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Ind AS: Implementation to Acceptability- A Review

*Kamala Kant Das1

SRF-RGNF

Department of Business Administration

Sambalpur University Jyoti Vihar,

Burla- 768019, Odisha, India

*Mail ID: [email protected]

Prof. (Dr). A. K. Das Mohapatra2 Professor

Department of Business Administration

Sambalpur University Jyoti Vihar,

Burla- 768019, Odisha, India

Mail ID: [email protected]

Abstract

International financial reporting standards, commonly known as IFRS, is a set of high

quality, understandable, enforceable and globally acceptable principle based accounting

standards for the preparation of financial statements. In India the IFRS has been converged

the Indian Accounting Standard and termed to be called as Ind AS in order to get aligned

with IFRS. Ind AS has certain modifications and changes in the existing accounting standards

as per periodic amendments. Broadly, the 41 Ind AS have changes and modifications in the

form of valuation of assets and liabilities, revenue reorganization, employees benefit,

business combination, financial instrument, property plant and equipment which influence the

financial statement of Indian corporations to an extent. This paper reviews the

implementation journey of Ind AS with the latest amendments and examines the changes and

modifications that having impact retrospective and prospective on the financial statements of

Indian corporations. The study concludes that broadly, net income, revenue reorganization,

business combination, financial instrument and property plant and equipment have significant

impact on different industries after convergence. However, other financial indicator like

EBIT, EPS and ROE also affect with different industry specific.

Keywords: IFRS, Ind AS, Implementation, Convergence, Impact, Financial Statement

1. Introduction

International financial reporting standards, commonly known as IFRS, is a set of high quality,

understandable, enforceable and globally acceptable principle based accounting standards for

the preparation of financial statements. Accounting and reporting of financial statements,

have been coined as the universal language of business. It is essential for every business for

identifying, measuring, recording and communicating the relevant, reliable, consistent and

comparable information about the organization’s economic activities. Accounting as a

Journal of Information and Computational Science

Volume 10 Issue 2 - 2020

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mailto:[email protected]

mailto:[email protected]

discipline has existed since the fifteenth Century and in this era, it is considered as one of the

fastest growing fields of knowledge. After the World War II, each country had its own

Generally Accepted Accounting Principles (GAAP). However, countries, namely, Australia,

Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, Ireland, and

the United States of America formed a separate committee known as the International

Accounting Standards Committee (IASC) in the year nineteen seventy three with an

agreement of the professional accountancy bodies. This IASC got split into two independent

accounting standard setting body, namely, Standard Interpretation Committee (SIC), in the

year nineteen seventy five and International Accounting Standards (IAS) in the year nineteen

seventy five. In order to achieve in that accounting practice across the world a new

accounting standard setting board namely the, International Accounting Standard boards

(IASB) formed in the year two thousand (and) one with the joint efforts of IAS and SIC. The

IASB was and independent standard setting bodies are responsible for the development and

publication of International Financial Reporting Standard IFRS by the year two thousand

(and) five. Accounting standards are prepared with an open and transparent process by close

consultation with stakeholders around the world.

The use of IFRS as a universal financial reporting language is gaining momentum across the

globe. With the establishment of the International Accounting Standards Committee (IASC)

in 1973, interest on a single globalised accounting system has increased significantly. In a

study by Barbu & Baker in the year two thousand (and) seven the evolution of accounting

harmonization process has been highlighted. FASB formulated the Accounting Conceptual

Framework in the year nineteen seventy-eight, shortly followed by the IASB in the year

nineteen eighty-nine which is largely based on the American accounting concepts. Zeff in the

year two thousand (and) twelve attested to the central role of IASC, or now IASB in the year

two thousand (and) one that puts efforts to acquire global legitimacy in terms of accounting

normalization. IASB strives to attract and mobilise the values of other countries’

commissions, national professional and state organizations in the international accounting

harmonization project.

The most important influence on the work of the IASC was that of International Organization

of Securities Commissions (IOSCO), Standards Interpretation Committee (SIC) in the year

nineteen seventy-five which gave a helping hand to IASC to prepare IAS. Further the U.S.

Securities and Exchange Commission (SEC) within IOSCO, IASC going through a process

of deep reshaping the standard and pattern of Financial Accounting Standards Board (FASB).



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With the recommendations on shaping IASC the foundations of IASCF settled and IASB

body arises which is part of the IASCF as per report nineteen ninety-nine. The convergence

of international accounting standard process began with the “Norwalk Agreement "(2002) that

aimed at enhancing the compatibility of financial reporting standards. To carry the primary

motive of “Norwalk Agreement " several Memorandum of Understanding (MoU) has been

signed every successive year starting from two thousand (and) six with different countries for

shifting the country specific GAAP to IFRS (full adoption) or IFRS aligned (convergence).

