item Carrying amount Tax base
Property, plant and equipment 420,00,000 342,30,000
Product development costs 21,00,000 0
Investment in subsidiary 154,00,000 154,00,000
Trading investments 72,80,000 80,50,000
Trade receivables 219,10,000 247,10,000
Inventories 106,40,000 112,70,000
Cash and cash equivalents 63,00,000 63,00,000
Deferred income - government grants -14,00,000 0
Liability for product warranty costs -5,60,000 0
Trade payables -267,40,000 -267,40,000
Health care benefits for employees -24,50,000 0
Working Notes:
1. Property, plant and equipment

Cost 560,00,000
Less: current tax depreciation (72,10,000)
Less: PY tax depreciation (145,60,000)
Tax base 3,42,30,000
2. Trade receivables - bad debt provisions:
I Calculation of cost
Carrying amount 219,10,000
Add back: bad debt provision 45,50,000
Cost 2,64,60,000 A
II Debtor A - 28,00,000 from 20X5-20X6
> 1 year - 20% deducted in 20X6-20X7 5,60,000
> 2 years - 30% deducted in 20X7-20X8 8,40,000
Already deducted for tax: 14,00,000
III Debtor B - 17,50,000 from 20X6-20X7
> 1 year - 20% deducted in 20X7-20X8 3,50,000
Total deducted for tax purposes 17,50,000 B
Tax base of trade receivables: 2,47,10,000 A-B
3. Based on the data from above question of H Ltd., calculate temporary differences and deferred tax. Note from
above question: Tax rate for 20X7-20X8 is 30%, but the new tax rate of 32% for the year 20X8-20X9 and
beyond has already been enacted before the year end. (Illustration 1C)
Solution: Calculation of Temporary Differences / Deferred Tax
Item Carrying Tax base Temporary Taxable / deductible DTA / DTL

amount difference at 32%
Property, plant and equipment 4,20,00,000 3,42,30,000 77,70,000 taxable (24,86,400)
Product development costs 21,00,000 0 21,00,000 taxable (6,72,000)

Investment in subsidiary S Ltd. 1,54,00,000 1,54,00,000 0 0
Trading investments 72,80,000 80,50,000 (7,70,000) deductible 2,46,400
Trade receivables 2,19,10,000 2,47,10,000 (28,00,000) deductible 8,96,000
Inventories 1,06,40,000 1,12,70,000 (6,30,000) deductible 2,01,600
Cash and cash equivalents 63,00,000 63,00,000 0 0
Deferred income-government grants (14,00,000) 0 (14,00,000) excluded 0
Liability for product warranty costs (5,60,000) 0 (5,60,000) deductible 1,79,200
Trade payables (2,67,40,000) (2,67,40,000) 0 0
Medical benefits for employees (24,50,000) 0 (24,50,000) deductible 7,84,000
Deferred tax asset - total 23,07,200
Deferred tax liability – total (31,58,400)
Deferred tax total (8,51,200)
Difference between IND AS 12 and AS 22

S Basis of Differences Ind AS 12: Income Taxes AS 22: Accounting for
N Taxes on Income
1 Approach for creating Based on balance sheet approach Based on income
Deferred Tax statement approach
2 Recognition of DTA Same criteria for recognising deferred tax DTA are recognised only
for unabsorbed arising from unabsorbed depreciation or if there should be virtual
depreciation or carry carry forward of losses as in case of certainty supported by
forward of losses deductible temporary differences. convincing evidence
3 Recognition of Current and deferred tax are recognised as AS 22 does not
Current and income or an expense and included in profit specifically deal with this
Deferred Tax or loss for the period, except to the extent aspect.
that the tax arises from a transaction or
event which is recognised outside profit or
loss, either in OCI or directly in equity, as
appropriate.
4 Investments in DTL is recognised for all taxable temporary Does not deal with this
subsidiaries, differences associated with investments in aspect.
associates and joint subsidiaries, associates and joint ventures,
ventures if certain conditions are satisfied.
5 Elimination of profit As per Ind AS 12, deferred tax should be Deferred tax in
and losses resulting recognised on temporary differences that consolidated financials
from the intra- arise from the elimination of profit and are a simple aggregation
group losses resulting from the intra- group of the deferred tax
Transactions transactions. recognised by the group
entities.
6 DTA/DTL arising out DTA/DTL arising from revaluation of non- Does not deal with this
of Revaluation of depreciable assets shall be measured on the aspect.
Assets basis of tax consequences from the sale of
asset rather than through use.
7 Changes in Entities Ind AS 12 provides guidance as to how an Does not deal with this
Tax Status or that of entity should account for the tax aspect.
its Shareholders consequences of a change in its tax status
or that of its shareholders.
8 Disclosure of DTA Does not deal with this aspect except in Deals with disclosure of
and DTL in Balance accordance with the requirements of Ind AS DTA and DTL.
Sheet 1.
9 In case of a Does not specifically deal with this aspect.

company paying tax
under section 115JB.
10 Guidance for Does not specifically deal with these Specially Provides
Recognition of situations. guidance regarding
Deferred Tax in a recognition of DT in Tax
Tax Holiday Period Holiday under Sec 80-IA,
80-IB, 10A & 10B
11 Guidance on Ind AS 12 gives special guidance on it. AS 22 gives no such
Uncertainty Over guidance.
Income Tax
Treatment
12 Disclosure More detailed. Less detailed.
Requirements
Explanation of Comparison of some important paragraph of IND AS 12 with AS 22:

1. Timing differences are the differences between taxable income and accounting income for a period that
originate in one period and are capable of reversal in one or more subsequent periods.
2. Thus, it can be seen that while AS 22 spoke of timing differences with reference to income, Ind AS 12
speaks of temporary differences with reference to carrying amounts and tax bases of assets and liabilities. In
other words, AS 22 adopts a P/L approach, whereas Ind AS 12 adopts a balance sheet approach towards
accounting for taxes on income.
3. Para 15: Except in the situations stated in paragraph 17, deferred tax assets should be recognised and carried
forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised.
4. Para 16: While recognising the tax effect of timing differences, consideration of prudence cannot be
ignored. Therefore, deferred tax assets are recognised and carried forward only to the extent that there is a
reasonable certainty of their realisation. This reasonable level of certainty would normally be achieved by
examining the past record of the enterprise and by making realistic estimates of profits for the future.
5. Para 17: Where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws,
deferred tax assets should be recognised only to the extent that there is virtual certainty supported by
convincing evidence that sufficient future taxable income will be available against which such deferred tax
assets can be realised.
6. Ind AS 12 and AS 22 both require exercise of prudence while recognizing deferred tax assets. However,
AS 22 emphasizes on virtual certainty supported by convincing evidence for recognizing deferred tax asset,
whereas Ind AS 12 requires only probable existence of taxable profit against which deductible temporary
differences can be utilized. Thus, the requirement of recognizing deferred tax asset under AS 22 is very strict
(virtual certainty moves towards more than 95% certainty through evidence such as a strong order book for
the future, firm orders in hand etc.), whereas under Ind AS 12, the same is more realistic focusing only on
probable existence of taxable profits. Ind AS 12 moves to exercise caution only in case of unused tax losses,
where it specifies that deferred tax asset arising from unused tax losses or tax credits can be recognized only
to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence
that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can
be utilised by the entity.
7. AS 22 specifically provides guidance regarding tax rates to be applied in measuring deferred tax
assets/liabilities in a situation where a company pays tax under section 115JB.

IND AS 10: EVENTS AFTER THE REPORTING PERIOD

1. The AGM of ABC Ltd for the year ended 31st March, 20X2 was held on 10th July, 20X2 and Board Meeting
has been conducted on 15th May, 20X2. Meanwhile, the company had to disclose certain financial information
pertaining to the year ended 31st March, 20X2 to SEBI as per SEBI regulations on 20th April, 20X2. Since,
certain financial information pertaining to the year ended 31st March, 20X2 is submitted to SEBI before
approval of financial statements by the Board, the management is suggesting that 20th April 20X2 shall be
considered as ‘after the reporting period’. Whether the management view is correct in accordance with the
guidance given in Ind AS 10? (TYK 1 replaced)
Solution: As per Ind AS 10, even if partial information has already been published, the reporting period will be
considered as the period between the end of the reporting period and the date of approval of financial statements.
In the above case, the financial statements for the year 20X1-20X2 were approved on 15th May, 20X2.
Therefore, for the purposes of Ind AS 10, ‘after the reporting period’ would be the period between 31st March,
20X2 and 15th May, 20X2.
IND AS 37: PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS
TYK 3 removed
IND AS 110: CONSOLIDATED FINANCIAL STATEMENTS

1. A Ltd. and B Ltd. set up a new company C Ltd. to construct and operate a toll road. A Ltd. is responsible for the
construction of the toll road, which is expected to take two years. Thereafter, B Ltd. has authority on all matters
related to toll road operation.
Is it possible for B Ltd. to have power over C Ltd. during the construction phase, even though A Ltd. is responsible
for construction and has authority to make decisions that need to be made during the construction phase?
(Unit 3 : Illustration 3 replaced)
Solution: B Ltd. may power during the construction phase, even though it cannot yet exercise its decision- making
rights during construction. The investor that has the ability to direct the activities that most significantly affect the
returns of the investee has power over the investee. Consideration should be given to the factors that determine profit
margin, revenue and valuation of C Ltd. For example, the construction of the road may be under the strict supervision
and precise requirements of the regulator say State Road Transport Corporation (SRTC).
A Ltd. will recover its costs plus a fixed percentage of margin. That margin will be returned through adjustment of the
amount of tolls that will flow to A Ltd., so that A Ltd. has first call on the cash flows generated by tolls. B Ltd. will
manage the toll road operations, including maintenance, and will be able to claim a management fee equivalent to any
residual cash in the entity after all operating expenses have been paid, including payments to A Ltd.
Assume that B Ltd. has the ability to set tolls (and not SRTC). In this scenario, A Ltd. merely works like a contractor,
earning a fixed margin, and probably a financing income for financing the construction. A Ltd. does not take much of
a risk on the cash flows, because the residual risks and rewards belong to B Ltd. Consequently, B Ltd. controls C Ltd.
from its inception.
IND AS 103: BUSINESS COMBINATIONS

TYK 14 (Earlier was illustration 4 in IND AS 102)

IND AS 115: REVENUE FROM CONTRACTS WITH CUSTOMERS

DIFFERENCES BETWEEN IND AS 115 AND AS 7 & 9
S Basis of Differences Ind AS 115: Contract with customers AS 7: Construct Contracts and AS 9:
N Revenue Recognition
1 Framework of Revenue Gives a framework of revenue recognition Do not provide any such overarching
Recognition within a standard. It specifies the core principle to fall upon in case of doubt.
principle for revenue recognition which
requires the ‘revenue to depict the
transfer of promised goods or services to
customers in an amount that reflects the
consideration to which the entity expects
to be entitled in exchange for those
goods or services’
2 Comprehensive Guidance Gives comprehensive guidance on how to Do not provide comprehensive guidance
on Recognition and recognise and measure multiple elements on this aspect.
Measurement of Multiple within a contract with customer.
Elements within a Contract
with Customer:
3 Coverage Deals with all types of performance AS7 covers only revenue from
obligation contract with customer. construction contracts which is measured
However, it does not deal with revenue at consideration received / receivable. AS
from ‘interest’ and ‘dividend’ which are 9 deals only with recognition of revenue
covered in financial instruments standard. from sale of goods, rendering of services,
interest, royalties and dividends.
4 Measurement of Revenue Revenue is measured at transaction price, As per AS 9, Revenue is the gross inflow
i.e., the amount of consideration to which of cash, receivables or other consideration
an entity expects to be entitled in arising in the course of the ordinary
exchange for transferring promised goods activities. Revenue is measured by the
or services to a customer, excluding charges made to customers or clients for
amounts collected on behalf of third goods supplied and services rendered to
parties. them and by the charges and rewards
arising from the use of resources by
them. As per AS 7, revenue from
construction contracts is measuredat
consideration received / receivable and to
be recognised as revenue as construction
progresses, if certain conditions are met.
5 Recognition of Revenue As per Ind AS 115, revenue is recognised As per AS 9, revenue is recognised when
when the control is transferred to the significant risks and rewards of ownership
customer. is transferred to the buyer. As per AS 7,
revenue is recognised when the outcome
of a construction contract can be
estimated reliably, contract revenue
should be recognised by reference to the
stage of completion of the contract
activity at the reporting date.
6 Capitalisation of Costs Provides guidance on recognition of costs AS 7 and AS 9 do not deal with such
to obtain and fulfill a contract, as asset. capitalisation of costs.
7 Multiple element or linked Ind AS 115 gives comprehensive guidance AS 7 and AS 9 provide no specific
transactions on how to recognize and measure multiple guidance for multiple element or linked
elements / performance obligations within transactions.
a contract with customer.
8 Guidance on Ind AS 115 provides guidance on AS 7 and AS 9 do not deal with such
combining contracts and combining contracts entered into at or aspects.
variable and contingent near the same time with the same
consideration customer (or related parties of the
customer), guidance on treatment of
variable and contingent consideration.

9 Adjustment for time value As per Ind AS 115, transaction price is As per AS 9, revenue is not adjusted for
of money adjusted for the effect of time value of time value of money.
money when a significant financing
component exists.
10 Guidance on Service Gives guidance on service concession AS does not provide such guidance.
Concession Arrangements arrangements and disclosures thereof
11 Disclosure Requirements Ind AS 115 contains detailed Less disclosure requirements are
disclosure requirements. prescribed in AS.
Explanation of Comparison of some important paragraph of IND AS 115 with AS 7 and AS 9:

(1) AS 7 and AS 9 both are silent on a situation where revenue should be reversed as specified in Ind AS 115.
(2) Ind AS 115 deals with warrantees in two specific ways as discussed above. However, as per AS 9 only a general
provision for warrantees is sufficient without revenue reversal or recognition of a contractual liability.
Example: An entity manufactures and sells computers that include an assurance-type warranty for the first 90
days. The entity offers an optional ‘extended coverage’ plan under which it will repair or replace any defective
part for three years from the expiration of the assurance-type warranty. Since the optional ‘extended coverage’
plan is sold separately, the entity determines that the three years of extended coverage represent a separate
performance obligation (i.e. a service-type warranty). The total transaction price for the sale of a computer and the
extended warranty is Rs. 36,000. The entity determines that the stand-alone selling prices of the computer and the
extended warranty are Rs. 32,000 and Rs. 4,000, respectively. The inventory value of the computer is Rs. 14,400.
Furthermore, the entity estimates that, based on its experience, it will incur Rs. 2,000 in costs to repair defects that
arise within the 90-day coverage period for the assurance-type warranty.
In the above question, the net effect of the accounting treatment can be seen as follows:
Accounting point Treatment under Ind AS 115 Treatment as per AS 9

