INDIAN ACCOUNTING STANDARDS (IND AS) - nirc@icai as-nirc-april 2017... · 2017-04-24 · IND AS VS....

INDIAN ACCOUNTING STANDARDS(IND AS)

Titre de la présentation1

AGENDA

Stepping into Ind AS

Key Implementation Challenges

Clarifications provided by ITFG

Learning from global peers

01STEPPING INTO IND AS

DateTitre de la présentation

IND AS VS. IFRS

IAS/IFRS Title Ind AS

IAS 1 Presentation of Financial Statement 1IAS 2 Inventories 2IAS 7 Statement of Cash Flows 7IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 8IAS 10 Events after the Reporting Period 10IAS 11 Construction Contracts 11 IAS 12 Income Taxes 12IAS 16 Property, Plant and Equipment 16IAS 17 Leases 17IAS 18 Revenue 18 IAS 19 Employees Benefits 19IAS 20 Accounting for Governments Grants and disclosure of

Government Assistance20

IAS 21 The Effects if Changes in Foreign Exchange Rates 21IAS 23 Borrowing Costs 23IAS 24 Related Party Disclosures 24IAS 27 Separate Financial Statements 27IAS 28 Investments in Associates and Joint Ventures 28IAS 29 Financial Reporting in Hyperinflationary Economics 29IAS 32 Financial Instruments: Presentation 32IAS 33 Earnings Per Share 33

IND AS VS. IFRS

IAS/IFRS Title Ind AS

IAS 34 Interim Financial Reporting 34IAS 36 Impairment of Assets 36IAS 37 Provisions, Contingent Liabilities and Contingent Assets 37IAS 38 Intangible Assets 38IAS 40 Investment Property 40IAS 41 Agriculture 41IFRS 1 First-time adoption of Indian Accounting Standards 101IFRS 2 Share-Based Payments 102IFRS 3 Business Combinations 103IFRS 4 Insurance Contracts 104IFRS 5 Non-Current Assets Held for Sale and Discontiunued

Operations105

IFRS 6 Exploration for and Evaluation of Mineral Resources 106IFRS 7 Financial Instruments: Disclosures 107IFRS 8 Operating Segments 108IFRS 9 Financial Instruments 109 IFRS 10 Consolidated Financial Statements 110IFRS 11 Joint Arrangements 111IFRS 12 Disclosure of Interests in Other Entities 112IFRS 13 Fair Value Measurement 113IFRS 14 Regulatory Deferral Accounts 114

5

IND AS VS. IFRS

Note-1

Ind AS 11 and Ind AS 18 were replaced by Ind AS 115, on issue of Ind AS Rules, 2015 by MCA. However, in view of the future applicability of IFRS 15, MCA has recently deferred Ind AS 115. Consequently, Ind AS 11 and 18 are revived in the intervening period.

Note-2

Though IFRS 9 would apply to an annual reporting periods beginning on or after 1 January 2018; however Ind AS 109 is applicable earlier to it.

PRESENTATION OF FINANCIAL STATEMENTS (IND AS 1)

Format• Format not prescribed

• Prescribes components of FS, minimum disclosure requirements on theface of the balance sheet, statement of profit and loss and statement ofchanges in equity.

• Requires additional line items, headings and subtotals to be presented inthe FS to enhance understanding of the financial position.

• MD&A, other reports presented by management along with the FS, areoutside scope of Ind ASs

• Sch III(R) prescribes the format for presentation of FS

PRESENTATION OF FINANCIAL STATEMENTS (IND AS 1)A complete set of financial statements comprises:

• a balance sheet as at the end of the period;

• a statement of profit and loss for the period;

• statement of changes in equity for the period;

• a statement of cash flows for the period;

• notes, comprising a summary of significant accounting policies and other

explanatory information;

• comparative information; and

• balance 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

IND AS FINANCIAL STATEMENTS- BALANCE SHEET

IND AS FINANCIAL STATEMENTS- STATEMENT OF PROFIT AND LOSS

The statement of profit and loss shall present:

(a) profit or loss; (b) total other comprehensive income; (c) Total comprehensive income for the period, being the total of (a) and (b)

The sections (a) and (b) shall further be disclosed as attributable to: • non-controlling interests (minority interest), and • owners of the parent.

OCI comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other Ind ASs.

Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.


