CLASSIFICATION OF FINANCIAL INSTRUMENTS (CATEGORIES) - IAS 39

Classification of Financial Instruments into 4 categories of Financial Assets and 2 categories of Financial Liabilities are important for subsequent measurement. Only the categories decide how a financial asset or liability will be subsequently measured.  

FAIR VALUE MEASUREMENT ~ IFRS 13

Prior to IFRS 13: Fair Value Measurement standard, fair value was defined as “an amount exchanged between knowledgeable willing parties at an arm’s length transaction”. As per this definition fair value is the price at which parties are ready to "enter" into the transaction. The notion was therefore "entry price"

The change in IFRS 13 of the definition of fair value concentrates on exit price. The new definition "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." It means that an entity shall look at how the market participants will price the asset or liability at a measurement date. The notion here is now the "exit price".

The objective of IFRS 13 was to define fair value in a single IFRS and to set out disclosures about fair value measurements.

What must an entity do to calculate Fair Value?

1. determine the particular asset or liability that is the subject of measurement ;
2. for a non-financial asset, determine the valuation base that is appropriate for the measurement;
3. know which is the principal (or most advantageous) market for the asset or liability 
4. know the valuation techniques (e.g. DCF approach, NPV, IRR models, Black Scholes Option Pricing, etc.) appropriate for the measurement, considering: 

• the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability; and 
• the level of the fair value hierarchy (level 1, level 2 or level 3) within which the inputs are categorized. 

IFRS 13 requires comprehensive disclosures like:

• Valuation techniques and inputs used to develop fair value measurement for both recurring (financial instruments appearing on balance sheet at the end of each reporting date) and non-recurring measurements (assets/liabilities presented on balance sheet in certain circumstances);
• The changes in fair value on profit or loss or other comprehensive income for recurring fair value measurements using significant Level 3 inputs.

COMPANIES ACT 2013: CHECKLIST

The Companies Act 2013 comes into force from 1-April-2014 for the Indian corporate. There are sea changes brought in this Act from the earlier one. Let's have a quick browse on the checklist:

WHAT COMPANIES WILL HAVE TO DO?

IMMEDIATELY

• Devise and implement policies on corporate social responsibility and vigil mechanism (if any one of the criteria satisfied ~ networth of Rs.500 crore or more, turnover of Rs. 1,000 crore or more, a net profit of Rs. 5 crore or more during any financial year)
  
• Finalise a new code for independent directors and identify and notify the related parties to their respective accounts departments
  
• Print new stationery, bills, etc, with name, address of the registered office, Company Identification No. (CIN), telephone, fax, email and website
  
• File returns with the Registrar of Companies on changes in top 10 shareholders
  
• Get certificate of independence from directors
  
• Maintain register of key management personnel (KMP)

WITHIN THREE MONTHS

• File returns on public deposits

WITHIN ONE YEAR

• Reconstitute boards with at least one woman director and two independent directors