How warranty Expense and liability effect created Provision is made on past experience
is accounted at the inception of contract with based on a certain percentage of total
customer. revenue to give effect to subsequent
warranty costs, say 5% of revenue.
Accounting treatment Total cash inflow 36,000 Total cash inflow 36,000
Warranty expense 2000 Provision for warranty
Accrued warranty cost 2,000 (at 5% of transaction price) 1800
Contract liability Contract liability – None
(for future service cost) 4000 Actual revenue 34,200
Actual revenue 32,000
(3) Neither AS 7 nor AS 9 has any specific mention about significant financing component in a transaction price.
Example: Accounting for significant financing component NKT Limited sells a product to a customer for Rs
121,000 that is payable 24 months after delivery. The customer obtains control of the product at contract
inception. The contract permits the customer to return the product within 90 days. The product is new and the
entity has no relevant historical evidence of product returns or other available market evidence. The cash selling
price of the product is Rs100,000 which represents the amount that the customer would pay upon delivery for
the same product sold under otherwise identical terms and conditions as at contract inception. The entity's cost of
the product is Rs 80,000. The contract includes an implicit interest rate of 10 per cent (i.e. the interest rate that
over 24 months discounts the promised consideration of Rs 121,000 to the cash selling price of Rs 100,000).
Analyse the above transaction with respect to its financing component
Point of accounting Treatment under Ind AS 115 Treatment under AS 9
Cash selling price Rs. Transaction price will be bifurcated as Transaction price of Rs. 1,21,000 shall
1,00,000 Promised Rs. 1,00,000 and Rs. 21,000. Rs. be treated as revenue once the risk and
selling price of Rs. 1,00,000 will be recognised as revenue rewards are transferred to the customer.
1,21,000 and Rs. 21,000 shall be treated as Here, there is no requirement to dissect
interest income being a price difference the transaction price to look for multiple
due to financing arrangement involved element arrangement like financing
in the transaction. component.
Revenue recognized Rs. 1,00,000 Rs. 1,21,000
Other income Rs. 21,000 over 2 years as per Ind AS No interest income is recognized.
(interest) 109
(4) Subsequent changes in transaction price are not specifically dealt with either AS 7 or AS 9 unlike in Ind AS 115.
(5) Contract acquisition cost is not specifically dealt with in either in AS 7 or AS 9. Let’s take an illustration to
understand the treatment in AS 7 / AS 9 and how it is different from Ind AS:
Example: A software company has agreed to pay a special commission of 1% of the contract value to a sales
consultant who has agreed to work based on the successful bidding of the proposal to a customer. In case the
contract is not signed by the company and the customer, for whatever reason, then there is no commission to be
paid to the sales consultant.
The contract value is 1 crore over 3 years and the company has signed the contract with the customer after
successful bidding with the help of the sales consultant.
In this context, the accounting differences will be as follows:
Particulars Treatment under Ind AS 115 Treatment under AS 9

1st year of operations -  Amortization as expense of the Expense of Rs. 1 crore as sales
Contract acquisition cost of yearRs. 33.33 lakhs commission
Rs. 1 crore  Contract asset Rs. 66.67 lakhs
2nd year of operations -  Amortization as expense of the No accounting treatment
Contract acquisition cost of yearRs. 33.33 lakhs
Rs. 1 crore  Contract asset Rs. 33.34 lakhs
3rd year of operations -  Amortization as expense of the No accounting treatment
Contract acquisition cost of yearRs. 33.34 lakhs
Rs. 1 crore  Contract asset of nil
(6) Service concession arrangements are specifically dealt with in detail unlike with AS 9 or AS 7. Also, there’s a
specific mention about recognition of financial asset or intangible asset as per Ind AS 115 which is not mentioned
in either AS 7 or AS 9.
IND AS 116: LEASES

Accounting of Rent Concessions arising due to COVID-19 Pandemic is
removed along with Illustration 47 to 51
DIFFERENCES BETWEEN IND AS 116 AND AS 19
S Particulars Ind AS 116 AS 19

N
1 Lease definition Under Ind AS 116, the definition of lease is similar to that Under Ind AS 116, the definition of lease
in AS 19. But, in Ind AS 116, there is substantial change is similar to that in AS 19. However,
in the guidance of how to apply this definition. The guidance part given therein is different.
changes primarily relate to the concept of ‘control’ used
in identifying whether a contract contains a lease or not.
2 Modifications Ind AS 116 brings in comprehensive prescription on No such comprehensive coverage is there
accounting of modifications in lease contracts.
3 Scope Ind AS 116 has no such scope exclusion AS 19 excludes leases of land from its
scope
4 Definition Ind AS 116 makes a distinctionbetween ‘inception of No such distinction has been made in AS
lease’ and ‘commencement of lease’ 19
5 Classification Ind AS 116 eliminates the requirement of classification of AS 19 requires a lessee to classify leases
leases as either operating leases or finance leases for a as either finance leases or operating
lessee and instead, introduces a single lessee accounting leases
model which requires lessee to recognise assets and
liabilities for all leases unless it applies the recognition
exemption (For lease of low value assets or short term
lease).

6 Sale & In Ind AS 116, the approach for computation of gain/lossAs per AS 19, if a sale and leaseback
Leaseback for a completed sale is different. The amount of gain/loss transaction results in a finance lease,
transactions should reflect the amount that relates to the right excess, if any, of the sale proceeds over
transferred to the buyer-lessor. the carrying amount shall be deferred
and amortised by the seller-lessee over
the lease term in proportion to
depreciation of the leased asset.
Ind AS 116 requires a seller- lessee and a buyer-lessor to AS 19 does not contain such specific
use the definition of a sale as per Ind AS 115 to requirement
determine whether a sale has occurred in a sale and
leaseback transaction. If the transfer of the underlying
asset satisfies the requirements of Ind AS 115 to be
accounted for as a sale, the transaction will be accounted
for as a sale and a lease by both the lessee and the
lessor. If not, then the seller- lessee shall recognise a
finance liability and the buyer-lessor will recognise a
financial asset to be accounted for as per the
requirements of Ind AS 109.
7 Treatment of
initial direct
costs
Finance
lease-lessor
accounting
Non- Interest rate implicit in the lease is defined in Either recognised as expense
manufactu such a way that the initial direct costs included immediately or allocated against the
rer / Non- automatically in the finance lease receivable. finance income over the lease term.
dealer
Manufacturer Same as per AS 19. Recognised as expense
/ dealer
Operating Added to the carrying amount of the leased asset Either deferred and allocated to
lease- and recognised as expense over the lease term income over the lease term in
Lessor on the same basis as lease income. proportion to the recognition of rent
accounting income, or recognized as expense in
the period in which incurred.
8 Initial direct Ind AS 116 contains clearer definition of ‘initial Different guidance given
costs direct costs’ Further, definition of the term
‘interest rate implicit in the lease’ has been
modified in Ind AS 116.
9 Presentation As a consequence of introduction of single lease Different guidance given
model for lessees, there are many changes in
the presentation in the three components of
financial statements viz. Balance sheet,
Statement of P&L, Statement of Cash flows.
10 Disclosure There are a number of changes in the disclosure Different guidance given
relating to qualitative aspects of leasing
transactions. e.g. Entities are required to
disclose the nature
Explanation of Comparison of some important paragraph of IND AS 116 with AS 19:

(1) AS 19 neither does provide additional guidance regarding “right to direct”, nor does it provide any guidance
regarding cases of pre-determined activities. AS 19, in general, considers right to use an identified asset.

(2) AS 19 does not include any requirement for substantive substitution right. Hence, even if a lessor has substantial
substitution right, the contract may be accounted for as a lease under AS 19.
(3) AS 19 does not contain any guidance on separation of lease and non-lease components. It seems that AS 19
requires accounting for the entire contract including the non-lease components. The Scope of AS 19 mentions that
“AS 19 applies to contracts that transfer the right to use assets even though substantial services by the lessor may
be called for in connection with the operation or maintenance of such assets. Examples include the supply of
property, vehicles, and computers.” Hence, one would be required to account for the entire contract as a lease
under AS 19, without separating the non-lease components.
(4) AS 19 does not provide any guidance on combining contracts or portfolio application of principles.
(5) AS 19 does not contain any guidance on re-assessment or changes to lease term.
(6) AS 19 is based on dual classification model of operating and finance leases with different classification and
measurement guidance for each of them.
 In case of finance lease, asset and liability is recognized at an amount equal to the fair value of the leased
asset at the inception of the lease, unless the present value of minimum lease payments is less than the fair
value.
 In case of operating lease, rentals payable is charged as an expense in the statementof profit and loss on a
straight-line basis over the lease term, even if the payments are not made on that basis, unless another
systematic basis is more representative of the time pattern of the user’s benefit.
Hence, the accounting for leases in the books of lessee under AS 19 is completely different from that under Ind
AS 116. ROU asset is not required to be accounted for under AS 19. Hence, the subsequent measurement,
presentation and disclosure of ROU asset is also not relevant from AS 19 perspectives.
(7) While the accounting for leases in the books of lessor is similar under AS 19 to that under Ind AS 116, AS 19
does not provide guidance on lease modifications.
IND AS 34: INTERIM FINANCIAL REPORTING

1. The entity’s financial year ends on 31st March. What are the “reporting periods” for which financial statements
(condensed or complete) in the interim financial report of the entity as on 30th September, 20X1 are required to
be presented, if:
(i) Entity publishes interim financial reports quarterly
(ii) Entity publishes interim financial reports half-yearly. (TYK 1)
Solution: Paragraph 20 of Ind AS 34, Interim Financial Reporting states as follows: “Interim reports shall
include interim financial statements (condensed or complete) for periods as follows:
(a) balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the
immediately preceding financial year.
(b) statements of profit and loss for the current interim period and cumulatively for the current financial year to
date, with comparative statements of profit and loss for the comparable interim periods (current and year-to-
date) of the immediately preceding financial year.
(c) statement of changes in equity cumulatively for the current financial year to date, with a comparative
statement for the comparable year-to-date period of the immediately preceding financial year.
(d) statement of cash flows cumulatively for the current financial year to date, with a comparative statement for
the comparable year-to-date period of the immediately preceding financial year.
Accordingly, periods for which interim financial statements are required to be presented are provided
herein below:
(i) Entity publishes interim financial reports quarterly
The entity will present the following financial statements (condensed or complete) in its interim financial report
of 30th September, 20X1:
Balance sheet at 30th September 31st March - -

20X1 20X1
Statement of profit 3 months ended 30th 3 months ended 30th 6 months ended 6 months ended
and loss for September 20X1 September 20X0 30th September 30th September
20X1 20X0
Statement of changes 6 months ended 30th 6 months ended

in equity for September 20X1 30th September
20X0
Statement of cash 6 months ended 30th 6 months ended 30th - -
flows for September 20X1 September 20X0
(ii) Entity publishes interim financial reports half-yearly
The entity’s financial year ends 31st March. The entity will present the following financial statements
(condensed or complete) in its half-yearly interim financial report of 30th September, 20X1:
Balance sheet at 30th September, 20X1 31st March, 20X1

Statement of profit and loss 6 months ending 30th 6 months ending 30th
for September, 20X1 September, 20X0
Statement of changes in 6 months ending 30th September 6 months ending 30th September
equity for 20X1 20X0
Statement of cash flows for 6 months ending 30th September 6 months ending 30th September
20X1 20X0
2. PQR Ltd. is preparing its interim financial statements for quarter 3 of the year. How the following transactions
and events should be dealt with while preparing its interim financials:
(i) It makes employer contributions to government-sponsored insurance funds that are assessed on an annual
basis. During Quarter 1 and Quarter 2 larger amount of payments for this contribution were made, while
during the Quarter 3 minor payments were made (since contribution is made upto a certain maximum level
of earnings per employee and hence for higher income employees, the maximum income reaches before year
end).
(ii) The entity intends to incur major repair and renovation expense for the office building. For this purpose, it
has started seeking quotations from vendors. It also has tentatively identified a vendor and expected costs
that will be incurred for this work.
(iii) The company has a practice of declaring bonus of 10% of its annual operating profits every year. It has a
history of doing so. (TYK 6 ) / (RTP Nov 22)
Solution: Paragraph 28 of Ind AS 34, Interim Financial Reporting states that an entity shall apply the same
accounting recognition and measurement principles in its interim financial statements as are applied in its annual
financial statements.
Further, paragraphs 32 and 33 of Ind AS 34, Interim Financial Reporting state that 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.
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 not. The Conceptual Framework does not allow the recognition of items in the balance sheet
which do not meet the definition of assets or liabilities.
Considering the above guidance, while preparing its interim financials, the transactions and events of the given case
should be dealt with as follows:
(i) If employer contributions to government-sponsored insurance funds are assessed on an annual basis, the
employer’s related expense is recognised using an estimated average annual effective contribution rate in its
interim financial statements, even though a large portion of the payments have been made early in the financial
year. Accordingly, it should work out an average effective contribution rate and account for the same accordingly,
in its interim financials.
(ii) The cost of a planned overhaul expenditure that is expected to occur in later part of the year is not anticipated for
interim reporting purposes unless an event has caused the entity to have a legal or constructive obligation. The
mere intention or necessity to incur expenditure related to the future is not sufficient to give rise to an obligation.
(iii) A bonus is anticipated for interim reporting purposes, if and only if,

(a) the bonus is a legal obligation or past practice would make the bonus a constructive obligation for which the
entity has no realistic alternative but to make the payments, and
(b) a reliable estimate of the obligation can be made. Ind AS 19, Employee Benefits provides guidance in this
regard.
A liability for bonus may arise out of legal agreement or constructive obligation because of which it has no alternative
but to pay the bonus and accordingly, needs to be accrued in the annual financial statements.
Bonus liability is accrued in interim financial statements on the same basis as they are accrued for annual financial
statements. In the instant case, bonus liability of 10% of operating profit for the year to date may be accrued.
In the given case, since the company has past record of declaring annual bonus every year, the same may be accrued
using a reasonable estimate (applying the principles of Ind AS 19, Employee Benefits) while preparing its interim
results.
IND AS 7: CASH FLOW STATEMENT

1. What will be the classification for following items in the statement of cash flows of both (i) Banks / Financial
institutions and (ii) Other Entities?
S. Particulars
No.
1. Interest received on loans and advances given
2. Interest paid on deposits and other borrowings
3. Interest and dividend received on investments in subsidiaries, associates and in other entities
4. Dividend paid on preference and equity shares, including tax on dividend paid on preference and
equity shares by other entities
5. Finance charges paid by lessee under finance lease
6. Payment towards reduction of outstanding finance lease liability
7. Interest paid to vendor for acquiring fixed asset under deferred payment basis
8. Principal sum payment under deferred payment basis for acquisition of fixed assets
9 Penal interest received from customers for late payments
10. Penal interest paid to suppliers for late payments
11. Interest paid on delayed tax payments
12. Interest received on tax refunds
Question 8 / (Already was in RTP Nov’22)
Solution: The following are the classification of various activities in the Statement of Cash Flows:
S. Particulars Classification for reporting cash flows
No. Banks / financial Other entities
institutions
1. Interest received on loansand Operating Activities Investing activities
advances given
2. Interest paid on deposits and Operating Activities Financing activities
other borrowings
3. Interest and dividend received on Investing activities Investing activities
investments in subsidiaries,
associates and in other entities
4. Dividend paid on preference and Financing activities Financing activities
equity shares, including tax on
dividend paid on preference and

equity shares by other entities

5. Finance charges paid by Financing activities Financing activities
lessee under finance lease
6. Payment towards reduction of Financing activities Financing activities
outstanding finance lease liability
7. Interest paid to vendor for Financing activities Financing activities

acquiring fixed asset under
deferred payment basis
8. Principal sum payment under Investing activities Investing activities
deferred payment basis for
acquisition of fixed assets
9. Penal interest received from Operating Activities Operating Activities
customers for late payments
10. Penal interest paid to Operating Activities Operating Activities
suppliers for late payments
11. Interest paid on delayed tax Operating Activities Operating Activities
payments
12. Interest received on tax Operating Activities Operating Activities
refunds
IND AS 113: FAIR VALUE MEASUREMENT

2. A Ltd. has invested in certain bonds. The fair value of these bonds in different markets to which A Ltd. has an
access is as follows:
(i) Principal market ₹ 500
(ii) Highest and best use ₹ 600
(iii) Net present value of expected cash flows ₹ 550
(iv) Asset based valuation approach ₹ 450
What will be the fair value of bond as per Ind AS 113? (Illustration 1)
Solution: As per para 24 of Ind AS 113, fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement
date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or
estimated using another valuation technique.
Further, para 72 of the standard inter alia states that the fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to
unobservable inputs (Level 3 inputs).
According to the above, the value of bond shall be ₹ 500 based on the principal market.

