Indian Accounting Standards (IFRS converged):
Successful Implementation
Impact Analysis and Industry Experience
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
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First Edition: June 30, 2018
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Price: 250/-
Published by:
Secretary, Accounting Standards Board
The Institute of Chartered Accountants of India
`ICAI Bhawan',
Indraprastha Marg
New Delhi-110002
India
FOREWORD
The Institute of Chartered Accountants of India (the ICAI), being the premier accounting body in the country, has
played the leadership role to develop sound financial reporting framework in the country by establishing Accounting
Standards Board (ASB) way back in 1977. The accounting standards formulated by the ASB have come a long way
and got legal recognition as well. The ICAI in its endeavour to enable the Nation with high quality accounting
standards comparable to the best in the world, decided in the year 2006 to converge with International Financial
Reporting Standards (IFRS Standards) issued by the IASB, which were being recognized as Global Financial
Reporting Standards. This accounting reforms initiative of ICAI was endorsed by the Government of India with
international commitment made by the then Hon'ble Prime Minister in 2009 at G20 Summit: subsequently in July
2014, this commitment got a fillip when the Ind AS roadmap was announced by Union Minister of Finance,
Government of India. Another critical milestone in this direction was achieved in February 2015 when Ind AS
recommended by ICAI were notified by Ministry of Corporate Affairs (MCA) in consultation with National Advisory
Committee on Accounting Standards (NACAS). It gives me great satisfaction that after such a long journey and
relentless efforts Ind AS, substantially converged with IFRS Standards, have got implemented by all the listed
companies and also large part of unlisted companies.
The ICAI always believes that our role does not end with the formulation and recommendation of Accounting
Standards. As a statutory body working in public interest, ensuring effective implementation of these Standards in
letter and spirit is also our responsibility. For this purpose, Ind AS Implementation Group of our ASB is working
relentlessly to provide necessary guidance for smooth and effective implementation of Ind AS. In the context of our
approach of convergence with IFRS Standards, it is necessary to evaluate the impact of convergence with high
quality principle based comprehensive suite of standards and to think about the strategy of adoption of IFRS
Standards. With this thought process, the ASB has taken a very significant initiative of conducting Ind AS Impact
analysis covering both quantitative and qualitative aspects of implementation of Ind AS. Apart from conducting this
analysis on the basis of annual reports of the selected companies of certain significant sectors of the economy,
efforts have been made to seek the industry perspective of Ind AS implementation in the country by way of a survey
questionnaire and commentary from the preparers and auditors of the financial statements to share their experience
regarding Ind AS Implementation.
I firmly believe that this impact study would be a guiding factor for those who will be transitioning to Ind AS in the
days ahead. This impact study may also act as a sounding brand to other jurisdictions in their journey towards
convergence/adoption of IFRS Standards. This feedback would definitely help standard-setters and other concerned
stakeholders in determining the way forward to improve the financial reporting system wherever possible.
I heartily congratulate CA. S.B. Zaware, Chairman, ASB, CA. M.P. Vijay Kumar, Vice-chairman, ASB, and members
of the ASB for taking this initiative. I would also like to thank members of the profession who have taken out time to
respond to our questionnaire and sharing their experiences.
I wish this impact study a grand success.
New Delhi CA. Naveen N.D. Gupta
June 30, 2018 President, ICAI
PREFACE
An important role of the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI)
is to make sure that it works towards establishing a sound financial reporting system in the country which serves the
public interest effectively. In pursuance of this fundamental objective, ASB has played role of catalyst in carrying out
mega reforms in the financial reporting framework. We at ASB believe that India, a large growing economy, needs to
have a robust globally acceptable reporting standards framework. Therefore, IFRS Standards which are considered
as gateway to global capital markets have been chosen as the basis for Ind AS. IFRS Standards are developed on
the premise of enhancing transparency, understandability, relevance, reliability and comparability of financial
statements across the globe. However, these Standards are highly principle based and require application of
significant management judgements. Further, there are fundamental conceptual differences between Accounting
Standards (AS) vis-a-vis IFRS Standards. Certain accounting areas like Financial Instruments, Investment in Joint
Ventures, Consolidation Principles, Revenue Recognition and Measurement, Recognition criteria for Tangible
Assets, Income Taxes etc., usher in a paradigm shift in accounting/reporting. Another noteworthy aspect of Ind AS
Framework is that it accords high prominence to presentation and disclosures requirements as well.
We are pleased to note that efforts in implementing this high quality Ind AS Framework have begun to make desired
impact on the quality of financial information of Indian companies. At this juncture, as standard-setter, we considered
it appropriate to undertake an impact study with twin objectives of assessing quantitative/qualitative impact on Indian
companies' financial statements due to Ind AS transition and to seek feedback of key stakeholders, i.e.,
preparers/providers of financial information. We consider this Ind AS impact study as first phase of our planned task
of evaluation of pros-cons of convergence with IFRS Standards.
Quantitative and qualitative impact study is primarily based on high level review of publicly available consolidated
financial statements of randomly selected 170 listed companies, covered in first phase of Ind AS implementation
roadmap. Our quantitative analysis was focused on Ind AS transition impact on few key financial parameters
whereas the qualitative analysis approach was broad review of disclosures relating to areas that were expected to
have material changes vis-a-vis existing AS. Additionally, we have also attempted to conduct pulse-check of
stakeholders on quantitative/qualitative impact views and feedback about this monumental accounting reform.
As envisaged, this impact study apart from being informative about the impact of transition to Ind AS, will also guide
us as a standard setter in continuing with our endeavour of strengthening the high quality financial reporting
framework in the country. Feedback sought as a part of the impact study, inter alia, covered the aspects related to
appropriateness of removal of certain options under Ind AS which were there under IFRS, carve outs that have major
challenge in asserting equivalence of Ind AS to IFRS Standards, way forward regarding removal of carve-outs with a
perspective to achieve full convergence, etc. No doubt that preparers' responses will be a highly valuable source of
guidance for us in deciding the way forward of carve-outs currently made and also policy to be adopted in future in
this regard. Further to ensure implementation of Ind AS in letter and spirit, ICAI issues various guidance material from
time to time, identification of challenging areas as a part of this study would help ICAI in providing appropriate
guidance to the concerned stakeholders. While India is on the path of convergence with IFRS Standards and aims to
achieve full convergence in times to come, this type of fitness test is a step towards making India leading and
contributing to the accountancy profession at international level. This impact study would be a good informative
reading material for international accounting readers as well.
I am really thankful to the President, ICAI, for providing us opportunity to conduct this Ind AS impact study. My
sincere thanks to CA. M.P. Vijay Kumar, Vice-Chairman, ASB, for his innovative ideas and continued support. My
thanks are due to all the ASB members for their inputs. This study would have been incomplete without the inputs
from industry so I am grateful to CFOs, auditors and other individuals who shared their experiences and responded
to our questionnaire. I would like to place on record my deep appreciation of the efforts put in by CA. Vidhyadhar
Kulkarni, Head, Technical Directorate, and his team including CA. Parminder Kaur, CA. Sonia Minocha, CA. Nikita
Bothra, CA. Savita Gupta, CA. Amit Agarwal, CA. Megha Jain, CA. Anjali Butani, and CA. Ekta Gurnasinghani.
I hope this publication would be of immense use to the preparers, auditors and other stakeholders implementing Ind
AS.
New Delhi CA. S. B. Zaware
June 30, 2018 Chairman
Accounting Standards Board
Contents
Abbreviation 1
I. Executive Summary 2
II. Introduction 7
III. Ind AS Implementation Impact Analysis 9
A. Methodology 9
B. Quantitative Analysis 11
C. Disclosures Analysis 44
D. Ind AS 101, First-time Adoption of Indian Accounting Standards: Exemptions 50
Analysis
IV. Industry Experience 51
A. Ind AS Implementation Survey Questionnaire 51
B. Preparers Implementation Experience Words of Wisdom 62
V. New Era of Financial Reporting in India 89
VI. Appendices 96
A. Comparative list of IFRSs with Ind AS notified by the MCA 96
B. Major differences between Ind AS and Accounting Standards 99
C. Exemptions under Ind AS 101, First-time Adoption of Indian Accounting 122
Standards
D. Industry Survey: A Questionnaire 127
VII. Ind AS Impact Study Team 133
2
Ind AS: Impact Analysis and Industry Experience
Abbreviation
Term Description
AS Accounting Standards
ASB Accounting Standards Board
EIR Effective Interest Rate
ESOP Employee Stock Option Plan
FVTPL Fair Value through Profit and Loss
FVOCI Fair Value through Other Comprehensive Income
GAAP Generally Accepted Accounting Principles
G-Security Government Securities
IAS International Accounting Standards
ICAI The Institute of Chartered Accountants of India
IFRS International Financial Reporting Standards
Ind AS Indian Accounting Standards
IT Information Technology
JV Joint Ventures
MCA Ministry of Corporate Affairs
OCI Other Comprehensive Income
PAT Profit After Tax
P&L Profit and Loss
PPE Property, Plant and Equipment
1
I. Executive Summary
The implementation of Indian Accounting Standards (Ind Net Impact of Ind AS - key financial parameters in
AS) converged with International Financial Reporting amount
Standards (IFRS) by Indian Companies is a monumental
step in the accounting history of India. It was possible 90,000
80,000 73,177
due to the relentless and collective efforts of regulators 70,000
and accounting professionals of this large growing 60,000
economy aspiring to be economic super power in the 50,000
coming decades. ICAI believes that Ind AS 40,000
implementation has provided better insights into the 30,000
financial affairs of the companies and Ind AS based 20,000
financial statements reflect the underlying economics of 10,000
0
the transactions/events in a transparent and unbiased -10,000
manner. It has also improved the comparability and -7,844 -2,228
-20,000
benchmarking of the financials of Indian Companies with -30,000
Global Peers, thereby improving the accessibility of -40,000
Indian Companies to Global Capital Markets. -50,000
-60,000
Ind AS Quantitative Impact -70,000 -63,994
-80,000 -67,917
-73,693
Ind AS are based on high quality principle based -90,000 -83,068
-1,00,000
comprehensive suite of IFRS Standards, therefore, there Equity Total Tangible Intangible Total Profit After Revenue
Borrowings Assets Assets Assets Tax (PAT)
is a need to assess the quantitative impact of
Amount in crore
transitioning to Ind AS on certain critical financial
measures. As can be seen from the outcome of our Net Impact of Ind AS - key financial parameters in %
analysis, on an overall basis: terms
6 4
There is no material impact on key financial
parameters such as Equity, Total Assets, Tangible 3
Assets, Borrowings, Profit after Tax, Revenue. While
0
there is positive impact on Equity, all the other
parameters have witnessed marginal decreases -3 0 -1 -2
-2
except Intangible Assets which has decreased by
-6 -5
19%.
There is wide diversity in the size and direction -9
(positive/negative) of the impact among various
industry sectors as well as individual companies, -12
perhaps reflecting a key feature of the Ind AS, i.e., -15
Ind AS are intended to reflect the underlying
economics of different transactions/events and nature -18
and complexity of entities operations. -21 -19
Equity Total Tangible Intangible Total Profit After Revenue
Borrowings Assets Assets Assets Tax (PAT)
2
Ind AS: Impact Analysis and Industry Experience
Profit After Tax (PAT) Reconciliation for the year Generation & Distribution have reported mixed trend
ended March 31, 2016 among companies in that sector.
Amount in Crore
Description Total % Profit after Tax (PAT)
PAT as per AS 2,40,564
Revenue (16,245) (6.75) There is no material impact on PAT on aggregate basis,
Property, Plant and Equipment 12,340 5.13 though there is diversity of impact among sectors. Two
Decommissioning Liability 608 0.25 major sectors that accounted for 55.67% of the total
Financial Instruments (5,768) (2.40) revenue of the companies analysed, reported marginal
Operating Expenses 4,967 2.06
impact of less than 1%. Chemicals & Fertilizers, Mining
Foreign Exchange Translation Adjustments 1,273 0.53
& Mineral Products and Power Generation & Distribution
Business Combination /Consolidation (957) (0.40)
Employee Benefits (44) (0.02)
saw reductions in the range of 11.34%, 23.39% & 6.18%
Income Tax 772 0.32
respectively. Whereas Automobiles and Steel sectors
Others 826 0.34 witnessed a positive impact with PAT increasing by
Total Adjustments (2,228) (0.93) 3.76% and 19.02%, respectively.
PAT as per Ind AS 2,38,335
Equity
Equity Reconciliation at the Transition Date (April 01,
2015) Equity with increase of 4.10% has moderate positive
Amount in Crore impact due to Ind AS transition adjustments. Steel, Crude
Description Total % Oil & Natural Gas, FMCG & Consumable Durables,
Total Equity as per AS 17,86,652 - Automobiles sectors have reported increase in Equity by
Revenue (10,580) (0.59) substantial amounts and the increase is in the range of
Property, Plant and Equipment 84,937 4.75
4.19% to 24.21%. Telecom, Media & Entertainment is
Intangibles/ Intangibles under Development (12,171) (0.68)
the only sector that has observed material negative
Oil and Gas Assets (37,564) (2.10)
Financial Instruments 47,362 2.65
impact of 7.82%.
Business Combination / Consolidation (14,628) (0.82)
Employee Benefits 4,621 0.26
Tangible Assets (Property, Plant & Equipment)
Proposed Dividend 38,062 2.13
Income Taxes (29,927) (1.68)
Ind AS transition impact on Tangible Assets has been
Others adjustments 3,065 0.17 negligible on overall basis. However, Power Generation
Total Adjustments 73,177 4.10 & Distribution, Telecom, Media & Entertainment and
Total Equity as per Ind AS 18,59,829 - Steel sectors have reported sizeable impact in the range
of 4.87% to 14.79%; the latter sector has reported
Revenue positive impact while the former two sectors have
witnessed negative impact. Crude Oil & Natural Gas
Our analysis is based on revenue including excise duty sector has witnessed wide diversity in the direction of
as the impact of this item is largely from presentation impact with two companies reporting substantial amount
perspective. Overall basis, Revenue has marginally of increase in carrying amount and the remaining nine
decreased by 1.87%, however, few sectors viz. Steel, companies reporting a decrease of equally large
Telecom, Media & Entertainment, Chemicals & Fertilizers amounts. Also, 26 companies out of the total sample size
have witnessed material decrease in the range of 7.42% of 170 companies did not have any impact of Ind AS
to 10.89%. Further, Crude Oil & Natural Gas and Power Transition on Tangible Assets
3
Executive Summary
carrying amount of investment in JVs and
investor's share in Profit or Loss is presented
Intangible Assets as single line item under Ind AS as against line
by line consolidation under previous GAAP
Ind AS impact on Intangible Assets has been an (AS). This has affected many line items in
exception to general trend with significant decrease Balance Sheet and Statement of Profit and
(19%) in carrying amount of Intangible Assets. The Loss.
negative impact has been largely concentrated and
Service Concession Arrangements
severe in three sectors viz. Construction & Building
Recognition of revenue and assets by the operator
Materials, Crude Oil & Natural Gas and Steel with
for the services (construction/upgrade services)
negative impact in the range of 31% to 42%. In other
provided under service concession arrangements
sectors, the impact has been marginal. Also, 72
relating to infrastructure and public utility services.
companies out of the total sample size of 170 companies
Revenue recognition and measurement
did not have any impact of Ind AS Transition on
Change in accounting treatment for agency
Intangible Assets.
relationship transactions.
Total Assets Reassessment of revenue recognition criteria,
i.e., transfer of significant risk and rewards
Ind AS Transition did not materially impact total balance Segregation of revenue into multiple
sheet size (total assets), there is reduction of 2% in the components and separation of significant
Total Assets. It was observed that impact is concentrated financing component.
in four sectors viz. Construction & Building Materials, Financial Instruments
Crude Oil & Natural Gas, Power Generation& Distribution Fair Value gains on investments (e.g., Units of
and Steel; while the Steel sector has reported substantial Mutual Funds, G-Secs etc) classified as Fair
increase in Total Assets, other three sectors have Value through Profit or Loss (FVTPL) and Fair
witnessed material amount of decrease in Total Assets. Value through Other Comprehensive Income
(FVOCI).
Total Borrowings Effective Interest Method application for
transaction costs of financial liabilities
Ind AS Transition has visible impact, though not (borrowings) classified as Amortised Cost.
significant, with total borrowings reflecting a reduction by Fair Value measurement of all derivatives and
4.84%. Similar to Total Assets, the reduction in change in accounting for time value of Fx
borrowings is heavily concentrated in three sectors viz. Forward & Option Contracts.
Construction & Building Materials, Crude Oil & Natural Expected Credit Loss method for impairment
Gas and Power Generation& Distribution which account loss recognition and measurement of trade
for 79% of the net decrease across all sectors. Further, receivables and other financial assets.
70% of the net decrease in borrowings is reported in Presentation as financial liability under Equity:
Public Sector Companies. Reclassification of certain class of preference
Key drivers of impact shares from Equity to Financial Liability.
Consolidation of Subsidiaries, Investment in Property, Plant and Equipment (PPE)
Joint Ventures Capitalisation of spare parts, major inspections
Investment in Joint Ventures: Change in the & overhaul costs which were charged off to
method of accounting from proportionate Profit or Loss under AS.
consolidation method to equity method whereby Capitalisation of de-commissioning liabilities.
4
Ind AS: Impact Analysis and Industry Experience
Fair Value as deemed cost. selected 75 companies for the year ended 31 March,
Reversal of foreign exchange gains and losses 2017. Our high level review indicates the following:
of long term foreign currency monetary items
which were capitalised previously. Companies have generally adhered to the disclosure
Intangible assets requirements required by Ind AS; this has improved
Changes consequential to change in accounting for the quality and comprehensiveness of the
Subsidiaries, Investment in JVs, Service disclosures.
Concession Arrangements and retrospective Sizeable number of companies have given detailed
application of Acquisition Method of accounting for line by line reconciliations of Equity and Total
certain Business Combinations. Comprehensive to meet the underlying rationale of
Others Ind AS 101, First Time Adoption of Indian Accounting
Provisions, Contingent Liabilities and Standards, i.e., to give sufficient detail to enable
Contingent Assets: Measurement of long term users to understand the material adjustments to the
provisions on present value basis. Balance Sheet and Statement of Profit and Loss.
Foreign Currency Translation Differences: However, in a few cases, there was no adequate and
Change in functional currency of subsidiaries. appropriate explanation for significant decrease in
Events after the Reporting Period: Reversal of carrying amount of Intangible Assets and Borrowings
Proposed Dividend accrued as liability under reported in these reconciliation.
previous GAAP (AS). In respect of disclosures relating to financial
Income Taxes instruments, there is a scope for improvement in the
Recognition of deferred tax asset (DTA) and areas relating to fair value measurement, sensitivity
deferred tax liability (DTL) for Ind AS Transition of financial risks analysis, methods and techniques
Adjustments arising from various changes used to recognise/measure impairment loss under
mentioned above. expected credit loss method, financial risk
Recognition of deferred tax asset (DTA) and management, hedge accounting. Also, the style,
deferred tax liability (DTL) due to change in structure and location of disclosures relating to these
accounting approach from `Income Statement critical area would be benefit from review by the
Liability' to `Balance Sheet Liability' method. companies.
Another important change in disclosures required in
Ind AS Qualitative Impact: Disclosures Ind AS framework is regarding impact of expected
changes from the Ind AS notified but not yet effective;
As a consequence of convergence of Ind AS with IFRS large majority of companies have identified/disclosed
Standards, Ind AS are formulated on clearly articulated the future changes but not quantified the impact of
principles and require high quality transparent, change.
comparable and understandable financial information in
the financial statements. In this context, disclosure Ind AS 101, First-time Adoption of Indian Accounting
prescriptions constitute an important pillar of the 4 pillars Standards: Exemptions Availed
of Ind AS structure. This component of Ind AS was also In order to assess Indian Companies ability to assert
expected to bring in substantial changes in the contents equivalence with IFRS Standards, we performed an
of financial statements of Indian companies. Therefore, analysis of the extent of use of carve-outs made in Ind
we have performed a high level review of disclosures in AS 101 which are available to the first-time adopters of
the consolidated financial statements of randomly Ind AS. Large majority (82%) of the companies have
5
Executive Summary
availed carve-out to carry forward previous GAAP also believe that it is possible to track the materiality
carrying amount of PPE as deemed cost as of transition of this carve out on future financial statements.
date. It is important to track the materiality of this carve- 71% of the respondents expressed the view to
out as it is likely that effect of this exemption may be long remove the carve-outs immediately.
lasting. Further, approx. 26% of the companies have Large majority believe that Ind AS implementation
availed carve-out to continue the previous policy of has affected corporate governance and control
accounting for foreign exchange gains & losses on long processes and also affected functions other than
term foreign currency monetary items. Finance/Accounting.
In respect of the individual standard specific matters,
Industry Experience following are considered to be complex and
Questionnaire Survey Results challenging to implement:
Ind AS 101, First Time Adoption of Indian
`Questionnaire Survey' approach was adopted to gauge Accounting Standards: Determining where to
the stakeholder views about the benefits/challenges of reflect transition adjustments, i.e., Equity versus
moving to a high quality financial reporting framework Other Reserves, How to adjust the transition
converged with globally acceptable standards and future adjustments arising from different standards when
course of actions regarding `Ind AS Carve-outs' and an entity chooses fair value as deemed cost for
timelines for full convergence with or adoption of IFRS PPE, Investment in Subsidiaries, Associates and
Standards. Though these survey results have inherent Joint Ventures.
limitations of small sample size, the results reflect a few Ind AS 103, Business Combinations: Common
useful and critical inputs regarding ICAI's efforts and control transactions.
initiatives in enabling the nation with robust high quality Ind AS 110, Consolidated Financial Statements:
financial reporting framework that can be benchmarked Assessment of `Control', Differentiating between
with global best practices. Key takeaways from the `Substantive Rights' and `Protective Rights'.
survey results are summarised below. Ind AS 109, Financial Instruments: Expected
Credit Loss Model for Impairment recognition and
Large majority (75%) of the respondents measurement, Effective Interest Method for
acknowledge the tangible benefits robust accounting Floating (Variable) Rate Instruments, Hedge
framework and improved access to global capital Accounting and Embedded Derivatives.
markets. Ind AS 32, Financial Instruments- Presentation:
50% of the respondents expect to realise or start Compound Instruments and Puttable Instruments.
observing the tangible benefits after 2 (two) years Ind AS 113, Fair Value Measurement: Unquoted
from Ind AS implementation date. Equity Instruments, Intra-group Loans, Biological
70% of the respondents expressed overall positive Assets.
opinions about improved quality (transparency, Ind AS 12, Income Taxes: Determining `Únused
understandability, comparability etc) of Ind AS Tax Credits' due to lack of definition of Tax
Financial Statements. Credits, Recognition and Measurement of
74% of the respondents believe that Ind AS carve- Deferred Tax Liability (DTL) and Deferred Tax
out regarding option to use previous GAAP (AS) Asset (DTA) for entities that are paying tax under
carrying amount of Property, Plant and Equipment as MAT regime for long period of time.
deemed cost for Ind AS 16 is major challenge in
asserting equivalence of Ind AS Financials with IFRS
Financials. At the same time, 50% of the respondents
6
II. Introduction
Phase Effective Category of companies covered1
The Institute of Chartered Accountants of India (ICAI) date
has been in the forefront of bringing accounting reforms
in the country and effectively enabling transformation of 1 01/04/2016 Companies other than Banking,
Indian financial reporting systems and practices to global (FY 2016-17) NBFC & Insurance
standards. ICAI strongly believes that implementation of a) Listed in India & Overseas
Ind AS, converged with IFRS Standards, a set of high and networth > 500 crore
quality global standards issued by the International b) Unlisted with networth >
Accounting Standards Board (IASB) followed in more 500 crore
c) Parent, Subsidiary,
than 140 countries, is in the best interest of our nation &
Associates and JVs of above
economy. This reform initiative was initiated by the ICAI entities
way back in 2006 which was also supported by the
Government of India. For the purpose, it was announced 2 01/04/2017 All listed companies not covered
that IFRS converged Ind AS will be implemented in (FY 2017-18) in Phase 1
phased manner from April 1, 2011. ICAI has formulated Unlisted companies with networth
35 Ind AS which were hosted by the Ministry of > 250 crore
Corporate Affairs, Government of India at its website in 3 01/04/2018 NBFCs with networth > 500
2011, however, these were not implemented due to (FY 2018-19) crore
various issues such as unstable IFRS platform caused by
then prevailing unprecedented Global Financial Crisis,
4 01/04/2019 Banking Companies &
uncertain Economic Scenario internationally and (FY 2019-20) NBFCs
unresolved Taxation matters domestically. The Listed with Net worth < 500
implementation of Ind AS again gained momentum in crore
2014-15 when Union Finance Minister in his annual Unlisted NBFCs with Net worth
Budget Speech proposed adoption of Ind AS from 2015- > 250 crore
16 while expressing urgent need for convergence of
Indian Accounting Standards with IFRS Standards. ICAI, 5 01/04/2020 Insurance companies
(FY 2020-21)
once again rose to the occasion and also took necessary
steps to formulate updated set of Ind AS and
recommended a set of 39 Ind AS to MCA which were At the time of this analysis, financial service sector
notified in February 2015, which included early comprising Banks, Insurance and NBFCs are yet to
convergence with IFRS 9, Financial Instruments, and implement Ind AS.
IFRS 15, Revenue from Contracts with Customers.
However, in March 2016, instead of early convergence ICAI, being a critical wheel in the accounting standard-
with new revenue standard, viz IFRS 15, it was decided setting framework of India, has a primary role in
to converge with prevailing mandatory IFRS Standards assessing whether the fundamental objectives of
(IAS 11 and IAS 18) in the area of Revenue recognition convergence with IFRSs are achieved. Further, IFRS
and measurement. In view of the large number of converged Indian Accounting Standards (Ind AS)
companies that are expected to be covered by Ind AS implementation experience of large emerging economy
implementation, it was decided to adopt a `Staggered like India, would, no doubt, serve as a guiding example to
Gradual' approach, rather than one time `Big Bang'
approach to ensure smooth and trouble free
implementation as summarised below. 1Please refer MCA notification dated February 16, 2015 and March 31, 2016,
RBI Press Release dated April 5, 2018 and IRDAI Press Release dated June
2017.
7
Introduction
entities in other jurisdictions and it is expected to such as disclosures and presentation. This study is
significantly encourage the extent of use of IFRS based on high level review of consolidated financial
Standards across the globe. This study is also intended statements of 170 companies for the year ended March
to guide the Indian Standard-setters in the future course 31, 2017, i.e., samples selected from companies covered
of action regarding continuation of carve-outs and the in Phase 1 of Ind AS Roadmap.
way forward towards full convergence with adoption of
IFRS Standards. Ind AS are different from the existing Indian GAAP (AS)
framework in three key aspects, i.e., measurement
In the above context, ASB, ICAI had decided to bases, substance over legal form and emphasis on the
undertake Ind AS implementation study in two phases. Balance Sheet. Further, Ind AS Framework accords
This report is outcome of the First Phase of the study and significant prominence to Presentation and Disclosure
the primary objectives are as follows: requirements. Moreover, the Ind AS framework is
To assess the immediate quantitative impact on Key principle based framework which inherently require use
Financial Parameters both Balance Sheet and of extensive management judgements and estimates.
Profit and Loss Account. The analysis highlights the areas that have significant
To assess the quality of Presentation and impact on certain key parameters of companies' financial
Disclosure in respect of certain Key Ind AS. statements such as Revenue, Profit after Tax, Equity,
To assess the extent of Carve-outs/Options Tangible Assets (PPE), Intangible Assets, Total Assets
exercised/availed. and Total Borrowings. The key areas of our analysis
To gauge the industry experience of Ind AS include Revenue Recognition, Consolidation, Financial
implementation Tangible Benefits, Challenges, Instruments, Business Combinations, Property, Plant and
Best Practices and Lessons Learned. Equipment (PPE) and Disclosures prescribed by few
To seek guidance for future course of action. important and complex Ind AS.
This impact study is not intended to be an Audit or This impact study report also includes following two
Deep Dive Study of Ind AS Financial Statements of important materials:
companies, rather it is a high level review/analysis. Results of high level survey by questionnaire about
industry experience of Ind AS implementation
Key Objectives of the Second Phase of the study to be Ind AS implementation experience words of
undertaken later are expected to be as follows: wisdom by a few companies
To assess impact on ability to access
domestic/global capital markets& cost of capital to We hope this report provides insights to companies in
enter into cross border mergers/acquisitions their endeavours to implement Ind AS in the days ahead.
To assess impact on quality of corporate
governance and management performance We, at ICAI, are delighted to proudly announce that our
Cost-benefit analysis of shifting to Ind AS efforts of more than a decade to enable our nation with
Framework. robust high quality financial reporting standards
framework have yielded positive results. We would like to
This report is based on analysis of financial statements complement the Indian industry stalwarts for achieving a
prepared for the first time under Ind AS by the top listed critical reform process in the financial reporting area and
companies under various sectors selected on random we hope Indian economy and the Accountancy
sampling basis. The analysis covers both the quantitative Profession will immensely benefit from this mega
impact of implementation of the Ind AS on financial accounting reform.
position/performance as well as on qualitative aspects
8
III. Ind AS Implementation Impact Analysis
A. Methodology
Quantitative Analysis Profile of companies based on Total Equity (Ind AS) as
on Transition Date, i.e., April 1, 2015 covered by our
For the purpose of this study, it was decided to cover 170 analysis is as follows:
companies spread across 15 sectors and the analysis is
primarily based on review of consolidated financial 120
statements published as part of annual report for the year
2016-2017.The companies were selected on random 103
basis and without any bias toward any particular 100
company or segment. Analysis is based on consolidated
No. of companies
financial statements of these companies. 80
To examine the quantitative impact of the Ind AS on the
financial statements of entities, ASB, ICAI, identified and 60
performed a high level review and analysis of
consolidated financial statements of 170 companies 39
40
spread across following 15 different sectors:
23
Sectors Number of 20
Companies 5
Automobile 15 0
Capital Goods 11 Above 10,000 5,000-10,000 1,000-5,000 Less than
Chemicals and Fertilizers 9 crore crore crore 1,000 crore
Construction and Building Materials 26 Amount in crore
Crude Oil & Natural Gas 12
FMCG and Consumer goods 28
Information Technology 15 For the purpose of analysis, quantitative impact in
Healthcare and Pharmaceuticals 16 absolute and percentage terms was assessed on
Power Generation & Distribution 7 following key financial parameters:
Telecom, media and entertainment 10 Revenue for the year March 31, 2016
Steel 6 Profit after Tax for the year March 31, 2016
Packaging and Logistics 5 Total Equity as at April 1, 2015 (Ind AS Transition
Hotels & Restaurants 3 Date)
Mining & Mineral products 2 Total Tangible Assets (Property, Plant and
Others 5 Equipments as at April 1, 2015 (Ind AS Transition
Total 170 Date)
Total Intangible Assets as at April 1, 2015
Total Assets as at April 1, 2015 (Ind AS Transition
Date)
Total Borrowings as at April 1, 2015 (Ind AS
Transition Date)
9
Ind AS Implementation Impact Analysis
Disclosure Analysis
For the purpose of this qualitative study, 75 companies
were selected on random basis spread across 15
sectors. In the selection of the Ind AS for this analysis,
our emphasis was on the areas where Ind AS bring in
substantial change vis-a-vis previous GAAP (AS) era. A
check-list based approach was adopted to analyse
whether the companies had prima facie disclosed the
information prescribed by Ind AS. Accordingly, the focus
made on the disclosures mandated by the following Ind
AS:
Ind AS Title
Ind AS 101 First-time Adoption of Indian
Accounting Standards
Ind AS 102 Share-based Payment
Ind AS 103 Business Combinations
Ind AS 108 Operating Segments
Ind AS 109 Financial Instruments
Ind AS 112 Disclosures of Interest in Other
Entities
Ind AS 113 Fair Value Measurements
Ind AS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
Ind AS 11 Construction Contracts
Ind AS 12 Income Taxes
Ind AS 21 Effects of Changes in Foreign
Exchanges Rates
Ind AS 24 Related Party Disclosures
Ind AS 33 Earning per Share
Ind AS 36 Impairment of Assets
Ind AS 40 Investment Property
10
Ind AS: Impact Analysis and Industry Experience
B. Quantitative Analysis
Ind AS impact on Revenue for the year ended March 31, 2016
An Overview
Amount in crore
Sectors No. of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Revenue Revenue Amount No. of Amount No. of Amount %
Companies Companies
Automobile 15 5,71,711 5,78,804 664 3 (7,757) 12 (7,093) (1.23)
Capital Goods 11 69,976 72,065 1 1 (2,091) 10 (2,089) (2.90)
Chemicals and Fertizers 9 45,329 50,184 30 1 (4,884) 8 (4,854) (9.67)
Construction & Buliding Materials 26 2,34,732 2,40,438 963 5 (6,669) 19 (5,706) (2.37)
Crude Oil & Natural Gas 12 13,89,345 13,94,642 15,098 2 (20,395) 8 (5,297) (0.38)
FMCG and Consumer Durables 28 2,00,318 2,09,002 720 7 (9,404) 20 (8,684) (4.15)
Healthcare and Pharmaceuticals 16 1,02,922 1,03,702 650 4 (1,429) 10 (779) (0.75)
Hotels & Restaurants 3 7,286 7,977 4 1 (695) 2 (691) (8.67)
IT 15 3,17,058 3,17,063 47 4 (52) 6 (5) (0.00)
Mining & Mineral products 2 1,07,659 1,08,940 2 1 (1,283) 1 (1,281) (1.18)
Packaging and Logistics 5 23,772 24,940 522 2 (1,690) 3 (1,168) (4.68)
Power Generation & Distribution 7 1,70,942 1,76,838 9,562 1 (15,457) 6 (5,896) (3.33)
Steel 6 2,24,631 2,42,639 0 0 (18,008) 5 (18,008) (7.42)
Telecom, media and entertainment 10 78,389 87,965 243 1 (9,819) 8 (9,576) (10.89)
Others 5 17,829 14,619 5,153 1 (1,943) 2 3,210 21.96
Total 170 35,61,901 36,29,818 33,658 34 (1,01,575) 120 (67,917) (1.87)
Note No impact of Ind AS on revenue was observed for 16 companies.
Key drivers of Impact
Increase Decrease
Revenue increase due to change in Change in method of accounting for
accounting treatment from Agent to investments in Joint Ventures from
Principal basis. Proportionate Consolidation Method
to Equity Method.
Increase in revenue due to application of Change in measurement of revenue,
Appendix A of Ind AS 11 (Service i.e., discounts and sale promotional
Concession Arrangements). expenses are netted off from
revenue.
Deferral of revenue
Re-assessment of revenue
recognition criteria for sale of
goods
Change in accounting for
Customer Loyalty Programmes
Segregation of financing
components from sale price.
