Insight to Ind AS. Knowledge sharing seminar. July 2015

Insight to Ind AS Knowledge sharing seminar July 2015

What is Ind AS? India s commitment towards convergence of Indian accounting standards with IFRS Effort began in April 2011 by MCA, tax and other issues derailed the plan Plan revived in 2014-2015 Union Budget February 16, 2015, MCA notified 39 Ind AS and laid down a transition road map for its implementation KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 1

What is Ind AS? Just an accounting change? KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 2

Implementing Ind AS Phase 1 Listed/ unlisted companies with net worth >= INR 500 crores Phase 2 Listed companies with net worth < INR 500 crores Unlisted companies with net worth < INR 500 crores >= INR 250 crores April 1, 2015 March 31, 2016 March 31, 2017 April 1, 2016 March 31, 2017 March 31, 2018 Opening Balance sheet Comparative statements Ind AS financial statements Opening Balance sheet Comparative statements Ind AS financial statements Net worth is calculated in accordance with the companies STAND-ALONE financial statements Ind AS is also applicable to the holding, subsidiaries, joint ventures or associates of the subject company Currently, Insurance, banking and non banking financial institutions are exempt from the applicability of Ind AS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 3

Navneet Sharma Ind AS 2: Inventories Ind AS 21: Effects of foreign exchange Ind AS 115: Revenue from contracts with customers Ind AS 8: Accounting policies, change in estimates and errors Ind AS 10: Events after reporting date Ind AS 108: Operating segments KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

Inventories Ind AS - 2 Indian GAAP - 2 US GAAP ASC 330 Valuation Lower of cost or net realizable value. Reversal of write down - permitted but only to the extent of original write down. Deferred settlement terms interest element is recognized as an expense over the period of financing. Similar to Ind AS. No specific guidance however reversals may be permitted as AS - 5 requires disclosure of the same. Inventories purchased on deferred settlement terms are not explicitly dealt under AS 2. Lower of cost or market. Market means current replacement cost and it should not exceed net realizable value. Reversal of write down of inventory is not permitted. Similar to Ind AS. Impact on:- Financial reporting Entities purchasing inventories on deferred settlement terms will now be required to identify the interest element as an expense over the period of financing. Organization and its process No impact on organization or its current processes. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 5

The effects of changes in foreign exchange rates Ind AS - 21 Indian GAAP - 11 US GAAP ASC 830 Functional currency currency of primary economic environment in which the entity operates. Concept of integral and non integral operations. Ind AS Similar to Ind AS. LC FC RC LC FC RC LC FC RC Non Integral operation methodology Integral operation methodology Integral operation methodology Non Integral operation methodology Impact on:- Financial reporting Following will be the impact on financial reporting Entity will need to identify the functional currency one in which the entity generally operates. Organization and its process No impact on organization or its current processes. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 6

Revenue from Contracts with customer The Five Step Model Revenue from contract with customers is recognized based on the application of a principle- based Five Step Model- Step 1 and 2 Identify Step 3 Determine Step 4 allocate Step 5 Recognise The contract The performance obligation(s) the transaction price the transaction price to each performance obligations revenue is booked when each performance obligation is satisfied. Example : Mr.X enters into a 12-month telecom plan with the local mobile operator ABC. The terms of plan are as follows: Mr.X s monthly fixed fee is Rs 100. Mr.X receives a free handset at the inception of the plan. ABC sells the same handsets for Rs 300 and the same monthly prepayment plans without handset for Rs 80/month. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 7

Revenue from Contracts with customer Step1 Step 2 Step 3 Step 4 12 month plan with Mr. X Identify performance obligations- 1. Deliver the handset 2. Deliver services for 1 year Rs 1,200 ABC needs to allocate Rs 1200 to individual performance obligations under contract based on their relative stand alone selling prices. Standalone pricing Performance obligations Standalone SP % in total Relative revenue Handset INR 300 23.80% (300/1,260) 285.60 (300*23.80%) Network services INR 960 (80*12) 76.20% (960/1,260) 914.40 (960*76.20%) Total INR 1,260 100% INR 1,200 Step 5 is to recognize revenue in the following manner Description Amount Treatment When Sale of handset INR 285.6 Treat the same as unbilled revenue When handset is given Network services INR 76.2 (914.4/12) Booked to revenue each month When network services are provided. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 8

