4 minute read 21 Oct 2021
Year-end considerations (FY 20-21)

Year-end considerations for FY 21: key updates organizations should evaluate

EY India
By EY India

Multidisciplinary professional services organization

Contributors

Jigar Parikh,

 

Dr. Devesh Prakash

4 minute read 21 Oct 2021
Related topics Financial accounting advisory services Assurance CFO agenda
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Companies should understand key accounting changes and their impact on financial reporting.

The financial year 2020-21 brought an unprecedented challenge for companies across the globe. The impact of pandemic was felt in all aspects of organizations. Companies took various measures to overcome impacts of the pandemic, such as cost rationalization, adoption of digital, restructuring, and liquidity support. The government came out with various measures to support companies to overcome these challenges. The resilience, agility, innovation and adaptability shown by organizations have yielded positive results across many sectors. Many companies are showing a lot of buoyancy and are back to their growth trajectory.

Some of these changes go beyond the matters of accounting and reporting. They potentially impact the internal controls and information systems of companies and their business decisions, such as buying versus leasing decisions.

Financial reporting for financial year 2020-21 will be a reflection of how companies have fared in mitigating the effect of the pandemic and their resilience. As companies prepare for their annual results, it is critical for them to ensure that readers of financial statements adequately understand the impact of the pandemic on the financial results of the company. Hence, assessment of the impact on significant estimates and judgment, and appropriate COVID-19 disclosures will be key focus areas for companies while preparing their financial results.

Whilst there are no new accounting standards issued in current year, there have been few amendments to the existing standards. Also, there are a slew of regulatory measures which may have a bearing on accounting and reporting.

As companies prepare for closing the financial year, we have summarized the key changes and their impact to assist companies in ensuring compliance with these developments while finalizing their annual financial statements. The three broad updates will highlight the key aspects of these changes: New accounting pronouncements relevant for financial statements of FY 2020-21 or thereafter, key hot topics and other regulatory changes.

1.  New accounting pronouncements relevant for financial statements of FY 2020-21:

During the financial year (FY) 2020-21, there have been certain amendments in the existing Indian Accounting Standards (Ind AS). Various committees/board of the Institute of Chartered Accountants of India (ICAI) have rolled out additional guidance.

On 24 July 2020, the Ministry of Corporate Affair (MCA) vide notification dated 24 July 2020 made the rules to amend the Companies (Indian Accounting Standards) Rules, 2015. Some of these amendments have been made to alleviate practical challenges faced by companies due to pandemic. Publication covers a summary of the key changes and the potential impact that these changes may have on the financial statements of companies.

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Companies need to revisit deferred tax balances recognized on goodwill in their financial statements. If the goodwill was treated as tax deductible at initial recognition, the non-deductibility of goodwill as a result of the amended provisions, would in most cases require additional creation of deferred tax liability.
Jigar Parikh
EY India Financial Accounting Advisory Services Partner

2.  Key hot topics: Summarizes key hot topics which may have a significant impact on the reporting for the financial year ended 31 March 2021 and beyond.

Some of the key topics covered in the publications are:

  • Impact of Code on Social Security (2020) on gratuity and other employee benefits
  • Corporate Social Responsibility (CSR) amendments and frequently asked questions
  • Understanding the reporting consideration for Interest Rate Benchmark Reforms
  • Report on Business Responsibility and Sustainability Reporting
Increase in corporate governance and transparency through display of CSR committee, CSR policy and CSR projects in website and enhanced disclosure in Annual CSR Report.
Dr. Devesh Prakash
EY India Financial Accounting & Advisory Services Partner

3.  Other regulatory developments: Provides a glance at the regulatory and other changes that have been issued. There have been a significant number of regulatory updates during this year which have consequential impact on accounting, disclosures and compliance with regulations.

  • The Companies (Amendment) Act, 2020
  • The Companies (Share Capital and Debentures) Amendment Rules, 2020
  • Deferment of the Companies (Auditor’s Report) Second Amendment Order, 2020
  • Listing Obligation and Disclosure Requirements (LODR) Regulations
  • Direct listing: opening overseas opportunities for Indian companies
  • Amendment in Schedule III of Companies Act 2013

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Summary

Indian companies must proactively understand, assess their impact on financial statements and prepare their systems and processes to ensure a smooth transition for accounting standards and regulatory changes.

About this article

EY India
By EY India

Multidisciplinary professional services organization

Contributors

Jigar Parikh,

 

Dr. Devesh Prakash

Related topics Financial accounting advisory services Assurance CFO agenda
Upvote