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First-Time Adoption Of IND-AS

Published on Mon, Jun 22,2015 | 22:46, Updated at Mon, Jun 22 at 22:51Source : 

By: Sanjeev Singhal, Partner in a member firm of EY Global

With the notification of Companies (Indian Accounting Standards) Rules, 2015, Ind-AS have become a reality. On February 16, 2015, MCA notified 39 Indian Accounting Standards (Ind-AS) and this paved the way for implementation of much awaited Ind-AS in India. The foundation for notification of these Ind-AS was laid down by Hon’ble Finance Minister Shri  Arun Jaitley  in his Union Budget 2014-15 speech  in which he stated that corporate India would implement the Ind AS on voluntary basis effective from 1st April, 2015, and on compulsory basis in two phases from 1st April 2016 and 1st April 2017.

The present road map does not apply to Insurance Companies, Banking Companies and NBFCs, for which separate road map shall be announced by the Government in consultation with the regulators of these sectors.

Success of implementation of Ind-AS depends on the availability of adequate tools and resources, development of expertise by the professionals as well as a considerable investment of time and money on the part of management. A lucid analysis and insight into the issues arising out of first time implementation of Ind-AS and the way-forward has been presented below.

Preparing An Opening Ind-As Balance Sheet

An entity is required to make the opening Ind-AS balance sheet on the date of transition. This is the starting point for adoption of Ind-AS. For this purpose, an entity should, in its opening Ind-AS Balance Sheet:
(a)    recognise all assets and liabilities whose recognition is required by Ind-AS;
(b)    not recognise items as assets or liabilities if Ind-AS do not permit such recognition;
(c)    reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind-AS; and
(d)    apply Ind-AS in measuring all recognised assets and liabilities.

Opening balance sheet is to be prepared on the date of transition, i.e., the beginning of the earliest comparative period presented, e.g., if an entity adopts Ind-AS from 2016-17, its date of transition will be April 1, 2015 and, thus, it will be required to prepare its opening Ind-AS balance sheet on April 1, 2015.

For making the opening Ind-AS balance sheet, Ind-AS grants exemptions in certain areas where the cost of compliance may exceed the benefits. These exemptions are optional and not mandatory.

Voluntary Exemptions
The voluntary exemptions can be categorized under the following broad heads

Voluntary  exemptions

Consolidation/Business Combination related

Fixed assets related

Financial Instruments related


Business Combination

Deemed cost of PPE, intangible assets & investment property

Compound financial instruments

Revenue from contract with customers

Investment in subsidiaries/associates/ joint ventures

Decommissioning liabilities of PPE

Fair value measurement of financial asset and financial liabilities

Severe hyperinflation

Assets and liabilities of subsidiaries/associates/joint ventures


Designation of previously recognized financial instruments

Non-current assets held for sale and discontinuing operations

Cumulative translation differences

Service Concession arrangements

Extinguishing financial liabilities with equity

Share based payments

Joint arrangements

Stripping costs in the production phase

Designation of contracts to buy or sell non financial items

Insurance contracts


















An entity should not apply these exemptions by analogy to other items.
An entity will need to carefully choose the above exemptions to examine what suits more in the particular situation of the entity. It may be noted here that an entity can pick and choose from the above list of voluntary exemptions.

Mandatory Exceptions (From Retrospective Application of Other Ind-AS)
Ind-AS 101 prohibits retrospective application of the some aspects of other Ind-AS. These are as under:
a)    Estimates
b)    De-recognition of financial assets and financial liabilities
c)    Hedge accounting
d)    Non-controlling interests
e)    Classification and measurement of financial assets
f)    Impairment of financial assets
g)    Embedded derivatives
h)    Government loans

Key Areas To Be Addressed During Ind-As Conversion
No two Ind-AS conversion projects will ever be the same. However, while the specific issues that the companies will face during their conversion will vary widely because of all the variables at play, the key areas that the management and boards will need to address during the conversion should be broadly similar.

1.    Project launch and planning activities: The initial decisions made during the project set-up phase tend to be crucial for eventual project success. These decisions include:
(a)    Creating a project management function to coordinate project activity and monitor/report progress
(b)    Structuring the project team based on the results of the impact assessment phase
(c)    Assigning sufficient resources to the project and determining that the team comprises individuals with appropriate skills to fulfil their responsibilities

2.    Review of accounting policies: Reassessing accounting policies under Ind AS will be one of the most important elements of the project because the decisions made in this area will drive many of the changes required throughout the business and will have direct implications for the future business results. For instance, accounting policy decisions will affect data collection requirements, which, in turn, will affect IT system requirements, business processes to collect and record the data, internal control systems covering data validity and functional resourcing requirements. Audit committees and boards will need to review and be comfortable with the policies selected by management.

3.    Development of skeleton financial statements compliant with Ind-AS: Companies will have to redraft the sections of their financial statements to meet Ind-AS disclosure requirements. There are multiple benefits in preparing a skeleton set of financial statements during the preliminary phases of the project as it focuses attention on the actual disclosure requirements of the business, and therefore, is crucial in the process of identifying “data gaps” that need to be plugged. It is also useful to put the overall change management challenge in perspective and give project teams a concrete goal.

