To prepare consolidated financial statements, it is imperative to first understand whether an investment in a company falls in the category of a subsidiary or an associate, as the accounting treatment and presentation requirements are different for a subsidiary and an associate. The determination of existence of control or significant influence is an important area of evaluation which may require judgement depending on the facts and circumstances of each case. This edition of Accounting and Auditing Update (AAU) contains an article on this topic which discusses the key regulatory requirements relating to assessment of control and significant influence and provides a brief overview of classification of an investment as a subsidiary or an associate with the help of an illustration.

Factoring is a means of working capital financing used by companies to improve its cashflows. The factoring arrangement typically allows the entity that is supplier of goods or services to obtain cash from a bank or financial institution (i.e. the factor) against receivables due from the entity’s customers. The terms of factoring arrangements vary depending on the agreement between the entity, its debtor and the financial institution. Therefore, when a company sells its receivables to a factor, from its financial reporting perspective it would need to analyse whether such account receivables can be derecognised from its balance sheet. Thus, a detailed evaluation is required to determine its accounting. An entity would need to follow the principles under Ind AS 109, Financial Instruments, to evaluate if such financial assets can be derecognised. The article on this topic demonstrates the accounting consideration under Ind AS 109 for derecognition of such assets with the help of illustrative example.

As is the case each month, we have also included a regular round-up of some recent regulatory updates in India and internationally.

We would be delighted to receive feedback/suggestions from you on the topics we should cover in the forthcoming editions of the AAU.

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