GAP Report on Impact Assessment of NFRS Implementation of <X & CO.

/>

GAP REPORT

ON

IMPACT ASSESSEMENT

OF NFRS IMPLEMENTATION
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

1. Executive Summary and Recommendation

Convergence of NFRS requires major changes in business process, manuals and others areas affected. Approval of such changes from
appropriate authority should be obtained. During our GAP assessment process we identified following areas where <X & CO./> financial
policies, manuals and current practice needs to be amended to make them NFRS compliant:
S. No Current Practice Changes required
Format of Financial statement as required by NFRS should be
1. Component of Financial Statement as per Local GAAP
prepared
Manual and policies should define the current and non-current
Current Practice has prescribed the format of balance sheet but current
2. assets and liabilities and the same should be followed strictly in
and non-current distinction hasn’t been strictly followed
the preparation and presentation of financial statements.
Two statements viz. Statement of Profit or Loss and Statement
3. Statement of Profit or Loss has only been prepared.
of Other Comprehensive Income shall be defined.
Long Term Employee Benefits aren’t computed using actuarial Policy should be devised for accounting such provision on the
valuation method. (No such provision yet in the manuals and policies basis of Actuarial valuation. Such policy should state the timing,
4. frequency etc. of the valuation.
of the entity)
Investment in Equity Shares Policy and manual should be devised to define the effective
Investment in equity shares are carried at the cost of the investment interest rate, its method of calculation. Further techniques and
5. methods for forecasting cash flow should be mentioned on policy
made in the equity shares.
if the investment is made in unquoted equity shares.
Fixed Assets Policy should be devised by stating internal factors and external
As per current practice, Assets is measured at Historical cost model. factors for testing impairment indicator on periodic basis.
Impairment indicator assessment is not carried out periodically. Further, the policy for subsequent recognition shall also be
6. Depreciation been carried out at specified rate. specified.
On subsequent recognition, no policy is mentioned for adopting either
cost model or revaluation model; However cost model has been
followed.
Lease Rental Policy should be devised for recognizing lease rental income on
As per current practice, all operating lease are treated as cancellable the straight line basis over the lease term for non-cancellable
7.
and lease rent is not recognize on straight line basis. Lease income is period.
recorded on yearly basis.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

Staff loan and advances
As per current practice, Staff loan and advances is accounted for at
8.
face value of the loan and advance provided to the staff. Interest
income is booked on accrual basis applying the nominal interest rate
Policy should be devised for recognizing the staff cost at fair
value (i.e. present value of all future cash flows). Any difference
in nominal value and fair value should be booked as expenses
over the period of the loan to the staff.

SECTION B – GAP ANALYSIS AND IMPACT ASSESSMENT

I. NFRS GAP ANALYSIS

1. Presentation of Financial Statements and Disclosure Requirements

Particulars Current Practice of Treatment as per Local
GAAP
A complete set of financial statements includes:
(a) Balance sheet;
(b) Income statement;
(c) Statement of Changes in Equity
(d) a cash flow statement; and
(e) Annexure forming part of financial
Components of Financial
statements which also contain the
Statements
significant accounting policies and
notes to the accounts.
As per the requirements of NFRS
As per NAS 1.10, a complete set of financial statements
comprises of:
(a) a statement of financial position as at the end of the period;
(SFP)
(b) a statement of profit or loss and other comprehensive
income for the period; (SPL) & (SOOCI)
(c) a statement of changes in equity for the period; (SOCCE)
(d) a statement of cash flows for the period; (SCF)
(e) notes, comprising a summary of significant accounting
policies and other explanatory information; and
(f) a statement of financial position as at the beginning of the
earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it
reclassifies items in its financial statements.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

Particulars Current Practice of Treatment as per Local As per the requirements of NFRS
GAAP
Recommendation:
• Presently <X & Co./> statement of financial position has been titled as Balance sheet. Instead it should be titled as a statement of financial
position.
• Further, <X & Co./> current practice does not contain the other comprehensive income and opening statement of financial position as
accounting policies applied retrospectively as a separate component of the Financial Statement. Thus <X & Co./> statement of Profit and Loss
should contain Other Comprehensive Income for the period.
• Also <X & Co./> current practice, annexure and schedule forms part of the financial statements; however as per NFRS requires those annexure
should be included in notes. Thus schedule should be part of notes.
• As a first time adaptor, <X & CO./> shall prepare 3 SFP, 2 SPL & SOCI, 2 SOCCE and 2 SCF.
• An entity shall classify an asset as current when; (NAS 1.66)
- it expects to realize the assets, or intends to sell or
consume it in its normal operating cycle;
- it holds the assets primarily for the purpose of trading;
- it expects to realize the assets within 12 months after the
reporting period,; or
- The asset is a cash or cash equivalent.
• An entity shall classify a liability as current when; (NAS
• Current and Non-current distinction has 1.69)
been made but no discounting has been - it expects to settle the liability in its normal operating
Current/ Non-Current done for the same if the assets or liabilities cycle;
Distinction are to be realized or settled within the next - it holds the liability primarily for the purpose of trading;
12 months. - the liability is due to be settled within 12 months after
the reporting period;
- it does not have an unconditional right to defer
settlement of the liability for at least twelve months
after the reporting period.
If the above condition isn’t fulfilled, the asset or liability shall
be classified as non-current.
• Entity shall present current and non-current assets and
liabilities as separate classifications in its SFP except when
the presentation based on liquidity provides more reliable
information. (NAS1.60)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