OCI Include

• Changes in revaluation surplus• Re-measurements of defined benefit plans• Gains and losses arising from translating the financial statements of a foreign operation• Gains and losses on financial assets measured at fair value through OCI

The items of OCI shall be grouped into the following:

• will not be reclassified subsequently to profit or loss (together with tax impact); and• will be reclassified subsequently to profit or loss (together with tax impact).

IND AS FINANCIAL STATEMENTS- STATEMENT OF CHANGE IN EQUITY

Information to be presented on the face of the statement of changes in equity

• For each component of equity, a reconciliation between the carrying amount at

the beginning and the end of the period separately disclosing each change.

• Total comprehensive income for the period, showing separately the total

amounts attributable to owners of the parent and to minority interest;

• Transactions with owners showing separately contributions by and distributions

to owners

IND AS FINANCIAL STATEMENTS- STATEMENT OF CHANGE IN EQUITY

FIRST TIME ADOPTION OF IND AS

Primary objectives:

• Consistent starting point for Ind AS• Specific requirements and detailed disclosures• Clearly convey to financial statement users the impact of converting from Indian GAAP to

Ind AS

Use of Ind-AS

A company is required to use Ind-AS for the following:• First Ind-AS compliant FS; and• Each interim financial report for part of the period covered by its first Ind-AS FS

An entity’s first Ind AS FS are the first annual FS in which the entity adopts Ind ASs, in accordance with Ind ASs notified under the Companies Act, 2013 and makes an explicit and unreserved statement in those FS of compliance with Ind ASs.


Ind AS 101- provides guidance on first-time application of Ind AS

• Generally retrospective application of all Ind ASs effective at the end of firstInd AS reporting period (although some voluntary and mandatory exceptions)

• Requires one year of comparative financial information• Transition adjustments recognised in retained earnings• Disclosures and reconciliation to Indian GAAP to explain effect of transition to Ind AS

Transitional date

• Starting point for Ind AS• Is the beginning of the earliest period for which an entity presents full comparative

information under Ind AS in its first Ind AS financial statements


Components of first Ind AS financial statements

The first Ind AS FS shall include at least:

• Three Balance Sheets• Two Statements of Profit and Loss• Two Statements of cash flows• Two Statements of changes in equity• Related notes including summary of accounting policies and other explanatory

information

Phase-I companies shall prepare:

• Opening Ind AS-BS at 1 April 2015;• BS for 31 March 2017 (with comparatives for the year ended 31 March 2016); • Statement of profit and loss, SOCE and statement of cash flows for the year to 31

March 2017 (with comparatives for the year ended 31 March 2016); and • Disclosures (including comparative information for the year ended 31 March 2016).


Exemptions provided by Ind-AS 101

Two types of exemptions- mandatory or voluntary exemptions. In case a company is not eligible for these exemptions, then all applicable Ind ASs are to be applied retrospectively.

Key exemptions- Mandatory

• Estimates• Hedge accounting

• Impairment of financial assets

• Classification and measurement of financial assets

• De-recognition of financial instruments

• Non-controlling interests

• Embedded derivatives

• Government loan


Key exemptions- Optional

• Business combinations

• Non-current assets held for sale and discontinued operations

• Long term foreign currency monetary items

• Leases

• Deemed cost

• Share-based payment transactions

Presentation and Disclosure

No exemption from the presentation and disclosure requirements of other Ind-ASs.

02KEY IMPLEMENTATION CHALLENGES


KEY CHALLENGES ON TRANSITION

• Impacts of Ind AS conversion to be addressed with all stakeholders

• Fair value concept to be embedded in the Company’s business

processes

• New standard issued without international precedence

• Use of more judgment in selection of accounting policies

• Incremental disclosures

• Ind AS compliance not equal to IFRS compliance

• Alignment with various legislations

• Emphasis on substance over form

• Complete review and modification to contracts containing financial

covenants

FOCUS AREASFinancial reporting factors

• Accounting PracticesDifferences resulting from these changes are timely identified and corresponding new accounting policies and practices are developed.

• Tax implications Significant tax implications on adoption of Ind AS, given the current tax structure we have in India.

• Group policiesDue to the geography of the group and its members it is obvious to have differences in accounting policies.

• The Industry peersThe accounting practices adopted by the industry peers will have significant bearing on any company, while choosing its own set of accounting policies.

• Management strategiesThe conversion would momentously impact the way the management strategies are being formed and how the decision making and financial communication model works.

FOCUS AREASNon-financial reporting factors

• Company personnelCos needs to create a project team and work streams, set timescales and accountabilities.

• Training needsCos. needs to develop & execute training programmes for employees, including KPMs across functions & locations.

