Going Concern:

Considering the current pandemic situation, it has become imperative to analyze the going assumption of an entity. The evaluation shall involve five areas as specified below:

Identification of principal risks and uncertainties i.e. liquidity and solvency risk Significant judgements and estimates made by management
Revision of budgets Manner of managing the liquidity risk
Updating forecasts i.e. inclusion of identified risk factors and its possible end result. Any default or breach in regards to borrowings made during and at the end of period
Reassessing the source of income Key source of estimation uncertainty relating to carrying amount of assets & liabilities.
Assessing the compliance in regards to projected deals Objectives, policies and procedure for managing capital, including regulatory capital.
Reconsidering the viability of management’s future plans Timing and amount of provisions and contingencies

Reporting of a new Key Audit Matter (KAM) in response to additional audit work necessary Whether events or conditions constitute material uncertainty
Addition of material uncertainty in regards to going concern, if suitable  Whether management’s use of going concern basis of accounting is appropriate in preparation of financial statement
An emphasis of matter paragraph Adequacy of the disclosures in financial statements
A qualification or adverse opinion in respect of inadequate disclosures in financial statement Implication for auditor’s report, if applicable

Financial reporting impact on M&E sector:

Inspite of contraction in outdoor consumption model, the indoor segment i.e. digital, gaming, OTT, TV has become top gainers. The M&E sector witnessed growth at compounded rate of 11.5% over a span of 5years. Players of digital segment are providing bundled services which needs financial evaluation (explained below).

Considering the increase of downturn in economy due to COVID-19, companies may have to face plethora financial implications. An illustrative list for M&E sector is summarized below:

Area of impact Description
Film exhibition (theatres / cinema halls)
  • Shut down of cinema halls has resulted into “0” revenues and hence, accounting obligations of lease rent needs to be reassessed.
  • Force majeure executed by exhibitor, if any needs to evaluated basis the terms of agreement
  • Modification in lease agreement needs to be evaluated in accordance with Ind AS 116
  • Exhibitors needs to evaluate the Right of Use (RoU) along with the recoverability of capital advances and impairment assessment
  • Assess the trigger of impairment
  • Reassess the key assumptions
  • Include sensitivity analysis
Films (content)
Revenue recognition and amortization of content
  • Contract modification and change in estimate pattern of asset amortization
  • In case of MG agreements, recoverability of amount and impact on revenue needs to be assessed basis renegotiation.
  • Halt for indefinite period on content production might increase the cost of content. Hence, recoverability of COP from insurance companies and advance for projects needs to be assessed.
Digital (Broadcasting / OTT / cable)
Revenue recognition and provision for ECL
  • In order to preserve the viewership, multiple services could be bundled in single contract. At the time of recognition of revenue, bifurcation between bundled and unbundled services is required.
  • In case of advance given by broadcasters for events, evaluation is required for events cancelled / postponed considering the nature, timing and extent.
  • Impact of extended credit period and ECL to be assessed.
Other media (event, print, radio and out-of-home media)
Revenue and other related areas Considering the postponement or cancellation of events, faster recovery is expected from B2B as compared to B2C.

Organizers need to evaluate the impact for revenue and costs, debt commitment as well as the provisions for onerous contracts.

Others- Print, Radio and Out-of- home media In order to avoid the spread of fake news, subscription in print media is likely to be increased as compared to out-of-home.

Medium operators should assess the impact on revenue basis renegotiations and commitments.

Expected credit loss model needs to be reevaluated considering the extended credit period

RBI’s regulatory stimulus:

In order to alleviate the burden of debt servicing RBI has issued the below mentioned measures:

  • Moratorium on term loans:
    • Moratorium period of 3 months is granted from 1st March, 2020 to 31st May, 2020 to eligible borrowers for terms loans and credit card dues. However, interest shall continue to accrue during the said period.
    • Basis adoption of IRAC norms, banks are required to classify the assets as Standard or Non-performing assets based on due days.
  • Deferral of interest on working capital:
    • The interest on cash credit and overdraft to be deferred for the moratorium period. However, the same shall be due immediately on completion of same.
    • In case the facility availed is higher than the sanctioned amount, it shall be considered as out of order. Also, if the facility availed is lower than the sanctioned amount but the balance does not cover even in the repayment of interest, it shall be considered as out of order.
  • Classification of assets as Special Mention Account (SMAs) based on the days the interest and principal is due is required. However, the moratorium arrangements will not be considered as change in loan agreements and also does not indicate financial difficulty of borrower.
  • Basis RBI issued measures, postponement of payments will not be considered as default for reporting to Credit Information Companies (CICs)
  • Other conditions:
    • Board approved policies for considering the drawing power should be made available on public domain.
    • If the exposure of lending institutions is greater than INR 5 crores, a borrower and credit facility wise MIS should be made.
    • A minimum of 10% provision to be maintained by banks and NBFCs over a period of two quarters. The same needs to be disclosed separately and shall not form part of net NPAs.
  • Disclosure in financial statements:

Below mentioned disclosure in “Notes to Accounts” for FY 2019-20, 2020-21 and half year ending 30th September, 2020 is required

Amounts in SMA and overdue categories Amounts where asset classification benefit is extended Additional provisions for quarters 31st March 2020 and 30th June 2020 Additional provisions adjusted
  • Extension of resolution period:

A review of borrower within 30 days of default in repayment of dues is mandatory. Resolution plan to be implemented within 180 days of review.

  • Freeze on dividend distribution:

No dividend shall be paid by banks for year ended 31st March, 2020 until further instructions in curb the losses and support economy.

  • Extension of realization of export proceeds:

Period for realization and repatriation of export until 31st July, 2020 has been extended to 15 months from the date of export.

  • The insurers are also permitted to provide the moratorium period of 3 months from 1st March 2020 to 31st May, 2020
  • Regulatory update:
    • Basis extension by SEBI, AGMs of Listed companies can be held until 30th September, 2020 instead of 31st August, 2020. Also, for top 100 listed companies by market cap, AGMs to be held within a period of 9 months from closure of FY (FY ending 31st December, 2019)
    • E-voting without holding a general meeting shall be considering in case of urgent matters of Companies.
    • By following the prescribed procedure for unavoidable EGM, meeting can be held. EGMs may be held through VC or OAVM, Meeting shall have atleast one independent director, All resolutions passed to be submitted to ROC within 60 days.
    • Eligibility of CSR
Eligible activities Ineligible activities
Contribution to PM Cares fund Contribution to Chief Minister’s Relief Fund or State Relief Fund for COVID-19
Contribution to State Disaster Management Authority to combat COVID-19 Payment of salaries / wages to workers or employees
Spending CSR funds for COVID-19 related activities Payment of wages to temporary, casual or daily wage workers
Payment of ex-gratia above the wages
  • SEBI relaxations
    • 5 days Prior intimation to stock exchange for holding any board meetings by listed companies to discuss the financial results, was mandatory. However, this is reduced to 2 days now. Also, in case of default, no penal provisions shall apply.
    • For filings / submissions to stock exchange, authentication / certification via digital signature is permitted.
    • Until 15th May, 2020 Companies having listed NCDs and NCRPs are not required to publish financial statement in English newspapers (w.e.f. 17th April, 2020)
    • Right issue on or before 31st March 2021:

♦ Reduction in average market cap from INR 250 crores to INR 100 crores.

♦ Period of listing is reduced from at least 3 years to 18 months

♦ Audit qualification pertaining to disclosing the impact on user’s financials is permitted

♦ Minimum subscription requirement is now 75% of offer size, conditions applicable

♦ Rights issue upto INR 25 crores, no requirement of draft offer

  • Direct tax updates:
    • 100% deduction for donation to PM CARES Fund u/s 80G of Income Tax Act, 1961
    • Any due dates within the period of 20th March, 2020 to 29th June, 2020 has been extended to 30th June, 2020
  • Indirect tax updates:
    • All the due dates have been extended to 30th June, 2020 

Source: Auditing and Accounting update:  KPMG issue, April 2020


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Qualification: Other
Company: CA Finalist | Reliance Industries Ltd - Jio studios
Location: Mumbai, Maharashtra, IN
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February 2021