Lease Clause Analysis Issues Of Significance: Fill & Download for Free

I have just perused the UK government’s summary of the trade deal after an early dinner, and it is more or less as expected. One might sell it as the UK government regaining “sovereignty” or something like that but the reality is very much less than that.The main thrust is that the UK and EU will be able to continue trading without tariffs on most goods, and this ensures that the EU can export mostly unhindered to the UK, and vice versa which would be a great relief to ordinary citizens.The UK will align with the EU regulations for practically everything on the goods side subject to penalties which the EU can unilaterally impose (section 177), after exhausting arbitration options (section 172). This is stated as follows (sections 177 and 181):In the event a serious economic, societal or environmental difficulty arises and is likely to persist, the UK or the EU unilaterally may take strictly proportionate and time-limited measures to remedy the situation.Either the UK or EU may decide to terminate the Agreement with 12 months’ notice. This overall termination clause is without prejudice to other termination clauses in the Agreement; certain areas of cooperation have bespoke termination clauses, meaning that either Party can decide to cease cooperation in these areas without the whole agreement being terminated.Although both sides can “unilaterally” take measures, the reality is that the clout of the EU would be very significantly larger.The UK also lose access to all trade deals/MRAs/trade arrangements held by the EU. So the only major trade deal the UK has which is worth more than a few percent of GDP is with the EU, and that is subject to following all EU regulations and requirements.The so-called “fishing issue” is summarised succinctly in section 125; it is worth roughly £146 million over 5 years, and UK fleets will probably remain under-capacity to fulfill their new quotas. So much of the revised quotas will presumably be leased to foreign fleets anyway, which renders the whole argument somewhat pointless.The real killer is the loss of the ability to sell services to the EU, by far our largest market. Because regardless of whoever the UK trades with, in physical goods and food, the UK will certainly run a deficit as the country simply does not produce enough to feed itself or manufacture enough to satisfy internal demand.The only area where the UK has a net positive trade balance is in services and here we encounter several ominous clauses (such as section 59):The declaration reaffirms the integrity of our respective, autonomous equivalence frameworks. The Parties will discuss how we move forward on specific equivalence determinations. The Parties will codify the framework for regulatory cooperation in a Memorandum of Understanding.So in effect, the trade deal allows the EU to sell whatever it wants to sell to the UK and import whatever food/industrial items the UK can sell to the EU, provided the UK adheres fully to standards set by the EU. And in this area, the UK has consistently run huge deficits with the EU.The services area, where the UK had consistently run a large surplus with the EU, is now largely closed off by the EU while the EU discusses “specific equivalence determinations” which were never an issue when the UK as part of the EU.Therefore, the UK has effectively crippled its own access to its largest services market.Well done.This is based on the one-sided (and quite optimistic) briefing by the UK government, available on https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948093/TCA_SUMMARY_PDF.pdfOne has to wait to see the full text before making firmer conclusions.An independent news agency concurs with my basic initial assessment:Analysis: Brexit is finally done. It will leave the UK poorerAnd another major newspaper concurs too:The New York Times on the EU-UK deal.You'd need a heart of stone.... pic.twitter.com/hGv6ek7Drt— Nick🇬🇧🇪🇺 (@nicktolhurst) December 26, 2020

IFFERENCES BETWEEN IFRSs AND Ind ASThis note is issued by the Institute of Chartered Accountants of India (ICAI) to bring out the differences between the IFRSs1 as applicable on 1stApril, 2011 and the corresponding Indian Accounting Standards (Ind ASs) placed by the Ministry of Corporate Affairs (MCA), Government of India, on its website after recommendation of the same by the National Advisory Committee on Accounting Standards (NACAS) and the ICAI.The Ind ASs placed on the MCA website when notified under Section 211 (3) (c) of the Companies Act, 1956 by the MCA will be applicable to the companies from the date specified in the said notification. Section I of the note contains IFRSs deferred by the MCA. Section II contains carve outs from IFRSs in the relevant Ind ASs. Section III contains ‘Other major changes in Indian Accounting Standards vis-à-vis IFRSs not resulting in carve outs’. Section IV contains a comparative chart of IFRSs and corresponding Ind ASs indicating, inter alia, IFRSs in respect of which no corresponding Ind AS has been formulated and reasons therefor.I. IFRSs deferred by MCA1. Ind AS 11, Construction ContractsIFRIC 12 and SIC 29, Service Concession Arrangements and Service Concession Arrangements: Disclosures, respectively, which are included as Appendices A and B to Ind AS 11, Construction Contracts, respectively, would not be notified along with the other standards and their application has been deferred.ReasonsMCA received feedback regarding the adverse consequences which may ensue to the Indian companies in the event of immediate adoption of the IFRIC 12. Hence, MCA decided that Appendix A to Ind AS 11, corresponding to IFRIC 12, Service Concession Arrangements should be deferred and the same may be examined and applied with or without modification later.Appendix B to Ind AS 11, corresponding to SIC 29, Service Concession