ED/AS109/2018/02

Exposure Draft Accounting Standard (AS) 109 Financial Instruments

Last date for the comments: June 30, 2018

Issued by Accounting Standards Board, The Institute of Chartered Accountants of India

Exposure Draft Accounting Standard (AS) 109- Financial Instruments

The Indian Accounting Standards (Ind AS), as notified by the Ministry of Corporate Affairs in February, 2015, have been applicable to the specified class of companies. For other class of companies, i.e., primarily the unlisted companies having net worth less than Rs. 250 crores, Accounting Standards, as notified under Companies (Accounting Standards) Rules, 2006, have been applicable. However, the Ministry of Corporate Affairs has requested the Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) to upgrade Accounting Standards, as notified under Companies (Accounting Standards) Rules, 2006, to bring them nearer to Indian Accounting Standards. Accordingly, the Accounting Standards Board of ICAI has initiated the process of upgradation of these standards which will be applicable to all companies having net-worth less than Rs. 250 crores. Further, there are set of Accounting Standards issued by ICAI, which are broadly consistent with ASs notified under Companies (Accounting Standards) Rules, 2006, and these ASs are applicable for non-corporate entities. This set of ASs issued by ICAI are also part of the upgradation process mentioned above.

Brief Synopsis of draft AS 109, Financial Instruments

Currently, under existing Accounting Standards (AS) there is no comprehensive robust standard on financial instruments. However, certain guidance with regard to financial instruments exist which is provided under:

  • AS 11, The Effects of Changes in Foreign Exchange Rates
  • AS 13, Accounting for Investments
  • Guidance Note on Accounting for Derivative Contracts

However, , under Ind ASs, comprehensive standards and guidance is given on the subject under following 3 Ind AS:

  • Ind AS 32, Financial Instruments: Presentation
  • Ind AS 107, Financial Instruments: Disclosures
  • Ind AS 109, Financial Instruments

It may also be noted that a separate standards viz. Ind AS 113, Fair Value Measurement prescribes elaborate principles and requirements regarding fair value measurement for financial instruments and non financial items.

While, this draft standard is primarily based on IFRSs for SMEs, which are simplified versions of IFRS Standards (which form the basis of Ind ASs), the draft also substantially carries forward provisions of existing pronouncement of ICAI, ‘Guidance Note on Accounting for Derivative Contracts’ applicable for entities not covered by Ind AS roadmap. Efforts are made to keep the standard simple, appropriate balance between fair presentation and prudence is maintained. Following are relevant sections in IFRS for SMEs, corresponding to which this draft standard comprises of 3 sections:

Sections in IFRS for SMEs Sections in upgraded AS 109
Section 11, Basic Financial Instruments Section A, Basic Financial Instruments
Section 12, Other  Financial  Instruments Issues Section B, Other Financial Instruments
Section 22, Liabilities and Equity Section C, Liabilities and Equity

Section A applies to basic financial instruments (those that are commonly used and have simple features) and is relevant to all entities. Section B applies to other, more complex financial instruments and transactions. Section C Liabilities and Equity establishes principles for classifying financial instruments as either liabilities or equity and addresses accounting for equity instruments issued to individuals or other parties acting in their capacity as investors in equity instruments (ie in their capacity as owners).

Similar to IFRS for SMEs, no separate AS equivalent to Ind AS 113, Fair Value Measurement is currently proposed, rather fair value measurement principles are incorporated in individual standards based on ‘entry price’ concept.

Appendix 1 covering major differences between draft AS 109 and existing GAAP is included in the draft Standard. Similarly, major differences between draft AS 109 and Ind AS 109 are given in Appendix 2 of this draft Standard.

Following is the Exposure Draft of the Accounting Standard (AS) 109, Financial Instruments, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, for comments. The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

How to Comment

Comments can be submitted using one of the following methods so as to receive not later than June 30, 2018:

1. Electronically: Visit the following link

http://www.icai.org/comments/asb/

2. Email: Comments can be sent at commentsasb@icai.in
3. Postal: Secretary, Accounting Standards Board,

The Institute of Chartered Accountants of India,

ICAI Bhawan, Post Box No. 7100, Indraprastha Marg,

New Delhi – 110 002

Further clarifications on any aspect of this Exposure Draft may be sought by email to asb@icai.in.

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