In today’s market, every entity — private or public — needs to be competitive by spending on advertising, training, start-up, and research and development. In this process, intangible assets may emerge where the benefits are expected to flow for more than one accounting period.

A committee of the Institute of Chartered Accountants of India recently issued an exposure draft, Accounting Standard for Local Bodies (ASLB) 31 — ‘Intangible Assets’.

The objective is to prescribe accounting treatment for intangible assets not covered in any another standard. It requires an entity to recognise an intangible asset if specified criteria are met. It specifies how to measure the carrying amount of intangible assets, and requires specified disclosures. The standard is intended for all prescribed local bodies.

Tough going for going concerns

According to ICRA’s “Index of Industrial Production June 2013”, the de-growth of manufacturing output eased to 2.2 per cent. The de-growth of motor vehicles, trailers and semi-trailers deteriorated to 13.7 per cent from 1.2 per cent in April 2013 and 6.2 per cent in May 2013.

This is the time auditors have to carefully assess whether the basic going concern assumption would be valid for the entire year. Early assessment has two-fold objectives — help auditors align overall audit procedures for the year well in time; and help clients identify/ relook the mitigation measures for the risk of going concern assumption being inappropriate. This includes product diversification, re-negotiating credit arrangements with fund providers, suppliers and so on.

Challenging days ahead for directors

Last month, President Pranab Mukherjee gave assent to the Companies Bill 2012.

Beyond the current requirements of the Directors’ Responsibility Statement, the Bill has added two more — responsibilities towards laying down internal financial controls; and devising proper systems for compliance with law and the effectiveness of these systems.

Specifically, it requires directors to state that the internal financial controls exist for orderly and efficient conduct of business, which is a very subjective term, and devising systems for compliance with law and ensuring they are adequate and operating effectively.

Unlike the Sarbanes-Oxley Act — Section 404, these requirements go beyond financial reporting, posing a challenge for all directors.

India Inc caught in a rupee trap

With the rupee touching new lows against the dollar, the liabilities denominated in foreign currencies are seriously impacted.

According to Bloomberg data, bonds and loans worth $10.6 billion, mainly owned by two big manufacturing groups in India, are maturing by December 31 and $7.4 billion in the following three months.

The rupee depreciation will significantly increase the cost of repayments and add more stress on the entities, which are already passing through a tough phase. The story is not different for telecom companies, where the increase in repayment obligation as on June 30, 2013 over March 31, 2013 is around Rs 7,300 crore.

It is high time entities revisit their foreign currency risk management policies, as it might be too late at the end of the year.

Published on September 8, 2013