Arrangements: Disclosures, is related to IFRIC 12. Therefore, it has also been deferred.2. Ind AS 17, LeasesIFRIC 4 Determining Whether an Arrangement contains a Lease, which is included as Appendix C to Ind AS 17, Leases would not be notified alongwith the other standards and its application has been deferred.ReasonsMCA received feedback regarding the adverse consequences which may ensue to the Indian companies in the event of immediate adoption of the Appendix C to Ind AS 17, corresponding to IFRIC 4. Hence, MCA decided that the Appendix should be deferred and the same may be examined and applied with or without modification later.3. Ind AS 106, Exploration for and Evaluation of Mineral ResourcesInd AS 106 corresponding to IFRS 6, Exploration for and Evaluation of Mineral Resources, would not be notified immediately as it is under consideration of the Government.ReasonsMCA is of view that the standard is open-ended offering freedom to companies to follow virtually any policy they like. The standard does not prescribe any standardization. In such circumstances, the standard does not serve any useful purpose and may create a wrong impression in the mind of the stakeholders that the entity concerned has complied with a strict standard when in fact, the company is free to apply any accounting treatment it wants. This may even be counter productive from a regulatory point of view by giving a false sense of correctness. Hence, this Ind AS may not be notified immediately.II Carve OutsA. Carve-outs which are due to differences in application of accounting principles and practices and economic conditions prevailing in India.1. Ind AS 21, The Effects of Changes in Foreign Exchange RatesAs per IFRSIAS 21 requires recognition of exchange differences arising on translation of monetary items from foreign currency to functional currency directly in profit or loss.Carve outInd AS 21 permits an option to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity. In this situation, Ind AS 21 requires the accumulated exchange differences to be amortised to profit or loss in an appropriate manner. IAS 21 does not permit such a treatment.Reasons(i) There is significant fluctuation in the value of US dollar vis-à-vis rupee. India plans for a large expenditure on infrastructure. This may need a very large inflow in the foreign borrowings. These borrowings are denominated in foreign currencies unlike developed countries where borrowings are denominated in local currencies.(ii) Unlike currencies of many advanced countries, rupee is not fully convertible.(iii) Hedging is not possible for the full period for which the loan is taken. Hedging is available for shorter periods but not for longer periods, and the duration of the borrowings is very long.(iv) Indian companies are not permitted to prepay the foreign currency loans.(v) Other countries such as South Korea have also been raising these issues.(vi) It is not appropriate to recognise the exchange differences immediately which arise as a result of items which are to be paid/realized in foreign currency, after a long term nature.2. Ind AS 28, Investment in AssociatesAs per IFRSIAS 28 requires that difference between the reporting period of an associate and that of the investor should not be more than three months, in any case.Carve outThe phrase ‘unless it is impracticable’ has been added in the relevant requirement i.e., paragraph 25 of Ind AS 28.ReasonsSince the investor does not have control over the associate, it may not be able to influence the associate to change its accounting period if it does not fall within 3 months.Apart from this, another reason can be a situation, e.g., where an entity is an associate of two investors and difference between the reporting dates of the associate and the investors is more than three months and the reporting dates of the two investors are also different. In that case a problem will arise that in respect of which investor the associate will have to change its reporting period.3. Ind AS 28, Investment in AssociatesAs per IFRSIAS 28 requires that for the purpose of applying equity method of accounting in the preparation of investor’s financial statements, uniform accounting policies should be used. In other words, if the associate’s accounting policies are different from those of the investor, the investor should change the financial statements of the associate by using same accounting policies.Carve outThe phrase, ‘unless impracticable to do so’ has been added in the relevant requirements i.e., paragraph 26 of Ind AS 28.ReasonsSince the investor has significant influence and not control over the associate, it may not be able to influence the associate to change its accounting policies.4. Ind AS 32, Financial Instruments: Presentation Carve outAn exception has been included to the definition of ‘financial liability’ in paragraph 11 (b) (ii), Ind AS 32 to consider the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity’s own equity instruments as an equity instrument if the exercise price is fixed in any currency. This exception is not provided in IAS 32.ReasonsThis position is not appropriate in instruments such as FCCBs since the number of shares convertible on the exercise of the option remains fixed and the amount at which the option is to be exercised in terms of foreign currency is also fixed; merely the difference in the currency should not affect the nature of derivative, i.e., the option.5. Ind AS 39, Financial Instruments: Recognition and MeasurementAs per IFRSIAS 39 requires all changes in fair values in case of financial liabilities designated at fair value through Profit and Loss at initial recognition shall be recognised in profit or loss. IFRS 9 which will replace IAS 39 requires these to be recognised in ‘other comprehensive income’Carve outA proviso has been added to paragraph 48 of Ind AS 39 that in determining the fair value of the