2 minute read 24 May 2023
Year-end considerations 2023

Year-end considerations for 2023: what organizations need to know

By Jigar Parikh

EY India Financial Accounting Advisory Services Partner

Knowledge-driven about the business and reporting implications of regulations and Ind-AS

2 minute read 24 May 2023

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This publication provides an overview of the changes in accounting standards and interpretations as well as regulatory changes that are relevant from year-end closure for 2023 and beyond. 

In brief 

  • Several challenges are likely to shape the future landscape of financial reporting. Regulatory changes during the year are a reflection of those challenges. Hence, organizations will have to be mindful of regulatory changes and should evaluate its impact in year-end financial reporting for 2023. 
  • Access critical updates and insights to help finance leaders and teams update themselves with the changes applicable for the year-end financial reporting and ensure that the companies are well prepared for the closure with the changes.

As we revisit the Financial Year 2022-23 (FY 2023), a number of challenges are likely to shape the future landscape such as sharp deterioration of macroeconomic environment with geopolitical risks, high inflation, monetary measures by central banks, slowing economic growth and the potential for a full-blown recession in many countries. The war between Russia and Ukraine has already catalyzed enormous disruption for businesses and economies around the globe. Regulatory changes are a reflection of these challenges and uncertainties. In seeking to address and mitigate the risks of this new environment, regulators may create an additional layer of complexity for industry from the perspective of its inclusion in year-end financial statements and reporting.

Climate risk and other climate-related matters may impact number of areas of accounting. Stakeholders expect robust disclosures on the most significant assumptions, estimates and judgements made related to climate change.
Jigar Parikh
EY India Financial Accounting Advisory Services Partner

A recent EY publication, “Year-end considerations: updates of standards, interpretations and regulatory considerations affecting financial statements”, aims to help companies make sense of the regulatory landscape that is relevant for 2023 and beyond. The publication consists of three sections:

Section 1: provides an overview of the key accounting changes as of 31 March 2023 and certain key amendments that are applicable for financial statements for the year-ended 31 March 2023 and beyond. 

Section 2: provides a glance at the regulatory and other changes that have been issued during this year, which have a consequential impact on accounting, disclosures, and compliance with regulations. 

Key amendments by the Ministry of Corporate Affairs including:

Use of an accounting software which records the audit trail

MCA has amended the Companies (Accounts) Rules, 2014 relating to the manner of maintaining books of account in electronic mode. As per the amendment, every company which uses accounting software for maintaining its books of account, should use only such accounting software which has a feature of recording the audit trail of each transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled. 

Companies need to gear up to upgrade their accounting system to comply with audit trail requirements w.e.f. 1 April 2023. The date of applicability of audit trail requirements for the management succeeds the date from applicable to the auditor (i.e., effective from 1 April 2022). In the absence of current year compliance requirement for the Companies, Statutory Auditor would not be able to report under 11 (g) of Audit Rules.  

Corporate Social Responsibilities (CSR)

Key amendments to Companies (Corporate Social Responsibility Policy) Rules, 2014 include proviso to Rule 3(1), Rule 4(1) to be substituted, Clause (C) of rule 8(3), annexure II and clarification on spending of CSR funds for “Har Ghar Tiranga” campaign. 

Key Changes on SEBI Regulations:

These include amendments to related party disclosures, amendments to SEBI Listing Obligations and Disclosure Requirements (LODR) and amendments related to the issue of Capital and Disclosure Requirements (ICDR). 

Section 3: summarizes key hot topics which may have a significant impact on the reporting for the financial year-ended 31 March 2023 and beyond. Some of the key topics covered include:

Accounting matters on account of political and economic uncertainty

Entities need to consider the magnitude of the disruptions caused by the current economic environment and consider whether there is adequate disclosure of the information about those assets and liabilities that are subject to significant estimation uncertainty, in order to provide users with a better understanding of the financial impact.

Climate related matters in financial statements

Regulators have an increasing focus on climate-related issues, including the need for consistency between the front part (management commentary) and the back end (financial statements) and it is imperative for entities to consider what impact climate-related risks may have on their financial statements.

Accounting for production Linked Incentives (PLI) Scheme

The recognition and presentation of the grant received by entities under the PLI scheme may vary from industry to industry as conditions attached to the qualifying criteria and subsequent disbursal could be different across industries. This would need a careful assessment and exercise of judgement after careful examination of facts of the scheme for the respective industries.

Considering that incentive will be provided to the entities for the number of years after it becomes eligible to receive them, the assessment will have to be revisited to identify if there is any change in the fact pattern and whether the treatment evaluated for the recognition and presentation of the grant in the balance sheet or profit and loss at the time of receiving the grant continue to be appropriate in the subsequent periods.

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There is a need for organizations to understand the changes proactively, assess their impact on year-end financial statements and prepare their systems and processes to ensure a smooth transition to changes in regulatory and accounting standards.

About this article

By Jigar Parikh

EY India Financial Accounting Advisory Services Partner

Knowledge-driven about the business and reporting implications of regulations and Ind-AS