ICAI journal Dec 2025 pt2

 The article titled, “Overview of Certain Key Accounting Aspects in Media and Entertainment Industry,” authored by CA. Pravin Sethia, Member of the Institute, provides guidance on key accounting issues in the transforming Media and Entertainment (M&E) industry using the framework of Indian Accounting Standards (Ind AS).

The M&E Industry has seen significant growth and transformation over the last decade, driven by changing consumer behaviors, technological advancements, and new business models, leading to increased complexity in accounting and auditing practices that require greater application of judgment and estimates.

Background and Key Industry Shifts

The Indian M&E Industry revenue was approximately USD 16 billion in 2015 and grew to about USD 31 billion in 2025. The revenue from Over-The-Top (OTT) platforms expanded to approximately USD 4 billion in 2025, with the number of OTT platform users reaching around 600 million in 2025.

Key shifts in the industry include:

• Digital Transformation: The shift of audiences from traditional TV to on-demand viewing via digital streaming platforms.
• Technological Advancements: Technologies such as AI, AR, and VR have reshaped distribution and content creation.
• Content Diversification: Platforms are making significant investments in original content, spanning a wide variety of formats and genres.
• Rise in demand for Regional Content: Viewers increasingly favor stories and characters that resonate with their own experiences.

Accounting and auditing professionals in this industry face challenges related to the classification, amortization, and impairment of motion picture film costs, as well as the treatment of participation costs and revenue recognition.

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1. Motion Picture Film and Other Content Assets – Whether Inventory or Intangible Assets?

Classification depends on the intent and business model of the entity.

A. As Intangible Assets (Ind AS 38)

Motion picture films generally meet the criteria for Intangible Assets because they exhibit identifiability (each film is distinct), the producer/acquirer exercises control (contractually or through copyright registration), the film lacks physical substance, and it generates future economic benefits through exploitation of rights.

• Classification as an intangible asset is usually appropriate because the producer primarily holds the film to generate economic benefits over its life, typically assigning rights to third parties (like exhibitors or distributors) for a period, after which most rights devolve back to the producer.

B. As Inventory (Ind AS 2)

The film is classified as Inventory if it is acquired and held for sale in the ordinary course of business and the entity intends to retain little or no intellectual property rights in the film upon sale.

• The source notes that diversity in practice exists among film and media companies regarding the presentation of content costs as either inventory or intangible assets.

2. Accounting for Costs Related to the Production of a Motion Picture Film

The process of making a film involves various stages, including Pre-production (script development), Production (shooting, music), and Post-production (editing, dubbing).

Capitalization Criteria

Costs incurred for a specific motion picture film are accumulated and capitalized from the date the recognition criteria specified in Ind AS 38 (Intangible Assets) are met, which marks the commencement of the development phase.

An intangible asset can be recognized at the development stage when the entity can demonstrate:

• Technical feasibility of completing the asset for use or sale.
• The intent and ability to complete and use or sell the asset.
• Probable future economic benefits, or the existence of a market.
• Availability of adequate technical, financial, and other resources to complete development.
• Reliable measurement of the cost during development.

Capitalization must occur up to the date of completion of post-production work, or when the film is ready for distribution, or until the date the censor certificate is issued, whichever is earlier.

• Costs to be capitalized must be directly attributable to production, such as salaries of the key creative team.
• Costs not to be capitalized include internal costs related to support functions like compliance, office administration, and selling and distribution costs.
• Once the censor certificate is received, the asset is reclassified from “Intangible Under Development” (IUD) to “Intangible Asset,” and amortization commences.

3. Accounting for Participation Costs

Participation Costs are contingent payments made to actors, directors, or artists, based on the financial results of the film (e.g., a percentage of theatrical revenue).

• Timing of Recognition: The liability for participation costs is recognized only when the related revenue has reasonable certainty and the costs can be reliably measured.
• Presentation: These costs are presented as part of the artists’ costs within film production costs. They are not netted off from Revenue, unless the artist is directly paid through the assignment of rights relating to that revenue stream.

4. Amortization of Motion Picture Film

The amortization of motion picture film and media rights must be allocated on a systematic basis over its finite useful life as per Ind AS 38.

• Revenue-Based Amortization: Using an amortization method based on expected revenue is generally not permitted under Ind AS 38, except when the entity can demonstrate that revenue and the consumption of economic benefits are highly correlated, or when the predominant limiting factor is the achievement of a fixed revenue threshold.
• Accelerated Amortization: The industry commonly uses an accelerated amortization profile based on the observable decline in the film’s value. This profile is modeled using the expected revenue over the film's useful economic life. This approach is generally accepted because the amortization is based on the decline in value, not a direct matching to actual revenue, avoiding contravention of Ind AS 38.