financial liabilities which upon initial recognition are designated at fair value through profit or loss, any change in fair value consequent to changes in the entity’s own credit risk shall be ignored.ReasonsIt is felt that recognition of gain in profit or loss or in ‘other comprehensive income’ on deterioration of own credit risk is not proper because such deterioration ordinarily occurs when an entity is incurring losses. Thus, if an entity is allowed to recognise gain on deterioration of its own credit risk, it will book gains when its performance is not upto the mark. In the recent financial crisis in USA, it was noted that some banks booked gains while they were incurring losses due to the crisis.6. Ind AS 103, Business Combinations As per IFRSIFRS 3 requires bargain purchase gain arising on business combination to be recognised in profit or loss.Carve outInd AS 103 requires the same to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve.ReasonsIt is felt that recognition of such gains in profit or loss would result into recognition of unrealised gains as the value of net assets is determined on the basis of fair value of net assets acquired7. Ind AS 101, First-time Adoption of Indian Accounting Standards(i) Presentation of comparatives in the First-time Adoption of Indian Accounting Standards (Ind AS) 101 (corresponding to IFRS 1)IFRS 1 defines transitional date as beginning of the earliest period for which an entity presents full comparative information under IFRS. It is this date which is the starting point for IFRS and it is on this date the cumulative impact of transition is recorded based on assessment of conditions at that date by applying the standards retrospectively except to the extent specifically provided in this standard as optional exemptions and mandatory exceptions. Accordingly, the comparatives, i.e., the previous year figures are also presented in the first financial statements prepared under IFRS on the basis of IFRS.Carve outInd AS 101, requires an entity to provide comparatives as per the existing notified Accounting Standards. It is provided that, in addition to aforesaid comparatives, an entity may also provide comparatives as per Ind AS on a memorandum basis.ReasonThis would facilitate smooth convergence with IFRS as comparatives are not required to be in accordance with the Ind ASs. It is also felt that since Ind AS 101 would not be considered to be in existence for the comparative period, requiring comparatives to be prepared on the basis of Ind AS may not be legally defensible.(ii) Presentation of reconciliationAs per IFRSIFRS 1 requires reconciliations for opening equity, total comprehensive income, cash flow statement and closing equity for the comparative period to explain the transition to IFRS from previous GAAP.Carve outInd AS 101 provides an option to provide a comparative period financial statements on memorandum basis. Where the entities do not exercise this option and, therefore, do not provide comparatives, they need not provide reconciliation for total comprehensive income, cash flow statement and closing equity in the first year of transition but are expected to disclose significant differences pertaining to total comprehensive income. Entities that provide comparatives would have to provide reconciliations which are similar to IFRS.ReasonThis would facilitate smooth convergence with IFRS.(III) Cost of Non-current Assets Held for Sale and Discontinued Operations on the date of transition on First-time Adoption of Indian Accounting Standards (Ind AS)Carve outInd AS 101 provides transitional relief that while applying Ind AS 105 – Non-current Assets Held for Sale and Discontinued Operations, an entity may use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell.ReasonThis would facilitate smooth convergence with IFRS(iv) Foreign currency gains/losses on translation of long term monetary items Carve outInd AS 101 provides that on the date of transition, if there are long-term monetary assets or long-term monetary liabilities mentioned in paragraph 29A of Ind AS 21, an entity may exercise the option mentioned in that paragraph regarding spreading over the unrealised Gains/Losses over the life of Assets/Liabilities either retrospectively or prospectively. If this option is exercised prospectively, the accumulated exchange differences in respect of those items are deemed to be zero on the date of transition.ReasonExemption given as a consequence of optional treatment prescribed in Ind AS 21, The Effects of Changes in Foreign Exchange Rates, in context of exchange differences arising on account of certain long-term monetary assets or long-term monetary liabilities.(v) Financial instruments existing on transition date Carve outInd AS 101 provides that the financial instruments carried at amortised cost should be measured in accordance with Ind AS 39 from the date of recognition of financial instruments unless it is impracticable (as defined in Ind AS 8) for an entity to apply retrospectively the effective interest method or the impairment requirements of Ind AS 39. If it is impracticable to do so then the fair value of the financial asset at the date of transition to Ind-ASs shall be the new amortised cost of that financial asset at the date of transition to Ind ASs.Ind AS 101 provides another exemption that financial instruments measured at fair value shall be measured at fair value as on the date of transition to Ind AS.This exemption would facilitate smooth convergence with IFRS.