Regulatory updates

Accounting Standards (AS) notified under the Companies (Accounting Standards) Rules, 2021 and those issued by the Institute of Chartered Accountants of India (ICAI) are applicable to entities to whom Indian Accounting Standards (Ind AS) are not applicable. Based on the discussions held at various standard setting forums, it was decided to revise the AS and in doing so, maintain consistency in numbering of AS with the Ind AS¹. Accordingly, ICAI is working on a project of revision of the AS which will be applicable to the entities to whom Ind AS are not applicable. The revised set of AS would be applicable from a future date as per a road map which would be communicated by ICAI subsequently.

In this regard, ICAI has issued an Exposure Draft (ED) on AS 113, Fair Value Measurement (AS 113 (proposed)), keeping Ind AS 113, Fair Value Measurement as the base. Some of the key amendments between AS 113 (proposed) and Ind AS 113 are as follows:

• Definitions: In Ind AS, the definitions of “market risk” and “credit risk” are included in Ind AS 107, Financial Instruments: Disclosures, and are not covered in Ind AS 113. However, AS 113 (proposed) has included the definitions of these terms, which are as below:

• Market risk: The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk
• Credit risk: The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation².

• Omission of disclosure requirements for recurring fair value measurements categorised within Level 3³ of the fair value hierarchy: In order to simplify the disclosure requirements for the entities to which Ind AS is not applicable, following disclosures are not included in AS 113 (proposed):

• Narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs, and
• Effect of significant change in fair value due to change in one or more unobservable input, in order to reflect reasonably possible alternative assumptions.

• No reference to Other Comprehensive Income: Since revised AS 1, Presentation of Financial Statements, does not include the concept of Other Comprehensive Income (OCI), reference to OCI has been duly substituted with ‘reserve(s)’ in AS 113 (proposed).

ICAI has invited comments on the ED up to 18 October 2022.

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To access the text of the ED, please click here

1. The entire set of revised Accounting Standards will consist of 32 standards, including a standard on transition from existing AS to Revised AS which are at various stages of formulation. So far, 28 Revised AS have been developed and approved by the Council of ICAI after due process.
2. The definitions of market risk and credit risk as included in AS 113 (proposed) is in line with the definition of these terms in Ind AS 107.
3. Level 3 inputs refer to the unobservable inputs for an asset or a liability