3 Material accounting policies
This note provides a list of the material accounting
policies adopted in the preparation of these
standalone financial statements. These policies have
been consistently applied to all the years presented,
unless otherwise stated.
3.1 Revenue recognition
The Company earns revenue primarily from the
rating and ancillary services.
Revenue is measured based on the transaction
price, which is the consideration, adjusted for price
concessions and incentives, if any, as specified
in the contract with the customer. Revenue also
excludes taxes collected from customers.
The first year rating includes free surveillance for
first twelve months or the period of instrument,
whichever is shorter, from the date of rating. A
portion of the fee is allocated towards first year free
surveillance based on management's estimate.
The revenue related to initial rating is recognised
upon issuance of press release or disclosure of
unaccepted ratings on the Company's website.
Surveillance fee, to the extent of reasonable
certainty of collection, is recognised over the
surveillance period (ignoring fractions of months).
For other services, revenue is recognized upon
transfer of control of promised services to
the customers.
Contract assets are recognised when there
is excess of revenue earned over billings on
contracts. Contract assets are classified as trade
receivables (only act of invoicing is pending)
when there is unconditional right to receive cash,
and only passage of time is required, as per
contractual terms.
Unearned and deferred revenue ("contract liability")
is recognised when the billings are in excess of
revenues earned.
Out of pocket expenses which are recoverable from
customers, are recognised both as expenditure
and revenue.
As per the terms of payment for such
arrangements, the invoice fall due upon
presentation of invoice to the customers.
3.2 Other income
Dividend income is recognised when the
unconditional right to receive the income is
established, which is generally when shareholders
approve the dividend.
Interest income on bank deposits is recognised
using effective interest rate, on time
proportionate basis.
For accounting policy on income from other
financial instruments refer para 3.3.
3.3 Financial instruments
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
Initial recognition and measurement
Trade receivable and debt securities are initially
recognised when they are originated. All other
financial assets and financial liabilities are initially
recognised when the Company became party to
the contractual provision of the instrument.
A financial asset (unless it is a trade receivable
without a significant financing component) or
financial liability is initially recognised at fair
value plus or minus, for an item not at fair value
through profit or loss (FVTPL), transaction costs
that are directly attributable its acquisition or
issue. A trade receivable without a significant
financing component is initially measured at the
transaction price.
Classification and subsequent measurement
Financial assets
On initial recognition, financial asset is classified as
measured at:
- Amortised cost
- Fair value through other comprehensive
income (FVTOCI) - debt investments
- FVTOCI - equity investments or
- FVTPL
Financial assets are not reclassified subsequent to
their initial recognition, except if and in the period
the Company changes its business model for
mapping of financial assets.
A financial asset is measured at amortised cost if
both of the following condition are met and it is not
designated as FVTPL.
- the asset is held within a business model
whose objective is to hold assets and collect
contractual cash flows; and
- the contractual terms of the financial asset
gives rise on specified dates to cash flows
that are solely payments of principal and
interest on the principal amount outstanding.
A 'debt investment' is measured at FVTOCI if both
of the following conditions are met and is not
designated as at FVTPL:
- the asset is held within a business model
whose objective is achieved by both
collecting contractual cash flows and selling
the financial assets; and
- the contractual term of the financial asset
gives rise on specified dates to cash flows
that are solely payments of principal and
interest on the principal amount outstanding.
On initial recognition of an equity investment that is
not held for trading, the Company may irrevocably
elect to present subsequent changes in the
investment's fair value in Other comprehensive
income (OCI) (designated as FVTOCI - equity
investment). This election is made on an
investment-by-investment basis.
All financial assets not classified as measured at
amortised cost or FVTOCI as described above are
measured at FVTPL.
Financial liabilities:
Financial liabilities are classified as measured
at amortised cost or FVTPL. A financial liability
is classified as FVTPL if it is classified as held-
for-trading, or it is designated as such on initial
recognition. Financial liabilities are measured at
fair value and net gains and losses, including any
interest expense, are recognised in profit or loss.
Other financial liabilities are measured at amortised
cost using effective interest method. Interest
expense and foreign exchange gains or losses (if
any) are recognised in profit and loss. Any gain or
loss on derecognition is also recognised in profit
and loss.