Figure 1 depicts the evaluation of IFRS implementation in the world.

Figure 1: Evolution of International Financial Reporting Standard

Source: Compiled from review of literature

As of now 166 Jurisdictions countries including all G20 countries have implemented IFRS

and the number is expected to increase in the coming years. The breakup of all Jurisdictions

countries has been given in Table 1.

Table 1: Number of jurisdictions implemented IFRS

Number of Jurisdictions percent from total

Jurisdictions

Europe 44 27

Africa 38 23

Middle East 13 8

Asia and Oceania 34 20

Americas 37 22



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Total 166 100

Source: www.ifrs.org

2. IFRS in India

European Union, Australia, New Zealand and Russia have already adopted IFRS for listed

companies. China has started the adoption of IFRS from 2008 and Canada has decided to

adopt the same from 2011. With regard to India, the Ministry of Corporate Affairs has

committed to converge the Indian Accounting Standards (henceforth-called IND AS) with the

IFRS effective 1st April 2011 as per G-20 commitment. the Central Government prescribes

accounting standards in consultation with the National Advisory Committee on Accounting

Standards (NACAS) established under the Companies Act, 1956. NACAS

At present, Ministry of Corporate Affairs the autonomous body to formulates and issues

accounting standards whit the help of National Advisory Committee on Accounting

Standards (NACAS) and Institute of Chartered Accountants of India (ICAI). NACAS and

ICAI have the authority to advise and/or recommend for implication and/or for modification

of new and old accounting standards as per the requirements. But the MCA has the sole

authority to take the final decision for shaping and formulating the accounting standards in

India.

A total implementation of IFRS (Ind AS) is difficult as it involves a complex process due to

diversification of trade practices, several propagating authorities, less preparedness, lack of

efficient preparers. So the IFRS task force, i.e., the MCA, NACAS, ICAI were set up a road

map for convergence with different time breakups and net worth of the companies. The time

breakups are classified as (from 1st April 2011); (from 1st April 2016); (from 1st April 2017);

(from 1st April 2018); (from 1st April 2019) to implement IFRS mandatorily and/or voluntarily

(from 1st April 2015) based on the net worth, listed and/or unlisted, all companies except

NBFCs and the NBFCs companies. The above road map for implementation of Ind AS is

depicted in Table 2.

Table 2: Phase wise implementation of Ind AS in India

Time break ups Adoption

Phase Requirement for implementation

Phase 1- from (1st

April 2011) Mandatory

Adoption

Listed and Unlisted companies with net worth more

than Rs. 1000 Crores (10 billion USD)

Phase 2 from (1st

April 2016)

Companies whose equity and/or debt securities are

listed or are in the process of listing on any stock

exchange in India or outside India (listed companies)



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and having net worth of Rs. 500 crores (5 billion

USD) or more.

Unlisted companies having a net worth of Rs. 500

crores (5 billion USD) or more.

Holding, subsidiary, joint venture or associate

companies of the listed and unlisted companies

covered above.

Phase 3 from (1st

April 2017)

Listed companies having net worth of less than Rs.

500 crore (5 billion USD).

Unlisted companies having net worth of Rs. 250 (2.5

billion USD) crore or more but less than Rs. 500 crore

(5billion USD) .

Holding, subsidiary, joint venture or associate

companies of companies listed or are in the process of

being listed on any stock exchange in India or outside

India

From (1st

April

2015)

Volu

nta

ry

Ad

op

tion

Any companies can adopt voluntarily IFRS

But they have authorized only to Opt in

If a parent company Opt in IFRS then subsidiaries

automatically aligned with IFRS.

Non-Banking Financial Companies (NBFCs

2018-19 1. NBFCs having net worth of rupees Rs.500 crore (5

billion USD) or more;

2. Holding, subsidiary, joint venture or associate



India.

2019-20 1. NBFCs whose equity or debt securities are listed or

in the process of listing on any stock exchange in

India or outside India and having net worth less than

Rs. 500 crore;

2. NBFCs, that are unlisted companies, having net worth

of Rs. 250 crore (2.5 billion USD) or more but less

than Rs. 500 crore (5 billion USD) and

3. Holding, subsidiary, joint venture or associate



India

Source: Compiled from the review of literature

N.B: Net worth- The definition of "net worth" is as per section 2(57) of the Companies Act,

2013. As per that section, net worth means the paid-up share capital + reserves created out of

the profits (excludes reserves created out of revaluation of assets, write-back of depreciation

and amalgamation) + securities premium account – accumulated losses – deferred

expenditure – miscellaneous expenditure not written off as per the audited balance sheet



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In India, as far as the Ind AS is concerned all most all policy formation mechanism has the

indeed interest and need for intervention for the smooth running of the federal Eco-system.

