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TMI BlogInstances of non-compliance with Indian Accounting Standards (Ind ASs) on Accounting Policies for measurement of Revenue from Contracts with Customers and Trade ReceivablesX X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(b) of section 132 of the Companies Act 2013 (the Act) read with rule 4(2)( c) of the National Financial Reporting Authority Rules 2018 (NFRA Rules 2018), the National Financial Reporting Authority is mandated to monitor and enforce compliance with accounting standards and auditing standards. Further, NFRA is required by sub-section 2( d) of section 132 of the Act read with rule 4(2) (g) of NFRA Rules, to perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties. 2. NFRA monitors compliance with accounting standards by Companies as part of its review of published financial statements of companies. During its recent review, instances of apparent noncompliance with the prescription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot; .. Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation. The transaction price of goods sold and services rendered is net of variable consideration on account of various discounts and schemes offered by the Company as part of the contract ... " 4. Appendix A to Ind AS 115 defines the 'transaction price' as the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to am customer, excluding amounts collected on behalf of third parties. It is important to note that the transaction price defined in appendix A to Ind AS 115 is different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneously stating that the trade receivables are initially recognized ( or measured) at fair value, which is contrary to the requirements of Ind AS 109. One example of such erroneous accounting policy stated by a large listed company [Names of companies withheld] is as follows: "Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision/or impairment." 7. Further, there have also been instances of inconsistency between the accounting policy for initial measurement of trade receivables and the accounting policy for measurement of corresponding revenue leading to misleading and confusing information to the users of the financial stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;Revenue Recognition .. Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation. The transaction price of goods sold and services rendered is net of variable consideration on account of various discounts and schemes offered by the Company as part of the contract ... " 8. The above instances of wrong accounting policies by a few companies reflect inadequate understanding of the measurement and disclosure requirements of the relevant Ind ASs. Accordingly, all listed companies and other entities falling with the domain of NFRA which are required to follow Ind ASs are hereby advised to comply with the provisions of l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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