PROFESSIONAL AND ETHICAL DUTY OF A CHARTERED ACCOUNTANT

1. What are Ethics?
Ethics means a set of moral guidelines/moral principles that people follow with respect to
what is right or wrong. Some of these principles are not necessarily enforced by law,
although the law incorporates moral judgements.
A code of ethics sets out an organization's ethical guidelines and best practices to follow
for honesty, integrity, and professionalism.
The ICAI requires its members to adhere to a code of professional ethics. This provides a set
of moral guidelines for professional accountants.
2. Ethical Principles in Financial Reporting:
ICAI’s Code of Ethics (2019), the “Code”, which was developed on adopting the provisions
of International Federation of Accountants (IFAC) Code of Ethics for the Chartered
Accountants identifies the fundamental principles relevant to accountants. This Code of
Ethics is applicable from 1st July, 2020.
This Code has been derived from the International Ethics Standards Board for Accountants
(IESBA) Code of Ethics, 2018 issued by the International Federation of Accountants (IFAC).
A. The Code of Ethics (“the Code”) sets out fundamental principles of ethics for
Chartered Accountants (hereinafter also called as “accountants”), reflecting the
recognition and responsibility of the profession ‘chartered accountant’ in public
interest. These principles establish the standard of behaviour expected of a CA.
B. The Code provides a conceptual framework that Chartered Accountants are to apply in
order to identify, evaluate and address threats to compliance with the fundamental
principles. The Code sets out requirements and application material on various topics to
help accountants apply the conceptual framework to those topics.
Note: The principles laid down in the Code of Ethics pertaining to the case of audits,
reviews and other assurance engagements, including Independence Standards,
established by the application of the conceptual framework to threats to
independence in relation to these engagements are dealt with in detail in the
‘Advanced Auditing, Assurance and Professional Ethics’.
3. The Chartered Accountants Act, 1949

 A person qualifying as a Chartered Accountant becomes the member on registration with
the Institute of the Chartered Accountants of India.
 Every member has to carry on their professional and other conduct as per the Chartered
Accountants Act, 1949.
 A member is liable to disciplinary action under Section 21 of the Chartered Accountants
Act, if he is found guilty of any Professional or Other Misconduct.
4. What is professional or other misconduct for a chartered accountant?
A. Professional Misconduct: has been defined in

 Part I, II and III of First Schedule; and
 Part I & II of Second Schedule.
 A member who is engaged in profession of accountancy whether in practice or
service should conduct/restrict his actions in accordance with provisions contained
in respective parts of schedules. If he is found guilty of any acts or omissions
stated in any of the respective parts of Schedule, he/she shall be deemed to be
guilty of professional misconduct.
B. Other Misconduct: has been defined in

 part IV of First Schedule; and
 part III of Second Schedule.
 These provisions empower Council to inquire into any misconduct of a member even
if it does not arise out of his professional work. This is considered necessary
because a chartered accountant is expected to maintain the highest standards of
integrity even in his personal affairs and any deviation from these standards, even
in his non-professional work, would expose him to disciplinary action.
5. Types of Schedules
Part I: Professional misconduct in relation to No. of Clauses:
Chartered Accountants in practice 12
Part II: Professional misconduct in relation to No. of Clauses: 2

Members of the Institute in service
First Schedule
Part III: Professional misconduct in relation to
Members of the Institute generally No. of Clauses: 3
Part IV: Other misconduct in relation to Members of

the Institute generally No. of Clauses: 2
Part I: Professional misconduct in relation to

Chartered Accountants in practice No. of Clauses: 10
Part II: Professional misconduct in relation to

Second Schedule Members of the Institute generally No. of Clauses: 4
Part III: Other misconduct in

relation to Members of the
Institute generally No. of Clause: 1
Note: The clauses covered in Part I, II and III of Second Schedule have been shown below.
However, for detail explanation, one must refer the Chapter on ‘Professional Ethics’ of Final
Paper 3 ‘Advanced Auditing, Assurance and Professional Ethics’.
6. Second Schedule to The Chartered Accountants Act, 1949
Part I - Professional Misconduct in relation to Chartered Accountants in Practice: (10
clauses)
Clause 1: Discloses Information acquired in the course of his professional engagement to
any person other than his client so engaging him without the consent of his client or
otherwise than as required by any law for the time being in force.
Clause 2: Certifies or submits in his name or in the name of his firm, a report of an
examination of financial statements unless the examination of such statements and the
related records has been made by him or by a partner or an employee in his firm or by
another chartered accountant in practice.
Clause 3: Permits his name or the name of his firm to be used in connection with an
estimate of earnings contingent upon future transactions in manner which may lead to the
belief that he vouches for the accuracy of the forecast.
Clause 4: Expresses his opinion on financial statements of any business or enterprise in
which he, his firm, or a partner in his firm has a substantial interest.
Clause 5: Fails to disclose a material fact known to him which is not disclosed in a
financial statement, but disclosure of which is necessary in making such financial
statement where he is concerned with that financial statement in a professional capacity.
Clause 6: Fails to report a material misstatement known to him to appear in a financial
statement with which he is concerned in a professional capacity
Clause 7: Does not exercise due diligence or is grossly negligent in the conduct of his
professional duties.
Clause 8: Fails to obtain sufficient information which is necessary for expression of an
opinion, or its exceptions are sufficiently material to negate the expression of an opinion.
Clause 9: Fails to invite attention to any material departure from the generally accepted
procedure of audit applicable to the circumstances.
Clause 10: Fails to keep moneys of his client other than fees or remuneration or money
meant to be expended in a separate banking account or to use such moneys for purposes
for which they are intended within a reasonable time.
PART II - Professional misconduct in relation to members of the Institute generally: (4
clauses)
Clause 1: Contravenes any of the provisions of this Act or the regulations made there under
or any guidelines issued by the Council*.
Clause 2: Being an employee of any company, firm or person, discloses confidential
information acquired in the course of his employment except as and when required by any
law for the time being in force or except as permitted by the employer.
Clause 3: Includes in any information, statement, return or form to be submitted to the
Institute, Council or any of its Committees, Director (Discipline), Board of Discipline.
Disciplinary Committee, Quality Review Board or the Appellate Authority any particulars
knowing them to be false.
Clause 4: Defalcates or embezzles money received in his professional capacity.
Part III - Other misconduct in relation to members of the Institute generally (1 clause)
Clause 1: A member of the Institute, whether in practice or not, shall be deemed to be guilty
of other misconduct, if he is held guilty by any civil or criminal court for an offence which
is punishable with imprisonment for a term exceeding six months.
*Note : Council Guidelines
For conduct of a member being an employee, the Council Guidelines in its Appendix 34 of
the Chartered Accountants Act, 1949, states that a member of the Institute who is an
employee shall exercise due diligence and shall not be grossly negligent in the conduct of
his duties.

7. The following part of the Code of Ethics shall be dealt with in Financial Reporting:
Part I (applicable to all Chartered Accountants):
 Complying with the Code, Fundamental Principles and Conceptual Framework; and
Part II: (Applicable to Chartered Accountants in Service)
8. PART 1: Complying with the Code, Fundamental Principles and Conceptual Framework
A. Complying with the code:
 A Chartered Accountant’s responsibility is not exclusively to satisfy the needs of an
individual client or employing organization. The Code contains requirements and
application material to enable Chartered Accountants to meet their responsibility to act
in the public interest.
 A CA shall comply with the Code. There might be circumstances where laws or
regulations preclude an accountant from complying with certain parts of the Code. In
such circumstances, those laws and regulations prevail, and the accountant shall
comply with all other parts of the Code.
B. The Fundamental Principles: There are five fundamental principles of ethics for CA:
(a) Integrity:
 to be straightforward and honest in all professional and business relationships.
 shall not knowingly be associated with reports, returns, communications or other
information where he believes that the information:
 Contains a materially false or misleading statement;
 Contains statements or information provided negligently; or
 Omits or obscures required information where such omission or obscurity would be
misleading.
(b) Objectivity: not to compromise professional or business judgments because of bias,

conflict of interest or undue influence of others.
(c) Professional Competence and Due Care (PCDC)– to:

(i) attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organization receives competent professional
service, based on current technical and professional standards and relevant
legislation; and
(ii) act diligently and in accordance with applicable technical and professional
standards.
(iii) Maintaining professional competence requires a continuing awareness and an
understanding of relevant technical, professional and business developments.
(iv) shall take reasonable steps to ensure that those working in a professional capacity
under the accountant’s authority have appropriate training and supervision.
(d) Confidentiality: to respect the confidentiality of information acquired as a result of

professional and business relationships. He shall:
(i) Be alert to the possibility of inadvertent disclosure, including in a social
environment, and particularly to a close business associate or an immediate or a
close family member;
(ii) Maintain confidentiality of information
 within the firm or employing organization;
 disclosed by a prospective client or employing organization;

(iii) Not disclose confidential information acquired as a result of professional and

employment relationships
 outside the firm or employing organization without proper and specific
authority, unless there is a legal or professional duty or right to disclose;
 Not use for the personal advantage of the accountant or for the advantage of a
third party;
(iv) Not use or disclose any confidential information after that relationship has ended.
The following are circumstances where CA are or might be required to disclose
confidential information or when such disclosure might be appropriate:
(a) Disclosure is required by law
(b) Disclosure is permitted by law and is authorized by the client or the employing
organization; and
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the requirements of peer review or quality review of the
Institute
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a CA in legal proceedings; or
(iv) To comply with technical and professional standards, including ethics
requirements.
(e) Professional Behaviour: to comply with relevant laws and regulations and avoid any
conduct that the CA knows or should know might discredit the profession.
A CA shall be honest and truthful and shall not make:
(i) Exaggerated claims for the services offered by, or the qualifications or experience
of, the accountant; or
(ii) Disparaging references or unsubstantiated comparisons to the work of others.
Note: A CA might face a situation in which complying with one fundamental

principle conflicts with complying with one or more other fundamental principles.
In such a situation, the accountant might consider consulting, with:

 Others within the firm or employing organization
 Those charged with governance
 Institute
 Legal counsel.
However, such consultation does not relieve the accountant from the
responsibility to exercise professional judgment to resolve the conflict or, if
necessary, and unless prohibited by law or regulation, disassociate from the
matter creating the conflict.
C. The conceptual framework: The CA shall apply the conceptual framework to identify,
evaluate and address threats to compliance with the fundamental principles.
When applying the conceptual framework, the Chartered Accountant shall:
 Exercise professional judgment;
 Remain alert for new information and to changes in facts and circumstances; and Use
the reasonable and informed third party test.

9. PART 2: Chartered Accountants in Service

A. Conflict of interest: CA shall not allow a conflict of interest to compromise professional or
business judgment.
(1) Conflict Identification: A CA shall take reasonable steps to identify circumstances that
might create a conflict of interest, and therefore a threat to compliance with one or more
of the fundamental principles. Such steps shall include identifying:
(a) The nature of the relevant interests & relationships between the parties involved; and
(b) The activity and its implication for relevant parties.
(2) Threats created by Conflict of Interest: In general, the more direct the connection between
the professional activity and the matter on which the parties’ interests conflict, the more
likely the level of the threat is not at an acceptable level.
An example of an action that might eliminate threats created by conflicts of interest is
withdrawing from the decision-making process related to the matter giving rise to the
conflict of interest.
(3) Disclosure and Consent: It is generally necessary to:
(a) Disclose the nature of the conflict of interest and how any threats created were
addressed to the relevant parties; and
(b) Obtain consent from the relevant parties for the CA to undertake the professional
activity when safeguards are applied to address the threat.
B. Preparation and presentation of information
(a) Prepare or present the information in accordance with a relevant reporting framework;
(b) Prepare or present the information in a manner that is intended neither to mislead nor
to influence contractual or regulatory outcomes inappropriately;
(c) Exercise professional judgment to:
(i) Represent the facts accurately and completely in all material respects;
(ii) Describe clearly the true nature of business transactions or activities; and
(iii) Classify and record information in a timely and proper manner; and
(d) Not omit anything with the intention of rendering the information misleading or of
influencing contractual or regulatory outcomes inappropriately.
(1) Use of Discretion in Preparing or Presenting Information
 The CA shall not exercise discretion with the intention of misleading others. E.g.
Determining estimates, selecting or changing an accounting policy, timing of
transactions, structuring of transactions, selecting disclosures etc.
(2) Relying on the Work of Others
 A CA who intends to rely on the work of others, either internal or external to the
employing organization, shall exercise professional judgment to determine what steps
to take, if any, in order to fulfil the responsibilities.
Factors to consider in determining whether reliance on others is reasonable include:
 The reputation and expertise of, and resources available to, the other individual or
organization.
 Whether the other individual is subject to applicable professional and ethics standards.
(3) Addressing Information that Is or Might be Misleading
 The CA knows or has reason to believe that the information with which the accountant
is associated is misleading, the accountant shall take appropriate actions to seek to
resolve the matter.
 Actions that might be appropriate include: Discussing concerns with superior and/or the
appropriate level(s) of management within the accountant’s employing organization or
those charged with governance and requesting such individuals to take appropriate
action to resolve the matter. Such action might include:
 Having the information corrected.
 If the information has already been disclosed to the intended users, informing them
of the correct information.
 Consulting the policies and procedures of the employing organization (for example, an
ethics or whistle-blowing policy) regarding how to address such matters internally, The
CA might determine that the employing organization has not taken appropriate action.
If the accountant continues to have reason to believe that the information is misleading,
the following further actions might be appropriate provided that the accountant remains
alert to the principle of confidentiality:
 Consulting with:
• The Institute
• The internal or external auditor of the employing organization
• Legal counsel.
 Determining whether any requirements exist to communicate to:
• Third parties, including users of the information.
• Regulatory and oversight authorities.
 If, after exhausting all feasible options, the CA determines that appropriate action has
not been taken and there is reason to believe that the information is still misleading, it
might be appropriate for him to resign.
C. Acting with sufficient expertise
 A Chartered Accountant shall not intentionally mislead as to the level of expertise or
experience possessed.
 A self-interest threat to compliance with the principle of professional competence and
due care (PCDC) might be created if a CA has:
 Insufficient time for performing or completing the relevant duties.
 Incomplete, restricted or otherwise inadequate information for performing the duties.
 Insufficient experience, training and/or education.
 Inadequate resources for the performance of the duties.
 Examples of actions that might be safeguards to address such a self-interest threat
include:
 Obtaining assistance or training from someone with the necessary expertise.
 Ensuring that there is adequate time available for performing the relevant duties.
 If a threat to compliance with the principle of PCDC cannot be addressed, a CA shall
determine whether to decline to perform the duties in question. If the accountant
determines that declining is appropriate, the accountant shall communicate the reasons.
D. Financial interests, compensation and incentives linked to financial reporting and decision
making
 A CA shall not manipulate information or use confidential information for personal gain
or for the financial gain of others.
E. Inducements, Including Gifts and Hospitality
 An inducement is an object, situation, or action that is used as a means to influence
another individual’s behaviour, but not necessarily with the intent to improperly
influence that individual’s behaviour. It can take in many different forms e.g. Gifts,
Hospitality, Entertainment, Political or charitable donations, Appeals to friendship and
loyalty, Employment or other commercial opportunities, Preferential treatment, rights or
privileges
 A CA shall remain alert to potential threats to the accountant’s compliance with the
fundamental principles created by the offering of an inducement:
(a) By an immediate or close family member of the accountant to a counterparty with
whom the accountant has a professional relationship; or
(b) To an immediate or close family member of the accountant by a counterparty with
 Where the CA becomes aware of an inducement being offered, the accountant shall
advise the immediate or close family member not to offer or accept the inducement.
F. Responding to non-compliance with laws and regulations in case of employment with listed
entities: When responding to non-compliance or suspected noncompliance, the objectives of
the CA are:
(a) To comply with the principles of integrity and professional behaviour;
(b) By alerting management or, where appropriate, those charged with governance of the
employing organization, to seek to:
(i) Enable them to rectify, remediate or mitigate the consequences of the identified
or suspected non-compliance; or
(ii) Deter the non-compliance where it has not yet occurred; and
(iii) To take such further action as appropriate in the public interest.
(1) Responsibilities of All Chartered Accountants: If protocols and procedures exist within the
CA’s employing organization to address non-compliance or suspected non-compliance, the
accountant shall consider them in determining how to respond to such non-compliance.
(2) Responsibilities of Senior Chartered Accountants in Service: Senior Chartered Accountants in
service (“senior Chartered Accountants”) are directors, officers or senior employees able to
exert significant influence over, and make decisions regarding, the acquisition, deployment
and control of the employing organization’s human, financial, technological, physical and
intangible resources. There is a greater expectation for such individuals to take whatever
action is appropriate in the public interest to respond to non- compliance or suspected
noncompliance than other Chartered Accountants within the employing organization. This
is because of senior Chartered Accountants’ roles, positions and spheres of influence within
the employing organization.
(a) Addressing the Matter:
 discuss the matter with the accountant’s immediate superior, if any.
 If the accountant’s immediate superior appears to be involved in the matter, the
accountant shall discuss the matter with the next higher level of authority within the
employing organization.
 The senior Chartered Accountant shall also take appropriate steps to:
(a) Have the matter communicated to those charged with governance;
(b) Comply with applicable laws and regulations, including legal or regulatory provisions
governing the reporting of non-compliance or suspected non-compliance to an
appropriate authority;
(c) Have the consequences of the non-compliance or suspected non-compliance
rectified, remediated or mitigated;
(d) Reduce the risk of re-occurrence; and
(e) Seek to deter the commission of the non-compliance if it has not yet occurred.
(b) Determining Whether Further Action is Needed: Further action might take includes:
 Informing the management of the parent entity.
 Disclosing the matter to an appropriate authority as specified under respective law.
 Resigning from the employing organization.
(c) Seeking Advice: As assessment of the matter might involve complex analysis and
judgments, the senior Chartered Accountant might consider:
 Consulting internally, Obtaining legal advice, Consulting on a confidential basis with the
Institute.
(d) Determining Whether to Disclose the Matter to an Appropriate Authority: It would be

precluded if doing so would be contrary to law or regulation. Otherwise, the purpose of
making disclosure is to enable an appropriate authority to cause the matter to be
investigated and action to be taken in the public interest.
(e) Responsibilities of Chartered Accountants Other than Senior Chartered Accountants:

 If the Chartered Accountant identifies or suspects that noncompliance has occurred or
might occur, the accountant shall, subject to the considerations mentioned above under
the responsibilities for all Chartered Accountants, inform an immediate superior to
enable the superior to take appropriate action. If the accountant’s immediate superior
appears to be involved in the matter, the accountant shall inform the next higher level of
authority within the employing organization.
 In exceptional circumstances, the Chartered Accountant may determine that disclosure
of the matter to an appropriate authority is an appropriate course of action. If the
accountant does so, that disclosure is permitted. When making such disclosure, the
accountant shall act in good faith and exercise caution when making statements and
assertions.
(f) Pressure to breach the fundamental principles:

 A Chartered Accountant shall not:
(a) Allow pressure from others to result in a breach of compliance with the fundamental
principles; or
(b) Place pressure on others that the accountant knows, or has reason to believe, would
result in the other individuals breaching the fundamental principles.
 A CA might face pressure that creates threats to compliance with the fundamental
principles, for example an intimidation threat, when undertaking a professional activity.
Pressure might be explicit or implicit.
 Discussing the circumstances creating the pressure and consulting with others about
those circumstances might assist the CA to evaluate the level of the threat. Such
discussion and consultation, which requires being alert to the principle of confidentiality,
might include:
 Discussing the matter with the individual who is exerting the pressure to seek to
resolve it.
 Discussing the matter with the accountant’s superior.
 Escalating the matter with Higher levels of management, Internal or external auditors,
those charged with governance.
 Disclosing the matter in line with the entity’s policies, including ethics and
whistleblowing policies, using any established mechanism, such as a confidential
ethics hotline.
 Consulting with a colleague, superior, human resources personnel, or another Chartered
Accountant, Institute or industry associations, Legal counsel.
 An example of an action that might eliminate threats created by pressure is the
Chartered Accountant’s request for a restructure of, or segregation of, certain
responsibilities and duties so that the accountant is no longer involved with the
individual or entity exerting the pressure.

PROFESSIONAL AND ETHICAL DUTY OF A CHARTERED ACCOUNTANT - QUESTIONS
1. Infostar Ltd. is a listed company engaged in the provision of IT services in India. The directors are paid a bonus based
on the profits achieved by the company during the year as per the bonus table given below:
Range of Profit after tax Bonus to Directors

Less than ₹ 1 crore NIL
₹ 1 crore to < ₹ 5 crores 2% of Net Profit after tax
₹ 5 crores to < ₹ 10 crores 4% of Net Profit after tax
₹ 30 crores and above 10% of Net Profit after tax
The draft Statement of Profit and Loss for the year ended 31 March 20X2 currently shows a profit of ₹ 2 crores.
Issue:
On 25 March 20X2, Infostar Ltd. sold land located adjacent to its head office to a third party Zest Ltd. for a
consideration of ₹ 40 crores, with an option to purchase the land back on 25 May 20X2 for ₹ 40 crores plus a
premium of 6%. The amount received from the transaction eliminated the bank overdraft of Infostar Ltd. as on 31
March 20X2. On instructions of the Chief Financial Officer of the company, who is a chartered accountant, the
transaction was treated as a sale, including the profit arising on disposal in the Statement of Profit and Loss for the
year ending 31 March 20X2.
Required:
Discuss the ethical and accounting implications of the above issues with respect to a chartered accountant in service,
referring to the relevant Ind AS wherever appropriate.
Solution:
Accounting Treatment
The sale of land meets the conditions specified in Ind AS 115, Revenue from Contracts with Customers for qualifying
as a repurchase agreement as Infostar Ltd. has an option to buy back the land from Zest Ltd. and therefore, control is
not transferred as Zest Ltd.’s ability to use and gain benefit from the land is limited. Infostar Ltd. must treat the
transaction as a financing arrangement and record both the asset (land) and the financial liability (the amount received
which is repayable to Zest Ltd.).
Infostar Ltd. should not have derecognized the land from the financial statements because the risks and rewards of
ownership are not transferred. Thus, the substance of the transaction is a loan of ₹ 40 crores, with the 6% ‘premium’
on repurchase effectively reflecting interest payment.
Recording the aforesaid transaction as a sale is an attempt to manipulate the financial statements in order to show an
improved profit figure and a more favourable cash position. The sale must be reversed and the land should be
reinstated at its carrying amount prior to the transaction.
Ethical Issues
Chartered Accountants are required to comply with the fundamental principles laid down in the Code of Ethics. This
includes acting with integrity. It appears that the integrity of CFO is compromised in this situation as he had
accounted the transaction as sale and not as a loan or financial arrangement. The effect of accounting it as sale just
before the year end is merely to improve profits and eliminate the bank overdraft, thereby making the cash position
seem better than it is. This effectively amounts to ‘window dressing’, which is not honest as it does not present the
actual performance and position of Infostar Ltd.
Accountants must also act with objectivity, which means they must not allow bias, conflict or undue influence of
others to override professional or business judgments. Therefore, the management must put the interests of the
company and the shareholders before their own interests. The pressure to show profits and achieve a bonus is in the
self-interest of the directors and seems to have been partly driven the transaction and the subsequent accounting,
which is clearly a conflict of interest.
It is further necessary for the accountants to comply with the principles of professional behaviour, which require
compliance with relevant laws and regulations. In the instant case, the accounting treatment is not in conformity with
Ind AS. The given facts do not make it clear whether CFO is aware of this or not. If he is aware but still applied the
incorrect treatment, he has not complied with the principle of professional behaviour. It may be that he was under
undue pressure from the directors to record the transaction in this manner. If, however, he is not aware that the
treatment is incorrect, then he has not complied with the principle of professional competence as his knowledge and
skills are not updated.
In such a case, he is subject to professional misconduct under Clause 1 of Part II of Second Schedule of the Chartered
Accountants Act, 1949. Clause 1 states that a member of the Institute, whether in practice or not, shall be deemed to
be guilty of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made
thereunder or any guidelines issued by the Council. As per the Guidelines issued by the Council, a member of the
Institute who is an employee shall exercise due diligence and shall not be grossly negligent in the conduct of his
duties.
2. Rustom Ltd., a company engaged in oil extraction, has a present obligation to dismantle the oil rig installed by it at the
end of the useful life of 10 years. Rustom Ltd. cannot cancel this obligation or transfer it. Rustom Ltd. intends to carry
out the dismantling work itself and estimates the cost of the work to be ₹ 100 crores at the end of 10 years.
The directors of Rustom Ltd. are aware of the requirements of Ind AS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’, read with Ind AS 16 ‘Property, Plant and Equipment’. However, they propose to expense the
costs of dismantling the oil rig as and when incurred, with no entries or disclosures in the latest financial statements.
They argue that application of Ind AS involves judgment, and although prudence is mentioned in the Conceptual
Framework, it is only one among the many ways of achieving faithful representation.
Required: Discuss whether the directors are acting unethically in the above instance what should be the practising
Chartered Accountant’s course of action in this regard.
Solution: The treatment proposed by the director is in contravention of Ind AS 37. As per Ind AS 16 and Ind AS 37,
an entity, at the time of initial recognition of the asset, capitalises the present value of the cost of dismantling to be
occurred at the end of the life of the asset, to the cost of the asset by simultaneously creating a provision for the same.
In the given case, it appears to be a deliberate intention to contravene Ind AS 16 and Ind AS 37, and not an
unintentional mistake.
Though the directors can exercise strong or undue influence over the chartered accountant, the chartered accountant is
bound to act with integrity and remain unbiased, recommending to the directors that Ind AS 16 and Ind AS 37 must be
complied with, and ensure appropriate entries are passed in the financial statements. The matter may be raised before
the non-executive directors, explaining the issue to them and ensure the financial statements are true and fair and
comply with the relevant Ind AS.
It is essential for the chartered accountant to inform those in governance (directors) about the necessary corrective
measures in this case. By doing so, he uphold the fundamental principle of professional behaviour and demonstrate
compliance with relevant laws and regulations. By communicating the corrective measures to those responsible for
governance, the chartered accountant can ensure that the contravention of Ind AS 16 and Ind AS 37 is addressed and
rectified.
However, if he does not communicate the corrective measures to the directors, the fundamental principle of
professional behaviour will be breached. Members should comply with relevant laws and regulations and avoid any
action that discredits the profession. By knowingly allowing the directors not to apply the requirements of an Ind AS,
the Chartered Accountant would not be acting diligently in accordance with applicable guidance and would not be
demonstrating professional competence and due care. In such a situation, he will be subject to professional
misconduct under Clauses 5, 6 and 7 of Part I of Second Schedule of the Chartered Accountants Act, 1949.
Clause 5 states that a chartered accountant is guilty of professional misconduct when he fails to disclose a material
fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such
financial statement where he is concerned with that financial statement in a professional capacity.
Clause 6 states that a CA is guilty of professional misconduct when he fails to report a material misstatement known
to him to appear in a financial statement with which he is concerned in a professional capacity.
Clause 7 states that a Chartered Accountant is guilty of professional misconduct when he does not exercise due
diligence or is grossly negligent in the conduct of his professional duties.
3. Alaap Ltd.’s directors feel that the company needs a significant injection of capital in order to modernize plant and
equipment as the company has been promised firm orders if it can produce goods of international standards. The
current lending policies of the banks require prospective borrowers to demonstrate strong projected cash flows,
coupled with a Debt Service Coverage Ratio exceeding 10. However, the current projected statement of cash flows
does not satisfy the bank’s criteria for lending. The directors have told the bank that the company is in an excellent
financial position, the financial results and cash flow projections will meet the criteria and the chartered accountant
will submit a report to this effect shortly. The chartered accountant has recently joined Alaap Ltd. and has openly
stated that he cannot afford to lose his job because of financial commitments.
Required: Discuss the potential ethical conflicts which may arise in the above scenario and the ethical principles
which would guide how the chartered accountant should respond to the situation.

Solution:
The given scenario presents a twofold conflict of interest:
(i) Pressure to obtain finance and chartered accountant’s personal circumstances
The chartered accountant is under pressure to provide the bank with a projected cash flow statement that will
meet the bank’s criteria when in fact the actual projections do not meet the criteria. The chartered accountant’s
financial circumstances mean that he cannot lose his job, thus the ethical and professional standards required of
the accountant are at odds with the pressures of his personal circumstances.
(ii) Duty to shareholders, employees and bank
The directors have a duty to act in the best interests of the company’s shareholders and employees, and a duty
to present fairly any information the bank may rely on . The injection of capital to modernise plant and
equipment appears to be for capacity expansion which will lead to greater profits, thus being in the interests of
the shareholders and the employees. However, if such finance is obtained based on misleading information, it
could actually be detrimental to the going concern status of the company.
It could be argued that there is a conflict between the short-term and medium-term interests of the company (the
need to modernise the company) and its long-term interests (the detriment to the company’s reputation if its
directors do not conform to ethics).
Ethical principles guiding the chartered accountant’s response
The chartered accountant’s financial circumstances coupled with the pressure from the directors could end up in him
knowingly disclosing incorrect information to the bank, thereby compromising the fundamental principles of
objectivity, integrity and professional competence.
By exhibiting bias due to the risk of losing his job through reporting favourable cash flows to the bank, objectivity is
compromised. Further, integrity is also compromised as by not acting in a straightforward and honest manner,
incorrect information is knowingly disclosed. Forecasts, unlike financial statements, do not specify that they have
been prepared in accordance with Ind AS. However, the principle of professional competence requires the accountant
to prepare the cash flow projections to the best of his professional judgment which would not be the case if the
projections showed a more positive position than what is actually anticipated.
Appropriate action
The chartered accountant faces an immediate ethical dilemma and must apply his moral and ethical judgment. As
a professional, he is responsible for presenting the truth, and not to indulge in ‘creative accounting’ owing to pressure.
Thus, the chartered accountant should put the interests of the company and professional ethics first and insist
that the report to the bank be an honest reflection of the company’s current financial position. Being an advisor to the
directors, he must prevent deliberate misrepresentation to the bank, no matter what the consequences to him are
personally. The accountant should not allow any undue influence from the directors to override his professional
judgment or integrity. This is in the long-term interests of the company and its survival.
It is suggested that the chartered accountant should communicate to the directors to submit the projected statement of
cash flows to the bank, which reflects the current position of the company.
Knowingly providing incorrect information is considered as professional misconduct. To prevent such misconduct, a
chartered accountant should not provide incorrect projected cash flows to the bank and colour the financial position of
the entity. By adhering to the ethical principles, the chartered accountant will maintain his professional integrity and
contribute to the trust and reliability placed in the work expected from him.
However, if he submits the incorrect projected statement of cash flows, he would be subject to professional
misconduct under Clause 1 of Part II of Second Schedule of the Chartered Accountants Act, 1949. The Clause 1 states
that a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if
he contravenes any of the provisions of this Act or the regulations made there under or any guidelines issued by the
Council. As per the Guidelines issued by the Council, a member of the Institute who is an employee shall exercise due
diligence and shall not be grossly negligent in the conduct of his duties.
4. Sunshine Ltd., a listed company in the cosmetics industry, has debt covenants attached to some of its borrowings
which are included in Financial Liabilities in the Balance Sheet. These covenants mandate the company to repay the
debt in full if Sunshine Ltd. fails to maintain a liquidity ratio and operating margin above the specified limit.
The directors alongwith the CFO of the Company who is a chartered accountant are considering entering into a fresh
five-year leasing arrangement but are concerned about the negative impact any potential lease obligations may have
on the above-mentioned covenants. Accordingly, the directors and CFO propose that the lease agreement be drafted in
such a way that it is a series of six ten-month leases rather than a single five-year lease in order to utilize the short-
term lease exemption available under Ind AS 116, Leases. This would then enable accounting for the leases in their