The change in accounting policy, principles, and methods will immensely affect in different

ways to the different institutions and corporations. Before the implementation of Ind AS,

MCA has taken the recommendation of all the following Intervening propagating authority as

consideration depicted in Figure 2.

Figure 2: The Intervening propagating authority in conversance process of Ind As

Source: Ramannan K. (2013)‘The International Politics of IFRS Harmonization’

Ministry of Corporate Affair (MCA) and Institute of Chartered Accountant of India (ICAI)

have introduced 41 Ind AS by merging and splitting of AS, IAS, and IFRS as on 2018. The

detailed list of compilation of Ind AS is as in Table 3.

Table 3: List of Ind AS with Compilations From AS, IAS, and IFRS

List of Ind AS Compilations From AS, IAS,IFRS,

Ind AS 101: First Time Adoption of Indian

Accounting Standards

IFRS 1 : First time Adoption of International

Financial Reporting Standards

Ind AS 102: Share based payment IFRS 2 :Share-based Payment

Ind AS 103: Business combinations IFRS 3 :Business Combinations

AS 14: Accounting for amalgamations

Ind AS 104: Insurance Contracts IFRS 4 :Insurance Contracts

Ind AS 105: Non Current Assets Held for

Sale and Discontinued operations

IFRS 5: Non-current Assets Held for Sale and

Discontinued Operations

AS 24: Discontinuing operations

Ind AS 106:Exploration for and Evaluation IFRS 6:Exploration for and Evaluation of



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of Mineral Resources Mineral Resources

Ind AS 107: Financial Instruments:

Disclosures

IFRS 7/ AS 32: Financial Instruments:

Disclosures

Ind AS 108: Operating Segments

IFRS 8: Operating Segments

AS 17: Segment Reporting

Ind AS 109: Financial Instruments

AS 30 : Financial Instruments Accounting

IAS 39: Financial instrument Reorganisation

and measurement

IFRS 9: Financial Instrument

Ind AS 110: Consolidated Financial

Statement

IAS 27: Consolidated Financial Statements

Ind AS 111: Joint Arrangements IFRS 11: Joint Arrangements

AS 27: Financial Reporting of Interests in

Joint Ventures

Ind AS 112: Disclosure of Interest in other

entities

IFRS 12: Disclosure of Interests in Other

Entities

Ind AS 113

Fair Value Measurement

IFRS 13: Fair Value Measurement

Ind AS 114

Regulatory Deferral Accounts

IFRS 12: Disclosure of Interests in Other

Entities

Ind AS 115: Revenue from contracts with

costumers (Applicable from April 2018)

AS 9: Revenue Recognition

IAS 18: Revenue

Ind AS 1: Presentation of Financial

Statements

IAS 1: Presentation of Financial Statement

AS 1: Disclosure of Accounting Policies

Ind AS 2: Inventories Accounting IAS 2: Inventories

AS 2: Valuation of Inventories

Ind AS 7: Statements of Cash Flows IAS 7: Cash Flow Statement

AS 3: Cash Flow Statements

Ind AS 8: Accounting Policies, Changes in

Accounting Estimates and Errors

IAS 8: Accounting Policies, Changes in

Accounting Estimates and Errors

AS 5: Net Profit or Loss for the Period, Prior

Period Items and Changes in Accounting

Policies

Ind AS 10: Events after the Reporting

Period

IAS 10: Events after the Reporting Period

AS 4: Events Occurring after the Balance

Sheet Date

Ind AS 11: Construction Contracts

(Omitted by the companies (Indian

Accounting Standard) Amendment Rules

2018 )

IAS 11 and AS 7: Construction Contracts

Ind AS 12: Income taxes IAS 12: Income Taxes

AS 22: Accounting for taxes on income

Ind AS 16: Property, Plant and Equipment IAS 16: Property, Plant and Equipment

AS 10: Accounting for Fixed Assets

Ind AS 17: Leases IAS 17, AS 19 : Leases

Ind AS 18: Revenue (Omitted by the

Companies (Ind AS) Amendment Rules

2018)

IAS 18: Revenue



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Ind AS 19: Employee Benefits IAS 19, AS 15: Employee Benefits

Ind AS 20: Accounting for government

grants and disclosure of Government

Assistance

AS 12: Accounting for government grants

Ind AS 21: The Effects of Changes in

Foreign Exchange Rates

IAS 21 and AS 11 : The Effects of Changes in

Foreign Exchange Rates

Ind AS 23: Borrowing costs IAS 23: Borrowing costs

AS 16: Accounting Standards for Borrowing

Cost Explained

Ind AS 24: Related Party Disclosures IFRS 12: Disclosure of Interests in Other

Entities

AS 18: Related Party Disclosures

Ind AS 27: Separate Financial Statements IAS 27: Consolidated Financial Statement