11
Ind AS Implementation Impact Analysis
Absolute Impact of Ind AS on Revenue - Sectorwise
3,210
2,000 -2,089 -1,168
-1,000
-779 -691 -5 -1,281
-4,000
-7,000 -4,854 -5,706 -5,297
Net Impact in Crore
-5,896
-10,000 -7,093
-8,684 -9,576
-13,000
-16,000
-18,008
-19,000
Sectors
% Impact of Ind AS on Revenue - Sectorwise
21.96
21.00
17.00
13.00
Net Impact in %
9.00
5.00
-0.38 -0.75 0.00
-1.23 -1.18
1.00 -2.90 -2.37 -3.33
-4.15 -4.68
-3.00 -7.42
-9.67 -8.67
-7.00 -10.89
-11.00
12
Ind AS: Impact Analysis and Industry Experience
Positive/ Negative Impact of Ind AS on Revenue - Sectorwise
14,000
12,000
10,000
8,000
6,000
4,000
2,000
Amount in Crore
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
-14,000
-16,000
-18,000
-20,000
Positive Impact Negative Impact
Ind AS Impact on Revenue: Companies & Sectors
On Companies On Sectors
Positive
Impact
No 7%
Impact
9%
Positive
Impact
20%
Negative
Impact Negative
71% Impact
93%
13
Ind AS Implementation Impact Analysis
Commentary on Ind AS Impact
Snapshot of Impact: The primary reasons for decrease in Revenue
were:
Under AS, revenue is presented net of excise duty Change in method of accounting for
whereas under Ind AS, revenue is presented Investments in Joint Ventures
inclusive of excise duty. For our analysis, we have In majority of companies, reduction in revenue is
considered revenue under AS on the gross basis, due to change in method of accounting for
i.e., inclusive of excise duty. Investments in Joint Ventures, i.e., application of
Equity Method as against Proportionate
All the sectors except "Others" have reported net Consolidation Method under AS and also due to
negative impact on revenue. Only one company in reclassification of Subsidiaries as Joint Ventures.
"Others" Sector has reported net Positive Impact
on revenue of 21.9% thereby impacting entire Discounts and Sales Promotional Expense
sector revenue positively. Increase in revenue of Discounts and Sales Promotional Expense are
the said company was on account of change in netted off from revenue under Ind AS.
accounting treatment from Agent to Principal basis
in Ind AS. Deferral of revenue
Deferral of revenue due to:
On an overall basis there is marginal decrease of Re-assessment of revenue recognition criteria,
1.87% in reported revenue. Individual sectors have i.e, transfer of significant risk and rewards. For
witnessed change in the range of 0.38% to example, under AS, revenue was generally
21.96%. Sectors such as Crude Oil & Natural Gas recognised on dispatch of goods. However,
and Power Generation & Distribution have reported under Ind AS, revenue is recognised only when
both positive as well as negative impact. All the company neither retains continuing managerial
companies in Steel Sector have reported negative involvement nor effective control over the
impact. Negligible impact of Ind AS on revenue is goods sold.
observed in Information Technology Sector.
Change in accounting for Customer Loyalty
91% of companies had adjustment to revenue Programmes. Under Ind AS, award credits
numbers. In particular, 34 companies (20% of under Customer Loyalty Programmes are
sample size) have reported increase in revenue considered as separately identifiable
and 120 companies (71%) have reported decrease components of sale and consideration
in revenue.16 companies (9%) had no impact of allocated to those credits is recognised as
Ind AS. revenue when award credits are redeemed and
company fulfils the obligation to supply awards.
In absolute terms, there is net decrease in revenue
by 67,917 crores: 120 companies reported Segregation of financing components from sale
decrease in revenue of 1,01,575 crores which is price: Under AS, amount of revenue is usually
partly offset by increase in revenue of 33,658 determined by agreement between parties and
crores by 34 companies. measured at the nominal amount of
consideration receivable. However, under Ind
AS, revenue is measured at Fair Value of the
consideration received or receivable. Therefore,
where payment of consideration is deferred, the
14
Ind AS: Impact Analysis and Industry Experience
transaction price is allocated between financing
component and revenue for sale of goods and
services and accounted separately.
The primary reasons for increase in Revenue
were:
Re-assessment of revenue recognition criteria
and change in accounting treatment from
Agent to Principal basis in Ind AS
Revenue increased due to re-assessment of
revenue recognition criteria and change in
accounting treatment from Agent to Principal
basis in Ind AS. In the case of Agency
relationship amounts collected from Principal are
not revenue. i.e., the amount of commission is
presented as revenue.
Application of Appendix A of Ind AS 11
Increase in revenue due to application of
Appendix A of Ind AS 11 (Service Concession
Arrangements), i.e., recognition of revenue for the
services (construction or upgrade services)
provided by operator with the corresponding
recognition of consideration as a financial asset or
as intangible asset depending on the terms and
conditions of Service Concession Arrangements.
15
Ind AS Implementation Impact Analysis
Ind AS impact on Profit after Tax (PAT) for the year ended March 31, 2016
An Overview
Amount in crore
Sectors No. of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Revenue Revenue
Amount No. of Amount No. of Amount %
Companies Companies
Automobile 15 31,082 29,954 1,743 8 (616) 7 1,127 3.76
Capital Goods 11 1,034 899 234 6 (100) 5 135 14.97
Chemicals & Fertilizers 9 2,409 2,717 95 5 (403) 4 (308) (11.34)
Construction & Buliding Materials 26 14,465 14,914 381 14 (830) 12 (449) (3.01)
Crude Oil & Natural Gas 12 73,457 72,963 3,035 5 (2,541) 7 494 0.68
FMCG and Consumer Durables 28 17,761 18,810 138 17 (1,187) 11 (1,049) (5.58)
Healthcare and Pharmaceuticals 16 12,012 12,246 621 7 (856) 9 (235) (1.92)
Hotels & Restaurants 3 2 179 8 1 (185) 2 (177) (98.87)
IT 15 59,229 59,809 111 1 (692) 14 (581) (0.97)
Mining & Mineral products 2 2,003 2,614 0 0 (611) 2 (611) (23.39)
Packaging and Logistics 5 1,370 1,474 5 2 (109) 3 (104) (7.04)
Power Generation & Distribution 7 23,430 24,974 535 2 (2,079) 5 (1,544) (6.18)
Steel 6 (8,029) (9,915) 3,030 4 (1,144) 2 1,885 19.02
Telecom, media and entertainment 10 7,420 8,370 33 3 (983) 7 (950) (11.35)
Others 5 692 554 141 4 (3) 1 138 24.94
Total 170 2,38,335 2,40,564 10,111 79 (12,339) 91 (2,228) (0.93)
Profit After Tax (PAT) Reconciliation for the year ended March 31, 2016
Amount in crore
Description Total %
PAT as per AS 2,40,564
Revenue (16,245) (6.75)
Property, Plant and Equipment 12,340 5.13
Decommissioning Liability 608 0.25
Financial Instruments (5,768) (2.40)
Operating Expenses 4,967 2.06
Foreign Exchange Translation Adjustments 1,273 0.53
Business Combination /Consolidation (957) (0.40)
Employee Benefits (44) (0.02)
Income Tax 772 0.32
Others 826 0.34
Total Adjustments (2,228) (0.93)
PAT as per Ind AS 2,38,335
16
Ind AS: Impact Analysis and Industry Experience
Key drivers of Impact
Increase Decrease
Property Plant and Equipment Financial Instrument
Capitalisation of spare parts, major Effective Interest Method: Inclusion of
repairs & overhaul bonds/debentures redemption, premium
Reversal of depreciation consequent to payable and borrowing cost
decapitalisation of foreign exchange Derivatives and Hedge Accounting
gains and losses Expected Credit Loss
Financial Instruments: Fair Value gains on Revenue Recognition for Construction Contracts:
investments classified as FVTPL. change in method of accounting for project costs.
Employees Benefits: Actuarial Gains/Losses Share of Profits in Associates and Joint Ventures.
recognised in OCI. Provisions: Unwinding of discounts based on
Decommissioning Liabilities: Reversal of Present Value of long term provision.
excess provision due to change in estimates Property, Plant and Equipment: Derecognition of
of decommissioning liability. certain costs for capitalisation under Ind AS 16.
Income Tax Adjustments. Foreign Currency Translation Adjustments.
Share Based Payments: Measurement based on
Fair Value.
Income Tax Adjustments.
Absolute Impact of Ind AS on PAT - Sectorwise
2,000
1,885
1,500 1,127
1,000 -1,544
494
500 135 138
Net Impact in Crore
-
-104
-500 -308 -449 -235 -177
-581 -611
-1,000
-1,049 -950
-1,500
-2,000
Sectors
17
Ind AS Implementation Impact Analysis
% Impact of Ind AS on PAT - Sectorwise 24.94
19.02
14.97
21.00
3.76
11.00 -3.01 0.68 -5.58 -1.92 -0.97
1.00 -7.04 -6.18
-11.34 -11.35
-9.00 -23.39
Net Impact in %
-19.00
-29.00
-39.00
-49.00
-59.00
-69.00
-79.00
-89.00 -98.87
-99.00
Positive/ Negative Impact of Ind AS on PAT - Sectorwise
3,500
3,000
2,500
2,000
1,500
1,000
Amount in Crore
500
0
-500
-1,000
-1,500
-2,000
-2,500
-3,000
Positive Impact Negative Impact
18
Ind AS: Impact Analysis and Industry Experience
Ind AS Impact on Sectors & Companies
On Sectors On Companies
Positive Positive
Impact Impact Negative
33% Negative
46% Impact
Impact
67%
54%
Commentary on Ind AS Impact
Snapshot of Impact: The primary reasons for increase in PAT were:
Though there is immaterial impact on PAT on an
overall basis, a few sectors had visible impact. Property Plant and Equipment
There is a diversity in the direction of impact. While Spare Parts: Capitalisation of spare parts which
its impact has generally been positive on sectors were charged to Profit or Loss under AS.
such as Automobiles, Capital Goods, Steel, sectors Cost of Major Repairs and Overhauls:
such as Mining & Mineral products and Hotels & Capitalization of expenditure on major repairs
Restaurants have been impacted adversely. and overhauls to continue to operate an item of
PP&E which were charged to Profit or Loss
On an overall basis, there is net negative impact of
under AS.
Ind AS on PAT of negligible 0.93%. Except for
Depreciation: Reversal of excess depreciation as
Hotels and Restaurant sector, sectors have
a consequence to reduction in carrying amounts
reflected change in the range of 0.98% to 24.94%.
of PPE due to adjustment for capitalisation of
In absolute terms, there is net decrease in PAT by
foreign exchange gains and losses of long term
2,228 crores: 91 companies reported decrease in
foreign currency borrowings and indirectly
PAT of 12,339 crores which is partly offset by
attributable expenses capitalised under AS.
increase in PAT of 10,111 crores by 79
companies.
Financial Instruments : Classification &
Both the companies in Mining & Mineral Products
Measurement
Sector have reported aggregate decrease of
Investments in mutual funds, government securities,
23.39% in PAT.
etc are carried at Fair Value through Profit and Loss
19
Ind AS Implementation Impact Analysis
(FVTPL) under Ind AS as compared to being carried Derivatives and Hedge Accounting:
at Cost and Cost or Market Value whichever is lower Change in accounting for derivatives (for
based on their classification as long term example, cross currency swaps, interest rate
investments and current investments, respectively swaps, foreign currency forward contracts, etc).
under AS. Under Ind AS all derivatives are measured at
fair value and changes recognised in profit and
Employees Benefits : Actuarial Gains/Losses loss (except for derivatives forming part of
Under AS, the entire employee benefits cost, effective hedge) whereas under AS premium
including actuarial gains and losses, were charged and discount on forward contracts were
to Profit or Loss. Under Ind AS, re-measurements amortised over contract period and in other
Actuarial gains/losses are recognized in Other types of derivative contracts only unrealised
Comprehensive Income (OCI). losses were recognised in P&L.
Expected Credit Loss:
Decommissioning liabilities Recognition of provisions of bad and doubtful
Reversal of excess provision due to change in debts based on Expected Credit Loss (ECL)
estimate of decommissioning liability on periodic method. Under ECL method, impairment loss
basis. provision recognition and measurement takes
into account time value of money (Present
Fair Value as Deemed Cost for PPE and Value) and losses expected to occur in future
Intangible Assets Under Development based on forecast economic conditions and
The above has resulted in reversal of impairment limitations.
losses.
Revenue Recognition Construction Contract
Income Tax Adjustment Change in method of measurement of project costs
Deferred tax adjustments due to Ind AS for revenue recognition under Percentage of
adjustments from other standards. Completion Method.
Change in method of recognising deferred assets
and liabilities from Income Statement Approach Share of Profits in Associates and Joint
to Balance Sheet Approach. Ventures
Deferred tax liability on intra group transaction and Company's share in Ind AS adjustments of the
undistributed profits of subsidiaries. Associates and Joint Ventures.
The primary reasons for decrease in profits were: Provisions, Contingent Liabilities & Contingent
Assets: Measurement based on Present Value
Financial Instruments Under AS, provisions are recorded at undiscounted
Effective Interest Method: amount whereas under Ind AS, long-term
o Amortization of borrowing cost as part of provisions are to be recognised on discounted
effective interest rate method for financial amount and the carrying amount of provision
liabilities classified as amortised cost. increases in each period due to unwinding of
o Adjustment for premium on redemption of discount to reflect the passage of time. Effect of
bonds and debentures which was previously this is material in view of recognition of
decommissioning liability for PPE under Ind AS.
offset against security premium under AS.
20
Ind AS: Impact Analysis and Industry Experience
Property Plant and Equipment : Recognition
Criteria not met
As per Ind-AS 16, Property Plant and Equipment,
certain costs such as indirectly attributable costs are
decapitalised which were capitalised as a part of
cost of fixed assets under AS.
Foreign Currency Translation Adjustments
Change in functional currencies of group entities
from to foreign currencies.
Reversal of amortization of foreign exchange loss
accumulated in foreign currency monetary item
translation difference account.
Change in accounting policy for Oil & Gas Activity
From Full cost method (FCM) to Successful Efforts
Method (SEM).
Share Based Payments
Employee stock options are recognised and
measured at Fair Value in Ind AS as against Intrinsic
Value in AS.
Income Tax Adjustment
Deferred tax adjustments due to Ind AS
adjustments from other standards.
Change in method of recognising deferred assets and
liabilities from Income Statement Approach to Balance
Sheet Approach.
21
Ind AS Implementation Impact Analysis
Ind AS impact on Equity at the Transition Date (April 01, 2015)
An Overview
Amount in crore
Sectors No.of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Equity Equity
Amount No. of Amount No. of Amount %
Companies Companies
Automobile 15 1,54,109 1,46,572 9,008 12 (1,472) 3 7,536 5.14
Capital Goods 11 36,982 38,306 265 6 (1,588) 5 (1,323) (3.45)
Chemicals & Fertilizers 9 22,616 20,188 2,473 8 (46) 1 2,428 12.03
Construction and Building Materials 26 1,31,641 1,34,657 3,638 19 (6,654) 7 (3,015) (2.24)
Crude Oil & Natural Gas 12 5,97,710 5,73,688 36,285 8 (12,262) 4 24,023 4.19
FMCG and Consumer Durables 28 84,555 75,189 10,277 22 (911) 6 9,366 12.46
Healthcare and Pharmaceuticals 16 73,410 69,105 4,533 12 (229) 4 4,304 6.23
Hotels & Restaurants 3 6,905 6,378 673 2 (146) 1 527 8.27
IT 15 1,95,689 1,88,348 8,713 9 (1,371) 6 7,341 3.90
Mining & Mineral products 2 74,179 71,602 2,577 2 0 0 2,577 3.60
Packaging & Logistics 5 7,826 8,020 177 4 (372) 1 (194) (2.42)
Power Generation & Distribution 7 2,24,309 2,27,757 3,466 3 (6,914) 4 (3,448) (1.51)
Steel 6 1,53,687 1,23,734 32,929 4 (2,977) 2 29,953 24.21
Telecom, media and entertainment 10 87,355 94,760 1,425 4 (8,830) 6 (7,406) (7.82)
Others 5 8,856 8,348 525 4 (17) 1 508 6.08
Grand Total 170 18,59,829 17,86,652 1,16,966 119 (43,789) 51 73,177 4.10
Equity Reconciliation at the Transition Date (April 01, 2015)
Amount in Crore
Description Total %
Total Equity as per AS 17,86,652 -
Revenue (10,580) (0.59)
Property, Plant and Equipment 84,937 4.75
Intangibles/ Intangibles under Development (12,171) (0.68)
Oil and Gas Assets (37,564) (2.10)
Financial Instruments 47,362 2.65
Business Combination / Consolidation (14,628) (0.82)
Employee Benefits 4,621 0.26
Proposed Dividend 38,062 2.13
Income Taxes (29,927) (1.68)
Others adjustments 3,065 0.17
Total Adjustments 73,177 4.10
Total Equity as per Ind AS 18,59,829 -
22
Ind AS: Impact Analysis and Industry Experience
Key drivers of Impact
Increase Decrease
Fair Value gains recognised on financial Re-classification of Preference
instruments classified as FVTPL and/or Shares from Equity to Financial
FVOCI Liability
Reversal of Proposed Dividend accrued Change in method of impairment loss
as liability (ECL) recognition and measurement
Amortisation of borrowing cost using for financial assets (Trade
Effective Interest Rate (EIR) under Ind Receivables)
AS 109 Fair Value loss recognised on
Fair Value of PPE treated as Deemed Financial Instruments classified as
cost at the transition date FVTPL
Reversal of losses in Joint Ventures (JV) De-consolidation of Subsidiaries
in excess of ownership interest De-capitalisation of foreign exchange
Foreign currency translation adjustment losses from PPE
due to change in functional currency of Deduction from Equity of Company's
subsidiaries shares (own shares) held through
Consolidation of ESOP Trust Trust
Income Tax adjustments Income tax adjustments
32,000 Absolute Impact of Ind AS on Equity at Transition Date - Sectorwise
28,000 29,953
24,023
24,000
20,000
16,000
Net Impact in Crore
12,000 9,366
7,536 7,341
8,000
4,304
4,000 2,428 2,577
527 -7,406 508
-
-1,323 -194
-4,000 -3,015 -3,448
-8,000
Sectors
23
Ind AS Implementation Impact Analysis
30.00
% Impact Of Ind AS on Equity at Transition Date - Sectorwise
25.00 24.21
20.00
Net Impact in in %
15.00
12.03 12.46
10.00
8.27
6.23 3.90 6.08
5.00 5.14 4.19 3.60
-3.45 -2.24 -1.51
0.00 -2.42
-5.00
-10.00 -7.82
Positive/ Negative Impact of Ind AS on Equity at Transition Date - Sectorwise
36,000
33,000
30,000
27,000
24,000
21,000
18,000
15,000
12,000
9,000
Amount in Cr
6,000
3,000
0
-3,000
-6,000
-9,000
-12,000
-15,000
-18,000
-21,000
-24,000
-27,000
Positive Impact Negative Impact
24
Ind AS: Impact Analysis and Industry Experience
Ind AS Impact on Sectors & Companies
On Companies On Sectors
Negative Negative
Impact Impact
30% 33%
Positive
Positive Impact
Impact 67%
70%
Commentary on Ind AS Impact:
Snapshot of Impact: The primary reasons for increase in Equity were:
There is a mixed trend in the Ind AS impact on Reversal of Proposed Dividend
Equity as of Transition Date. Large majority of Under Accounting Standards (AS), dividends
companies (70%) and sectors (67%) have had proposed by the Board of Directors after the
positive impact on Equity as of Transition Date. reporting date but before the approval of financial
Three sectors, viz., Steel, Crude Oil & Natural Gas statements was considered to be adjusting event
and FMCG & Consumer Goods have reported a and accordingly recognized (along with related
substantial increase in Equity ( 63,342 crores) dividend distribution tax) as liabilities at the
which amounts to 86.55% of the total net increase. reporting date. Under Ind AS, dividends so
However, Steel sector has witnessed a significant proposed by the Board of Directors are considered
diversity, i.e., companies have reported both to be non-adjusting event. Accordingly, provision
negative as well as positive impact. for proposed dividend and dividend distribution tax
Overall Ind AS adjustments have resulted in a recognized under previous GAAP has been
positive impact on the "Equity" component by reversed.
73,177 crores reflecting an overall increase of
4.10%. Fair Value as deemed cost for PPE
Ind AS adoption has positive impact on 119 Companies have elected to measure items of
companies with total increase of 117,000 crores. Property, Plant and Equipment (PPE) at fair value
However, impact is highly concentrated in 8 as at the date of transition to Ind AS and
companies which account for more than 70% of the considered it as deemed cost. This has resulted in
total increase. an increase in the carrying amount of PPE with
corresponding increase in Equity.
Fair Value gains recognised on Financial
Instruments
25
Ind AS Implementation Impact Analysis
Under AS, current investments were measured Equity.
at lower of cost or market value. Under Ind AS,
these investments (financial assets) have been The primary reasons for decrease in Equity were:
classified as Fair Value through Profit or Loss
(FVTPL) on the transition date and measured at Re-classification of Preference Shares Liability
fair value. The fair value gains have resulted Under AS, preference shares issued by companies
increase in Equity on the transition date. were classified as Equity. Under Ind AS, certain
Under AS, long term investments were class of preference share, e.g., Redeemable Non-
measured at cost less diminution in value which Convertible Preference Shares are classified as
is other than temporary. Under Ind AS, these Financial Liabilities.
financial assets have been classified as Fair
Value through Other Comprehensive Income Recognition of Expected Credit Loss (ECL) on
(FVOCI) and measured at their fair value and Financial Instruments (trade receivables)
the restatement gain / (loss) has been taken to As per Ind AS 109, companies are required to
Other Comprehensive Income (OCI) resulting apply Expected Credit Loss (ECL) model for
increase in the Equity. recognising and measuring the impairment loss for
certain category of financial assets. This model
Foreign currency translation adjustment due to takes into account the time value of money
change in Functional Currency of Subsidiaries. (Present Value) and losses expected to occur in
future based on forecast, economic conditions and
Reversal of losses in Joint-Ventures (JV) in scenarios.
excess of Ownership Interest
Under AS, losses of JVs in excess of investor's Fair Value loss recognised on Financial
interest in Equity are recognised in proportion to Instruments under Ind AS 109:
their interest. Under Ind AS, entity's share of loss Under AS, companies had accounted for long-term
in joint venture is recognised only to the extent of investments at cost less provision for other than
investor's carrying value of investment. This has temporary diminution in the value of investments.
resulted in reversal of losses recognised Current investments were carried at lower of cost
previously. and market value.
At the date of transition to Ind AS, these financial
Amortisation of borrowing cost using Effective instruments have been measured at Fair Value
Interest Method and the difference is recognised as Fair Value loss
Under AS, transaction costs were charged to Profit which has resulted in decrease in Equity as on the
or Loss over the period of the borrowing on a said date.
straight line basis incurred or written off. Ind AS
109 requires transaction costs incurred towards De-capitalisation of Foreign Exchange Losses
origination of borrowings (financial liability) to be Under AS 11, certain companies had capitalised
deducted from the carrying amount of borrowings foreign exchange losses as part of related fixed
which are classified as subsequently measured at assets. Whereas under Ind AS, such exchange
Amortised Cost. These transaction costs are losses are recognised in Profit or Loss. As of Ind
recognised in the profit or loss over the expected AS transition date such losses previously
tenor of the borrowing as part of the interest capitalised were derecognised from PPE with a
expense under effective interest method. corresponding decrease in Equity.
Ind AS transition date adjustments for such
transaction costs has resulted in increase in
26
Ind AS: Impact Analysis and Industry Experience
Ind AS Impact on Tangibles Assets (PPE) at the Transition Date (April 01, 2015)
An Overview
Amount in crore
Sectors No.of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Tangibles Tangibles
Amount No. of Amount No. of Amount %
companies companies
Automobile 15 1,26,456 1,27,660 1,841 6 (3,045) 8 (1,204) (0.94)
Capital Goods 11 13,340 14,544 188 4 (1,392) 5 (1,204) (8.28)
Chemicals and Fertilizers 9 12,390 13,897 17 3 (1,523) 6 (1,506) (10.84)
Construction & Buliding Materials 26 1,03,479 1,08,087 2,477 11 (7,085) 13 (4,608) (4.26)
Crude Oil & Natural Gas 12 6,60,724 6,67,143 47,867 2 (54,286) 9 (6,419) (0.96)
FMCG and Consumer Durables 28 45,768 45,015 2,237 10 (1,484) 10 753 1.67
Healthcare and Pharmaceuticals 16 34,778 34,798 474 7 (495) 8 (20) (0.06)
Hotels & Restaurants 3 8,647 9,416 0 1 (770) 2 (770) (8.17)
IT 15 30,022 31,042 2 2 (1,022) 6 (1,020) (3.29)
Mining & Mineral products 2 78,324 77,551 847 1 (74) 1 773 1.00
Packaging and Logistics 5 4,553 4,288 305 2 (40) 2 265 6.18
Power Generation & Distribution 7 4,07,147 4,28,011 11,378 1 (32,242) 5 (20,864) (4.87)
Steel 6 2,96,790 2,58,542 39,415 3 (1,167) 3 38,248 14.79
Telecom, media and entertainment 10 81,725 92,019 6,678 3 (16,972) 6 (10,295) (11.19)
Others 5 6,439 6,411 105 2 (77) 2 28 0.43
Grant Total 170 19,10,582 19,18,426 1,13,830 58 (1,21,674) 86 (7,844) (0.41)
Note No impact of Ind AS on tangibles assets has been observed for 26 companies.
Key drivers of Impact
Increase Decrease
Use of Fair Value as Deemed cost for Elimination of PPE of JVs due to
PPE at transition date change in method of accounting from
Capitalisation of spare-parts, major Proportionate Consolidation to Equity
inspection and overhaul Method
Recognition of De-commissioning PPE relating to Power Purchase
Liability agreements treated as Finance
Lease resulting in decrease in PPE
27
Ind AS Implementation Impact Analysis
Absolute Impact of Ind AS on Tangible Assets at Transition Date - Sectorwise
38,248
39,000
35,000
31,000
27,000
23,000
19,000
Net Impact in Crore
15,000
11,000
7,000
28
3,000 753 773 265
-1,000
-1,204 -1,506 -20 -1,020
-5,000 -1,204 -770
-4,608 -6,419
-9,000
-20,864
-13,000 -10,295
-17,000
-21,000
Sectors
% Impact Of Ind AS on Tangible Assets at Transition Date - Sectorwise
14.00 14.79
12.00
10.00
Net Impact in %
8.00
6.00 6.18
4.00 1.67
2.00 1.00
0.00 -0.94 -0.06 0.43
-2.00 -0.96
-4.00 -4.26 -3.29
-6.00 -4.87
-8.00 -8.28 -8.17
-10.00 -10.84 -11.19
-12.00
28
Ind AS: Impact Analysis and Industry Experience
Positive/ Negative Impact of Ind AS on Equity at Transition Date -
Sectorwise
46,000
41,000
36,000
31,000
26,000
21,000
16,000
Amount in Cr
11,000
6,000
1,000
-4,000
-9,000
-14,000
-19,000
-24,000
-29,000
-34,000
-39,000
-44,000
-49,000
-54,000
Positive Impact Negative Impact
Ind AS Impact on Sectors & Companies
On Companies On Sectors
No
Impact
15% Positive
Impact
Negative 33%
Impact Negative
Positive 51% Impact
Impact 67%
34%
29
Ind AS Implementation Impact Analysis
Commentary on Ind AS Impact: component as at the transition date.
PPE relating to Power Purchase Agreements
Snapshot of Impact: There is reduction in the Tangible Assets of
companies in the Power Generation and
On an overall basis, total carrying amount of Distribution Sector.
Tangible Assets has decreased by 0.4% (7,844 Under AS, the power plants were capitalized as
crores) reflecting immaterial impact of Ind AS fixed assets and the amounts receivable from the
convergence. However, there appears to be beneficiaries were recognized as revenue from
significant diversity among companies and sectors. sale of electricity. However, under Ind AS, in
Sectors like Power Generation & Distribution, certain cases the carrying amount of power plants
Telecom and Media & Entertainment have reported is treated as assets given on finance lease and the
significant decrease in the carrying amount of PPE amounts receivable from beneficiary has been
amounting to 31,158 crores. Steel sector has segregated into finance income, repayment of
witnessed substantial positive impact with an principal and service income and accounted for
increase in the carrying amount in PPE by accordingly.
38,248 crores.
It is observed that 58 companies have reported This has resulted in decrease in the PPE with a
positive impact amounting to 113, 830 crores and corresponding increase in financial assets as at the
86 companies reported negative impact amounting Transition Date.
of 121,674 crores, thereby resulting in marginal
net negative impact of Ind AS on PPE as at the The primary reasons for increase in Tangible
transition date. Assets were:
All sectors except FMCG, Mining, Steel and
Packing & Logistics have reported decrease in Fair Value as deemed cost
PPE. One sector, viz., Crude Oil & Natural Gas has Companies have elected to measure Property,
reported a mixed trend among companies with Plant and Equipment (PPE) at fair value as at the
carrying amount of PPE increasing and decreasing date of transition to Ind AS and considered it as
by 47,867 crores and 54,286 crores deemed cost. This has resulted an increase in PPE.
respectively. The increase is concentrated in two
companies. Capitalisation of major repairs, overhaul and
spare parts
The primary reasons for decrease in Tangible On the transition date, companies have capitalised
Assets were: certain items of spare parts which are meeting
definition of property, plant & equipment as per Ind
Change in the method of accounting for Joint AS 16. Under AS, these spare parts were charged
Ventures (JVs) to Profit and Loss account.
Under AS, the JVs were proportionately In addition to above, Ind AS 16 requires, the cost of
consolidated on line by line basis. However, under major inspections/overhauls to be capitalised and
Ind AS these JVs are consolidated based on depreciated separately over the period to the next
Equity Method and presented under single line. major inspection/overhaul.
This change in method has resulted elimination of
PPE thereby resulting in decrease in the said Recognition of Decommissioning Liabilities
Many entities have obligations to dismantle, remove
30
Ind AS: Impact Analysis and Industry Experience
and restore items of property, plant and equipment.
Such obligations are referred to as
`decommissioning, restoration and similar liabilities'.
Under Ind AS 16, the cost of an item of property,
plant and equipment includes the initial estimate of
the costs of dismantling and removing the item and
restoring the site on which it is located.
At the transition date, companies have recognised
decommissioning liability with a corresponding
adjustment (addition) to the carrying amount of PPE.
Consequently, there is an in increase in total
carrying amount of the PPE.
31
Ind AS Implementation Impact Analysis
Ind AS Impact on Intangible Assets as on Transition Date (April 1, 2015)
An Overview
Amount in crore
Sectors No.of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Intangible Intangible
Assets Assets Amount No.of Amount No.of Amount %
Companies Companies
Automobile 15 59,836 61,493 374 2 (2,031) 7 (1,656) (2.69)
Capital Goods 11 5,643 5,795 166 2 (318) 5 (152) (2.62)
Chemicals and Fertizers 9 898 917 2 1 (20) 1 (18) (2.01)
Construction & Building Materials 26 57,263 83,131 168 4 (26,037) 15 (25,868) (31.12)
Crude Oil & Natural Gas 12 1,04,382 1,54,644 4,808 4 (55,070) 2 (50,262) (32.50)
FMCG and Consumer Durables 28 10,355 10,544 140 4 (329) 8 (189) (1.79)
Healthcare and Pharmaceuticals 16 9,068 9,335 31 3 (297) 6 (266) (2.85)
Hotels & Restaurants 3 696 94 602 1 (0.22) 2 602 639.89
Information Technology 15 20,682 14,956 6,227 5 (501) 3 5,726 38.29
Mining & Mineral products 2 21,600 17,787 3,812 1 - - 3,812 21.43
Packaging and Logistics 5 241 139 102 2 - - 102 72.83
Power Generation & Distribution 7 3,658 5,352 - - (1,694) 5 (1,694) (31.65)
Steel 6 16,012 27,638 0.01 1 (11,626) 3 (11,626) (42.06)
Telecom, Media and Entertainment 10 42,214 42,855 4,228 1 (4,869) 6 (641) (1.50)
Others 5 5,221 6,158 26 1 (962) 3 (936) (15.20)
Total 170 3,57,770 4,40,838 20,686 32 (1,03,753) 66 (83,068) (19)
Note No impact of Ind AS transition on Intangible Assets was observed in case of 72 companies.
Key drivers of Impact
Increase Decrease
Recognition of goodwill due to De-consolidation of subsidiaries resulting in
consolidation of subsidiaries under Ind decrease in related intangible assets
AS, which did not previously meet
Application of fair value measurement for
consolidated criteria as per AS.
certain Intangible assets as at transition date
Recognition of Intangible Assets due
to application of Appendix A of Ind AS
11 Service Concession Arrangements
Retrospective application of
Acquisition Method for Business
Combination
32
Ind AS: Impact Analysis and Industry Experience
Absolute Impact of Ind AS on Intangible Assets at Transition Date - Sectorwise
10,000
5,726
3,812
5,000 602 102
-
-152 -18 -189 -266 -641 -936
-5,000 -1,656 -1,694
-10,000
-11,626
-15,000
Net Impact in Crore
-20,000
-25,000
-30,000 -25,868
-35,000
-40,000
-45,000
-50,000
-50,262
-55,000
Sectors
% Impact of Ind AS on Intangible Assets at Transition Date - Sectorwise
700.00 639.89
600.00
500.00
Net Impact in %
400.00
300.00
200.00
38.29 21.43 72.83
100.00 -2.69 -2.62 -2.01 -31.12 -32.50 -1.79 -2.85 -31.65 -42.06 -1.50 -15.20
0.00
-100.00
33
Ind AS Implementation Impact Analysis
Positive/ Negative Impact of Ind AS on Intangible Assets - Sectorwise
10,000
5,000
0
Others
Crude Oil & Natural Gas
Chemicals & Fertilizers
FMCG and Consumer
Steel
Hotels & Restaurants
Power Generation &
Information Technology
Automobile
Capital Goods
Pharmaceuticals
Packaging and Logistics
Telecom, media and
Mining & Mineral products
Construction & Buliding
Healthcare and
-5,000
entertainment
Distribution
Durables
-10,000
Materials
Amount in Crore
-15,000
-20,000
-25,000
-30,000
-35,000
-40,000
-45,000
-50,000
Positive Impact Negative Impact
Ind AS Impact on Sectors & Companies
On Companies On Sectors
Positive
No Negative Impact
Impact Impact 27%
42% 39%
Negative
Impact
Positive 73%
Impact
19%
34
Ind AS: Impact Analysis and Industry Experience
Commentary on Ind AS Impact: accordance with Ind AS has resulted into significant
decrease in intangible assets (primarily due to
Snapshot of Impact: reversal of goodwill)
Intangible assets: Fair value model
All the sectors except the following have reported Decrease has also occurred due to application of
decrease in intangible assets under Ind AS due to fair value measurement for certain Intangible assets
transition adjustments: as at transition date.
Hotels & Restaurants
Information Technology The primary reasons for increase in Intangible
Mining & Mineral products Assets were:
Packaging and Logistics
Consolidated financial statements, Joint
Information Technology and Mining & Mineral products Operations and Investments in Associates and
have reported increase by 38% and 21% respectively. Joint Ventures
Following three sectors have reported significant In majority of cases, the increase in intangible assets
decrease of 87,756 crores, which is more than the have been because of recognition of goodwill due to
total net decrease of all the sectors: consolidation of subsidiaries under Ind AS, which
Construction & Building Materials were not previously consolidated as these did not
Crude Oil & Natural Gas meet the consolidation criteria as per AS.