legal form. The directors believe that this treatment will meet the requirements of the debt covenant, though such
treatment may be contrary to the accounting standards.
Required: Discuss the ethical and accounting implications of the above issue from the perspective of CFO.
Solution:
Lease agreement substance presentation
Stakeholders make informed and accurate decisions based on the information presented in the financial statements and
as such, ensuring the financial statements are reliable and of utmost importance. The directors of Sunshine Ltd. are
ethically responsible to produce financial statements that comply with Ind AS and are transparent and free from
material error. Lenders often attach covenants to the terms of the agreement in order to protect their interests in an
entity. They would also be of crucial importance to potential debt and equity investors when assessing the risks and
returns from any future investment in the entity.
The proposed action by Sunshine Ltd. appears to be a deliberate attempt to circumvent the terms of the covenants. The
legal form would require treatment as a series of short-term leases which would be recorded in the profit or loss,
without any right-of-use asset and lease liability being recognized as required by Ind AS 116, Leases. This would be a
form of ‘off-balance sheet finance’ and would not report the true assets and obligations of Sunshine Ltd. As a result of
this proposed action, the liquidity ratios would be adversely misrepresented. Further, the operating profit margins
would also be adversely affected, as the expenses associated with the lease are likely to be higher than the deprecation
charge if a leased asset was recognized, hence the proposal may actually be detrimental to the operating profit
covenant.
Sunshine Ltd. is aware that the proposed treatment may be contrary to Ind AS. Such manipulation would be a clear
breach of the fundamental principles of objectivity and integrity as outlined in the Code of Ethics. It is important for a
chartered accountants to exercise professional behaviour and due care all the time. The proposals by Sunshine Ltd. are
likely to mislead the stakeholders in the entity. This could discredit the profession by creating a lack of confidence
within the profession. The directors of Sunshine Ltd. must be reminded of their ethical responsibilities and persuaded
that the accounting treatment must fully comply with the Ind AS and principles outlined within the framework should
they proceed with the financing agreement.
However, if the CFO fails to comply with his professional duties, he will be subject to professional misconduct under
Clause 1 of Part II of Second Schedule of the Chartered Accountants Act, 1949. The Clause 1 states that a member of
the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he contravenes any
of the provisions of this Act or the regulations made thereunder or any guidelines issued by the Council. As per the
Guidelines issued by the Council, a member of the Institute who is an employee shall exercise due diligence and shall
not be grossly negligent in the conduct of his duties.
5. Agastya Ltd. is a listed company engaged in the manufacturing of automotive spare parts. The company is preparing
the financial statements for the year ended 31 March 20X3. The directors of Agastya Ltd. are entitled to an incentive
based on the operating profit margin of the company. You have been appointed as a consultant to advise on the
preparation of the financial statements, and you notice the following issue:
Issue:
On 1 April 20X2, Agastya Ltd.’s defined benefit pension scheme was amended to increase the pension entitlement
from 12% of final salary to 18.5% of final salary. This amendment was made due to the salary cuts made on account
of the pandemic. The chartered accountant has shown such increase in the pension entitlement (amounting to ₹ 85
crores) under the head ‘Employee Benefits’ forming part of the operating profit. The directors are unhappy with this
presentation. They believe that the pension scheme is not integral to the operations of the company since it is paid
post-retirement of the employees, and thus insist that such presentation would be misleading in computing the
operating profit or loss. Accordingly, the directors propose a change in accounting policy so that all such gains or
losses on pension scheme would be recognized under Other Comprehensive Income. The directors believe that this
policy choice will make the financial statements more consistent, understandable thereby justifying the same on
grounds of fair presentation as defined in the Framework. The pension scheme of Agastya Ltd. is currently in deficit.
Required: Discuss the ethical and accounting implications of the above issues, referring to the relevant Ind AS
wherever appropriate from the perspective of the consultant.
Solution:
Ethical Implications of change in accounting policy
Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors only permits a change in accounting
policy if the change is: (i) required by an Ind AS or (ii) results in the financial statements providing reliable and more
relevant information about the effects of transactions, other events or conditions on the entity’s financial position,
financial performance or cash flows. A retrospective adjustment is required unless the change arises from a new

accounting policy with transitional arrangements to account for the change. It is permissible to depart from the
requirements of Ind AS but only in extremely rare circumstances where compliance would be so misleading that it
would conflict with overall objectives of the financial statements. Practically, this override is rarely, if ever, invoked.
Ind AS 19, Employee Benefits requires all gains and losses on a defined benefit pension scheme to be recognised in
profit or loss except for the remeasurement component relating to plan assets and defined benefit obligations, which
must be recognized in Other Comprehensive Income. Accordingly, current service cost, past service cost and net
interest cost on the net defined benefit obligation must all be recognized in profit or loss. Ind AS 19 does not offer any
alternative treatment as an accounting policy choice in terms of Ind AS 8, and therefore the directors’ proposals
cannot be justified on the grounds of fair presentation. The directors are ethically bound to prepare financial
statements which reflect a true and fair view of the entity’s performance and financial position and comply with all
Ind AS.
It is the self-interest in the pension scheme that is making the directors consider a change in accounting policy in order
to maximize profits for maximizing their bonus potential. The amendment to the pension scheme is a past service cost
in terms of Ind AS 19 which should be expensed to the profit or loss during the period such plan amendment has
occurred, i.e., immediately. This would impact the operating profits of Agastya Ltd. thereby reducing the potential
bonus.
Additionally, it appears that the directors wish to manipulate aspects of the pension scheme such as current service
cost and, since the pension scheme is given to be in deficit, the net finance cost. The directors are purposely
manipulating the presentation of these items by recording them in equity instead of Profit or Loss. The financial
statements would not be compliant with Ind AS and would not give a reliable picture of the true costs to the company
of operating the pension scheme and this treatment would make the financial statements less comparable with other
entities correctly applying Ind AS 19. Further, the explicit statement given in the financial statements stating that all
compliance with Ind AS is achieved would be an incorrect statement to make in the event of the above non-
compliance. Further, such treatment would be against the fundamental principles of objectivity, integrity and
professional behaviour as stated in the Code of Ethics. The directors need to understand their ethical responsibilities
and avoid implementing the proposed change in policy.
As a meaningful addition, the directors could use other tools/indicators within the financial statements to explain the
company’s results such as drawing attention of the users to the cash generated from operations which would exclude
the non-cash pension expense. Alternative measures such as EBITDA could be disclosed where non-cash items are
consistently eliminated for comparison purposes.
When a Chartered Accountant discovers that a company's financial position has been compromised through
misstatement, they have two options. They can either report the non- compliance to the authorities or consider
withdrawing from the engagement. Both the actions ensure integrity, transparency, and the interests of stakeholders at
large.
In case the consultant-chartered accountant is influenced by the director’s suggestions and report accordingly, he will
be subject to professional misconduct under Clauses 5,7 and 8 of Part I of Second Schedule of the Chartered
Accountants Act, 1949.
Clause 5 states that a Chartered Accountant is guilty of professional misconduct when he fails to disclose a material
fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such
financial statement where he is concerned with that financial statement in a professional capacity.
Clause 7 states that a Chartered Accountant is guilty of professional misconduct when he does not exercise due
diligence or is grossly negligent in the conduct of his professional duties.
Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act 1949 states that a CA is guilty of
professional misconduct when he fails to obtain sufficient information which is necessary for expression of an opinion
or its exceptions are sufficiently material to negate the expression of an opinion.
6. The directors of Spinz Ltd. are eligible for an incentive computed as a percentage of ‘Cash Generated from
Operations’ as defined in Ind AS 7, Statement of Cash Flows in accordance with the terms of their appointment. Due
to the onset of the pandemic, the company has not performed well, and it has, in fact, lost Cash from Operations. In
order to meet the cash requirements, the directors of Spinz Ltd. are planning to dispose off under-utilized equipment
and investments (not subsidiaries or associates). The directors opine that since the cash generated from sale of such
equipment and investments would be used for operations, the inflows on such sale would be presented in the
Statement of Cash Flows under ‘Cash from Operations’. The directors are concerned about meeting the targets in
order to ensure security of their jobs and feel that this treatment would enhance the ‘cash flow picture’ of the business.
The inflows on sale of such equipment and investments have the potential to make the ‘Cash from Operations’ figure
positive.

Required: Discuss the ethical responsibility of Spinz Ltd.’s Chartered Accountant who is an employee to ensure that
the manipulation of the Statement of Cash Flows, as suggested by the directors, does not occur.
Solution: In order to meet targets, it is quite possible that management may want to present a company’s results in a
favourable manner. Such an objective could be achieved by employing creative accounting techniques such as
window dressing, or as can be seen in the case, inaccurate classification.
As per para 16 of Ind AS 7, separate disclosure of cash flows arising from investing activities is important because the
cash flows represent the extent to which expenditures have been made for resources intended to generate future
income and cash flows. Only expenditures that result in a recognized asset in the balance sheet are eligible for
classification as investing activities. Example of cash flows arising from investing activities are cash receipts from
sales of property, plant and equipment, intangibles and other long-term assets.
Presenting proceeds of sale of investments and under-utilized equipment as part of ‘Cash from Operations’ gives a
misleading picture of the financial statements. Operating cash flows are crucial for the long-term survival of the
company, and a negative cash from operations figure could be a possible indicator of cash shortage in the short-term,
and possibly question the going concern assumption of the entity in the long-run. Further, operating cash flows are
recurring, whereas investing and financing cash flows tend to be one-off.
In the given case, it may appear that to meet cash requirements for its operations, the company is selling its
investments and equipment. Selling of equipment and investments is not usually a part of trading operations. Such
sales generate short-term cash flow and cannot be repeated on a regular basis. The proposed misclassification could be
regarded as a deliberate attempt to mislead stakeholders about the performance of Spinz Ltd. and its future
performance, which is unethical.
Chartered Accountants have a duty, not only to the company they work for, but also to their professional body (i.e.,
ICAI), and to the stakeholders of the company. Proceeds received from sale of equipment and investment should be
presented under ‘Cash Flows from Investing Activities’ (instead of ‘Operating Activities’) in accordance with Ind AS
7, Statement of Cash Flows. As per the Code of Ethics, a Chartered Accountant should follow the fundamental
principle of professional competence and due care which includes preparing financial statements in compliance with
Ind AS. In case the accountant permits the treatment of the matter as proposed by the management, it would result in a
breach of the principle of professional competence and due care. This treatment may be permitted by the accountant
under pressure from the management.
The chartered accountant should prevent the management not to proceed with the aforesaid accounting treatment
which violates Ind AS 7. In case the management insists on continuing with their suggested treatment, then the
chartered accountant must bring this to the attention of the auditors. Otherwise, the chartered accountant would be
subject to professional misconduct under Clause 1 of Part II of Second Schedule of the Chartered Accountants Act,
1949. The Clause 1 states that a member of the Institute, whether in practice or not, shall be deemed to be guilty of
professional misconduct, if he contravenes any of the provisions of this Act or the regulations made thereunder or any
guidelines issued by the Council. As per the Guidelines issued by the Council, a member of the Institute who is an
employee shall exercise due diligence and shall not be grossly negligent in the conduct of his duties.
7. Infostar Ltd. is a listed company engaged in the provision of IT services in India. The directors are paid a bonus based
on the profits achieved by the company during the year as per the bonus table given below:
Profit Range Bonus to Directors

NIL < Profit < ₹ 1 crore NIL
₹ 1 crore < Profit < ₹ 5 crores 2% of Net Profit
₹ 5 crores < Profit < ₹ 10 crores 4% of Net Profit
Profit > ₹ 30 crores 10% of Net Profit
The draft Statement of Profit and Loss for the year ended 31 March 20X2 currently shows a profit of ₹ 2 crores.
Issue:
The employees of Infostar Ltd. have historically been paid an individual-performance-based discretionary incentive
for the last 15 years. Based on the past trends and performance, the bonus amount for the year 20X1-20X2 would be ₹
3 crores. In view of the possibility of the directors not receiving the bonus on account of the company’s poor
performance, Infostar Ltd.’s Chief Financial Officer (CFO), who is a chartered accountant, has suggested that the
discretionary incentive usually payable to the employees could be avoided in the current year, which would result in
the company reporting profits. As a part of its annual report, Infostar Ltd. reports employee satisfaction scores, staff
attrition rates, gender equality and employee absenteeism rates as non- financial performance measures. The CFO has

also told the directors over mail that no stakeholder reads the non-financial information anyway, and thus his
aforesaid suggestion of not paying the discretionary incentive would not impact the company greatly.
Required: Discuss the ethical and accounting implications of the above issues, referring to the relevant Ind AS
wherever appropriate from perspective of CA. Sushil Bhupathy.
Solution:
Ethical Considerations
Long-term success of any organization strongly depends on the fair treatment of employees, which in turn is based on
the ethical behaviour of the management as well as how the same is perceived by the stakeholders. In the given case,
the CFO has suggested not paying the discretionary bonus, which the directors are considering as it will enable the
company to record profits of ₹ 2 crores, thereby ensuring a bonus pay out to the directors. This suggestion is not
illegal at all as the bonus is discretionary rather than statutory/contractual. In other words, the company has no legal
obligation to pay the bonus to the employees. However, the reason behind non-payment of the bonus is what gives
rise to ethical considerations. The suggestion by the CFO will have the aforesaid impact of reducing expenses and
improving profits.
On a moral ground, the suggestion is likely to have negative consequences for the company. The employees would be
dissatisfied that the bonus has been withdrawn, and further, when they would see the directors withdrawing bonuses
out of the profits arising on a saving in bonus costs, it would have a negative impact on employee morale, which
would result in low employee satisfaction scores and poor retention rates, which are reported as non-financial
information in the financial statements. Companies are also under increasing pressure to reduce the wage gap between
the management and its employees. By not paying a bonus, this metric will be adversely affected.
The CFO’s statement that the above action will not negatively impact the company as the non- financial reporting
indicators are not widely read by the users is misleading. The non-financial information is becoming increasingly
important to the users of financial statements as they care about companies’ treatment of their employees and view it
as being important in the long-term success of the company.
A chartered accountant has a responsibility to exercise due diligence and clearly consider both financial and non-
financial information while discharging his professional duty. It would be unethical for a chartered accountant to
guide the management on matters which may result into any kind of disadvantage (it includes even non-financial
matters) to the stakeholders.
Further, a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public
interest. A chartered accountant’s responsibility is not exclusively to satisfy the needs of an individual client or
employing organization. Therefore, the Code contains requirements and application material to enable chartered
accountants to meet their responsibility to act in the public interest. (Refer Section 100.1 A1, Code of Ethics issued by
ICAI)
Hence, it is essential for a chartered accountant to uphold the professional standards and act in accordance with the
ethical principles by ensuring transparency and accuracy in financial reporting.
8. Shastra Ltd. desires to upgrade its production process since the directors believe that technology-led production is the
only way the company can remain competitive. On 1 April 20X5, the company entered into a property lease
arrangement in order to obtain tax benefits. However, the draft financial statements do not show a lease asset or a
lease liability as on date.
A new financial controller, CA. Sunil Raghavan, joined Shastra Ltd. before the financial year ending 31 March 20X6
and was engaged in the review of financial statements to prepare for the upcoming audit and to begin making a loan
application to finance the new technology. CA. Sunil Raghavan believes that the lease arrangement should be
recognized in the Balance Sheet. However, the Managing Director, Ms. Anusha Shrivastava, an MBA (Finance),
strongly disagrees. She wishes to charge the lease rentals to the Statement of Profit or Loss. Her opinion is based on
the understanding that the lease arrangement is merely a monthly rental payment, without any corresponding asset or
obligation, since there is no ‘invoice’ for transfer of asset to Shastra Ltd. Her disagreement also stems from the fact
that showing a lease obligation in the Financial Statements would impact the gearing ratio of the company, which
could have an adverse impact on the upcoming loan application. Ms. Anusha has made it clear to CA. Sunil Raghavan
that at stake is not only the loan application but also his future prospects at Shastra Ltd.
Required: Discuss the potential ethical conflicts which may arise in the above scenario and the ethical principles
which would guide how the financial controller should respond to the situation.
Solution: As per Ind AS 116, Leases, at the inception of a contract, an entity shall assess whether the contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.

