Recent Developments in Financial Reporting: formula sheet

Key formulas

Six capitals

Financial, Manufactured, Intellectual, Human, Social and Relationship, Natural

Memory aid: F-M-I-H-S-N. They are categories, not a required list. An organisation may classify them differently.

Guiding principles (7)

Strategic focus and future orientation; Connectivity of information; Stakeholder relationships; Materiality; Conciseness; Reliability and completeness; Consistency and comparability

These govern how the report is prepared and presented. Questions often ask you to match a situation to a principle.

Content elements (8)

Organizational overview and external environment; Governance; Business model; Risks and opportunities; Strategy and resource allocation; Performance; Outlook; Basis of preparation and presentation

These are fundamentally linked questions the report should answer. They are not a rigid checklist or section order.

Value creation idea

Capitals (inputs) → Business activities → Outputs → Outcomes (change in capitals)

Outcomes can be positive or negative, so value may be created, preserved or eroded.

Fundamental concepts

The capitals; The value creation process; Value creation for the organisation and for others

These three concepts underpin the framework.

BRSR structure

BRSR = Section A (General) + Section B (Management and Process) + Section C (Principle-wise Performance)

Section C has Essential (mandatory) and Leadership (voluntary) indicators for each principle.

Number of principles

NGRBC = 9 principles (P1 to P9)

P1 ethics, P2 sustainable goods, P3 employee well-being, P4 stakeholders, P5 human rights, P6 environment, P7 public policy, P8 inclusive growth, P9 consumers.

Reporting basis

BRR (narrative, 2011 guidelines) → BRSR (quantitative, NGRBC 2019)

BRSR replaced BRR and is mandatory for the top 1,000 listed companies by market capitalisation, from FY 2022-23.

BRSR Core

BRSR Core = selected KPIs + reasonable assurance

Assurance applies in phases starting with the top 150 listed entities from FY 2023-24. Verify latest SEBI circulars.

TCFD / ISSB four pillars

Governance + Strategy + Risk management + Metrics and targets

Use this skeleton for any question on IFRS S1 or S2 content.

Materiality lens

GRI = impact materiality (inside-out); ISSB = financial materiality (outside-in, enterprise value)

The most tested distinction between GRI and ISSB.

Climate risk types

Climate risks = Physical (acute, chronic) + Transition (policy, technology, market, reputation)

Opportunities are also disclosed, for example resource efficiency.

GHG emission scopes

Scope 1 = direct; Scope 2 = purchased energy; Scope 3 = other value-chain emissions

S2 requires disclosure of Scope 1, 2 and 3 emissions.

IFRS S1 vs S2

S1 = general sustainability risks and opportunities; S2 = climate-specific

S2 is read together with S1.

Meaning of XBRL

XBRL = eXtensible Business Reporting Language, an XML-based open standard for tagging financial data

Expand the full form in every answer. It changes format only, not accounting recognition or measurement.

Taxonomy

Taxonomy = dictionary of elements + definitions + relationships + presentation

It is the common, shared structure. One taxonomy serves all entities that use it.

Instance document

Instance document = facts of one entity + context (entity, period) + unit, each linked to a taxonomy element

It is the actual filed report. It is prepared by the company for a period.

Relationship in one line

Financial data + taxonomy tags → instance document → validation → filing → machine-readable data

Use this flow to answer 'explain how XBRL works'.

Extension

Extension = company-specific tag added when no taxonomy element fits

Mention it when the question asks about flexibility of 'extensible'.

Total environmental cost

Prevention + Appraisal + Internal failure + External failure costs

Add all four classes. Societal costs not borne by the entity are shown separately.

Cost of environmental quality

Cost of conformance (prevention + appraisal) vs cost of non-conformance (internal + external failure)

Higher spend on conformance usually reduces failure costs.

Carbon credit (unit basis)

1 credit = 1 tonne of CO2 equivalent

Use this to convert tonnes of emissions into credits required.

Net carbon position

Credits held − Credits needed to cover emissions

Positive means a surplus that can be sold; negative means a shortfall to buy.

Triple bottom line

People + Planet + Profit

Three separate measures; they are not added into one number.

Provision for environmental obligation

Recognise if present obligation + probable outflow + reliable estimate

Ind AS 37 conditions; otherwise disclose a contingent liability or nothing.

Gross value added

Gross VA = Sales (and other income) − Bought-in materials and services

Bought-in items include materials, power, fuel, and other purchased services. Wages, interest, tax and dividend are not deducted.

Net value added

Net VA = Gross VA − Depreciation

Check what the question asks for: gross or net.

Application of value added

Value added = Employees + Lenders + Government + Shareholders + Retained (depreciation + reserves)

Total of the application must equal value added in part one.

