Indian Accounting Standards (Ind AS)
Applicability to Companies Phase I Phase II Voluntary adoption Year of adoption FY 2016-17 FY 2017-18 FY 2015-16 or thereafter Comparative year FY 2015-16 FY 2016-17 FY 2014-15 or thereafter Covered Companies (a) Listed companies (b) Unlisted companies (c) Group Companies All companies with net worth of >= 500 crores All companies with net worth of >= 500 crores All companies listed or in the process of being listed All companies with net worh of >= 250 crores All companies could voluntarily adopt Applicable to holding, subsidiaries, joint ventures, or associates of Companies covered in (a) and (b) above The net worth, for this purpose, shall be calculated based on stand-alone financial statements of the Company as on March 31, 2014 or the first audited financial statements for the accounting period ending subsequently.
Key areas of difference Topic IFRS Indian GAAP Ind AS Statement of changes in equity Restatement Single entity Vs Consolidated view Breach of covenants Extraordinary items A separate statement showing total comprehensive income, showing separately the amounts attributable to parent and controlling interests. When a change in accounting policy is applied retrospectively or items of financial statements have been reclassified, a statement of financial position is required as at the beginning of the earliest period presented No such separate statement is required No such requirement Required as part of balance sheet. Consolidated view Single entity view Single entity view Non current if the lender has agreed to provide grace period before the end of the reporting period. Presentation of extraordinary items is prohibited Under Indian context, generally continued to be disclosed as non-current (Revised Sch VI) Disclosed separately in a statement of profit and loss. Classification based only on the nature of expense
Key areas of difference Topic IFRS Indian GAAP Ind AS Statement of cash flows Bank overdrafts Cash flows Interest dividends Cash flows - Changes in ownership interests Cash flows investing activities Changes in accounting policies and errors Errors New accounting pronouncements Included as part of cash and cash equivalents if they form an integral part of the entity s cash management Classified as operating, investing financing activities in a consistent manner Considered as financing activities Guidance for financial enterprises and other enterprises Financing activities No specific guidance Only expenditures resulting in a recognised asset is considered as investing activities Retrospective application with presentation of third balance sheet Requires retrospective application; Third balance sheet Specific requirement to disclose the impact of newly issued accounting pronouncements not yet adopted by the Company No specific guidance No such requirement for third balance sheet Only disclosure shall be made in the financial statements No need to disclose Absence of literature Similar to the framework of IASB No specific guidance IASB, then others
Key areas of difference Topic IFRS Indian GAAP Ind AS Presentation of critical judgements Inventories Inventories Deferred income taxes Deferred tax on unrealised intra-group profits Deferred tax assets Deferred tax impact on business combinations Requires disclosure of critical accounting judgements Measurement exception for inventories held by commodity traders Write-down of inventory is reversed if circumstances that previously caused write-down no longer exist. No specific requirement under AS 1 No scope exclusion under Indian GAAP Non specific guidance in AS-2 for reversal of write-down. Balance sheet approach Income statement approach Deferred tax is recognised using buyer s rate. To the extent there is a virtual certainty supported by convincing evidence that there will be a future income. Recognised except on the goodwill No deferred tax is recognised. It is probable that the future taxable profits will be available against which the unused tax losses and tax credits can be utilised No specific guidance.