In accordance with the above definition, Shastra Ltd. must recognise a right-of-use asset representing the property and
a corresponding lease liability for the obligation to make lease payments. At the commencement date, the right-of-use
asset so recognised would include:
 The amount of the initial measurement of lease liability;
 Any initial direct costs;
 Any costs to be incurred for dismantling or removing the underlying asset or restoring the site at the end of the
lease term.
The liability for the lease obligation would be measured as the present value of future lease payments including
payments that would be made towards any residual value guarantee, discounted using the rate implicit in the lease or
the incremental rate of borrowing of the lessor, whichever is available.
The fact that there is no ‘invoice’ evidencing transfer of the asset cannot be a reason to avoid recognition of the right-
of-use asset. In fact, what is being recognised is not an asset, since ownership rights are not transferred. What is
sought to be recognised under Ind AS 116 is the right to use the asset in the manner required by the lessee Shastra Ltd.
Further, since the lease represents an obligation to pay lease rentals in the future, a corresponding lease liability
should be recognised. Not recognising the right-of-use asset or lease liability would not only be a violation of Ind AS
116, Leases, but would also be an incorrect presentation of the financial position, which is critical given that Shastra
Ltd. is interested in taking a loan for its operations.
Ethical issues:
The managing director’s threat to the financial controller results in an ethical dilemma for the financial controller.
This pressure is greater because the financial controller is new.
Threats to fundamental principles
The fact that the position of the financial controller has been threatened if the treatment suggested by the managing
director is not followed indicates that there is an intimidation threat to the fundamental principles of objectivity and
integrity.
Further, as the manging director has flagged the risk that the company may not obtain loan financing if the lease
obligation is recorded in the balance sheet, there is an advocacy threat because the financial controller may be
compelled to follow an incorrect treatment to maximise the chances of obtaining the loan. This pressure again is
greater because the financial controller is new.
Professional competence
When preparing the financial statements, the financial controller should ensure that the fundamental principle of
professional competence should be followed, which requires that accounts should be prepared in compliance with Ind
AS.
Thus, since the arrangement meets the Ind AS 116 criteria for a lease, the right-of-use asset and a corresponding lease
liability should be recognised, as otherwise the liabilities of Shastra Ltd. would be understated. The ICAI Code of
Ethics and Conduct sets boundaries beyond which accountants should not act. If the managing director refuses
application of Ind AS 116, Leases, the financial controller should disclose this to the appropriate internal governance
authority, and thus feel confident that his actions were ethical.
If the financial controller were to bend under pressure and accept the managing director’s proposed treatment, this
would contravene Ind AS 116 and breach the fundamental principle of professional competence. In such a case, he
would be subject to professional misconduct under Clause 1 of Part II of Second Schedule of the Chartered
Accountants Act, 1949, which states that a member of the Institute, whether in practice or not, shall be deemed to be
guilty of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made
thereunder or any guidelines issued by the Council. As per the Guidelines issued by the Council, a member of the
Institute who is an employee shall exercise due diligence and shall not be grossly negligent in the conduct of his
duties.

ACCOUNTING AND TECHNOLOGY

Part I: The current state of technology in accounting: There are various technologies used in
accounting and their impact on profession, including
 Automation,
 cloud computing, and
 artificial intelligence
1. Automation Process: Automation is the use of software and other tools to automate manual
processes, making them faster and more accurate.
A. Benefits of Automation Process
(1) Streamlining Data Entry: Automation tools, such as optical character recognition (OCR)
or barcode recognition technology, can help to automate the entry of data from source
documents such as receipts and invoices.
(2) Accelerating Data Processing: Automation can help to process large amounts of data /
large volumes of transactions more quickly and accurately than manual methods.
E.g. software can automatically categorize transactions into the appropriate accounts,
calculate tax amounts, and generate financial statements, among other tasks.
(3) Enhancing Accuracy: Automation can help to reduce errors and discrepancies in
accounting processes.
(4) Improving Decision-Making: Automation can provide real-time insights into financial
data, enabling businesses to make informed decisions more quickly. With automated
reporting, the time spent on routine tasks is greatly minimized, enabling businesses to
gain deeper insights into their financial performance, identify trends and patterns, and
adjust their strategies accordingly.
(5) Saving Time and Money: Automation reduces the amount of time and resources required
to perform manual tasks such as data entry and reconciliations. This results in
businesses saving on staffing costs and increases productivity and enabling
accountants to focus on higher-level tasks such as analysis and planning.
(6) Facilitating Compliance: Automation helps business to stay compliant with regulations
and standards by ensuring accounting practices meet the necessary requirements. In
case the systems are so programmed, reporting tools can generate financial statements
that meet the criteria of Ind AS or Indian GAAP as the case may be. This would ensure
minimizing the risk of non-compliance and potential penalties.
B. Challenges in Automation Process: Automation also comes with its own set of potential
drawbacks and challenges, some of them are mentioned below:
(1) Need for ongoing training and education to keep up with the latest technology.
(2) Risk of data breaches and cyber-attacks, which can compromise the security and
confidentiality of financial data.
(3) Exists potential loss of jobs. [However, this can be mitigated by ensuring appropriate
training to the workforce to remain updated with the technology.]
C. Robotic Process Automation(RPA):
 is an emerging technology that revolutionizes financial reporting processes.
 RPA utilizes software robots or "bots" to automate manual and repetitive tasks in
financial data processing, analysis, and reporting.
 By mimicking human interactions with digital systems, RPA bots can extract and
consolidate data, perform calculations, generate reports, and ensure compliance with
accounting standards.
 The adoption of RPA in financial reporting improves accuracy, enhances efficiency, and
frees up valuable time for finance professionals to focus on more strategic activities.
 Moreover, RPA enables organizations to achieve timely reporting, cost savings, and
increased data integrity, ultimately leading to more reliable and insightful financial
information.
2. Cloud Computing:
 Cloud computing refers to the delivery of computing services over the internet.
 It allows accountants to access their data and software from any device with an
internet connection.
 The entire world was hit in 2020 with probably the biggest black swan event of the past
couple of decades-the COVID-19 pandemic. The continuous lockdowns severely impacted
businesses, and operations came to a standstill. This in turn led to viewing cloud
computing as a serious alternative compared to traditional client-server architecture in
physical locations controlled by the entities themselves.
A. Common Applications / Cases of Cloud Computing
(1) Cloud Storage: Services like Dropbox, Google Drive, and Microsoft OneDrive offer cloud
storage solutions that allow users to store and access their files and data from
anywhere with an internet connection. Users can save documents, photos, videos, and
other files in the cloud and synchronize them across multiple devices.
(2) Software as a Service (SaaS): SaaS platforms provide cloud-based software
applications that users can access and utilize via the internet. Examples include
Salesforce for customer relationship management (CRM), Slack for team collaboration,
and QuickBooks Online for accounting and financial management.
(3) Infrastructure as a Service (IaaS): IaaS providers offer virtualized computing resources,
including servers, storage, and networking infrastructure, on a pay-as-you-go basis.
Examples include Amazon Web Services (AWS), Microsoft Azure, and Google Cloud
Platform. These platforms allow businesses to scale their IT infrastructure based on
demand without the need for physical hardware.
(4) Platform as a Service (PaaS): PaaS providers offer cloud-based platforms that enable
developers to build, deploy, and manage applications without the complexity of
infrastructure management. Examples include Microsoft Azure App Service, and Google
App Engine.
(5) Cloud-based Communication and Collaboration: Applications like Microsoft Teams,
Google Workspace (formerly G Suite), and Zoom provide cloud-based communication
and collaboration tools that facilitate real-time messaging, video conferencing, file
sharing, and project management.
(6) Cloud-based E-commerce: Few platforms enable businesses to set up and manage
online stores using cloud infrastructure. These platforms provide features like product
catalogues, payment processing, inventory management, and customer analytics.
(7) Big Data Analytics: Cloud computing enables organizations to process and analyze large
volumes of data efficiently. Services like Amazon Redshift, Google Big Query, and
Microsoft Azure Data Lake Analytics provide scalable infrastructure for big data
processing and analytics, empowering businesses to derive valuable insights from their
data.
B. Benefits of Cloud Computing
(1) Improved accessibility: Cloud-based accounting software allows users to access their
financial data from any location with an internet connection. This has increased
accessibility and flexibility for accountants and business owners, allowing them to work
remotely and collaborate in real-time.
(2) Enhanced security: Cloud-based accounting software providers typically offer advanced
security features such as encryption, firewalls, and multi-factor authentication helping
in the protection of sensitive financial data from cyber threats and data breaches.
(3) Increased scalability: Cloud-based accounting software allows businesses to easily scale
up or down based on their changing needs. As a business grows, it can easily add new
users and features without having to invest in additional hardware or software.
(4) Reduced costs: Cloud-based accounting software typically requires less upfront
investment in hardware and software, as well as ongoing maintenance costs. This can
help businesses save money on IT expenses and redirect those funds to other areas of
the business. For example, the costs of installing Microsoft Office Suite on a laptop or
desktop is far more expensive than subscribing to the Office 365 Suite, which is a web-
based download. Further, the web-based download also provides the options of
continuous free updates unlike its Office Suite offline counterpart.
(5) Streamlined collaboration: Cloud-based accounting software allows multiple users to
collaborate in real-time, reducing the need for manual data entry and communication.
This can help to streamline workflows and reduce errors caused by miscommunication.
(6) Improved reporting and analytics: Cloud-based accounting software often includes
powerful reporting and analytics tools that allow businesses to gain deeper insights into
their financial performance. This can help businesses make more informed decisions
and identify areas for improvement.
C. Challenges in Cloud Computing: Following are the potential challenges which may emerge in
cloud computing:
(1) Prone to hackers: Since cloud-based software are completely online, they could be prone
to hackers who could ‘steal’ data or passwords or compromise the integrity of the
processed data, thereby causing disruptions to the businesses.
(2) Strong net connectivity is a must for cloud-computing to be a success.
3. Enterprise Resource Planning (ERP):

 ERP is a type of software that organizations use for managing day-to-day business
activities like procurement, project management, accounting, risk management,
compliance, and supply chain operations.
 ERP systems connects and corelates a multitude of business processes and enable the
flow of data between them. It collects an organization’s shared transactional data from
multiple sources and thus eliminate data duplication and provide data integrity with a
single source of authentication.
 ERP systems are designed around a single, defined data structure (schema) that
typically has a common database. This helps to ensure that the information used across
the enterprise is normalized and based on common definitions and user experiences.
These core constructs are then interconnected with business processes driven by
workflows across business departments (e.g. finance, human resources, engineering,
marketing, and operations), connecting systems and the people who use them.
 Since data is the lifeblood of every modern company, ERP makes it easier to collect,
organize, analyze, and distribute this information to every individual and system that
needs it to best fulfill their role and responsibility.
A. Benefits of ERP: Examples of specific business benefits include:

(1) Improved business insight from real-time information generated by reports
(2) Less operational costs through streamlined business processes and best practices
(3) Enhanced collaboration of users sharing data in contracts, requisitions, and purchase
orders
(4) Better efficiency through a common user experience across many business functions
and well-defined business processes
(5) Consistent infrastructure from the back office to the front office
(6) Increased user-adoption rates from a common user experience and design
(7) Reduction in risk through improved data integrity and financial controls
(8) Less management and operational costs through uniform and integrated systems
B. How does an ERP system work?

 ERP systems work by using a defined, standard data structure. Information entered by
one department is immediately available to authorized users across the business. This
uniform structure helps keep everyone on the same page.
 Real-time data is then woven into business processes and workflows across departments.
Managers check if one location is doing significantly better than another site and can
figure out why. Finance department can use ERP for comparison of sales, profits and
other financial data to help executives in understanding the performance of the
organisation and also for setting new targets.
 ERP systems deliver the most value when a company has modules for each major
business function and ensures timely and accurate data entry.
 When a company uses business systems from multiple vendors, integrations are
generally possible to make data automatically flow into the ERP.
C. Illustrative steps for integrating Internal Control Over Financial Reporting with an ERP:
Integrating Internal Control over Financial Reporting(ICOFR) with an Enterprise Resource
Planning (ERP) system offers the key advantage of streamlining financial processes,
ensuring data integrity, and promoting effective internal controls. By automating and
standardizing procedures, the ERP system reduces manual effort and minimizes the risk of
errors. It enables segregation of duties, real-time visibility into financial data,
comprehensive audit trails, enhanced reporting capabilities, & proactive risk mitigation.
This integration strengthens financial control, accuracy, and compliance, ultimately
enabling better decision-making and reducing the likelihood of fraud or errors.
The following are illustrative steps for integrating ICOFR within ERP:
(1) Verify that the process includes identification and updating of internal and external
financial reporting requirements and deadlines.
The finance team regularly reviews the regulatory guidelines and reporting requirements
set by the regulators and ensures that the ERP system's financial closing process is
aligned with these requirements. Examples are listed companies to declare quarterly
results as per LODR, filing of periodical returns under GST, Income Tax, Labour laws, etc.,
(2) Review the documented process to ensure it aligns with the organization's financial
reporting policies and regulatory guidelines.
The finance team reviews the documented process in the ERP system and cross-checks
it with the organization's financial reporting policies and regulatory guidelines to ensure
consistency. Examples are accounting polices relating to Property plant and equipment,
depreciation, Inventory etc.,
(3) Use the ERP system's change management functionality to track and validate changes
made to the financial closing and reporting process.
When changes are made to the financial closing and reporting process, the finance
team uses the ERP system's change management functionality to track and record
these changes. They review system logs and audit trail for changes made to the
financial closing & reporting process are as per defined roles and responsibilities for
change control, including change initiators, approvers, & change management teams.
(4) Verify that changes to the process are authorized by designated individuals with
appropriate authority using system logs.
The finance team reviews the system logs, audit trail & confirms that any changes to
the financial closing and reporting process were authorized by designated individuals
with the appropriate authority, such as the CFO or finance manager.
(5) Review the change requests, approvals, and documentation within the ERP system to
ensure proper authorization and validation of process changes.
(6) Validate that roles and responsibilities in the financial closing and reporting process are
clearly defined within the ERP system by reviewing users access matrix configurations
and system logs.
Review system logs and audit trail with Responsibility assignment matrix (RAM). RAM
is a tool used in project management and enterprise resource planning (ERP)
implementations to define and communicate the roles and responsibilities of
individuals or teams involved in a project or process. The matrix clarifies who is
responsible, accountable, consulted, and informed for each task or deliverable within
the ERP implementation.
(7) Assess the qualifications and training records of individuals assigned to financial
reporting roles within the ERP system.
(8) Validate that individuals responsible for financial reporting have the necessary
understanding of the organization's operations & appropriate accounting knowledge.
The finance team validates that individuals responsible for financial reporting within
the ERP system have a comprehensive understanding of the organization's operations
and possess appropriate accounting knowledge. For example, verify HR records of those
involved in accounting have appropriate knowledge.
(9) Validate that decisions on alternative accounting treatments for significant events or
transactions are documented and approved by management.
Reviewing the Journal vouchers listing by identifying non routine transactions. Review
the system of Standardizing voucher types. This involves defining a set of predefined
templates or formats for different types of journal entries to ensure consistency and
accuracy in recording financial data.
(10) Review the ERP system for documentation of accounting treatment decisions,
including approvals and communication to the audit committee.
Documentation of accounting treatment decisions refers to the process of recording
and maintaining comprehensive documentation regarding the rationale, analysis, and
conclusions related to accounting treatments chosen for specific transactions or
events like recognising long term construction projects.
(11) Review the ERP system's user administration functionality to ensure appropriate
individuals have access to the financial reporting process.
Review system logs and audit trail with Responsibility assignment matrix (RAM).
(12) Review whether proper KYC validation controls are in place for creating account
masters and review the process for identifying related party transactions.
(13) Separate ledger coding for related parties for auto tabulating transactions to present
as per Schedule III of Companies Act, 2013.
Validate that the ERP system captures and documents the appropriate accounting
treatment for each non-routine event, transaction, and account balance by reviewing
Journal Vouchers listing.
(14) Use the ERP system's audit trail and reporting capabilities to validate that all postings
have occurred in the correct accounting period reviewing accounting period
configuration controls.
In an ERP system, the accounting date and transaction date are captured and stored
as part of the transactional data. They are used in various processes, such as journal
entry creation, financial statement generation, period-end closing activities, and audit
trails. Understanding the distinction between these dates is important for accurate
financial reporting, compliance, and analysis of business transactions within the ERP
system.
(15) Review the system's controls for preventing backdating or unauthorized adjustments to
postings by reviewing the posting date and transactions date of entries.
Part 2: Cybersecurity in accounting:

 Protecting financial information is crucial to prevent unauthorized access and data
breaches. Legal & regulatory frameworks, like the Information Technology Act, 2000
(Amended in 2008), govern the collection, storage, & transmission of financial data.
 Non-compliance with data protection laws can lead to financial penalties and
reputational damage.
 Organizations have legal and ethical obligations to disclose cybersecurity incidents with
financial implications.
 Cybersecurity incidents can affect financial reporting through financial losses,
reputational damage, and legal consequences. Reporting guidelines of various regulators
such as SEBI, RBI etc., address the disclosure of cybersecurity incidents in financial
statements.
 A cybersecurity breach can have significant consequences, including financial losses,
reputational damage, and loss of sensitive client data. Some of the common
cybersecurity threats are highlighted below. In all the cases, the aim of the attack
would be either stealing sensitive financial data or disrupting operations or demand
ransom money.
A. Common cybersecurity threats
(a) Phishing attacks: Phishing attacks are a common cybersecurity threat that involves
tricking users into clicking on malicious links or providing sensitive information.
(b) Malware attacks: Malware attacks involve infecting computers or networks with
malicious software that can steal data or disrupt operations.
(c) Ransomware attacks: Ransomware attacks involve encrypting files or locking users out
of systems and demanding a ransom payment in exchange for restoring access.
(d) Insider threats: Insider threats involve malicious actions by employees or other insiders
who have access to sensitive data.
(e) Denial of Service (DoS) attacks: DoS attacks involve overwhelming a system or network
with traffic to disrupt operations.
(f) Supply chain attacks: Supply chain attacks involve compromising third-party software
or hardware to gain access to a system or network.
B. Proactive measures to mitigate cybersecurity risks: In view of the cybersecurity attacks
and threats discussed above, it is important to taking proactive measures to mitigate
cybersecurity risks as listed below:
(a) Password management: Strong passwords are critical for protecting sensitive financial
data. Accounting professionals should ensure that all passwords are complex and
changed regularly.
(b) Encryption: Encryption can be used to protect sensitive data during transmission and
storage. The IT Team of an organization should ensure that all sensitive data is
encrypted using appropriate methods.
(c) Access control: Access control is critical for preventing unauthorized access to financial
data. Accounting professionals should ensure that access to sensitive data is limited to
authorized personnel and that appropriate access controls are in place. The access
controls should be continuously reviewed and updated based on any changes in the
management or employee structure.

(d) Network security: Network security is critical for protecting financial data from
cyberattacks. It should be ensured that firewalls and other security measures are in
place to prevent unauthorized access to the network.
(e) Employee training: Employee training is critical for ensuring that all staff members are
aware of the importance of cybersecurity and understand how to protect sensitive
financial data.
(f) Data backup: Regular data backups are critical for ensuring that financial data is not
lost in the event of a cyberattack. Accounting professionals should ensure that data
backups are performed regularly and that backups are stored securely.
(g) Incident response planning: Accounting professionals should have a clear incident
response plan in place in the event of a cyberattack. This plan should include
procedures for detecting, containing, and mitigating the impact of a cyberattack.
Overall, cybersecurity is a critical concern for accounting professionals, and it is
essential to take appropriate measures to protect sensitive financial data
Part 3: The future of technology in accounting
1. Blockchain
 Blockchain is a decentralized and transparent ledger that enables secure and
immutable transactions.
 Unlike traditional centralized systems, blockchain offers a distributed network where
information is shared and verified by multiple participants, eliminating the need for
intermediaries and enhancing data integrity.
 From a financial statement preparation perspective, blockchain holds immense
potential to streamline processes, enhance transparency, and improve the accuracy and
reliability of financial reporting.
 In this dynamic landscape, embracing blockchain technology is essential for Chartered
Accountants to navigate the future of financial reporting effectively.
Key impacts of blockchain on financial reporting
(1) Enhanced Transparency: Blockchain technology provides a decentralized and
immutable ledger, where transactions are recorded and stored in a transparent and
tamper-proof manner. This increased transparency ensures that financial data is
accurately captured and can be easily audited, promoting trust and reliability in
financial reporting.
(2) Improved Data Integrity: Blockchain's distributed ledger ensures that each transaction
is verified and encrypted, preventing unauthorized modifications or tampering. This
feature enhances data integrity, reducing the risk of fraudulent activities and errors in
financial reporting.
(3) Streamlined Audit Processes: Blockchain technology enables real-time access to
financial data, eliminating the need for time-consuming and manual data
reconciliation processes. Auditors can directly access the blockchain ledger to verify
transactions, reducing audit time and enhancing efficiency in financial reporting.
(4) Enhanced Security: Blockchain incorporates advanced cryptographic algorithms,
making it highly secure against unauthorized access or data breaches. Financial data
stored on the blockchain is encrypted and protected, minimizing the risk of data
manipulation or unauthorized disclosure, thus strengthening the security of financial
reporting.
(5) Simplified Reconciliation: Blockchain's decentralized ledger eliminates the need for
reconciling multiple versions of data across different systems. With a single shared
source of truth, financial reporting processes become more streamlined, reducing
reconciliation efforts and potential errors.

(6) Cost Reduction: By eliminating intermediaries and central authorities, blockchain

reduces the costs associated with traditional financial reporting processes. It eliminates
the need for third-party verification and reconciliation, leading to cost savings for
organizations.
(7) Enhanced Audit Trail: Blockchain maintains a comprehensive and immutable audit trail
of all transactions, providing a transparent and traceable record of financial activities.
This audit trail simplifies the identification and investigation of any irregularities or
discrepancies, improving the accuracy and reliability of financial reporting.
(8) Real-time Financial Reporting: With blockchain's real-time data availability and
consensus mechanism, financial reporting can be performed more frequently and with
greater accuracy. Organizations can generate up-to-date financial statements, enabling
stakeholders to make informed decisions based on the most current financial
information.
2. Artificial Intelligence (AI):
 AI refers to the simulation of human intelligence in machines, enabling them to
perform tasks that would typically require human intervention.
 Apart from the aspects of automation, accuracy, fraud detection and cost savings, the
most important feature is enabling predictive analytics.
 AI can be used to analyze large amounts of data and make predictions about future
trends, which can be useful for forecasting financial performance and identifying
potential risks.
 Thus, AI has the potential to transform the accounting profession by enabling
accountants to provide more accurate & timely financial information to their clients.
 Artificial Intelligence (AI) and Machine Learning (ML) are technologies that enable
computers to learn and perform tasks without being explicitly programmed to do so.
 AI and ML are having a significant impact on the accounting profession, enabling
accounting professionals to automate routine tasks, improve decision-making processes,
and reduce errors.
A. Benefits of AI and ML when used in accounting:
(1) Automated Data Entry: AI and ML algorithms can process and extract data from
invoices, receipts, and other documents, reducing the need for manual data entry. If
programmed, AI and ML algorithms can also review bank statements and pass entries
in the system, followed by a bank reconciliation, thereby automating the entire
process, saving time and improving efficiency.
(2) Fraud Detection: AI can help detect fraud by analysing large amounts of data and
identifying patterns that may indicate fraudulent activity.
(3) Financial Forecasting: ML can be used to develop predictive models that can forecast
financial performance based on historical data, market trends, and other factors. The
predictive models can be of particular advantage where estimates are required to be
made in financial reporting. For instance, where a store sells goods and offers a voucher
giving the customer a discount on subsequent purchases, Ind AS 115 requires a degree of
estimation of the likelihood of availing such discount to record Revenue. Predictive
models can track customers’ preferences and likelihood of availing the voucher, in
which case the estimation of revenue as required under Ind AS 115 becomes more
realistic.
(4) Accounting Automation: AI can analyse financial statements and other data to identify
errors or inconsistencies, making accounting more efficient and accurate.
(5) Tax Compliance: AI can help automate tax compliance by analysing financial data and
identifying tax obligations, ensuring that businesses remain compliant with tax
regulations.

B. Challenges with Artificial Intelligence:

(1) Data privacy
(2) Security concerns
(3) Technical complexity
(4) Need to train employees in an organization to extract capabilities of AI from the
system
Part 4: IND AS and Information Technology: Ind AS is predominantly a principle-based
framework. Ind AS consists of specific principles for various accounting topics, such as
revenue recognition, leasing, financial instruments, employee benefits, consolidation, and
many more. These principles provide detailed guidance on how to account for transactions
in accordance with the principles of measurement and recognition.
For implementation of Ind AS, the technology will play key role in automating the process
of validating while generating the reports. However, the role of technology for such
processing is directly related to the configuration at the Account level with rule-based
validations. Configuration implements pre-defined validation rules within the system to
identify discrepancies or non- compliance with Ind AS.
If the account level configuration is not done properly, then the next phase of using
technology will be after generating the reports. In such scenario, the use of technology is
about applications such as Microsoft Excel or Google Sheets which can be used to perform
such validations from the Ind AS point of view and then generate the report. This is purely
dependent on human intelligence rather than on technology, except for the cases where
Artificial Intelligence is involved with proper training using machine learning.

ACCOUNTING AND TECHNOLOGY - QUESTIONS
1. A listed company's financial transactions are carried out in ERP. Following financial reporting weaknesses were
observed during internal control over financial reporting:
(1) There is no appropriate documented process with respect to financial closing and reporting, including the
identification and updating of internal and external financial reporting requirements and deadlines.
(2) Changes made to the financial closing and reporting process are not valid and properly authorised.
(3) Roles and responsibilities in the financial closing and reporting process are not clearly defined, documented,
updated, and not communicated to appropriate departments and individuals on a timely basis.
(4) Individuals in financial reporting roles do not have the necessary understanding of the organisation’s operations
and appropriate accounting knowledge to properly perform their assigned responsibilities.
(5) When alternative accounting treatments are available for a significant event or transaction, the decisions on
which treatments to select are not documented, approved by management, and are not communicated to the
audit committee.
(6) General policies are not established and documented regarding permissible overrides of existing policies and
procedures for the financial closing and reporting process.
(7) User profiles (on General Ledger (G/L) system) are not monitored / maintained to ensure that appropriate
individuals have access to financial reporting process.
(8) The appropriate accounting treatment is not specified for each non-routine event, transaction, and account
balance, including those requiring the use of accounting estimates and judgment in the selection and application
of accounting principles.
(9) Relevant, sufficient, and reliable data necessary to record, process, and report each non- routine event or
transaction is not captured.
(10) There are no procedures to ensure all postings have occurred in the correct period.
(11) The application of the entity's accounting policies to each non-routine event or transaction is not performed on a
timely basis and appropriately documented by knowledgeable and qualified personnel using approved methods
and formats.
(12) All non-routine events and transactions are not accurately processed in the appropriate accounting period.
(13) There is no independent review of application of the entity's accounting policies to each non- routine event or
transaction for appropriateness and absence of bias by an individual with the appropriate level of authority and
experience.
(14) There is no basis for significant estimates and judgments associated with each non-routine event or transaction.
(15) No analysis is prepared accurately and consistently in accordance with the entity's defined financial closing
process and in the appropriate accounting period.
(16) All sources of information for routine and non-routine events and transactions are not identified and analysed.
(17) There are no reconciliations for all significant accounts and no independent review of such reconciliation.
(18) All intercompany transactions and balances are not identified, reconciled, and appropriately eliminated in
consolidation in the appropriate accounting period.
(19) All suspense accounts are not identified and monitored.
(20) The trial balance(s) used to prepare the financial statements are not generated from the final general ledger(s).
(21) All trial-balance accounts are not appropriately and consistently grouped for presentation in the financial
statements for accounting periods presented.
(22) There are no restrictions to access and to run transactions in the automated consolidation software which may
compromise the integrity of financial data
(23) All related-party events and transactions are not identified and authorised, appropriately accounted for, and
disclosed in the appropriate accounting period.
(24) There are no procedures to ensure all postings have occurred in the correct period.
(25) Entries recorded directly to the financial statements are not valid. Provide illustrative steps for Financial
Closing and Reporting.
Solution: Following are the illustrative steps for Financial Closing and Reporting:
(1) Verify that the process includes identification and updating of internal and external financial reporting
requirements and deadlines.
(2) Review the documented process to ensure it aligns with the organization's financial reporting policies and
regulatory guidelines.
(3) Use the ERP system's change management functionality to track and validate changes made to the financial
closing and reporting process using system logs and audit trail.

(4) Verify that changes to the process are authorized by designated individuals with appropriate authority using
system logs.
(5) Review the change requests, approvals, and documentation within the ERP system to ensure proper authorization
and validation of process changes.
(6) Validate that roles and responsibilities in the financial closing and reporting process are clearly defined within
the ERP system by reviewing users access matrix configurations and system logs
(7) Assess the qualifications and training records of individuals assigned to financial reporting roles within the ERP
system.
(8) Validate that individuals responsible for financial reporting have the necessary understanding of the
organization's operations and appropriate accounting knowledge.
(9) Validate that decisions on alternative accounting treatments for significant events or transactions are documented
and approved by management by reviewing the Journal vouchers listing.
(10) Review the ERP system for documentation of accounting treatment decisions, including approvals and
communication to the audit committee.
(11) Review the ERP system's user administration functionality to ensure appropriate individuals have access to the
financial reporting process.
(12) Review whether proper KYC validation controls in place for creating account masters and review the process for
identifying related party transactions.
(13) Validate that the ERP system captures and documents the appropriate accounting treatment for each non-routine
event, transaction, and account balance by reviewing Journal Vouchers listing.
(14) Use the ERP system's audit trail and reporting capabilities to validate that all postings have occurred in the
correct accounting period reviewing accounting period configuration controls.
(15) Review the system's controls for preventing backdating or unauthorized adjustments to postings by reviewing the
posting date and transactions date of entries.
2. Company XYZ is a manufacturing company that implements Ind AS 2 and wants your advice on utility of an ERP
system for inventory management. They also aim to integrate ICOFR controls into their ERP system to ensure
accurate inventory valuation, minimize the risk of inventory fraud, and enhance process efficiency and accordingly
they need your guidance in integrating ICOFR in ERP system.
Also, advice the steps to be followed if the company cannot afford a ERP system but still want to ensure proper
implementation of Ind AS 2 to the extent possible.
Solution:
A. ERP System for inventory management
ERP system integrates all relevant modules, such as inventory management, production, purchasing, and cost
accounting. This ensures data consistency and reduces manual errors in recording and processing transactions.
Following illustrative steps may be followed to configure and enable ERP with following modules:
- Maintain an updated and accurate Bill of Materials (BOM) Management within the ERP system, specifying
the components required for each control unit. This allows the system to calculate the total cost of materials
accurately by considering the quantities and costs of each component.
- Implement Purchase order controls within the ERP system to manage the procurement process effectively.
This includes verifying purchase requisitions, obtaining appropriate approvals, and ensuring that the correct
quantities and costs of materials are recorded.
- Define appropriate costing methods within the ERP system to allocate costs to inventory accurately. The ERP
system should be configured to apply the chosen costing method consistently across all inventory
transactions.
- Track labour costs within the ERP system by integrating with timekeeping or attendance systems. This
ensures accurate recording of the number of hours worked by production workers and enables the calculation
of labour costs based on the defined hourly rate.
- Define an overhead absorption rate within the ERP system to allocate production overheads to inventory.
This rate should be based on the normal level of production per month. The ERP system should apply the
overhead rate consistently to all units produced during the period.
- Integrate the ERP system with the general ledger and expense allocation modules to accurately allocate non-
production expenses such as factory rent, energy costs, and selling and administrative costs. This ensures that
these expenses are appropriately recorded and reflected in the cost of inventory.
- Perform periodic reconciliations between the inventory records within the ERP system and physical inventory
counts. This helps identify any discrepancies and ensures the accuracy of inventory valuation.

