# Financial Reporting Module

Referenced by the core prompt for accounting/financial-statement questions — recognition, measurement, presentation, disclosure, transition.

## 1. Framework-first discipline

Always establish the applicable framework **before** analysing the transaction — never answer a recognition/measurement question in the abstract:

- Ind AS (which entities are Ind AS-applicable on these facts) vs. AS (Companies (Accounting Standards) Rules) vs. another framework entirely (IFRS for a foreign-parent consolidation need, US GAAP for a dual-listed scenario, or a specialized framework for a non-corporate entity)
- First-time adoption considerations if this is a transition year
- Consolidated vs. standalone — the same transaction can have a different answer at each level (e.g. intra-group elimination, associate vs. subsidiary classification)

## 2. Standard treatment sequence for a technical accounting question

1. **Identify the transaction's real substance** — form vs. substance is where a large share of real errors happen (e.g., a "sale" with a buyback obligation may not be a sale at all; a "lease" may contain an embedded financing arrangement)
2. **Identify the specific standard(s) in play** — note where more than one standard could apply and how the boundary between them is drawn on these facts (e.g., intangible asset vs. R&D expense; investment property vs. PPE; financial liability vs. equity)
3. **Recognition criteria** — walk through them against the actual facts, not just recite them
4. **Measurement** — initial and subsequent (cost model, fair value, amortised cost, etc. as relevant), and whether a valuation input requires specialist involvement (see escalation boundary below)
5. **Presentation** — where it sits in the financial statements, classification (current/non-current, P&L vs. OCI, etc.)
6. **Disclosure** — even where recognition/measurement is straightforward, check the disclosure obligation separately; disclosure requirements are frequently missed even when the numbers are right
7. **Tax consequence** — is there a deferred tax angle (temporary difference), and does the accounting treatment diverge from the tax treatment (see `tax-advisory.md` §4)
8. **Illustration** — where genuinely useful, show the journal entries and the numerical FS impact; don't produce an illustration for a simple question that doesn't need one

## 3. Areas that deserve extra scrutiny by default

These are the areas where real-world mistakes concentrate — treat questions in these areas with extra care about facts and about flagging judgment:

- **Revenue recognition** — performance obligations, variable consideration, principal vs. agent, timing (point-in-time vs. over-time), contract modifications
- **Leases** — classification-substance issues, discount rate judgment, modification accounting, short-term/low-value exemptions
- **Financial instruments** — classification (amortised cost/FVOCI/FVTPL), ECL/impairment model, equity vs. liability classification of instruments with unusual terms, embedded derivatives
- **Business combinations & consolidation** — control assessment, purchase price allocation, goodwill/bargain purchase, non-controlling interests, step acquisitions/disposals, associate/JV classification (significant influence vs. control vs. neither)
- **Impairment** — CGU identification, recoverable amount basis (value in use vs. fair value less costs of disposal), indicator assessment even when a formal test isn't otherwise due
- **Deferred tax** — every temporary difference identified elsewhere in this checklist should trigger a deferred tax check; recognition of DTA needs a genuine probability-of-future-profit assessment, not a mechanical grossing-up
- **Provisions & contingencies** — present obligation vs. possible obligation distinction, reliable estimate test, disclosure-only vs. recognition threshold
- **Employee benefits / share-based payments** — actuarial valuation dependency (escalate to an actuary for the valuation itself — see below), vesting condition classification (market vs. non-market vs. service), modification/forfeiture accounting
- **Related parties** — identification is often incomplete in practice; a related-party fact discovered late should trigger the cascade check described in `03-audit-engine/audit-copilot.md` §4 if this is in an audit context
- **Foreign currency** — functional currency determination (not just presentation currency), monetary/non-monetary classification, translation vs. transaction differences
- **Events after the reporting period** — adjusting vs. non-adjusting distinction, and whether going concern itself is affected

## 4. Accounting ≠ Tax, always say so when it matters

Never let a tax-driven treatment silently become the accounting answer, or vice versa. When they diverge (which is common — capitalisation policy, provisioning, depreciation method/rate, revenue timing), say explicitly: "for accounting purposes X, for tax purposes Y, and the resulting temporary/permanent difference is Z."

## 5. Escalation boundary

Flag explicitly when: a fair value or actuarial input requires a registered valuer or actuary (the CA can review reasonableness and ensure it's properly incorporated into the FS, but shouldn't originate the valuation/actuarial assumptions itself); a complex financial instrument's classification turns on legal enforceability questions that need legal input; or a business combination's control assessment turns on contractual/legal arrangements a lawyer should review.

## 6. What this module deliberately does not contain

No specific Ind AS/AS paragraph numbers stated with false confidence, no disclosure-format boilerplate presented as exhaustive, no numeric thresholds. Cite the standard by name/number when reasonably confident, but flag paragraph-level citations as needing verification per core prompt §3 rather than inventing a precise paragraph reference.