NOPAT

NOPAT = EBIT × (1 − tax rate)

Use operating profit before interest. Tax is on operating profit.

Capital employed

Capital employed = Equity + Reserves + Debt (long-term funds)

Use the capital definition given in the question. Equivalent: net fixed assets + net working capital.

WACC

WACC = [E × Ke + D × Kd × (1 − t)] ÷ (E + D)

E and D are market or book values as the question specifies. Debt cost is after tax.

Economic Value Added

EVA = NOPAT − (WACC × Capital employed)

The product is the capital charge. Alternative: EVA = (ROCE after tax − WACC) × Capital employed.

Market Value Added

MVA = Market value of the firm (equity + debt) − Capital invested

Positive MVA means wealth created for investors. Commonly, market value of equity = shares × market price.

Lev and Schwartz value of human capital

V = Σ [ I(t) ÷ (1 + r)^t ], for t = 1 to (retirement age − present age)

I(t) is expected annual earnings of the group. r is the discount rate. Add the discounted values for all years.

Historical cost of human resources

Cost = Recruitment + Selection + Training + Development costs incurred, less amortisation

Amortise over expected service life. It is simple but ignores current worth.

Replacement cost

Replacement cost = Cost of recruiting, training and placing a substitute today

Shows what it would cost to replace the person now.

Opportunity cost (concept)

Value = Contribution from the best alternative use of the employee

Used when people are scarce and can be put to other uses.

Hermanson unpaid excess earnings (concept)

Human asset value = Excess of employee earnings over normal return, capitalised

Compares earnings with the return expected from the firm's physical assets.

Quick revision

• Integrated Reporting focuses on how an organisation creates value over time using multiple capitals.
• BRSR is the Indian sustainability disclosure format covering environmental, social and governance matters.
• GRI standards focus on an organisation's impact on the economy, environment and people.
• ISSB standards focus on sustainability information useful to investors; IFRS S1 is general requirements and IFRS S2 is climate-related disclosures.
• XBRL tags financial data so that it can be read, exchanged and analysed by machines.
• A taxonomy defines the tags used in XBRL, and an instance document holds the tagged facts.
• Green accounting identifies and measures environmental costs and benefits alongside financial results.
• The Value Added Statement shows wealth created and how it is shared among employees, lenders, government, shareholders and retained for the business.
• EVA = NOPAT − (Capital employed × WACC).
• A positive EVA means the business earns more than its cost of capital.
• Human resource accounting tries to measure the value of people as an asset, but it is not a recognised Ind AS asset.
• Always state the purpose and the user of a report when answering a descriptive question.

Common mistakes

• Treating the capitals as only financial or only accounting assets. Fix: Remember that capitals include items not recognised as assets, such as human skills and natural resources. They are stocks of value, not accounting entries.
• Mixing up guiding principles and content elements. Fix: Principles tell you how to prepare the report. Elements tell you what the report should contain. Write them in separate columns while revising.
• Saying BRSR and BRR are the same report with a new name. Fix: Remember BRR was narrative and based on 2011 guidelines; BRSR is more quantitative, based on NGRBC 2019, and has a three-section format.
• Placing performance data in Section B. Fix: Section B is policy and process. Section C is measured performance against each principle.
• Saying GRI and ISSB have the same materiality concept. Fix: Write: GRI is impact materiality; ISSB is financial materiality, focused on enterprise value.
• Treating IFRS S2 as covering all sustainability topics. Fix: S1 is general requirements; S2 deals only with climate-related disclosures.
• Treating taxonomy and instance document as the same thing. Fix: Remember: taxonomy is the common dictionary; instance document holds one company's actual numbers for a period.
• Saying XBRL is a new accounting standard or changes how items are measured. Fix: State clearly that XBRL is only a reporting and data format. Recognition and measurement stay under Ind AS or the applicable framework.
• Placing fines and clean-up costs under prevention costs. Fix: Ask whether the spend came before or after damage. After release it is external failure.
• Saying Ind AS has a specific standard on carbon credits. Fix: State that general standards are applied by analogy and that the entity discloses a consistent policy.

Exam tips

• Learn the three lists cold: six capitals, seven guiding principles, eight content elements. Many MCQs test only these lists.
• In scenario questions, tag each fact to a capital first. It earns marks quickly and keeps your answer structured.
• In comparison questions, use at least four headings and add one line saying IR complements the annual report.
• Use the framework's own words: value creation, connectivity, materiality, business model, outcomes.
• Do not quote figures or details of any company that the question has not given. Stay with the facts in the case.
• Learn the one-word theme of all nine principles; MCQs often ask which principle covers a given activity.
• Write BRR versus BRSR comparisons under fixed heads to score full marks.
• In case questions, name the section, the principle and whether the indicator is Essential or Leadership.