AS 23: Accounting for Investment

Ind AS 28: Investments in Associates and

Joint Ventures

IAS 28: Investments in Associates

AS 23 : Accounting for Investments in

Associates in Consolidated Financial

Statements

Ind AS 29: Financial Reporting in

hyperinflationary Economies

IAS 29: Financial Reporting in

hyperinflationary Economies

Ind AS 32:Financial Instruments –

Presentation

IAS 32: Financial Instruments – Presentation

AS 31: Financial Instruments – Presentation

Ind AS 33: Earnings Per Share IAS 33 and AS 20: Earnings Per Share

Ind AS 34: Interim Financial Reporting IAS 34, AS 25: Interim Financial Reporting

Ind AS 36: Impairment of assets IAS 36, AS 28: Impairment of assets

Ind AS 37: Provisions, Contingent

Liabilities and Contingent Assets

IAS 37 and AS 29: Provisions, Contingent

Liabilities and Contingent Assets

Ind AS 38: Intangible Assets IAS 38 and AS 26: Intangible Assets

Ind AS 40: Investment Property IAS 40: Investment property

AS 13: Accounting for Investments

Ind AS 41: Agriculture IAS 41: Agriculture

Source: Compilation from the review of literature

In order to converge with IFRS, The Institute of Chartered Accountant of India (ICAI)

introduce 41 Ind AS by the latest amendment as of 2018. Most of the Ind AS are seemingly at

par with previous Indian GAAP Accounting standards except some Ind AS such as Ind AS

01, 102, 106, 110, 113, 114, 18, 29, 41 (ICAI 2018 Amendment).

The new sets of accounting standards are benchmarked to the International Financial

Reporting Standards (IFRS). The shift will make Indian corporate accounts comparable

internationally, fulfilling the gaps, provide principles for recognition of assets and revenues,

measurement, treatment, presentation and disclosures of accounting transactions in Ind AS

financial statements. It is most advantageous for international investors as multinational

companies, have the universal harmonising disclosure practice which reduces the

international differences in reporting standards and fulfil the requirement of the stock



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exchanges around the world [4], [9]. Ind AS as parallel to IFRS will increases the

transparency and loss recognition which not only the benefit for the investors but also for

management and enhance the corporate governance practices. further Ind AS will improved

consistency and transparency of financial reporting and better access to foreign capital

markets and investments. In a study, [7], [9] examined that the value of total assets, the value

of equity and variability of net earnings are significantly higher under IFRS compared to the

German GAAP during 1989-2002. In a study conducted by [1] tested that Current Ratio

(CR) and net asset turnover are significantly affected with the Istanbul stock exchange

company during 2004-2005. Again with the same period another empirical study conducted

in Spanish by [5] observed an increase in cash and equivalents, CR, long-term debts, ROE,

and gearing ratio where they found a decline in debtors, equity, operating income, and

solvency ratio under the new regime.

However, with the above, all conducted researches explaining many financial differences are

found in a different period with different countries listed companies, which impacted the

measures of financial performance after IFRS implementation. As [6], [3] analyse that the net

market effect of convergence is a function of two effects. The first effect is the direct

informational effect whether convergence increases or decreases accounting quality. The

second is the expertise acquisition effect, which depends on how costly it is to develop the

expertise, i.e., financial statement user. Therefore, ex ante net market effect of convergence is

uncertain. So this uncertainty encourages us to conduct this study to enlighten the extent

impact of Ind AS (converged IFRS) performance in the Indian context.

3. Ind AS Impact Analysis

In the process of convergence, certain adjustments such as reorganisation, valuation, and

reorganisation of asset, liability, revenue, expenses and losses, had observed which affects the

financial statement significantly. Every transactions affects differently to the different

industries as quantitative as well as qualitative attributes on financial statement. Several

researches around the globe reveals that IFRS implementation will change the financial

indicators like equity position, solvency position, profitability position, total assets valuation

and liquidity position [5], [18], [20], [19].



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A report published by PwC in the year 2016 entitled ‘PwC Ind AS impact analysis’ under

which they briefly explain the changing financial scenario in a different direction, i.e.,

Taxation, Financial instruments(including derivatives), Revenue, Retirement benefit

obligations, Share-based payments, Business combinations/consolidation. They have

evaluated 75 companies listed in National Stock Exchange NSE, NIFTY 50 and NIFTY

NEXT 50 benchmark indices until 14 September 2016. Out of these 17 companies comprises

of banks, non-banking financial companies (NBFCs) and insurance companies have been

excluded because these companies are not yet applicable for Ind AS. The report was based o

the quarterly published results due to non-availability of annual financial statements so the

impact on this report is based on the assumptions and generalisations by aggregating the

considered data.