• IT system Need to be modified to meet the revised needs to the current financial reporting systems and the desired reports.

• Human resources system This conversion process will surely impact other systems like human resources systems.

FOCUS AREASNon-financial reporting factors

• Treasury and finance functionWith the revised ratios and other statistics, the treasury or finance department is most likely to be impacted, having the responsibility for managing sources of financing of the entity.

• Stakeholder expectationsCos. to ensure stakeholder’s expectations in a satisfactory and timely manner.

03CLARIFICATIONS AS PROVIDED BY ITFG


03AAPPLICABILITY OF ROADMAP


APPLICABILITY OF IND ASIssue : Compliance of Ind AS by Cos. with negative NW

Will the following Co. need to comply with Ind AS:• Co. A (listed) having negative NW of Rs 600 Cr.• Co. B (unlisted) having negative NW of Rs 300 Cr.

Response:

• Co. A’s NW is negative and < 500 Cr. Therefore, will not fall in Phase I. (Being listed Co., it would fall in Phase II)

• Co. A’s NW is negative and < 500 Cr. Therefore, will not fall in Phase I & II. Being unlisted Co., Ind AS will not be applicable on Co. B, unless it meets the NW criteria subsequently or Ind AS becomes applicable as part of the group or it voluntarily applies Ind AS

APPLICABILITY OF IND ASIssue : Applicability of Ind AS, due to change in NW subsequently

Co. X had NW been 250- 500 Cr. as at March 2014 and March 2015 and is expected to exceed Rs 500 Cr. in FY 2015-16. Will Co. X fall within Phase II or Phase I ?

Response:

Per Ind AS Rules, 2015-

• The NW of the Co. shall be per standalone FS as on 31 March 2014 or as per first audited FS after that date

• For Co. which do not exist on that date or which exist but meet the threshold limit as specified in sub rule (1) after that date, the NW shall be calculated on the basis of first audited FS ending after that when it meets threshold limit

So, Co. X would have to move to Phase I due to increase in NW

APPLICABILITY OF IND ASIssue : Implementation of Ind AS on the basis of NW threshold criteria on various dates

Whether Co. A (Listed) is required to comply with Ind AS from FY 2016-17 or 2017-18 whose NW is:• Rs.1260.83 Cr. as on 31 March 2014• Rs.1411.43 Cr. as on 31 March 2015 • Rs.485.22 Cr. as on 31 March 2016

Response:

• If NW threshold criteria for a Co. is once met then, it shall be required to comply with Ind AS, irrespective of the fact that as on later date its NW falls below the criteria specified

• Hence, Co. A will be required to follow Ind AS from FY 2016-17 (Phase I)

APPLICABILITY OF IND ASIssue : Applicability of Ind AS on subs. & associates if holding Co. voluntary adopts Ind AS from F.Y.2015-16

‘X’ is the holding Co. of ‘A’. And ‘B’ is associate Co. of ‘A’. Are ‘A’ and ‘B’ required to follow Ind AS from FY 2016-17 if ‘X’ has decided to adopt Ind AS voluntarily from 2016-17?

Response:

Any Co. may voluntarily adopt Ind AS from FY 2016-17 and accordingly its holding, subs., JV or associate (whether through direct or indirect association) are also required to adopt the Ind AS from the same date

• ‘A’ being the subs. of ‘X’ is required to adopt Ind AS from FY 2016-17

• ‘B’ is direct associate of ‘A’ and not of ‘X’; however, ‘X’, through its subs. ‘A’ has significant influence over ‘B’ (indirectly). Thus, ‘B’ shall also comply with Ind AS from the FY 2016-17

03BTRANSITIONAL ADJUSTMENTS ON FIRST TIME ADOPTION


TRANSITIONAL ADJUSTMENTS ON FIRST TIME ADOPTIONIssue : Continuation of existing policy for recognizing foreign exchange

differences as per AS-11

Co. XYZ with a NW of Rs.600 Cr. has taken loans for importing of FA on 1 July 2014, 1

Feb 2016 and 3 May 2016. Whether the Co. can continue to recognize the exchange

difference from the above said loans in the cost of PPE (AS 11) when adopting Ind AS for

the first time?