Steel
Intangible Assets: Service Concession
Out of 66 companies reporting decrease in intangible Arrangements
assets, impact is concentrated in 3 companies which One of the reasons of increase in intangible assets,
account for more than 75% of total decrease. Out of mainly in Construction & Building Materials sector is
total 170 companies selected, 32 have reported due to application of Appendix A of Ind AS 11
increase in intangible assets, of these 32 companies, 6 (Service Concession Arrangement). Under Ind AS,
have shown significant increase that constitutes more the operator shall recognise an intangible asset to the
than 80% of the total increase in intangible assets. extent that it receives a right (a licence) to charge
users of the public service.
In many cases, the Ind AS transition report was not
explicit about the reason(s) for decrease of intangible Business Combination: Retrospective application
assets. of Acquisition Mof accounting
Under Ind AS, retrospective application of acquisition
method of accounting for business combination has
The primary reasons for decrease in Intangible resulted in recognition of intangible assets at the
Assets were: acquisition date fair value resulting in increased
amounts of intangible assets.
Consolidated Financial Statements, Joint
Operations and Investments in Associates and
Joint Ventures
On transition, reclassification of subsidiaries as Joint
Venture, i.e., deconsolidation of subsidiaries in
35
Ind AS Implementation Impact Analysis
Ind AS Impact on Total Borrowings as on Transition Date (April 1, 2015)
An Overview
(Amount in Crore)
Sectors No.of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Total Total No.of Amount No.of Amount Amount %
Borrowings Borrowings Companies Companies
Automobile 15 1,14,421 1,18,668 4 100 7 (4,348) (4,247) (3.58)
Capital Goods 11 22,472 22,760 1 657 5 (944) (287) (1.26)
Chemicals & Fertilizers 9 10,427 12,192 1 1 4 (1,766) (1,765) (14.48)
Construction & Buliding Materials 26 1,47,690 1,63,620 9 1,908 17 (17,838) (15,930) (9.74)
Crude Oil & Natural Gas 12 3,15,104 3,41,949 2 103 8 (26,948) (26,845) (7.85)
FMCG and Consumer Durables 28 25,517 24,682 9 1,117 13 (281) 836 3.39
Healthcare and Pharmaceuticals 16 31,060 30,977 3 327 9 (244) 84 0.27
Hotels & Restaurants 3 4,015 5,156 0 - 2 (1,141) (1,141) (22.13)
IT 15 11,972 12,146 4 3 2 (177) (174) (1.43)
Mining & Mineral products 2 68,590 67,058 1 1,532 0 0 1,532 2.28
Packaging and Logistics 5 2,001 1,979 1 60 4 (39) 21 1.09
Power Generation & Distribution 7 2,63,377 2,74,665 1 944 5 (12,232) (11,288) (4.11)
Steel 6 1,84,333 1,85,763 1 2,725 5 (4,155) (1,429) (0.77)
Telecom, media and entertainment 10 49,753 52,890 3 310 6 (3,446) (3,137) (5.93)
Others 5 6,680 6,903 1 39 3 (262) (223) (3.24)
Total 170 12,57,414 13,21,408 41 9,827 90 (73,821) (63,994) (4.84)
Note No impact of Ind AS on borrowings has been observed for 39 companies.
Key drivers of Impact
Increase Decrease
Change in accounting method for joint Change in accounting method for joint
ventures from proportionate consolidation to ventures from proportionate
equity method consolidation to equity method
Change in classification and presentation of Change in accounting of borrowing
preference shares as financial liability costs
Below market interest loans at fair
value
36
Ind AS: Impact Analysis and Industry Experience
Absolute Impact of Ind AS on Total Borrowings at Transition Date - Sectorwise
836 84 1,532 21 -223
3,000
-
-3,000 -287 -1,765 -1,141 -174
-6,000 -1,429 -3,137
-9,000 -4,247
-12,000
-15,000
Net Impact in Crore
-18,000 -15,930 -11,288
-21,000
-24,000
-27,000
-30,000 -26,845
Sectors
% Impact of Ind AS on Total Borrowings at Transition Date - Sectorwise
5.00 3.39 2.28
-1.43 1.09 -0.77
-1.26 0.27 -3.24
0.00 -4.11
-5.93
Net Impact in %
-5.00 -3.58 -9.74
-10.00 -7.85
-15.00
-14.48
-20.00
-25.00 -22.13
37
Ind AS Implementation Impact Analysis
Positive/ Negative Impact of Ind AS on Total Borrowings at Transition Date -
Sectorwise
3,000
0
Pharmaceuticals
Hotels & Restaurants
Automobile
Others
Crude Oil & Natural Gas
FMCG and Consumer
Mining & Mineral
Steel
Capital Goods
Power Generation &
Chemicals & Fertilizers
Packaging & Logistics
IT
Telecom, media and
Construction and Building
Healthcare and
-3,000
entertainment
Distribution
products
Durables
-6,000
Materials
Amount in Crore
-9,000
-12,000
-15,000
-18,000
-21,000
-24,000
-27,000
Positive Impact Negative Impact
Ind AS Impact on Sectors & Companies
On Companies On Sectors
No Impact Positive
23% Impact
27%
Negative
Negative Impact
Impact 73%
Positive 53%
Impact
47%
38
Ind AS: Impact Analysis and Industry Experience
Commentary on Ind AS Impact: resulting in reduction in carrying amount of
Borrowings.
Snapshot of Impact: Accounting for below market interest loans
at fair value
On an overall basis, there is a net decrease in total Under AS, Borrowings were recorded at
borrowings by a large amount of 63,994 crores which transaction value. Under Ind AS, all financial
is approximately 4.84% and (3.6%) of total borrowings liabilities are initially measured at fair value.
and balance sheet size reported under AS respectively. Change in accounting method for joint
All the sectors except FMCG and Consumer Durables, ventures from Proportionate Consolidation to
Healthcare and Pharmaceuticals, Mining and Mineral the Equity method
Products and Packaging and Logistics have reported Under Ind AS, accounting for investment in joint
decrease in borrowings under Ind AS. Though, a large ventures is based on Equity Method, whereby, net
number and percentage of companies have also aggregate assets and liabilities are presented as a
reported increase in borrowings, but the overall size of single line item as carrying amount of investment in
increase is not significant. However, reduction in Joint Ventures. But, under proportionate
borrowings ranges from 0% to 22%. consolidation method of AS, items were
consolidated on line by line basis. As a result,
In absolute terms, the net decrease is reported to be numbers reported as borrowings under Ind AS
concentrated (which is approximately 79% of net have decreased
decrease) in the following sectors:
a) Crude oil and natural gas The primary causes of increase in borrowings were:
b) Construction and building materials
c) Power generation and distribution Change in classification of preference shares
Under AS, preference shares issued by companies were
Further, around 70% of the decrease in borrowings classified as equity. Under Ind AS, certain classes of
is reported by the Public Sector Undertakings. preference shares, e.g., redeemable preference shares
are classified as financial liabilities.
At individual entity level, the reduction in borrowings
ranged from as low as 1% and as high as 100%. In a
few cases of substantial decrease in borrowings, the
Ind AS transition notes did not disclose adequate
reasoning for the same.
The primary causes of decrease in borrowings
were:
Financial Instruments
Borrowing costs Borrowing costs eligible for
inclusion as transaction costs for measuring
amortised cost of financial assets were charged
to the Statement of Profit and Loss under AS.
As on transition date, such costs written off
previously are adjusted against Borrowings
39
Ind AS Implementation Impact Analysis
Ind AS impact on Total Assets at Transition Date (April 1, 2015)
An Overview
(Amount in Crore)
Sectors No. of Ind AS AS Positive Impact Negative Impact Net Impact
Companies Total Total Amount No. of Amount No. of Amount %
Assets Assets Companies Companies Change
Automobile 15 4,65,919 4,72,028 2,948 8 (9,056) 7 (6,109) (1.29)
Capital Goods 11 1,25,369 1,30,293 639 3 (5,564) 7 (4,924) (3.78)
Chemicals and Fertilizers 9 45,912 45,815 1,491 4 (1,394) 5 97 0.21
Construction & Building Materials 26 4,36,080 4,72,119 3,564 12 (39,604) 14 (36,039) (7.63)
Crude Oil & Natural Gas 12 12,29,536 12,70,768 5,393 4 (46,625) 8 (41,232) (3.24)
FMCG and Consumer Durables 28 1,57,519 1,54,611 3,503 20 (595) 8 2,908 1.88
Healthcare and Pharmaceuticals 16 1,32,357 1,30,494 2,389 9 (525) 7 1,864 1.43
Hotels & Restaurants 3 16,518 16,436 439 1 (358) 2 82 0.50
IT 15 2,51,644 2,53,189 1,462 8 (3,007) 7 (1,545) (0.61)
Mining & Mineral products 2 1,80,971 1,77,603 3,479 1 (111) 1 3,368 1.90
Packaging and Logistics 5 17,895 18,612 97 2 (815) 3 (717) (3.85)
Power Generation & Distribution 7 5,72,033 5,94,000 3,184 3 (25,150) 4 (21,967) (3.70)
Steel 6 4,66,531 4,34,015 34,780 2 (2,265) 3 32,516 7.49
Telecom, media and entertainment 10 1,98,949 2,00,745 2,166 3 (3,962) 7 (1,796) (0.89)
Others 5 25,255 25,453 29 1 (226) 4 (198) (0.78)
Total 170 43,22,487 43,96,180 65,562 81 (1,39,256) 87 (73,693) (1.68)
Note No impact of Ind AS transition on Total Assets was observed for 2 companies under Capital Goods and Steel Sectors.
Key drivers of Impact
Increase Decrease
PPE: Fair value as deemed cost on the Reclassification of subsidiaries as Joint
transition date venture, i.e., deconsolidation of
Increase in intangible assets due to subsidiaries in accordance with Ind AS
recognition of goodwill due to consolidation (significant impact due to reversal of
of subsidiaries goodwill).
Fair value of financial assets
40
Ind AS: Impact Analysis and Industry Experience
Absolute Impact of Ind AS on Total Assets at Transition Date - Sectorwise
40,000 32,516
30,000
20,000
10,000 97 2,908 1,864 82 3,368
-
Net Impact in Crore
-10,000 -1,545 -717 -1,796 -198
-6,109 -4,924
-20,000
-30,000 -21,967
-40,000 -36,039 -41,232
-50,000
Sectors
Net % Impact of Ind AS on Total Assets at Transition Date - Sectorwise
10.00
8.00 7.49
6.00
4.00 1.88 1.43 1.90
Net Impact in %
2.00 0.21 0.50
-1.29 -0.61 -0.78
0.00
-3.78 -3.24 -3.70
-2.00 -0.89
-4.00
-7.63 -3.85
-6.00
-8.00
-10.00
41
Ind AS Implementation Impact Analysis
Positive/ Negative Impact of Ind AS on Total Assets at transition date -
Sectorwise
36,000
32,000
28,000
24,000
Amount in Crore
20,000
16,000
12,000
8,000
4,000
0
-4,000
-8,000
-12,000
Positive Impact Negative Impact
Ind AS Impact on Sectors & Companies
On Companies On Sectors
Positive
Impact Positive
Negative
47% Impact
Impact
52% 40% Negative
Impact
60%
42
Ind AS: Impact Analysis and Industry Experience
Commentary on Ind AS Impact:
The primary reasons for decrease in Total Assets
Snapshot of Impact: were:
On an overall basis, there is a marginal net decrease in Reclassification of subsidiaries as Joint venture
total assets in percentage terms. However, there is a On transition, reclassification of Subsidiaries as Joint
mixed trend of impact on various sectors. It can be Venture, i.e., deconsolidation of subsidiaries in
observed that the impact is concentrated in four accordance with Ind AS regime (significant impact
sectors, viz. Construction & Building Materials, Crude due to reversal of goodwill) and also due to
Oil and Natural Gas, Power Generation & Distribution application of fair value measurement for certain
and Telecom, Media and Entertainment. While Steel Intangible Assets as at transition date have resulted
sector has reported substantial increase (32,516 into significant decrease in intangible assets with
crores), Crude Oil and Natural Gas sector has reported corresponding decrease in total assets.
substantially decrease (41,232 crores). In percentage
terms, highest negative impact (-8%) is reported in Change in the method of accounting for JVs
Construction and Building Material sector. Elimination of Property, Plant and Equipment (PPE) of
Joint Ventures (JVs) due to change in the method of
accounting for JVs to Equity Method from
The primary reasons for increase in Total Assets Proportionate Consolidation Method resulting into
were: decrease in carrying value of PPE with corresponding
decrease in total assets.
PPE: Use of fair value as deemed cost on the
transition date
Increase in property, plant and equipment (PPE)
due to adoption of fair value as deemed cost
resulting in an increase in the carrying value of PPE
as compared to the AS.
Consolidated Financial Statements
Increase in intangible assets due to recognition of
goodwill due to consolidation of subsidiaries under
Ind AS, which were not previously consolidated as
per AS and application of Appendix A of Ind AS 11
(Service Concession Arrangement).
Financial Instruments
Under AS, long term investments are measured at
cost less provision for other than temporary
diminution in the value of investments. In few
companies, increase is due to measurement of
investments classified as quoted investments and
derivatives at fair value.
43
Ind AS Implementation Impact Analysis
C. Disclosure Analysis The below chart provides the graphical presentation on
the different formats opted by companies to present
Summary of the analysis Equity and PAT reconciliations in its annual report.
Ind AS 101, First-time Adoption of Indian Accounting Presentation of Reconciliation of Equity
Standards, prescribes the procedure that an entity is
required to follow while adopting Ind AS for the first time. Presentation of Equity Reconciliation
The underlying principle of this standard is that a first- Line by line Item-
time adopter should prepare financial statements as if it wise reconciliation
had always applied Ind AS. We have analysed the
25%
financial statements of 75 companies who have prepared 40% Reconciliation
their first Ind AS financial statements for the period reflecting major Ind
AS adjustments only
ended 31st March 2017, for which transition date to Ind 35%
AS was 1st April, 2015 and the period of comparative Equity reconciliation
presented in both
financial information was 2015-16. formats
As required by Ind AS 101, all the analysed companies in
their first set of Ind AS financial statements had provided
three balance sheets, two statements of profit and loss Presentation of Reconciliation of Profit After Tax
and OCI, two statements of cash flows, two statements (PAT)
of changes in equity and related notes, including Presentation of PAT Reconciliation
comparative information for all the presented statements.
These entities had also presented the required Line by line Item-
explanation in regard to its transition from Indian GAAP wise reconciliation
to Ind AS that affected the company's financial position,
performance and cash flows for the said period.
28% 35% Reconciliation
As required by the standard, the companies had provided reflecting major
all the required reconciliations along with requisite Ind AS
explanations of the reconciliations statements. However, adjustments only
37%
it was observed that format of reconciliation statements
PAT reconciliation
differed from company to company. Majority of
presented in both
companies have provided reconciliation reflecting major formats
adjustments which have affected the financial statements
and few companies have provided line by line
reconciliation of Balance Sheet item that has affected the
financials prepared under Ind AS. In a few cases of
significant impact on Intangibles, Borrowings, disclosures Ind AS 102, Share Based Payments, requires the
were not comprehensive enough to explain the reasons
accounting for share-based payments based on fair
for material decrease in these balances. value instead of intrinsic value. Ind AS 102 also lays
down specific accounting guidance with respect to group
share-based payments and requires recording of
44
Ind AS: Impact Analysis and Industry Experience
expense when employees receive share based changes in the segments presented. 20 companies
payments under a group share-based payment plan. stated that they have single reportable segment,
Majority of companies had reported share based however, it was observed that they did not report entity-
payments transition in the form of employee stock option. wide-disclosures which is required by the Ind AS 108
Most of the disclosure requirements of Ind AS 102 have even they have single reportable segment.
been compiled by the reviewed companies except that
for the share options outstanding during the period,
companies have not divided the outstanding options into
ranges that are meaningful for assessing number and Ind AS 109, Financial Instruments, considered as a
timing of additional shares that may be issued and the complex and challenging standard, was decided to be
cash that may be received upon exercise of those implemented in India ahead of global implementation
options, if the range of exercise prices is wide. date of IFRS 9. Ind AS 109 addresses the various critical
recognition and measurement aspects over the entire
life-cycle of a financial instrument. The Standards'
Ind AS 103, Business Combination, requires accounting prescription can be broadly segregated into following
for business combination by applying acquisition method. components:
A business combination is a transaction or other event in Recognition & De-recognition
which a reporting entity (the acquirer) obtains control of Classification and Measurement Approaches:
one or more businesses (the acquiree). Ind AS 103 Amortised Cost, Fair Value through Profit or Loss,
prohibits the amortization of goodwill and requires to be Fair Value through Other Comprehensive Income
tested for impairment annually. Out of the companies Hedge Accounting
covered for analysis of disclosures, 15% companies had Impairment Loss: Expected credit loss method
business combinations during the year and the
information has been disclosed in accordance with Ind As expected, Ind AS 109 was one standard that had an
AS 103. All the companies covered under review except impact on the majority of the companies covered in the
two companies have opted for the exemption available study.
under Ind AS 101 not to apply Ind AS 103 retrospectively Ind AS 32, Financial Instruments: Presentation:
to past business combinations. Two companies which This Standard covers certain critical aspects such as,
had opted retrospective application of Ind AS 103, had Classification of financial Instruments into `Equity' and
recognised the assets and liabilities acquired in a `Financial Liability', Compound Financial Instruments; off-
business combination at fair value on the date of setting of financial assets and financial liabilities. Apart
acquisition with corresponding impact in Goodwill. from these the Standard covers the definition of certain
fundamental terms.
Ind AS 107: Financial Instruments: Disclosures:
Ind AS 108, Operating Segments, requires segments to
be identified and reported based on the measure The objective of the Ind AS 107 is to require entities to
reported to the chief operating decision maker (CODM). provide disclosures in their financial statements that
The approach to identify the segments has considerably enable users to evaluate:
changed under Ind AS 108 vis-a-vis AS 17. However, it (a) the significance of financial instruments for the entity's
was observed that out of the companies covered in the financial position and performance; and
analysis, 80% companies reported no change in the (b) the nature and extent of risks arising from financial
segment reporting and only 10% companies reported instruments to which the entity is exposed during the
45
Ind AS Implementation Impact Analysis
period and at the end of the reporting period, and how Information about Expected Credit Loss (ECL)
the entity manages those risks. Method and techniques used in recognising and
measuring the ECL needed improvement.
The qualitative disclosures describe management's
Disclosure about the nature, quality and quantitative
objectives, policies and processes for managing those
information about collaterals held as security is not
risks. The quantitative disclosures provide information
provided and it was felt that disclosures with regard
about the extent to which the entity is exposed to risk,
to use of Expected Credit Losses (ECL) and forward
based on information provided internally to the entity's
looking information used in determination of ECL
key management personnel. Together, these
need to be improvised significantly. Further, a
disclosures provide an overview of the entity's use of
reconciliation of the impairment loss allowance by
financial instruments and the exposures to risks they
class of financial instrument from opening to closing
create.
balance was not provided by most of the companies.
Hedge Accounting disclosures generally did not
Ind AS 113, Fair value measurement: adequately cover aspects such as how hedge ratio
Another important and complicated area in implementing is established, sources of hedge ineffectiveness,
Ind AS is Ind AS 113. Fair Valuation is also considered economic relationship between hedged item and the
as a fundamental concept forming the underlying basis hedging instrument and how hedging activities may
for the Ind AS framework. Financial instruments along affect the amount, timing and uncertainty of future
with fair valuation are amongst the top significant areas cash flows. Location of disclosures in single place
of adjustment accompanied by extensive changes to the would enhance the quality and utility of disclosures.
disclosures in the notes arising from Ind AS It was felt that improvement can be achieved on
implementation. presentation of relevant disclosures in a single note
or adequate cross referencing of notes.
In relation to financial instruments and fair valuation, our
analysis for disclosures requirements focused on the four
major areas of the standards, viz., Fair Value Ind AS 112, Disclosure of Interests in Other Entities: Ind
Measurement, Financial Risk Management, Hedge AS framework recognises the significance of disclosures
Accounting, and General disclosures. The observations and in certain areas an entire Standard is dedicated to
from the analysis are as below: disclosures. One of such standards is Ind AS 112 which
deals solely with disclosure requirements to enables
Quantitative disclosures required by Ind AS 113
users of financial statements to evaluate the nature of,
have been presented in meaningful format by all the
and risks associated with, its interests in other entities;
companies covered under analysis. However, for fair
and the effects of those interests on its financial position,
value measurements categorised within Level 3 of
financial performance and cash flows. Compiling of these
the fair value hierarchy, quantitative information
disclosures requires entities to maintain information that
about the significant unobservable inputs and its
was not maintained under previously followed standard.
effect on profit or loss or other comprehensive
On analysis of financial statements of companies, it was
income require improvement.
experienced that the entities need to geared-up to
Sensitivity Analysis for different types of risks such provide disclosures under this standard. As required by
as Foreign Exchange Risk, Market Risk, Liquidity the standard, entities need to provide the detailed
Risk etc. was not clearly stated. disclosures with regard to its interests in other entities.
46
Ind AS: Impact Analysis and Industry Experience
Ind AS 8, Accounting Policies, Changes in Accounting to determine the stage of completion of contracts in
progress.
Estimates and Errors, prescribed the criteria for selecting
and changing accounting policies, together with the Existing AS 7 does not deal with accounting for Service
accounting treatment and disclosure of changes in Concession Arrangements whereas Appendix A of Ind
accounting policies, changes in accounting estimates AS 11 provides guidance on the accounting by operators
and corrections of errors. As required by the standard, for public-to-private service concession arrangements
all the companies analysed by us had provided the and Appendix B of Ind AS 11 deals with disclosure
requirements of service concession arrangements. We
requisite information on initial application of Ind AS that
has an effect on the current or any prior period providingobserved that companies have compiled disclosure
the title of the Ind AS, when applicable, a description ofrequirements by providing a description of the said
the transitional provision, and details for each financialarrangement giving out significant terms of the
statement line item affected. The analysed companies arrangement that may affect the amount, timing and
had also stated that there was no change in estimates certainty of future cash flows as prescribed by standard.
and prior period errors. Companies under analysis (operators) have also
specified the amount of revenue and profits or losses
However, it was observed that format selected by recognized in the period on exchange construction
companies providing "details for each financial statement services for a financial asset or an intangible asset as
line item affected" differed from company to company required by standard.
Ind AS 8 also requires that when an entity has not
applied a new Ind AS, which has been issued but is not Ind AS 12, Income Taxes, as compared to AS 22, is
yet effective, the entity must disclose this fact and also based on the Balance Sheet Liability method which
state the impact the new Ind AS will have on the entity's focuses on Temporary Differences. On our analysis of
financial statements in the period of initial application. the selected companies with regard to the applicability of
In our observation that of majority companies have Ind AS 12, we have observed that all the companies had
disclosed this fact about two Ind AS issued (Ind AS 7, correctly disclosed the required major components of tax
Statement of Cash Flows and Ind AS 102, Share-based expense (income). Almost all the companies (99%) have
payment) and about 85% companies stated that they provided an explanation of the relationship between tax
were in the process of evaluating the impact of the expense (income) and accounting profit by providing
application of these two new Ind AS. either a numerical reconciliation between tax expense
(income) of accounting profit multiplied by applicable tax
rate(s) or a numerical reconciliation between the effective
Ind AS 11, Construction Contracts, prescribes the tax rate and the applicable tax rate. Wherever applicable,
accounting treatment of revenue and costs associated the companies have also mentioned the amount of
with construction contracts in the financial statements of deductible temporary differences, unused tax losses and
contractors. Out of the companies analysed, 99% unused tax credits for which no deferred tax asset is
companies have complied with key disclosure of the recognised in the Balance Sheet.
Standard, viz., complete details of the construction
contracts undertaken by the companies, the amount of As required by the standard the companies having
contract revenue recognized in the period, methods used discontinued operations had mentioned the tax expense
to determine the contract revenue and the methods used relating to gain/loss on discontinuance and profit or loss
from the ordinary activities of the discontinued operation
47
Ind AS Implementation Impact Analysis
for the period, together with the corresponding amounts continuing and discontinued operations. Few companies
of each prior period. have also disclosed Basic and Diluted EPS from
operations including regulatory deferral account balances
Ind AS 21, The Effects of Changes in Foreign Exchange & Basic and Diluted EPS from operations excluding
Rates, is based on the concept of functional currency regulatory deferral account balances. Also, the
and lays down specific criteria to determine the functional companies had disclosed the Profits attributable to the
currency of an entity. Out of the companies analysed, equity shareholders and the weighted average number of
99% companies had clearly stated their functional ordinary shares for calculating the EPS.
currency and presentation currency as required by the
standard. For these analysed companies, both the
Functional as well as the Presentation Currency was Ind AS 36, Impairment of Assets, requires impairment
observed to be the same. test for assets-current and non-current, so as to ensure
that they are not overstated on the balance sheet. The
basic principle of impairment is that an asset should not
Ind AS 24, Related Party Disclosures, prescribes various be carried on the balance sheet above its recoverable
disclosures to be made by an entity regarding its amount. Recoverable amount is defined as the higher of
associate, subsidiaries or joint venture which are termed the asset's fair value less costs of disposal and its value
as related parties to ensure that an entity's financial in use. Fair value less costs of disposal is the price that
statement reflect the effect on its financial position and would be received to sell upon disposal of an asset in an
profit or loss due to related parties and by transactions orderly transaction between market participants at the
and outstanding balances, including commitments with measurement date, less costs of disposal.
such parties. The entity is required to consider the
closeness of the related party relationship and other As required by Ind AS 36, the companies with impaired
factors relevant in establishing the level of significance of assets had disclosed the amount of impairment losses/
transactions. About 24% companies did not disclose reversal of impairment losses (if any) for each class of
whether the related party transactions were made on asset in the statement of profit and loss. It was observed
terms that prevail in an `arms length transactions which is that the companies having impairment losses stated the
a major reporting requirement and such transactions are relevant events/ circumstances that led to the
substantive. recognition/ reversal of impairment losses during the
period for an individual asset or CGU as required by Ind
AS 36. Also the companies had disclosed the amount of
Ind AS 33, Earnings per Share, specifically requires impairment losses/ reversals in the statement of profit
entities to present its Basic and Diluted earnings per and loss for each reportable segment.
share from continuing and total operations with equal
prominence in the Statement of Profit and Loss for each Under Ind AS 36, goodwill is allocated to Cash
class of ordinary shares. Earnings per share (EPS) is a Generating Units (CGUs) or groups of CGUs that are
ratio widely used by the financial analysts, investors and expected to benefit from the synergies of the business
others to gauge an entity's profitability and to value its combinations from which it arose.
shares. Separate EPS figures for discontinued
operations are required to be disclosed in the same Ind AS 40, Investment Property, requires all the entities
statement or in the notes. All the companies under to disclose the fair value of its investment properties even
review had stated the Basic and Diluted EPS from though they are measured using the cost model.
48
Ind AS: Impact Analysis and Industry Experience
Investment property is property (land or a building, or
part of a building or both) held by an entity to earn rentals
and/or for capital appreciation. Thus, the characteristics
of these properties differ significantly from the owner-
occupied properties. Initial measurement of investment
property will be at cost. Subsequent measurement of
investment properties is to be carried at cost less
accumulated depreciation and accumulated impairment
losses (if any). Of the 75 companies reviewed, all the
companies to which Ind AS 40 is applicable had
prescribed the disclosure as per Ind AS 40, for the
method of depreciation adopted; the gross carrying
amount and the accumulated depreciation at the
beginning and end of the period; reconciliation of the
carrying amount of the investment property at the
beginning and end of the period; and fair Value of the
Investment Property held.
The Standard also requires disclosures of the criteria
which the entity used to distinguish the investment
property from owner-occupied property and from property
held for sale in the ordinary course of business when
classification is difficult. All the relevant companies under
review have disclosed accounting policy for
measurement of investment property as prescribed by
standard.
As required by standard, all the companies to which Ind
AS 40 is applicable have clearly stated the fact that fair
values are determined based on the evaluation
performed by an accredited external independent valuer
applying a recognized and accepted valuation model or
estimation based on available sources of information
from market. Companies have disclosed rental income
from investment property. However, few companies did
not disclose the amounts pertaining to direct operating
expenses (including repairs and maintenance) relating to
investment property that generated rental income and
that did not generate rental income during the period as
prescribed by standard.
49
Ind AS Implementation Impact Analysis
D. Ind AS 101, First-time Adoption of Indian Accounting Standards: Exemptions Analysis2
Key Exemptions availed by First-time Adopters
Sl Sectors PPE/Int Equity Leases Business Share
No. PPE/Int Financial Service Investm Investmen Long- Foreign Decommis
No angible at
of angible Combina based Instrument Concession ent in t in term Currency ioning
. Assets- FVTOCI
Com Assets- tions Payment s - FV Arrangeme subsidia subsidiarie foreign Translation Liabilities
pani CV FV s nts ries, JV s, JV & currency Reserve
es & Associates- monetary
Associat CV items
es-FV
1 Automobile 15 11 1 8 7 9 2 - - - 9 4 5 1
2 Capital Goods 11 9 1 2 7 6 3 - - - 6 1 2 -
3 Chemicals and Fertilizers 9 8 - 2 3 5 1 1 - - 6 2 2 -
4 Construction & Buliding Materials 26 23 2 5 7 19 7 4 2 - 17 9 7 3
5 Crude Oil & Natural Gas 12 11 - 8 5 8 2 6 2 - 10 6 4 4
6 FMCG and Consumer Durables 28 25 1 9 13 21 9 1 - - 19 4 10 -
7 Healthcare and Pharmaceuticals 16 12 1 6 9 14 7 1 - - 7 4 8 -
8 Hotels & Restaurants 3 2 - - 1 3 1 - - - 2 1 2 -
9 IT 15 12 - 4 3 12 11 1 - - 6 - 5 -
10 Mining & Mineral products 2 1 - 1 1 2 1 1 - - 1 - 1 2
11 Others 5 5 - 3 2 3 2 1 - - 4 1 1 1
12 Packaging and Logistics 5 5 - 1 2 1 - - - - 2 - 1 -
13 Power Generation & Distribution 7 5 2 5 7 3 1 2 1 - 3 6 3 1
14 Steel 6 4 2 4 4 4 2 1 - - 4 4 - 1
15 Telecom, media and entertainment 10 6 1 3 4 10 6 - - - 8 4 2 1
Total 170 139 11 61 75 120 55 19 5 - 104 46 53 14
Of the 170 companies reviewed, 139 companies have elected exemption under Ind AS 101 to carry forward previous carrying value of Property, Plant and Equipment (PPE) as deemed cost and 11
companies have elected to apply fair value at transition date as a deemed cost. Carrying Value of PPE of these companies is in the range of 5% to 83% of total assets as at transition date.
2 Please refer Appendix C for details of Ind AS 101 exemptions
50
IV. Industry Experience
With regard to Quality and Transparency of Ind AS,
A. Ind AS implementation questionnaire3 following is the summary of feedback received:
As a part of the effort to document and analyze this mega a) Around 75% companies perceived the following
transition to a high quality globally acceptable financial tangible benefits on applying Ind AS:
reporting framework, Accounting Standards Board (ASB)
of the Institute of Chartered Accountants of India (ICAI)
undertook a survey to assess the impact of adopting Robust accounting framework for preparing
IFRS-converged Ind AS. In this regard, the ASB adopted financial statements
the `Questionnaire Survey' approach to gauge the Improved access to global capital markets
industry perspective. The questionnaire covered b) Around 50% companies expect to realize or start
questions pertaining topics such as quality and observing the tangible benefits after 2 years of
transparency of Ind AS financial statements, implementation.
implementation challenges, issues and way forward and c) 45.8% companies believe that Ind AS are very
other Standard specific issues. The questionnaire was effective in reflecting the economic substance of the
sent to large number of companies in varied sectors for business transactions on a fair and transparent basis.
their valuable response and feedback on Ind AS d) 50% companies believe that implementation of Ind
implementation experiences. Responses were received AS has made company's financial statements
from 244 companies belonging to different sectors, viz., significantly more transparent (e.g. in terms of
Aircrafts, Cement and Allied Products, Energy, FMCG, quantity, quality and the usefulness of accounts and
IT, Real Estate, Retail, Telecom, Travel and Forex, disclosures) than they were before mandatory
Chemical, Manufacturing and Construction, etc. Of the adoption.
companies that responded, 87.5% companies were e) Around 70% companies gave good overall opinion of
listed, 41.7% companies had net worth more than 10,000 the quality (transparency, understandability,
crores and 50% companies had net worth more than 500 relevance, reliability and comparability) of financial
crores but less than 5,000 crores statements prepared by Indian Companies under Ind
AS.
One of the objectives of this survey was to guide the f) Accounting disclosures on Financial Instruments,
future course of action regarding continuation of carve- Consolidation and Business Combination, Revenue,
outs and the path and .......towards full convergence with Share-based Payments have improved significantly
IFRS Standards. It was intended to get purposeful and as a result of implementation of Ind AS.
meaningful insights as well as to get in-depth hands-on g) 63% companies believe that financial statements
and practical understanding of the impact of transition. under Ind AS Framework become moderately
complex to understand.
Part B of this chapter contains company specific
experience and commentary by a few companies. With regard to Implementation Challenges, Issues and
Way Forward, following is the summary of feedback
1. Summary of Feedback received received:
a) 74% companies believe that carve-out pertaining to
paragraph D7AA of Ind AS 101 will have major
challenge in asserting equivalence of Ind AS to IFRS
3 Please refer questionnaire at Appendix B. Standards.
4 Analysis has to be read in the context of inherent limitations of small sample
size.
51
Industry Experience
b) 50% companies believe that it is practical to track the Ind AS 109- Financial Instruments
effect of carve out in Ind AS 101 D7AA (PPE Impairment- Expected Credit Loss Model
deemed cost option) and determine the timing when Amortised Cost and EIR for floating rate instruments
its effect is not material and hence Ind AS 16 Hedge Accounting
accounting is equivalent to IAS 16. Embedded Derivatives
c) 65% companies believe that options available for
alternative accounting treatments under Ind AS Ind AS 32- Financial Instruments-Presentation
impact the comparability of financial statements. Compound Instruments
d) 54% companies believe that approach of eliminating Puttable instruments
certain optional alternative accounting treatments
available under IFRS Standards (e.g. Ind AS 20, Ind AS 113- Fair Value Measurement
Accounting for Government Grants and Disclosure of Unquoted Equity Instruments
Government Assistance) is appropriate. Unobservable inputs and their significance
e) 50% companies believe that Ind AS policy to not Inter-group Loans and Other Items with certain
allow `Early Adoption' option is appropriate. maturity date
f) 42% companies believe that carve-outs made in Ind Biological Assets
AS may diminish the acceptability of Ind AS financial Application of Management Judgement
statements at the global level.
g) 71% companies believe that carve-outs should be Ind AS 101 First Time Adoption of Indian
removed immediately. Accounting Standards
h) 79% companies believe that the net worth is Recognition of transition adjustments in Retained
materially impacted by Ind AS implementation. Earnings or Other Component of Equity
i) 54% companies believe that Ind AS implementation Adjustments arising from other Ind AS when deemed
has affected their business model and operations e.g. cost or fair value options are chosen
product structures, pricing, contractual arrangements Deemed cost option for Investment in Subsidiaries,
significantly. Associates and Joint Ventures
j) 62% companies believe that Ind AS implementation Impairment for Non-Financial items
has affected their corporate governance and control
processes significantly. Ind AS 103 Business Combinations
k) 67% companies believe that Ind AS implementation Common control business combinations
has affected functions other than Finance and Share based payment transactions
Accounting moderately.
l) 67% companies believe that the lead time required Ind AS 110-Consolidated Financial Statements
for Ind AS implementation is one year. Assessing control
m) 96% of companies believe that effectiveness of Substantive rights vs. Protective Rights
efforts made by ICAI in supporting and guiding Special cases (Franchisees, SPV, Control with
stakeholders in Ind AS implementation is either good multiple entities)
or very good.