Particulars Current Practice of Treatment as per Local As per the requirements of NFRS
GAAP
Recommendation:
• The entity shall strictly follow the current and non-current distinction.
Statement of Compliance Not Stated The entity shall make an explicit and unreserved statement of
compliance with NFRS in the notes. (NAS 1.16)
Going Concern No disclosure has been made whether the The entity shall make the assessment and disclose the ability to
financial statements has been prepared on continue as a going concern. (NAS 1.25)
going concern basis or not.
If the entity did not apply a new NFRS that has been issued but
is not yet effective, the entity has disclose the following: (NAS
8.30 & NAS 8.31)
- The title of new NFRS,
- The nature of impending change or changes in accounting
policies,
Recent Accounting No specific requirement to disclose the - The date by which application of new NFRS is required,
Pronouncements information about new pronouncement issued - The date at which it plan to adopt the NFRS,
but not yet effective. - Either:
i. A discussion of the impact that initial application of
NFRS is expected to have on the entity’s financial
statements or
ii. If the impact is not known or reasonably estimate, a
statement to that effect.

2. Statement of Financial Position – Equity & Liabilities

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
1. EQUITY
• Share issue cost is charged off to Profit or • As per NFRS, share issue cost (net of any related income tax benefit)
Loss Statement. that are directly attributable to issue of equity instrument shall be
• The share capital is only classified as deducted from equity to the extent that they are incremental costs
A. Share Capital
equity instruments and not classified into directly attributable to the equity transactions and cannot be charged
Equity and Financial Liability if it off to SPL unless it is abandoned. (NAS 32.35 & NAS 32.37)
contains equity component.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• If the entity has a contractual obligation to deliver pro rata share of
its net assets on liquidation, then the entity shall classify the
obligation as equity and not financial liability (NAS 32.16C)
• If the entity has a contract that will be settled in entity’s own variable
equity instruments, then the instrument shall be classified as a
financial liability. (NAS 32.11(a)(i)).
• The entity should separately disclose the amount of transaction costs
accounted for as a deduction from equity in the reporting period in
the statement of changes in equity. (NAS 32.39 & NAS 1.109)

