Govt amends certain Ind-AS
The government has amended certain Indian Accounting Standards (Ind-AS), including the standard relating to leases amid the coronavirus pandemic. Ind-AS 103, 116 and some other standards have been amended by the Corporate Affairs Ministry. While Ind-AS 103 pertains to business combinations, Ind-AS 116 relates to principles for recognition, presentation and disclosure of leases. In the wake of the pandemic, many lessors have extended rent concessions to lessees. However, applying the Ind-AS 116 requirements for changes to lease payments could have posed practical difficulties in the current situation.
- Against this backdrop, the ministry has amended the rules whereby entities would get relief from lease modification accounting due to Covid-19 related rent concessions.
- The amendments can be followed by lessees for annual reporting periods beginning on or after April 1, 2020.
- Lease modification requires re-computation of lease liability using discount rate on the date of modification. This would have posed a significant challenge to companies whose volume of leases are very high.
- The amendment to Ind-AS 116 will provide significant relief to such lessees for accounting for rent concessions from lessors specifically arising from the Covid-19 pandemic.
- Among others, the ministry has also amended rules regarding Ind-AS 103. These are aimed at helping entities to determine whether a transaction needs to be accounted as a business combination or as an asset acquisition.
- The previous guidance on the definition of a business created some diversity in practice. Therefore the amendment to Ind-AS 103 and additional guidance on the definition of a business in Ind-AS 103. Fair value concentration test is likely to simplify the assessment of business considerably.
- A notification was issued to amend the Companies (Indian Accounting Standards) Rules, 2015 and the amended rules were finalised by the ministry in consultation with the National Financial Reporting Authority (NFRA).
- Ind-AS are converged with International Financial Reporting Standards (IFRS).