Ind AS 20- Accounting for Government Grants and
With regard to Standard Specific Issues in Ind AS Disclosure of Government Assistance
implementation, following feedback was received: Export incentives- Classification into Revenue and
Asset Related Grants
a) Following accounting requirements have been
reported by companies to be complex to understand Ind AS 11, Construction Contracts & Ind AS 18,
and implement: Revenue
Segregation of transaction into separately
identifiable components
52
Ind AS: Impact Analysis and Industry Experience
Service Concession Arrangements 60%
Measurement of Revenue based on Fair Value
consideration 50%
50% 46%
Ind AS 12, Income Taxes
Unused Tax Credits-Lack of definition of tax Credit
Deferred Tax Assets and Deferred Tax Liability 40%
recognition of entities under Minimum Alternative
Tax for long period of time
Recognition of tax in Statement of Profit and Loss 30%
and Statement of Changes in Equity, i.e., Dividend
Distribution Tax 20%
b) 76% companies believe that the principle laid down in
Ind AS 103 and Ind AS 36 that goodwill acquired in a 10%
business combination is not amortized but tested for 4%
impairment periodically for recognition of impairment
loss, if any, is appropriate. 0%
c) Financial Instruments accounting has significantly Moderately Very Effective No change
impacted the financial results of company. effective
d) 71% companies believe that situations of gain arising
on bargain purchase business combination ii) Which area/areas of Accounting Disclosure have
accounting are very rare. improved significantly as a result of implementation
of Ind AS?
Other feedback: Following areas should be aligned with
the requirements enunciated under Ind AS:
Requirements of Companies Act, 2013
Computation of book profit for MAT calculation Investment in
subsidiaries,
Income Computation And Disclosure Standards joint ventures
Leases
21%
Acquisition date under court approved schemes and
associates
33% Financial
2. Detailed Analysis including the questions Instruments
92%
covered
Quality and transparency of Ind AS Financial Consolidatio
Statements n
54%
i) How effective are Ind AS in reflecting the economic Business
Combination
substance of the business transactions on a fair and Share s
transparent basis? Revenue based 46%
29% payments
25%
53
Industry Experience
iii) In your view/experience, whether implementation of v) What tangible benefits do you foresee by applying
Ind AS has made company's financial statements Ind AS?
more transparent (e.g. in terms of quantity, quality
and the usefulness of accounts and disclosures)
than they were before mandatory adoption? Improved
ability to
51% trade/expand
internationall
Improved y
50% control and 25%
governance
49% process
46%
48% Improved
access to
global capital
Robust
47% accounting
markets
75%
framework
46% for preparing
financial
statements
45% 75%
Reduced
cost of
44% capital and
funds
13%
43%
Significantly more Moderately more
transparent transaparent vi) When would you expect to realize or start observing
the tangible benefits?
iv) Have financial statements under Ind AS Framework
become easier or complex to understand?
Immediate
Less ly after
complex - implement
No change
Highly 17% ation
- 8%
complex - 25%
12% After 2
years of
implement
Moderatel ation
y complex After 1 50%
- 63% year of
implement
ation
25%
54
Ind AS: Impact Analysis and Industry Experience
vii) What is your overall opinion of the quality ii) In your view/experience, is it practical to track the
(transparency, understandability, relevance, effect of carve out in Ind AS 101 D7AA (PPE
reliability and comparability) of financial statements deemed cost option) and determine the timing when
prepared by Indian Companies under Ind AS? its effect is not material and hence Ind AS 16
Moderate accounting is equivalent to IAS 16?
4%
Very
Good Yes
25% 25%
No opinion
25%
Good
71%
No
50%
3. Implementation Challenges, Issues and Way
Forward iii) In your opinion, do the options available for
i) In your view, which of the following carve outs have alternative accounting treatments under Ind AS
major challenge in asserting equivalence of Ind AS impact the comparability of financial statements?
to IFRS Standards?
80%
70% No
35%
60%
Yes
50%
65%
40%
30%
20% iv) Ind AS have eliminated certain optional alternative
accounting treatments available under IFRS
10%
Standards (e.g. Ind AS 20, Accounting for
0% Government Grants and Disclosure of Government
Paragraph Paragraph Bargain Loan liability IFRIC 18 Assistance). Is this approach appropriate?
D7AA of Ind D13A of Ind purchase need not be not
AS 101 AS 101 gain to be classified as included.
recognised current if Existing GN
in OCI or lender continued to
directly in agrees be followed
capital before No
reserve balance 46%
sheet date
to not
Yes
demand 54%
immediate
recovery
55
Industry Experience
v) Unlike IFRS Standards, new Ind AS and viii) In your opinion, what is the way forward in respect of
amendments to Ind AS do not allow `Early Adoption' the carve outs granted under Ind AS from the
option. Is this policy appropriate? perspective of full convergence with IFRS?
Should be
removed
immediate
ly
should
No Yes 8%
never be
50% 50% removed
21%
Should be
removed
after
relative
vi) Whether in your view carve-outs made in Ind AS stablisatio
have diminished the acceptability of Ind AS financial n
statements at the Global level? 71%
No Yes
Comments 8%
21%
No ix) Which area/areas of accounting requirement under
29% Ind AS have significantly impacted the financial
results of your company? (High, Medium, Low)
May be
42%
vii) In your view/experience, situations of gain arising on
bargain purchase business combination accounting
are
Common
29% 4. Ind AS Implementation - Standard Specific
Issues
Very rare
71% i) Which area/areas of accounting requirement under
Ind AS have been highly challenging to understand
and implement?
56
Ind AS: Impact Analysis and Industry Experience
A. Ind AS 109 - Financial Instruments C. Ind AS 113- Fair Value Measurement
60%
80%
70% 67%
58% 58%
60% 54%
50%
50%
48%
40%
30%
20%
10%
40%
0%
Impairment- Amortised Hedge Embedded 35% 35%
Expected Cost and Accounting derivatives
Credit Loss EIR for
Model floating rate
instruments 30%
B. Ind AS 32- Financial Instruments-
Presentation
22% 22%
70% 62% 20%
60%
17%
50%
38%
40% 13%
30%
20% 14% 10%
10% 5% 5%
0%
0%
57
Industry Experience
D. Ind AS 101 First Time Adoption of Indian F. Ind AS 110- Consolidated Financial
Accounting Standards Statements
60% 60%
55%
52%
50% 50%
40% 36%
40% 32%
33% 30%
30%
20% 18%
20% 10%
14% 14%
10% 0%
Assessing Substantive Uniform Special cases
control rights vs. accounting (Franchisees,
protective policies and SPV, Control
rights uniform with multiple
0% accounting entities)
Recognition Adjustments Deemed cost Impairment year
of transition arising from option for for non-
adjustments other Ind investment in financial
in retained ASs when subsidiaries, items G. Ind AS 20- Accounting for Government
earnings or deemed cost associates Grants and Disclosure of Government
other or fair value and joint Assistance
component options are ventures
of equity chosen
80%
70% 67%
E. Ind AS 103 Business Combinations
60%
60%
52% 50%
50% 40%
40% 30%
20%
30% 24%
10% 5% 5% 5%
19% 19%
20% 0%
Export Requirement to Capital grant No significant
10% incentives- account export received under challenge
Classification related tax different phase
0% into revenue exemptions on of accounting
Common Share based Determining Reacquired and asset purchase of
control payment acquisition date rights related assets as grant
business transactions related to
combinations assets
58
Ind AS: Impact Analysis and Industry Experience
H. Ind AS 11, Construction Contracts & Ind AS ii) As per Ind AS 103 and Ind AS 36, goodwill
18, Revenue acquired in a business combination is not
amortized but tested for impairment periodically
41% for recognition of impairment loss, if any. Is this
40% 40% accounting principle appropriate, in your view?
40%
39% 100%
38% 76%
80%
37% 60%
36%
35% 40%
35% 24%
20%
34%
0%
33%
Yes No
32%
Segregation of Measurement of Service
iii) Based on your experience of implementation of Ind
transaction into revenue based concession
separately on fair value arrangements
AS, which areas should be aligned with the
identifiable consideration requirements enunciated under Ind AS?
components 70%
63%
I. Ind AS 12, Income Taxes 60%
54% 54%
50% 46% 46% 50%
45%
40% 36%
35% 40% 38%
30%
25%
20% 30%
14%
15%
10%
20%
5%
0%
Unused tax DTA and DTL Recogn of Recognition 10%
credits-Lack recognition of tax(DDT)in of temporary
of definition entities under Statement of diff-initial
of tax credit MAT for long P&L and recogn 0%
period of time Changes in exemption Requirements Computation of Income Acquisition
Equity of Companies book profit for Computation date under
Act, 2013 MAT And Disclosure court approved
calculation Standards schemes
59
Industry Experience
iv) Which of following aspects are materially impacted vi) Has the Ind AS implementation affected your
by Ind AS implementation? corporate governance and control processes?
90% 70% 63%
79.20%
80% 60%
70% 50%
40% 33%
60%
50% 30%
50% 45.80%
20%
37.50%
40% 10% 4%
30% 0%
20.80% 20.80%
20% Significant Moderate Low
12.50%
12.50%
10%
vii) Has the Ind AS implementation affected functions
0%
other than Finance and Accounting?
80%
67%
70%
60%
50%
40% 29%
30%
20%
10% 4%
v) Has the Ind AS implementation affected your 0%
business model and operations e.g. product Significant Moderate Low
structures, pricing, contractual arrangements? (High)
60%
54% viii) What was the lead time required for Ind AS
implementation?
50%
42% 70% 66%
40%
60%
30% 50%
40%
20% 30%
20% 17% 17%
10%
4% 10%
0% 0%
Significant Moderate Low 2 years 1 year 6 months
60
Ind AS: Impact Analysis and Industry Experience
ix) What is your view/experience about the
effectiveness of efforts made by ICAI in supporting
and guiding stakeholders in Ind AS implementation?
80%
67%
70%
60%
50%
40%
29%
30%
20%
10% 4%
0%
Very good Good Average
61
Industry Experience
B. Preparer's implementation experience transactions. A detailed exercise was done to understand
Words of Wisdoms the impact of Ind AS on the critical numbers and appraise
the same to the stakeholders. Discussions with the
business leaders was done to understand the
methodology / option to be adopted by the organization
and its impact such as opting for fair valuation of fixed
assets and tax impact on the same, understand the
impact of re-classifications such as re-classification of
preference shares from share capital to debt, understand
the exemptions in applicability of Ind AS, significant
management estimates and judgements and
G Mohana Sundaram assumptions.
Chief Controller With proper planning, regular meetings and guidance we
Aditya Birla Fashion and Retail Limited carved out the opening balance sheet. We then
proceeded to obtain in principle, understanding from the
Being a listed entity and having net worth more than INR statutory auditors. This was a major milestone and gave
500 Crores, Ind AS was applicable for Aditya Birla a clear picture of the impact on the opening reserves and
Fashion and Retail Limited from April 1, 2016 (including how the new standards would impact the critical numbers
re-statement of comparative numbers). Being a part of going forward. Timely clarification by the Institute on the
Aditya Birla Group, embracing change is one of our deferment of the revenue standard was the need of the
core values. Transition to Ind AS was a landmark change hour. A detailed reconciliation was prepared enlisting the
as these standards contains numerous carve outs from changes which were either due to change in practice /
IFRS and would bring a paradigm shift in reporting and methodology or reclassification and was presented to the
disclosures which involves application of significant Board. The movement between the iGAAP and Ind AS
management estimates and judgement to a great extent. numbers was carved out quarter on quarter to have a
On one hand it would certainly improve the transparency clear picture.
of financial statements and its comparability in the global The next challenge was preparation of the financial
markets, while on the other hand, application of these statements, though the impacts were crystalized but
standards had its own challenges viz. disclosures needed deliberations. The Guidance Note on
o understanding the new complex concepts such as Ind AS was in progress and pending for release. We
Expected Credit Loss (ECL), basis of accounting scanned through the financials of organizations who had
other Comprehensive Income (OCI), fair value of IFRS reporting to have a bird's eye view on few reporting
deposits; changes. The team burned mid night oil to bring in place
o training the resources to understand the standard the minute of the disclosure so that the indented purpose
and its interpretations; of the change is met.
o making necessary changes in the IT environment;
o understanding the impact of changes from the In a nutshell, I would say that change for better should
investors view point etc. always be welcomed. Through change we grow and such
A core team was formulated to take care of the challenges makes us more competitive and
implementation who would interact with different teams, professionally more strong. At the end I would like to
this would help in uniform application of interpretations, conclude "Without change there is no innovation,
trainings were scheduled, brain storming discussions creativity, or incentive for improvement. Those who
both formal and informal and a plan was formulated to initiate change will have a better opportunity to manage
understand the applicability of these standards to each the change that is inevitable." William Pollard.
division and the organization at large. The next step was
to understand the transition impact on the reported
numbers and the corrective measures for the on-going
62
Ind AS: Impact Analysis and Industry Experience
Second major issues were to select various one time
options available under Ind AS. Particularly irrevocable
decisions like deemed cost exemptions for Property plant
and equipment, Fair value of equity to be routed through
FVOCI or through P &L. Our implementation strategy can
be figured out as under
Bharat J Joshi
Being new standards, everyone had different viewpoints,
General Manager Accounts and Taxation
even within same audit firms and it was a real fun to
Atul Ltd
make all stake holders to agree for one resolution. We
About the company: Atul Limited is an improvement followed a democratic approach pulled all stakeholders to
driven, integrated chemical company serving about 6,000 one platform and finally agreed for a solution acceptable
satisfied customers belonging to 31 industries across the to all.
world. The Company has 7 overseas subsidiaries to
serve its customers and thus enhancing breadth and Change management was required at each level as we
depth of its business. With advancement and had to change the practices followed since many years.
Development in science and technology Globally, Atul We carried out exhaustive training programs for group
encompasses almost all unit processes and unit finance teams and a high level introductory sessions for
operations to manufacture world class 900 products and all senior and top management. We kept updating even
all possible chemical formulations and has state-of-the- audit committee from time to time of all expected
art facilities. The company being diligent about its people changes and this made the final transition a reasonably
follows high level of safety standards for its people and smooth.
environment. For smooth transition process standard templates were
prepared for each new item including financial
The Journey of IND AS in Atul started from October 2014 statements, disclosure notes for group companies. This
by putting up a repository of all Ind AS on a shared ensured easy consolidation for corporate team. As a
platform for use by 30 professionally qualified Chartered result we could complete the Final consolidation process
Accountants taking charge of financial reporting of whole in just about 4 to 5 days effortlessly. Most interesting part
Atul Group. There were series of programs conducted in was additional disclosures like financial risk
in house for the Team and required support was obtained management, Fair valuation and so on. I will just
by sending few members for external trainings. After elaborate on Fair value disclosure
identification of Major Critical issues corporate team took It was really a great learning experience to determine
the responsibility to analyse and study each area jointly values of various asset lying in books at book value to its
with concerned members and a log was maintained for actual fair value keeping in mind availability of
resolving all the issues in time bound manner. comparable market data. Each and every financial line
items was evaluated for fair valuation by applying various
Activities plunge into high gear after November 2015. At available data and Concurred at a reasonable level. For
that point in time with our existing ERP system Oracle each valuation, there were different parameters available
was not ready to maintain two sets of accounts and first and based on reliability of data and acceptability of
ERP support has just pitched in. It is always a strenuous parameters, views were agreed.
task to work with IT department when you are from Another challenge was the Tax treatment of various
Finance. We paired up with IT team and decided to use adjustments that were to be made. We fall under MAT
secondary ledger for the same. Entire set up was and final guidelines were not yet out by Income tax
thoroughly tested and kept ready for all entries arising department. Taking a conservative stand and available
from Ind AS adjustments required for restating books of drafts this was finalized with a doubt till the last moment
previous years maintained under erstwhile IGAAP. for any unexpected announcement from tax authorities.
63
Industry Experience
4. Alignment of existing IT systems to new accounting
standards by creating separate adjustment trials,
Financial Statement generators etc.
5. Migration and reporting of existing financials to Ind
AS
Further, for effective transition, professionals with
Ravinder Bansal
knowledge on IFRS/ Ind AS were hired by the company.
Vice President Finance
The objective of providing training to the functional and
Bharti Infratel Limited
cross functional employees was to make them aware of
the changes in the new reporting requirement for
Bharti Infratel Limited (`BIL') is India's leading provider of accurate accounting, reporting, documentation etc.
tower and related infrastructure. It deploys, owns and
manages telecom tower communication structure for The major changes which the company has experienced
various mobile operators. The Company provides access due to the transition from the Old Standard Regime
to its towers, primarily to wireless telecommunication (Indian GAAP) to the New Standard Regime (Ind AS)
service providers on a shared basis, under long term with an overall positive impact of Rs. 11,488 Mn on the
contracts. transition date mainly consist of the following:
BIL is having a nationwide presence with operations in all 1. Treatment of the Proposed dividend including DDT
22 telecommunications circles (including Bharti Infratel's 2. Fair valuation of Financial Assets like Investment in
42% equity interest in Indus Towers Limited) in India. Mutual Funds
The Company is listed on National Stock Exchange of 3. Reversal of Lease Equalisation & Revenue
India (NSE) and BSE Limited. Equalisation Reserve (considering inflation linked
escalation)
Being a phase 1 company, the company was required to 4. Fair value of Financial Assets and Financial liability
implement Ind AS from April 1, 2015 (the transition date). like Security deposit paid and Security deposit
The company prepared and published its first Annual Ind received
AS Financial Statements for FY 2016-17. 5. Treatment of Assets retirement obligation
Transitioning to the New Standard Regime from the Old Apart from the above, mainly following impact were made
Standard Regime was a big exercise involving lot of in consolidated financial Statements, Equity method
efforts, judgment and technical expertise required for accounting for consolidation of JV i.e "Indus Tower Ltd".
smooth transition and preparation of Ind AS Compliant Consolidation of controlled trust, i.e. "Bharti Infratel
Financial Statements. Ind AS requires lot of disclosures Employee's welfare trust". Recognition of Deferred Tax
and having a major bearing on the Financial Statements Liability on undistributed profits of JV company.
of the company. Considering Indus as a Segment in consol books
The Ind AS implementation project was segregated into The presentation was done as per Division II of Schedule
the following five milestones and designed in such a way III and relevant Indian Accounting Standards.
that it leads to smooth drive of transition: Presentation of Other Comprehensive Income,
1. Identification of significant differences between Statement of changes in Equity as an additional
Indian GAAP and Ind AS component, Format of Balance Sheet, Terms and
2. Training to functional and cross functional Nomenclature which were required in Ind AS
employees. environment were carefully complied with. It was a big
3. Engagement with subject experts to align existing challenge to draft disclosures in the Financial
accounting policies with Ind AS to ensure minimal Statements, which was done with due care and in
impact on business and financials consultation with the Auditors.
64
Ind AS: Impact Analysis and Industry Experience
The telecom infrastructure undertaking of Bharti Airtel As concrete and detailed disclosures are the key
Limited was transferred to BIL during the year ended requirement of Ind AS, the quality of financial statements
March 31, 2008, according to the Scheme of has improved. The disclosures like Effective Tax Reco,
Arrangement with Bharti Airtel Limited under sections Fair value of financial assets and liabilities, Sensitivity
391 to 394 of the Companies Act, 1956. The Company analysis in case of actuarial disclosures etc. results in
has continued Scheme accounting under Ind AS as well. better understanding to the stakeholders/ readers of
financial statements. For Bharti Infratel, Ind AS
Being a telecom infrastructure company, BIL is having a implementation impact was favorable and a learning
substantial portion of fixed assets and the company has exercise with great experience.
opted to continue with the same carrying value as the
deemed cost for its Property, plant and equipment and
Intangible assets.
Considering Indus Towers as a Segment: In Indian
GAAP, the company was reporting as per Proportionate
consolidation method for its Joint venture, however under
Ind AS Equity method accounting is required for
consolidation of a joint venture. The Consolidated
segment information has been prepared in line with the
review of operating results by the chief operating
decision maker (CODM) which includes review of the
results of the joint venture on proportionate consolidation
basis. The Company, however, considers joint venture as
"Operating Segment" as defined under Ind AS 108,
Operating segment based on review by CODM and
accordingly presented segment information for two
segments, i.e., Infratel (including subsidiaries) and Indus
(proportionate share). The total segment revenue and
segment results have also been reconciled with the
amount reported in the Consolidated Balance Sheet and
Consolidated Statement of Profit and Loss".
In terms of application of Ind AS provisions to Security
deposit received, Security deposit paid, Asset Retirement
Obligation and Mark to Market accounting on Mutual
Funds, the retrospective application was not a big
challenge as the company was already reporting into
International Financial Reporting Standards (IFRS) as
per the requirement of its Parent company, Bharti Airtel
Limited.
The Equity and Profit reconciliation were presented and
every impacted line item was properly explained in the
notes to the Financial Statements with suitable
explanation to make the user understand the difference
between the application of erstwhile Indian GAAP and
Ind AS.
65
Industry Experience
Thereafter, from time to time meetings of Director
Finance(s) of Subsidiaries were held where team of
Corporate Accounts of CIL and Subsidiaries shared their
knowledge and presented the issues in implementation
of Indian Accounting Standards at CIL and its
Subsidiaries.
In the beginning of the FY 2016-17 a core Committee on
Ind AS implementation was formed which consisted
Samiran Dutta executives from CIL and Subsidiaries. The committee
General Manager (Finance) discussed each and every element of Financial
Coal India Limited Statements and its treatment under Ind AS. Issues which
were brought to the meetings of Director (Finance) of CIL
Coal India Limited (CIL) is a Maharatna Company with and Subsidiaries by the committee for deliberation and
seven wholly owned coal producing Subsidiaries and one decision were mainly relating to; categorization of certain
mine planning and Consultancy Company, spread over financial instruments, its initial and subsequent
eight states of India also a foreign subsidiary named Coal measurement, accounting of site restoration liabilities,
India Africana Limited. Further, Coal India is also having accounting of investment in Joint venture. It was decided
four joint ventures. CIL today is the single largest coal that CIL will follow cost model for measurement of
producer in the world producing 567 Mill Te during investment in Subsidiaries and for subsequent
financial year 2017-18. The Accounting network of Coal measurement of Property Plant and Equipment.
India Limited spreads over 394 mines and several other
support offices. The Financial Statements of these mines The core team framed draft Accounting Policies keeping
are grouped under different Areas within the subsidiary in view of the requirements of Ind AS and the same was
and each Area is subject to the audit by the auditors. The circulated to all Subsidiaries for their views. Thereafter,
subsidiary consolidates all the Financial Statements of considering the feedbacks of the Subsidiaries the policy
the Areas along with the JVs to arrive at the Subsidiary was redrafted and was deliberated in a meeting of
level Financial Statements. CIL, the holding Company Director (Finances). The Accounting Policies were also
prepares its Financial Statements and also consolidated submitted for review to Audit Committee, and valuable
Financial Statements including all Subsidiaries along with suggestions were incorporated in the accounting policies.
JVs. CIL, Consolidated Financial Statements duly A format of Financial Statement based on Ind AS
audited are published with Stock Exchanges. complaint Schedule III issued by MCA was also finalized
and circulated to all Subsidiaries. Accordingly based on
Preparation for implementation of Ind AS in CIL and its the policies finalized Opening Balance Sheet of CIL,
Subsidiaries began with the notification dated 16th Subsidiaries and Consolidated Opening Balance sheet
February 2015, issued by MCA. CIL being a listed were prepared.
Company and having net worth of Rs. 33879 Crore as on
31.03.2016, the company had to comply with the Indian The first Ind AS compliant Financial Statements were
Accounting Standards (Ind AS) for the accounting prepared for the financial year 2016-17. Before
periods beginning on 1st April, 2016. submission of the same to Statutory Auditors for Audit, it
was felt important to get views of an expert on the
To begin with, the Workshops and trainings were Financial Statements prepared in compliance of Ind AS.
arranged at CIL for its executives and all its Subsidiaries Eminent professionals were engaged for review of the
where eminent members of ICAI were invited for sharing Financial Statements and the improvements suggested
knowledge on Ind AS. Also at Subsidiaries level trainings by them on policies, treatments and disclosures were
were conducted and executives were deputed to attend incorporated in the Financial Statements before
different programs on Ind AS arranged by ICAI at various submission to Statutory Auditors. Thereafter, Audited
locations. Financial Statements were submitted to C&AG Auditor's
66
Ind AS: Impact Analysis and Industry Experience
for Audit. C&AG's findings were also replied to their
satisfaction. The Financial Statements were passed by
the auditors and C&AG without any adverse comments.
The First Ind AS Financial Statements of the CIL and its
Subsidiaries along with Consolidated Financial
Statements were recommended by Audit Committees
and approved by Boards and then adopted at AGM at
CIL and Subsidiary Company level. The First Ind AS
Financial Statement of CIL, was highly appreciated by
Auditors, C&AG, Audit Committee and Board for efficient
and effective implementation of Ind AS in such a large
and complex company having Subsidiaries, sub-
Subsidiaries and joint ventures.
67
Industry Experience
Step 2: Solution development 3 months
Step 3: Ind AS implementation 3 months
During transition to Ind AS, the Company has faced
many challenges on certain issues, however the
Company has overcome those challenges with in-depth
study of the Ind AS provisions, expert opinions, in-depth
G. Radha Krishna Babu analysis of various exemptions available on First time
CFO adoption.
Delhi International Airport Limited
Some of the key challenges are listed below:
Corporate Information: Delhi International Airport
Limited (DIAL) is a Public Limited Company domiciled in 1. Applicability of Service Concession
India. It was incorporated as a Private Limited Company Arrangement (SCA) (Appendix A, Ind AS-11): This
on March 1, 2006 and was converted into a Public was a major challenge for DIAL having significant
Limited Company w.e.f. April 10, 2017. DIAL is into the impact on financial statements. Being a Public
business of managing the operations and modernization Private Partnership (PPP) model, whether SCA will
of the Indira Gandhi International Airport (`Delhi Airport'). be applicable to DIAL or not? This issue was
DIAL had entered into Operation, Management and discussed at length with other private airport
Development Agreement (`OMDA') with Airports operators alongwith their statutory
Authority of India (`AAI'), in the year 2006, which gives auditors/consultants, mainly Big 4, as well as
DIAL an exclusive right to operate, maintain, develop, practices adopted by various airports across the
modernize and manage the Delhi Airport on a revenue globe having similar kind of business model. Finally
sharing model for an initial term of 30 years, which can it was concluded unanimously that service
be extended by another 30 years pursuant to the concession arrangement (SCA) (Appendix A, Ind
provisions of the OMDA. AS-11) is not applicable to DIAL since DIAL
concession arrangement has significant non-
Basis of Preparation of financial statements: The regulated revenues, which are apparently not
financial statements of the Company for the year ended ancillary in nature, as these are important from DIAL,
March 31, 2017 have been prepared in accordance with AAI and users/passengers perspective. Further, the
Indian Accounting Standards (Ind AS) notified under regulated and non-regulated services are
section 133 of the Act read with Rule 3 of the Companies substantially interdependent and cannot be offered
(Indian Accounting Standards) Rules, 2015 and in isolation.
Companies (Indian Accounting Standard) Amendments
Rules, 2016. 2. Impact on MAT liability: Due to implementation of
Ind AS, certain Ind AS adjustments have resulted
The Company has adopted all the Ind AS standards and into increase in book profit and also significant
the adoption was carried out in accordance with Ind AS increase in opening retained earnings, which are of
101 First time adoption of Indian Accounting Standards. notional in nature. As per section 115JB of the
Income Tax Act, the Company is required to pay
Transition to Ind AS: DIAL started the Ind AS MAT on books profit (inclusive of Ind AS
implementation process in December 2015 and engaged adjustments) and also on opening Ind AS
S R Batliboi & Associates LLP as our implementation adjustments at the time of transition. This is having
partner. The entire process of Ind AS implementation significant impact on MAT liability. Company is
took almost 12 months segregated as under: required to pay MAT on notional incomes also which
Step 1: Diagnostic study 6 months should not be the case.
68
Ind AS: Impact Analysis and Industry Experience
3. Choosing exemption on first time adoption: As
per Ind AS 101, various exemptions are available on
first time adoption of Ind AS, which are of one time in
nature. It was difficult to arrive at the impact of these
exemptions on future profitability in long term.
Company has done the detailed analysis of each
and every exemption and accordingly chooses the
best as per the analysis.
In view of the above, overall it was quite challenging but
very interesting experience. There was significant
support from the ICAI, industry as well as implementation
partner. Overall impact on financial statements was
positive on following accounts:
Relevant Ind Impact area Financial Impact
AS
Ind AS 109 Fair Increase in revenue
Financial and book profit due
Valuation of
Instruments financial to discounting of
instrumentsinterest free security
deposits
Ind AS 11 Development Increase in revenue
Construction of common and expenses on
Contracts infrastructure account of
from the construction
common activities by
funds Company
Ind AS 101 Foreign The Company has
First time currency decided not to avail
adoption borrowings the exemption
available under
paragraph D13AA of
Ind AS 101 with
regard to exchange
fluctuation on
foreign exchange
borrowings,
resulting into
decrease in book
profit.
69
Industry Experience
changes brought by Ind AS adoption are embedded into
the Company's processes and systems. The goal should
be to embrace the transformation and achieve a stage of
'Business as usual' for the Company.
Impact across the board
Remuneration and Management reporting, KPI
Mr Sushil Agarwal. compensation and budgeting
Whole Time Director and CFO arrangement
Grasim Industries Limited
Transition to Ind AS - Company's Perspective
Investor Taxes
The adoption of Indian Accounting Standards (Ind AS) Ind As
that are converged with International Financial Reporting Relations
Standards (IFRS) by large Indian companies is now a implementation
reality, with these companies going live during previous
year with their public reporting under Ind AS. This
culminates almost a decade of efforts by the regulators to Financing
make this transition. With this change, India Inc. has and debt
embraced a set of standards that are contemporary and covenants
better suited for the needs of multitude of domestic and Training, education
international stakeholders. This also brings in a new era and implementation Internal
in financial reporting, which is more closely aligned to resources financial
economic substance of business arrangements, while controls
also bringing in greater transparency and comparability,
including with global peers.
The Fundamental difference between existing and new IT systems and
standards is that the new accounting standards processes
recognise substance over form and the importance of fair Communication with board/audit
value in preparation of financial statements. This means committee
accurate reporting will gain importance over just
complying with legal provisions and it reflects the most
current picture of financials.
The knowledge gained during Ind AS implementation
Successful Ind AS implementation requires a thorough clearly illustrates that an Ind AS conversion involves
strategic assessment, a robust step-by-step plan, more than a mere accounting or finance expertise. Thus
alignment of resources and training, effective project there is an essential need of engaging company-wide
management as well as smooth integration of the various participation in the conversion to Ind AS from IGAAP.
changes into normal business operations.
Our professional team at Head Office and across plants
Finally the Ind AS implementation exercise needs to have gone through extensive trainings and attended
establish sustainable processes so as to continue to various seminars to have an in depth knowledge of Ind
produce meaningful information long after the conversion AS. We have also organised offsite meetings for all our
exercise is completed. At the end, it is important that all manufacturing plants to discuss about various practical
challenges they are facing on implementation of Ind AS.
70
Ind AS: Impact Analysis and Industry Experience
All these discussions enables us to effectively and
efficiently implement the new accounting standards.
We have put together a team consisting of accounting
experts from within the organization, supplemented by
major chartered accountants firm with knowledge and
experience of IFRS conversion process overseas, to
provide assistance in resolving complex issues.
The transition to Ind AS could not have been possible
without the cooperation and assistance of our internal
information technology support with respect to changes
and/or up-gradation necessary to internal systems and
processes that impact financial reporting under Ind AS.
Being such a massive exercise, transition to Ind AS
couldn't be done in isolation it necessitate the
involvement of human resources to ensure the
availability of staff from key areas of the organization
affected by new accounting standards. Other
departments besides finance are also involved in the
conversion to Ind AS. These include information
technology (because of the effect on information
systems), treasury (because of its impact on banking
relationships and debt governance), human resources,
and the legal department (which will conduct contract
reviews).
We began education sessions with our audit committee
and had an in-depth education session with them and
with the board last year. We got that commitment right
from the start, so that's really helped us.
With the world becoming a global village and with the
liberalisation and globalisation of the economy it is
imperative the disclosures and reporting of companies
are made in line with that the international Regulations.
The MCA had come a long way with the introduction of e-
filing and the XBRL filing of financial results. With the
introduction of Companies Act, 2013, many sweeping
changes have brought into the system aiming at ease of
doing business. The reporting under the Ind-AS makes
the financials easily comparable with the financials of the
peers globally. Though the transition has major
implications on the financial reporting, it paves way for
better standards and governance.
71
Industry Experience
We identified the gaps between old GAAP and Ind
AS, then we started working areas which were
relevant for the company. To understand the correct
reporting and disclosure of such gaps we decided to
do detailed analysis of the relevant standards.
3. Analysis
CA Anil Patwardhan During this phase we made detailed analysis of all
KPIT Technologies Limited the gap differences relevant to KPIT. We had
identified three major areas which were critical for
1. Applicability reporting such as, business combination, financial
KPIT Technologies Limited ("the Company") is a instrument and ESOP accounting. The relevant
public limited company and its shares are listed on standards were studied for getting clarifications on
the National Stock Exchange and Bombay Stock reporting of these issues. We prepared memos,
Exchange. The Company has net worth more than work papers and had internal discussions and
INR 500 crore, and hence, adopted Indian trainings from experts on these issues which were
Accounting Standard ("Ind AS") from April 1, 2016 critical.
based on Ind AS applicability criteria of phase I.
Once we were ready with our memos and workings
Accordingly the transition was carried out, from the we shared the same with a consultant to have an
accounting principles generally accepted in India as expert view on the same. Inputs given by the
specified under Section 133 of the Companies Act, consultant were also incorporated before sharing the
2013 read with Rule 7 of the Companies (Accounts) same with the auditors.
Rules, 2014 (IGAAP), in accordance with Ind AS 101
- First time adoption of Indian Accounting Standards. 4. Implementation
Accordingly, the impact on transition was recorded in As per the timelines planned we were ready with our
opening reserves as at April 1, 2015 and all the detailed opening financial statements along with
periods presented had been restated accordingly. reconciliations from the previous GAAP. We shared
this upfront with the auditors for their inputs.
The financial statements of the company were
prepared in accordance with the Ind AS as specified Once the inputs on opening financial statements
under Section 133 of the Companies Act, 2013 were received from auditors, we started with
read with the Rule 3 of the Companies (Indian comparative financial statements of March 2016
Accounting Standards) Rules, 2015 and Companies along with Notes to accounts and were shared with
(Indian Accounting Standards) Amendment Rules, the auditors by January 2017 for their review.
2016 and the provisions of Companies Act, 2013.