- Utilise the reporting and analytics capabilities of the ERP system to generate accurate and timely reports on
inventory costs. These reports should provide detailed breakdowns of material costs, labour costs, overheads,
and any other relevant cost components.
Integration of ICOFR in ERP system:

The management of company XYZ may integrate ICOFR controls in ERP system by using following points:
(1) The integration of ICOFR into ERP system is configured to enforce segregation of duties within the inventory
management process. For example, the system restricts the ability to initiate purchase orders, receive goods, and
update inventory records to separate individuals. This segregation ensures that no single employee has the ability
to manipulate inventory quantities or values without appropriate checks and balances.
(2) ICOFR is incorporated by implementing access controls in the ERP system. Users are granted access to
inventory-related functions based on their roles and responsibilities. For instance, only authorized personnel can
modify inventory master data, update cost information, or perform inventory counts. This prevents unauthorized
access and reduces the risk of data manipulation or theft.
(3) To ensure proper authorization, the ERP system includes workflow approval processes for inventory transactions.
For example, when a purchase requisition is raised, the system automatically routes it through predefined
approval hierarchies based on transaction value or other criteria. This ensures that inventory purchases are
authorized by the appropriate individuals before they are processed.
(4) The company utilizes barcode or radio-frequency identification (RFID) technology to enhance inventory control
and accuracy. The ERP system is integrated with barcode scanners or RFID readers, allowing real-time tracking
of inventory movements. This reduces manual data entry errors and provides accurate and up-to-date inventory
information within the system.
(5) ICOFR requires periodic physical inventory counts to verify the accuracy of recorded inventory quantities. The
ERP system supports this process by generating inventory count sheets or reports based on predefined criteria
such as product categories or locations. The system can also reconcile the physical count results with the recorded
quantities, highlighting any discrepancies for further investigation and adjustment.
(6) Technology-driven data analytics tools can be integrated into the ERP system to identify inventory-related
exceptions or anomalies. For example, the system can analyse inventory turnover ratios, slow-moving or obsolete
items, or abnormal inventory cost fluctuations. These analytics help in detecting potential control weaknesses or
irregularities, enabling timely action by management.
(7) The ERP system can provide management dashboards or customized reports that display key inventory control
indicators. These dashboards summarize information such as inventory turnover, stock levels, and valuation
accuracy. They facilitate monitoring and decision- making, enabling management to assess the effectiveness of
ICOFR controls and take corrective actions if needed.
B. Inventory management in the absence of efficient ERP system

In the absence of ERP system or in the absence of properly configured ERP system, the alternative procedure
available is by exporting the data to a spreadsheet and perform the following steps:
(1) Export the relevant data from the accounting package, including information such as quantities, costs, labour
hours, and overhead expenses into a spreadsheet. Ensure that the exported data contains all the necessary
details to calculate the inventory costs accurately.
(2) Organize the exported data in appropriate columns. Label each column with the corresponding data, such as
item codes, quantities, costs, labour hours, and overhead expenses.
(3) Use the formulas to calculate the material costs for each item. Multiply the quantities of each component by
their respective costs. If there are multiple components, sum up the costs of all components to get the total
material cost for each item.
(4) Use the formulas to calculate the labour costs for each item. Multiply the labour hours for each item by the
defined hourly rate to obtain the labour cost.
(5) Determine the overhead absorption rate based on the normal level of production per month. Multiply the rate
by the total labour hours to calculate the total overhead cost. Divide the overhead cost by the total quantity of
items produced to get the overhead cost per item.
(6) If there are non-production expenses such as rent, energy costs, or administrative costs, allocate them to each
item using an appropriate method. This can be based on quantities, labour hours, or other relevant factors.
Apply formulas to distribute the expenses accordingly.
(7) Sum up the material costs, labour costs, overhead costs, and allocated non-production expenses for each item
to obtain the total inventory cost.

(8) If you have physical inventory counts, compare the calculated inventory costs in spreadsheet with the
physical counts. Identify any discrepancies and investigate the causes. Adjust the inventory costs as necessary
to reconcile them with the physical counts.
(9) Create reports in spreadsheet that provide a breakdown of the inventory costs for each item. Include material
costs, labour costs, overhead costs, and allocated non-production expenses. Use formatting and charts to
present the information clearly.
3. Company Z is engaged in the business of importing oil seeds for further processing as well as trading purposes. It
enters into the following types of contracts as on 1st October 20X1:
Particulars Contract 1 Contract 2 Contract 3

Nature of Contract Import of oil seeds from a Purchase of oil seeds from a Contract to sell oil seeds
foreign supplier domestic producer/supplier on the commodity
exchange
Quantity and rate 100 MT at USD 400 per MT 50 MT at Rs. 30,000 per MT to be 50 MT at USD 450 per
to be delivered as on 31st delivered as on 31st January 20X2 MT, maturing as on 15th
March 20X2 January 20X2
Net settlement clause
included in the Yes Yes Yes
contract
There have also been Yes –company Z has net settled Yes – these contracts are
several instances of the oil some of the domestic purchase required to be net settled
Net settlement in seeds being sold prior to or contracts. with the exchange on the
practice for shortly after taking However, these instances constitute maturity date.
similar contracts delivery. only 1 per cent of the total domestic Company Z enters into
These instances of net purchase contracts in value. these types of derivative
settlement constitute The remaining contracts are contracts to hedge the
approximately 30 percent settled by taking delivery of oil risks on its domestic oil
of the value of total import seeds which are used for further seeds purchase
contracts. processing. contracts.
Company Z wants to determine if the contracts entered into for purchase and sale of oil seeds are derivatives within
the scope of lnd AS 109 or are executory contracts outside the scope of lnd AS 109. Though the Company Z is using
an ERP accounting package it is not properly configured to provide the required reports for above said decision
making. Therefore, Company Z requires your advice on whether such process of determining the nature of contracts is
possible through use of external sources of technology.
Solution: Yes, it is possible by extracting the data from the accounting package or by connecting to the database of
the accounting package.
For example, the same can be done by connecting the spreadsheet with database through ODBC connectivity or by
extracting the data from accounting package into a spreadsheet. In case the data is being extracted from accounting
package, the following steps may be followed:
(1) Identify the relevant data fields in the accounting package that contain the contract information, such as contract
particulars, quantities, rates, and settlement details.
(2) Export the required data from the accounting package in a compatible format (e.g., CSV, Excel, or other
supported formats).
(3) Open the exported data in Microsoft Excel.
(4) Clean the data by removing any unnecessary or irrelevant columns and rows.
(5) Ensure that the data is properly formatted and aligned for further analysis.
(6) Define the rules or criteria for categorizing the contracts as derivative or executory based on the requirements of
Ind AS 109.
(7) Establish conditions using Excel formulas or logical functions to evaluate the contract data.
(8) Apply the defined rules or criteria to the contract data using Excel formulas or logical functions.
(9) Use functions such as IF, AND, OR, or VLOOKUP to evaluate the conditions and determine the nature of each
contract.
(10) Create additional columns in Excel to categorize the contracts based on the analysis results.
(11) Assign appropriate labels or values to indicate whether a contract is a derivative or an executory contract.

4. An entity provides broadband services to its customers along with voice call service. Customer buys modem from the
entity. However, customer can also get the connection from the entity and modem from any other vendor. The
installation activity requires limited effort and the cost involved is almost insignificant. It has various plans where it
provides either broadband services or voice call services or both.
Comment on how to identify whether the performance obligations under the contract is distinct by using an automated
process?
Solution: To identify the performance obligations under the contract and determine if they are distinct, an automated
process can be implemented using technology. The following steps can be taken:
(a) Analyze the clauses in the contract related to the services provided (broadband services, voice call services,
modem sales).
(b) Each clause should be codified using appropriate parameters or tags to capture the relevant information.
(c) Assign Boolean values (0 or 1) to each parameter or tag in the codified clauses.
(d) Use "0" to represent "No" and "1" to represent "Yes" for each parameter.
(e) Define the criteria for evaluating the performance obligations based on the parameters and their Boolean values.
(f) Consider factors such as the type of service involved, benefits derived by the customer, and promises made in the
contract regarding the transfer of goods or services.
(g) Develop an automated algorithm or script that evaluates the Boolean values of the parameters according to the
defined criteria.
(h) Calculate scores or weights for each parameter based on their significance in determining performance
obligations.
(i) Utilize the scores or weights assigned to the parameters to determine if the performance obligations are distinct.
(j) If the total score exceeds a certain threshold, consider it a separate performance obligation.
The automated process should flag and identify these distinct performance obligations based on the evaluation results.
5. T Ltd is engaged in transport sector, running a fleet of buses at different routes. T Ltd has identified 3 operating
segments:
- Segment 1: Local Route
- Segment 2: Inter-city Route
- Segment 3: Contract Hiring
The characteristics of each segment are as under:
Segment 1: The local transport authority awards the contract to ply the buses at different routes for passengers. These
contracts are awarded following a competitive tender process; the ticket price paid by passengers are controlled by the
local transport authority. T Ltd would charge the local transport authority on a per kilometer basis.
Segment 2: T Ltd operates buses from one city to another, prices are set by T Ltd on the basis of services provided
(Deluxe, Luxury or Superior).
Segment 3: T Ltd also leases buses to schools under a long-term arrangement.
While Segment 1 has been showing significant decline in profitability, Segment 2 is performing well in respect of
higher revenues and improved margins. The management of the company is not sure why is the segment information
relevant for users when they should only be concerned about the returns from overall business. They would like to
aggregate the Segment 1 and Segment 2 for reporting under ‘Operating Segment’.
Required: What are the steps involved to automate the process to determine whether it is appropriate to aggregate
Segments 1 and 2 with reference to Ind AS 108 ‘Operating Segments’?
Solution: Following steps should be followed to automate the process to determine whether it is appropriate to
aggregate Segments 1 and 2 with reference to Ind AS 108 ‘Operating Segments’:
(1) Extract the relevant financial data related to Segments 1 and 2 from your accounting system.
(2) Ensure that the data includes segment-specific information such as revenue, expenses, assets, liabilities, and any
other relevant metrics.
(3) Define the criteria for evaluating whether the segments should be aggregated.
(4) Consider factors such as the nature of the business activities, economic characteristics, customer base, pricing
policies, and risks and returns associated with each segment.
(5) Utilize automated analysis tools or software capable of processing large volumes of financial data.
(6) Apply predefined algorithms or rules to evaluate the financial performance and characteristics of Segments 1 and
2 based on the defined criteria.
(7) Conduct a comparative analysis of the financial metrics and performance indicators between Segments 1 and 2.
(8) Based on the analysis and findings, evaluate whether it is appropriate to aggregate Segments 1 and 2.

(9) Document the rationale behind the decision, including the analysis results and supporting evidence.
(10) Use tools such as business intelligence software, data visualization platforms, or custom-built reporting modules
to present the aggregated and segmented data in a meaningful way.
6. New Way Ltd. decides to enter a new market that is currently experiencing economic difficulty and expects that in
future the economy will improve. New Way Ltd. enters into an arrangement with a customer in the new region for
networking products for promised consideration of ₹ 12,50,000.
At contract inception, New Way Ltd. wants to
(i) Define criteria for identifying contracts with customers, such as enforceable rights and obligations, agreement
terms, and consideration.
(ii) Establish rules to link relevant transactions to specific contracts and assign unique identifiers to each contract
Required: Advice the steps to automate the process to perform the above tasks on behalf of New Way Ltd.
Solution: A contract management system may be implemented which allows to store and organize contract
documents electronically. This system can help you define and capture key contract details, such as enforceable rights
and obligations, agreement terms, and consideration.
Accordingly, the said contract management system shall be enabled to configure a mechanism to assign unique
identifiers to each contract.
- Integrate the contract management system or accounting software with other operational systems, such as sales,
CRM, or project management systems. This integration allows for the automatic capture and synchronization of
contract-related data, ensuring that transactions associated with specific contracts are accurately linked.
- Assign specific tags or attributes to contracts based on the defined criteria, such as contract type, customer name,
contract start and end dates, or specific service offerings, to enable efficient searching, filtering, and grouping of
contracts based on various criteria.
- Use custom queries or predefined templates to extract information on the number of contracts identified, their
characteristics, and the associated transactions. This provides visibility into the implementation of Ind AS 115 and
helps to monitor compliance.
In addition to the above, the following may be adopted:
- Consider utilizing OCR technology to extract relevant information automatically. OCR can convert printed or
handwritten text into machine-readable format, enabling efficient extraction of contract details for further
processing and analysis.
- Apply machine learning and Neuro-Linguistic Programming (NLP) techniques to analyze and extract contract
data automatically. These technologies can help identify specific contract terms, clauses, or obligations, aiding in
the accurate identification and classification of contracts based on predefined criteria.
- Utilize workflow automation tools to streamline the contract identification process. Establish predefined rules or
triggers within your system that automatically identify new contracts based on specific criteria and assign unique
identifiers. This automation reduces manual effort and ensures consistency in contract identification.





Changes in New Syllabus For May 24 - Ca Final FR

Uploaded by

Copyright:

Available Formats

Changes in New Syllabus For May 24 - Ca Final FR

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Changes in New Syllabus For May 24 - Ca Final FR

Uploaded by

Copyright:

Available Formats

CHANGES IN NEW SYLLABUS FOR MAY 24 : CA FINAL FINANCIAL REPORTING CA P. S.

FOR MAY 2024

CA P. S. Beniwal Faculty of CA Inter-Accounting and Advance Accounting

Contact Number: 9990301165, 9318445989

Telegram channel: “t.me/capsbeniwalclasses”

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 1

26 IND AS 34 - Interim Financial Reporting 19 to 21

2. TECHNOLOGY AND ACCOUNTING:

3. DISCUSSION ON AS 7, AS 9, AS 19 AND AS 22 WILL BE GIVEN ALONG

ALL THE BEST

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 3

INTRODUCTION OF AS AND IND AS

Liabilities ₹ in crores Assets ₹ in crores

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 4

6. Following is the structure of Company D

Company F Company G Company I

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 5

IND AS 23 – BORROWING COST

IND AS 32,109 & 107 - FINANCIAL INSTRUMENT

Profit from operations 68,60,000

Accounting profit (A) 59,50,000

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 9

Profit or loss - Current income tax expense Dr. 28,14,000

(1) Product development costs:

(2) Bad debt provisions:

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 10

1. Property, plant and equipment

Item Carrying Tax base Temporary Taxable / deductible DTA / DTL

Product development costs 21,00,000 0 21,00,000 taxable (6,72,000)

Difference between IND AS 12 and AS 22

9 In case of a Does not specifically deal with this aspect.

Explanation of Comparison of some important paragraph of IND AS 12 with AS 22:

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 13

IND AS 10: EVENTS AFTER THE REPORTING PERIOD

IND AS 37: PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

IND AS 110: CONSOLIDATED FINANCIAL STATEMENTS

IND AS 103: BUSINESS COMBINATIONS

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 14

IND AS 115: REVENUE FROM CONTRACTS WITH CUSTOMERS

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 15

Explanation of Comparison of some important paragraph of IND AS 115 with AS 7 and AS 9:

Accounting point Treatment under Ind AS 115 Treatment as per AS 9

Particulars Treatment under Ind AS 115 Treatment under AS 9

IND AS 116: LEASES

S Particulars Ind AS 116 AS 19

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 17

Explanation of Comparison of some important paragraph of IND AS 116 with AS 19:

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 18

IND AS 34: INTERIM FINANCIAL REPORTING

Balance sheet at 30th September 31st March - -

Statement of changes 6 months ended 30th 6 months ended

Balance sheet at 30th September, 20X1 31st March, 20X1

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 20

IND AS 7: CASH FLOW STATEMENT

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 21

equity shares by other entities

7. Interest paid to vendor for Financing activities Financing activities

IND AS 113: FAIR VALUE MEASUREMENT

Telegram channel “t.me/capsbeniwalclasses” capsbeniwal.com https://bit.ly/332doKz 22