Revenue from Contracts with customer Ind AS - 115 Indian GAAP - 9 Point of recognition transfer of effective control over the property. Transfer of risks and rewards of ownership. Similar to Ind AS. US GAAP ASC 606-10- 15-2 Multiple element arrangements - when an arrangement includes more than one component, account for the revenue attributable to each component separately and it may involve recording at different point of time. Linked transactions each transaction to be evaluated on a combined basis. Discount and incentives revenue measured at Fair value and hence discount, etc. related to sales are netted against revenue. No specific guidance. Generally recorded based on the legal form of the transaction. No such specific practice under Indian GAAP. Cash discounts and customer incentives are reported as a separate expenditure in the profit or loss statement. Similar to Ind AS. Similar to Ind AS. Similar to Ind AS. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 9

Revenue from Contracts with customer Ind AS - 115 Indian GAAP - 9 Extended credit if company offers an extended credit period to customers, revenue is recognised at the present value of future cash inflows. Revenue is recognised at the contractual value of the consideration receivable. Similar to Ind AS. US GAAP ASC 606-10- 15-2 Customer loyalty under this approach, the fair value of the award credits is separated from the initial sale and deferred based on such fair values. Such deferred income would be utilized when the credits are utilized. There is no specific guidance on accounting for award credits and loyalty point programmes. Similar to Ind AS. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 10

Revenue from Contracts with customer Impact on:- Financial reporting following changes will be observed in terms of financial reporting Point of revenue recognition may change which will impact revenues. Organization and its process Marketing strategies, such as free maintenance services for cars, loyalty points by hotels and supermarkets and free handsets by telecom operators, will need to be carefully evaluated to gauge their impact on revenue recognition. Personnel responsible for an entity s revenue recognition policies may need to consult with operating personnel involved in pricing decisions to determine estimated stand-alone selling prices, especially when there are limited or no observable input. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 11

Accounting policy, changes in estimates and errors Ind AS - 8 Indian GAAP - 5 US GAAP ASC 250/ 260 Changes in accounting policy requires retrospective application of changes. Method of depreciation is an accounting estimate - Prospective application in case of changes. Prior period changes are corrected by adjusting opening equity balances and reinstating comparatives. Impact on:- No specific guidance Method of depreciation is an accounting policy retrospective application in case of changes. Changes are included in the determination of profit or loss for the period in which error was identified and disclosed separately. Similar to Ind AS. Similar to Ind AS Similar to Ind AS. Financial reporting - Ind AS 1 will require the management to consider the following aspects for presentation- Critical judgements made by management in applying accounting policies. Key source of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year. Organization and its process No impact on organization or its current processes. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 12

Events after the reporting period Ind AS - 10 Indian GAAP - 4 US GAAP ASC 855 Dividends declared after the reporting date (Shall not be recognized as liability at the balance sheet date.) Breach of covenant of long term loans Breach date on or before reporting date - Classified as an adjusting event Events are recognized till the date financial statements are authorized for issue. Is recognized as liability at the end of the reporting date. Stays silent on the statement. Evaluated till the date financial statements are approved by the board. Similar to Ind AS. Shall not be considered as an adjusting event. Evaluated till the date of issue of financial statements. March 31, 2015 June 15, 2015 June 30, 2015 Balance sheet date Audit committee approval date Board approval date KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 13

Events after the reporting period Impact on:- Financial reporting With Ind AS coming into picture, dividend declared after the reporting date shall not be recognized as liability at the balance sheet date. Organization and its process No impact on organization or its current processes. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 14