Key areas of difference Topic IFRS Indian GAAP Ind AS Deferred taxes disclosures Requires disclosure of rate reconciliation, tax holidays and expiry, unrecognised deferred tax liability on undistributed tax earnings Not required to be disclosed PPE depreciation Componentised and depreciated separately No requirement to componentise Property, plant and equipment Cost of major inspections and replacements Cost of major inspections and overhauls is recognised in the carrying amount of the asset Generally expensed when incurred PPE- residual value Estimates of residual value are to be updated at every reporting date Not required to be updates PPE - change in method of depreciation Considered prospectively Requires retrospective recomputation and adjustment in the current period PPE presentation of capital advances Usually included in the capitalwork-in-progress Disclosed as part of long-term advances
Key areas of difference Topic IFRS Indian GAAP Ind AS Leases lease of land Recorded as operating lease or finance lease as per criteria. Generally, operating. Generally recorded as fixed asset. Leases determining whether an arrangement contains lease Arrangements that do not take the form of lease but fulfillment of which is dependent on use of specific asset which convey the right to use are accounted as lease No specific guidance. Payments under such arrangements are recognised in accordance with nature of expenses incurred Lease- operating lease incentives Recognised as reduction from rental income or expense over the lease term No specific guidanace Revenue principal vs agent IAS 18 provides guidance to determine whether an entity is acting as a principal or as an agent No specific guidance
Key areas of difference Topic IFRS Indian GAAP Ind AS Revenue consideration Revenue exchange transactions Revenue interest income Multiple deliverables Unit of accounting Customer loyalty programmes Government grants government loans below the market rate of interest Recognised at the fair value of the consideration receivable To be recognised at fair value if the transaction has commercial substance Recognised using effective interest rate method No specific guidance (IFRS 15 has incorporated sufficient guidance) Fair value of the credit points is deferred and recognised when redeemed or lapsed Recognised at the nominal value of the consideration receivable No specific guidance Recognised on time proportion basis No specific guidance No specific guidance No specific guidance as of now. Recorded as government grant No specific guidance
Key areas of difference Topic IFRS Indian GAAP Ind AS Effects of changes in foreign currency rates Concept of functional currency Integral and non-integral approach Effects of changes in foreign currency ratesderivatives IAS 39 / IFRS 9 requires entity to apply mark to market accounting AS 11 is applied for forwards; AS 1 is applied for other derivatives requires the entity to recognised only loss (if AS 30 is not early adopted) Consolidated financial statements Mandatory requirement on entities to prepare consolidated financial statements No specific mandate. Governed by the statutes in India Similar to the existing Indian GAAP Consolidated financial statements Control Control exists when the entity is exposed to, or has the ability to affect the returns through power over other entity. Primarily ownership driven either by equity share holding or through composition of the Board
Key areas of difference Topic IFRS Indian GAAP Ind AS Consolidated financial statements potential voting rights Considered if they are currently exercisable Not considered in assessing the control Minority interest / Non-controlling interest Presented in the statement of financial position with in equity, separately from equity of owners Presented separately from liabilities a d o e s equity. Joint ventures Equity method of accounting Shall be presented using the proportionate consolidation method (Accounting for KRRP would be impacted) Financial instruments IFRS 9 provides a detailed guidance As 30, 31 and 32 are not yet notified by the Companies (Accounting Standards) rules, 2006. Can be adopted to the extent they do not contradict with other existing standards
Key areas of difference Topic IFRS Indian GAAP Ind AS Allocation of losses to noncontrolling interest holders Special purpose entities Amortisation of goodwill Impairment loss on goodwill Reversal Provisions, contingent liabilities discounting Can be allocated even if the amount becomes negative Separate guidance is available under IFRS 10 Cannot be amortised. Shall be tested for impairment on at least on an annual basis Minority interest cannot be negative. It can at the most be zero No separate guidance is available under Indian GAAP Can be amortised. Cannot be reversed Can be reversed Discounted to present value of the effect of time value is material No concept of discounting. Provisions and liabilities are carried at full values
Key areas of difference Topic IFRS Indian GAAP Ind AS Business combinations IFRS 3 provides detailed guidance No specific guidance. AS 21 or AS 14 is used appropriately. Both the standards, require the acquirer to consider book values of acquiree. Consequently goodwill amount would be significantly high. Segment reporting Identified based on financial information regularly reviewed by CODM Requires an enterprise to identify two segments Business and geographical Intangibles No guidance on acquisition of In process R&D Acquisition of in process R&D shall be capitalised on the date of acquisition at its acquisition value Proposed dividend Recognised in the period in which it is approved by shareholders Recognised in the period in which it is proposed by the Board. Employee benefits Actuarial gains or losses Recognised immediately in OCI Recognised immediately in profit and loss Recognised immediately in OCI