(vi) Definition of previous GAAP under Ind AS 101 First-time Adoption of Indian Accounting StandardsAs per IFRSIFRS 1 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting IFRS.Carve outInd AS 101 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting Ind ASs for its reporting requirements in India. For instance, for companies preparing their financial statements in accordance with the existing Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 shall consider those financial statements as previous GAAP financial statements.ReasonThe change makes it mandatory for Indian companies to consider the financial statements prepared in accordance with existing notified Indian accounting standards as was applicable to them as under Companies (Accounting Standards) Rule, 2006 as previous GAAP when it transitions to Ind AS as the law prevailing in India does not recognise the financial statements prepared in accordance with Accounting Standards other than those prescribed under the Companies Act.(vii) Cost of Property, Plant and Equipment (PPE), Intangible Assets, Investment Property, on the date of transition of First-time Adoption of Indian Accounting Standards.Ind AS 101 provides an entity an option to use carrying values of all assets as on the date of transition in accordance with previous GAAP as an acceptable starting point under Ind ASReasonsThe existing Indian notified Accounting Standards are not significantly different from IFRS as all the standards have been based on IFRS. It will minimise the cost of convergence.B. Carve-outs for specific industriesAs per IFRSOn the basis of principles of the IAS 18, IFRIC 15 on Agreement for Construction of Real Estate, prescribes that construction of real estate should be treated as sale of goods and revenue should be recognised when the entity has transferred significant risks and rewards of ownership and has retained neither continuing managerial involvement nor effective control.Carve outIFRIC 15 has not been included in Ind AS 18, Revenue. Such agreements have been scoped out from Ind AS 18 and have been included in Ind AS 11, Construction Contracts.Reasons(i) IFRIC 15, would have required the real estate developers to recognize the revenue in their financial statements based on the completion method i.e., only in the last year of the completion of the project. In that case, the profit and loss account of the developers will not truly reflect the performance of the business, as during the years the real estate project continues, no revenue will be recognised. In other words, profit and loss account will not reflect proper measure of performance of business.(ii) Some countries such as Malaysia have also decided not to apply IFRIC 15 for the time being. Similarly, while Singapore has decided to issue IFRIC 15, it has provided specific guidance in the context of legal situations prevailing in that country.2. Ind AS 18, RevenueCarve outA footnote has been added in paragraph 1 to Ind AS 18, Revenue, that for rate regulated entities, this standard shall stand modified, where and to the extent the recognition and measurement of revenue of such entities is affected by recognition and measurement of regulatory assets/liabilities as per the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India.ReasonRate regulated entities such as electricity companies are subject to tariff fixation by the relevant authorities. Tariff is fixed on the basis of certain costs which are different from the expenses recognised in financial statements. Such differences may result into certain regulatory assets and regulatory liabilities which are presently not recognised as per the IFRS. Such entities feel that such assets and liabilities exist and, therefore, should be recognised in financial statements. IASB had earlier taken up a project on this subject which has been dropped from its Agenda. ICAI is developing a Guidance Note on the subject.3. Indian Accounting Standard on Agriculture (Corresponding to IAS 41)As per IFRSIAS 41, Agriculture, requires measurement of biological assets, viz., living animals and plants at fair value and recognizing gains and losses arising on such measurement in profit or loss, unless ascertainment of fair value is unreliable.Carve outIt has been decided to revise the Standard and not to issue the standard as it is.Reasons(i) There is difficulty in identifying the attributes of biological assets, the cost of fair valuation, and high volatility of significant qualitative factors (not within the control of the entity) leads to greater subjectivity in estimating fair value.(ii) The quoted market price for bearer biological assets (e.g. long-term assets that produce each year such as tea, coffee, rubber and palm oil trees) is not easily available, since these are not traded in the open market.(iii) Present value (PV) method is to be adopted for estimating fair value of biological assets such as forests. Making appropriate estimates of future price and costs levels are key factors for a reliable fair value measurement of standing forests. Due to the long-term nature of the period of cash flows, small fluctuations in the assumptions may have a significant effect on the calculated fair value.(iv) Fair value of biological assets may not be relevant because most plantations are rarely sold. Fair valuation may give the impression that the value of the company increases when in reality nothing has changed.