The study finally considered 50 companies of 12 industries, namely, (1)Pharmaceuticals,

(2)life sciences and healthcare, (3)Retail and consumer, (4)Automotive, (5)Metals, (6)Oil and

gas, (7)Technology, (8)Industrial manufacturing, (9)Telecom, (10)Power and mining,

(11)Capital projects and infrastructure and (12)others. The quarterly reports are analysed

based key adjustments impacted by Ind as implementation such as Taxes, Financial

instruments (including derivatives), Revenue, Retirement benefit obligations, Share-based

payments and Business combinations/ consolidation. Such key adjustments are further

analysed by the overall company has taken together and again by individual industry-specific.

And the report considered the key financials, i.e., Taxes, Financial instruments (including

derivatives), Revenue and Retirement benefit, Share-based payments and Business

combinations/ consolidation has a significant impact after Ind AS implementation.

The overall impact of key adjustments on net income is the net effect of 4 percent which is

approximately 297 crore INR as per the report. This difference of net income has depicted in

Figure 3, and summarised as follows:

1. Net increase in revenues: 26.5 percent

2. Net fair value loss on account of financial instruments (including derivatives):

1.6 percent

3. Business combinations/consolidation: 0.9 percent increase in net income

4. Higher share-based payments expense: 0.2 percent

5. Reduction in tax expense: 0.7 percent

6. Retirement benefit obligations: 0.6 percent decrease in net income



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7. Increase in the expense on account of other adjustments (including the impact of

foreign exchange fluctuation and classification of excise duty as an expense): 25.3

percent

Figure 3: Impact of Net Income on key adjustments

Source: PwC Ind AS impact analysis 2016

Figure 3 depicted the overall Impact on different financial key adjustments by comparison

from Profit as per IGAAP with profit as per Ind AS which indincate that there is a 4 percent

of profit increased due to adoption of Ind AS as a whole the study has taken as consideration.

Again in the report the range of impact on net income upon Ind AS adoption has been

analysed by industry-specific. It was observed that Pharmaceuticals, life sciences and

healthcare, manufacturing and automotive sectors have reported an average decreased in net

income. Whereas telecom, Metal, infrastructure and capital projects sectors have reported the

maximum average decreased in net income upon Ind AS adoption which is depicted in Figure

4.

Figure 4: Industry specific range of impact on net income upon Ind AS adoption

Source: PwC Ind AS impact analysis 2016



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It was found from the analysis that out of the total population, 88 percent of the companies

were impacted on Taxation. Out of which 47 percent were reported an increase in tax credits

1,268 crore INR in aggregate (1.70 percent of aggregate) and 53 percent were reported an

increase in tax expense of 752 crore INR in aggregate (1.0 percent of aggregate) which is

resulting in an overall decrease in reported tax expenses of 516 crore INR in aggregate (0.7

percent of aggregate).

Again 85 percent of companies were got impacted due to fair valuation of financial

instruments (including derivatives). Out of that 48 percent have reported a gain of 1,151 crore

INR in aggregate (1.60 percent of aggregate) and 52 percent of the companies have reported a

loss of 2330 crore INR in aggregate (3.10 percent of aggregate) and the net effect is 1.5

percent increase in net income.

Under this report the revenue has been analysed in two way, i.e., revenue and revenue

excluding excise duty. It was observed that from the total 84 percent of companies had an

adjustment on revenue and from that 44 percent have reported increase and 56 percent

decreased in revenue. After excluding excise duty from revenue it was estimated an overall

decrease in revenue of 1.40 percent and excluding excise duty, gross-up has an increase of

3.90 percent which results There was an overall increase in revenues is reported which is in

aggregate19,761 crore INR (2.5 percent of aggregate) under Ind AS.

Again 67 percent of companies had an adjustment on account of retirement benefit

obligations. Out of that 70 percent companies reported a decrease in actuarial losses of

around 265 crore INR resulting in a 0.4 percent increase in net income.

Out of this 30 percent companies reported a decrease in accruals gain around 676 crore INR

thereby reducing the net income by 1 percent which was resulting in an overall decrease in

net income of 411 crore INR (0.6 percent) on account of actuarial gain and losses classified

as Other Comprehensive Income (OCI) in Ind AS.

Share-based payments expense was impacted by 23 percent of companies out of which 65

percent reported an increase in share-based payments of 0.20 percent and 65 percent

companies were reported decrease in share based payments of 0.01 percent which resulted in

an overall decrease in net income was 0.20 percent.

