IND-AS & IFRS

INDIAN ACCOUNTING STANDARDS (IND-AS).

This paper has been divided into four parts :-

PART I – General Discussions

PART II – When and How to Begin?

PART III – Companies (Indian Accounting Standards) Rules, 2015

PART IV – List of 40 Ind-AS as notified

PART I – GENERAL DISCUSSIONS

Finally Ind-AS has now become a reality. The much awaited day has come, bringing "Achhe Din" for the accounting fraternity.

Companies (Indian Accounting Standards) Rules, 2015 notified Ind-AS.

Companies (Indian Accounting Standards) Rules, 2015. hereafter referred to as the Rules 2015 notified on 16th February, 2015

The Rules 2015 shall come into force from 1st day of April, 2015

Ind-AS will be implemented in three phases (For Corporate and Entities):

Ind-AS will be implemented in three phases (For Bank)

NBFCs having net worth below ₹ 250 crores and not covered under the above provisions shall continue to apply the Accounting Standards specified in the Annexure to the Companies (Accounting Standards) Rules, 2006.

Applicability of Ind-AS to Housing Finance Companies is not explicitly covered under the roadmap for banks, insurance companies and NBFCs. MCA is expected to clarify this position. The definition of net worth and dates for consideration of net worth have not been clarified by the MCA/regulators in the above roadmap.

Net Worth (NW) – as of which date ? based on SFS or CFS?

Net worth( NW) means as defined u/s. 2(57) of the Act, 2013

NW is to be calculated in accordance with standalone financial statements (SFS) and not consolidated financial statements (CFS)

Other Issues of Applicability

Once the company adopts Ind-AS, either voluntarily or mandatorily, it has to apply Ind-AS for ever, regardless of reduction of net worth.

Subsidiaries – Overseas Rule 4(5)

Overseas subsidiary, associate, joint venture and other similar entities of an Indian company, need not follow Ind-AS for its standalone financial statements, but may follow requirements of the specific jurisdiction:

Indian company shall prepare its consolidated financial statements in accordance with the Indian Accounting Standards (Ind-AS) either voluntarily or mandatorily if it meets the criteria as specified in sub-rule (1).

Indian Subsidiaries – of foreign company 4(6)

Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Indian Accounting Standards (Ind-AS) either voluntarily or mandatorily if it meets the criteria as specified in sub-rule (1) above

PART II : WHEN AND HOW TO BEGIN?

This discussion is based on for the companies voluntarily opting to comply with Ind-AS from accounting period beginning after April 1 2015, all the dates are reckoned accordingly.

Ind-AS 101 First Time Adoption of Ind-AS needs to be applied. This standard contains few exemptions from retrospective application of Ind-AS in appendices (which are forming integral part of the standard) part of B, C and D.

Appendix B Exceptions to the retrospective application of other Ind-ASs

Appendix C Exemptions from business combinations

Appendix D Exemptions from other Ind-AS

Readers are advised to refer to Ind-AS 101 before applying 
Ind-AS.

Effectively, Ind-AS to be applied to :

1. Its first Ind-AS financial statements; and
2. Each interim financial report, if any, that it presents in accordance with Ind-AS 34, Interim Financial Reporting, for part of the period covered by its first Ind-AS financial statements

Date of Transition (DOT) to Ind-ASs

The beginning of the earliest period for which an entity presents full comparative information under Ind-ASs in first Ind-AS financial statements.

The first annual financial statements in which an entity adopts Indian Accounting Standards (Ind-ASs), by an explicit and unreserved statement of compliance with Ind-ASs.

Companies must include statement of compliance in their financial statements.

First Ind-AS reporting period

The company will have to :

1. Recognise all assets and liabilities whose recognition is required by Ind-ASs;
2. Not recognise items as assets or liabilities if Ind-ASs do not permit such recognition;
3. Reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind-ASs; and
4. Apply Ind-ASs in measuring all recognised assets and liabilities.

Subject to, provisions as described in paragraphs 13–19 and Appendices B–D, an entity shall, in its opening Ind-AS Balance Sheet:

The resulting adjustments arise from events and transactions before the date of transition to Ind-ASs. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Ind-AS.

