Are you Ready for the biggest Accounting Reform in India? [ Converged IFRS ]

Are you Ready for the biggest Accounting Reform in India? [ Converged IFRS ]

Applicability of Ind AS (India s convergence with International Financial Reporting Standards) On February 16, 2015, the Ministry of Corporate Affairs (MCA) has notified 39 IND AS, aimed at convergence of the Indian accounting framework with globally recognized IFRS. The MCA has also laid down roadmap for companies other than insurance companies, banking companies & Non-Banking Finance Companies (NBFC) to implement Ind AS converged with IFRS, as follows: Phase 1: Companies with Networth of Rs. 500 crore or more Phase 2: Listed Companies or Any company having Networth of Rs. 250 crore or more 2015-16 2016-17 2016-17 2017-18 April March April March April March April March Transition Date 1 st April, 2015 Opening BS Comparative 2015-16 (If listed : - Quarterly) Financial Statement for the year 16-17 (If listed :- Quarterly) Transition Date 1 st April, 2016 Opening BS Comparative 2016-17 (If listed : - Quarterly) Financial Statement for the year 16-17 (If listed :- Quarterly) Note: 1. Also applicable to Holding, Subsidiary, joint venture or Associate companies of companies covered above. 2. A company may voluntary apply Ind AS for accounting period beginning on or after 1 st April 2015 with comparative for the period ending on 31 st March 2015 or thereafter.

Ind AS Impact Survey of NIFTY 50 Companies We have carried out a survey of the first published quarterly Ind AS results of NIFTY 50 companies to analyse the impact of Ind AS transition. The detailed Survey report can be downloaded from www.expertifrs.com. Critical Ind AS Adjustments observed in published results of NIFTY 50 companies Capitalisation of major spare parts as Property, Plant and Equipment Classification of financial asset at FVTPL / FVTOCI and its impact thereof on profit Provision of dividend and tax thereon Impact of Business combinations Impact of hedge accounting Impact of embedded leases Employee share based payments accounted using fair value method Equity method of accounting for Joint Ventures Impact of discounting of provisions as per Ind AS 37 Accounting of loan processing fees using effective interest method Recognition of finance income under Ind AS on interest free, deposits etc. Re-Classification of financial liability and equity Provision for expected credit loss Guarantee Income for financial Guarantee contracts Remeasurements of the defined benefit plans Change in profit/loss of Associates Change in accounting policy from Full Cost Method to Successful Efforts Method Deferment of revenue recognition on customer contracts Ind AS Transition Challenges Business operations MIS Investor Relation Control environment Tax Planning Processes and Systems Finance

Key Impact areas under Indian GAAP vs. Ind-AS Other Comprehensive Income(OCI) Extraordinary items Statement of Change in Equity Minority interest presentation in balance sheet Change in Accounting Policies Loan processing fees Indian GAAP Statement of Other Comprehensive Income is not applicable under Indian GAAP. Extraordinary items are disclosed separately in the statement of profit and loss. A statement of changes in equity is currently not presented. Minority interests are presented in the consolidated balance sheet separately from the liabilities and the equity of parent s shareholders. Changes in accounting policies should be made on a prospective basis together with a disclosure of the impact of the same, if material. Loan processing fees paid to secure a loan shall be taken to Profit and loss account and expensed off in the period of disbursement. IND AS Items such as : Actuarial gain/loss, Changes in revaluation surplus Gains and losses arising from translating the financial statement of a foreign operation, Gains and losses on remeasuring available for-sale financial assets, Effective portion of gains and losses on hedging instrument in a cash flow hedge etc. are treated as other comprehensive income under Ind-AS to be shown as part of statement of profit and loss. Presentation of any items of income or expense as extraordinary is prohibited. Movements in share capital, retained earnings and other reserves etc. are to be presented in separate statement of changes in equity. Non-controlling interests (minority interests) are presented in the balance sheet within equity separately from the equity of the owners of the parent. It requires retrospective application of changes in accounting policies by adjusting the opening balance of each affected component of equity for the earliest prior period presented. Loan processing fees shall be amortized during the tenure of loan by applying effective rate of interest method. Corporate guarantee Corporate guarantee provided by holding company to subsidiary or any other company shall be reflected in contingent liability and there are no impact in the financials of the either companies. The corporate guarantee shall be recognised at fair value. Subsequently the company shall recognize the notional income of corporate guarantee commission by credit to the profit and loss account.