Only 16 percent of companies had influenced through Business combination and

consolidation, which gives an overall increase in net income of 0.90 percent. The above

analysis has depicted clearly in Table 4.



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Table 4: Industry specific impact analysis on key adjustments Key financials

Taxation

Financial

instruments

(including

derivatives)

Retirement

benefit

obligations

Share-based

payments and

Business

combinations/

consolidation

Revenue Excluding excise

duty

Sou

rce: Pw

C In

d A

S im

pact a

nalysis 2

016

Industrie

s

Increase in

tax credits

(%)

Increase in

tax expense

(%)

Gain on

financial

instruments

(%)

Loss on

financial

instruments

(%)

Decrease in

net income

Increase in

net income

Reduction

in net

income

Increase in

net income

Decrease in

revenue

Increase in

revenue

Decrease in

revenue

Increase in

revenue

Overall

impact on

net income 1.70 1.00 1.5 3.1

0.4

percent 1.0 0.20 0.00 1.4 3.9 - -

Net effect 0.70 1.6 0.60 0.20 2.5

overall increase in

revenues - -

Automotive 24 64 - - - - - - 25 -

Capital projects

and infrastructure 9 - - 9 3 - - - - -- - -

Industrial

manufacturing - - 7 - - 24 - - - - - -

Metals 21 - - 42 68 - - - 20 28 -

Oil and gas - - - - - - - - - 84 - -

Pharmaceuticals,

life sciences and

healthcare

63 - - - - 12 7 - - - - 8

Power and mining - - 21 - 28 - - - 35 - 18 -

Retail and

consumer - - - - - - 72 - - 12 - -

Technology - 10 - - - 52 13 - - 3 - 85

Telecom - - - 36 - - - - 27 - - -



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Another report published by the Motilal Oswal in the year 2019 entitled Ind-AS: Adopting

IFRS-converged financials implications and challenges. Under the key difference between

the Previous GAAP of Indian accounting standard and Ind AS has been explained which is

depicted in Table 5. Again, in Table 6 analyse the materiality transitional impact on key

financials with respect to industry in condensed form.

Table. 5: Key financial difference and its impact on financial statement due to transition

Key difference Areas Impact due to transition

Revenue recognition

Multiple element

contracts

Deferral of revenue and earnings

Recognition Criteria Deferral of revenue and earnings

Fee income on

(a)loans extended

,and(b) guarantee

services rendered

Deferral of revenue recognition leading

to impact on margin and earnings

Service concession

arrangements

Revenue and profitability of companies on construction activities will

be advanced. This will be compensated by lower profits during the

operation phase.

Employee

benefits

ESOPs Increase in employee costs.

Long term employee

benefit plans

Reduction in volatility of income

Consolidation

Consolidation of

entity as subsidiary

Consolidation is based on control (Parent company )

Joint Venture Decline in revenues and EBITDA. However, earnings remain

unaffected

Treasury shares Increase in EPS, Decline in net worth

and increase in the ROCE/ROE

Business combination

Mergers and

Acquisitions

Mandatory (a) fair valuation of assets and liabilities on acquisition

(b) Recognition of intangibles even when not recorded in the books

of seller. Excess consideration paid over net asset acquired is treated

as goodwill and tested for annual impairment, while the deficit is

adjusted in reserves.

So depreciation and amortization cost will vary from current levels.

Financial

Instruments

Classification of

financial instruments

Three categories of classification of financial Assets, i.e., Amortised

Cost; Fair value through other comprehensive income (FVTOCI);

Fair Value through profit or loss (FVTPL)



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Investments Ind AS decline the return ratio

Derivatives Ind AS Reduce the volatility in income statements

Property

Plant and

Equipment

Take of pay

contracts with

suppliers

Balance sheet: Higher asset base and debt

P & L: Higher depreciation and interest payment EBITDA will

improve

RoCE: will deteriorate

Intangibles

Amortization

Amortization expenses will reduce

Revaluation of

Asset

Revaluation of asset will decline earning

Source: compiled from Ind-AS: Adopting IFRS-converged financials – implications and challenges– Motilal Oswal Detailed Report 2019

Some researches reveal that adoption of IFRS does not affect the Financial Indicators these

remain unchanged. Akta, 2007; Dimitrios. et al,2013; Ibiamke et al.,2014; Jindrichovska &

Kubickova,2014. However, several studies also conducted in the Indian context by PwC,

Deloitte, Motilal Oswal, and other researchers that some adjustments in the convergence

process will affect the financial statement to an extent differently to different industry-

specific which as depicted in Table 3.