Operating segments Ind AS - 108 Indian GAAP - 17 US GAAP ASC 280 Determination of segment financial information that is regularly reviewed by the CODM in deciding how to allocate resources and in assessing performance. Disclosures Segment result is based on the measurement basis used by CODM. Enterprise identifies two sets of segments business and geographical. Consistent with the accounting policies adopted for presenting financial statements. Similar to Ind AS. Similar to Ind AS. Entity wide disclosure additional disclosure requirements- External revenue from each product or/ and services. Information on major customer [10% or more of segment revenues]. Disclosures are required based on the classification of segments as primary or secondary. Similar to Ind AS. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 15

Operating segments Impact on:- Financial reporting Following will be the impact on financial reporting: Change in segment reporting approach. Customer concentration. Organization and its process The following impact will be observed in the organization and its processes: Reconciliation of management information system with financial statement. Identification of CODM. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 16

Harsh Jogani Ind AS 16: Plant, property and equipment Ind AS 17: Leases Ind AS 32, 109, 107, 113: Financial instruments Ind AS 28, 110, 111: Consolidation Ind AS 23: Borrowing costs KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

Plant, Property and Equipment Ind AS - 16 Indian GAAP - 10 US GAAP ASC 360 Component Accounting (Mandatory) Component Accounting (Recommended) Component Accounting (Recommended) KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 18

Plant, Property and Equipment Ind AS - 16 Indian GAAP - 10 US GAAP ASC 360 Annual year end review of useful life, method of depreciation and residual values Cash price equivalent accounting Cost of dismantling and removing the item and restoring the site is included as an element of cost Impact on:- Does not require annual year end review No specific guidance No specific guidance Only in case of change in specific circumstances No specific guidance No specific guidance Financial reporting Component Accounting shall require entity to restructure their fixed asset register and recompute depreciation. Organization and its process Organization may need to transfer certain responsibilities, previously assumed by the finance function, to operational personnel such as periodic review of useful life, residual value and method of depreciation. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 19

Leases Ind AS - 17 Indian GAAP - 19 US GAAP ASC 840 Land Leases to be classified as operating or finance lease. In determining whether land lease is operating or financing the economic life is considered to be indefinite. Straight line adjustment contains a carve out for escalation of operating lease rentals that are in line with the expected general inflation. Composite Leases i.e. (Land+Building) Embedded Lease concept introduced. Inception of Lease v/s Commencement of Lease Excludes lease agreements for use of land from its scope. (EAC Opinion provided on the same which treats long term land lease as finance lease) Recognized on straight line basis over the period of lease term. Does not contain this requirement. No specific guidance Does not differentiate between the two Land leases included. Similar to Indian GAAP. Segregation required under US GAAP if it meets the bright line test Embedded lease concept applicable Similar to IndAS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 20

Leases IndAS 101 Embedded lease Composite Leases Impact on:- Financial reporting Entities would now require to have and maintain additional details with respect to lease accounting Computing the general line of inflation and comparing that with the escalation clause as per the lease arrangement. While implementing composite classification, recognizing the portion of lease rentals attributable to land so as to identify its materiality. Organization and its process The purchase department needs to be trained so as to acquire specific skills in order to identify leases in a service contract in order to identify embedded leases. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 21

Financial Instruments Ind AS 109, 32,107 and 113 Classify instruments as a liability or equity on initial recognition based on Substance of the agreement. (For example: Redeemable Preference Shares) All financial assets are classified into 3 categories:- Amortized cost Fair value through profit and loss Fair value through OCI Split accounting required for Compound financial instruments. (For example: Convertible Debentures need to be split into equity and liability) Indian GAAP 11, 13, Guidance Notes Classification is normally based on legal form Investments are classified as:- Long-term investment Cost less permanent diminution Current investment lower of cost or fair value based on intended holding period. No split accounting required, instruments are either a liability or equity Similar to IndAS US GAAP ASC 310, 320, 815, 860 and 860 Similar to Ind AS. Split accounting is applicable but the criteria for split into debt and equity may at times differ from IndAS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 22