Derecognition
Financial assets
The Company derecognises a financial asset when:
- the rights to receive cash flows from the
asset have expired, or
- the Company has transferred its rights to
receive cash flows from the asset or has
assumed an obligation to pay the received
cash flows in full without material delay
to a third party under a 'pass-through'
arrangement; and either (a) the Company
has transferred substantially all the risks and
rewards of the asset, or (b) the Company has
neither transferred nor retained substantially
all the risks and rewards of the asset, but has
transferred control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered
into a pass-through arrangement, it evaluates if and
to what extent it has retained the risks and rewards
of ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of the Company's continuing
involvement. In that case, the Company also
recognises an associated liability. The transferred
asset and the associated liability are measured on
a basis that reflects the rights and obligations that
the Company has retained.
Financial liabilities
The Company derecognises a financial liability
when the obligation under the liability is discharged
or cancelled or expired. When an existing financial
liability is replaced by another from the same
lender on substantially different terms, or the terms
of an existing liability are substantially modified,
such an exchange or modification is treated as
the derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
standalone statement of profit and loss.
Offsetting
Financial assets and financial liabilities are
offset and the net amount is reported in the
standalone balance sheet if there is a currently
enforceable legal right to offset the recognised
amounts and there is an intention to settle on
a net basis, to realise the assets and settle the
liabilities simultaneously.
3.4 Property, plant and equipment
Recognition and measurement
Property, plant and equipment and capital work in
progress are measured at cost less accumulated
depreciation and accumulated impairment losses,
if any.
Cost of an item of property, plant and equipment
comprise of its purchase price, including import
duties and non-refundable purchase taxes, after
deducting trade discounts and rebates, any directly
attributable cost of bringing the item to its working
condition for its intended use and estimated costs
of dismantling and removing the item and restoring
the site on which it is located.
The cost of self-constructed item of property,
plant and equipment comprises the cost of
materials, direct labour and any other cost directly
attributable to bring the item to working condition
for its intended use, and estimated costs of
dismantling and removing the item and restoring
the site on which it is located.
If significant parts of an item of property, plant and
equipment have different useful life, then they are
accounted for as separate item of property, plant
and equipment.
An item of property, plant and equipment or any
significant part initially recognised is derecognised
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount of the
asset) is included in the standalone statement of
profit and loss when the asset is derecognised.
Subsequent expenditure
Subsequent expenditure is capitalised only if
it is probable that the future economic benefit
associated with the expenditure will flow to the
Company. All other expenditure is recognised in the
standalone statement of profit and loss.
Depreciation
Depreciation is calculated on cost of item of
property, plant and equipment (except leasehold
improvements) less their estimated residual value
over their estimate useful lives using written down
value method and is recognised in the standalone
statement of profit and loss. Assets acquired under
leasehold improvements are depreciated using
straight line method over the primary period of
the lease or useful life of the assets, whichever is
shorter. The primary lease period for this purpose
includes any lease period extendable at the
discretion of the lessee.
Depreciation method, useful lives and residual
value are reviewed at each financial year-end and
adjusted if appropriate. Management believes
that its estimates of useful lives as given above,
represents the period over which management
expects to use these assets.
Depreciation on addition/ disposal is provided on
a pro-rata basis i.e. from (upto) the date on which
asset is ready to use (disposed of).
Assets individually costing up to ' 5,000 are fully
depreciated in the year of purchase.
3.5 Intangible assets
Recognition and measurement
Intangible assets acquired separately are initially
measured at cost. Such intangible assets are
subsequently measured at cost less accumulated
amortization and accumulated impairment losses,
if any.
Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied
in the specific asset to which it relates. All other
expenditure is recognised in the standalone
statement of profit and loss.
Amortisation
Amortisation is calculated to write off the cost of
the intangible assets over their estimated useful
lives using the straight-line method, and is included
in depreciation and amortisation in the standalone
statement of profit and loss.
The estimated useful lives of items of intangible
assets is as follows:
Amortisation method, rate and residual value are
reviewed at each financial year-end and adjusted,
if appropriate. Management believes that its
estimates of useful lives as given above, represents
the period over which management expects to use
these assets.
Amortisation on addition/ disposal is provided on
a pro-rata basis i.e. from (upto) the date on which
asset is ready to use (disposed of).
Intangible assets under development ('IAUD')
Identifiable intangible assets under development
are recognised when the Company controls the
asset, it is probable that future economic benefits
attributed to the asset will flow to the Company
and the cost of the asset can be reliably measured.
Intangible assets under development is measured
at historical cost and not amortised. These assets
are tested for impairment on annual basis.
3.6 Leases
The Company's significant lease arrangements
are primarily in respect of office premises. The
Company, at the inception of a contract, assesses
whether the contract is a lease or not lease. A
contract is, or contains, a lease if the contract
conveys the right to control the use of an identified
asset for a time in exchange for a consideration.
Company as a lessee
The Company recognises a right-of-use asset and
a lease liability at the lease commencement date.