Indian GAAP IND AS Interest free loan / deposit Accounting of Forward contracts/derivatives Classification of Financial Assets Classification Financial Liabilities and Equity Provision for Bad debt reserve Actuarial gain / loss There is no specific provision in Indian GAAP for considering notional interest on interest free loan /deposit. Premium paid on forward contract shall be amortized over the period for which company had entered into contract. As per AS 13, investments are classified as long term or current. Long term investments are carried at cost less provision for diminution in value, which is other than temporary. Current investments are carried at lower of cost and fair value. Financial instruments are classified as a liability or equity based on legal form. Redeemable preference shares will be classified as equity. Preference dividends are always recognized similar to equity dividends and are not treated as interest expense. The entity should assess the provision for doubtful debts at each period end which in practice is based on relevant information such as past experience, actual financial position and cash flows of the debtors. All Actuarial gain and losses) should be recognized immediately in the statement of profit and loss account. The interest free deposits are required to be measured at present value. The unwinding of discount will result into finance cost/income. All derivatives are measured at fair value, and any gain/losses, except derivatives used for hedge purpose, are recognized in the profit or loss account. All financial assets are classified as measured at amortised cost or measured at fair value. When assets are measured at fair value, gain and losses are either recognized in profit or loss (FVTPL) or recognized in other comprehensive income (FVTOCI). Financial instruments are classified as a liability or equity according to the substance of the contractual arrangement (and not its legal form) and the definitions of financial liabilities and equity instruments. Dividends on financial instruments classified as financial liability are recognized as an interest expense in the statement of profit or loss and other comprehensive income. The impairment model in Ind AS 109 is based on expected credit losses. An entity shall always apply the simplified approach for trade receivables and measure the loss allowance at an amount equal to lifetime expected credit losses. Actuarial gain and losses on defined benefit pension plans are recognized in other comprehensive income and not reclassified to profit or loss in a subsequent period.

Proposed dividend Deferred taxes Discounting of provisions Indian GAAP As per requirement of AS-4, dividend stated to be in respect of the period covered by the financial statements which are proposed or declared after the balance sheet date but before approval of financial statements will have to be recorded as a provision. Deferred taxes are computed for timing differences in respect of recognition of items of profit or loss as per financial reporting and for income taxes. Discounting of liabilities is not permitted and provisions are carried at their full values. There is no requirement to report it at present value. IND AS If an entity declares dividends to holders of equity instruments after the reporting period, the entity shall not recognize those dividends as a liability at the end of the reporting period. It shall be treated as liability only in the year of declaration of dividend. Deferred taxes are computed for all temporary differences between the accounting base and the tax base of assets and liabilities. When the effect of time value of money is material, the amount of provision is the present value of the expenditure expected to be required to settle the obligation. Determination of Segments Companies need to identify two sets of segments (business and geographical), using a risks and rewards approach. Control The term control is defined under AS 21: (a) the ownership, directly or indirectly through subsidiary (ies), of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors. Under Ind-AS, operating segments are identified based on the financial information that is regularly reviewed by the chief operating decision-maker (CODM) in deciding how to allocate resources and in assessing performance. As per Ind AS 110, control is defined as under: An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Accounting of Joint Ventures Classification of Leasehold land AS 27 identifies three types of joint ventures jointly controlled operations, jointly controlled assets and jointly controlled entities. In consolidated financial statements, proportionate consolidation is allowed for accounting of joint ventures. Leasehold land is recorded and classified as fixed asset Ind AS 111 classifies joint arrangements in two types joint operations and joint ventures. As per Ind AS 28, only equity method of accounting is to be applied for consolidation of joint ventures. Lease is recognized as finance lease or operating lease as per the definition and classification criteria.

Ind AS Core Group Advisor: Chintan N. Patel Hands on experience of Ind AS Implementation and International GAAP Conversion of Listed / Multi-national companies Qualified Chartered Accountant with DISA, CISA(USA) qualifications, certified IFRS by ICAI; passed CPA(USA) and Company Secretary. Practicing Chartered Accountant having 15 years of experience Co-Author of book on Quick Guide to Ind AS published by Taxmann More than 200 presentations at various seminars/ conferences/ workshops in India, Dubai, Muscat, Salalah etc. Mentor/Editor of Ind AS Channel on You Tube Contributor to Android Application Accounting Auditing Resource Articles published in ICAI Journal, Newsletters etc. Vice Chairman of Ahmedabad Branch of WIRC of ICAI Editor of IFRS e-newsletter of IFRS (Ind AS) Implementation Committee of ICAI in 2014-15 Past Member of IFRS Course Advisory Board of ICAI Android Application on Accounting & Auditing A Channel on YouTube Book Quick Guide to Ind AS

About Us NJP Advisors Pvt. Ltd. is a professional services firm providing accounting, assurance, auditing, financial advisory and consulting services to a wide range of clients including listed/unlisted companies, partnership firms and other corporations. We specialize in providing Ind AS Implementation, Training and Consultancy to ensure smooth transition. Our advisors and personnel are well qualified and experienced to provide effective services. For more information, refer to our website www.njpadvisors.com & www.expertifrs.com Attributes: Advisors Expert of the field Excellence in Execution Integrity Satisfied Clientele One stop solution