June 2016 was our first quarter in which we publish
2. Planning our results as per Ind AS with comparative quarter of
The planning phase was the most important phase June 2015.
in transition. KPIT, being aggressive in global
acquisitions, had started working on IFRS financial Throughout this journey of transition to reporting as
statements at an earlier stage. This exercise per Ind AS we identified four area, which were
effectively helped us in Ind AS implementation. important for KPIT for reporting purpose:
Initially, we identified different stages involved in
implementation, based on which we planned our Transition to Ind AS - Opening Financial
activities and timelines accordingly. Statements:
72
Ind AS: Impact Analysis and Industry Experience
In preparing Ind AS compliant opening Financial with Book value accounting. Fair value accounting
Statement we adopted mandatory exceptions for may result into Goodwill and may dilute the tax
hedge accounting and accounting estimates. neutrality status of the contemplated transaction
Optional exemptions of business combination, share under "Business Combinations"
based payments, deemed cost and cumulative
translation reserve were availed. While adopting Impact on Statement of Profit and Loss:
optional exemptions we used our analysis and KPIT being a listed company issues ESOPs to its
judgments to measure the impact of these employees. As per Ind AS- 102 "Share Based
exemptions on financial statements. For items which Payment", we were required to account for these
were required to be changed retrospectively such as ESOPs based on fair valuation. This was one of the
fair valuation of security deposits, adjustments to major impacting area and required in depth study of
financial instruments, deferred taxes, etc. had great the standard and also detailed working.
impact opening financial statements.
Fair valuation of financial liabilities, especially in
Impact on Balance Sheet: case of borrowing, changed the way of recognition of
As KPIT is aggressive in strategic global finance cost.
acquisitions/mergers, we had made an in depth
analysis of Ind AS 103- "Business Combinations" Concept of Functional currency made impact on
and also took cognizance of Ind AS 101 for Statement of Profit and Loss as well as Balance
acquisitions made before transition date. We also Sheet as it changed the way of accounting for
prepared workings for contingent consideration integral and non-integral operations of old GAAP.
payable for acquisitions made after transition date,
wherein estimation of probability was a key factor Disclosures Notes to Accounts:
and also involved a lot of management judgment. Financial instruments, wherein we were required to
use fair valuation for financial assets and financial
The concept of fair valuation of financial instruments liabilities. Note on disclosure of financial instrument
brought great change on balance sheet as it also was a new concept, which required a lot of workings
involved classification of assets/liabilities into for additional disclosures about fair valuation
financial assets/liabilities and other than financial techniques and financial risk management.
assets/liabilities.
Another very important disclosure of reconciliation of
Ind AS 103- Applying to "Business Combinations" quantification of effects of Ind AS transition on equity
arising out of strategic initiatives like Mergers, and total comprehensive income were required to be
Amalgamations and Demergers etc. undertaken by given.
the corporates. There is a need for clear guidance
on applying book value accounting for the above 5. Challenges Faced during transition
stated business combinations which will help the We faced few challenges in disclosure part. For
corporates to drive such strategic initiatives in the compliance of Ind AS, we were required to give a lot
interest of business with the approval from of information as a part of disclosures which was
Honorable High Court (now approval from NCLT as earlier not required to be disclosed. It involved lot of
prescribed under the Companies Act 2013) and it analysis as why to disclose critical information. The
will be considered as tax neutral transaction under reason behind this analysis was how a common
the Income Tax Act. We need to avoid the investor who is not aware of Ind AS would interpret
complexity arising out of Reverse Merger situation the financial statements in new format, how would
compared with Simple merger and ambiguity he analyse the impact of differences between old
whether Fair value accounting is required compared and new standards on the financial statements and
73
Industry Experience
also how this change will help him for decision hardly any departure from IFRS compliances, so in
making. Therefore, it involved many discussions global market it becomes comparable. Also
regarding how information shall be presented to investors' confidence is strong when accounting
make it more understandable and more informative. standards used are globally accepted. An entity can
enjoy lot of global opportunities because of these
Financial Instruments: benefits.
Further, being a multinational company, it has wide
range of transactions turning out to be financial However compliances of Ind AS had wide impact on
instruments under Ind AS, hence, we studied the the way of accounting. It changed recognition criteria
applicability of Ind 32, Ind AS 109 & Ind AS 107 for of all types of transactions, assets, liabilities, income
various transactions from the perspective of and expenses. To achieve the goal of Ind AS
accounting, reporting and disclosure. In valuation of transition involved detailed study and in depth
financial instruments determining correct valuation analysis. It was great learning exposure.
techniques with respect to the nature of financial
instrument was very important for reporting purpose.
In addition to that reporting of Risk Management of
Financial Instrument was another challenging area
for study.
Fair valuation:
In Ind AS fair valuations has great importance.
However, fair valuation changes impact financial
performance widely. Hence, it was challenging in
estimation of financial performance due to fair
valuation changes. And hence from management
perspective it was difficult to adopt these changes.
In many of the transactions like finance lease, loan,
deposits, etc. determination of present value was
required for determination of fair value. It was
difficult to find correct and applicable present value
factor for calculation of present value for respective
transaction.
Local audits of foreign subsidiaries:
In local audit of foreign subsidiaries, few questions
were asked for many Ind AS adjustments done. It
was challenging to explain Ind AS impact on
financial statements and how those adjustments
have been derived.
6. Overall Experience
Indian Accounting Standards are converged format
of International Financial Reporting Standards.
Therefore the financial statements which are Ind AS
compliant are globally accepted. The benefit of Ind
AS compliant financial statements is that there is
74
Ind AS: Impact Analysis and Industry Experience
valuation experts and guidance checklists published
by international accounting firms. Since INDAS 109
was already adopted in India, the Company chose to
early adopt IFRS 9. Various internal and external
factors were analyzed while drawing up the
expected credit loss model
3. Share based payments- The company chose the
exemption given under Ind AS 101 to apply Ind AS
Amrita Srikanth 102 only to the unvested options as of transition
AVP-Head Technical Accounting date. The fair value based on the Black Scholes
Infosys Limited Merton model was used for such options on the
transition date, the impact of which was taken to
Infosys adopted Indian Accounting Standards (INDAS) retained earnings.
effective April 1, 2016, with April 1, 2015 as the date of
transition. Given the fact that Infosys was already listed 4. Disclosures for income tax- Tax disclosures
in US, many processes were set as and when Infosys including the rate reconciliation were new under
transitioned to International Financial Reporting Indian scenario. INDAS now prescribes extensive
Standards (IFRS) as issued by IASB for Securities and disclosures as compared to the erstwhile IGAAP.
Exchange Commission (SEC) reporting which helped the Detailed tax reconciliation was prepared for the
Company immensely at the time of transition from holding as well as the various subsidiaries for
erstwhile Indian GAAP to INDAS. The company has disclosure purposes.
largely tried to align the IFRS and INDAS financials to
ensure investors and shareholders ease in having to deal 5. Segment INDAS 108 introduced the concept
with only one set of numbers. management approach of CODM- Chief Operating
Decision maker evaluates Company performance
The following were the main areas which had an impact based on business segments. This differed from
on account of transition from IGAAP to Ind AS: erstwhile IGAAP and accordingly, the Company
gave revised disclosures under segment
1. Business combination- Unlike IGAAP where there
was no adequate guidance for business Apart from the measurement criteria, IND AS also
combinations, Ind AS 103 has extensive recognition, prescribed extensive disclosures along with detailed
measurement and disclosure requirements. The notes on transition impact as prescribed under INDAS
company chose the exemption given in Ind AS 101 101. The company spent considerable amount of time in
to restate all business combinations post to a ensuring all the relevant disclosures were complied with
particular date (April 1, 2007), which coincides which to enable the reader to understand the impact of
the company's adoption of IFRS for SEC reporting transition. The IFRS and IND AS financials for the group
purposes. Accordingly, the adjustments pertaining to are now largely aligned.
recognition of intangible assets, fair valuation of
assets taken over, recording of deferred taxes,
restatement of goodwill and others were carried out.
2. Financial instruments- The requirements of Ind AS
32, 107 and 109 particularly on fair valuation of
financial instruments and the related disclosures
were drawn up based on discussions with the
75
Industry Experience
internal systems in line to comply with the requirements.
Guidelines from Group Company were received &
considered while implementing the standards. Identified
impacts of Ind AS were verified by the group auditors to
ensure compliance from group consolidation perspective.
The impact of transition was on various areas right from
presentation to accounting & later on to disclosures. New
Kedar Gadgil concepts like Financial assets, Financial Liabilities,
Head-Corporate F&A Statement of Other comprehensive income (SOCI),
Larsen & Toubro Infotech Limited Statement of changes in equity were introduced. The
team went through each & every definition and
On 16th February 2015 the Ministry of Corporate Affairs classification and accordingly presented the Financials.
(MCA) notified the Companies (Indian Accounting The first financials were prepared as per Ind AS 101:
Standards) Rules, 2015 laying down the roadmap for "First time adoption of Indian Accounting Standards", with
application of IFRS converged standards (Ind AS) to 1 April 2015 as the transition date. Each & every
Indian companies other than banking companies, standard was analyzed & following exemptions allowed
insurance companies and non-banking finance by the standards were availed on first time adoption.
companies (NBFCs). MCA declared adoption of Ind AS
in a phase manner. i) Business combinations
Ind AS 101 provides the option to apply Ind AS 103
Larsen & Toubro Infotech (LTI) adopted Ind AS in prospectively from the transition date or from a date
mandatory phase I as its net worth was more than INR when the entity acquires the control of the subsidiary.
500 Crores and LTI got listed in July'16 i.e application of The Group has availed the exemption and has restated
Ind AS from the Financial year beginning on or after 1 the balances prospectively as on the date of transition.
April 2016, presenting the comparative information for
previous periods. Accordingly the transition date was ii) Deemed cost
taken as 1st April 2015. Ind AS impact analysis was done Ind AS 101 permits a first-time adopter to elect fair
and the same was published in Red herring prospectus valuation or to continue with the carrying value for all
(RHP) dated 28th June 2016. property, plant and equipment measured as per the
iGAAP and use that as its deemed cost as at the date of
LTI published its first Ind AS complied quarterly results in transition after making necessary adjustments for de-
SEBI format within one week of company getting listed commissioning liabilities On transition to Ind AS, the
and first Ind AS complied balance sheet for period ended Group has elected to continue with the carrying value of
Sept'16 and Mar'16 along with equity and total all of its property plant and equipment recognized as at 1
comprehensive income reconciliation. April 2015 measured as per the iGAAP.
LTI started its preparation from the time the notification iii) Share-based payment
was received. A workshop on Ind AS organized by Ernst A first time adopter has option to apply Ind AS 102
& Young was attended to get a overview of various Share-based payments to equity instruments that were
aspects of Ind AS. Understanding the complexities that granted on or before the date of transition to Ind AS.
might be faced, a special team of qualified Chartered Accordingly at the date of transition the Group has
Accountants was identified to carry out a diagnostic study measured such unvested options at fair value.
to determine the impact. This helped us identify the gaps
and eventually carve out a plan to study different Ind AS The major impacts of Ind AS in quarterly & annual
applicable to LTI, its corresponding disclosures and get financial disclosures were as follows:
76
Ind AS: Impact Analysis and Industry Experience
1. Financial Instruments:
4. Deferred tax:
The accounting, presentation & disclosures went through
major changes, Ind AS 109 on Financial Instruments & Ind AS 12 introduced various new concepts as a result of
Ind AS 107 on Financial Instruments Disclosure gave which deferred tax impact was given on Premia,
extensive guidance on identification, classification and provision for doubtful debts using Expected credit loss
measurement of financial instruments. (ECL) model, valuation of current investment, unrealized
intra group profit, acquisition of subsidiary at CFS level.
The major impact was because of premia accounting.
Under previous GAAP the premia on cash flow hedges Other areas wherein accounting as well as disclosure
was accounted in P&L over the period of forward requirements were impacted include provision for
contracts. Mark-to-market valuation of o/s hedges was doubtful debts using ECL model, deposits at fair value
carried out after reducing premia income already according to effective interest method, accounting of
accounted. As per Ind AS premia on cash flow hedges is cash discount, related party disclosures, additional
not accounted in P&L. Fair valuation of o/s hedges will be disclosures regarding projected plan cash flow &
done based on mark-to-market valuation without sensitivity analysis on post-retirement benefits and
considering premia portion. gratuity, accounting of business combinations, additional
disclosures relating to reconciliation between expected
Additional disclosures like classification of financial tax rate and applicable tax rate for the reporting period, in
instruments by category (FVTPL, FVTOCI, Amortized segment reporting concept of Chief Operating Decision
cost), by hierarchy (Level 1, Level 2, Level 3), financial Maker (CODM) was introduced & reporting was to be
risk management and Value at Risk were provided. done in accordance with how CODM reviews the
segments etc.
2. Treatment of Actuarial gains or losses on
retirement benefit: All the Impacts can be seen in our Financials in
Reconciliation statement prepared.
According to new standard Ind AS 19 on Employee To conclude, it was an insightful journey full of learnings
benefits, some portion of changes in liability due to and a new experience all together.
financial and demographic assumptions, experience
adjustments, actual return on plan asset less interest on For more details of Ind AS impacts kindly refer Annual
plan assets are to be recognized in SOCI which were Report available on our website www.lntinfotech.com.
earlier recognized in Profit & loss account.
3. Translation of foreign subsidiaries:
The concept of Functional currency was introduced by
Ind AS 21 on The Effects of Changes in Foreign
Exchange Rates wherein each foreign subsidiary had to
identify its functional currency on basis of primary
economic environment it functions. Functional currencies
for all LTI subsidiaries were identified. The same on
consolidation were converted to LTI groups reporting
currency, i.e., INR. The impact of converting financials
from functional currency to group reporting currency is to
be taken in foreign currency translation reserves.
77
Industry Experience
R.S Raju
C.F.O & Associate Director (F&A)
NCC Ltd
Job role within the organization: Mr. R.S.Raju, is a Post-
graduate in Commerce (M.Com) and Fellow Member of
The Institute of Cost Accountants of India (ICWA) having
three decades of experience in Fin & Accounts.
Presently, he is heading the Finance & Accounts
Department of NCC Limited (formerly known as Nagarjna
Construction Co Ltd) as Associate Director (F&A) (as
CFO). He has worked 14 years in Singareni Collieries Co
Ltd and for the past 23 years he is with NCC Limited. For
the last 16 years he is leading the CFO functions of
`.9500 crs Turnover Company.
Ind-AS, based on the principles of "substance over form"
and "fair valuation", differs materially from IGAAP, which
is focused on "legal form" and "conservatism". There will
be significant differences in the presentation of financials
with respect to revenue recognition, employee benefits,
financial instruments, consolidation, fixed assets and
foreign currency fluctuation among others. Ind-AS will
bring a more contemporary presentation of financials.
Migrating to Ind-AS will requires preparing an opening
balance sheet on the transition day (01.04.2015),
recognizing assets and liabilities in accordance with Ind-
AS and adjusting the difference on adoption of Ind-AS
through reserves.
We implemented Ind-AS effectively in our company from
transition date 01.04.2015 and after implementing Ind-
AS, our financials are more effective and adding value to
the Investors and stakeholders. Recently we went for
Qualified Institutions Placement (QIP) based on Ind-AS
financials and we got overwhelmed response from the
Investors for our QIP issue.
78
Ind AS: Impact Analysis and Industry Experience
d) Fair valuation of sub-ordinate debts granted by the
Government of India at concessional rates and
recognition of Government Grant.
e) Discounting of long-term provisions.
f) Evaluation of Power Purchase Agreement (PPAs) in
respect of Power Stations in which substantial output
is taken by the customer in terms of Appendix-C
Mahesh Kumar Mittal
(Determining whether an arrangement contains a
Director (Finance)
Lease) of Ind AS 17- Leases.
NHPC Limited
g) Modification to existing policy for recognition/ de-
recognition of capital spares in terms of Ind AS-16-
Being a listed Company with net worth greater than Rs
Property, Plant & Equipment.
500 crore, NHPC Limited was required to adopt Ind AS
h) Review of existing policy for capitalization of
(mandatory adoption) w.e.f. FY 2016-17 as per the
administrative and general overheads.
Companies (Indian Accounting Standards) Rules, 2015.
i) Change in consolidation method of joint ventures
The process of transitioning to Ind AS was kick-started in
from proportionate consolidation to equity method.
June 2015 with the formation of a study group to assess
j) Change in presentation requirement of Regulatory
the impact areas of Ind AS in the Company. Based on
Deferral Accounts as per Ind AS 114.
the reports of the study-group and assessment of the
k) Ascertaining the appropriate discount rates to be
magnitude of changes brought about by the adoption of
applied for fair valuation of the various provisions,
Ind AS, it was decided to engage a consultant for guiding
financial assets & liabilities.
the Company through the process of Ind AS
implementation. In addition to the above items which had an impact on
the accounts of the Company as far as measurement
After a thorough study of the changes brought about by and presentation of events and transactions are
Ind AS, reporting requirements as per the Division-II Ind concerned, the major areas requiring substantial
AS Schedule-III of the Companies Act, 2013 and changes in disclosure requirement were as under:
discussions with other Power Sector CPSUs, the
following areas having major impact on the accounts of i) Identification of Related Parties within the meaning
the Company were identified: and scope of Ind AS 24- Related party Disclosures
and presentation of related party transactions and
a) Identification and classification of Financial Assets balances.
and Liabilities as per the Classification criteria in Ind ii) Comprehensive disclosure requirements as per Ind
AS 109- Financial Instruments. AS 19- Employee Benefits.
b) Fair valuation of Financial Assets and Liabilities iii) Evaluation of hierarchy levels in determining fair
subsequently measured at amortised cost based on value of the various financial assets and liabilities.
the Effective Interest Rate Method. This includes iv) Evaluation of Financial Risk Management,
long-term employee loans at reduced rate of disclosure of the various types of risks and mitigation
interest, retention money of contractors & suppliers, measures.
etc. v) Evaluation of loan covenants, interest rate risk,
c) Fair valuation of quoted investments in Government sensitivity analysis, etc.
Bonds & PSU Bonds classified at Fair Value through vi) Evaluation of major customers, expected credit loss
OCI based on the business model and cash flows of on trade debtors.
such investments being solely payments of principal vii) Evaluation of approvals granted by the Government
and interest (SPPI). for construction of Power Projects to ascertain de-
79
Industry Experience
viii) commissioning liability at the end of life of the Power
Station.
ix) Note on first time adoption of Ind AS including
reconciliations of Total Equity, Total Comprehensive
Income and Cash Flows.
The above changes required consequent changes to be
made in Information Technology, systems and
procedures. Further, substantial investments were made
towards training of Finance Staff. Eight training programs
were organized at Corporate Office and Regional Office
levels and hundred percent coverage of Finance
executives was achieved. Officers were trained on the
areas impacted by Ind AS, presentation & disclosure
requirements, formats devised for fair valuation as per
EIR method, IT changes, etc.
Transition to Ind AS was facilitated to a large extent by
the Institute of Chartered Accountants of India by way of
setting up the ITFG to provide quick response to Ind AS
transition related queries. It was also heartening to note
that the market regulator, SEBI had also acknowledged
the Ind AS transition exercise and provided relaxation in
terms of timelines and disclosure requirements of
quarterly results for FY 2016-17. It is, however, a matter
of great satisfaction that NHPC Limited did not have to
avail the relaxation in timelines given by SEBI and we
were able to present our quarterly results in time,
notwithstanding the volume of work and complexities
involved.
Transition to Ind AS was a major event in the accounting
history of the country. It is expected that the recognition,
measurement, presentation and disclosure requirements
shall bring us very close to international standards of
financial reporting and result in reflecting the economic
substance of business transactions on a fair and
transparent basis.
80
Ind AS: Impact Analysis and Industry Experience
controlled entity and capitalization of spares from
inventory effective date).
11. Required support expended to all Joint Ventures and
Subsidiaries.
A. K. Gautam i) creating awareness about Ind AS
General Manager (Accounts) implementation requirement.
NTPC Limited ii) follow up and provide clarifications as required
for timely preparation.
Experiences on Ind AS Implementation in NTPC 12. Completion of all activities as per schedule resulted
Limited in successful implementation of Ind AS across the
Company and its Joint Ventures and Subsidiaries.
NTPC Limited being a listed Company with a net worth
greater than Rs.500 crore was covered under the Phase 13. Vetting of the annual accounts by the Consultants
I implementation. Accordingly, the annual accounts for a) Standalone and consolidated financial
the financial year 2016-17 with comparatives for the year statements were got vetted from the consultant.
2015-16 and opening balance sheet on transition date of b) All disclosures were cross checked with the
1 April 2015 were prepared. disclosures made by other Companies/PSUs.
The implementation process of Ind AS in NTPC was Some of the challenges faced are as follows:
as follows:
1. Drafting of the accounting policies meeting
1. A detailed action plan for Ind AS implementation was requirement of Ind AS
drawn. a) Most of the policies had to be redrafted.
2. A separate Ind AS team was formed. b) Several new areas/aspects incorporated for
which few references were available.
3. Timely appointment award of the Ind AS consultant.
c) Several rounds of discussion with the consultant
4. Timelines set for different activities. and with the statutory/Government Auditors.
2. Capitalization of spares from Inventory meeting
5. Regular follow up w.r.t. progress achieved.
definition of PPE
6. All activities planned and carried out through ERP- a) Review of a very large number of spares (by a
SAP. separate high level committee).
7. Regular interactions on the important issues within b) Technical aspects same spare could be used
power sector companies and also with other PSUs for several purposes.
for adoption of the best practices. c) Cumbersome process of
recognition/reinstatement.
8. Regular training to employees, statutory auditors
and C&AG officials through the consultant. 3. Capitalization of major inspection/overhaul costs
9. Information about changes shared with employees a) Different technology and capacities of plants
through circulars, messages, video conferences etc. with different frequency of overhaul.
b) High level committee formed to study the above
10. References to ICAI and Ind AS Transition Facilitation along with activities that will form part of major
Group for redressal of important issues (Accounting inspection/overhaul.
of embedded leases, Discounting of vendor liabilities c) Aligning different processes in SAP (PM, MM,
retention money, Related party disclosures - Govt. FI, CO, etc.).
81
Industry Experience
4. Accounting of a Unit as Finance Lease 10. Balance Sheet restructuring as per requirement of
a) De-recognising assets while still maintaining Schedule III
their status (in view of future changes). a) Restructuring of formats.
b) Working out the lease module. Complexities b) Additional information relating to notes to
due to multiple CERC tariff orders. accounts.
5. Measurement of employee loans at amortised cost 11. Preparation of consolidated financial statements
a) Existence of different kinds of employee loans a) All subsidiaries and JVs of the Company also
with varying interest rates. covered under Ind AS as per the MCA
b) Multiple drawls in the case of HBA and notification.
Education loans. b) Guiding / handholding all these companies for
c) Complexities due to existence of options like preparation of Ind AS financial statements within
partial/full repayment, change in the time schedule.
number/amount of installment.
12. Disclosure requirements
6. Measurement of vendor liabilities at amortised cost a) Manifold disclosures.
a) Nature of long term liability to be assessed for b) Several new areas covered
discounting.
b) Voluminous data base.
c) Issues w.r.t scheduled payment date.
d) Partial discharge of liability, clubbing and
creation of new liability.
7. Measurement of borrowings at amortized cost
a) Multiple borrowings with each borrowing drawn
in several tranches with varying interest rates.
b) Period of drawl stretching several years.
c) Reset of rates at frequent intervals in case of
floating interest rate borrowings.
8. Accounting of Leasehold land
a) Agreements with different lease periods.
b) Agreements with different state bodies with
varying terms and conditions.
c) Computation of present value of minimum lease
payment.
9. Implementing changes in ERP-SAP
a) Classification of GL codes as financial/non-
financial.
b) Programming to incorporate changes done
internally without any external support.
c) Several new GL codes created.
d) Integration of different modules.
e) Upload of data of comparative periods.
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Ind AS: Impact Analysis and Industry Experience
conducted by big four accounting firms as well by other
consulting firms. In-house training programmes were also
conducted at our Fields Head Quarter Duliajan (Assam)
with the involvement of The Institute of Chartered
Accountants of India (ICAI). Some executives took up
Diploma Certification Programme on IFRS (Dip IFR,
ACCA, UK) and got the certification, which enhanced our
Mr. Santanu Majumder
proficiency on the subject and helped us in proper
Senior Manager (F&A)
coordination with the external experts, evaluating various
Oil India Limited options, understanding the implications for
recommendations to the higher-ups for decision making.
Introduction of Ind AS has made significant All these were very crucial to have a smooth transition to
transformation in financial reporting in India. Transitioning the new standards for financial reporting. Training by way
into Ind AS has major implications across the company of workshops and seminars are still being continued.
which often has extended beyond accounting. It has
brought about changes not only in financial reporting but Facing the challenge
has impacted many business processes, IT-ERP
systems and MIS reporting structure. With the After conclusion of the Impact Assessment Study,
announcement of road map in February 2015 by MCA, preparation of the opening balance sheet and then
corporate houses and PSUs had to gear up quickly to quarterly (interim) financial statements was a daunting
meet the statutory time line for shifting to Ind AS from the
task. However, Securities Exchange Board of India
then existing GAAP for the purpose of financial reporting. (SEBI)'s allowed some extended time period for filing
quarterly Ind AS compliant financial for the listed
Considering the complexities of the Ind AS which are not companies which helped a lot.
akin to accounting standards adopted hitherto, it was
never a straightforward task for the internal finance team The most radical change brought about by Ind AS is the
to implement the project without any external support. principles of Fair Valuation and Accounting based on
Up skilling of the internal finance professionals was Substance over Legal Form. Hence, preparation of
required to equip them properly to work hand in hand financial statements requires considerable extent of
with the external consultants. judgement, assumptions and estimates much more than
those of the previous GAAP. It was crucial for deciding
Preparation of road map the "Materiality" which was a hard task for the
management. One must appreciate that concept of
An internal committee comprising executives of different Materiality is of paramount importance for true and fair
sections of the F&A Department was constituted by view of financial statement. Our company being in oil
Executive Director (Finance & Accounts) with General exploration, development and production had to reframe
Manager (Finance & Accounts) as convenor. One of the its accounting policies in line with the requirements of
big four accounting firms (Deloitte) was appointed as newly notified standard on exploration and evaluation of
consultant and implementation partner for Ind AS project mineral resources (IndAS106). In the absence of any
in our company. SAP(I) (P) Ltd was engaged for effecting specific standard for accounting of development of
necessary changes in ERP configurations to assist mineral resources, principles of Ind AS (16) read with the
implementation of Ind AS revised Guidance Note on Accounting for Oil and Gas
Producing Activities (Ind AS) were applied in reframing
Up skilling of internal finance and accounts team the oil and gas related accounting policies. Principles
Team members were imparted extensive training introduced by Appendix A [Similar to IFRIC 1] of (Ind
through a number of seminars and workshops on Ind AS AS)16 - Changes in existing decommissioning,
83
Industry Experience
restoration and similar liabilities has significantly changed Ind AS is still an emerging issue where changes are
the values of Property, plant and equipment including oil being notified by the MCA keeping in harmony with
and gas assets of the Company and related global accounting standards IFRS. Many accounting
decommissioning obligations. Appendix C [Similar to disclosures related issues have been encountered during
IFRIC 4] of (Ind AS) 17 on assessment of existence of implementation where no clear cut accounting guidance
lease like arrangement has thrown major challenges to was available. However, the help of external domain
industry whereby an item of Property, plant and experts, clarifications provided by the Ind AS Transition
equipment could become a finance lease if the asset is Facilitation Group (ITFG) of the Institute and persistent
built for providing goods or services to specific and dedicated efforts from the Internal Finance Team
customers. Crude oil and petroleum products has made the Ind AS transition from GAAP to Ind AS
transportation pipelines are owned by the Company. provided a great learning experience for the organization
However, it serves only 2 companies. Hence, these and also provided a good platform to face the future
pipelines were subjected to meticulous assessment to changes and challenges.
test the existence of lease like conditions. This test was
required because, under somewhat regulated economic
environment of oil industry in India, only one or two
refining companies are located in a particular region.
However, these pipelines could be justified to be outside
the purview of Appendix C of (Ind AS) 17 on the principle
that the refining companies do not have the right to
operate the pipelines owned by Oil India Limited. That
apart, financial instruments recognition, measurement
and plethora of disclosures required by Ind AS as it felt
necessary to be disclosed for the stakeholders' interest
posed considerable challenges in terms of volume as
well as complexities of the information. In the context of
Consolidated Financial Statements, the company
experienced significant changes as it required the
financial statements of its foreign subsidiaries prepared
under divergent accounting standards to be converted in
to Ind AS before consolidation of financial results. Some
of the foreign subsidiaries which were consolidated on
line by line basis under erstwhile GAAP are subject to
Equity basis of accounting owing to changes in the
definition of "Control" as induced by (Ind AS) 110-
Consolidated Financial Statements.
As mentioned earlier, apart from accounting, Ind AS has
brought changes across various processes, IT-ERP
systems in particular which had to be developed and/or
reconfigured for proper capturing of information relating
to operations, equipments and materials so as to
facilitate preparation Ind AS compliant financial
statements.
84
Ind AS: Impact Analysis and Industry Experience
First Time Adoption of Accounting, which provided
guidance for the adoption of Ind AS. A Broad framework
was made of changes that we were obligated to make
and changes where we had alternative options for
accounting treatments. Considering most suitable
option/s available out of such alternatives, we decided to
take the issue to coming meeting of the Audit Committee
for further guidance on the issue.
Mr. B M Sharma, Our Audit Committee comprises of all independent
CFO, directors. The Audit Committee is headed by an eminent
RSWM Limited personality in the field of Accounting and Audit who also
happened to be ex- Director of ICAI, Author of books on
It is said that the only thing which is constant is change. the related subjects and renowned consultant on
And when you have to manage the inevitable change, it's technical issues relating to Accounting, Audit, Corporate
your attitude and approach to said change which Law etc. When we presented our study, details of options
determine whether change is going to be painful or available to us and choices made by us, Audit Committee
painless. Well in our case, it was mainly painless to a appreciated our efforts and preparedness for the
great extent. I would like to share here how we made a transition. I must say that guidance provided by the Audit
smooth transition to Ind AS across all 10 operating units Committee in general and its Chairman particularly was
+ 3 other accounting units of the Company. of immense help to us.
The process started as soon as Ind AS were notified with Thereafter, we sat down for re-writing Accounting
a one day meeting of all accounting heads of Units and Policies in compliance with Ind AS. Major areas
auditors wherein the changes that were to come about addressed were relating to Ind AS-1 Presentation of
were sensitized. An external expert was roped in for Financial Statements, Ind AS 103 - Business
guiding accounting units and handholding of stake combinations so far as it related to merger of a subsidiary
holders to make the transition smooth. Applicable Ind AS that had taken place around that time only, Ind AS 109-
were discussed in brief in this meeting. This very first financial instruments and Ind AS 107- financial
meeting evidenced very positive attitude of the instruments- disclosures, Ind AS- 110- Consolidated
Accounting Team. And positive attitude to the eminent financial statements so far as it related to consolidation of
changes set the tone for a structured approach to make results of Subsidiary and Associates, Ind AS-113 fair
transition painless. value measurements specially of Investments in
Subsidiary, Associates and other listed entities, Ind AS
In the first meeting, 7 groups were formed comprising of 16 Property, Plant and Equipment, Ind AS 20 -
Units' Accounting Heads. They were allocated 2 or 3 Ind Accounting for Government Grants and Disclosures so
AS for in-depth study of each applicable Ind AS. They far as it related to accounting of entitlement of capital
were given 2 weeks' time for their individual study & grants on account of investment in new manufacturing
group discussion and preparation of Discussion Paper/s facilities and interest subvention available under RIPS,
for the next meeting. Ind AS 24 - Related Party Disclosures, Ind AS 28-
Investment in Associates and Joint ventures, Ind AS 32-
We all met again after 2 weeks in a two days' workshop. Financial Instruments Presentation and Ind AS40 -
Each Group shared its study and open house Investment Property so far as it related to differentiating
discussions were held. This included discussion on property acquired/built for the purpose of earning from
corresponding IFRS and Carve Outs provided in Ind AS. rentals. Company had issued OCRPS (Optionally
The first and foremost discussion was on Ind AS 101- Convertible Redeemable Preference Shares) to the s
85
Industry Experience
shareholders of subsidiary company merged with parent
company. Disclosure of the same as a Debt and
Dividend payable thereon above the line as Finance Cost
was a conceptual change. A company which previously
was not an "Associate" became so under Ind AS. Also,
decisions regarding recognition of changes in fair
valuation of few items to be disclosed in OCI which were
subsequently to be routed or not routed through PL were
taken.
Once Accounting Policies were re-written, the same were
discussed with both the Joint Auditors and then with the
Audit Committee of the Board for approval. Once
Accounting Policies based on Ind AS were frozen, next
step was to convert previous years/periods financial
statements into Ind AS compliant Financial Statements.
This also required making changes in Chart of Accounts
and Grouping and configuring ERP so that it could
generate Financial Statements in revised formats.
All above stated processes were completed well in
advance so that from day one of the accounting year, we
were in compliance of applicable Ind AS. Intra-Group and
Inter Group discussions and brain storming, technical
inputs and guidance of external expert and members of
the Audit Committee made us the first company of the
LNJ Bhilwara Group to be Ind AS compliant.
When I look back, I find that it was not such a big thing
as it was made out by number of writers and consultants
who saw applicability of Ind AS as an opportunity to
make money by creating panic in the affected entities. It
certainly required disregarding some of old accounting
practices but also provided an opportunity to Indian
Companies to be internationally recognized so far as it
related to recognition, measurement of disclosure of
transactions. The experience gained has also helped us
to prepare ourselves for Ind AS 115-Revenue from
Contracts with Customers.
86
Ind AS: Impact Analysis and Industry Experience
P/L. Applying the same concept, in the case of
revenue when amount is receivable over long
period of time, the revenue is split into revenue
and interest such interest is recognized in P/L
over time. This was a change over IGAAP.
4. Under I GAAP, the only relevant source of
authoritative guidance was the notified standard
Mr. Barindra Sanyal AS 11, which did not provide adequate
Vice President-Finance guidance for hedging contracts.
Tata Consultancy Services We used to follow IAS 39 and in 2013-14 early
adopted IFRS9. In view of inadequacy of AS11,
Transition to IND AS Experience Sharing AS30 & AS31, TCS decided to apply
IAS39/IFRS9 to report under I GAAP.
Theme Therefore, transition to Ind AS 109 was a `no
In our case, US GAAP was being followed since change' exercise.
inception and in FY 2011-12 IFRS was adopted. 5. Investments such as mutual fund are valued at
While implementing Ind AS, the central theme was market price (MTM) and the change is taken to
congruency between the two sets of financial P/L as per IFRS9/Ind AS. As per IGAAP, such
statements, namely, IFRS and Ind AS. It is important investments are taken at cost or market price
for a company to have clarity on the theme for whichever is lower. If market price goes up,
implementation of Ind AS which would run through there will be a difference in recognition of other
the process of Ind AS implementation. income. TCS has been applying this principle in
IFRS the same has been extended to Ind AS.