(v) Considering the high volatility of prices for the end products, the fair value adopted as cost as per IAS 41, may result in very significant impact on the profitability of the companies.III Other major changes in Indian Accounting Standards vis-a-vis IFRSs not resulting in carve-outsInd AS 1, Presentation of Financial Statements1 With regard to preparation of Statement of profit and loss, IAS 1, Presentation of Financial Statements, provides an option either to follow the single statement approach or to follow the two statement approach. While in the single statement approach, all items of income and expense are recognised in the statement of profit and loss, in the two statements approach, two statements are prepared, one displaying components of profit or loss (separate income statement) and the other beginning with profit or loss and displaying components of other comprehensive income. Ind AS 1 allows only the single statement approach.2 IAS 1 requires preparation of a Statement of Changes in Equity as a separate statement. Ind AS 1 requires the Statement of Changes in Equity to be shown as a part of the balance sheet.3 IAS 1 gives the option to individual entities to follow different terminology for the titles of financial statements. Ind AS 1 is changed to remove alternatives by giving one terminology to be used by all entities.4 IAS 1 permits the periodicity, for example, of 52 weeks for preparation of financial statements. Ind AS 1 does not permit it.5 IAS 1 requires an entity to present an analysis of expenses recognised in profit or loss using a classification based on either their nature or their function within the equity. Ind AS 1 requires only nature-wise classification of expenses.6 IAS 1 contains Implementation Guidance. Ind AS 1 does not include the same because various enactments have prescribed formats, e.g., Schedule VI to the Companies Act, 1956.Ind AS 7, Statement of Cash Flows1. In case of other than financial entities, IAS 7 gives an option to classify the interest paid and interest and dividends received as item of operating cash flows. Ind AS 7 does not provide such an option and requires these items to be classified as items of financing activity and investing activity, respectively.2. IAS 7 gives an option to classify the dividend paid as an item of operating activity.However, Ind AS 7 requires it to be classified as a part of financing activity only.Ind AS 8, Accounting Policies, Changes in Accounting Estimates and ErrorsInd AS 8 has been amended to provide that in absence of specific Ind AS on the subject, management may also first consider the most recent pronouncements of International Accounting Standards Board and in absence thereof those of the other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices.Ind AS 16, Property, Plant and EquipmentLanguage of paragraph 8 has been changed to clarify more precisely that ‘servicing equipment’ also qualifies as property, plant and equipment when an entity expects to use them during more than one period.Ind AS 19, Employee Benefits1. According to Ind AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19, the government bonds can be used only where there is no deep market of high quality corporate bonds.2. To illustrate treatment of gratuity subject to ceiling under Indian Gratuity Rules, an example has been added in Ind AS 19.3. IAS 19 permits various options for treatment of actuarial gains and losses for post-employment defined benefit plans whereas Ind AS 19 requires recognition of the same in other comprehensive income, both for post-employment defined benefit plans and other long-term employment benefit plans. The actuarial gains recognised in other comprehensive income should be recognised immediately in retained earnings and should not be reclassified to profit or loss in a subsequent period.Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance1. IAS 20 gives an option to measure non-monetary government grants either at their fair value or at nominal value. Ind AS 20 requires measurement of such grants only at their fair value. Thus, the option to measure these grants at nominal value is not available under Ind AS 20.2. IAS 20 gives an option to present the grants related to assets, including non-monetary grants at fair value in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Ind AS 20 requires presentation of such grants in balance sheet only by setting up the grant as deferred income. Thus, the option to present such grants by deduction of the grant in arriving at the carrying amount of the asset is not available under Ind AS 20.Ind AS 21, The Effects of Changes in Foreign Exchange Rates1 When there is a change in functional currency of either the reporting currency or a significant foreign operation, IAS 21 requires disclosure of that fact and the reason for the change in functional currency. Ind AS 21 requires an additional disclosure of the date of change in functional currency.2 The following examples have been included in Ind AS 21, The Effects of Changes inForeign Exchange Rates, as Appendix B:1) An example to clarify the provisions of paragraph 14.2) An example to clarify impairment loss in Paragraph 25.3) An example to clarify paragraphs 33 and 37.4) The date of change of functional currency should also be disclosed in paragraph 57.Ind AS 23, Borrowing CostsIAS 23 provides no guidance as to how the adjustment prescribed in paragraph 6(e) is to be determined. Ind AS 23 provides guidance in this regard.Ind AS 24, Related Party Disclosures1. In Ind AS 24, disclosures which conflict with confidentiality requirements of statute/regulations are not required to be made since Accounting Standards cannot override legal/regulatory requirements.2. Paragraph 24A (reproduced below) has been included in the Ind AS 24. It provides additional clarificatory guidance regarding aggregation of transactions for disclosure.