2. RESERVE AND SURPLUS

• On transition to NFRS all the difference in the Opening Financial
Position and Balance Sheet prepared as per Previous Accounting
Standard shall be adjusted to the retained earnings (or, if appropriate,
another category of equity).(NFRS 1.11)
• Currently, retained earnings is computed
• When an entity applies a new accounting policy, it will have to make
as total income less the total expense and
Retained the retrospective application of the accounting policy with the
A. shown as a sub-classification under
Earnings adjustments made to retained earnings. (NAS 8.26)
equity.
• The correction of prior period error is excluded from the profit or loss
for the period in which it is identified and restatement of prior period
is made. (NAS 8.46)
• Movements in retained earnings should be disclosed. (NAS1.106d)
• Includes amount of profit transferred as • NFRS requires disclosure, either in the statement of financial position
per the necessity and the regulatory or statement of changes in equity or in the notes, of description of the
B. Other Reserve
requirements. Currently, no amount has nature and purpose of each reserve within equity. (NAS 1.79)
been transferred to this reserve.
• Financial Liabilities shall be measured at fair value minus transaction
costs attributable to the issue of such financial liability (NFRS
• Includes Audit Fee Payable, TDS
9.5.1.1)
Payable, CIT Payable and PF Payable.
3. Other Payables • Transaction costs includes fees and commissions paid to agents,
• Recorded at amount outstanding at year
advisors, brokers & dealers, transfer taxes and duties. They don’t
end.
include premium or discounts, financing costs or internal
administrative or holding costs (NAS39.AG13)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. (NFRS 13.9). The carrying
value of such payable is the best approximation of the fair value due
to their short term nature except for PF.
• Trade and other payable shall be presented as minimum line items
under SOFP (NAS 1.54k)
• Under Defined Contribution Plan, the obligation for each period is
determined by the amount to be contributed for that period and the
• Currently grouped under Other Payable. obligations are measured on an undiscounted basis (NAS 19.50)
• Under previous GAAP, NAS 14 was • When the liability is not expected to be settled within 12 months, then
4 PF Payable under voluntary compliance and was not such liability shall be discounted. (NAS 19.52). The discount rate to
mandatory to comply with the provision be used for discounting such obligation shall be market yield on high
of NAS 14. corporate bonds or government bonds. (NAS 19.83)
• The entity shall disclose the amount recognized as expense for
defined contribution plan (NAS 19.53)
• It is to be classified under profit sharing and bonus plans under NAS
19.
• An entity shall recognize the expected cost of profit sharing and
bonus payments if the entity has legal and constructive obligation to
Provision for • Currently no amount has been recorded make such payments and reliable estimate of the obligation can be
5
Staff Bonus here. made. (NAS 19.19)
• The entity shall recognize the cost of profit sharing and bonus plans
not as a distribution of profit but as an expense (NAS 19.23)
• If the bonus isn’t settled within 12 months, the it shall be classified
as other long term employee benefits (NAS 19.24)
• Under Defined Contribution Plan, the obligation for each period is
determined by the amount to be contributed for that period and the
obligations are measured on an undiscounted basis (NAS 19.50)
Provision for • Currently no amount has been recorded
6 • When the liability is not expected to be settled within 12 months, then
gratuity here.
such liability shall be discounted. (NAS 19.52). The discount rate to
be used for discounting such obligation shall be market yield on high
corporate bonds or government bonds. (NAS 19.83)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• The entity shall disclose the amount recognized as expense for
defined contribution plan (NAS 19.53)
• The present value of post-employment benefit obligation and related
current service cost shall be measured by (NAS 19.66):
o Applying an actuarial valuation method,
o Attributing benefit to period of service and
o Making actuarial assumption.
• Service and Interest Costs attributable to SOPL (NAS 19.57c):
Post-
• Currently, the entity doesn’t have any a. Current Service Cost: Cost for service rendered during the
7 Employment
provision for post-employment benefits. current year.
Benefits
b. Past Service Cost: Cost for service rendered due to
modification of the plans attributable to past years.
c. Net interest cost: The interest or finance cost for time value of
obligation calculated by unwinding the present value of the
obligation using the discount rate.
• Any actuarial gains/losses shall be transferred to SOOCI. (NAS 19.76)
• Initially, it is to be measured at Fair value which is generally loan
amount plus or minus direct incremental cost/charges (NFRS 9.5.1.1
and NFRS 13.57-60).
• Subsequently, at each reporting date, these assets are measured at
“Amortized cost” calculated using Effective Interest Rate (EIR)
method. (NFRS 9.5.2 and Para 9 and AG5–AG8 of NAS 39)
• The entity may make an irrevocable election to designate it as Fair
Borrowings • Currently, the entity doesn’t have any Value through Profit or Loss (FTVPL). (NFRS 9.4.2.2)
8 • Effective Interest rate is the rate which will discount the future cash
(Loan) borrowings.
outflows equal to current initial measurement of the liability
payments through the expected life of the instruments. (NAS 39.9)
• Finance cost for time value shall be accounted using the same
effective interest rate. (NAS 23.6)
• If the interest has been used for qualifying asset, same effective
interest shall be capitalized to the cost of asset (NAS 23.10); subject
to exemption provided in NFRS 1.D23.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• As per Para 5.1.1 of NFRS 9, it should be measured fair value plus
or minus transaction cost and
Staff loan and • It is accounted for at face value of the
9 • As per Para 5.2.1 of NFRS 9, on subsequent measurement should
advances loan and advance provided to the staff.
be measured at Amortized cost calculated using Effective interest
rate method.
Recommendation:
<X & CO./> should classify the loan at amortized cost under NFRS 9. Further <X & CO./> should determine the market interest rate for similar
instruments and similar assets and discount all cash flows from the loan with the market interest rate to arrive at their present value.
The present value of all cash flows is the fair value of the loan. Difference between loan’s fair value and nominal amount (initially disbursed
amount) should be recognized either of the following methods into Profit or Loss Account:
• full amount directly in initial recognition, or
• by deferring expense and allocating it to the periods when the employee provides services.
• Current Tax for current and prior period shall be, to the extent unpaid
be recognized as a liability. (NAS 12.12)
• Current Tax shall be charged to Profit or Loss except to the extent
Income Tax • It is a statutory liability as per the that the transaction arises from transaction or event that is recognized
10
Liability Income Tax Act, 2058 in Other Comprehensive Income (NAS 12.58)
• It shall be included as minimum line item under SOFP (NAS 1.54n)