Significant impact areas of Ind-AS implementation 6. In IGAAP, usually consolidation is based on
1. In the case of acquisition, as per IFRS 3/Ind AS voting power, whereas in IFRS/Ind AS,
103, intangibles embedded in goodwill have to consolidation is based on `control'. This had a
be separately identified and amortized for minor effect on the basis of consolidation.
purchase price allocation. This mean additional 7. Ind AS 101 allows first time adopters to set the
charge in P/L compared to IGAAP. There is a cumulative translation reserve (CTD) to zero.
`first time adoption option', by which a company This option benefits companies who have
could retain its earlier accounting or accounting multiple foreign subsidiaries and where the
after a chosen date for past business subsidiary wise break-up of the composition of
combinations. This option was chosen in a CTD, till the date of transition to Ind AS may not
manner so as to minimize the differences be easily available. At the time of Ind AS
between the IFRS & Ind AS balance sheets. adoption, we did not use this option, because
2. Impact of change in valuation of employee we had clear visibility of the composition of
benefit plan arising out of changes in actuarial CTD.
assumptions are required to be taken to `other 8. Ind AS 101 allows an option to carry forward I
comprehensive income' in IFRS/Ind AS GAAP balances as the opening PPE balance in
whereas the same is taken to P/L in IGAAP. Ind AS. We did not avail this option and we
Volatility in IGAAP P/L on this score will now be used Ind AS16 retrospectively to account for
avoided. existing PPE. This helped us in aligning our
3. In IFRS/Ind AS the concept of effective interest PPE balances with what we had in IFRS.
rate (EIR) is applied for valuation of financial
assets and liabilities. In IGAAP, the accrued Some of the unaddressed issues of Ind AS
interest based on the coupon rate is taken in
87
Industry Experience
Ind AS mainly follows IFRS, after suitable carve There is no substitute for internal training
outs/ins, so there are not many issues unaddressed Our internal team was already experienced with
by Ind AS. In fact, Ind AS-8, on Accounting Policies, IFRS implementation. An extended team was taken
changes in accounting estimates and errors, through training on Ind AS. We organized training
specifically mentions in paragraph 12 that sessions both class room types and online, to
management can refer to most recent spread knowledge of Ind AS not only to finance
pronouncements of IFRS. However, for the carve teams but also other operational teams impacted. In
outs, though an explanatory point has been added in fact training is a continuous process for example,
the relevant standards, detailed basis for conclusion in anticipation of implementation requirements of
would have been useful. For example, Ind AS 103 IFRS 15/ Ind AS115, one team has been deployed
differs from IFRS 3, in treatment of bargain gain to give technical guidance and required training at
purchase. Though the difference has been an enterprise level and yet another team has been
highlighted in the section under "Comparison with engaged in assessment of contracts in the backdrop
IFRS 3" and the carve out is fully justified, the of IFRS15/Ind AS115 requirements.
underlying basis for conclusion is currently absent.
Explanation of changes to other stakeholders CEO
Benefits of transparency and improved financial / Audit Committee
reporting We informed the board in advance about the options
The benefits will slowly sink in. The shift will benefit elected and differences that would arise due to Ind
the investors/analysts the most. Examples: AS implementation. After we had the board
(a) Consolidation is on the basis of control rather approval, we informed our investors in advance
than equity holding. It would give clearer picture about the likely impact on the quarterly and annual
of the financial performance of the group. financial statements.
(b) Fair valuation concept especially in the area of
financial instruments would improve the quality Need to make changes to IT systems
of disclosure of the company's assets and We had to make few changes in the IT system. The
liabilities. size and scale of the organization and the
(c) On acquisition of an entity, not under common requirement decides whether it can be handled with
control, statement of assets and liabilities at fair `desktop adjustments' or requires changes in the IT
value instead of cost would provide clearer system. In our case, over time, `desktop
picture of the net assets acquired. adjustments' have come down substantially.
(d) The definition of `related party' is wider in
IFRS/Ind AS. Accordingly, disclosures and
coverage of related party transactions in the
notes to accounts would be far more detailed.
(e) Disclosures on tax reconciliation in IFRS/Ind AS
are far more comprehensive, which would help
the investors in understanding of the financials
better.
(f) Accounting of hedges is not covered by IGAAP,
whereas IFRS9/Ind AS 109 have separate
guidance it would ensure consistency in
hedge accounting process for all companies.
(g) Disclosures on business combinations are
substantially more in IFRS/Ind AS, which would
benefit the investors.
88
V. New Era of Financial Reporting
IFRS Standard: Basis of Ind AS
IFRS Standards are set by the IFRS Foundation's The mission of IFRS Foundation is to develop IFRS
standard-setting body, the International Accounting Standards that bring transparency, accountability
Standards Board (IASB). IFRS Standards are and efficiency to financial markets around the world.
currently required/ permitted in more than 140 The work serves the public interest by fostering
jurisdictions. The IFRS Foundation is a not-for- trust, growth and long-term financial stability in the
profit, public interest organisation established to global economy.
develop a single set of high-quality,
understandable, enforceable and globally accepted The International Accounting Standards Board is
accounting standards--IFRS Standards--and to the independent standard-setting body of the IFRS
promote and facilitate adoption of the standards. Foundation.
IFRS FRAMEWORK STRUCTURE & OVERVIEW
IASB & IFRS FOUNDATION THREE TIER STRUCTURE
Tier 1. Ensures Public Accountability of
IFRS Foundation
Members are Capital Market Authorities viz. IOSCO, US SEC,
Monitoring Board European Commission, FSA Japan, Brazilian Securities
Commission (CVM), Financial Services Commission of Korea
(FSC) and Ministry of Finance of the People's Republic of China
(China MOF)
Observer: Basel Committee on Banking Supervision (BCBS)
IFRS Foundation Trustees Tier 2. Governance & Oversight
22 Trustee members representing various regions of the globe
( and Due Process Oversight Committee (DPOC))
IFRS Advisory
Council
International Accounting Tier 3. Independent bodies for standard
Standards Board (IASB) setting and related activities
IASB- Total 14 members representing various regions/countries
Interpretations Committee (IFRS of the world;
Other IC) IASB & IFRS IC are supported By Technical Directorate
called Staff
Consultative 8
Groups
ICAI's Engagement at International Level
IFRS Foundation Trustees - The Trustees are responsible for the governance and oversight of the International
Accounting Standards Board (Board).
1. CA.Mohandas Pai, Former CFO & Board Member, Infosys Ltd, was the first Trustee appointed from India
and served two terms from 2006 to 2011.
2. Shri C.B.Bhave, Former Chairman, SEBI, completed two terms from 1/1/2012 till 31/12/2017.
3. Shri Vinod Rai, Former C&AG India appointed for a three year term on 1/1/2018
IASB - The IASB is an independent group of experts with an appropriate mix of recent practical experience in
setting accounting standards, in preparing, auditing, or using financial reports, and in accounting education.
CA.Prabhakar Kalvacherla, was appointed during the years 2009-2013
89
New Era of Financial Reporting
IFRS Advisory Council aim of enhancing the participation of emerging
It is an advisory body and acts as a sounding board to economies in the development of IFRS Standards.
IASB and IFRS Trustees. It was formerly known The EEG generally holds two meetings each year,
Standards Advisory Council. It mandatorily consults which will take place in one of the member countries.
IASB in advance of any major projects and Trustees
before any amendment to the Constitution. It shall ICAI is a founder member of this group. It is the only
meet at least Three times a year and meetings are who has hosted EEG meetings twice in December
open for public . 2011 and May 2017 since its formation.
India Representation on IFRS Advisory Council World Standard-setters Conferences (WSS)
1. CA. Y.H.Malegam - 2002-2004 It is part of IASB's initiative to work with National
2. CA. Shailesh Haribhakti - 2005-2008 Standard-setters and Regional Standard-setting
3. CA. N.P.Sarda - 2009-2011 communities. The conference is organised by the
4. CA.R Sankaraiah - 2012-2015 national standard-setters team and chaired by a Board
5. CA.Suresh Senapaty - 2017-till date member. It is held in London in September or October
each year.
Accounting Standards Advisory Forum
· Created in 2012 by IFRS Trustees to
International Federation of Accounting Standard-
constructively contribute towards the achievement
Setters (IFASS)
of the Board's goal of developing globally
It is a grouping of national accounting standard
accepted high-quality accounting standards.
setters (formerly known as National Standard-setters)
ASAF generally meets four times a year for two
from around the World and other organisations that
days, normally in London. It comprises of 12
have a close involvement in financial reporting issues.
members from national standard-setters (NSS)
IFASS meets twice a year.
and Regional Bodies. Trustees review the
membership of ASAF once in three years.
Two IFASS meetings held on March 06-07, 2014, and
April 12-13, 2018, was hosted by the ASB, ICAI.
Asian-Oceanian Standard-Setters Group Global Preparers Forum (GPF)
(AOSSG) It was created in November 2008 and as per its
AOSSG is a grouping of the accounting standard- Constitution it can have upto 16 members comprising
setters in the Asian-Oceanian region which was 4 each from Europe, Americas, Asia-Oceania & rest of
formed in 2009 to discuss issues and share the world. The GPF members meet with the Board
experiences on the adoption of International representatives three times a year at the IFRS
Financial Reporting Standards (IFRS) and to Foundation office in London. One of those meetings is
contribute to the development of a high-quality set held jointly with the Capital Markets Advisory
of global accounting standards. Currently, AOSSG Committee (CMAC).
has 26 members and it represents the region in
the Accounting Standards Advisory Forum of Mr Barindra Sanyal, Global Head Finance Functions,
IFRS Foundation. India has led the Working TCS is a member from India. Previously, Mr Kaushik
Group of AOSSG on Agriculture (Co-Chaired by Chatterjee Group CFO, Tata Steel India is a member
Malaysia). of this group.
CA. S.B. Zaware, Chairman, ASB, ICAI, has been
elected as the Vice-Chair of the AOSSG from
November 2017 to November 2019. As per
current convention, Vice-Chair assumes the
position as Chair for next two years subject to
confirmation by members. This election will give
India an opportunity to play a lead role in global
accounting standards setting.
Emerging Economies Group (EEG)
EEG was created by IFRS Trustees in 2011 with the
90
Ind AS: Impact Analysis and Industry Experience
Ind AS - Standard-setting process in India
The Institute of Chartered Accountants of India (ICAI) being the premier accounting body in India has been
engaged in formulation of Accounting Standards (AS)/ Indian Accounting Standards (Ind AS). ICAI formulates
Accounting Standards through its Accounting Standards Board (ASB).
Indian Accounting Standards formulation and Regulators Engagement
Ind AS Formulation
Indian Accounting Standards (Ind AS)' Notified by MCA u/s 133 of
Companies Act 2013
Final Ind AS referred to NACAS
Council, ICAI approves and recommends the Ind AS
ASB, ICAI considers comments received on ED and finalises the
draft Ind AS for submission to Council, ICAI
ASB issues Exposure Draft (ED) of the Ind AS for public comments.
ASB constitutes Study Group to formulate preliminary draft Ind AS
IFRS/IAS issued by IASB
IASB analyses feedback and refines proposals before the new
Standard is issued.
Exposure draft issued by IASB for public consultation
(ASB, ICAI also issues IFRS ED in India to engage the Indian
Stakeholders in the international standard-setting process at an early
stage)
Interfaces with Regulators
ASB maintains continuous dialogues with relevant regulators, such as, Reserve Bank of India (RBI), Insurance
Regulatory and Development Authority of India (IRDA), Ministry of Corporate Affairs (MCA), etc., to address
issues involved in Ind AS implementation.
91
New Era of Financial Reporting
· Deals with implementation issues ongoing basis
MCA · Organise Training
· Deals with implementation issues ongoing basis
RBI · Organise Training
· Deals with implementation issues ongoing basis
IRDAI · Organise Training
Participation in RBI Working Group The Working Group has structured its
In order to facilitate a smooth implementation of recommendations in following key areas:
Ind AS and to address implementation issues for Classification & measurement of financial
the Indian banking system, RBI set up a Working assets
Group in July, 2010, under the Chairmanship of Classification & measurement of financial
Shri P R Ravi Mohan, the then Chief General liabilities
Manager of erstwhile Department of Banking Hedge accounting and derivatives
Operations and Development (DBOD).The Fair value measurement
Working Group comprised professionals with Impairment of financial assets
experience in IFRS implementation, Presentation of financial statements and
representatives from the Indian Banks' Association disclosure
(IBA) and ICAI as well as officers from various Derecognition, consolidation and other
regulatory bodies, supervisory and market residuary issues
departments of the RBI. The RBI Working Group Working Group has also devised formats for
submitted an interim report in November 2012 financial statements of banks under Ind AS &
based on IFRS 9 as finalised up to July 2012 and it application guidance thereon.
was decided to monitor further developments on
the matter before proceeding with the ICAI Study Group to consider Ind AS
implementation of Ind AS. implementation issues for the Indian banking
Subsequently, the Union Finance Minister in his system
speech on the Union Budget for 2014-2015, while As a part of the Working Group Report, certain
expressing the urgent need for convergence of implementation issues for banks were identified for
extant accounting standards with IFRS, which required guidance was to be provided by the
announced the implementation of Ind AS by Indian ICAI.
companies voluntarily from the financial year (FY) In this context, a specific Study Group was
2015-16 and mandatorily from FY 2016-17. In this constituted by ASB under the convenorship of CA.
context, the RBI constituted a Working Group on S.B. Zaware, Chairman, Accounting Standards
the Implementation of Ind AS by banks in India Board, to consider the issues related to
under the Chairmanship of the Shri. Sudarshan implementation of Ind AS in banking sector.
Sen, Chief General Manager-in-Charge, Four meetings of the Study Group have been held
Department of Banking Regulation (DBR, formerly so far.
DBOD), to build upon the work already done by Critical issues for banking sector considered by the
the previous Working Group. Study Group:
The Working Group submitted the Report on Ind AS 12 : Creation of deferred tax liabilities
Implementation of Ind AS by Banks in India in on special reserve created under Section
October, 2015. 36(1)(viii) of the Income Tax Act, 1961
ASB participated actively in the Working Group.
Ind AS 110: Consolidation of mutual fund, Impairment based ECL, Guidance on the
venture capital funds, etc. and Equity terms `infrequent number of sales' or
acquired for restatement of NPA `infrequent in value', 29 FAQs formulated
Ind AS 109: Computation of Effective by RBI reviewed by ICAI in detail.
Interest Rate, Valuation of loan to
employees at concessional costs,
92
Ind AS: Impact Analysis and Industry Experience
Participation in IRDAI Working Group initiative of online submission of comments on
the various documents issued by the ASB on
ICAI has participated actively in IRDAI Working the Institute's website was introduced.
Group on implementation of Ind AS in Comments which were hitherto sent by e-mail
insurance sector. or by other mode can now be submitted online
Report of Implementation Group on Ind AS in by uploading the comment file on the website
Insurance Sector in India was submitted in of the ICAI. The comments submitted till the
December, 2016. last date for comments are uploaded and the
The report contains detailed recommendations same are available for public viewing.
of group regarding implementation issues and
facilitates formulation of operational guidelines Facilitation of Ind AS Implementation
to converge with Ind AS in insurance sector.
Post issuance of IFRS 17 by IASB, The Ind AS Implementation Group's initiatives:
Working Group has been reconstituted by
IRDAI. ICAI is also a member of the Working Apart from formulation of Ind AS, the ICAI has been
Group. ICAI and IRDAI are working jointly on taking various initiatives to get the members ready
formulation of Ind AS 117, new Standard on for implementation of Ind AS. For this purpose, the
Insurance Contracts. ICAI had constituted a Committee, namely, Ind AS
Implementation Committee in the year 2011. The
Other Initiatives of the ASB Committee has been entrusted with the task of
The ASB initiated to host various comments providing guidance to the members on Indian
received on various consultative documents Accounting Standards (Ind AS). For this purpose,
issued by the ASB and comments submitted by the Committee has been making relentless efforts
the Board on various document issued by the in making this transition to Ind AS smooth through
International Accounting Standards Board on its various initiatives such as issuance of
Institute's website to bring more transparency Educational Materials on Ind AS containing
into the standards setting process. Frequently Asked Questions. In the year 2018, the
said Committee reconstituted as Ind AS
Online submission of comments on various Implementation Group under the aegis of
documents issued by the ASB 2015 Accounting Standards Board. However, the primary
While formulating Accounting Standards, the objective and activities of the former Ind AS
ASB exposes the draft of the Standard and Implementation Committee continued as the
invites comments from members and the public objective and purpose of the Ind AS Implementation
at large. With a view to bring more Group as well.
transparency into the standards setting process
and functioning of the ASB, a paperless
IFRS Convergence Adoption: Ind AS Implementation
Implementation Guidance Mechanism
Ind AS Transition Facilitation Ind AS Implementation Group Ind AS Support Desk
Group (ITFG) · Education Materials · To provide guidance in a
· Provide timely clarification to · Training and Awareness timely manner on less
stakeholders on the technical issues Programmes complex areas
raised · Certification Course
· So far, the Group has issued 15 · Webcasts
bulletins. Around 114 queries have
been resolved.
93
New Era of Financial Reporting
10 Educational Materials
Educational Material on Ind AS 1, Presentation of Financial
Statements (Revised 2016)
Educational Material on Ind AS 2, Inventories (Revised
2016)
Educational Material on Ind AS 7, Statement of Cash
Flows (Revised 2016)
Educational Material on Ind AS 10, Events after the
Reporting period
Educational Material on Ind AS 16, Property, Plant and
Equipment
Educational Material on Ind AS 18, Revenue (Revised
2017)
Educational Material on Ind AS 37, Provisions, Contingent
Liabilities and Contingent Assets (Revised 2016)
Educational Material on Ind AS 101, First-time Adoption of
Indian Accounting Standards
Educational Material on Ind AS 103, Business
Combinations
Educational Material on Ind AS 108, Operating Segments
12 E-learning Modules
Introduction to Ind AS
E-learning module on Ind AS 1, Presentation of Financial
Statements and Ind AS based Schedule III
E-learning module on Ind AS 2, Inventories
E-learning module on Ind AS 8, Accounting Policies,
Changes in Accounting Estimates and Errors
E-learning module on Ind AS 23, Borrowing Costs
E-learning module on Ind AS 34, Interim Financial
Reporting
E-learning module on Ind AS 36, Impairment of Assets
E-learning module on Ind AS 40, Investment Property
E-learning module on Ind AS 16, Property, Plant and
Equipment
Webcast
In order to widen the reach in spreading awareness
amongst the members of ICAI for smooth implementation of
Ind AS, Ind AS Implementation Group organised series of
webcasts on Ind AS from time to time.
Number of batches of Certification Course on Ind AS = 232
Number of Members trained = 8900
94
Ind AS: Impact Analysis and Industry Experience
Ind AS training programmes for Regulators, Customised In-house training programmes on Ind AS for
Corporates and other organizations officials/employees of various organisations are conducted
to impart training on Ind AS. Session plan of the programme
is designed keeping in view topics relevant to them and
customised as per their needs and requirements. Such
programmes have been organised for various
regulators/ministries such as Comptroller & Auditor General
of India (C&AG), CBDT, IRDA, Department of
Telecommunications (DoT), Department of Public
Enterprises, Ministry of Heavy Industry and Public
Enterprises etc. and other corporate bodies.
Ind AS Transition Facilitation Group Following the MCA notification, dated February 16, 2015,
various issues related to the applicability of Ind
AS/implementation under Companies (Indian Accounting
Standards) Rules, 2015 are being raised by preparers, users
and other stakeholders. Considering the need to address
various issues raised, an Ind AS Transition Facilitation Group
(ITFG) was formed by the ASB on the following basis:
The ITFG under the aegis of Ind AS Implementation Group
issues clarification bulletins addressing implementation issues
from time to time. So far, 15 bulletins covering 114 issues were
issued. The Group had also issued a Compendium of ITFG
Clarification bulletins which contains a compilation of the
issues alongwith topic wise and standard wise indexation.
95
VI. APPENDICES
A. Comparative list of IFRSs with Ind AS notified S IFRS/ Indian Title
by the MCA (As of April, 2018) No. IAS Accounting
Standard
S IFRS/ Indian Title Ventures
No. IAS Accounting 16. IAS 29 Ind AS 29 Financial Reporting in
Standard Hyperinflationary
1. IAS 1 Ind AS 1 Presentation of Economies
Financial Statements
17. IAS 32 Ind AS 32 Financial Instruments:
2. IAS 2 Ind AS 2 Inventories Presentation
3. IAS 7 Ind AS 7 Statement of Cash 18. IAS 33 Ind AS 33 Earnings per Share
Flows
19. IAS 34 Ind AS 34 Interim Financial
4. IAS 8 Ind AS 8 Accounting Policies, Reporting
Changes in
20. IAS 36 Ind AS 36 Impairment of Assets
Accounting Estimates
and Errors 21. IAS 37 Ind AS 37 Provisions,
Contingent Liabilities
5. IAS 10 Ind AS 10 Events after the
and
Reporting Period
Contingent Assets
6. IAS 12 Ind AS 12 Income Taxes
22. IAS 38 Ind AS 38 Intangible Assets
7. IAS 16 Ind AS 16 Property, Plant and
23. IAS 40 Ind AS 40 Investment Property
Equipment
24. IAS 41 Ind AS 41 Agriculture
8. IAS 17 Ind AS 17 Leases
25. IFRS 1 Ind AS 101 First-time Adoption of
9. IAS 19 Ind AS 19 Employee Benefits
Indian Accounting
10. IAS 20 Ind AS 20 Accounting for Standards
Government Grants
26. IFRS 2 Ind AS 102 Share-based
and Disclosure of
Payment
Government
Assistance 27. IFRS 3 Ind AS 103 Business
Combinations
11. IAS 21 Ind AS 21 The Effects of
Changes in Foreign 28. IFRS 4 Ind AS 104 Insurance Contracts
Exchange Rates 29. IFRS 5 Ind AS 105 Non-current Assets
12. IAS 23 Ind AS 23 Borrowing Costs Held for Sale and
Discontinued
13. IAS 24 Ind AS 24 Related Party
Operations
Disclosures
30. IFRS 6 Ind AS 106 Exploration for and
14. IAS 27 Ind AS 27 Separate Financial
Evaluation of
Statements
Mineral Resources
15. IAS 28 Ind AS 28 Investments in
31. IFRS 7 Ind AS 107 Financial Instruments:
Associates and Joint
Disclosures
96
Ind AS: Impact Analysis and Industry Experience
S IFRS/ Indian Title IFRICs/SICs included in the corresponding
No. IAS Accounting Appendices to Ind AS (As of April, 2018)
Standard As per the scheme of formulation of Indian Accounting
32. IFRS 8 Ind AS 108 Operating Segments Standards, the interpretations issued by the IASB, IFRIC
33. IFRS 9 Ind AS 109 Financial Instruments and SIC be added as an appendix with the relevant Ind
AS.
34. IFRS Ind AS 110 Consolidated
10 Financial Statements S IFRIC/ Correspon IFRIC/SIC
No. SIC ding
35. IFRS Ind AS 111 Joint Arrangements No. Appendix
11 included
36. IFRS Ind AS 112 Disclosure of Interest in Ind AS
12 in Other Entities 1. IFRIC Appendix Changes in Existing
37. IFRS Ind AS 113 Fair Value 1 A to Ind Decommissioning,
13 Measurement AS 16 Restoration and
38. IFRS Ind AS 114 Regulatory Deferral Similar Liabilities
14 Account 2. IFRIC Appendix Determining whether
39. IFRS Ind AS 115 Revenue from 4 C to Ind an Arrangement
15 Contracts with AS 17 contains a Lease
Customers 3. IFRIC Appendix Rights to Interests
* Ind AS corresponding to IAS 26, Accounting and 5 A to Ind arising from
Reporting by Retirement Benefit Plans, has not been AS 37 Decommissioning,
issued as this standard is not applicable to companies. Restoration and
** Since India has decided to converge early with IFRS 9, Environmental
Financial Instruments. Accordingly, Ind AS 109, Financial Rehabilitation Funds
Instruments, has been issued and Ind AS 39, Financial
4. IFRIC Appendix Liabilities arising from
Instruments: Recognition and Measurement, has not been
issued.
6 B to Ind Participating in a
AS 37 Specific Market --
IFRS not yet effective Waste Electrical and
Electronic Equipment
S IFRS/ Indian Title
No. IAS Accounting 5. IFRIC Appendix Applying the
Standard 7 A to Ind Restatement Approach
AS 29 under Ind AS 29,
1. IFRS Ind AS 116 Leases (Effective
Financial Reporting in
16 and Ind AS from April 01, 2019,
Hyperinflationary
117* are will replace Ind AS
Economies
under 17)
formulation 6. IFRIC Appendix Interim Financial
2. IFRS Insurance Contracts
10 A to Ind Reporting and
17 (Proposed to be
AS 34 Impairment
effective from April
01, 2020, and will 7. IFRIC Appendix Service Concession
replace Ind AS 104) 12 A to Ind Arrangements
* In view of implementation of Ind AS in Insurance Sector from AS 11
2020-21, India may implement Ind AS 117 early.
97
Appendix A
8. IFRIC Appendix Customer Loyalty AS 17
13 B to Ind Programmes 19. SIC-25 Appendix Income Taxes --
AS 18 A to Ind Changes in the Tax
9. IFRIC Appendix Ind AS 19 -- The Limit AS 12 Status of an Entity or
14 B to Ind on a Defined Benefit its Shareholders
AS 19 Asset, Minimum 20. SIC-27 Appendix Evaluating the
Funding Requirements B to Ind Substance of
and their Interaction AS 17 Transactions Involving
10. IFRIC Appendix Hedges of a Net the Legal Form of a
16 C to Ind Investment in a Lease
AS 109 Foreign Operation 21. SIC-29 Appendix Service Concession
11. IFRIC Appendix Distributions of Non- B to Ind Arrangements:
17 A to Ind cash Assets to Owners AS 11 Disclosures
AS 10 22. SIC-31 Appendix Revenue--Barter
12. IFRIC Appendix Transfer of Assets A to Ind Transactions Involving
18 C to Ind from Customers AS 18 Advertising Services
AS 18 23. SIC-32 Appendix Intangible Assets --
13. IFRIC Appendix Extinguishing Financial A to Ind Web Site Costs
19 D to Ind Liabilities with Equity AS 38
AS 109 Instruments * Appendix corresponding to IFRIC 2 is not issued as it is
14. IFRIC Appendix Stripping Cost in the not relevant for the companies.
20 B to Ind Production Phase of a
** Appendix corresponding to SIC 7 is not issued as it is not
relevant in the Indian context.
AS 16 Surface Mine *** Appendix corresponding to IFRIC 9, Reassessment of
15. IFRIC Appendix Levies Embedded Derivatives, Not included as Ind AS 39 have
21 C to Ind been replaced with Ind AS 109.
AS 37
16. IFRIC Appendix Foreign Currency IFRICs/SICs included in the corresponding
22 B to Ind Transactions and Appendices to Ind AS not yet effective
AS 21 Advance S IFRIC/ Corresponding IFRIC/SIC
Consideration No. SIC Appendix
(Effective from 1 April, No. included in Ind
2018) AS
17. SIC-10 Appendix Government 1. IFRIC Under Uncertainty over
A to Ind Assistance --No 23 formulation (As Income Tax
AS 20 Specific Relation to an Appendix to Treatments
Operating Activities Ind AS 12) (Effective from 1
18. SIC-15 Appendix Operating Leases -- January 2019)
A to Ind Incentives
98
B. Major differences between Ind AS and the financial statements, or when it reclassifies
existing Accounting Standards notified items in its financial statements.
under Companies (Accounting Standards) (vii) In respect of reclassification of items, Ind AS 1
Rules, 2006, as amended from time to time5 requires disclosure of nature, amount and reason
for reclassification in the notes to financial
Ind AS 1, Presentation of Financial Statements, statements.
and AS 1, Disclosure of Accounting Policies (viii) Ind AS 1 requires the financial statements to
include a `Statement of Changes in Equity' to be
shown as a separate statement, which, inter alia,
Ind AS 1 deals with presentation of financial
includes reconciliation between opening and
statements, whereas AS 1 deals only with the
closing balance for each component of equity.
disclosure of accounting policies. The scope of Ind AS
(ix) Ind AS 1 requires that an entity shall present a
1 is thus much wider and line by line comparison of
single statement of profit and loss, with profit or
the differences with AS 1 is not possible. However, the
loss and other comprehensive income presented
major requirements as laid down in Ind AS 1 are as
in two sections. The sections shall be presented
follows:
together, with the profit or loss section presented
(i) Ind AS 1 requires an enterprise to make an first followed directly by the other comprehensive
explicit statement in the financial statements of income section.
compliance with all the Indian Accounting (x) Ind AS 1 clarifies that long-term loan arrangement
Standards. need not be classified as current on account of
(ii) Ind AS 1 requires presentation and provides breach of a material provision, for which the
criteria for classification of Current / Non- Current lender has agreed to waive before the approval of
assets / liabilities. financial statements for issue. (Paragraph 74 of
(iii) Ind AS 1 prohibits presentation of any item as Ind AS 1)
`Extraordinary Item' in the statement of profit and
loss or in the notes. Ind AS 2, Inventories and AS 2, Valuation of
(iv) Ind AS 1 requires disclosure of judgments made Inventories
by management while framing of accounting
policies. Also, it requires disclosure of key (i) Ind AS 2 deals with the subsequent recognition
assumptions about the future and other sources of of cost/carrying amount of inventories as an
measurement uncertainty that have significant risk expense, whereas AS 2 does not provide the
of causing a material adjustment to the carrying same. (Paragraphs 1 and 34 of Ind AS 2)
amounts of assets and liabilities within next (ii) Ind AS 2 does not apply to measurement of
financial year. inventories held by commodity broker-traders,
(v) Ind AS 1 requires classification of expenses to be who measure their inventories at fair value less
presented based on nature of expenses. costs to sell. However, this aspect is not there
(vi) Ind AS 1 requires presentation of balance sheet in AS 2. Accordingly, Ind AS 2 defines fair value
as at the beginning of the earliest period when an and provides an explanation in respect of
entity applies an accounting policy retrospectively distinction between `net realisable value' and
or makes a retrospective restatement of items in `fair value'. AS 2 does not contain the definition
of fair value and such explanation.
5
There are certain subjects on which Ind AS are issued but no specific AS (iii) Ind AS 2 provides detailed guidance in case of
deals with the same. Accordingly, this section covers differences only where
there are AS notified under Companies (Accounting Standards) Rules, 2006
on the subject.
99
Appendix B
(iv) subsequent assessment of net realisable value subsequent sale of such assets as cash flow
(refer paragraph 33 of Ind AS 2). It also deals from operating activity is also provided (refer
with the reversal of the write-down of paragraph 14 of Ind AS 7). AS 3 does not
inventories to net realisable value to the extent contain such requirements.
of the amount of original write-down, and the
(iii) Ind AS 7 includes the following new examples of
recognition and disclosure thereof in the
cash flows arising from financing activities (refer
financial statements. AS 2 does not deal with
paragraph 17 of Ind AS 7):
such reversal.
(a) cash payments to owners to acquire or
(v) Ind AS 2 excludes from its scope only the
redeem the entity's shares;
measurement of inventories held by producers
of agricultural and forest products, agricultural (b) cash proceeds from mortgages;
produce after harvest, and minerals and mineral (c) cash payments by a lessee for the
products though it provides guidance on reduction of the outstanding liability
measurement of such inventories (refer relating to a finance lease .
paragraphs 4 and 20 of Ind AS 2). However, AS
2 excludes from its scope such types of (iv) As compared to AS 3, Ind AS 7 specifically
inventories. requires adjustment of the profit or loss for the
effects of `undistributed profits of associates
(vi) AS 2 specifically provides that the formula used and non-controlling interests' while determining
in determining the cost of an item of inventory the net cash flow from operating activities using
should reflect the fairest possible approximation the indirect method. (Paragraph 20(b) of the Ind
to the cost incurred in bringing the items of AS 7)
inventory to their present location and condition
whereas Ind AS 2 does not specifically state so (v) AS 3 requires cash flows associated with
and requires the use of consistent cost formulas extraordinary activities to be separately
for all inventories having a similar nature and classified as arising from operating, investing
use to the entity. ( Paragraphs 25 and 26 of Ind and financing activities, whereas Ind AS 7 does
AS 2) not contain this requirement.
Ind AS 7, Statement of Cash Flows and AS 3, (vi) As compared to AS 3, Ind AS 7 requires an
Cash Flow Statements entity (except an investment entity) to disclose
the amount of cash and cash equivalents and
(i) Ind AS 7 specifically includes bank overdrafts other assets and liabilities in the subsidiaries or
which are repayable on demand as a part of other businesses over which control is obtained
cash and cash equivalents, whereas AS 3 is or lost (refer paragraph 40(c) and (d) of Ind AS
silent on this aspect. (Paragraph 8 of Ind AS 7). 7). Ind AS 7 also requires to report the
aggregate amount of the cash paid or received
(ii) Ind AS 7 provides the treatment of cash as consideration for obtaining or losing control
payments to manufacture or acquire assets held of subsidiaries or other businesses in the
for rental to others and subsequently held for statement of cash flows, net of cash and cash
sale in the ordinary course of business as cash equivalents acquired or disposed of as a part of
flows from operating activities. Further, such transactions, events or changes in
treatment of cash receipts from rent and circumstances (refer paragraph 42 of Ind AS 7).
100
Ind AS: Impact Analysis and Industry Experience
(vii) AS 3 does not contain such requirements. of an entity's financial statements and the
comparability of those financial statements over
(viii) Ind AS 7 requires to classify cash flows arising
time and with the financial statements of other
from changes in ownership interests in a
entities.
subsidiary that do not result in a loss of control
as cash flows from financing activities (refer (ii) Keeping in view that Ind AS 1, Presentation of
paragraphs 42A and 42B of Ind AS 7). AS 3 Financial Statements , prohibits the presentation
does not contain such a requirement. of any items of income or expense as
extraordinary items, Ind AS 8 does not deal with
(ix) Ind AS 7 mentions the use of equity or cost
the same.
method while accounting for an investment in an
associate, joint venture or a subsidiary (refer (iii) AS 5 restricts the definition of accounting
paragraph 37 of Ind AS 7). It also specifically policies to specific accounting principles and the
deals with the reporting of interest in an methods of applying those principles while Ind
associate or a joint venture using equity method AS 8 broadens the definition to include bases,
(refer paragraph 38 of Ind AS 7). AS 3 does not conventions, rules and practices (in addition to
contain such requirements. principles) applied by an entity in the
preparation and presentation of financial
(x) Ind AS 7 uses the term `functional currency'
statements.
instead of `reporting currency' (as used in AS
3). Ind AS 7 also deals with translation of cash (iv) In addition to the situations allowed under Ind
flows of a foreign subsidiary (refer paragraphs AS 8 for changing an accounting policy, AS 5
25 to 27 of Ind AS 7) whereas in AS 3, it is not allows change in accounting policy if required
dealt with. by statute.