“24A Disclosure of details of particular transactions with individual related parties would frequently be too voluminous to be easily understood. Accordingly, items of a similar nature may be disclosed in aggregate by type of related party. However, this is not done in such a way as to obscure the importance of significant transactions. Hence, purchases or sales of goods are not aggregated with purchases or sales of fixed assets. Nor a material related party transaction with an individual party is clubbed in an aggregated disclosure.”3 In the definition of the ‘close members of the family of a person’, relatives as specified under the meaning of ‘relative’ under the Companies Act, 1956, has been included.Ind AS 27, Consolidated and Separate Financial Statements1 Paragraphs 8, 10 and 42 have been deleted and paragraphs 9, 11, 39 and 43 have been modified as the applicability or exemptions to the Indian Accounting Standards is governed by the Companies Act and the Rules made thereunder.2 A sentence has been added in paragraph 9 of Ind AS 27, Consolidated and Separate Financial Statements requiring that for companies the form of consolidated financial statements as given in Appendix C to this standard shall be applied to the extent circumstances admit.Ind AS 29, Financial Reporting in Hyperinflationary EconomiesInd AS 29 requires an additional disclosure regarding the duration of the hyperinflationary situation existing in the economy.Ind AS 33, Earnings per Share1 IAS 33 provides that when an entity presents both consolidated financial statements and separate financial statements, it may give EPS related information in consolidated financial statements only, whereas, the Ind AS 33 requires EPS related information to be disclosed both in consolidated financial statements and separate financial statements.2 Paragraph 2 of IAS 33 requires that the entire standard applies to :(a) the separate or individual financial statements of an entity:(i) whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets) or(ii) that files, or is in the process of filing, its financial statements with a Securities Regulator or other regulatory organisation for the purpose of issuing ordinary shares in a public market; and(b) the consolidated financial statements of a group with a parent:(i) whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets) or(ii) that files, or is in the process of filing, its financial statements with a Securities Regulator or other regulatory organisation for the purpose of issuing ordinary shares in a public market.It also requires that an entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this Standard.The above have been deleted in the Ind AS as the applicability or exemptions to the Indian Accounting Standards is governed by the Companies Act and the Rules made there under.3 Paragraph 4 has been modified in Ind AS 33 to clarify that an entity shall not present in separate financial statements, earnings per share based on the information given in consolidated financial statements, besides requiring as in IAS 33, that earnings per share based on the information given in separate financial statements shall not be presented in the consolidated financial statements.4 In Ind AS 33, a paragraph has been added after paragraph 12 on the following lines –“Where any item of income or expense which is otherwise required to be recognized in profit or loss in accordance with accounting standards is debited or credited to securities premium account/other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic earnings per share.”5 In Ind AS 33 paragraph 15 has been amended by adding the phrase, ‘irrespective of whether such discount or premium is debited or credited to securities premium account’ to further clarify that such discount or premium shall also be amortised to retained earnings.Ind AS 34, Interim Financial ReportingA footnote has been added to paragraph 1of Ind AS 34, Interim Financial Reporting that Unaudited Financial Results required to be prepared and presented under Clause 41 of Listing Agreement with stock exchanges is not an ‘Interim Financial Report’ as defined in paragraph 4 of this Standard.Ind AS 40, Investment PropertyIAS 40 permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40 permits only the cost model.Ind AS 101 First-time Adoption of Indian Accounting Standards1. Paragraph 3 of Ind AS 101 specifies that an entity’s first Ind AS financial statements are the first annual financial statements in which the entity adopts Ind ASs in accordance with Ind ASs notified under the Companies Act, 1956 whereas IFRS 1 provides various examples of first IFRS financial statements.2. Paragraph 4 of IFRS 1 provides various examples of instances when an entity does not apply this IFRS. Ind AS 101 does not provide the same.3. IFRS 1 requires specific disclosures if the entity provides non-IFRS comparative information and historical summaries. Such disclosures are not required under Ind AS 101.Ind AS 103, Business CombinationsIFRS 3 excludes from its scope business combinations of entities under common control. Appendix C of Ind AS 103 gives guidance in this regard.Notes:1. Differences between Indian Accounting Standards (Ind-ASs) and corresponding IFRSs are given in Appendix 1 at the end of each Indian Accounting Standard.2. Apart from the changes in IFRSs as a result of carve-outs and other changes as described in above section, changes consequential thereto have also been made in all Ind ASs, wherever required.

Across the globe, businesses are experiencing issues with productivity due to employees being self-quarantined to prevent risk of exposure to the coronavirus (COVID-19), and due to facilities being shut down in an attempt to slow the virus’ spread. In light of this, many businesses are now seeking to determine whether they are obligated to perform under their contracts, or whether they can invoke a force majeure clause to excuse performance temporarily or even permanently. Below, we review force majeure, how it can apply in various jurisdictions, the analysis companies must undertake before invoking it, and the options available in lieu of force majeure.Force Majeure Clauses GenerallyA force majeure clause is a contractual provision which excuses one or both parties’ performance obligations when circumstances arise which are beyond the parties’ control and make performance of the contract impractical or impossible.[1]Force majeure events typically enumerated in contracts include:acts of God, such as severe acts of nature or weather events including floods, fires, earthquakes, hurricanes, or explosions;war, acts of terrorism, and epidemics;acts of governmental authorities such as expropriation, condemnation, and changes in laws and regulations;strikes and labor disputes; andcertain accidents.