5. Impairment of Media Assets

As per Ind AS 36 (‘Impairment of Assets’), an entity must assess at each balance sheet date whether there is any indication that a media asset may be impaired.

• If impairment is indicated, the enterprise must estimate the recoverable amount, which is the higher of the fair value less costs to sell or the value in use (VIU).
• An impairment loss is recognized if the carrying amount of the asset exceeds this recoverable amount.
• Internal and external indicators of impairment include restrictions on film release, substantial delays in release schedules, poor box office performance compared to expectations, or actual costs substantially exceeding budgeted costs.
• VIU calculations should include all reasonably estimable future cash flows, such as revenue from digital platforms, theatrical releases, licensing sales, and merchandising.

6. Principles of Revenue Recognition

For licenses granted to customers regarding intellectual property (IP), the entity must determine the nature of the license to correctly time revenue recognition.

• Right to Use IP: If the license provides the customer the right to use the IP as it exists at the point the license is granted, revenue is recognized at a point in time.
• Right to Access IP: If the license grants the right to access the IP as it exists throughout the license period, revenue is recognized over time as performance obligations are satisfied.

Revenue Recognition in Specific Scenarios:

Scenario	Nature of License/Arrangement	Timing of Revenue Recognition	Citation
Sale of Rights (No Restrictions)	Agreement does not contain restrictions on the acquirer's ability to exploit the content	Upon transfer of control of the content (physical or digital delivery)
Sale of Rights (Restrictions)	Agreement contains a restriction period (e.g., cannot be broadcast until a future time)	When the restriction period is over and the acquirer is free to exploit the rights
Theatrical Release	Minimum guarantee deals (non-refundable amount)	On the date of release of the movie
Theatrical Release	Commission/revenue share	As the exhibition of the movie occurs
Music Rights	Fixed fee for perpetual rights	On the commencement date when the music company obtains unrestricted right to market the music
Royalty Income	Income over sales exceeding a certain threshold	When the sales exceed the threshold amount
Satellite/Home Video	Right of broadcaster/partner to telecast the movie	When the right to telecast commences (after the no-broadcast period)

Conclusion

The author concludes that accounting for motion picture films under Ind AS requires balancing technical guidance with dynamic business realities. Every accounting decision, whether on classification, amortization, or revenue recognition, significantly impacts how financial statements are prepared and consequently shapes stakeholders’ perception of the media enterprise’s financial health. As new monetization models like digital rights and streaming platforms disrupt traditional practices, professionals must continuously exercise sound judgment and foresight.

The article titled "Non-compliances observed in the Ind AS Financial Statements pertaining to Equity and Liabilities in Balance Sheet," contributed by the Financial Reporting Review Board (FRRB) of the Institute of Chartered Accountants of India (ICAI), highlights critical presentation and disclosure deficiencies observed in financial statements prepared under the Indian Accounting Standards (Ind AS) framework.

The FRRB conducts reviews of General-Purpose Financial Statements to identify non-compliances with Ind ASs, Standards on Auditing (SAs), The Companies Act, 2013, and other relevant statutes. This article is part of the FRRB’s ongoing effort to update members and stakeholders to promote adherence to robust reporting practices.

The article details several observations of non-compliance related to both Equity and Liabilities:

I. Observation Related to Equity

Non-Compliance: Non-Disclosure of Nature and Purpose of Each Reserve within Equity.

• Case Summary: A company's Note on Other Equity disclosed items such as "Reserve for Equity Instruments through Other Comprehensive Income," "Treasury Reserve," and "Employee Stock Option Reserve".
• Observation: The nature and purpose of these reserves were not disclosed.
• Principle Violated: This non-compliance contravenes:
  • Ind AS 1, Paragraph 79(b): Requires an entity to disclose a description of the nature and purpose of each reserve within equity, either in the balance sheet, the statement of changes in equity, or in the notes.
  • Division II, Schedule III to the Companies Act, 2013, Note 6D II (d): Requires specifying the nature and purpose of each reserve and the amount in respect thereof under 'Other Equity'.