Table 6: Impact of key implications of Ind AS on specific industries

Industries

Overall

Impact

Revenue

recognition

Financial

instruments

Employees

benefit Consolidations

Property

Plant and

Equipment

Business

combination

Banking - - -

Telecom

Media

- -

Automobile - -

FMCG - - -

Information

Technology - -

Power - - - -

Healthcare - -

Metal - - -

Oil & Gas

Real Estate - - -

Agriculture - - - -

Cement - - - -

Capital Goods - - - -

- High Impact on implication;

-Medium impact on implication;

- Low impact on implication;




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From Table 5 depicts the tentative impact of key financial differences in the above 14

industries in terms of implication of such difference. It was observed that due to the transition

from old accounting standard to newly conversed accounting standard (Ind AS) there was a

material impact on the operating activities in different industries such as:

(a) Banking, financial services and insurance (BFSI): earlier recognition of NPAs, fair

valuation of ESOPs, deferment in recognition of fee income, and routing actuarial

losses/gains through reserves,

(b) Telecom: expensing forex gains/losses on loans and consolidation of joint ventures,

(c) FMCG and IT: fair-valuing ESOPs, increased amortization post business

combinations and accrual-based recognition of income on MF,

(d) Auto: consolidation of JVs / treasury shares, classification of take-or-pay contracts

as a deemed lease,

(e) Power: arrangements with government classified as service concession

arrangements,

(f) Media: fair-valuing ESOPs, classifying redeemable preference shares as debt. , and

(g) All sectors: Timing and quality of revenue recognition. We now discuss the sector-

wise implications of migration to Ind-AS and highlight the companies we believe will

be materially impacted.

From the above discussion the researchers have an idea of the pervasive impact of Ind AS

due to the change in the accounting paradigm which depicted in Table.7. to portray the

important financial adjustments on the basics impacted on financial statements in the process

of convergence with IFRS. These adjustments are retrieving from the review of the literature

and from curricular of The Institute of Chartered Accountants of India (ICAI). Major

adjustments are categorised as per the behaviour of the adjustment with three parameters, i.e.,

high impact adjustment, medium impact adjustment and low impact adjustment.

Table7: Major changes that influence financial statements

Major

Areas

High impact

adjustment

Medium impact

adjustment

Low impact

adjustment

Property

plant and

equipment,

borrowing

cost, lease

and

1. Capitalisation of

exchange difference

(Ahmed 2015)

2. Applied like

Avoidable Cost

Concept

1. Decommissioning and

Restoration (ARO)

2. Cash flow hedge

3. Group borrowings

4. Capitalisation Rate

5. Separation of lease

1. Initial recognition-

deferred settlement

term

2. Component

accounting

3. Replacement costs



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investment

property

3. Determining whether

an arrangement

contains a lease

4. Change in method of

depreciation

5. Revaluations of

assets and liabilities

elements

6. Lease incentive

7. Evaluating the

substance of

transactions involving

the legal form of lease

4. Depreciation

5. Periodic review

6. Transfer of assets

from customers:

Recognition of

asset

7. Interest in leasehold

land

Consolidat

ion, joint

arrangeme

nt and

associates,

Joint

ventures

and equity

method

investees

6. Definition of control

7. Sale/Dilution of stake

in a subsidiary-if

there is no loss of

control

8. Determining when to

consolidate an equity

9. Reporting date of

subsidiaries

10. Application of equity

method-loss of

significant

influence/joint control

8. Power with less

than half of voting

rights

9. Potential voting

rights

10. Relationships with

other parties

11. Subsidiaries

excluded

12. Jointly controlled

entities

13. Application of the

equity method

initial recognition

Taxation

8. Investments in

subsidiaries,

Branches and

associates, and

interests in joint

venture outside basis

tax

9. Deferred tax on

unrealised intra

group profits

11. Approach

12. Disclosure-rate

reconciliation

13. Recognition of asset

on minimum alternate

tax carry forward

14. Recognition of

deferred tax assets-

virtual reasonable

certainty

15. Deferred tax in

respect of business

combination

16. Recovery of

revalue non

depreciable assets

Source: Own compilation from review of literature

Again, it observed from Table 8 that most of the financial adjustments influenced on

Earnings, followed by on Balance sheet and on Presentation of Financial Statements after

implementation of Ind As. There is a significant effect on earnings on different sectors due to

the strict fair value assessment of all operating transaction, changing method and timing

approach for revenue reorganisation and valuation of assets and liability. Reclassification of

financial instruments, fair value approach for M&As, reorganisation of deferred tax as

balance sheet item are mostly responsible for the significant changes that affect the balance

sheet prepared on the basis of Ind AS. The implementation of Ind AS will affect the

presentation of financial statements due to gross basis revenue reporting, Indirect taxes paid

to form part of cost line items, Indirect taxes paid to form part of the cost line items,

Extensive disclosures on segments are required.