The right-of-use asset is initially measured at cost,
which comprises the initial amount of the lease
liability adjusted for any lease payments made at
or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it
is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated
using the straight-line method from the
commencement date to the end of the lease term.
The lease liability is initially measured at the present
value of the lease payments that are not paid
at the commencement date, discounted using
the Company's incremental borrowing rate. It is
remeasured when there is a change in future lease
payments arising from a change in an index or rate,
if there is a change in the Company's estimate of
the amount expected to be payable under a residual
value guarantee, or if the Company changes its
assessment of whether it will exercise a purchase,
extension or termination option. When the lease
liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if
the carrying amount of the right-of-use asset has
been reduced to zero.
The Company has elected not to recognise right-
of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less
and leases of low-value assets. The Company
recognises the lease payments associated with
these leases as an expense over the lease term.
Company as a lessor
Leases in which the Company does not transfer
substantially all the risks and rewards incidental to
ownership of an asset are classified as operating
leases. Rental income arising from owned office
premises is accounted for on a straight-line basis
over the lease term and is included in other income
in the standalone statement of profit or loss due to
its operating nature.
Rental income arising from sub-leasing of office
premises is accounted for on a straight-line basis
over the lease term and is included in other income
in the standalone statement of profit and loss.
3.7 Investment in subsidiaries
Investment in subsidiaries is carried at cost less
impairment as per Ind AS 27 Consolidated and
Separate Financial Statements. On disposal of
investment in subsidiaries, the difference between
net disposal proceeds and the carrying amounts
is recognised in the standalone statement of profit
and loss.
3.8 Impairment
Impairment of financial instruments
The Company applies expected credit loss
(ECL) model for measurement and recognition
of impairment loss on financial assets that are
debt instruments and are measured at amortised
cost, e.g., loans, debt securities, deposits, trade
receivables and bank balance.
The Company follows 'simplified approach' for
recognition of impairment loss allowance on
trade receivables and recognises impairment loss
allowance based on lifetime ECL at each reporting
date, right from its initial recognition.
For other financial assets, ECL is measured at an
amount equal to the 12 month ECL, unless there
has been a significant increase in credit risk from
initial recognition in which case those are measured
at lifetime ECL. The amount of ECL (or reversal)
that is required to adjust the loss allowance at the
reporting date to the amount that is required to be
recognised, is presented as expense or income in
the standalone statement of profit and loss.
Impairment of non-financial assets and
investment in subsidiaries
Non-financial assets are reviewed at each reporting
date to determine whether there is any indication of
impairment. If any such indication exists, then the
asset's recoverable amount is estimated.
For impairment testing, assets that do not generate
independent cash inflows are grouped together
into cash-generating units (CGUs). Each CGU
represents the smallest group of assets that
generates cash inflows that are largely independent
of cash inflows of other assets or CGU's.
Investment in subsidiaries are tested for
impairment at least annually or when events occur
or changes in circumstances indicate that the
recoverable amount of the asset or CGU's to which
these pertain is less than its carrying value.
The recoverable amount of a CGU or an asset is the
higher of its fair value less costs of disposal and its
value in use. Value in use is based on the estimated
future cash flows, discounted to their present value
using pre-tax discount rate that reflects current
market assessments of the time value of money
and the risks specific to the CGU or asset.
An impairment loss is recognised if the carrying
amount of an asset or CGU exceeds its recoverable
amount. Impairment loss is recognised in the
standalone statement of profit and loss.
An impairment loss in respect of assets, which
has been recognised in prior years, the Company
reviews at each reporting date whether there is
any indication that the loss has decreased or no
longer exists. An impairment loss is reversed if
there has been a change in the estimates used
to determine the recoverable amount. Such a
reversal is made only to the extent that the asset's
carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortisation, if no impairment has
been recognised.
3.9 Projects work-in-progress
Projects work-in-progress represent direct cost
incurred against rating cases wherein work has
been initiated but rating is yet to be concluded and
amount is expected to be recovered.
3.10 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand,
balances with banks and short-term deposits with
original maturities of three months or less, which
are subject to an insignificant risk of changes
in value.
For the purpose of the standalone statement of
cash flows, cash and cash equivalent consists of
cash on hand, balances with banks and short-term
deposits, net of outstanding bank overdrafts (if
any).
3.11 Foreign currencies
The Company's standalone financial statements
are presented in Indian ', which is also its
functional currency.
Transactions in foreign currencies are translated
into the functional currency at the exchange rate at
the date of the transaction or an average rate if the
average rate approximate the actual rate at the date
of the transaction.