Response:

Per Ind AS 101, Co. XYZ can continue to recognize only for those items which were

recognised in the FS before the beginning of first Ind AS reporting period i.e. 1 April

2016. Accordingly, the option given by Ind AS 101 is available only for those loans which

were taken before 1 April 2016 i.e. 1 July 2014 and 1 February 2016 and not for loans

taken after 31 March 2016Date35 Titre de la présentation

TRANSITIONAL ADJUSTMENTS ON FIRST TIME ADOPTIONIssue : Clarification on date of assessment of functional currency

From which date a Co. falling under phase I for implementation of Ind AS can

assess its functional currency i.e. from the transition date or retrospectively?

Response:

• Ind AS 101 is silent on the date of assessment of functional currency by an

entity

• Since neither any exception nor any exemption has been specified for

assessment of functional currency, therefore, an entity will have to assess its

functional currency retrospectively as per Para 10 of Ind AS 101

Date36 Titre de la présentation

TRANSITIONAL ADJUSTMENTS ON FIRST TIME ADOPTION

Issue : Deemed Cost of PPE on selective basis

Whether an entity has the option of fair valuing few items of PPE and taking

carrying amounts of the remaining items of PPE as the deemed cost on

transition date?

Response:

• A first time adopter of Ind AS has the option to elect to continue with the CV

of all of its PPE as at the transition date measured as per the previous

GAAP

• Application of such option on selective basis is not available

TRANSITIONAL ADJUSTMENTS ON FIRST TIME ADOPTIONIssue : Electing of deemed cost exemption for CWIP

Can a Co. elect the option available under Para D7AA (option to continue with

the CV of PPE) of Ind AS 101 for CWIP?

Response:

• Since, CWIP is in the nature of PPE under construction, accordingly

provisions of Ind AS 16 will apply to it

• Therefore, option under Para D7AA of Ind AS 101 will also apply to it

03CPREPARATION AND PRESENTATIONOF FINANCIAL STATEMENTS


PREPARATION AND PRESENTATION OF FINANCIALSTATEMENTSIssue : Treatment of security deposit

• An electricity distribution Co. collects security deposit at the time of issue of electricity connection, which is refundable when the connection is surrendered.

• Whether such security deposit shall be classified as current liability or non-current liability even if the entity expects that most of the customers will not surrender their connection?

Response:

• Earlier, the ITFG has clarified that such deposits should be classified as a current liability as the entity does not have an unconditional right to defer the refund of deposit.

• However, now the same issue has been withdrawn as the guidance wrt current and non-current classification of assets and liabilities already exists under previous GAAP, as well as explained in division II-Schedule III to the Companies Act, 2013,so it does not pertains to transition from previous GAAP to Ind AS.

03DIND AS-18 REVENUE RECOGNITION


IND AS 18 – REVENUE RECOGNITION

Issue : Recognition and presentation of excise duty

Whether a manufacturing Co. shall include excise duty in its revenue and how the excise

duty should be presented in FS as compared to AS 9?

Response:

• Excise duty is a liability of the manufacturer as it forms the part of cost of production

irrespective of the fact that whether the goods are sold or not and further, it is not

collected on behalf of third party

• Hence, as per Ind AS 18, excise duty should be recognised as revenue as its recovery

flows to the entity. Moreover, Ind AS 18 does not specify any criteria about the

presentation of excise duty in the FS. However, as per Ind AS reporting framework,

revenue from sale of products should be represented as inclusive of excise duty

IND AS 18 – REVENUE RECOGNITION

Issue : Recognition of revenue in case of service tax collected from

customer

How to recognize revenue when Service Tax is collected from customer for

rendering of services?

Response:

• Per Ind AS 18, Service Tax collected from customers is not the economic

benefit which flow to the entity and therefore it does not satisfy the definition

of revenue

• Hence, Service Tax collected represents the amount collected on behalf of a

third party i.e. the Govt, so revenue should be booked net of service tax

collected

04LEARNING FROM GLOBAL PEERS


LEARNING FROM GLOBAL PEERS

Date45 Titre de la présentation

Lack of co-ordination

between project teams and business segments

Inferior project management

system.

Absence or lack of adequate

support from the senior

management at the early stage of

the project.

Failure of timely updating the

modified numbers into the systems.

Lack of technical training and

misunderstanding the results.

Non-involvement of tax personnel

at all levels during conversion process.

The quantum, complications and

the related timeframe of the

project were undermined.

Underestimating the marginal accounting

differences, which turned into

significant items

THANK YOUM 9891091373

[email protected] April 2017

Titre de la présentation46

INDIAN ACCOUNTING STANDARDS (IND AS) - nirc@icai as-nirc-april 2017... · 2017-04-24 · IND AS VS....

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