While preparing Opening Ind-AS Balance Sheet, take advantage of voluntary exemptions given in Ind-AS 101. This will make the transition to Ind-AS bit easier.

Restate Financial Statements for the Financial Year ending 31st March, 2016.

Having prepared Opening Balance Sheet as at 1st April, 2015, the next step is to restate financials of financial year 2015-16. (which were prepared as per Accounting Standards)

Please note, the Company has to restate all financial statements and not just the Balance Sheet for the financial year ending 31st March, 2016.

Which Accounting Standards to apply to Opening Ind-As Balance Sheet?

The moot question is , the opening Ind-AS Balance Sheet is to be prepared on the basis of which accounting standards ?

The one effective as at 1st April, 2014 or 2015 or 2016

The answer is, the opening Ind-AS is to be prepared on the basis of Ind-AS effective on 31st March, 2016, to put technically:

“An entity shall use the same accounting policies in its opening Ind-AS Balance Sheet and throughout all periods presented in its first Ind-AS financial statements. Those accounting policies shall comply with each Ind-AS effective at the end of its first Ind-AS reporting period, except as specified in paragraphs 13–19 and Appendices B–D. – (Mandatory Exceptions and Voluntary Exemptions)” para 7 of Ind-AS 101

To make the transition cost effective and smooth Ind-AS grants exemptions from retrospective application of Ind-AS

Ind-AS 101 grants limited exemptions in certain areas where the cost of compliance may exceed the benefits. These exemptions are optional and not mandatory.

An entity has to evaluate all these exemptions and understand the impact these will have on its financials in the short run as well as in the long run.

Previous policies may have to be modified and few new accounting policies may need to be adopted.

Basis of judgments and estimates will need detailed working and understanding.

Challenges of Implementation of Ind-AS

Reclassifications and Re-grouping

Presently, items are regrouped or reclassified to confirm to current year classification without any justification being provided in the financial statements. Under Ind-AS, in case any regrouping or reclassification is done, the same needs to be disclosed along with reasons thereof.

Plan Implementation well.

Phase I : Plan Conversion

Phase II : Impact Analysis & Quantification

Phase III : Redefine/Redesign

Phase IV : Opening Balance Sheet as per Ind-AS

Phase V : Reporting date – Ind-AS financial statements

Adoption of Ind-AS needs very detailed and meticulous planning keeping in mind the accounting policies to be followed for group companies.

There is more to it than meet your eyes. Changes are not just for accounts but it impacts IT system as well.

Other Challenges

First Time Adoption

Regrouping/reclassification

Industry Comparatives

Changes in concepts requiring consideration

Awareness at Board level

External & internal communications

Availability of valuers

Transition may be difficult but not impossible.

PART III – COMPANIES (INDIAN ACCOUNTING STANDARDS) RULES, 2015

In exercise of the powers conferred by section 133 read with section 469 of the Companies Act, 2013 (18 of 2013) and sub-section (1) of section 210A of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the National Advisory Committee on Accounting Standards, hereby makes the following rules, namely:-

1. Short title and commencement. (1) These rules may be called the Companies (Indian Accounting Standards) Rules, 2015.

(2) They shall come into force on the 1st day of April, 2015

2. Definitions.-(1) In these rules, unless the context otherwise requires,-
   1. “Accounting Standards” means the standards of accounting, or any addendum thereto for companies or class of companies as specified in rule 3;
   2. “Act” means the Companies Act, 2013 (18 of 2013);
   3. “Annexure” in relation to these rules means the Annexure containing the Indian Accounting Standards (Ind-AS) appended to these rules;
   4. “Entity” means a company as defined in clause (20) of section 2 of the Act;
   5. “Financial statements” means financial statements as defined in clause (40) of section 2 of the Act;
   6. “Net worth” shall have the meaning assigned to it in clause (57) of section 2 of the Act.

(2) Words and expressions used herein and not defined in these rules but defined in the Act shall have the same meaning respectively assigned to them in the Act.

3. Applicability of Accounting Standards. -(1) The Accounting Standards as specified in the Annexure to these rules to be called the Indian Accounting Standards (Ind-AS) shall be the Accounting Standards applicable to classes of companies specified in rule 4.