II. Observations Related to Liabilities

The FRRB observed several issues related to the classification and disclosure of liabilities:

1. Non-Current Borrowings – Incorrect Classification of Preference Shares

• Case Summary: A company included Redeemable Cumulative Preference Shares under "Non-current Borrowings" in its financial statements for FY 2018-19. A footnote indicated these shares were redeemable at par five years from the date of allotment (January 10, 2015).
• Observation: Since the allotment date was January 10, 2015, the shares were due for redemption within 12 months from the end of the financial year under review (March 31, 2019).
• Principle Violated: The preference shares should have been classified as current liabilities, not non-current liabilities, as they did not meet the condition in Ind AS 1, Paragraph 69(d), which requires an unconditional right to defer settlement for at least twelve months after the reporting period.

2. Financial Liabilities – Misclassification of Employee Benefit Liabilities

• Case Summary: A company presented "Employee Benefits Payable" under "Other Current Liabilities" and "Leave Encashment Payable" under "Other Non-Financial Liabilities" in the notes to the financial statements.
• Observation: The FRRB viewed that ‘Employee Benefits Payable’ and ‘Leave Encashment Payable’ are contractual obligations of the company to deliver cash to employees for services rendered. Therefore, these liabilities should be classified as financial liabilities.
• Principle Violated: This contravenes Ind AS 32, Paragraph 11, which defines a financial liability, in part, as a contractual obligation to deliver cash or another financial asset to another entity.

3. Current Tax Liabilities – Non-Disclosure on Face of the Balance Sheet

• Case Summary: "Income Tax Payable" was grouped under "Other Current Liabilities" in the Notes to the financial statements.
• Observation: Tax payable should be shown as “Current Tax Liabilities (Net)” on the face of the Balance Sheet under the “Current Liabilities” section, as prescribed by Division II of Schedule III.
• Principle Violated: The reporting was not in line with the required format of the Balance Sheet prescribed under Part I, Division II, Schedule III to the Companies Act, 2013.

4. Trade Payables – Incomplete Disclosure on Face of the Balance Sheet w.r.t MSME Dues

• Case Summary: The Note on Trade Payable indicated outstanding dues payable to vendors registered under the MSME Act. However, on the face of the Balance Sheet, the total trade payable was reported without bifurcation.
• Observation: Trade payable should have been bifurcated into dues to MSME and other payables, in line with the format prescribed in Division II, Schedule III.
• Principle Violated: This omission was not compliant with the requirements of Division II, Schedule III to the Companies Act, 2013.

5. Provisions – Incomplete Disclosure

• Case Summary: The company disclosed "Provision for Indirect Tax Matters" under the note on provisions.
• Observation: The company failed to provide a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits.
• Principle Violated: This violates Ind AS 37, Paragraph 85(a), which requires disclosure of a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits for each class of provision.

6. Defined Benefit Plans – Non-Recognition of Gratuity Provision

• Case Summary: The company’s accounting policy stated that it does not operate a defined benefit gratuity plan requiring contributions to a recognized fund and, therefore, does not carry out actuarial valuation or make a provision for gratuity.
• Observation: The liability for gratuity arises as soon as the employee starts rendering the services, and liability should be recognized as and when incurred.
• Principle Violated: Non-recognition of the provision for gratuity is not in line with Ind AS 19, Paragraph 72, which establishes that employee service gives rise to an obligation under a defined benefit plan even if the benefits are conditional on future employment (i.e., not vested), and liability should be accounted for based on the probability that the specified event will occur.

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These observations emphasize the critical need for preparers and auditors to ensure that financial statements are complete, accurate, and aligned with all applicable statutory and regulatory frameworks.

The following is a reproduction of the Expert Advisory Committee (EAC) opinion regarding the accounting treatment of costs incurred during the testing phase of a new restaurant outlet:

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Accounting treatment of salary paid to staff/employees and cost related to food trials during testing phase prior to opening of a new restaurant, under Ind AS framework

A. Facts of the Case

A private company, engaged in owning and operating contemporary and fine-dine luxury restaurants, typically opens 8 to 10 new outlets annually. It is crucial for the company to ensure that every element of the restaurant services—including the taste of food and beverages, presentation, ambience, lighting, cooling, and service quality—is well-rehearsed and consistent across all outlets from the very first day of operation.

The company conducts necessary food and beverage trials of each menu item by the chefs and kitchen staff. The restaurant also deploys various machinery and equipment (e.g., kitchen equipment, air conditioning, audio/visual projection equipment, computer systems). The company ensures all installed equipment is functioning properly and delivering the desired results before commercial operation.

The food and beverage trials, along with testing and calibration of equipment, take about a month. The necessary personnel are recruited in advance to handle and test the equipment and prepare for the opening day. The Company intends to capitalize the following costs incurred during this testing period as part of the cost of construction of the outlet, relying on Ind AS 16, ‘Property, Plant and Equipment’:

1. Employee benefit costs (salaries) for employees who test and handle the equipment.
2. Food and beverage material costs incurred during the trial phase.