Financial Instruments Ind AS 109, 32,107 and 113 Derecognition of financial assets Primary test - Risk and reward model Secondary test Control test Indian GAAP 11, 13, Guidance Notes Derecognized when the contractual right to cash flows expires. Securitized asset is derecognized on loss of control. US GAAP ASC 310, 320, 815, 860 and 860 Financial assets are derecognized when the contractual right to cash flows expires or the entity surrenders control of the asset. Example:- XYZ Ltd has receivables from an unrelated party with a face value of INR 10 cr. XYZ transfers these receivables to the ABC Finance Ltd for INR 9 cr. The receivables will continue to be collected by XYZ and deposited to XYZ s bank account with the cash flows being remitted in total each month-end to ABC Fin. Embedded in the INR 1 cr discount is a fee for providing this service. XYZ is not allowed to sell or pledge the receivables to anyone else. There is no agreement to repurchase. Legal Isolation XYZ not allowed to pledge US GAAP No repurchase option for XYZ r r a IndAS No obligation to pay any amount over and above what it collects XYZ may not sell the instrument XYZ must transfer the amount without material delay a a a Therefore, not derecognized and this would be accounted for as a secured borrowing. Therefore, it would appear that this would be accounted for as a sale, and thus derecognized. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 23

Financial Instruments Impact on:- Financial reporting Requires balance sheet recognition of all financial instruments Makes greater use of fair value, which shall lead to greater use of valuation tools Impacts Debt and Equity classification IndAS 107 requires comprehensive disclosures regarding financial instruments and the risk to which an entity is exposed Organization and process In addition to accountants, operational personnel from various departments must be involved in implementing Ind AS 32 and Ind AS 109, including the following: Treasury teams For analyzing all financial contracts Sales representatives For identifying and embedded derivative in sales contract Purchasing personnel - For identifying and embedded derivative in vendor contract Legal staff For documenting hedges KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 24

Group Accounts Subsidiaries, Joint Arrangement, Associates Ind AS 110, 111, 28 A parent consolidates entities under its control evaluated based on a single control model Considers Potential Voting Rights if they are Substantive Principal v/s Agent relationship needs to be identified to determine control Profit or loss and each component of other comprehensive income shall be attributed to the parent and the non-controlling interests even if the non-controlling interests have a deficit balance. Ind AS 101 provides for mandatory exemption for retrospective application of the same. A parent consolidates entities under its control evaluated based on ownership interest or governance indicators. Potential Voting rights are not considered No Specific Guidance Indian GAAP 21, 27 Excess of loss applicable to minority interest in the equity of the subsidiary and any further losses applicable to minority are adjusted against the majority interest except to the extent that the minority has a binding obligation to and is able to make good the losses. Focus on controlling financial interest Similar to Ind AS. Similar to IndAS Similar to IndAS US GAAP 810, 323, 808 KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 25

Group Accounts Subsidiaries, Joint Arrangement, Associates Ind AS 110, 111, 28 Indian GAAP 21, 27 US GAAP 810, 323, 808 Reporting date of Subsidiaries - Similar to Indian GAAP except that the difference in dates cannot be more than three months. Adjustment for Significant events and transactions need to be made for. Joint arrangements are classified as either joint operations or joint ventures. Accounting treatment: Equity method - Joint Ventures Proportionate Consolidation technique - Joint Operations. Difference in reporting dates cannot be more than six months. Adjustment for Significant events and transactions need to be made for. No concept of Joint Arrangements only Joint Ventures. Joint ventures are accounted under the proportionate consolidation method. Similar to IndAS. No adjustments required for significant events and transactions that occur between the two dates. No adjustment required but need to be disclosed in the Notes to Accounts. Interest in joint ventures are generally accounted using equity method. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 26

Group Accounts Subsidiaries, Joint Arrangement, Associates KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 27