• It shall be classified as a current liability as it meets all the conditions
to be classified as a current liability.
• Deferred Tax Assets or Liabilities shall be measured at the tax rate
that will be applicable to the period when the asset is realized or
liability is settled. (NAS 12.47)
• Deferred Tax Assets or Liabilities shall not be discounted. (NAS
12.53)
• Deferred Tax shall be charged to Profit or Loss except to the extent
Deferred Tax • Currently classified as Non-Current that the transaction arises from transaction or event that is recognized
11*
Liability Liability in Other Comprehensive Income (NAS 12.58)
• Deferred Tax Assets and Liabilities can be setoff if and only if; (NAS
12.74)
o The entity has legal enforceable right to do so
o It relates to the income tax levied by the same authority.
• It shall be included as a minimum line item under SOFP. (NAS
1.54n)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>
3. Statement of Financial Position – Assets
S.N. Particulars Current Practice of Treatment as per Treatment under NFRS
Local GAAP
• Assets measured at Historical cost
model.
Property, Plant & • Impairment indicator assessment not
1.
Equipment carried out periodically.
• Depreciation has been charged on the
reducing balance.
• Currently no intangible assets exists
2 Intangible Assets
in the books of the entity.
• If the payment is deferred beyond normal credit terms, the difference
between the cash price equivalent and the total payment is recognized
as interest over the period of credit. (NAS 16.23)
• The entity can apply cost model or revaluation model as its
accounting policy after initial recognition at cost and shall apply such
policy to an entire class of property, plant & equipment. (NAS 16.29)
• If revaluation model is used, revaluation shall be made with sufficient
regularity. (NAS 16.31)
• If an item of property, plant & equipment is revalued, the entire class
of property, plant & equipment to which the assets belongs to shall
be revalued. (NAS 16.36)
• Revaluation gain shall be recognized in OCI and revaluation loss
arising from revaluation shall be recognized in SPL. (NAS 16.39 &
NAS 16.40)
• The entity shall test for the indicators (internal or external) of
impairment as per the requirements of NAS 36.
• Gains or loss on derecognition shall be included in profit or loss.
Gains shall not be classified as revenue. (NAS 16.68)
• It shall be included as a minimum line item under SOFP (NAS 1.54a)
• At the time of transition to NFRS, the entity may elect to use previous
GAAP revalued amount of PPE as deemed cost if it is comparable to
fair value. (NFRS 1.D5 & NFRS 1.D6)
• After transition to NFRS, the useful life of the asset shall be
considered the same as mentioned in Appendix I of Application
Guidance for NAS 16 unless there is a reasonable justification for
the deviation in useful life. The total of depreciation difference
arising at the transition shall be charged to retained earnings.
• Intangible Assets shall be presented in the face of the Statement of
Financial Position (NAS 1.54a)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• Internally generated intangible assets shall be written off as expense
as it can demonstrate how it will generate future economic benefits.
(NAS 38.57)
• Expenses incurred on the research phase shall be recognized as an
expense when it is incurred. (NAS 38.54)
• Expenditure on intangible asset that was initially recognized as an
expense shall not be recognized as a part of the intangible asset on a
later date. (NAS 38.71)
• The entity can apply cost model or revaluation model as its
accounting policy. (NAS 38.72)
• Amortisation charge for each period shall be recognized in profit or
loss. (NAS 38.97)
• The entity shall not amortise an intangible asset with indefinite life,
but shall be periodically reviewed for impairment.(NAS 38.107 &
NAS 38.108)
• The right to way and right to use of the land that will be acquired by
the entity shall be classified as intangible assets.
• The entity shall measure the investment in equity instruments at
initial recognition at its fair value. Transaction costs directly
attributable to the acquisition of the instrument shall be charged to
Profit or Loss. (NFRS 9.5.1.1)
• The entity may make an irrevocable election to designate the
instrument as Fair Value through Other Comprehensive Income
• This includes investment in the (FVTOCI) at initial recognition. (NFRS 9.5.7.5) and if such an
3. Investment shares of companies not listed in the election is made, only dividends from that investment shall be
stock exchange. recognized in profit or loss only when the right to receive payment of
dividend is established. (NFRS 9.5.7.6)
• Gains or losses shall be recognized in profit or loss unless the election
as per para 9.5.7.5 has been made. (NFRS 9.5.7.1)
• The carrying amounts of each of the financial assets measured at fair
value through profit or loss (NFRS 7.8a) or financial assets measured
at OCI (NFRS 7.8h) shall be disclosed.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
Currently, cash and bank balances,
advance and deposits and income tax
4 Current Assets
receivable has been included under this
head.
• If the entity makes an election for the designation of the instrument
as FVTOCI, the gains or losses shall be recognized in OCI and cannot
be recycled back to Profit or Loss. (NFRS 9.B.5.7.1)
• As both the shares are not traded in the market, the entity shall apply
the requirements of NFRS 13 for the valuation of the shares to its fair
value.
• If the fair value of the investment cannot be measured due to
insufficient recent information, then the investment can be measured
at cost. (NFRS 9.B5.4.14)
• The entity shall measure the financial assets at initial recognition at
its fair value plus the transaction costs except when the financial asset
is measured at fair value through profit or loss. (NFRS 9.5.1.1)
• The carrying amounts of each of the financial assets measured at fair
value through profit or loss (NFRS 7.8a) or financial assets measured
at OCI (NFRS 7.8h) shall be disclosed.
• Financial Asset that isn’t measured through amortised cost shall be
measured at fair value (NFRS 9.4.1.4) as they don’t meet the
business model test and cash flow test as mentioned under NFRS
9.4.1.2
• The best estimate of fair value of all the assets is the carrying amount
because of their short term nature; hence the entity can use the
carrying amount as their fair value.
• The entity shall have an irrevocable option to designate the financial
assets through profit or loss at initial recognition. (NFRS 9.4.1.5)
• If the entity designates the financial assets as FVTPL, then the entity
shall have to make the following disclosures: (NFRS 7.9)
o The maximum exposure to credit risk
o The amount by which any similar instruments mitigates the credit
risk
o The amount of change in the fair value during the year.
• Credit Risk is the risk that any party to the financial instrument will
cause a financial loss to another party by failing to discharge an
obligation. (NFRS 7 Appendix A)
• At the date of transition, the entity is permitted to designate a
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
previously recognized financial asset at FVTPL in accordance with
NFRS9.4.1.5. The entity shall disclose the fair value of the financial
assets so designated and their classification and carrying amount
under previous financial statements. (NFRS 1.29)