Monetary assets and liabilities denominated in
foreign currencies are translated into the functional
currency at the exchange rate at the reporting
date. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign
currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency
are translated using the exchange rates at the
date when the fair value is determined. The gain or
loss arising on translation of non-monetary items
measured at fair value is treated in line with the
recognition of the gain or loss on the change in fair
value of the item (i.e., translation differences on
items whose fair value gain or loss is recognised in
OCI or profit or loss are also recognised in OCI or
profit or loss, respectively).
Exchange differences arising on settlement or
translation of monetary items are recognised in
profit or loss.
3.12 Employee benefits
Short-term employee benefit
All employee benefits which are expected to be
settled wholly before twelve months after the end
of annual reporting period in which the employees
render the related service are short-term employee
benefits. Short-term employee benefit obligations
are measured on an undiscounted basis and
expensed as the related service is provided. A
liability is recognised for the amount expected to
be paid as a result of past service provided by the
employee, and the amount of obligation can be
estimated reliably.
Defined contribution plan
The Company makes specified monthly
contributions towards government administered
Provident Fund scheme and Employees' State
Insurance. Obligation for contributions to defined
contribution plan is recognised as an employee
benefit expense in profit and loss in the period
during which the related services are rendered by
employees. The Company has no obligation, other
than the contribution payable in the scheme.
Defined benefit plan
The Company's gratuity benefit plan is a defined
benefit plan. The gratuity liability for employees
of the Company is funded through gratuity fund
established as a Gratuity Trust. The Company's net
obligation in respect of the defined benefit plan
is calculated by estimating the amount of future
benefit that employees have earned in return for
their service in the current and prior periods; that
benefit is discounted to determine its present value
of economic benefits and the fair value of any plan
assets is deducted.
The calculation of defined benefit obligation is
performed as at the standalone balance sheet date
and determined based on actuarial valuation using
the Projected Unit Credit Method by a qualified
actuary. When the calculation results in a potential
asset for the Company, the recognised asset is
limited to the present value of economic benefits
available in the form of any future refunds from the
plan or reductions in future contributions to the
plan ('the asset ceiling'). In order to calculate the
present value of economic benefits, consideration
is given to any minimum funding requirement.
The obligation is measured at the present value
of the estimated future cash flows. The discount
rates used for determining the present value of the
obligation under defined benefit plan, are based on
the market yields on government securities as at
the standalone balance sheet date.
Remeasurements of the net defined liability, which
comprise actuarial gains and losses, the return
on plan assets (excluding interest) and the effect
of the asset ceiling (if any, excluding interest), are
recognised in OCI. The Company determines the
net interest expense (income) on the net defined
benefit liability (asset) for the period by applying the
discount rate used to measure the defined benefit
obligation at the beginning of annual period to the
then-net defined benefit liability (asset), taking in
to account any changes in the net defined benefit
liability (asset) during the period as a result of
contribution and benefit payments. Net interest
expense and other expenses related to defined
benefit plans are recognised in the standalone
statement of profit and loss.
Other long-term employee benefits
Long term individual payout ('LTIP') plan and
compensated absences are other long-term
benefits provided by the Company.
The Company's net obligation in respect of LTIP is
the amount of benefit that employees have earned
in return for their services in the current and prior
periods and discounted to determine its present
value. From the financial year 2018-19, the LTIP
is funded by the ICRA Employees Welfare Trust.
Hence, the Company has charged such employees'
expense in the standalone statement of profit and
loss with a corresponding credit to Capital Reserve.
The Company has a policy on compensated
absences which are both accumulating and
non-accumulating in nature. The expected cost
of accumulating compensated absences is
determined by actuarial valuation performed by
a qualified actuary as at the standalone balance
sheet date using Projected Unit Credit method on
the additional amount expected to be paid/ availed
as a result of the unused entitlement that has
accumulated at the balance sheet date. Expense
for non-accumulated compensated absences is
recognised in the period in which absences occur.
3.13 Share based payments
The grant date fair value of equity-settled
share-based payment arrangements granted to
employees is generally recognised as an employee
benefits expense, with a corresponding increase in
equity, over the vesting period of the awards. The
amount recognised as an expense is adjusted to
reflect the number of awards for which the related
service and non-market performance conditions
are expected to be met, such that the amount
ultimately recognised is based on the number of
awards that meet the related service and non¬
market performance conditions at the vesting
date. For share-based payment awards with non¬
vesting conditions, the grant date fair value of the
share-based payment is measured to reflect such
conditions and there is no true-up for differences
between expected and actual outcomes.
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