Group Accounts Subsidiaries, Joint Arrangement, Associates Impact on:- Financial reporting Adoption may result in consolidation of few entities and de-consolidation of certain subsidiaries in certain cases All entities will have to develop systems such as preparation of group accounting manuals, to ensure compliance with this requirement. On conversion to Ind AS, many group entities will have to change their accounting policies to bring them in line with the parent entity. Organization and process Coordination with the management of associates and joint ventures - There is no exemption from the requirement of uniform accounting policies Updating group structures and its impact on ratios Management judgment Regulatory compliance such as maintain leverage or gearing ratios within certain levels KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 28

Borrowing costs Ind AS - 23 Indian GAAP - 16 US GAAP ASC 835-20 Interest expense eligible for capitalization are calculated using effective interest method. No reference of effective interest rate. Similar to Ind AS but straight line method of amortization is also allowable. Example:- XYZ Corporation issued $100,000 of 8% term bonds at $92,278 on January 1, 2015, due on January 1, 2020, with interest payable each July 1 and January 1. a.) Calculation of Effective Interest Rate ( EIR ) Year Cash Flows Jan-15 92,278 Jul-15 (4,000) Jan-16 (4,000) Jul-16 (4,000) Jan-17 (4,000) Jul-17 (4,000) Jan-18 (4,000) Jul-18 (4,000) Jan-19 (4,000) Jul-19 (4,000) Jan-20 (1,04,000) EIR (Semi-annually) 5% EIR (Annually) 10% Date Interest Expense Cash Paid Carrying Amount Jan-15 92,278 Jul-15 4,614 (4,000) 92,892 Jan-16 4,645 (4,000) 93,537 Jul-16 4,677 (4,000) 94,213 Jan-17 4,711 (4,000) 94,924 Jul-17 4,746 (4,000) 95,670 Jan-18 4,784 (4,000) 96,454 Jul-18 4,823 (4,000) 97,277 Jan-19 4,864 (4,000) 98,141 Jul-19 4,907 (4,000) 99,048 Jan-20 4,952 (1,04,000) Nil KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 29

Borrowing costs Impact on:- Financial reporting The following impact would fall on financial reporting in case of a general borrowing Additional exercise would need to be performed in order to compute interest expense eligible for capitalization based Effective interest rate method. Management would need to take a judgement whether borrowings of parent and subsidiaries need to be considered. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 30

Ronak Shah Ind AS 12: Income taxes KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

Income Taxes Ind AS - 12 Indian GAAP - 22 US GAAP ASC 740 Balance Sheet Approach Recognition of deferred tax asset Probability of sufficient taxable profit, convincing evidence, taxable temporary differences. Business combinations Deferred taxes recognized are adjusted through goodwill. Changes in exchange rates Remeasurement Recognized; Intra-group transaction Deferred taxes are recognized. Income Statement Approach Recognition of deferred tax asset Virtual certainty & Reasonable certainty. Business combination does not give rise to deferred tax adjustments. Changes in exchange rates No specific guidance Intra-group transaction Deferred taxes are not recognized. Similar to Ind AS Taxable temporary differences, more likely than not valuation allowance. Similar to Ind AS. Changes in exchange rates Remeasurement Not recognized; Intra-group transaction Deferred taxes are not recognized. Recognition of current and deferred tax expense/(benefit) recognized in P&L except where transaction is outside statement of P&L, in other comprehensive income or equity. No specific guidance in AS 22 for transactions outside the profit or loss account. Similar to Ind AS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 32

Income Taxes Impact on:- Organization and its process Monitoring the tax bases of assets and liabilities. Monitoring the tax losses and tax credits of all components in the group. Evaluate whether the deferred taxes affects the income statement or equity or other comprehensive income as the case may be. Prepare more detailed disclosures. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 33

Anand Shah Ind AS 103: Business combinations Ind AS 36: Impairment of assets Ind AS 113: Fair value measurements Ind AS 38: Intangible assets Ind AS 37: Provision, contingent liabilities and contingent assets KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

