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Companies Get Ready For The Ind AS Slog!

Published on Fri, Feb 20,2015 | 16:44, Updated at Fri, Feb 20 at 16:44Source : Moneycontrol.com 

COMPANIES GET READY FOR THE IND-AS SLOG!

By: Vinod Kothari, CEO, Vinod Kothari & Co

India is moving to IFRS, and not too many days to do. While technically, the IFRSs, styled as IndAS, are applicable for financial year 2016-17, listed companies having net worth of Rs 500 crores or more, or other companies having a net worth of Rs 500 crores or more, will be actually be required to adopt IndAS from 1st April 2015, to be able to provide the previous-year comparatives as on 31st March 2016. This means there are barely 5 weeks for companies to set their accounting knowledge, training and systems to be set up and put in place.

The new IndAS are being implemented by an MCA notification of 16th February 2015[1].

The move to IFRS was talked about by Finance Minister Arun Jaitley when he presented his Budget Speech for 2014.

Scope of applicability:
The IndAS  shall be applicable for FY 2016-17, with the comparatives as on 31st March, 2016, for the following companies:

·  companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of Rs. five hundred crore or more;

·  other companies having net worth of Rs. five hundred crore or more;

·  holding, subsidiary, joint venture or associate companies of companies as above.

Companies having a net worth of Rs 250-500 crores will be required to adopt IFRS from FY 2017-18.

There is an exception in case of insurance companies, banking companies and NBFCs. The Rules seem to say that even voluntary adoption is not required in case of such companies.

Major IFRS that will make a substantial difference on financial statements:
There are lots of financial statements that differ significantly from the way Indian entities prepare and present their statements. Some significant IFRS standards are mentioned below:

(a)    Accounting for mergers – IFRS 3 (IndAS 103) mandates the purchase method for all business combinations, other than of businesses under common control.

(b)   Accounting for financial instruments - IFRS 9 (IndAS 109) requires fair value accounting for whole lot of financial assets. While financial entities have escaped immediate impact, since financial entities are currently out of the scope of the rule, whole lot of other corporates will have to account for their investments using the fair value of the financial assets.

(c)    Accounting for contracts with customers - IFRS 15 (IndAS 105): This recently introduced accounting standard substantially affects the booking of revenues for contracts where the seller/service provider continues to have a long-term liability or obligation to service.  This IndAS interestingly also merges IAS 11 pertaining to construction contracts.

(d)   Related party disclosures – IAS 24 (IndAS 24): The definition of “related party” in IAS 24 is much wider than in AS 18. Thereby, not only will disclosure requirements increase, but even the listing agreement makes a reference to the definition of “related party” as per “applicable accounting standard”.  As the applicable accounting standard changes, the transactions that require approval under clause 49.VII of the Listing Agreement will also proliferate.

Major differences between Indian standards and IFRS
The move to IFRS in India is not without significant modifications. The modifications have been listed as  Appendix 1 in the relevant standards.

Importantly, India has not moved to the “revaluation model” in case of investment property, and allows use of both the cost model and revaluation model in case of property, plant and equipment.

Conclusion
There will be major upgrades/rewriting of financial accounting systems required, and IT companies, consultants and accounting firms will have a gala time. In the meantime, companies will have to slog over the next few weeks to do a parallel accounting for FY 2015-16, so as to produce values as on 31st March 2016 that comply with IFRS. The mode of transitioning is clearly laid out in IFRS 1.

 
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