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Update from ICAI

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Accounting Standards notified under Companies (Accounting Standards) Rules, 2021 and those issued by the Institute of Chartered Accountants of India (ICAI) are applicable to entities to whom Ind AS are not applicable. However, on the basis of the discussions held at various standard setting forums, it has been decided to revise Accounting Standards (AS). Accordingly, the Accounting Standard Board (ASB) is working on the project of revision of these standards which will be applicable to entities to whom Ind AS are not applicable.

In this regard, ICAI has issued an Exposure Draft (ED) on AS 108, Segment Reporting, keeping existing AS 17, Segment Reporting as the base. Since AS 108 (proposed) is based on existing AS 17, there are no major differences between the two. Amendments proposed to AS 108 (proposed) are pursuant to the issue of revised AS 1, Presentation of Financial Statements, and revised AS 8, Accounting Policies, Changes in Accounting estimates and Errors. The key amendments proposed include:

  • Extraordinary item: Currently, as per AS 17, the definition of segment revenue and segment expense specifically excludes extraordinary items as defined in AS 5,Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. Since there is no concept of ‘extraordinary items’ in revised AS 8, the definition of segment revenue and segment expense under AS 108 (proposed) does not include extraordinary items.
  • Reporting material line items separately: Currently, AS 17 encourages (but does not require) entities to disclose the nature and amount of any items of segment revenue and segment expense that are of such size, nature or incidence that their disclosure is relevant to explain the performance of the segment for the period. AS 108 (proposed) now requiresentities to disclose the nature and amount of material items of segment revenue and segment expense in accordance with revised AS 11.
  • Changes in accounting policies: Changes in accounting policies: Currently AS 17 requires entities to refer AS 5 when determining whether they should make changes to accounting policies, and make appropriate disclosures as per AS 5. AS 108 (proposed) requires these assessments and disclosures to be made in accordance with revised AS 8.

ICAI has invited comments on the ED up to 28 May 2022

  1. As per revised AS 1, when items of income and expense are material, the entity shall disclose their nature and amount separately.

To access the text of the ED, please click here

Action points for auditors

AS 108 (proposed) mandates specific disclosures of material items in the segment reports. Auditors should have discussions and engage with their clients to whom Ind AS is not yet applicable and evaluate the impact of AS 108 (proposed) on their financial disclosures. Auditors could send their queries and comments on the ED prior to the comment period.

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