4. Statement of Profit or Loss

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• The entity may present a single statement of profit or loss and other
comprehensive income in a single statement or present it in two
different statements. (NAS 1.10A)
• The entity shall present additional line items, heading and sub totals
in profit or loss and other comprehensive income when such
presentation is relevant for the understanding of the entity’s financial
General Currently, the entity has been preparing a performance. (NAS 1.85)
1
Presentation single statement of profit or loss. • The entity shall not present any items of income or expenses as
extraordinary item (NAS 1.87)
• When items of income or expense are material, the entity shall
disclose their nature and amount separately. (NAS 1.97)
• Revenue and expense that relate to the same transaction are
recognized simultaneously. (NAS 18.19)
• Revenue includes only the gross inflow of economic benefits
received or receivable by the entity in its own account. (NAS 18.8)
• Revenue shall be measured at the fair value of the consideration
received or receivable. (NAS 18.9)
Currently, the entity hasn’t commenced • When the expenses cannot be measured reliably, any consideration
Revenue from
2 its’ commercial operation; hence no already received for the sale of goods shall be recognized as liability.
Operation
revenue has been generated. (NAS 18.19)
• When uncertainty arises in respect of collectability of the amount
already included in revenue, the uncollectible amount is recognized
as an expense, rather than as an adjustment of the amount of revenue
originally recognized. (NAS 18.34)
3 Interest Income Interest Income on deposit is recognized • Interest Income shall be recognized if the following two conditions
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
based on the interest as provided by the are met: (NAS 18.29)
bank. o It is probable that future economic benefits will flow to the entity;
o The amount of revenue can be measured reliably.
• Interest income on financial instrument shall be recognized using the
effective interest rate as set out in NAS 39. (NAS 18.30)
• The entity shall show it under “Other Income” irrespective of the
basis of classification (Nature or Function). (NAS 1.102 & NAS
1.103)
• Interest income shall be recognized on accrual basis. (NAS 1.27)
• Operating Activities are the principal revenue generating activities of
the entity and other activities that are not investing and financing
activities. (NAS 7.6). As the sale of tender document doesn’t meet
the definition of operating activities, it shouldn’t show the revenue as
Sale of Tender Revenue from sale of tender document
4 operating revenue.
Document has been recognized under other income.
• Revenue shall be recognized only when the economic benefits
associated with it will flow to the entity. (NAS 18.18)
• The current treatment of the sale of tender document is justified and
will render no material gap on the transition to NFRS.
• Short Term Employee Benefits are the employee benefits that are
expected to be settled wholly before 12 months after the end of the
reporting period. (NAS 19.8). Salary, allowances and incentive
allowance are short term employee benefits.
• The entity shall not reclassify the short term employee benefits if the
entity’s timing of settlement changes temporarily. If the change is not
temporary, then the entity shall have to assess whether they still
Salary & Incentive Salary and Incentive allowance Paid to qualify as short term employee benefits. (NAS 19.10)
5
Allowance the employees. • The entity shall recognize undiscounted amount of short term
employee benefits. (NAS 19.11)
• The entity shall disclose key management personnel compensation in
total and for each of the following category:
o Short-term employee benefits (<12 months)
o Post-employment benefits
o Other long-term employee benefits (>12 months)
o Termination benefits
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
o Share based Payment

