This edition of the Accounting and Auditing Update (AAU) covers key accounting and financial reporting considerations relating to non-common control mergers and amalgamations implemented through schemes of arrangement. Such transactions remain an important means of pursuing growth, achieving synergies and reorganising businesses. As transaction structures become more nuanced, the accounting continues to involve more judgement. This chapter examines the application of Indian Accounting Standard (Ind AS) 103, Business Combinations, including the identification of the accounting acquirer, the treatment of reverse acquisitions and newly incorporated entities, and the determination of the acquisition date where a scheme specifies an appointed date. It also considers related implications for deferred tax, events after the reporting period and comparative information, alongside the requirements under the Companies Act, 2013 and the Securities and Exchange Board of India (‘SEBI’) framework for schemes of arrangement. Early consideration of these matters, supported by robust documentation and involvement of accounting, valuation, legal and regulatory teams, is critical to achieve transparent financial reporting.
This edition also examines the accounting for employee remuneration arrangements linked to shares, equity values, initial public offerings and other exit events. As businesses, including private equity-backed entities, increasingly use such arrangements to attract and retain talent and align employee and investor interests, their terms have become more varied and their accounting more judgemental. The chapter highlights the importance of determining whether an arrangement falls within Indian Accounting Standard (Ind AS) 102, Share-based Payment, or Indian Accounting Standard (Ind AS) 19, Employee Benefits, assessing the substance of the arrangement when distinguishing employee share purchase plans from employee stock options and equity-settled awards from cash-settled awards. It also explores the implications of buy-back provisions, contingent settlement features, vesting conditions linked to an initial public offering and loans provided to employees to acquire shares. These considerations demonstrate why the accounting consequences should be evaluated when remuneration arrangements are designed, to ensure that the commercial objectives, contractual terms and resulting financial reporting are appropriately aligned.
This edition also covers recent regulatory developments that may affect corporate reporting and governance. Among the key developments is the issuance of Standard on Sustainability Assurance (SSA) 5000, General Requirements for Sustainability Assurance Engagements by the Institute of Chartered Accountants of India (ICAI), which establishes an overarching framework for sustainability assurance engagements. The chapter also covers the next publication in National Financial Reporting Authority’s Auditor – Audit Committee Interaction Series dealing with Going Concern, reinforcing the importance of reliable forecasts, realistic assumptions, robust sensitivity analysis and demonstrably feasible mitigation plans. It also covers other important updates from Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDAI), and other regulators, as well as certain international developments.
We would be delighted to receive feedback or suggestions from you on the topics we should cover in the forthcoming editions of the AAU.
For more information on this update, please write to aaupdate@kpmg.com.