Business combinations Ind AS - 103 Indian GAAP - 21 US GAAP ASC 805 Transactions between entities under common control Mandates purchase method in most cases. Purchase price allocated to tangible and identifiable intangible assets Non controlling interest at fair value or at proportionate share of total identifiable net assets Negative goodwill in OCI and accumulated in capital reserve Step-up acquisition, existing equity re-measured at fair value, changes in profit and loss account No specific guidance on business combinations Option to use pooling of interest on fulfillment of conditions No specific guidance on business combinations Non controlling interest recorded at their share of equity as at the time of acquisition Negative goodwill recorded under capital reserve For step up acquisitions, investment is determined on a step by step basis Excludes transactions between entities under common control Acquisition method Similar to Ind AS At time of acquisition, non controlling interest recorded at their fair values Negative goodwill charged to earning during the year of purchase In line with Ind AS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 35

Business combinations Indian GAAP Particulars Amount Purchase consideration 1,000,000 Minus: Net assets acquired (400,000) Goodwill 600,000 Ind AS/ USGAAP Particulars Amount Purchase consideration 1,000,000 Plus: Fair value of liabilities assumed 200,000 1,200,000 Minus: Fair value of tangible assets (600,000) Minus: Fair value of identifiable intangible assets Customer relationship (100,000) Tradename (60,000) Non-compete agreements (40,000) Goodwill 400,000 KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 36

Business combinations A Ltd., acquired 80% in B Ltd. Non controlling interest at fair value Particulars Amount Purchase price 1,000,000 Plus: Liabilities assumed 200,000 1,200,000 Minus: Fair value of tangible assets (600,000) Minus: Fair value of identifiable intangible assets Customer relationship (100,000) Tradename (60,000) Non-compete agreements (40,000) 400,000 Minus: Fair value of non controlling interest (20%) (50,000) Goodwill 350,000 KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 37

Business combinations A Ltd., acquired 80% in B Ltd. Non controlling interest at proportionate share Particulars Amount Purchase price 1,000,000 Plus: Liabilities assumed 200,000 1,200,000 Minus: Fair value of tangible assets (600,000) Minus: Fair value of identifiable intangible assets Customer relationship (100,000) Tradename (60,000) Non-compete agreements (40,000) 400,000 Minus: Fair value of non controlling interest (20% X 400,000) (80,000) Goodwill 320,000 KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 38

Business combinations Impact on:- Financial reporting Financial statement depict fair value of tangible and intangible assets Purchase price allocation Significant impact on post-acquisition profits Organization and its process Use of experts for identifying and measuring of intangible assets Option to apply Ind AS 103 prospectively Availed Asset/ liabilities not to be recognized under Ind AS 103 to be derecognized, and adjusted to goodwill KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 39

Impairment of assets Ind AS - 36 Indian GAAP - 28 US GAAP ASC 350/360 Reversal of impairment loss due to change in estimates on long lived assets permitted. Reversal of goodwill impairment prohibited Requires use of pre-tax cash flows and pre-tax discount rates One-step process: Recoverable amount < Carrying amount = Impairment loss Reversal of impairment loss permitted subject to conditions Requires use of pre-tax cash flows and pre-tax discount rates Similar to Ind AS Reversal of impairment loss on long lived assets and goodwill prohibited No specific guidance. Requires consistency in level of cash flows and discount rates Two step process Impact on:- Organization and its process Annual impairment testing mandatorily required per Ind AS Irrespective of indications, Ind AS 101 required testing for impairment on the transition date KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 40

Fair value measurements Ind AS - 113 Indian GAAP - 14 US GAAP ASC 820 List downs techniques, inputs used for fair value and disclosures Market participant assumptions Highest and best use No framework on fair value for financial reporting Entity specific assumptions No guidance Similar to Ind AS Similar to Ind AS Similar to Ind AS The price that would be received to sell an asset or transfer a liability in an orderly transactions between market participants at the measurement date Level 1 inputs Observable quoted price, in active markets Level 2 inputs Quoted price are not available but fair value is based on observable market data Level 3 inputs Unobservable inputs Impact on:- Financial reporting Substantial impact on assets/ liabilities required to be fair valued Organization and process Companies will have to hire experts to fair value the required assets and liabilities. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 41