• In determining whether an arrangement contains a lease shall be

• Recognized on accrual basis.
• Recorded at actual amount of rent.
6 House Rent
• The rent is not classified into operating
and finance lease.
based on the substance of the arrangement; (IFRIC 4.6)
a) Fulfillment of the arrangement is dependent on the use of the
specific asset or assets; and
b) The arrangement conveys a right to use the asset.
Note: Both the conditions as mentioned in IFRIC 4 is fulfilled, hence
the arrangement contains a lease and shall be recognized, measured
and disclosed as per the requirement of NAS 17.
• The rent paid by <X & CO./> satisfies the condition of Non-
cancellable lease. It is a lease that is cancellable only: (NAS 17.4)
o Upon the occurrence of some remote contingency;
o With the permission of the lessor;
o If the lessee enters into a new lease for the same or equivalent
asset with the same lessor;
o Upon payment by the lessee of such additional amount that, at
the time of inception of the lease, continuation of the lease is
reasonably certain.
• The entity shall recognize the lease payments under operating lease
as an expense under straight line basis over the lease term unless
another systematic basis is more representative, even if the payments
are not on that basis. (NAS 17.33 & NAS 17.34)
• The lessee shall disclose the following:
a) The total of future minimum lease payments for each of the
following periods: (NAS 17.35a)
i. Not later than 1 year
ii. Later than 1 year but not later than 5 year
iii. Later than 5 year
b) A general description of: (NAS 17.35d)
i. The existence and terms of renewal or purchase options and
escalation clauses;
ii. Restrictions imposed by the lease arrangements, such as
further leasing.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

5. Statement of Cash Flows

S.N. Particulars Treatment under NFRS (same under Local GAAP but of significance)
• Investment can be classified as cash or cash equivalent when it is readily convertible into cash
1 Investment and is subject to insignificant risk of changes in value. (NAS 7.7)
• Bank overdrafts are included as a component of cash or cash equivalents if the overdraft balance
2 Bank Overdraft fluctuates from being positive to negative. (NAS 7.8)
• The effect of exchange rate changes on cash and cash equivalents held or due in a foreign
3 Effects of Foreign Exchange rates currency is reported separately in the statement of cash flows in order to reconcile the cash and
cash equivalents at the beginning and the end of the period. (NAS 7.28)
• Cash flows from interest and dividends received and paid shall be disclosed separately. (NAS
4 Interest & Dividends
7.31)
• Cash flows arising from taxes on income shall be separately disclosed and classified as cash
5 Income Taxes flows from operating activities unless they can be specifically identified with financing and
investing activities. (NAS 7.35)
• The entity shall disclose the components of cash and cash equivalents and shall present a
reconciliation of the amounts in its statement of cash flows with its equivalent items reported in
the statement of financial position. (NAS 7.45)
• Cash Management Policy shall be disclosed that the entity adopts in determining the composition
6 Disclosures
of cash and cash equivalents. (NAS 7.46)
• The entity shall disclose the amount of significant cash and cash equivalents balances held by
the entity that are not available for use by the group (restricted balances). (NAS 7.48)
• Segmental cash flows shall be disclosed. (NAS 7.52)

6. Statement of Changes in Equity

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• In case of first time adoption, the entity shall prepare a reconciliation
statement of its’ equity in accordance with NFRS and Local GAAP
for; (NFRS 1.24a)
1 Reconciliation No such provision existed
a. Date of transition; and
b. The end of the latest period presented in entity’s most recent
financial statements.
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

S.N. Particulars Current Practice of Treatment as per Treatment under NFRS

Local GAAP
• Comparative information shall be disclosed in respect of the previous
Comparative Statement of changes in equity is period for all amounts reported in the current period financial
2
Information presented only as on reporting date statements. (NAS 1.38). Hence, Comparative statement of changes in
equity is to be disclosed.

7. Notes to the Financial Statements

S.N. Particulars
1 Specific Notes to be disclosed
Treatment under NFRS (similar to Local GAAP but of significance)
• <X & CO./> shall prepare Notes to Accounts which will disclose (NAS 1.112)
i. Information about the basis of preparation of financial statements and the specific accounting
policies used,
ii. Disclose the information required by NFRS that is not presented elsewhere in the financial
statements,
iii. Provide information that is not presented elsewhere in the financial statement but is relevant for
users to understand the financial statement.
• The notes shall be prepared on a systematic manner with cross reference to each component of financial
statement. (NAS 1.113)
• The notes shall also disclose the following basic information: (NAS 1.138)
i. Domicile and legal form of the entity, country of incorporation and address of its registered office
ii. Description of the nature of entity’s operation and its principal activities.

