National Standard Setters (NSS) and regional bodies establish an important link between the International Accounting Standards Board and stakeholders in the financial reporting process. In the past, the IASB entered into bilateral arrangements with certain NSS and regional bodies to discuss strategic issues for smooth transition to IFRS (International Financial Reporting Standards). In most cases, the relationships were conducted through a range of less formal and more ad-hoc arrangements. With a significant increase in the use of IFRS globally, the IFRS Foundation has identified a pressing need for the IASB to rationalise its relationships with NSS and regional bodies on a compact and logistically sustainable basis. The foundation recently proposed setting up an Accounting Standards Advisory Forum, with representatives from various organisations responsible for advising the IASB on major technical, national and regional issues. Last date for comments on the proposal was December 17, 2012. The comments will be looked into in the coming months.

Utilisation of securities premium

Under Companies Bill, utilisation of securities premium will be restricted for a certain class of companies, whose financial statements should comply with the related accounting standards. For example, these companies cannot utilise securities premium for

issue of fully-paid preference shares as bonus shares;

writing off preliminary expenses of the company;

writing off expenses for debenture and preference share issue;

providing for premium payable on redemption of preference shares/ debentures.

Once the Bill comes into force, companies in the prescribed class cannot adjust debenture/ FCCB redemption premium against the securities premium account. Rather, it will be charged to profit and loss. At this stage, it is not clear whether the class of companies will be prescribed now or at a later date, after Ind-AS becomes mandatory.

Cleaning the act on treasury shares

Companies Act does not prohibit companies from creating treasury shares. Hence, some companies appear to have created treasury shares under court schemes. These companies typically recognise dividend income and gain/ loss arising on sale of treasury shares in the profit-and-loss statement. Companies Bill prohibits non-cancellation of treasury shares. Under it, a transferee company cannot hold any shares in its name or in the name of a trust either on its behalf or on behalf of its subsidiary/ associate companies. Hence, these practices can no longer continue. As the Bill is silent on treasury shares already held by companies, it appears the restriction may not impact those shares.

New order on cash flow statement

Companies Bill 2012 defines “financial statements” to include cash flow statement. Though the Bill specifies exemptions from preparation of cash flow statement, these are different from the non-SMC (small and medium-sized company) criteria in AS-3. Typically, Companies Bill will require more companies, such as those with turnover between Rs 2 crore and Rs 50 crore, to prepare cash flow statement. However, a few companies may be exempted under the Bill, but not under AS-3. Until the applicability of AS-3 is amended, companies currently preparing cash flow statement will continue to do so even when exempted under Companies Bill. For example, a one-person company with turnover exceeding Rs 50 crore will have to prepare cash flow statement under AS-3 even though Companies Bill does not ask for it.

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