Challenges associated with Ind AS 115 Areas where significant changes in accounting are expected Su sidized se i es/p odu ts; Li e ses; Milesto e pay e ts; Multiple ele e t a a ge e ts Key requirements of the standard: Ne si gle fi e step e e ue e og itio odel; Ti i g of e og itio of e e ue Point in time Vs over the period; Fai alue Vs sta dalo e alue; Multiple ele e t a a ge e ts Fair value of each component Revenue recognition TODAY AS 9/IAS 18 Associated challenges: Transition related Full retrospective Vs modified retrospective approach; Increased management judgement; Gathering of data and analysis of transactions; Disclosure modifications; Stake holder communications and Training and education to the controllers and Ongoing monitoring Revenue recognition TOMORROW (Ind AS 115)
Challenges associated with Ind AS 109 Areas where significant changes in accounting are expected Investments in mutual funds; Provisions for bad and doubtful debts; Hedging; Key requirements of the standard: Categories of Investments - FVTPL/FVTOCI and Amortized cost ; All investments are generally measured at fair value; Impairment of financial assets Expected loss model; Increased disclosures Financial Instruments TODAY AS 11 and AS 30/IAS 39 Associated challenges: Increased management judgement (hedge accounting); Strengthening of documentation due to expected credit loss model; Disclosure modifications; Stake holder communications and Training and education to the controllers and ongoing monitoring Financial Instruments TOMORROW (Ind AS 109)
Impact on first time adoption Comparatives It is optional for entities to present comparative information under Ind AS in the first year. In other words, the first time adopter shall present latest corresponding previous period s financial statements prepared as per previous GAAP (existing Indian GAAP). However, such previous GAAP financial statements shall be reclassified to the extent possible and practicable, when presenting the first Ind AS financial statements. Optional exemptions from retrospective application of Ind AS Exemption Business Combination Share based payments Fair value as deemed cost Cumulative transition differences Investments in subsidiaries, jointly controlled entities Implication of exemption Option to apply business combination accounting for all combinations after the transition date or from a date before the transition date Share based payments which are not vested at the date of transition will be accounted in accordance with Ind AS 102 An entity can use fair value as the deemed cost on transition date for PPE and intangible assets Entities can set FCTR to zero for all subsidiaries Entities can choose to fair value as per Ind AS 39 or carrying amount under the previous GAAP
Impact on first time adoption Optional exemptions from retrospective application of Ind AS Exemption Designation of previously recognised financial instruments Use of fair value on the transition date for financial instruments Non-current assets held for sale Implication of exemption Option to designate financial assets as AFS of FVTPL provided the asset meets the criteria for designation on the transition date. Choice to apply fair value on transition date as the new amortised cost instead of retrospective application of effective interest rate method Entities can measure non-current assets held for sale and discontinued operations at lower of carrying amount and fair value as on transition date. Mandatory exception Retrospective application of some aspects of Ind AS is prohibited Exemption Estimates Hedge accounting Non controlling interests Implication of exemption Estimates in the previous GAAP can be changed only if erroneous If a hedge does not meet the conditions for hedge under Ind AS 39, the entity shall discontinue hedge accounting. Provisions relating to NCI have to be applied prospectively
Ind AS 101 Objective of Ind-AS 101 This standard provides the principles of accounting for an Indian company while adopting Ind-AS for the first time. This standard ensures that: A o pa y s fi st Ind-AS financial statements, and its interim financial reports contained within the period covered by those Financial Statements, comprises high quality information; The information so used: is transparent and comparable over all periods presented; caters as an appropriate initial point for accounting as per Ind-ASs; and can be produced at a cost that does not exceed the paybacks. Use of Ind-AS A company is required to use Ind-AS for the following: Fi st Ind-AS compliant Financial Statements; and Ea h i te i fi a ial epo t fo pa t of the pe iod o e ed y its fi st Ind-AS Financial Statements. The sta da d la ifies that a e tity's fi st fi a ial state e t a e the fi st a ual fi a ial statements in which the entity adopts Ind-AS in accordance with Ind-ASs notified under the Companies Act, 2013, by an explicit and unreserved statement in those financial statements of compliance with Ind-AS.