1. The Accounting Standards as specified in Annexure to the Companies (Accounting Standards) Rules, 2006 shall be the Accounting Standards applicable to the 
   companies other than the classes of companies specified in rule 4.
2. A company which follows the Indian Accounting Standards (Ind-AS) specified in Annexure to these rules in accordance with the provisions of rule 4 shall follow such standards only.
3. A company which follows the Accounting Standards specified in Annexure to the Companies (Accounting Standards) Rules, 2006 shall comply with such standards only and not the Standards specified in Annexure to these rules.
4. Obligation to comply with Indian Accounting Standards (Ind AS).(1) The Companies and their auditors shall comply with the Indian Accounting Standards (Ind-AS) specified in Annexure to these rules in preparation of their financial statements and audit respectively, in the following manner, namely:- refer table in Part I- General Discussion

(2) For the purposes of calculation of net worth of companies under sub-rule (1), the following principles shall apply, refer table above

(3) Standards in Annexure to these rules once required to be complied with in accordance with these rules, shall apply to both standalone financial statements and consolidated financial statements.

(4) Companies to which Indian Accounting Standards (Ind-AS) are applicable as specified in these rules shall prepare their first set of financial statements in accordance with the Indian Accounting Standards (Ind-AS) effective at the end of its first Indian Accounting Standards (Ind-AS) reporting period.

Explanation.– For the removal of doubts, it is hereby clarified that the companies preparing financial statements applying the Indian Accounting Standards (Ind-AS) for the accounting period beginning on 1st April, 2016 shall apply the Indian Accounting Standards (Ind-AS) effective for the financial year ending on 31st March, 2017.

(5) Overseas subsidiary, associate, joint venture and other similar entities of an Indian company may prepare its standalone financial statements in accordance with the requirements of the specific jurisdiction:

Provided that such Indian company shall prepare its consolidated financial statements in accordance with the Indian Accounting Standards (Ind-AS) either voluntarily or mandatorily if it meets the criteria as specified in sub-rule (1).

(6) Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Indian Accounting Standards (Ind-AS) either voluntarily or mandatorily if it meets the criteria as specified in sub-rule (1).

(7) Any company opting to apply the Indian Accounting Standards (Ind-AS) voluntarily as specified in sub-rule (1) for its financial statements shall prepare its financial statements as per the Indian Accounting Standards (Ind-AS) consistently.

(8) Once the Indian Accounting Standards (Ind-AS) are applied voluntarily, it shall be irrevocable and such companies shall not be required to prepare another set of financial statements in accordance with Accounting Standards specified in Annexure to Companies (Accounting Standards) Rules, 2006.

(9) Once a company starts following the Indian Accounting Standards (Ind-AS) either voluntarily or mandatorily on the basis of criteria specified in sub-rule (1), it shall be required to follow the Indian Accounting Standards (Ind-AS) for all the subsequent financial statements even if any of the criteria specified in this rule does not subsequently apply to it.

5. Exemptions*.– The insurance companies, banking companies and non-banking finance companies shall not be required to apply Indian Accounting Standards (Ind-AS) for preparation of their financial statements either voluntarily or mandatorily as specified in sub-rule (1) of rule

1. General Instruction. –

1. Indian Accounting Standards, which are specified, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular Indian Accounting Standard is found to be not in conformity with such law, the provisions of the said law shall prevail and the financial statements shall be prepared in conformity with such law.
2. Indian Accounting Standards are intended to apply only to items which are material.
3. The Indian Accounting Standards include paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. An individual Indian Accounting Standard shall be read in the context of the objective, if stated, in that Indian Accounting Standard and in accordance with these General Instructions.

*Refer to "Exemptions".

PART IV : LIST OF IND-AS

Ind-AS 101 First-time Adoption of Indian Accounting Standards – effective from

1. Appendix B – Exceptions to the retrospective application of other Ind-ASs
2. Appendix C – Exemptions for business combinations
3. Appendix D – Exemptions from other Ind-ASs

Ind-AS 102 Share-based Payment

Ind-AS 103 Business Combinations

1. Appendix C – Business combinations of entities under common control

Ind-AS 104 Insurance Contracts – effective from the date to be separately announced.