II. FIRST TIME ADOPTION OF NFRS

Following are some of the disclosure requirements as per NFRS 1 (First Time Adoption) that is to be made by the entity:

SN Particulars. Additional NFRS Disclosures

Explanation
The entity shall explain how the transition from previous GAAP to NFRS affects its financial position, financial
1 (Management
performance and cash flows. (NFRS 1.23)
commentary)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

SN Particulars. Additional NFRS Disclosures

The entity shall present at least the following in its first NFRS financial statements, in accordance with NFRS, and
in comparative format: (NFRS 1.6)
a. 3 statements of financial position
(As on 16th July 2016, 15th July 2017 and 16th July 2018)
b. 2 statements of profit or loss and other comprehensive income
c. 2 statements of cash flows
d. 2 statements of changes in equity
2 Financial statement set
(For b, c and d for the year ended on 15th July 2017 and 16th July 2018)
e. Related notes
f. For any information (historical summaries or comparative information) under previous GAAP that does
not comply with the recognition and measurement provisions of NFRS, entity shall:
i. Label the information prominently as not being prepared under NFRS
ii. Disclose the nature of the main adjustments that would make it comply with NFRS, which need not be
quantified
The entity’s first NFRS financial statements include: (NFRS 1.24 & NFRS 1.25)
a. Reconciliations of its equity reported under previous GAAP to its equity under NFRS for:
i. The date of transition to NFRS (16th July 2016)
ii. The end of the latest period presented in the entity’s most recent annual financial statements under
previous GAAP (15th July, 2017)
3 Reconciliation b. Reconciliation of profit or loss reported under previous GAAP for the latest period in the entity’s most recent
annual financial statements to its total comprehensive income under NFRS for the same period (15th July,
2017)
c. Material adjustments to the statement of cash flows
If the entity is aware of errors under previous GAAP, above reconciliations should distinguish between the
corrections of errors and changes in accounting policies. (NFRS 1.26)
If the entity uses fair value in its opening NFRS statement of financial position as deemed cost for an item of
property, plant and equipment, an investment property or an intangible asset, does it disclose for each line item in
Use of fair value as
4 the opening NFRS statement of financial position: (NFRS 1.30)
deemed cost
a. The aggregate of those fair values
b. The aggregate adjustment to the carrying amounts reported under previous GAAP
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

III. OPERATING SEGMENTS

SN Particulars. Additional NFRS Disclosures

This standard shall apply to an entity whose debt or equity instruments are traded in the public market or is in the
process of filing its financial statements with securities commission for the purpose of issuing in public market.
Scope As the entity hasn’t been trading publicly or is in the process to do so, the entity isn’t required compulsorily to
1 comply with NFRS 8.
If the entity chooses to disclose the segment information, then it shall not describe such information as segment
information.
An operating segment is a component of an entity: (NFRS 8.5)
a. that engages in business activities from which it may earn revenues and incur expenses (including revenues
and expenses relating to transactions with other components of the same entity),
b. whose operating results are regularly reviewed by the entity’s chief operating decision maker to make
decisions about resources to be allocated to the segment and assess its performance, and for which discrete
financial information is available

An entity shall report separately information about an operating segment that meets any of the following
quantitative thresholds: (NFRS 8.13)
a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10
2 General Information
per cent or more of the combined revenue, internal and external, of all operating segments.
b. The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount,
of
- the combined reported profit of all operating segments that did not report a loss and
- the combined reported loss of all operating segments that reported a loss.
c. Its assets are 10 per cent or more of the combined assets of all operating segments.

If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity’s revenue,
additional operating segments shall be identified as reportable segments (even if they do not meet the criteria in
paragraph 13) until at least 75 per cent of the entity’s revenue is included in reportable segments. (NFRS 8.15)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

SN Particulars. Additional NFRS Disclosures

An entity shall reconcile:
a. Total reportable segments' revenues to the entity's revenue
b. Total reportable segments' measures of profit or loss to the entity's profit or loss before tax expense (tax
income) and discontinued operations
c. Total reportable segments' assets to the entity's assets
3 Reconciliations d. Total reportable segments' liabilities to the entity's liabilities if segment liabilities are reported under
NFRS
8.23 above
e. Total reportable segments' amounts for every other material item of
f. information disclosed to the corresponding amount for the entity
g. Entity shall separately identify and disclose all material reconciling items.
Cash flows of each reportable segment shall be disclosed arising from: (NAS 7.50d)
Cash flows - Operating activities
4 - Investing activities
information
- Financing activities
The entity shall disclose such information to evaluate the nature and financial effects of the business activities in
which it engages and the economic environment in which it operates.
The entity shall disclose the following general information: (NFRS 8.22)
a. Factors used to identify the entity’s reportable segments, including the basis of organization, and
5 Disclosure b. Types of products and services from which each reportable segment derives its revenues.

The entity has to disclose: (NFRS 8.23- NFRS 8.27)

a. Measure of profit or loss for each reportable segment
b. Measure of total assets and liabilities for each reportable segment
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