Intangible assets Ind AS - 38 Indian GAAP - 26 US GAAP ASC 350 Development phase intangible, to be capitalized from the date entity meets the recognition criteria Cost model or revaluation model for carrying value of intangibles Useful life of intangible can be finite / indefinite Useful life for intangibles with finite lives to be assessed at each financial year end Similar to Ind AS Revaluation model not permitted Useful life may not exceed 10 years Similar to Ind AS Development costs are expensed as incurred. Revaluation model not permitted Similar to Ind AS No annual assessment required. To be reviewed when circumstances indicate a change in life Impact on:- Financial reporting Volatility in profit and loss account due to possibility of impairment Organization and process Annual review exercise for useful life and value of intangible assets KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 42

Intangible assets Recognition criteria for development phase intangibles Establishment of technical feasibility of completing the development of the intangible asset Intention to complete such development Ability to use or sell the intangible asset Probability of the intangible asset generating future economic benefits Availability of resources to complete development and use or sell the intangible asset Ability to reliably measure expenditure attributable to development of such intangible asset Per Ind AS 101, any intangible asset recognized per previous GAAP which cannot be recognized as intangibles per Ind AS 38 should be derecognized. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 43

Provision, contingent liabilities and contingent assets Ind AS - 37 Indian GAAP - 29 US GAAP ASC 410/450 Introduces Constructive obligation Time value material, discount provision to present value using pre-tax discount rates Recovery to be recorded only if virtually certain Exempts disclosure of information prejudicial to the entity Provision to be recorded when contract become onerous Impact on:- No guidance Provision amount not to be discounted Similar to Ind AS Similar to Ind AS Similar to Ind AS Similar to Ind AS Provision amount not to be discounted to present value Recovery should be probable and need not be virtually certain No such exemption provided Provisions are not recognized for unfavorable contracts unless the entity has ceased using the rights under the contract Financial reporting The coverage of provisions will be widened by introduction of constructive obligations Organization and process The companies will need to evaluate whether the provisions require to be discounted to present value, which may require use of experts, and also periodically evaluate whether any of their contracts are onerous KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 44

Akash Rughani Ind AS 19: Employee benefits Ind AS 102: Share based payments KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

Employee Benefits Ind AS - 19 Indian GAAP - 15 US GAAP ASC 715 Actuarial Gain Loss : accounted for In OCI Past Service Cost to be recognised immediately in the Income Statement Actuarial Gains/Loss: accounted for in Income Statement Vested Past Service Cost : Recognise immediately in the Income Statement Unvested Past Service Cost : Amortise over the vesting period Actuarial Gain/Loss : amortized over the expected life of active employs OR recognise immediately in the income statement Past Service Cost amortized over the active participants service period Impact on:- Financial Reporting -- Reduced volatility in income statement on account of actuarial differences Timing for Recognition of Termination and curtailment benefits Recognition of unvested past service cost as an expense Deferred Taxes pertaining to Actuarial Gains shall permanently stay in OCI Organization and its process -- Actuarial principles under Ind AS 19 are different from AS 15. Entities need to engage with their actuaries and ensure that the actuarial report, going forward, is in accordance with revised principles laid down in Ind AS 19. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 46

Share Based Payments Ind AS - 102 Non Employee Share Based transactions Recognition : goods are received or service is rendered Measurement: Difference between the value of goods and FV of the security issued Classifies all awards into Cash based settlement : Liability Equity based settlement : Equity Transactions with choice of settlement Valuation: FV (i.e including intrinsic and time value) Guidance Notes & SEBI Guidelines Applicable only to employee share based payments SEBI Guidelines only covers ESOS and ESPS, which by default are classified as similar to Equity settled award Valuation: Intrinsic Value or FV at option of the entity. Major organization adopted for intrinsic value US GAAP ASC 715 ASC-505 Non Employee Share based payments Recognition : Commitment for counter party performance is reached or complete Measurement : Similar to IND AS Classifies all awards into equity/liabilities Similar to IND AS KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 47