Ind AS 101 Opening Ind-AS Balance Sheet On adoption of Ind-AS, a company is required to prepare and present an opening Ind-AS Balance Sheet BS at the t a sitio date. Transition date is defined as the beginning of the earliest comparative period presented on the basis of Ind-AS.. This is the sta ti g poi t fo a o pa y s a ou ti g i a o da e ith Ind-AS and all adjustments arising from the transition to Ind-AS are be recorded in the retained earnings as at the transition date (i.e. on 1 April 2015 for the companies covered under Phase-I) An entity shall also explain how the transition from previous GAAP to Ind ASs affected its reported BS, financial performance and cash flows. Opening reconciliation Ind-AS 101 also requires that a detailed quantitative reconciliation is to be included in the first Ind-AS financial statements. With respect to the financial statements for the year 2016-17, the companies covered under phase-i shall explain the reason for the difference between the net equity as at 1 April 2015 and 31 March 2016, prepared under the existing Indian GAAP and under Ind-AS. In addition, these companies shall also provide reconciliation for its total comprehensive income for the FY 2015-16 to explain the impact of the transition.
Ind AS 101 Comparatives for first Ind-AS BS A o pa y s fi st Ind AS Financial Statements shall have at least 3 Balance Sheets, 2 Statements of profit and loss, 2 Statements of cash flows and 2 Statements of changes in equity and related notes, including comparative information for all statements presented. For companies covered under phase-i, the first reportable period is the year 2016-17. Therefore, their transition date is 1 April 2015. Such companies will present its Financial Statements as per existing Indian GAAP upto 31 March 2016. Thereafter these companies are required to apply the Ind ASs effective for periods ending on 31 March 2017 in: p epa i g a d p ese ti g its ope i g Ind AS-BS at 1 April 2015; p epa i g a d p ese ti g its BS fo Ma h ith o pa ati es fo the yea e ded Ma h 2016); state e t of p ofit a d loss, state e t of ha ges i e uity a d state e t of ash flo s fo the yea to 31 March 2017 (with comparatives for the year ended 31 March 2016); and dis losu es i ludi g o pa ati e i fo atio fo the yea e ded Ma h. A company which wishes to additionally provide any Financial Statements containing historical summaries or comparative information in accordance with existing Indian GAAP, then it shall: a k these i fo atio as ot ei g p epa ed i a o da e ith Ind-ASs; and dis lose the atu e of the o e adjust e ts that ould ake it o ply ith Ind ASs. However, there is no necessity to quantify these adjustments.
Ind AS 101 Accounting Policies A company preparing the Ind-AS Financial Statements for the first time: shall hoose the a ou ti g poli ies o plia t ith Ind-AS, effective at its first annual Ind-AS reporting date with certain exceptions; shall ge e ally apply these a ou ti g poli ies et ospe ti ely hile p epa i g the ope i g BS sheet and for all periods presented in the first Ind-AS BS; shall ot apply diffe e t e sio s of Ind-ASs that were effective at earlier dates; and ay apply a e ised Ind-AS which is non-mandatory, if that Ind-AS permits early adoption Recognition and de-recognition With certain exceptions, a company while preparing its opening Ind-AS BS shall: e og ise all assets a d lia ilities hose e og itio is e ui ed i a o da e ith Ind-ASs; de-recognize all assets or liabilities in case Ind-ASs prohibit such recognition; e lassify asset, lia ility o o po e t of e uity i a o da e ith Ind-ASs; and apply Ind-ASs for the purpose of measuring all recognised assets and liabilities. Presentation and Disclosure IND-AS-101 does not provide any exemption from the presentation and disclosure requirements of other Ind-ASs.