The company believes these costs are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

B. Query

The opinion of the Expert Advisory Committee was sought as to whether the accounting treatment proposed by the Company—capitalizing the (i) employee benefits costs and (ii) food and beverage material costs incurred during the testing period to the cost of property, plant and equipment (PPE)—is correct.

C. Points Considered by the Committee

The Committee examined the issue from the perspective of Indian Accounting Standards (Ind AS).

1. Unit of Account for PPE: The Committee noted that the cost of a restaurant outlet as a whole is typically not considered a unit of measure or an item of PPE. Instead, individual items constituting the outlet (e.g., leasehold improvements, kitchen equipment, air conditioning systems, furniture, computer systems, etc.) should generally be treated as separate items of PPE, as they are acquired/disposed of separately and expire in different patterns. The recognition principle must, therefore, be examined in the context of these individual items of PPE rather than the outlet as a whole.

2. Principles of Capitalization (Ind AS 16): The basic principle for capitalizing an item of cost to PPE is that it must be directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Costs that are not to be included in the carrying amount of an item of PPE include:

• Costs of opening a new facility.
• Costs of introducing a new product or service (including advertising and promotional activities).
• Costs of conducting business in a new location or with a new class of customer (including costs of staff training). Recognition of costs ceases when the item is already in the location and condition necessary for it to be capable of operating in the manner intended by management.

3. Analysis of Employee Benefit Costs: The employee benefit costs are incurred for preparations and arrangements in connection with opening a new outlet to maintain consistency in taste, ambience, etc., across all outlets. These costs do not appear to be incurred for the construction or acquisition of any specific PPE, nor for bringing any specific PPE to the location and condition necessary for it to be capable of operating. These costs are similar to the costs of operating a new facility or conducting business in a new location, and thus cannot be capitalized as cost of PPE; they should be expensed in the statement of profit and loss as incurred.

• Exception/Clarification: If it can be clearly demonstrated that a part of the employee benefit costs (e.g., the cost of a technician, but not chefs, kitchen, or serving staff) was incurred for fixing or resolving technical operational problems necessary for bringing a specific asset (e.g., sound and lighting system) to the condition intended by management, that portion can be capitalized.

4. Analysis of Food and Beverage Material Costs: The trials are conducted to focus on taste, presentation, and consistency to meet management standards, not primarily to check the operating functioning of the kitchen equipment. The kitchen equipment seems to be already in operational condition. Since these expenses are incurred to achieve a certain level of output/services and do not add value to any specific equipment, they are not directly attributable costs. Costs incurred after an asset is operational and able to produce a commercially feasible quality/quantity of goods should not be capitalized. Therefore, the food and beverage material costs for trial runs should be expensed in the statement of profit and loss as and when incurred.

D. Opinion

The Committee is of the opinion that the proposed accounting treatment to capitalize the costs of employee benefits and food and beverage material costs incurred during the testing phase/period is not appropriate.

However, if it can be clearly demonstrated that a part of the employee benefit costs was incurred for bringing any specific PPE to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g., cost of a technician fixing technical operational problems, as opposed to chefs or serving staff), the same can be capitalized to that extent.

The Opinion was finalized by the Committee on May 21, 2025.

The article titled “Micromanagement – How to Cope with this Greatest Curse at the Workplace,” authored by CA. Amrendra Kumar Singh, Member of the Institute, explores the nature, impact, and coping mechanisms for micromanagement.

Micromanagement – How to Cope with this Greatest Curse at the Workplace

Overview and Definition

Micromanagement is a management style marked by excessive supervision and control, often leaving employees with minimal autonomy or decision-making power. It is frequently mistaken for "attention to detail," but the distinction is crucial: attention to detail empowers precision, while micromanagement stifles initiative.

According to a 2022 MIT Sloan Management Review study highlighted by Forbes, a toxic workplace culture is ten times more likely to drive employees away than compensation, and micromanagement is a key contributor to this toxicity. The core issue is that micromanagement is a control mechanism, not a catalyst for excellence. True leadership is about trust, inspiration, and empowerment; leaders cultivate growth, while micromanagers constrain it.

When Micromanagement May Be Justified

Micromanagement may be temporarily justified in specific scenarios, but even then, it must be applied with clear communication and a defined exit strategy:

• High-stakes projects requiring flawless execution.
• Underperforming individuals or teams needing close guidance.
• New hires who benefit from structured onboarding.
• Process corrections where standards must be re-established.