[2] Economic hardship typically is not enough to qualify as a force majeure event on its own.[3]Determining whether a force majeure clause can be invoked is a fact intensive inquiry, as it depends on the specific language of a contract. Generally, force majeure clauses are interpreted narrowly.[4] “[T]he general words are not to be given expansive meaning; they are confined to things of the same kind or nature as the particular matters mentioned.”[5] Force majeure clauses are interpreted in light of their purpose, which is “to limit damages in a case where the reasonable expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties.”[6] “[W]hen the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.”[7]State Specific Requirements for Force Majeure Clauses: New York, Florida, California, Texas, IllinoisUnder New York law, a key issue in determining whether a party can successfully invoke a force majeure clause is whether the clause lists the specific event claimed to be preventing performance.[8] As noted previously, some force majeure clauses list “epidemics” or “pandemics” as force majeure events. The CDC defines an epidemic as an outbreak of disease that infects communities in one or more areas, and a pandemic is an epidemic which spreads across the globe. If a contract at issue lists epidemics or pandemics as a force majeure event, the claiming party could argue that the coronavirus qualifies in light of the fact that is has been officially declared a pandemic by World Health Organization.If a force majeure clause does not list epidemic or pandemic as a triggering event, it is possible that the coronavirus could be covered as an act of governmental authority in some areas, given that many governments, including the United States government, have instituted lockdowns to prevent the spread of the coronavirus.If a listed force majeure event occurs, however, there is still further analysis required to determine whether invocation will be successful. In New York, the force majeure event must be unforeseen, and the party seeking to invoke the force majeure clause must attempt to perform its contractual duties despite the event.[9] However, some jurisdictions, including Texas, do not require that the force majeure event be unforeseeable.[10]Under Florida law, a party seeking to invoke a force majeure clause must show that the force majeure event was unforeseeable, and that the force majeure event occurred outside the party’s control. This means that the claiming party must show that the event could not have been prevented or overcome, and there additionally cannot be any fault or negligence on the part of the claiming party.[11]In California, force majeure is not necessarily limited to the equivalent of an act of God, but the test is whether under the particular circumstances there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence and care. Mathes v. City of Long Beach, 121 Cal. App. 2d 473, 477, 263 P.2d 472, 474 (1953). Even in the case of a force majeure provision in a contract, mere increase in expense does not excuse the performance unless there exists extreme and unreasonable difficulty, expense, injury, or loss involved. Butler v. Nepple, 54 Cal. 2d 589, 598, 354 P.2d 239 (1960)Under Texas law, unless expressly included in a contract, parties seeking to invoke a force majeure clause to excuse non-performance are not required to exercise reasonable diligence to perform or overcome the force majeure event.[12] If the parties contracted for this, however, determining whether a party exercised reasonable diligence is fact intensive, and must be assessed on a case-by-case basis.[13] “Reasonable diligence” is defined under Texas law as “such diligence that an ordinarily prudent and diligent person would exercise under similar circumstances.[14]”On the other hand, under Illinois law, there is an implied duty on the claiming party to make an effort to attempt to resolve the event causing delay or inability to perform under the contract before invoking a force majeure clause. This duty is “related to the duty of good faith [and] is read into all express contracts unless waived.”[15]Some contracts additionally require that the claiming party give the other contractual parties notice before invoking a force majeure clause. If the claiming party does not give proper notice as set forth in the contract, it could preclude successful invocation of a force majeure clause.Businesses seeking to invoke the force majeure clause of their contracts likely have a strong argument that the coronavirus outbreak is an unforeseen event, unless the parties entered into the contract after the outbreak of coronavirus. Whether businesses have also attempted to perform their contractual duties despite the coronavirus outbreak, and whether that is even required under a particular contract are questions that must be assessed on a case-by-case basis.Force Majeure CertificatesOf importance to note is that due to the extent of the coronavirus outbreak and the government-imposed lockdowns in China, a quasi-governmental agency called the China Council for The Promotion of International Trade (CCPIT), backed by Beijing’s Commerce Ministry, has been providing businesses in China with force majeure “certificates.” CCPIT is issuing the force majeure certificates if businesses can provide documents proving that they cannot meet their contractual obligations due to the effects of the coronavirus.[16] Given this fact, if a business in China located in an area on government-imposed lockdown has a force majeure clause in a contract governed by Chinese law, the invocation of a force majeure clause may be successful.Other Options: Impossibility/Impracticability and Frustration of PurposeIf a party is unable to successfully utilize a force majeure clause to excuse performance during the coronavirus outbreak, or if a contract does not contain a force majeure clause, other options may still potentially be available to excuse performance, such as the defenses of impossibility and impracticability.