(xi) Ind AS 7 requires disclosure of changes in (v) Ind AS 8 specifically states that an entity shall
liabilities arising from financing activities. AS 3 select and apply its accounting policies
does not contain such requirement. consistently for similar transactions, other
events and conditions, unless an Ind AS
Ind AS 8, Accounting Policies, Changes in specifically requires or permits categorisation of
Accounting Estimates and Errors and AS 5, Net items for which different policies may be
Profit or Loss for the Period, Prior Period Items appropriate. Neither AS 5 nor any other
and Changes in Accounting Policies Accounting Standard specifically requires
accounting policies to be consistent for similar
(i) Objective of AS 5 is to prescribe the transactions, other events and conditions.
classification and disclosure of certain items in
(vi) Ind AS 8 requires that changes in accounting
the statement of profit and loss for uniform
policies should be accounted for with
preparation and presentation of financial
retrospective effect subject to limited exceptions
statements. Objective of Ind AS 8 is to prescribe
viz., where it is impracticable to determine the
the criteria for selecting and changing
period specific effects or the cumulative effect
accounting policies, together with the
of applying a new accounting policy. On the
accounting treatment and disclosure of changes
other hand, AS 5 does not specify how change
in accounting policies, changes in accounting
in accounting policy should be accounted for.
estimates and corrections of errors. Ind AS 8
intends to enhance the relevance and reliability (vii) AS 5 defines prior period items as incomes or
101
Appendix B
(viii) expenses which arise in the current period as a assumption of going concern is not appropriate.
result of errors or omissions in the preparation
In this regard, Ind AS 10 refers to Ind AS 1,
of financial statements of one or more prior
which requires an entity to make the following
periods. Ind AS 8 uses the term `errors' and
disclosures:
relates it to errors or omissions arising from a
failure to use or misuse of reliable information disclose the fact that the financial
(in addition to mathematical mistakes, mistakes statements are not prepared on a going
in application of accounting policies etc.) that concern basis together with the basis on
was available when the financial statements of which the financial statements are
the prior periods were approved for issuance prepared
and could reasonably be expected to have been
state the reason why the entity is not
obtained and taken into account in the
regarded as a going concern.
preparation and presentation of those financial
statements. Ind AS 8 specifically states that AS 4 does not require any such disclosure.
errors include frauds, which is not covered in However, AS 1 requires the disclosure of the
AS 5. fact in case going concern assumption is not
followed.
(ix) Ind AS 8 requires rectification of material prior
period errors with retrospective effect subject to (iii) Consequent to changes made in Ind AS 1, it
limited exceptions viz., where it is impracticable has been provided in the definition of `Events
to determine the period specific effects or the after the reporting period' that in case of breach
cumulative effect of applying a new accounting of a material provision of a long-term loan
policy. On the other hand, AS 5 requires the arrangement on or before the end of the
rectification of prior period items with reporting period with the effect that the liability
prospective effect. becomes payable on demand on the reporting
date, if the lender, before the approval of the
Ind AS 10, Events after the Reporting Period and
financial statements for issue, agrees to waive
AS 4, Contingencies and Events occurring after the breach, it shall be considered as an
the Balance Sheet Date adjusting event.
(i) In Ind AS 10, material non-adjusting events are (iv) Ind AS 10 includes an Appendix Distribution of
required to be disclosed in the financial Non-cash Assets to Owners which deals, inter
statements, whereas AS 4 requires the same to alia, with when to recognise dividends payable
be disclosed in the report of approving to its owners.
authority. Ind AS 11, Construction Contracts and AS 7,
(ii) If, after the reporting date, it is determined that Construction Contracts
the fundamental accounting assumption of
going concern is no longer appropriate, Ind AS (i) AS 7 includes borrowing costs as per AS 16 ,
10 requires a fundamental change in the basis Borrowing Costs, in the costs that may be
of accounting. Whereas AS 4 requires assets attributable to contract activity in general and
and liabilities to be adjusted for events can be allocated to specific contracts, whereas
occurring after the balance sheet date that Ind AS 11 does not specifically make reference
indicate that the fundamental accounting to Ind AS 23.
102
Ind AS: Impact Analysis and Industry Experience
(ii) AS 7 does not recognise fair value concept as deductible temporary differences. However, the
contract revenue is measured at consideration existence of unused tax losses is strong
received/receivable, whereas Ind AS 11 evidence that future taxable profit may not be
requires that contract revenue shall be available. Therefore, when an entity has a
measured at fair value of consideration history of recent losses, the entity recognises a
received/receivable. deferred tax asset arising from unused tax
losses or tax credits only to the extent that the
(iii) AS 7 does not deal with accounting for Service
entity has sufficient taxable temporary
Concession Arrangements, i.e., the
differences or there is convincing other
arrangement where private sector entity (an
evidence that sufficient taxable profit will be
operator) constructs or upgrades the
available against which the unused tax losses
infrastructure to be used to provide the public
or unused tax credits can be utilised by the
service and operates and maintains that
entity.
infrastructure for a specified period of time,
whereas Appendix A of Ind AS 11 deals with As per AS 22, deferred tax assets are
accounting aspects involved in such recognised and carried forward only to the
arrangements and Appendix B of Ind AS 11 extent that there is a reasonable certainty that
deals with disclosures of such arrangements. sufficient future taxable income will be available
against which such deferred tax assets can be
Ind AS 12, Income Taxes and AS 22, Taxes on realised. Where deferred tax asset is
Income recognised against unabsorbed depreciation or
carry forward of losses under tax laws, it is
(i) Ind AS 12 is based on balance sheet approach. recognised only to the extent that there is virtual
It requires recognition of tax consequences of certainty supported by convincing evidence that
differences between the carrying amounts of sufficient future taxable income will be available
assets and liabilities and their tax base. AS 22 against which such deferred tax assets can be
is based on income statement approach. It realised.
requires recognition of tax consequences of
differences between taxable income and (iii) As per Ind AS 12, current and deferred tax are
accounting income. For this purpose differences recognised as income or an expense and
between taxable income and accounting income included in profit or loss for the period, except to
are classified into permanent and timing the extent that the tax arises from a transaction
differences. or event which is recognised outside profit or
loss, either in other comprehensive income or
(ii) As per Ind AS 12, subject to limited exceptions, directly in equity, in those cases tax is also
deferred tax asset is recognised for all recognised in other comprehensive income or in
deductible temporary differences to the extent equity, as appropriate. AS 22 does not
that it is probable that taxable profit will be specifically deal with this aspect.
available against which the deductible
temporary difference can be utilised. The (iv) AS 22 deals with disclosure of deferred tax
criteria for recognising deferred tax assets assets and liabilities in the balance sheet. Ind
arising from the carry forward of unused tax AS 12 does not deal with this aspect except that
losses and tax credits are the same that for it requires that income tax relating to each
recognising deferred tax assets arising from component of other comprehensive income
103
Appendix B
(v) shall be disclosed as current or non-current Ind AS 16, Property, Plant and Equipment and
asset/liability in accordance with the AS 10, Property, Plant and Equipment
requirements of Ind AS 1.
(vi) Ind AS 12 requires that deferred tax (i) Ind AS 16 does not deal with the assets `held
asset/liability arising from revaluation of non- for sale' because the treatment of such assets
depreciable assets shall be measured on the is covered in Ind AS 105, Non-current Assets
basis of tax consequences from the sale of Held for Sale and Discontinued Operations . AS
asset rather than through use. AS 22 does not 10 deals with accounting for items of fixed
deal with this aspect. assets retired from active use and held for sale.
(vii) Ind AS 12 provides guidance as to how an entity (ii) Ind AS 16 provides guidance on measuring
should account for the tax consequences of a `Stripping Costs in the Product ion Phase of a
change in its tax status or that of its Surface Mine'. AS does not contain this
shareholders. AS 22 does not deal with this guidance.
aspect. Ind AS 18, Revenue and AS 9, Revenue
(viii) AS 22 explains virtual certainty supported by Recognition
convincing evidence. Since the concept of
virtual certainty does not exist in Ind AS 12, this (i) Definition of `revenue' given in Ind AS 18 is broad
explanation is not included. as compared to the definition of `revenue' given in
AS 9 because it covers all economic benefits that
(ix) AS 22 specifically provides guidance regarding arise in the ordinary course of activities of an entity
recognition of deferred tax in the situations of which result in increases in equity, other than
Tax Holiday under Sections 80-IA and 80-IB increases relating to contributions from equity
and Tax Holiday under Sections 10A and 10B of participants. On the other hand, as per AS 9,
the Income Tax Act, 1961. revenue is gross inflow of cash, receivables or other
Similarly, AS 22 provides guidance regarding consideration arising in the course of the ordinary
recognition of deferred tax asset in case of loss activities of an enterprise from the sale of goods,
under the head `capital gains'. from the rendering of services, and from the use by
others of enterprise resources yielding interest,
Ind AS 12 does not specifically deal with these
royalties and dividends.
situations.
(ii) Measurement of revenue is briefly covered in the
(x) AS 22 specifically provides guidance regarding
definition of revenue in AS 9, while Ind AS 18 deals
tax rates to be applied in measuring deferred
separately in detail with measurement of revenue.
tax assets/liabilities in a situation where a
As per AS 9, revenue is recognised at the nominal
company pays tax under section 115JB. Ind AS
amount of consideration receivable. Ind AS 18
12 does not specifically deal with this aspect.
requires the revenue to be measured at fair value of
(xi) Ind AS 12 specifically provides guidance the consideration received or receivable.
regarding Recognition of Deferred Tax Assets
(iii) Ind AS 18 specifically deals with the exchange of
for Unrealised Losses. AS 22 does not
goods and services with goods and services of
specifically deal with these situations.
similar and dissimilar nature. In this regard specific
guidance is given regarding barter transactions
104
Ind AS: Impact Analysis and Industry Experience
involving advertising services. This aspect is not some places, these terms have not been
dealt with in AS 9. defined and distinguished. Further, Ind AS 17
deals with adjustment of lease payments during
(iv) Ind AS 18 provides guidance on application of
the period between inception of the lease and
recognition criteria to the separately identifiable
the commencement of the lease term. This
components of a single transaction in order to
aspect is not dealt with in AS 19. Also, as per
reflect the substance of the transaction. AS 9 does
Ind AS 17, the lessee shall recognise finance
not specifically deal with the same.
leases as assets and liabilities in balance sheet
(v) AS 9 requires the recognition of revenue from at the commencement of the lease term
interest on time proportion basis. Ind AS 18 requires whereas as per AS 19 such recognition is at the
interest to be recognised using effective interest inception of the lease.
rate method as set out in Ind AS 109, Financial
(iii) Treatment of initial direct costs under Ind AS 17
Instruments.
differs from the treatment prescribed under AS
(vi) Ind AS 18 specifically provides guidance regarding 19. This is tabulated below:
revenue recognition in case the entity is under any
obligation to provide free or discounted goods or Subject AS 19 Ind AS 17
services or award credits to its customers due to any Finance lease- Added to the Same as per
customer loyalty programme. AS 9 does not deal lessee amount AS 19.
with this aspect. accounting recognised as
(vii) Disclosure requirements given in Ind AS 18 are asset.
more detailed as compared to AS 9. Finance lease-
lessor accounting
Ind AS 17, Leases and AS 19, Leases
Non-manufacturer/ Either Interest rate
(i) AS 19 excludes leases of land from its scope. Non-dealer recognised as implicit in the
Ind AS 17 does not have such scope exclusion. expense lease is
It has specific provisions dealing with leases of immediately or defined in
land and building applicable. Further, Ind AS 17 allocated such a way
is not applicable as the basis of measurement against the that the
for: finance income initial direct
over the lease costs
property held by lessees/provided by term. included
lessors under operating leases but automatically
treated as investment property and in the
biological assets held by finance
lessees/provided by lessors under lease
operating leases that are covered in the receivable;
Standard on Agriculture. there is no
need to add
AS 19 does not contain such provisions. them
(ii) Ind AS 17 makes a distinction between separately.
inception of lease and commencement of lease.
In AS 19, though both the terms are used at
105
Appendix B
Manufacturer/dealer Recognised as Same as per compensate the lessor for expected inflationary
expense at the AS 19. cost increases shall not be straight lined. AS 19
commencement does not provide for the same.
of the lease
term. Ind AS 19, Employee Benefits and AS 15,
Operating lease- No discussion No Employee Benefits
Lessee accounting discussion
Operating lease- Either deferred Added to the (i) In Ind AS 19, employee benefits arising from
Lessor accounting and allocated carrying constructive obligations are also covered
to income over amount of whereas AS 15 does not deal with the same.
the lease term the leased (Paragraph 4(c) of Ind AS 19)
in proportion to asset and (ii) As per AS 15, the term `employee' includes
the recognition recognised whole-time directors whereas under Ind AS 19
of rent income, as expense the term includes directors. (Paragraph 7 of Ind
or recognized over the AS 19)
as expense in lease term
the period in on the same (iii) As per Ind AS 19, participation in a defined
which incurred. basis as benefit plan sharing risks between various
lease entities under common control is a related party
income. transaction for each group entity and some
disclosures are required in the separate or
(iv) Ind AS 17 requires current/non-current individual financial statements of an entity
classification of lease Liabilities if such whereas the AS 15 does not contain similar
classification is made for other liabilities. Also, it provisions. (Paragraph 42 of Ind AS 19)
makes reference to Ind AS 105, Non-current (iv) Ind AS 19 encourages, but does not require, an
Assets Held for Sale and Discontinued entity to involve a qualified actuary in the
Operations . These matters are not addressed in measurement of all material post-employment
AS 19. benefit obligations whereas AS 15 though does
(v) As per AS 19, if a sale and leaseback not require involvement of a qualified actuary,
transaction results in a finance lease, excess, if does not specifically encourage the same.
any, of the sale proceeds over the carrying (Paragraph 59 of Ind AS 19)
amount shall be deferred and amortised by the (v) Actuarial valuation is based on certain
seller-lessee over the lease term in proportion assumptions. Changes in these assumptions
to depreciation of the leased asset. While Ind give rise to actuarial gains and losses, for
AS 17 retains the deferral and amortisation example, changes in estimates of salary or
principle, it does not specify any method of medical cost. AS 15 requires recognition of
amortisation. actuarial gains and losses immediately in the
(vi) Ind AS 17 requires that in case of operating profit and loss but Ind AS 19 requires that the
lease, where escalation of lease rentals is in same shall be recognised in other
line with the expected general inflation so as to comprehensive income and should not be
recognised in profit or loss.
106
Ind AS: Impact Analysis and Industry Experience
(vi) Ind AS 19 makes it clear that financial statements. However, AS 12 does not deal with
assumptions shall be based on market such government assistance.
expectations, at the end of the reporting period,
(ii) AS 12 requires that in case the grant is in
for the period over which the obligations are to
respect of non-depreciable assets, the amount
be settled whereas AS 15 does not clarify the
of the grant should be shown as capital reserve
same. (Paragraph 80 of Ind AS 19)
which is a part of shareholders' funds. I t further
(vii) As per Ind AS 19, subsidiaries, associates, joint requires that if a grant related to a non-
ventures and branches domiciled outside India depreciable asset requires the fulfilment of
shall discount post-employment benefit certain obligations, the grant should be credited
obligations arising on account of post- to income over the same period over which the
employment benefit plans using the rate cost of meeting such obligations is charged to
determined by reference to market yields at the income. AS 12 also gives an alternative to treat
end of the reporting period on high quality such grants as a deduction from the cost of
corporate bonds. In case, such subsidiaries, such asset.
associates, joint ventures and branches are
As compared to the above, Ind AS 20, is
domiciled in countries where there is no deep
based on the principle that all government
market in such bonds, the market yields (at the
grants would normally have certain obligations
end of the reporting period) on government
attached to them and these grants should be
bonds of that country shall be used.
recognised as income over the periods which
As per AS 15, the rate used to discount post- bear the cost of meeting the obligation. It,
employment benefit obligations should always therefore, specifically prohibits recognition of
be determined by reference to market yields at grants directly in the shareholders' funds.
the balance sheet date on government bond.
(iii) AS 12 recognises that some government grants
(viii) Under Ind AS 19, more guidance has been have the characteristics similar to those of
given for timing of recognition of termination promoters' contribution. It requires that such
benefits. Recognition criteria for termination grants should be credited directly to capital
benefits under the revised standard differ from reserve and treated as a part of shareholders'
the criteria prescribed in AS 15. (Paragraph 165 funds. Ind AS 20 does not recognise
of Ind AS 19) government grants of the nature of promoters '
contribution. As stated at (ii) above, Ind AS 20
is based on the principle that all government
Ind AS 20, Accounting for Government Grants grants would normally have certain obligations
and Disclosure of Government Assistance and attached to them and it, accordingly, requires all
AS 12, Accounting for Government Grants grants to be recognised as income over the
periods which bear the cost of meeting the
(i) Ind AS 20 deals with the other forms of obligation.
government assistance which do not fall within
the definition of government grants. It requires (iv) AS 12 requires that government grants in the
that an indication of other forms of government form of non-monetary assets, given at a
assistance from which the entity has directly concessional rate, should be accounted for on
benefited should be disclosed in the financial the basis of their acquisition cost. In case a
non-monetary asset is given free of cost, it
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Appendix B
should be recorded at a nominal value. Ind AS functional currency directly in equity, to be
20 requires to value non-monetary grants at transferred to profit or loss over the life of the
their fair value, since it results into presentation relevant liability/asset if such items are not
of more relevant information and is conceptually related to acquisition of fixed assets; where
superior as compared to valuation at a nominal such items are related to acquisition of fixed
amount. assets, the foreign exchange differences can be
recognised as part of the cost of the asset.
(v) AS 12 gives an option to present the grants
(paragraphs 46 and 46A of AS 11)
related to assets, including non-monetary grants
at fair value in the balance sheet either by Ind AS 21 does not give the above option.
setting up the grant as deferred income or by However, Ind AS 21 does not apply to long-term
deducting the grant from the gross value of foreign currency monetary items recognised in
asset concerned in arriving at its book value. the financial statements before the beginning of
Ind AS 20 requires presentation of such grants the first Ind AS financial reporting period as per
in balance sheet only by setting up the grant as the previous GAAP, i.e., AS 11. However, as
deferred income. Thus, the option to present provided in Ind AS 101, such an entity may
such grants by deduction of the grant in arriving continue to apply the accounting policy so opted
at its book value is not available under Ind AS for such long-term foreign currency monetary
20. items as per the previous GAAP.
(vi) Ind AS 20 includes Appendix A which deals with (iii) AS 11 is based on integral foreign operations
Government Assistance--No Specific Relation and non-integral foreign operations approach
to Operating Activities. for accounting for a foreign operation, whereas
Ind AS 21 is based on the functional currency
(vii) Ind AS 20 requires that loans received from a
approach.
government that have a below-market rate of
interest should be recognised and measured in (iv) As per Ind AS 21, presentation currency can be
accordance with Ind AS 109 (which requires all different from local currency and it gives
loans to be recognised at fair value, thus detailed guidance in this regard, whereas AS 11
requiring interest to be imputed to loans with a does not explicitly state so.
below-market rate of interest), whereas AS 12
(v) Ind AS 21 gives guidance on `Foreign Currency
does not require so.
Transactions and Advance Consideration'.
However, AS 11 does not provide so.
Ind AS 21, The Effects of Changes in Foreign (vi) Ind AS 21 includes Appendix B which gives
Exchange Rates and AS 11, The Effects of guidance on foreign Currency Transactions and
Changes in Foreign Exchange Rates Advance Consideration whereas AS 11 does
not contain such guidance.
(i) Ind AS 21 excludes from its scope forward
exchange contracts and other similar financial Ind AS 23, Borrowing Costs and AS 16,
instruments, which are treated in accordance Borrowing Costs
with Ind AS 109. AS 11 does not exclude (i) Ind AS 23 does not require an entity to apply
accounting for such contracts. this standard to borrowing costs directly
(ii) AS 11, gives an option to recognise exchange attributable to the acquisition, construction or
differences arising on translation of certain long- production of a qualifying asset measured at fair
term monetary items from foreign currency to value, for example, a biological asset whereas
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Ind AS: Impact Analysis and Industry Experience
(ii) AS 16 does not provide for such scope "a close member of the family of a person".
relaxation. AS 18 covers the spouse, son, daughter,
brother, sister, father and mother who may be
(iii) Ind AS 23 excludes the application of this
expected to influence, or be influenced by, that
Standard to borrowing costs directly attributable
individual in his/her dealings with the reporting
to the acquisition, construction or production of
enterprise.
inventories that are manufactured, or otherwise
produced, in large quantities on a repetitive However, definition of close members of family
basis whereas AS 16 does not provide for such as per Ind AS 24 includes those family
scope relaxation and is applicable to borrowing members, who may be expected to influence, or
costs related to all inventories that require be influenced by, that person in their dealings
substantial period of time to bring them in with the entity, including:
saleable condition.
(a) that person's chil dren, spouse or
(iv) As per AS 16, Borrowing Costs , inter alia, domestic partner, brother, sister, father
include the following: and mother;
(a) interest and commitment charges on (b) children of that person's spouse or
bank borrowings and other short-term domestic partner; and
and long-term borrowings;
(c) dependants of that person or that
(b) amortisation of discounts or premiums person's spouse or domestic partner.
relating to borrowings;
Hence, the definition as per Ind AS 24 is much
(c) amortisation of ancillary costs incurred in wider.
connection with the arrangement of
(ii) AS-18 defines state-controlled enterprise as "an
borrowings.
enterprise which is under the control of the
Ind AS 23 requires to calculate the interest Central Government and/or any State
expense using the effective interest rate method Government(s) ". However, in Ind AS 24, there is
as described in Ind AS 109. Items (b) and (c) extended coverage of Government Enterprises,
above have been deleted, as some of these as it defines a government-related entity as "an
components of borrowing costs are considered entity that is controlled, jointly controlled or
as the components of interest expense significantly influenced by a government."
calculated using the effective interest rate Further, "Government refers to government,
method. government agencies and similar bodies
whether local, national or international ."
(v) AS 16 gives explanation for meaning of
`substantial period of time' appearing in the (iii) AS 18 covers key management personnel
definition of the term `qualifying asset'. This (KMP) of the entity only, whereas, Ind AS 24
explanation is not included in Ind AS 23. covers KMP of the parent as well. Ind AS 24
also covers the entity, or any member of a
Ind AS 24, Related Party Disclosures , and AS group of which it is a part, providing key
18, Related Party Disclosures management personnel services to the
(i) AS 18 uses the term "relatives of an reporting entity or to the parent of the reporting
individual", whereas Ind AS 24 uses the term entity.
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Appendix B
(iv) Under Ind AS 24 there is extended coverage in (iii) AS 23 requires application of the equity method
case of joint ventures. Two entities are related only when the entity has subsidiaries and
to each other in both their financial statements, prepares consolidated financial Statements. Ind
if they are either co-venturers or one is a AS 28 requires application of equity method in
venturer and the other is an associate. Whereas financial statements other than separate
as per AS 18, co-venturers or co-associates are financial statements even if the investor does
not related to each other. not have any subsidiary.
(v) AS 18 does not specifically cover entities that (iv) One of the exemptions from applying equity
are post employment benefit plans, as related method in AS 23 is where the associate
parties. However, Ind AS 24 specifically operates under severe long-term restrictions
includes post employment benefit plans for the that significantly impair its ability to transfer
benefit of employees of an entity or its related funds to the investee. No such exemption is
entity as related parties. provided in Ind AS 28.
(vi) AS 18 includes definition and clarificatory text, (v) Ind AS 28 now permits an entity that has an
primarily with regard to control, substantial investment in an associate, a portion of which is
interest (including 20% threshold), significant held indirectly through venture capital
influence (including 20% threshold). However, organisations, or a mutual fund, unit trust and
Ind AS 24 neither defines these terms nor it similar entities including investment-linked
includes such clarificatory text and allows insurance funds, to elect to measure that
respective standards to deal with the same. portion of the investment in the associate at fair
value through profit or loss in accordance with
Ind AS 28, Investments in Associates and Ind AS 109 regardless of whether these entities
Joint ventures and AS 23, Accounting for have significant influence over that portion of
Investments in Associates in Consolidated the investment.
Financial Statements
(vi) Ind AS 28 requires a portion of an investment in
(i) In AS 23, `Significant Influence' has been an associate or a joint venture to be classified
defined as `power to participate in the financial as held for sale if the disposal of that portion of
and/or operating policy decisions of the investee the interest would fulfill the criteria to be
but is not control over those policies'. In Ind AS classified as held for sale in accordance with
28, the same has been defined as `power to Ind AS 105. AS 23 does not specifically deal
participate in the financial and operating policy with this aspect.
decisions of the investee but is not control or
joint control over those policies'. Ind AS 28 (vii) As per AS 23, in separate financial statements,
defines joint control also. investment in an associate is not accounted for
as per the equity method, the same is
(ii) For considering share ownership for the accounted for in accordance with AS 13,
purpose of significant influence, potential equity Accounting for Investments . As per Ind AS 28,
shares of the investee held by investor are not the same is to be accounted for at cost or in
taken into account as per AS 23. As per Ind AS accordance with Ind AS 109, Financial
28, existence and effect of potential voting Instruments .
rights that are currently exercisable or
convertible are considered when assessing (viii) AS 23 permits the use of financial statements of
whether an entity has significant influence or the associate drawn upto a date different from
not. the date of financial statements of the investor
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Ind AS: Impact Analysis and Industry Experience
(ix) when it is impracticable to draw the financial application of equity method, including
statements of the associate upto the date of the recognising the associate's or joint venture's
financial statements of the investor. There is no losses, the requirements of Ind AS 109 shall be
limit on the length of difference in the reporting applied to determine whether it is necessary to
dates of the investor and the associate. As per recognise any additional impairment loss.
Ind AS 28, length of difference in the reporting
Ind AS 33, Earnings per Share and AS 20,
dates of the associate or joint venture should
not be more than three months.
Earnings per Share
(i) AS 20 does not specifically deal with options
(x) Both AS 23 and Ind AS 28 require that similar
held by the entity on its shares, e.g., purchased
accounting policies should be used for
options, written put option etc. Ind AS 33 deals
preparation of investor's financial statements
with the same.
and in case an associate uses different
accounting policies for like transactions, (ii) Ind AS 33 requires presentation of basic and
appropriate adjustments shall be made to the diluted EPS from continuing and discontinued
accounting policies of the associate. AS 23 operations separately. However, AS 20 does
provides exemption to this that if it is not not require any such disclosure.
possible to make adjustments to the accounting (iii) AS 20 requires the disclosure of EPS with and
policies of the associate, the fact shall be without extraordinary items. Since as per Ind AS
disclosed along with a brief description of the 1, Presentation of Financial Statements , no item
differences between the accounting policies. Ind can be presented as extraordinary item, Ind AS
AS 28 provides that the entity's financial 33 does not require the aforesaid disclosure.
statements shall be prepared using uniform
accounting policies for like transactions and Ind AS 34, Interim Financial Reporting and AS
events in similar circumstances unless, in case 25, Interim Financial Reporting
of an associate, it is impracticable to do so.
(i) Under AS 25, if an entity is required or elects to
(xi) As per AS 23, investor's share of losses in the prepare and present an interim financial report,
associate is recognised to the extent of carrying it should comply with that standard. Ind AS 34
amount of investment in the associate. As per applies only if an entity is required or elects to
Ind AS 28, carrying amount of investment in the prepare and present an interim financial report
associate or joint venture determined using the in accordance with Accounting Standards.
equity method together with any long term Consequently, it is specifically stated in Ind AS
interests that, in substance, form part of the 34 that the fact that an entity may not have
entity's net investment in the associate or joint provided interim financial reports during a
venture shall be considered for recognising particular financial year or may have provided
entity's share of losses in the associate or joint interim financial reports that do not comply with
venture. Ind AS 34 does not prevent the entity's annual
(xii) With regard to impairment, AS 23 requires that financial statements from conforming to Ind AS
the carrying amount of investment in an if they otherwise do so. (Paragraph 2 of Ind AS
associate should be reduced to recognise a 34)
decline, other than temporary, in the value of (ii) In Ind AS 34, the term `complete set of financial
the investment. Ind AS 28 requires that after statements' appearing in the de finition of interim
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Appendix B
financial report has been expanded as (vi) AS 25 requires the Notes to interim financial
compared to AS 25. Accordingly, the said term statements (if material and not disclosed
(as described in Ind AS 1, Presentation of elsewhere in the interim financial report), to
Financial Statements ) includes balance sheet contain a statement that the same accounting
as at the beginning of the preceding period policies are followed in the interim financial
when an entity applies an accounting policy statements as those followed in the most recent
retrospectively or makes a retrospective annual financial statements or, in case of
restatement of items in its financial statements, change in those policies, a description of the
or when it reclassifies items in its financial nature and effect of the change. Ind AS 34
statements and comparative information in additionally requires the above information in
respect of the preceding period as specified in respect of methods of computation followed.
paragraphs 38 and 38A of Ind AS 1. (Paragraph (Paragraph 16A(a) of Ind AS 34)
5 of Ind AS 34 )
(vii) AS 25 requires furnishing information, in interim
(iii) As per AS 25, the contents of an interim financial report, of dividends, aggregate or per
financial report include, at a minimum, a share (in absolute or percentage terms), for
condensed balance sheet, a condensed equity and other shares. Ind AS 34 requires
statement of profit and loss, a condensed cash furnishing of information, in interim financial
flow statement and selected explanatory notes. report, on dividends paid, aggregate or per
Ind AS 34 requires, in addition to the above, a share separately for equity and other shares.
condensed statement of changes in equity. (Paragraph 16A(f) of Ind AS 34)
(Consequential to change in Ind AS 1)
(viii) While AS 25 requires furnishing of information
(iv) Ind AS 34 prohibits reversal of impairment loss on contingent liabilities only, Ind AS 34 requires
recognised in a previous interim period in furnishing of information on both contingent
respect of goodwill or an investment in either an liabilities and contingent assets, if they are
equity instrument or a financial asset carried at significant. (Paragraph 15B(m) of Ind AS 34)
cost. There is no such specific prohibition in AS
(ix) Ind AS 34 requires that, where an interim
25. Ind AS 34 includes Appendix A which
financial report has been prepared in
addresses the interaction between the
accordance with the requirements of Ind AS 34,
requirements of Ind AS 34 and the recognition
that fact should be disclosed. Further, an
of impairment losses on goodwill in Ind AS 36
interim financial report should not be described
and certain financial assets in Ind AS 109, and
as complying with Ind AS unless it complies
the effect of that interaction on subsequent
with all of the requirements of Ind AS (the latter
interim and annual financial statements
statement is applicable when interim financial
(v) Under AS 25, if an entity's annual financial statements are prepared on complete basis
report included the consolidated financial instead of `condensed basis'). AS 25 does not
statements in addition to the separate financial contain these requirements. (Paragraph 19 of
statements, the interim financial report should Ind AS 34)
include both the consolidated financial
(x) Under AS 25, a change in accounting policy,
statements and separate financial statements,
other than the one for which the transitional
complete or condensed. Ind AS 34 states that it
provisions are specified by a new Standard,
neither requires nor prohibits the inclusion of
should be reflected by restating the financial
the parent's separate statements in the entity's
statements of prior interim periods of the current
interim report prepared on a consolidated basis.
financial year. Ind AS 34 additionally requires
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Ind AS: Impact Analysis and Industry Experience
(xi) restatement of the comparable interim periods AS 28 does not apply to the above assets.
of prior financial years that will be restated in
(ii) Ind AS 36 specifically excludes biological
annual financial statements in accordance with
assets related to agricultural activity. AS 28
Ind AS 8, subject to specific provisions when
does not specifically exclude biological assets.
such restatement is impracticable.
Ind AS 36 requires annual impairment testing
(xii) Convergence of all other standards with IFRS for an intangible asset with an indefinite useful
also has impact on interim financial reporting. life or not yet available for use and goodwill
For example, treatment of constructive acquired in a business combination. AS 28
obligation in Ind AS 37, will have impact in does not require the annual impairment testing
interim financial reporting which could be for the goodwill unless there is an indication of
different in the context of relevant accounting impairment.
standards. There are other consequential
(iii) Ind AS 36 gives additional guidance on, inter
impacts also. For example, AS 20 requires EPS
alia, the following aspects compared to AS 28:
with and without extraordinary items. Since the
concept of extraordinary items is no longer valid (a) estimating the value in use of an asset;
in the context of Ind AS 1 the question of EPS (b) for managements to assess the
with and without extraordinary items does not reasonableness of the assumptions on
arise in the context of Ind AS 33. This changed which cash flows are based; and
requirement of Ind AS 33 is equally applicable
to interim financial reporting under Ind AS 34. (c) using present value techniques in
measuring an asset's value in use.
(xiii) Under AS 25, when an interim financial report is
presented for the first time in accordance with (iv) AS 28 requires that the impairment loss
that Standard, an entity need not present, in recognised for goodwill should be reversed in a
respect of all the interim periods of the current subsequent period when it was caused by a
financial year, comparative statements of profit specific external event of an exceptional nature
and loss for the comparable interim periods that is not expected to recur and subsequent
(current and year-to-date) of the immediately external events that have occurred that reverse
preceding financial year and comparative cash the effect of that event whereas Ind AS 36
flow statement for the comparable year-to-date prohibits the recognition of reversals of
period of the immediately preceding financial impairment loss for goodwill.
year. Ind AS 34 does not have this transitional (v) AS 28, goodwill is allocated to CGUs only when
provision. the allocation can be done on a reasonable and
Ind AS 36, Impairment of Assets and AS 28, consistent basis. If that requirement is not met
Impairment of Assets for a specific CGU under review, the smallest
CGU to which the carrying amount of goodwill
(i) Ind AS 36 applies to financial assets classified can be allocated on a reasonable and
as: consistent basis must be identified and the
(a) subsidiaries, as defined in Ind AS 110, impairment test carried out at this level. Thus,
when all or a portion of goodwill cannot be
(b) associates as defined in Ind AS 28, allocated reasonably and consistently to the
(c) joint ventures as defined in Ind AS 111 CGU being tested for impairment, two levels of
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Appendix B
impairment tests are carried out, viz., bottom-up provision for an onerous contract is established,
test and top-down test. In Ind AS 36, goodwill is an entity should recognise any impairment loss
allocated to cash-generating units (CGUs) or that has occurred on assets dedicated to that
groups of CGUs that are expected to benefit contract in accordance with Ind AS 36. There is
from the synergies of the business combination no such specific provision in AS 29.
from which it arose. There is no bottom-up or
(v) AS 29 states that identifiable future operating
top-down approach for allocation of goodwill.
losses up to the date of restructuring are not
Ind AS 37, Provisions, Contingent Liabilities included in a provision. Ind AS 37 gives an
and Contingent Assets and AS 29 , Provisions, exception to this principle viz. such losses
Contingent Liabilities and Contingent Assets related to an onerous contract.
(i) Unlike AS 29, Ind AS 37 requires creation of (vi) Ind AS 37 gives guidance on:
provisions in respect of constructive obligations (a) Rights to Interests arising from
also [However, AS 29 requires creation of Decommissioning, Restoration and
provisions arising out of normal business Environmental Rehabilitation Funds.
practices, custom and a desire to maintain good
business relations or to act in an equitable (b) Liabilities arising from Participating in a
manner]. This has resulted in some Specific Market -- Waste Electrical and
consequential changes also. For example, Electronic Equipment.
definitions of provision and obligating event (c) Levies (imposed by government).
have been revised in Ind AS 37, while the terms
`legal obligation' and `constructive obligation' AS 29 does not give such guidance.
have been inserted and defined in Ind AS 37. Ind AS 38, Intangible Assets and AS 26,
Similarly, the portion of AS 29 pertaining to Intangible Assets
restructuring provisions has been revised in Ind
AS 37. (i) AS 26 (paragraph 5) does not apply to
accounting issues of specialised nature that
(ii) AS 29 prohibits discounting the amounts of arise in respect of accounting for discount or
provisions except in case of decommissioning, premium relating to borrowings and ancillary
restoration and similar liabilities that are costs incurred in connection with the
recognised as cost of property, plant and arrangement of borrowings, share issue
equipment. Ind AS 37 requires discounting the expenses and discount allowed on the issue of
amounts of provisions, if effect of the time value shares. Ind AS 38 does not include any such
of money is material. exclusion specifically as these are covered by
(iii) AS 29 notes the practice of disclosure of other accounting standards.
contingent assets in the report of the approving Ind AS 38 contains scope exclusion with regard
authority but prohibits disclosure of the same in to the amortisation method for intangible assets
the financial statements. Ind AS 37 requires arising from service concession arrangements
disclosure of contingent assets in the financial in respect of toll roads recognised in the
statements when the inflow of economic financial statements before the beginning of the
benefits is probable. The disclosure, however, first Ind AS financial reporting period as per the
should avoid misleading indications of the previous GAAP, i.e., Schedule II to the
likelihood of income arising. Companies Act, 2013.