Share Based Payments Ind AS - 102 Guidance Notes & SEBI Guidelines US GAAP ASC 715 ASC-505 Graded Vesting : Accelerated Expense recognition each installment is required to be measured as a separate grant Graded Vesting with Service conditions only, entity has an option to adopt accelerated expense recognition or straight line method. For all other conditions, Graded Vesting : accelerated expense recognition or straight line method at the option of the entity Impact on:- Financial Reporting Mandatory accounting for ESOPs at FV will result in increased expense recognition Non Employee transaction will also lead to recording of all transactions such transactions at FMV bringing parity in recording of transactions Accounting for Group ESOPs will reflect true compensation cost of receiving the benefits Organization and its process Additional liabilities arising from the adoption of Ind AS102 will negatively impact financial results and ratios. In some situations, the ability to pay dividends may be affected and there may also be implications from restrictive covenants in existing debt/equity agreements. As a result, entities should carry out a comprehensive review of their rewards and recognition mechanisms in order to ensure that these continue to support business strategies in a cost-effective manner. Along with cash cost, accounting cost also needs to be considered. KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 48

Share Based Payments Classification of share based payment transactions in group arrangements Yes Does counterparty get my equity instruments? No Equity - settled expenses Do I have to provide those instruments (that is, am I the settler?) Yes Cash settled expenses No Equity settled expenses Yes Does counterparty get equity instruments of another entity in the same group? No Does counterparty get cash (or other assets) based on the value of either my equity instruments or equity instruments of another group entity? Cash settled expenses Yes Yes Do I have to settle the obligation? No No Not in the scope of Ind AS 102 Equity - settled expenses KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 49

Share Based Payments Equity instruments granted Cash granted P P s shares P Based on P s shares S services Employees S services Employees P s consolidated financial statements es P s consolidated financial statements cs P s separate financial statements es P s separate financial statements cs S s separate or individual financial statements es S s separate or individual financial statements es KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 50

Harsh Jogani KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.

IFRS vis-à-vis Ind AS Following are some of the key carve-outs in Ind AS vis-à-vis IFRS:- Previous GAAP Foreign Exchange Fluctuations Translation of long term monetary items Straight lining of lease rentals Bargain Purchase Gain Events after the reporting period KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 52

Impact beyond Accounting Accounting, tax and reporting Identify accounting differences Identify disclosure changes required Develop new accounting policies Increased efforts due to greater level of judgements Identify resources to analyse historical transactions as a part of retrospective amendments Systems and Process Evaluate changes needed in internal controls Engage respective teams in appropriately modifying data collection process Design and implement process changes in teams outside accounting department Business Ind AS People and Change Develop communication plans and reduce surprises for the stakeholders in advance Assess impact of accounting change on general business such as contractual terms, lease vs buy decisions, debt covenants compliances, etc. Modify third party contracts to coincide with new reporting metrics Execute training plans for employees across various functions and locations Revise performance evaluation targets Set realistic timescales and accountabilities KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms. 53

Thank you Mumbai 101 RNA Azzure, Service Road, Bandra E, Mumbai 400051 Atlanta 3883 Rogers Bridge Road, Suite 601, Duluth, GA 30097 London Kajaine House, 57-67 High Street, Edgware, Middlesex, HA8 7DD Lyon 74 Rue Maurice Flandin 69003 Lyon Geneva Rue du Rhone 114, 1204 Geneva Amsterdam WTC Amsterdam, Strawinskylaan 923, 1077XX Amsterdam Toronto 55 York Street, Suite 401, Toronto, Ontario, M5J 1R7 Singapore 101, Cecil Street, 24-10 Tong Eng Building, Singapore, 069533 For any enquiries, please contact: KNAV s International Practice Partner: Khozema Anajwalla khozema.anajwalla@knavcpa.com Mobile: +91 98201 99196 Offices: INDIA USA UK FRANCE SWITZERLAND NETHERLANDS CANADA SINGAPORE Website: www.knavcpa.com KNAV & Co. is the India independently owned member firm of KNAV International Limited, a network of international accounting firms.