[17] The Uniform Commercial Code (UCC) provides that a seller is excused from performing under a contract when “performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.”[18] The Restatement (Second) of Contracts defines impossibility as “not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.”[19]Given the fact that the governments of many countries, including the United States, have implemented lockdowns, businesses can argue that performance under their contracts is impracticable or impossible. In the United States in particular, a national state of emergency has been declared. The governors of California, Ohio, Illinois, Washington, and Massachusetts have ordered that all bars and restaurants must close. The mayors of New York City and Los Angeles have ordered that all bars, restaurants, cafes, and theatres must close to slow the spread of coronavirus. Other cities and counties in the United States, including New Rochelle, New York, and the San Francisco Bay area are currently under similar government-imposed lockdowns as well. These factors support the possibility that businesses will be able to successfully utilize an impossibility/impracticability defense.If a contract does not contain a force majeure clause, and an impossibility or impracticability defense fails, another possible defense for a party unable to fulfill its obligations under a contract due to the coronavirus is frustration of purpose. For the doctrine to apply, “the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. ”[20] Put differently, frustration of purpose occurs where “a change in circumstances makes one party’s performance virtually worthless to the other, frustrating his purpose in making the contract.”[21] Business should be mindful, though, that economic hardship such as an increase in the cost of performing under a contract is not enough to assert a frustration of purpose defense.[22]ConclusionThe coronavirus is having a significant and harmful impact on businesses and their ability to perform under their contracts. However, whether a claiming party can successfully invoke a force majeure clause, an impossibility/impracticability defense, or a frustration of purpose defense in order to excuse performance due to the coronavirus is a fact intensive inquiry and must be assessed on a case-by-case basis. Contractual parties must look to the specific language of the contract, including the applicable law, to determine their likelihood of success.[1] See Ner Tamid Congregation of N. Town v. Krivoruchko, 638 F. Supp. 2d 913, 931 (N.D. Ill. 2009), as amended (July 9, 2009).[2] General Contract Clauses: Force Majeure, Practical Law Standard Clauses 3-518-4224; see also Kel Kim Corp. v. Cent. Markets, Inc., 70 N.Y.2d 902 (1987); Rochester Gas & Elec. Corp. v. Delta Star, Inc., 2009 WL 368508, at *2 (W.D.N.Y. Feb. 13, 2009).[3] Sherwin Alumina L.P. v. AluChem, Inc., 512 F. Supp. 2d 957, 967 (S.D. Tex. 2007).[4] Kel Kim Corp. v. Cent. Markets, Inc. 70 N.Y.2d at 902; see also Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d 855, 865 (Tex. App.—Fort Worth 2011, no pet.).[5] Kel Kim Corp. v. Cent. Markets, Inc. 70 N.Y.2d at 903 (citing 18 Williston, Contracts § 1968 (3d ed. 1978)); see also Wisconsin Elec. Power Co. v. Union Pac. R. Co., 557 F.3d 504, 507 (7th Cir. 2009).[6] Constellation Energy Servs. of New York, Inc. v. New Water St. Corp., 146 A.D.3d 557, 558 (1st Dep’t 2017) (quoting United Equities Co. v First Natl. City Bank, 52 A.D.2d 154, 157 (1st Dep’t 1976), affd on op below 41 N.Y.2d 1032 (1977)).[7] Constellation Energy Servs. of New York, Inc, 146 A.D.3d at 558 (quoting Route 6 Outparcels, LLC v Ruby Tuesday, Inc., 88 A.D.3d 1224, 1225 (3d Dep’t 2011)); see also Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d at 865; Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App. 1998).[8] Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989) (citing Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d at 902-03).[9] See Rochester Gas & Elec. Corp. v. Delta Star, Inc., 2009 WL at *7; Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. at 318; see also Goldstein v. Orensanz Events LLC, 146 A.D.3d 492, 493 (1st Dep’t 2017).[10] See Perlman v. Pioneer Ltd. P’ship, 918 F.2d 1244, 1248 (5th Cir. 1990)(“Because the clause labeled “force majeure” in the lease does not mandate that the force majeure event be unforeseeable or beyond the control of [the non-performing party] before performance is excused, the district court erred when it supplied those terms as a rule of law.”); See Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d at 288 (“Indeed, to imply an unforeseeability requirement into a force majeure clause would be unreasonable.”)[11] Bloom v. Home Devco/Tivoli Isles, LLC, 2009 WL 36594, at *4 (S.D. Fla. Jan. 6, 2009) (quoting Florida Power Corp. v. City of Tallahassee, 18 So.2d 671, 675 (Fla. 1944)); see also Fru-Con Const. Corp. v. U.S., 44 Fed. Cl. 298, 314 (1999).[12] See Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d at 283-84.[13] El Paso Field Servs., L.P. v. Mastec N. Am., Inc., 389 S.W.3d 802, 808 (Tex. 2012).[14] Id. at 808-09.[15] Commonwealth Edison Co. v. Allied-Gen. Nuclear Servs., 731 F. Supp. 850, 859 (N.D. Ill. 1990).[16]China trade agency to offer firms force majeure certificates amid coronavirus outbreak[17] Id. at 855.[18] NY UCC § 2-615(a).[19] Second Restatement of Contacts § 254.[20] Crown IT Servs. v. Olsen, 11 A.D.3d 263, 265 (1st Dep’t. 2004).[21] PPF Safeguard, LLC v. BCR Safeguard Holding, LLC, 924 N.Y.S.2d 391, 394 (2011) (quoting Restatement (Second) of Contracts § 265, Comment a).[22] A + E Television Networks, LLC v. Wish Factory Inc., 2016 WL 8136110, at *13 (S.D.N.Y. Mar. 11, 2016).