(iv) Ind AS 37 makes it clear that before a separate
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Ind AS: Impact Analysis and Industry Experience
(ii) AS 26 defines an intangible asset as an (vii) Ind AS 38 deals in detail in respect of intangible
identifiable non-monetary asset without physical assets acquired in a business combination. On
substance held for use in the production or the other hand, AS 26 refers only to intangible
supply of goods or services, for rental to others, assets acquired in an amalgamation in the
or for administrative purposes whereas in Ind nature of purchase and does not refer to
AS 38, the requirement for the asset to be held business combinations as a whole.
for use in the production or supply of goods or
(viii) AS 26 is silent regarding the treatment of
services, for rental to others, or for
subsequent expenditure on an in-process
administrative purposes has been removed from
research and development project acquired in a
the definition of an intangible asset. (Paragraph
business combination whereas Ind AS 38 gives
8 of Ind AS 38 )
guidance for the treatment of such expenditure.
(iii) AS 26 does not define `identifiability', but states (Paragraphs 42 and 43 of Ind AS 38)
that an intangible asset could be distinguished
(ix) Ind AS 38 requires that if an intangible asset is
clearly from goodwill if the asset was separable,
acquired in exchange of a non-monetary asset,
but that separability was not a necessary
it should be recognised at the fair value of the
condition for identifiability. Ind AS 38 provides
asset given up unless (a) the exchange
detailed guidance in respect of identifiability.
transaction lacks commercial substance or (b)
(Paragraphs 11 and 12 of Ind AS 38)
the fair value of neither the asset received nor
(iv) As per Ind AS 38, in the case of separately the asset given up is reliably measurable.
acquired intangibles, the criterion of probable However, the AS 26 requires the principles of
inflow of expected future economic benefits is AS 10 to be followed which require that when an
always considered satisfied, even if there is asset is acquired in exchange for another asset,
uncertainty about the timing or the amount of its cost is usually determined by reference to
the inflow. However, there is no such provision the fair market value of the consideration given.
in AS 26. (Paragraph 25 of Ind AS 38) It may be appropriate to consider also the fair
market value of the asset acquired if this is
(v) In Ind AS 38, there is a rebuttable presumption
more clearly evident. An alternative accounting
that an amortisation method that is based on
treatment to record the asset acquired at the net
the revenue generated by an activity that
book value of the asset given up; in each case
includes the use of an intangible asset is
an adjustment is made for any balancing receipt
inappropriate. Ind AS 38 allows use of revenue
or payment of cash or other consideration also.
based method of amortisation of intangible
asset, in a limited way. AS 26 does not (x) As per Ind AS 38, when intangible assets are
specifically deal with revenue based acquired free of charge or for nominal
amortisation method. consideration by way of government grant, an
entity should, in accordance with Ind AS 20,
(vi) Under Ind AS 38, if payment for an intangible
record both the grant and the intangible asset at
asset is deferred beyond normal credit terms,
fair value. As per AS 26, intangible assets
the difference between this amount and the total
acquired free of charge or for nominal
payments is recognised as interest expense
consideration by way of government grant is
over the period of credit unless it is capitalised
recognised at nominal value or at acquisition
as per Ind AS 23. However, there is no such
cost, as appropriate plus any expenditure that is
provision in AS 26. (Paragraph 32 of Ind AS 38)
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Appendix B
attributable to making the asset ready for (xv) As per AS 26 (Paragraph 73), there will rarely, if
intended use.(Paragraph 33 of AS 26 and ever, be persuasive evidence to support an
paragraph 44 of Ind AS 38) amortisation method for intangible assets that
results in a lower amount of accumulated
(x) AS 26 is based on the assumption that the
amortisation than under straight-line method.
useful life of an intangible asset is always finite,
Ind AS 38 does not contain any such provision.
and includes a rebuttable presumption that the
useful life cannot exceed ten years from the (xvi) Under Ind AS 38, the residual value is reviewed
date the asset is available for use. That at least at each financial year-end. If it
rebuttable presumption is not there in Ind AS increases to an amount equal to or greater than
38. Ind AS 38 recognizes that the useful life of the asset's carrying amount, amortisation
an intangible asset can even be indefinite charge is zero unless the residual value
subject to fulfillment of certain conditions, in subsequently decreases to an amount below
which case it should not be amortised but the asset's carrying amount. However, AS 26
should be tested for impairment. specifically requires that the residual value is
not subsequently increased for changes in
(xi) In Ind AS 38, guidance is available on cessation
prices or value.
of capitalisation of expenditure (Paragraph 30 of
Ind AS 38), de-recognition of a part of an (xvii) As per AS 26, change in the method of
intangible asset (Paragraph 115 of Ind AS 38) amortisation is a change in accounting policy
and useful life of a reacquired right in a whereas as per Ind AS 38 (paragraph 104), this
business combination (Paragraph 94 of Ind AS would be a change in accounting estimate.
38). There is no such guidance in AS 26 on
(xviii) Intangible assets retired from use and held for
these aspects.
sale are covered by the AS 26. However, Ind
(xii) Ind AS 38 permits an entity to choose either the AS 38 does not include such intangible assets
cost model or the revaluation model as its since they would be covered by Ind AS 105.
accounting policy, whereas in AS 26,
revaluation model is not permitted.
Ind AS 40, Investment Property and AS 13,
(xiii) Ind AS 38 provides more guidance on Accounting for Investments
recognition of intangible items recognised as
expense. Ind AS 38 clarifies that in respect of AS 13 provides limited guidance on investment
prepaid expenses, recognition of an asset would properties. As per AS 13, an enterprise holding
be permitted only upto the point at which the investment properties should account for them as per
entity has the right to access the goods or upto cost model prescribed in AS 10, Property, Plant and
the receipt of services. Further, unlike AS 26, Equipment . However, Ind AS 40 is a detailed standard
mail order catalogues have been specifically dealing with various aspects of investment property
identified as a form of advertising and accounting.
promotional activities which are required to be Ind AS 103, Business Combinations and AS
expensed. 14, Accounting for Amalgamations
(xiv) Paragraph 94 of Ind AS 38 acknowledges that (i) Ind AS 103 defines a business combination
the useful life of an intangible asset arising from which has a wider scope whereas AS 14 deals
contractual or legal rights maybe shorter than with amalgamation and mergers.
the legal life. AS 26 does not include such a
provision. (ii) Under AS 14, there are two methods of
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Ind AS: Impact Analysis and Industry Experience
(iii) accounting for amalgamation: the pooling of 14 does not provide specific guidance on this
interest method and the purchase method. Ind aspect.
AS 103 prescribes only the acquisition method
for every business combination. (Paragraph 7 of
(viii) Ind AS 103 requires bargain purchase gain
arising on business combination to be
AS 14)
recognised in other comprehensive income and
(iv) Under AS 14, the acquired assets and liabilities accumulated in equity as capital reserve, unless
are recognised at their existing book values or there is no clear evidence for the underlying
at fair values under the purchase method. Ind reason for classification of the business
AS 103 requires the acquired identifiable assets combination as a bargain purchase, in which
liabilities and non-controlling interest to be case, it shall be recognised directly in equity as
recognised at fair value under acquisition capital reserve. Under AS 14 the excess
method. (Paragraph 12 of AS 14 and amount is treated as capital reserve.
paragraphs 18-19 of Ind AS 103) (Paragraph 34 of Ind AS 103 and paragraph 17
of AS 14)
(iv) Ind AS 103 requires that for each business
combination, the acquirer shall measure any (ix) Appendix C of Ind AS 103 deals with accounting
non-controlling interest in the acquiree either at for common control transactions, which
fair value or at the non-controlling interest's prescribes a method of accounting different
proportionate share of the acquiree's from Ind AS 103. AS 14 does not prescribe
identifiable net assets. On the other hand, AS accounting for such transactions different from
14 states that the minority interest is the amount other amalgamations.
of equity attributable to minorities at the date on
which investment in a subsidiary is made and it
Ind AS 105, Non-current Assets Held for Sale
is shown outside shareholders' equity. and Discontinued Operations and AS 24,
(Paragraph 13(e) of AS 21 and paragraph 19 of Discontinuing Operations
Ind AS 103) (i) Ind AS 105 specifies the accounting for non-
(v) Under Ind AS 103, the goodwill is not amortised current assets held for sale, and the
but tested for impairment on annual basis in presentation and disclosure of discontinued
accordance with Ind AS 36. AS 14 requires that operations. AS 24 establishes principles for
the goodwill arising on amalgamation in the reporting information about discontinuing
nature of purchase is amortised over a period operations. It does not deal with the non-current
not exceeding five years. assets held for sale; fixed assets retired from
active use and held for sale, which are dealt in
(vi) Ind AS 103 deals with reverse acquisitions, AS 10, Accounting for Fixed Assets. (Paragraph
whereas AS 14 does not deal with the same. 1 of Ind AS 105 and `Objective' of AS 24)
(vii) Ind AS 103 deals with the contingent (ii) In AS 24, requirements related to cash flow
consideration in case of business combination, statement are applicable when the enterprise
i.e., an obligation of the acquirer to transfer presents a cash flow statement. Ind AS 105
additional assets or equity interests to the does not mention so. (Paragraph 2 of AS 24)
former owners of an acquiree as part of the
(iii) Under Ind AS 105, a discontinued operation is a
exchange for control of the acquiree if specified
component of an entity that either has been
future events occur or conditions are met. AS
117
Appendix B
disposed of or is classified as held for sale. In a component of an entity that represents a
AS 24, there is no concept of discontinued separate major line of business or geographical
operations but it deals with discontinuing area, or is a subsidiary acquired exclusively
operations. with a view to resale. Under AS 24, a
discontinuing operation is a component of an
(iv) As per Ind AS 105, the sale should be expected
entity that represents the major line of business
to qualify for recognition as a completed sale
or geographical area of operations and that can
within one year from the date of classification
be distinguished operationally and for financial
with certain exceptions. AS 24 does not specify
reporting purposes. (Paragraph 3 of AS 24 and
any time period in this regard as it relates to
paragraph 32 of Ind AS 15)
discontinuing operations.
Ind AS 108, Operating Segments and AS 17,
(v) AS 24 specifies about the initial disclosure
Segment Reporting
event in respect to a discontinuing operation.
Ind AS 105 does not mention so as it relates to (i) Identification of segments under Ind AS 108 is
discontinued operation. (Paragraph 15 of AS based on `management approach' , i.e.,
24) operating segments are identified based on the
internal reports regularly reviewed by the
(vi) Under Ind AS 105, non-current assets (disposal
entity's chief operating decision mak er. AS 17
groups) held for sale are measured at the lower
requires identification of two sets of segments;
of carrying amount and fair value less costs to
one based on related products and services,
sell, and are presented separately in the
and the other on geographical areas based on
balance sheet. AS 24 requires to apply the
the risks and returns approach. One set is
principles set out in other relevant Accounting
regarded as primary segments and the other as
Standards, e.g., AS 10 requires that the fixed
secondary segments.
assets retired from active use and held for
disposal should be stated at the lower of their (ii) Ind AS 108 requires that the amounts reported
net book value and net realisable value and for each operating segment shall be measured
shown separately in the financial statements. on the same basis as that used by the chief
operating decision maker for the purposes of
(vii) Ind AS 105 specifically mentions that
allocating resources to the segments and
abandonment of assets should not be classified
assessing its performance. AS 17 requires
as held for sale. In AS 24, abandonment of
segment information to be prepared in
assets is classified as a discontinuing operation;
conformity with the accounting policies adopted
however, changing the scope of an operations
for preparing and presenting the financial
or the manner in which it is conducted is not
statements. Accordingly, AS 17 also defines
abandonment and hence not a discontinuing
segment revenue, segment expense, segment
operation. (Paragraph 7 of AS 24 and
result, segment assets and segment liabilities.
paragraph 13 of Ind AS 105)
(iii) Ind AS 108 specifies aggregation criteria for
(viii) Ind AS 105 provides guidance regarding
aggregation of two or more segments and also
changes to the plan to sell non-current assets
requires the related disclosures in this regard.
(or disposal groups) which are classified as held
AS 17 does not deal specifically with this
for sale. AS 24 does not give any specific
aspect.
guidance regarding this aspect. (Paragraphs 26-
29 of Ind AS 105) (iv) An explanation has been given in AS 17 that in
case there is neither more than one business
(ix) As per Ind AS 105, a discontinued operation is
118
Ind AS: Impact Analysis and Industry Experience
(v) segment nor more than one geographical (i) Ind AS 110 makes the preparation of
segment, segment information as per this Consolidated Financial Statements mandatory
standard is not required to be disclosed. for a parent. AS 21 does not mandate the
However, this fact shall be disclosed by way of preparation of consolidated financial statements
footnote. Ind AS 108 requires certain by a parent. As per AS 21, control is the
disclosures even in case of entities having ownership of more than one-half of the voting
single reportable segment. power of an enterprise or control of the
composition of the board of directors or
(vi) An explanation has been given in AS 17 that
governing body. However, unlike rule based
interest expense relating to overdrafts and other
definition given in AS 21, definition of control in
operating liabilities identified to a particular
Ind AS 110 is principle based which states that,
segment should not be included as a part of the
an investor controls an investee when it is
segment expense. It also provides that in case
exposed, or has rights, to variable returns from
interest is included as a part of the cost of
its involvement with the investee and has the
inventories and those inventories are part of
ability to affect those returns through its power
segment assets of a particular segment, such
over the investee.
interest should be considered as a segment
expense. These aspects are specifically dealt (ii) AS 21 provides clarification regarding inclusion
with keeping in view that the definition of of notes appearing in the separate financial
`segment expense' given in AS 17 excludes statements of the parent and its subsidiaries in
interest. Ind AS 108 requires the separate the consolidated financial statements. However,
disclosures about interest revenue and interest Ind AS 110 does not provide any clarification in
expense of each reportable segment, therefore, this regard.
these aspects have not been specifically dealt (iii) Under AS 21, there can be more than one
with. parent of a subsidiary therefore AS 21 provides
(vii) Ind AS 108 requires disclosures of revenues clarification regarding consolidation in case an
from external customers for each product and entity is controlled by two entities. No
service. With regard to geographical clarification has been provided in this regard in
information, it requires the disclosure of Ind AS 110, keeping in view that as per the
revenues from customers in the country of definition of control given in Ind AS 110, control
domicile and in all foreign countries, non-current of an entity could be with one entity only.
assets in the country of domicile and all foreign (iv) As per AS 21, difference between the date of
countries. It also requires disclosure of the subsidiary's financial statements and that of
information about major customers. Disclosures the consolidated financial statements shall not
in AS 17 are based on the classification of the exceed 6 months. However, as per Ind AS 110
segments as primary or secondary segments. the difference shall not be more than three
Disclosure requirements for primary segments months.
are more detailed as compared to secondary
segments. (v) Ind AS 110 provides detailed guidance as
compared to AS 21 regarding accounting in
Ind AS 110, Consolidated Financial Statements case of loss of control over subsidiary.
and AS 21, Consolidated Financial Statements (vi) Both AS 21 and Ind AS 110, require the use of
119
Appendix B
(vii) uniform accounting policies. However, AS 21 (i) AS 27 recognises three forms of joint venture
specifically states that if it is not practicable to namely: a) jointly controlled operations, b)
use uniform accounting policies in preparing the jointly controlled assets and c) jointly controlled
consolidated financial statements, that fact entities. As per Ind AS 111, a joint arrangement
should be disclosed together with the is either a joint operation or a joint venture.
proportions of the items in the consolidated Such classification of joint arrangement
financial statements to which the different depends upon the rights and obligations of the
accounting policies have been applied. parties to the arrangement and disregards the
However, Ind AS 110 does not recognise the legal structure.
situation of impracticability.
(ii) AS 27 provides that in some exceptional cases,
(viii) As per AS 21, minority interest should be an enterprise by a contractual arrangement
presented in the consolidated balance sheet establishes joint control over an entity which is
separately from liabilities and equity of the a subsidiary of that enterprise within the
parent's shareholders. However, as per Ind AS meaning of Accounting Standard (AS) 21,
110, non-controlling interests shall be presented Consolidated Financial Statements . In those
in the consolidated balance sheet within equity cases, the entity is consolidated under AS 21 by
separately from the parent shareholders' equity. the said enterprise, and is not treated as a joint
(ix) For considering share ownership, potential venture. Ind AS 111 does not recognise such
equity shares of the investee held by investor cases keeping in view the definition of control
are not taken into account as per AS 21. given in Ind AS 110.
However, as per Ind AS 110, potential voting (iii) Ind AS 111 provides that a venturer can
rights that are substantive are also considered recognise its interest in joint venture using only
when assessing whether an entity has control equity method as per Ind AS 28. AS 27
over the subsidiary. prescribes the use of proportionate
(x) As per AS 21, subsidiary is excluded from consolidation method only.
consolidation when control is intended to be (iv) In case of separate financial statements under
temporary or when subsidiary operates under AS 27, interest in jointly controlled entity is
severe long term restrictions. Ind AS 110 does accounted for as per AS 13, Accounting for
not give any such exemption from consolidation. Investments, i.e., at cost less provision for other
than temporary decline in the value of
AS 21 explains where an entity owns majority of
investment. Ind AS 111 requires that the joint
voting power because of ownership and all the
operator shall recognise its interest in joint
shares are held as stock-in-trade, whether this
operation as given in the paragraphs 20-22 and
amounts to temporary control. AS 21 also
a joint venture in accordance with Ind AS 28,
explains the term `near future'. However, Ind AS
Investments in Associates and Joint Ventures .
110 does not explain the same, as these are not
relevant. (v) An explanation has been given in AS 27
regarding the term `near future' used in an
Ind AS 111, Joint Arrangements and AS 27, exemption given from applying proportionate
Financial Reporting of Interests in Joint consolidation method, i.e., where the
Ventures investment is acquired and held exclusively with
120
Ind AS: Impact Analysis and Industry Experience
(vi) a view to its subsequent disposal in the near rendering of services, interest, royalties and
future. This explanation has not been given in dividends. On the other hand, Ind AS 115
the Ind AS 111, as such situations are now comprehensively deals with all types of
covered by Ind AS 105, Non-current Assets performance obligation contract with customer
Held for Sale and Discontinued Operations . However, it does not deal with revenue from
`interest' and `dividend' which are covered in
(vii) AS 27 requires application of the proportionate
financial instruments standard.
consolidation method only when the entity has
(iv) As per AS 9, Revenue is the gross inflow of cash,
subsidiaries and prepares Consolidated
receivables or other consideration arising in the
Financial Statements. Ind AS 111 requires
course of the ordinary activities. Revenue is
application of equity method in financial
measured by the charges made to customers or
statements other than separate financial
clients for goods supplied and services rendered
statements in case of a joint venture, even if the
to them and by the charges and rewards arising
venturer does not have any subsidiary in the
from the use of resources by them. As per AS 7,
financial statements
revenue from construction contracts is measured
(viii) AS 21 provides clarification regarding disclosure at consideration received/receivable and to be
of venturer's share in post -acquisition reserves recognised as revenue as construction
of a jointly controlled entity. The same has not progresses, if certain conditions are met. As per
been dealt with in the Ind AS 111. Ind AS 115, revenue is measured at transaction
price, i.e., the amount of consideration to which an
Ind AS 115, Revenue from Contracts with
entity expects to be entitled in exchange for
Customers and existing AS 7, Construction transferring promised goods or services to a
Contracts, AS 9, Revenue recognition customer, excluding amounts collected on behalf
of third parties.
(i) Ind AS 115 gives a framework of revenue (v) As per AS 9, revenue is recognised when
recognition within a standard. It specifies the core significant risks and rewards of ownership is
principle for revenue recognition which requires transfered to the buyer. As per AS 7, revenue is
the `revenue to depict the transfer of promised recognised when the outcome of a construction
goods or services to customers in an amount that contract can be estimated reliably, contract
reflects the consideration to which the entity revenue should be recognised by reference to the
expects to be entitled in exchange for those goods stage of completion of the contract activity at the
or services'. AS 7 and AS 9 do not provide any reporting date. As per Ind AS 115, revenue is
such overarching principle to fall upon in case of recognised when the control is transferred to the
doubt. customer.
(ii) Ind AS 115 gives comprehensive guidance on (vi) Ind AS 115 provides guidance on recognition of
how to recognise and measure multiple elements costs to obtain and fulfill a contract, as asset,
within a contract with customer. AS 7 and AS 9 do whereas AS 7 and AS 9 do not deal with such
not provide comprehensive guidance on this capitalisation of costs.
aspect.
(iii) AS 7 covers only revenue from construction
contracts which is measured at consideration
received/receivable. AS 9 deals only with
recognition of revenue from sale of goods,
121
C. Exemptions under Ind AS 101, First-time statements are consolidated financial statements,
Adoption of Indian Accounting Standards the previous GAAP amount of the subsidiary
shall be that amount used in preparing and
PPE/Intangible Assets presenting consolidated financial statements.
Where a subsidiary was not consolidated under
D5 An entity may elect to measure an item of property, previous GAAP, the amount required to be
plant and equipment at the date of transition to Ind reported by the subsidiary as per previous GAAP
AS at its fair value and use that fair value as its in its individual financial statements shall be the
deemed cost at that date. previous GAAP amount. If an entity avails the
option under this paragraph, no further
D6 A first-time adopter may elect to use a previous adjustments to the deemed cost of the property,
GAAP revaluation of an item of property, plant and plant and equipment so determined in the
equipment at, or before, the date of transition to Ind opening balance sheet shall be made for
AS as deemed cost at the date of the revaluation, if transition adjustments that might arise from the
the revaluation was, at the date of the revaluation, application of other Ind AS. This option can also
broadly comparable to: be availed for intangible assets covered by Ind
(i) fair value; or AS 38, Intangible Assets and investment property
(ii) cost or depreciated cost in accordance with Ind covered by Ind AS 40, Investment Property.
AS, adjusted to reflect, for example, changes
in a general or specific price index. D8 A first-time adopter may have established a
deemed cost in accordance with previous GAAP
D7 The elections in paragraphs D5 and D6 are also for some or all of its assets and liabilities by
available for: measuring them at their fair value at one particular
(i) intangible assets that meet: date because of an event such as a privatization
(ii) the recognition criteria in Ind AS 38 (including or initial public offering.
reliable measurement of original cost); and (a) If the measurement date is at or before the
(iii) the criteria in Ind AS 38 for revaluation date of transition to Ind AS, the entity may
(including the existence of an active market). use such event-driven fair value
measurements as deemed cost for Ind AS at
An entity shall not use these elections for other the date of that measurement.
assets or for liabilities. (b) If the measurement date is after the date of
transition to Ind AS, but during the period
D7AA Where there is no change in its functional covered by the first Ind AS financial
currency on the date of transition to Ind AS, a statements, the event-driven fair value
first-time adopter to Ind AS may elect to continue measurements may be used as deemed cost
with the carrying value for all of its property, plant when the event occurs. An entity shall
and equipment as recognised in the financial recognise the resulting adjustments directly in
statements as at the date of transition to Ind AS, retained earnings (or if appropriate, another
measured as per the previous GAAP and use category of equity) at the measurement date.
that as its deemed cost as at the date of At the date of transition to Ind AS, the entity
transition after making necessary adjustments in shall either establish the deemed cost by
accordance with paragraph D21 and D21A, of applying the criteria in paragraphs D5D7 or
this Ind AS. For this purpose, if the financial
122
Ind AS: Impact Analysis and Industry Experience
measure assets and liabilities in accordance at the date of transition to Ind AS as deemed cost.
with the other requirements in this Ind AS. If an entity applies this exemption to an item, it
need not apply it to all items. At the date of
D8A Under some GAAP's exploration and development transition to Ind AS, an entity shall test for
costs for oil and gas properties in the development impairment in accordance with Ind AS 36 each
or production phases are accounted for in cost item for which this exemption is used. For the
centers that include all properties in a large purposes of this paragraph, operations are subject
geographical area. A first-time adopter using such to rate regulation if they are governed by a
accounting under previous GAAP may elect to framework for establishing the prices that can be
measure oil and gas assets at the date of charged to customers for goods or services and
transition to Ind AS on the following basis: that framework is subject to oversight and/or
(a) exploration and evaluation assets at the approval by a rate regulator (as defined in Ind AS
amount determined under the entity's 114, Regulatory Deferral Accounts).
previous GAAP; and
(b) assets in the development or production Equity Instrument at fair value through Other
phases at the amount determined for the cost Comprehensive Income
centre under the entity's previous GAAP. The
entity shall allocate this amount to the cost D19B An entity may designate an investment in an equity
centre's underlying assets pro rata using instrument as at fair value through other
reserve volumes or reserve values as of that comprehensive income in accordance with
date. paragraph 5.7.5 of Ind AS 109 on the basis of the
facts and circumstances that exist at the date of
The entity shall test exploration and evaluation transition to Ind AS.
assets and assets in the development and
production phases for impairment at the date of Leases
transition to Ind AS in accordance with Ind AS
106, Exploration for and Evaluation of Mineral D9 A first-time adopter may apply paragraphs 6-9 of
Resources, or Ind AS 36 respectively and, if the Appendix C of Ind AS 17 Determining whether
necessary, reduce the amount determined in an Arrangement contains a Lease to determine
accordance with (a) or (b) above. For the whether an arrangement existing at the date of
purposes of this paragraph, oil and gas assets transition to Ind AS contains a lease on the basis
comprise only those assets used in the of facts and circumstances existing at the date of
exploration, evaluation, development or production transition to Ind AS, except where the effect is
of oil and gas. expected to be not material.
D8B Some entities hold items of property, plant and D9A If a first-time adopter made the same
equipment or intangible assets that are used, or determination of whether an arrangement
were previously used, in operations subject to rate contained a lease in accordance with previous
regulation. The carrying amount of such items GAAP as that required by Appendix C of Ind AS-
might include amounts that were determined 17 but at a date other than that required by D9
under previous GAAP but do not qualify for above, the first-time adopter need not reassess
capitalisation in accordance with Ind AS. If this is that determination when it adopts Ind AS. For an
the case, a first-time adopter may elect to use the entity to have made the same determination of
previous GAAP carrying amount of such an item
123
Appendix C
whether the arrangement contained a lease in instruments, it may do so only if the entity has
accordance with previous GAAP, that disclosed publicly the fair value of those equity
determination would have to have given the same instruments, determined at the measurement date,
outcome as that resulting from applying Ind AS 17, as defined in Ind AS 102. For all grants of equity
Leases, and Appendix C of Ind AS 17. instruments to which Ind AS 102 has not been
applied (eg, equity instruments vested but not
D9AA When a lease includes both land and building settled before date of transition to Ind AS, a first-
elements, a first time adopter may assess the time adopter shall nevertheless disclose the
classification of each element as finance or an information required by paragraphs 44 and 45 of
operating lease at the date of transition to Ind AS Ind AS 102. If a first-time adopter modifies the
on the basis of the facts and circumstances terms or conditions of a grant of equity
existing as at that date. If there is any land lease instruments to which Ind AS 102 has not been
newly classified as finance lease then the first applied, the entity is not required to apply
time adopter may recognise assets and liability at paragraphs 2629 of Ind AS 102 if the
fair value on that date; and any difference modification occurred before the date of transition
between those fair values is recognised in to Ind AS.
retained earnings.
D3 A first-time adopter is encouraged, but not
Business Combinations required, to apply Ind AS 102 to liabilities arising
from share-based payment transactions that were
C1 A first-time adopter may elect not to apply Ind AS settled before the date of transition to Ind AS.
103 retrospectively to past business combinations
(business combinations that occurred before the Financial Instruments Fair Value
date of transition to Ind AS). However, if a first-
time adopter restates any business combination to B8C If it is impracticable (as defined in Ind AS 8) for an
comply with Ind AS 103, it shall restate all later entity to apply retrospectively the effective interest
business combinations and shall also apply Ind method in Ind AS 109, the fair value of the
AS 110 from that same date. For example, if a financial asset or the financial liability at the date
first-time adopter elects to restate a business of transition to Ind AS shall be the new gross
combination that occurred on 30 June 2010, it carrying amount of that financial asset or the new
shall restate all business combinations that amortised cost of that financial liability at the date
occurred between 30 June 2010 and the date of of transition to Ind AS.
transition to Ind AS, and it shall also apply Ind AS
110 from 30 June 2010. Service Concession Arrangements
Share based Payments D22 A first-time adopter may apply the following
provisions while applying the Appendix A to Ind
D2 A first-time adopter is encouraged, but not AS 11:
required, to apply Ind AS 102 Share-based i) Subject to paragraph (ii), changes in
payment to equity instruments that vested before accounting policies are accounted for in
date of transition to Ind AS. However, if a first-time accordance with Ind AS 8, i.e.,
adopter elects to apply Ind AS 102 to such equity retrospectively, except for the policy adopted
124
Ind AS: Impact Analysis and Industry Experience
for amortization of intangible assets arising D15 If a first-time adopter measures such an
from service concession arrangements investment at cost in accordance with Ind AS 27, it
related to toll roads recognised in the financial shall measure that investment at one of the
statements for the period ending immediately following amounts in its separate opening Ind AS
before the beginning of the first Ind AS Balance Sheet:
financial reporting period as per the previous (a) cost determined in accordance with Ind AS
GAAP. 27; or
ii) If, for any particular service arrangement, it is (b) deemed cost. The deemed cost of such an
impracticable for an operator to apply this investment shall be its:
Appendix retrospectively at the date of (i) fair value at the entity's date of transition to
transition to Ind AS, it shall: Ind AS in its separate financial statements;
(a) recognise financial assets and intangible or
assets that existed at the date of (ii) previous GAAP carrying amount at that
transition to Ind AS; date.
(b) use the previous carrying amounts of A first-time adopter may choose either (i) or
those financial and intangible assets (ii) above to measure its investment in each
(however previously classified) as their subsidiary, joint venture or associate that it
carrying amounts as at that date; and elects to measure using a deemed cost.
(c) test financial and intangible assets
recognised at that date for impairment, Long Term Foreign Currency Monetary Items
unless this is not practicable, in which
case the amounts shall be tested for D13AA A first-time adopter may continue the policy
impairment as at the start of the current adopted for accounting for exchange differences
period. arising from translation of long-term foreign
iii) There are two aspects to retrospective currency monetary items recognised in the
determination: reclassification and financial statements for the period ending
remeasurement. It will usually be practicable immediately before the beginning of the first Ind
to determine retrospectively the appropriate AS financial reporting period as per the previous
classification of all amounts previously GAAP.
included in an operator's Balance Sheet, but
that retrospective remeasurement of service Foreign Currency Translation Reserve
arrangement assets might not always be
practicable. However, the fact should be D12 Ind AS 21 requires an entity:
disclosed. (a) to recognise some translation differences in
other comprehensive income and accumulate
Investments in subsidiaries, joint ventures and these in a separate component of equity; and
associates (b) on disposal of a foreign operation, to
reclassify the cumulative translation
D14 When an entity prepares separate financial difference for that foreign operation (including,
statements, Ind AS 27 requires it to account for its if applicable, gains and losses on related
investments in subsidiaries, joint ventures and hedges) from equity to profit or loss as part of
associates either: the gain or loss on disposal.
(a) at cost; or
(b) in accordance with Ind AS 109.
125
Appendix C
D13 However, a first-time adopter need not comply with the amount that would have been included in
these requirements for cumulative translation the cost of the related asset when the liability
differences that existed at the date of transition to first arose, by discounting the liability to that
Ind AS. If a first-time adopter uses this exemption: date using its best estimate of the historical
(a) the cumulative translation differences for all risk-adjusted discount rate(s) that would have
foreign operations are deemed to be zero at applied for that liability over the intervening
the date of transition to Ind AS; and period; and
(b) the gain or loss on a subsequent disposal of (c) calculate the accumulated depreciation on
any foreign operation shall exclude translation that amount, as at the date of transition to Ind
differences that arose before the date of AS, on the basis of the current estimate of the
transition to Ind AS and shall include later useful life of the asset, using the depreciation
translation differences. policy adopted by the entity in accordance
with Ind AS.
Decommissioning liabilities
D21A An entity that uses the exemption in paragraph
D21 Appendix `A' to Ind AS 16 Changes in Existing D8A(b) (for oil and gas assets in the
Decommissioning, Restoration and Similar development or production phases accounted for
Liabilities requires specified changes in a in cost centers that include all properties in a
decommissioning, restoration or similar liability to large geographical area under previous GAAP)
be added to or deducted from the cost of the asset shall, instead of applying paragraph D21 or
to which it relates; the adjusted depreciable Appendix A of Ind AS 16:
amount of the asset is then depreciated (a) measure decommissioning, restoration and
prospectively over its remaining useful life. A first- similar liabilities as at the date of transition to
time adopter need not comply with these Ind AS in accordance with Ind AS 37; and
requirements for changes in such liabilities that
occurred before the date of transition to Ind AS. If (b) recognise directly in retained earnings any
a first-time adopter uses this exemption, it shall: difference between that amount and the
(a) measure the liability as at the date of carrying amount of those liabilities at the date
transition to Ind AS in accordance with Ind AS of transition to Ind AS determined under the
37; entity's previous GAAP.
(b) to the extent that the liability is within the
scope of Appendix A of Ind AS 16, estimate
126
D. Industry Survey- A Questionnaire
Networth > = or Rs.500 Cr but < Rs.5,000
Cr
Ind AS Impact Study- Phase I-Questionnaire
10. Company's international activities in terms of
BACKGROUND INFORMATION ABOUT THE operations, suppliers and customers? *
COMPANY Mark only one oval.
Significant activity
* Required
1. Email address * Moderate activity
2. Full Name * No
3. Name of your organization * QUALITY AND TRANSPARENCY OF IND AS
FINANCIAL STATEMENTS
4. Role/Title/Designation within the organization *
11. How effective are Ind AS in reflecting the economic
5. If part of a group name of the holding substance of the business transactions on a fair and
company * transparent basis?
Mark only one oval.
6. Sector/Industry * Very effective
7. Whether Listed or Unlisted * Moderately effective
Mark only one oval.
No change
Listed
Less effective than previous Standards
Unlisted
Not effective
8. If your company is unlisted, are you in the process of
being listed? * No comments
Mark only one oval.
Yes 12. Which area/areas of Accounting Disclosure have
improved significantly as a result of implementation
No of Ind AS?
Check all that apply.
9. Based on Net worth, the size of your company Financial Instruments
Mark only one oval.
Networth > =Rs.10,000 Cr Business Combinations
Networth > = to Rs.5000 Cr but
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