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Table 8: Impact of Ind AS on different financials

On earnings On Balance sheet On Presentation of Financial

Statements

Timing of revenue

recognition

Revenues on multiples

component contracts

should be recognized

separately and at the time

of actual rendering of

service

Service revenue to be

recognized by percentage

completion method

Joint Ventures will be

consolidated by equity

method only and hence

impacting EBITDA

Timing of income

recognition on financial

instruments

Stock options to be

accounted at fair value

Fund raising cost to be

recognized through the

income statements

Forex fluctuations to be

charged through income

statement only

Dividend on redeemable

preference share to be

recognized as interest cost

Actuarial gain/loss on

valuation of future

employee benefit expense

should be recognized

through OCI

Depreciation on re valued

assets to be charged to

income statement

Intangibles can have an

indefinite useful life

Transaction cost on M&A

to be charged to income

statement

Reclassification of

financial instruments

Convertible bond as equity

and redeemable pref. share

as debt

Accounting for M&As

using fair value approach

Long term provisions to be

carried on present value

Deferred tax to be

recognized using Balance

sheet approach

Asset retirement obligation

should factor for both

constructive and

contractual obligation on

present value basis

Treasury shares to be

presented as a reduction

from equity.

Trust dealing with ESOPs

needs to be consolidated

Investments to be

recognized at fair value

only

Mandatory use of G-sec

yields to determine the

actuarial liabilities

Revenue to be reported on

gross basis net of

incentives and discounts

Indirect taxes paid to form

part of cost line items

Financial instruments to be

carried at fair value/

amortised cost

No income / expenses can

be classified as

extraordinary

Financial statements to be

restated retrospectively for

prior period errors

Extensive disclosures on

segments are required

Extensive disclosure on

income tax and tax rate

reconciliation

Contingent assets to be

disclosed if economic

benefit is probable




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4. Findings of the study

The advent of IFRS is a long evolution process with the timeline starting from the

IASC(1973) to IFRS(2005). Between the period the Standard Interpretation Committee (SIC

1975) came into the picture and form the International Accounting Standards (IAS) then the

IASC converted into International Accounting Standard Board (IASB 2001). With the joint

recommendations of SIC, International Financial Reporting Standards Interpretation

committee (IFRS IC formed in 2002) and IFRS advisory council (IFRS AC formed in 2001);

IASB prepares the international standards for global acceptance. Any country can implement

IFRS by either adoption or convergence. India leads as a pioneer to implement the IFRS and

choose to converge the IFRS and termed as Ind AS. India a company, subsidiary or joint

venture can implement Ind AS mandatorily if the net-worth is 250 crore (latest amendment

2018) or else any company can voluntarily adopt with the condition that the company cannot

opt-out after implementation.

On the other part of the study the impact of Ind AS on Indian industry’s financials has been

incorporated through the research report of Ind AS impact analysis (PwC report 2016) and

Impact after Ind AS adoption (Motilal Oswal 2019). It was observed from the PwC report

that net income is increased by 0.4 percent after Ind AS implementation. Further revenue,

financial instrument, business combination, share-based payments, taxes and retirement

benefit obligations are the key areas, which have a significant impact on different industry

after implementation of Ind AS. Specifically metal and automobile industries have more

deviated after the implementation. Motilal Oswal report was based on implication and

different adjustment after implementation of Ind AS. The transition will significantly effect

on key areas such as revenue recognitions, multiple element contracts, Fee income loans

extended, Fee income on guarantee services rendered, service concession arrangements,

employee benefits-ESOPs, long term employee benefit plans, Consolidation of the subsidiary

company, joint venture, treasury shares, business combination- fair value measurement of

subsidiaries, financial instruments, property plant and equipment, fair value measurement.

The banking and telecom industry have a significantly impacted for the above adjustments.

Further from the review of literature 38 financial adjustment difference are identified which

affect the financials of different industries. The 38 financial differences is again categorised

as high Impact, moderate impact and low impact based on review of the literature.



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5. Implication of the study

The study is helpful for financial researcher they may pensive an idea regarding

implementation, Impact and acceptability of Ind AS in India.

6. Conclusion

Ministry of Corporate Affairs of India will provide a flexible timeline/road map for high net

worth (250 crores and more) industries to implement Ind AS mandatorily as on 2016 except

Banking and NBFC and in the process to implement IFRS for SMEs for low net worth

industries (less than 250 crores). IFRS and Ind AS is at par in term of applicability still, the

conversion of accounting regime will have a significant impact on the different industries. As

per the PwC report, 2016 gross net income is increased by 0.4 percent after Ind AS

implementation. Further revenue, financial instrument, business combination, share-based

payments, taxes and retirement benefit obligations are the key areas, which have a significant

impact on the different industry after implementation of Ind AS.

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