SEBI Circular Relaxing Ind AS Rigours – Interpretational issues

The SEBI’s circular of July 5th 2016 providing relaxation to listed entities from the presentation and disclosure requirements of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) in respect of the interim quarterly financial results presented under Ind AS in the first year is being welcomed by the industry.

The key relaxations provided include the option not to present the audited financial results for the previous year end, including the reserves as on that date, the relaxation of not requiring the comparative / corresponding previous year period results to be reviewed or audited by the auditors and to present the same based on amounts determined by the management and relaxation in presenting equity reconciliation only in the half-year end and is not mandated in each quarter.

As part of the aforesaid circular, SEBI has also revised the format of publication of financial results in the newspapers.

Whilst the SEBI circular is by and large self-explanatory, it has also clarified that in case of any technical difficulty in interpretation of any matters stated in the circular, the provisions of Ind AS or the Companies Act 2013 will prevail. In such cases, the listed entity should provide suitable clarifications / explanations wherever necessary.

Some of the issues where such interpretation may be required are:

a. Ind AS 108 on Segment Reporting provides an exemption from presenting segment information in the standalone financial statements if the entity also presents consolidated financial statements in the same report. The footnote to Ind AS 34 on Interim Financial Reporting clarifies that the results presented under the requirements of SEBI are not interim financial statements. Accordingly, it would appear that the exemption provided in Ind AS 108 from presenting segment information in the standalone results will not be applicable since they are not considered financial reports under Ind AS. The SEBI circular also does not provide any specific relation from providing segment information in standalone results where consolidated results are also presented. However, keeping in mind the likely intent of SEBI in providing the relaxations in the first year of Ind AS implementation and the technical difficulty that may exist in taking such a strict interpretation, it appears that an entity may present segment information only in the consolidated results based on the exemption provided under Ind AS 108.

b.Whilst the SEBI circular provides a relaxation from presenting reserves as per the last audited balance sheet during the interim quarters, the revised format of publication includes a line item requiring such disclosure. Considering the specific relaxation provided by SEBI in this regard, it appears that this line item need not be presented in the publication.

c.The SEBI circular clarifies that the format of submitting the quarterly results shall be as per the format provided in its circular of November 30, 2015. This format does not include a line item for presenting the Other Comprehensive Income (OCI) for the period / year to date, however the revised format of publishing the quarterly results includes this line. Since the publication is stated to be an extract of the results submitted to the stock exchanges and no relation has been provided by SEBI with regard to presenting OCI, it appears that a line item to disclose OCI should be included in the format for submission of results.

d.The format for submission of results states that Income from Operations should be shown net of excise duty. Ind AS requires Income from Operations to be shown at gross and the excise duty should be shown as an expense since it a cost of manufacturing. In the view of the conflict between the format and the requirements of Ind AS, it would appear this technical difficulty should be based on the interpretation of Ind AS and according Income from Operations should be presented at gross and the excise duty should be shown under expenses.

Though the relaxations of SEBI are available to listed entities, the early trends in the results announced for the quarter ending June 30 indicate that corporate India is holding on to its high standards of governance by not availing most of the relaxations aprovided.