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Say Hello To The New Accounting Standards!

Published on Tue, Feb 24,2015 | 20:55, Updated at Tue, Feb 24 at 20:55Source : 

By: Sumit Seth, Partner & IFRS Leader, PwC

Consistent with its January 2015 announcement, the Ministry of Corporate Affairs (MCA) has moved quite swiftly and notified its phase wise Roadmap for adoption of Indian Accounting Standards (Ind AS) – India's accounting standards converged with IFRS. There was lingering skepticism or uncertainty as to whether Ind AS will really get notified. This is now a reality and indeed a very positive development positioning India well at the center of high quality financial reporting.

The Ind As will first apply to companies having net worth exceeding Rs 500 crores beginning April 1, 2016 requiring also a comparative period Ind AS information for April 1, 2015 to March 31, 2016. Listed companies and others having net worth exceeding Rs 250 crores will follow beginning April 1, 2017. Accordingly, immediately beginning April 2015 (which is only a month away) companies impacted in the first phase will have to take a close look into the details of the 39 new Ind ASs currently notified.


It is also good to see the notification clarifying many previously open questions, some of which are noted below:

•  The date and manner of calculation of net worth has been spelled out in the notification. It has been clarified that net worth would be determined based on the standalone accounts of the company as on March 31, 2014 or the first audited period ending after that date;

•  It is now clear that Ind AS will apply to both consolidated and stand-alone financial statements of a company covered by the Road map. This is helpful as companies will not have to maintain dual accounting systems;

•  It is a relief that an overseas subsidiary, associate or joint venture of an Indian company is not required to prepare its stand-alone financial statements per Ind AS, and instead may continue with their jurisdictional requirements. However, those entities will still have to report their Ind AS adjusted numbers for purpose of preparing consolidated Ind AS accounts of their Indian Parent company;

•  Entities not covered by the road map can voluntarily adopt Ind AS, and having once chosen this path can switch back;

•  Insurance companies, banking companies and non-banking financial companies shall not be required to apply Ind AS either voluntarily or mandatorily. However, it is expected that if these entities are subsidiaries or associates of a Parent company covered by the Roadmap, then these entities will have to report Ind AS adjusted numbers for purpose of preparing consolidated Ind AS accounts of the Parent company’

•  Pending debate on two of the most significant standards being Revenue Recognition and Financial Instruments settled with these two standards having been notified. Interestingly India will be one of the first countries to mandatorily adopt these standards from April 1, 2015 while the rest of the world will follow beginning 2017. These two standards on its own will have a significant effect on entities–impact not only every company’s financial results but also require many organizational and business changes.

Carve outs

There was a hope that companies would be given an option to prepare their financial statements per IFRS as issued by the IASB (the true IFRS), which is now ruled out. This has two important implications. First, many companies already preparing IFRS compliant accounts on a voluntary basis or to comply with foreign listing requirements will now have to transition to Ind AS thereby continuing with two set of accounts. Second, when Indian companies go overseas to raise capital they will again need to change the Ind AS numbers to comply with IFRS.  This happens because certain differences have remained between the true IFRS and our Ind AS - “carve outs”. Some of these carve outs diminish comparability and thereby acceptability of Ind AS with the globally accepted IFRS. To overcome this, a suggestion would be for companies to carefully evaluate the Ind AS Transition provisions and accounting policy elections so that their Ind AS accounts become very close to IFRS, if not same. In this regard, some of the significant carve outs to consider are in the areas of negative goodwill arising on business combinations, operating leases with rent escalations, accounting for foreign currency convertible bonds and major breaches of long tenure debt covenants.

Way forward

Finally, Ind AS is here and here to stay. Beyond accounting, it will require changes to companies’ processes, IT systems, contractual arrangements, tax policies etc. Also stake holders such as Board of Directors, Audit committees, investors may want to know more requiring proactive communication. In summary, India Inc. should get ready and embrace this accounting transformation!


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