IV. FAIR VALUE MEASUREMENT

SN Particulars. Additional NFRS Disclosures

As per Para 91 of NFRS 13, the entity has to disclose information that helps users of its financial statements assess
both of the following:
a. For assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement
1 Disclosure objective of financial position after initial recognition, the valuation techniques and inputs used to develop those
measurements
b. For recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the
measurements on profit or loss or other comprehensive income for the period
As per Para 95 of NFRS 13, the entity has to disclose its policy for determining when transfers between levels of the
2 Accounting policies fair value hierarchy are deemed to have occurred.
As per Para 94 of NFRS 13, the entity has to determine appropriate class of assets and liabilities based on :
Class of assets a. The nature, characteristics and risks of the asset or liability
3
and liabilities b. The level of the fair value hierarchy within which the fair value measurement is categorized
As per Para 97 of NFRS 13, for each class of such financial instruments, disclose:
a. The level of fair value hierarchy within which the fair value measurement(s) are categorized in their entirety
Assets and liabilities b. For fair value measurement(s) categorized within Levels 2 and 3 of the fair value hierarchy,
not measured at fair c. A description of the valuation technique(s) and the inputs used in the measurement
4
value but for which d. If there has been a change in valuation technique, that change and the reason(s) for making it
fair value is e. If the highest and best use of a non-financial asset differs from its current use, that fact and why the non-
disclosed financial asset is being used in a manner that differs from its highest and best use.
As per Para 93 of NFRS 13, for each class of assets and liabilities of such financial instruments, disclose:
a. Fair value measurement at the end of the reporting period
b. The level of the fair value hierarchy (Level 1, 2 or 3)
Recurring c. Amount of any transfers between Level 1 and Level 2,
measurements of d. For fair value measurements categorized within Level 2 and Level 3 of the hierarchy:
5
assets and i. A description of the valuation technique(s) and the inputs used in the measurement
liabilities ii. If there has been a change in valuation technique, that change and the reason(s) for making it,
iii. For fair value measurements categorized within Level 3 of the fair value hierarchy, quantitative
information about the significant unobservable inputs used in the fair value measurement
e. Various other disclosures for Level 3 categories as stated in NFRS 13.93 (e) to (i)
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

V. GOVERNMENT GRANTS

SN Particulars. Additional NFRS Disclosures

If the entity complies with the conditions of the grant and the grant will be received, the entity shall recognize the
amount as government grant. (NAS 20.7)

Government grant shall be recognized in the Statement of Profit or Loss on a systematic basis over the period in
which the entity recognizes as expenses the related costs for which the grants are intended to compensate. (NAS
Recognition Criteria
20.12)
1
A government grant that becomes receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the entity with no future related costs shall be recognized in profit
or loss of the period in which it becomes receivable. (NAS 20.20)
Government grants related to assets, shall be presented in the statement of financial position by setting up the grant
2 Asset Related Grants
as deferred income or by deducting the grant in arriving at the carrying amount of the assets. (NAS 20.24)
Income Related Grants related to income are presented in Statement of Profit or Loss, in either “Other Income” or deducted against
3 the related expense. (NAS 20.29)
Grants
Repayment of A government grant that becomes repayable shall be accounted for as a change in accounting estimate. Repayment
4 Government Grants shall be first applied against any unamortised deferred credit and the rest to the profit or loss (NAS 20.32)
The following disclosures is necessary;
Disclosure a) The accounting policy adopted for government grants
5
Requirements b) The nature and the extent of the government grants recognized in the financial statements
 GAP Report on Impact Assessment of NFRS Implementation of <X & CO./>

VI. SUMMARY OF SIGNIFICANT IMPACT ON NFRS IMPLEMENTATION

S.No. NFRS Reference Recommendations

The entity shall strictly prepare the following statements;
a) Statement of Financial Position
b) Statement of Profit or Loss & Statement of Other Comprehensive Income
c) Statement of Cash Flows
1. NAS 01
d) Statement of Changes in Equity
e) Notes to accounts including other explanatory notes.

No item shall be presented as extra-ordinary items in the financial statements.

Deferred Tax Assets and Liabilities can be setoff and a single amount can be presented in the financial
2. NAS 12
statement if it relates to the income tax imposed by the same taxation authority.
The entity shall adopt componentization concept of depreciation for its items of property, plant & equipment.
The entity can either use the useful lives as prescribed in Annex-01 or can use other useful lives if it better
3. NAS 16 reflects the life of the asset.

If any decommissioning costs is to be incurred a provision for it shall be made in the financial statements.
In future, if the entity provides any post-employment benefits (such as post-employment medical benefits,
4. NAS 19 retirement benefits and other lump sum payments, then the entity shall use the actuarial valuation for the same
and shall value the amount of liability based on the report of the actuary.
5. NAS 20 If government grant is received, the requirement as per NAS 20 shall be applicable and it shall be adhered to.
In case of financial assets and financial liabilities, the entity shall apply the requirement of the applicable
NAS 32, NFRS 9 &
6. standard. (Please refer the detail of the same in Statement of Financial Position- Assets & Liabilities for detail
NFRS 7
understanding)
The right to use of land and the right of way acquired or to be acquired by the entity in the future shall be
7. NAS 38
considered as intangible assets.
The fair value concept is prevailing throughout the standard and this standard provides the guidance on the
8. NFRS 13 application of fair value. Whatever is to be fair valued shall be strictly followed. For example, the investments
in equity shares shall be fair valued each year.