Ind-AS 105 Non-current Assets Held for Sale and Discontinued Operations

1. Appendix B – Extension of the period required to complete a sale

Ind-AS 106 Exploration for and Evaluation of Mineral Resources

Ind-AS 107 Financial Instruments: Disclosures

1. Appendix B - Classes of financial instruments and level of disclosure

Ind-AS 108 Operating Segments

Ind-AS 109 Financial Instruments

Ind-AS 110 Consolidated Financial Statements

Ind-AS 111 Joint Arrangements

Ind-AS 112 Disclosure of Interests in Other Entities

Ind-AS 113 Fair Value Measurement

Ind-AS 114 Regulatory Deferral Accounts

Ind-AS 115 Revenue from Contracts with Customers (Deferred in India)

1. Appendix C – Service Concession Arrangements
2. Appendix D – Service Concession Arrangements: Disclosures

* On 28th April, 2015, the International Accounting Standards Board (IASB) had voted to publish an exposure draft (ED) proposing a one-year deferral of the effective date of IFRS 15, Revenue from Contracts with Customers to 1st January, 2018.

Ind-AS 1 Presentation of Financial Statements

Ind-AS 2 Inventories

Ind-AS 7 Statement of Cash Flows

Ind-AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Ind-AS 10 Events after the Reporting Period

1. Appendix A – Distribution of Non-cash Assets to Owners

Ind-AS – 11 – Construction Contract

APPENDICES

A     Service Concession Arrangements

B     Service Concession Arrangements: Disclosures

C     References to matters contained in other Indian Accounting Standards

Ind-AS 12 Income Taxes

1. Appendix A – Income Taxes – Changes in the Tax Status of an Entity or its Shareholders

Ind-AS 16 Property, Plant and Equipment

1. Appendix A – Changes in Existing Decommissioning, Restoration and Similar Liabilities
2. Appendix B – Stripping Costs in the Production Phase of a Surface Mine

Ind-AS 17 Leases

1. Appendix A – Operating Leases—Incentives
2. Appendix B – Evaluating the Substance of Transactions Involving the Legal Form of a Lease
3. Appendix C – Determining whether an Arrangement contains a Lease

Ind-AS 18 Revenue

APPENDICES

A Revenue—Barter Transactions Involving Advertising Services

B Customer Loyalty Programmes

C Transfers of Assets from Customers

D References to matters contained in other Indian Accounting Standards

Ind-AS 19 Employee Benefits

1. Appendix B – Ind-AS 19 —The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Ind-AS 20 Accounting for Govt. Grants and Disclosure of Govt. Assistance

1. Appendix A – Government Assistance – No Specific Relation to Operating Activities

Ind-AS 21 The Effects of Changes in Foreign Exchange Rates

Ind-AS 23 Borrowing Costs

Ind-AS 24 Related Party Disclosures

Ind-AS 27 Separate Financial Statements

Ind-AS 28 Investments in Associates and Joint Ventures

Ind-AS 29 Financial Reporting in Hyperinflationary Economies

1. Appendix A – Applying the Restatement Approach under Ind-AS 29 Financial Reporting in Hyperinflationary Economies

Ind-AS 32 Financial Instruments: Presentation

Ind-AS 33 Earnings Per Share

Ind-AS 34 Interim Financial Reporting

1. Appendix A – Interim Financial Reporting and Impairment

Ind-AS 36 Impairment of Assets

1. Appendix A – Using present value techniques to measure value in use
2. Appendix C – Impairment testing cash-generating units with goodwill and non-controlling interests

Ind-AS 37 Provisions, Contingent Liabilities and Contingent Assets

1. Appendix A – Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
2. Appendix B – Liabilities arising from Participating in a Specific Market— Waste Electrical and Electronic Equipment
3. Appendix C – Levies

Ind-AS 38 Intangible Assets

1. Appendix A - Intangible Assets—Web Site Costs

Ind-AS 40 Investment Property

Ind-AS 41 Agriculture

Notes