The decision of Reserve Bank Of India to defer of Ind-AS to April 1st, 2019 in respect of Scheduled Commercial Banks gives breather to Indian Banking Industry which is currently grappling with issues emanating from Stressed Assets, Risk Management, Governance, Insolvency and Bankruptcy Code etc. The financial statements of Banks and NBFCs would predominantly be affected by following standards:
1. Ind AS 109 Financial Instruments
2. Ind AS 32 Financial Instruments: Presentation
3. Ind AS 107 Financial Instruments: Disclosures
4. Ind AS 113 Fair Value Measurement
It is estimated that the impact of implementing provisions of above standards alone, shall cause incremental provisioning upto Rs 89,000 crores on advances held by Scheduled Commercial Banks
Considering the quantum of impact that above referred IND AS can have on the financial statements of entities in Banking Industry, it is crucial for investors, regulators and implementors, to ensure that several dimensions of referred four standards are thoroughly understood from practical perspective. With the objective to traverse the “Jargon Ridden World Of IND AS” , the author of this article presents series of writeups complemented with illustrations, aimed to progress from facts to knowledge to wisdom.
The definition of a financial instrument is broad. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Trade receivables and payables, bank loans and overdrafts, issued debt, equity and preference shares, investments in securities (e.g. shares and bonds), and various derivatives are just some of the examples of financial instruments.
A financial asset is any asset that is:
Examples of financial assets are investments in equity instruments, investments in debt instruments, trade receivables, cash and cash equivalents, derivative financial assets.
The term “Contractual” used in the definition of “Financial Assets” refers to those actions and duties which each party to the contract are responsible for, based on the contents of the contract agreement.
A financial liability is any liability that is:
Examples of financial liabilities are accounts payable, loans issued by an entity, and derivative financial liabilities
With above discussion we have very broadly touched the key landmarks that we would come across during our journey into the world of “IND AS For Financial Instruments”. It is said that “Not Until We Are Lost Do We Begin To Understand Ourselves”. Thus if above writeup has in anyway made us lost into some of the concepts, then surely the beginning to understand has commenced. See you soon in upcoming article.
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The Author is a partner with YSP & Co LLP with over 20 years of experience in myriad areas of GST, Direct Tax, System Audits, Controllership and CFO Functions. He can be reached at firstname.lastname@example.org