4.    Preparation/restatement of financial information from Indian GAAP to Ind-AS for comparative accounting periods: The compilation of comparative financial information for inclusion in the first set of Ind-AS financial statements may prove to be one of the most challenging areas of the project. The board, through its audit committee, needs to be satisfied as to whether careful consideration has been given to the approach adopted by the management to compile this information.

5.    Transition approach: While some companies outside India converted “top-side” only at a consolidated level, this spreadsheet approach is not ideal. Accounting treatments and controls should be pushed down to the subsidiary and transaction level. This will be very useful in compiling relatively more accurate data and maintaining effective control. Further, the spreadsheet approach may not work in long term. The audit committee will need to carefully consider and opt for the transition approach that is more appropriate and better suited to its business.

6.    Identifying and resolving data capture issues: The increased level and complexity of certain financial disclosures expected under Ind-AS may require significant project resources to identify and set up processes to collate this data. Some of the data underlying the new disclosures may be time consuming to extract or may need significant analysis before it is ready for disclosure purposes. Boards need to be satisfied that the management’s plans include adequate mechanisms to identify and resolve data gaps.

7.    Retraining of personnel: Boards need to be satisfied in terms of adequate investment being made in retraining employees throughout the organization in order to meet their changed technical knowledge needs, as well as be equipped to facilitate the roll out of accounting policy changes and the associated revised business processes and procedures.

8.    Communication with stakeholders: Managing investors’ and other stakeholders’ expectations with respect to the impact of Ind-AS and the company’s progress toward conversion will be an important area for boards to monitor. Clear, continuous and consistent communication with stakeholders will reduce the risk of misunderstandings and aid a smooth transition.

9.    Audit committee financial literacy and retraining: The training requirements will also apply to members of the audit committee. Whether trained through management briefings or by outside parties, it is imperative that audit committee members have sufficient knowledge about Ind-AS to be able to evaluate management’s assessments and selection of accounting policies.

The Process
A sample methodology for conversion is shown below, which management may consider for Ind-AS conversion.
The methodology takes, as a starting point, the fact that an Ind-AS conversion project needs to address more than just accounting issues and that a conversion project is sufficiently complicated to warrant professional project management. It is for these reasons the methodology comprises five phases, each of which deals with a specific part of the conversion, and that throughout the project it recognizes five different workstreams, each dealing with a specific aspect of the conversion process. This is to facilitate involvement of specialists on need basis. It is, however, important to recognize that the phases can overlap one another and entities need not wait for completion of one phase to end before beginning another. Also, a clear breakdown of all the activities by workstream is not always possible as a mandatory allocation of activities by phase. Thus, this methodology should be tailored according to project specificities, starting point and in place project structure, etc.











Key Goals And Outputs Of Each Phase
This phase involves high level identification of accounting and reporting differences and the consequences to the business, IT, processes and tax. The major outcome management should expect from this phase includes an impact assessment report, which provides implications on above areas. It also entails determining a high-level roadmap for future phases of the conversion. This phase will also help management to identify potential interdependence between the Ind-AS conversion project and current or planned organization-wide initiatives (for example, new accounting system implementations such as ERP and finance transformations) and an assessment of, whether the company has adequate resources to complete a conversion.

Design and planning
This phase involves setting up the project infrastructure, the project management function, including conversion roadmap and change management strategy. The aim of this phase is to set-up a core Ind-AS team, framing conversion time-tables and deciding on detailed way-forward. Formation of the project structure, project charter, communication plan, training plan and expanded conversion roadmap are typical outputs from this phase.

Solution development
The objective of this phase is to identify solutions to various issues identified in relation to accounting and reporting, tax, business process and system changes. Typical outputs from this phase comprise of Ind-AS accounting manuals, group reporting packages, Ind-AS skeleton financial statements, group accounting policies, technical papers on Ind-AS accounting issues, crystallizing the impact on current and deferred tax, developing solutions for tax functions and identifying processes which need to be re-designed, modified or developed.

This phase involves roll out of solutions developed in the previous phase. In this phase the company will conduct a process of dry-run of financial statements to ensure that before the reporting deadline, company is geared up to prepare Ind-AS financial statements. Post dry-run financial statements, the company will roll-out final deliverables, i.e., the opening Ind-AS balance sheet and the first Ind-AS financial statements. All business and process solutions developed will also be implemented to facilitate the company transition to the new reporting framework.

This phase involves an assessment of how various solutions developed work in the implementation phase and the identification of any issues in the operational model. These issues are tackled in this phase to ensure successful on-going functioning of systems and processes in Ind-AS reporting regime. On-going update training is also provided, to ensure that company’s personnel are updated with latest Ind-AS developments, and also changes are made in systems and processes. Ind-AS manuals will also need to be regularly updated for changes in Ind-AS.


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