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    Road Map To Indaian AS

    Presently, the Institute of Chartered Accountants of India (ICAI) has issued 39 Indian Accounting Standards (Ind AS) which have been notified under the Companies (Indian Accounting Standards) Rules, 2015 (“Ind AS Rules”), of the Companies Act, 2013. The Rule specifies the Indian Accounting Standards (Ind AS) applicable to certainclass of companies and set out the dates of applicability.

     

    India has chosen a path of International Financial Reporting Standards (IFRS) convergence rather than adoption. Hence, Ind AS is primarily based on the IFRS issued by the International Accounting Standards Board (IASB).

     

    Applicability of Ind AS As per the notification released by the Ministry of Corporate Affairs (MCA) on 16

     

    February 2015, the roadmap for Ind AS implementation is as follows:

     

    Financial

    YearApplicable to ( Mandatory)

     

     

     

     

    2016-17

    §Companies (listed and unlisted) whose net worth is equal to or

     

     

    greater than 500 crore INR

     

     

    §Holding, subsidiaries, joint ventures or associates of these

     

     

    companies

     

     

     

     

    2017-18

    §Listed Companies whose net worth is less than INR 500 crore

     

     

    §Unlisted companies whose net worth is equal to or greater than 250

     

     

    crore INR and all listed companies

     

     

    §Holding,  subsidiaries,  joint  ventures  or  associates  of  these

     

     

    companies

     

     

     

     

    2018-19 onwards

    When a company’s net worth becomes greater than 250 crore INR

     

     

     

     

     

     

     

    Net worth for a company is to be calculated in accordance with its stand – alone financial statement as at 31 March 201X or the first audited financial statements for accounting period which ends after that date.

     

    For the purpose of computing the net worth, reference should be made to the definition under the Companies Act, 2013. In accordance with section 2 (57) of the Companies Act, 2013, net worth is computed as follows:

    Ind AS will apply to both consolidated as well as standalone financial statements of a company. Overseas subsidiary, associate, joint venture and other similar entity (ies) of an Indian company may prepare its stand-alone financial statements in accordance with the requirements of the specific jurisdiction. However, for group reporting purpose (s), it will have to report to its Indian parent under Ind AS to enable its parent to present CFS in accordance with Ind AS.

     

    As per exemption under Rule 5, Insurance companies, banking companies and non-banking finance companies are not required to apply Ind AS for preparing their financial statements either voluntarily or mandatorily, as specified in the roadmap (sub-rule (1) of rule 4).

     

    Principles of Ind AS

     

    The entities’ general purpose financial statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. These users include shareholders, creditors, employees and the general public.

     

    A complete set of financial statements under Ind AS includes the following:

     

    vBalancesheet at the end of the period

    vStatement of profit and loss for the period

    vStatement of changes in equity for the period

     

    vStatement of cash flows for the period; notes, comprising a summary of significant accounting policies and other explanatory information

     

    vComparative financial information in respect of the preceding period as specified vBalance sheet as at the beginning of the preceding period when an entity applies an accounting

     

    policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements having an impact on the balance sheet as at the beginning of the preceding period.

     

    Transition to Ind AS is beyond “Accounting Change”

     

    Considering the potential wide-ranging effects of the transition, the implementation effort would impact functions outside of the finance department, including IT, legal, sales, marketing, human resources, investor relations and senior management.

     

    A number of related workstreams should be considered in this effort, including:

     

    • Accounting and financial reporting system
    • Taxation

     

    §Business processes and systems §Change management, communicating and training

    Differences between Indian GAAP and Ind AS in certain critical areas

     

    1. Ind AS 109 – Financial Instruments

     

    Indian GAAP does not include mandatory guidance on accounting for financial instruments. Standards for accounting for financial instruments are used as a reference and have not been notified by the MCA. As per the existing roadmap, India will directly transition to Ind AS 109, ahead of the equivalent IFRS 9, which will be implemented in 2018 in other jurisdictions that have adopted IFRS or permit IFRS.

     

    1. Ind AS 110 - Consolidated Financial Statements

     

    Ind AS 110 establishes a single control model for all entities (including special purpose entities, structured entities or variable interest entities). The implementation of this standard will require management to exercise significant judgment to determine which entities are controlled and are, therefore, required to be consolidated. It changes whether an entity is consolidated, by revising the definition of control. This is a radical change in the Indian environment, because by applying the new ‘control’ definition, it may change which entities are included within a group.

     

    1. Ind AS 115 – Revenue Recognition

     

    The core principle of this standard is that an entity will recognize revenue when it transfers control over goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for underlying performance obligations arising from the transaction. This will require entities to use more judgment and make more estimates than under today’s revenue standards. Ind AS 115 is likely to have an impact on the identification of performance obligations, warranties, sales incentives, right of return and options granting a material right. In such a scenario, it will be critical for companies to clearly understand the effects of the new standard, provide early communication to stakeholders and undertake advanced planning.

     

    1. Ind AS 103 - Business Combination

     

    Under extant Indian GAAP, there is no comprehensive standard for business combinations. There are separate standards that deal with amalgamation, consolidation and assets acquisition. Ind AS 103 will apply to all business combinations, including amalgamations. Once Ind AS 103 is effective, all assets and liabilities acquired will be recognized at fair value. Additionally, contingent liabilities and intangible assets not recorded in the acquiree’s balance sheet are likely to be recorded in the acquirer’s balance sheet on acquisition date. Goodwill on acquisition will not be amortized, but may only be tested for impairment.

     

    Different terminology is used in Ind AS when compared to IFRS, e.g. the term ‘balance sheet’ is used instead of ‘statement of financial position’ and ‘statement of profit and loss’ is used instead of ‘statement of comprehensive income’.

     

    Net worth means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

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