When this style is prolonged or habitual, however, it becomes a toxic management style that erodes employee confidence, suppresses creativity, and fosters a culture of dependency and fear. At its core, micromanagement often stems from the manager’s fear, insecurities, and lack of trust, rather than team performance.

Traits of Micromanagers

Micromanagers typically exhibit the following characteristics:

• Enforcing unrelenting dominance over their teams.
• Getting into unnecessary and excessive details.
• Seeking constant updates and continuously reminding the team.
• Expecting superfluous perfection.
• Interfering in even the smallest things.
• Struggling to trust their subordinates.
• Raising their voice instead of raising the trust.
• Denying creativity, autonomy, and freedom to their people.
• Being an avid attention seeker.
• Very often issuing arbitrary orders.

Micromanagement and Narcissism

Micromanagement and narcissism (excessive and self-centered interest in oneself) go hand in hand, as both traits reinforce each other and stem from a lack of trust and an excessive need for control.

Managers who exhibit narcissistic traits often delegate tasks but continue to tightly control the performance of subordinates. This behavior allows them to claim credit for successful outcomes while conveniently shifting the responsibility for any failures onto their team members. Such managers frequently manipulate subordinates, colleagues in other functions, and even top management to retain control.

Impact on Subordinates

Working under a micromanager, especially one who is also narcissistic, can create a toxic and damaging work environment that ruins an employee's potential and personality. Key impacts include:

• Erosion of confidence and fear, causing employees to hesitate to speak up.
• Diminished creativity and productivity due to constant anxiety, which affects both professional and personal life.
• Approval-seeking behavior where employees focus on pleasing the boss rather than achieving results.
• Dependency on the manager’s moods and preferences instead of focusing on the actual work.
• Stifled personal and professional development.
• Erosion of trust between the manager and the team.

Over time, the employee mindset shifts from asking, "What is the best way to achieve this goal?" to "How does my boss feel about this?"—a pattern that drains innovation and motivation.

Impact on the Employer (Organization)

Micromanagement can destabilize entire organizations, and the company ultimately suffers the long-term consequences, often resulting in the absence of a robust succession plan.

• Leadership Vacuum: Employees are rarely groomed for leadership roles or empowered to make decisions, leading to a void when the micromanager exits.
• Dependency Culture: Teams become overly reliant on one person for direction, creating bottlenecks and reducing agility, particularly during a crisis or transition.
• Stunted Innovation: Lack of autonomy hampers the willingness of employees to propose new ideas or experiment, which makes the company less competitive.
• Talent Drain: High-potential employees leave the organization when they feel micromanaged or undervalued, resulting in the loss of institutional knowledge and increased turnover.
• Operational Disruption: The sudden departure of the micromanager can cause morale to dip, projects to stall, and productivity to plummet.

How to Cope with Micromanagement

Coping with micromanagement is difficult, but there are navigational strategies.

1. Simulate the Action Plan: The author suggests deciding on a solution or action plan for a given situation and then comparing it with the manager's action and the resulting outcome. Repeating this process across different scenarios can help sharpen strategic thinking, understand leadership dynamics, and prepare the employee to act decisively when required.

2. Vedantic Teachings on Duty (Karma): If direct methods fail, Vedantic teachings offer a rescue by classifying duties into three categories:

   • Obligatory Duty (Karyam Karma): This involves developing the habit of doing what is necessary in the organization's best interest, independently of the boss's reaction. The focus should be on performing one’s duty with commitment and love, without being attached to the outcome or results, as results are not entirely within one’s control.
   • Desire-Driven Duty (Kaamya Karma): Working based on desires—such as chasing promotions, pleasing the boss, seeking high raises, or trying to be the center of attention—is bound to fuel disappointment, mental agitation, and restlessness when desires are not fulfilled.
   • Prohibitory Duty (Nishiddha Karma): Indulging in illegal or immoral things to survive or please the boss should be avoided, as this will lead to ruin.

3. Know When to Walk Away: If the negative environment persists for eight to ten hours a day and drains energy, the remaining options are to change the boss or leave the organization. A person should consider leaving a place where there is no respect, no well-wishers/friends, and no learning or professional growth. Specifically, if contributions, efforts, and talents go unrecognized, and opportunities for professional and financial growth are non-existent, one should consider moving on.

Conclusion

Micromanagement is a corrosive force that stifles initiative and replaces confidence with compliance, breeding dependency and fear instead of trust and innovation. True leadership is characterized by empowerment and trust, where leaders build other leaders, not followers.