CA Vinayak Pai V



Fast paced changes continue in the core IFRS space. The latest addition to the IFRS authoritative literature is IFRS 17 – Insurance Contracts that was issued by the International Accounting Standards Board (IASB) a fortnight back.

It may be noted that as per a MCA notification the roadmap for implementation of IND-AS for the insurance sector has been laid down. Indian insurance companies are required to prepare IND-AS compliant financial statements for accounting periods beginning from April 1, 2018 with previous year comparatives. Further, the IRDAI (Preparation of Financial Statements of Insurers) Regulations, 2017 that shall be effective from April 01, 2018 has also been issued as an exposure draft. IFRS 17 applies to insurance providers and one needs to watch this space for the Indian insurance sector’s tryst with IFRS.

IFRS 17 requires a reporting entity to recognize profits as it delivers insurance services rather than when it receives insurance premiums and to provide information about insurance contract profits that it expects to recognize in future. A reporting entity issuing insurance contracts needs to assess the rights and obligations arising from groups of contracts and needs to reflect them net on its statement of financial position. Such reflection in the balance sheet needs to be on a discounted basis and insurance contracts are initially measured as the total of the fulfillment cash flows and the contractual service margin.



 The Indian Accounting Standards (IND-AS) Implementation Committee of our Institute has recently issued a clarification bulletin on treatment of dividend distribution tax (DDT) arising from inter-company dividends within a group in the consolidated IND-AS statement of financial position. The salient aspects of the clarifications are provided herein below.

  • In the consolidated financial statements that include a parent and its subsidiary/(subsidiaries), the inter-company dividends will get eliminated and any DDT paid by a distributing entity will bear the characterization of payment outside the group and accordingly, such DDT will be have to be charged to the consolidated Statement of Profit and Loss.
  • In case the DDT paid on distribution of profits by a member of the group is eligible to be set off against the DDT liability of another entity within the group, then in such circumstances, the net DDT liability should be recognized in the consolidated statement of changes in shareholders equity.
    • The basis for the above is that the transaction of distributing dividend to shareholders and the related DDT set-off under the provisions of the Income Tax Act is effectively a tax on distribution of dividend to the shareholders of the reporting entity.


Revised Income Computation and Disclosure Standards (ICDS) are applicable from Assessment Year 2017-18 and the salient aspects of treatment of provisions addressed in ICDS XProvisions, Contingent Liabilities and Contingent Assets are provided herein below.

  • Provisions (a liability that can be measured only by using a substantial degree of estimation) shall not be recognized unless:
    • There is a present obligation as a result of past events,
    • There is a reasonable certainty that an outflow of resources embodying economic benefits will be required to settle the obligation, and
    • A reliable estimate of the amount of the obligation can be made.
  • The recognition of a provision should be based on a best estimate of the expenditure required to settle the obligation. In arriving at the best estimate, the amount to be factored is the undiscounted amount.
  • Where the settlement of the liability is based on the expectation of a reimbursement by a third party, the reimbursement shall be recognized when it is reasonably certain that such reimbursement will be received. The reimbursement amount recognized should not exceed the amount of the corresponding provision.
  • Provisions should not be recognized in the computation of income chargeable under the heads “profits and gains of business or profession” and “income from other sources” for costs that need to be incurred to operate in the future.
  • Contingent liabilities and contingent assets should not be recognized in the financials.


Our Institute has issued an amendment to Para 17 of the Guidance Note on Audit of Consolidated Financial Statements in order to clarify that the intent of the Guidance Note was also to ensure compliance of SA 600.

Para 17 of the Guidance Note on Audit of Consolidated Financial Statements (Revised 2016)

  • With regard to determination of materiality during the audit of consolidated financial statements (CFS), the auditor should consider the following:
    • While considering the observations (for instance modification and /or emphasis of matter in accordance with SA 705/706) of the component auditor in his report on the standalone financial statements, the concept of materiality would not be considered. Thus, the component auditor’s observations, if any, on the component’s financial statements, irrespective of whether the auditors of the component are also the auditors of the Consolidated Financial Statements (CFS) or not, are required to be included in the parent auditor’s report on the CFS, regardless of materiality.
  • Relevant Para 46 of the Guidance Note
    • Where, the auditor uses the work of other auditors in the audit of consolidated financial statements, the requirements of Standard on Auditing (SA) 600 – Using the Work of Another Auditor should also be considered. Reference may also be made to paragraph 16 for using the work of another auditor.

Amendment now issued

  • While considering the observations (for instance modification and /or emphasis of matter/other matter in accordance with SA 705/706) of the component auditor in his report on the standalone financial statements, the parent auditor should comply with the requirements of SA 600, “Using the Work of Another Auditor”.


 In the second phase of convergence with the Indian version of International Financial Reporting Standards (IFRS) viz. Indian Accounting Standards (IND-AS), unlisted companies with a net worth in the range of Rs. 250-500 crores (reckoned as of the specified date) will migrate to the new accounting framework with an opening IND-AS balance sheet required to be prepared as of April 1, 2016.

IND-AS has broader and incremental disclosure requirements in contrast with the current AS accounting framework. One such disclosure is the tax reconciliation statement. The related IND-AS standard provides a choice on such presentation as detailed herein below.

  • a numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed, or
  • a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed.

A template for illustrative purposes is provided herein below.

Reconciliation of Income Tax:

Particulars Current Period (Rs.) Comparative Period (Rs.)
Expected tax expense at applicable tax rate xxx xxx
Tax effect of non-deductible items xxx xxx
Tax effect of non-taxable items xxx xxx
Prior period taxes xxx xxx
Transfers to unrecognized deferred tax assets xxx xxx
Transfers from unrecognized deferred tax assets xxx xxx
Changes in income tax rates xxx xxx
Total taxes xxx xxx

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