Transitions from AS to Ind AS : Indian Accounting Standards by CA Shanker Agarwal

  • What is it ?

Ind AS or Indian Accounting Standards govern the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company. For long, there has been a heated debate about Indian companies moving to the globally accepted International Financial Reporting Standards (IFRS) for their accounts.

But firms have resisted this shift, stating that this will lead too many changes in the capture and reporting of their numbers. Ind AS has been evolved as a compromise formula that tries to harmonize Indian accounting rules with the IFRS.

  • Why it is important ?
Ind AS will not just change the way companies present their numbers, but may also bump up or knock down the profits/losses of firms. Some of the instances are likeunder the existing rules, incentives, discounts or rebates given to customers by a firm can be shown as part of advertising, sales promotion or marketing expenses, which figure in the costs. But under Ind AS, these will have to be deducted from sales (revenues). Excise duties which are currently netted off from revenues to show ‘net sales’, will have to be shunted under ‘expenses’ under Ind AS. Intangible assets such as goodwill had to be amortized, or written off as expenses over a period of time until now. Ind AS treats such items as having an indefinite life and hence they need not be amortized. This can lift the profits of firms which carry sizeable goodwill on their books.
Ind AS advocates the ‘fair value’ method of accounting. For example, currently, investments by a company in government securities or mutual funds is shown at the lower of cost and fair value (market value). Under Ind AS, these will have to necessarily be captured at fair value. For firms which have legacy or undervalued investments, this revaluation can expand the balance sheet size.
The new Ind AS also promises clearer disclosures to investors in certain cases. So far companies reported their segment-wise performance based on a broad product/service grouping or even geographical segments (within India, Outside India). But Ind AS requires that segments reported to investors are the same as the firm uses for the purpose of assessing performance and allocating resources.

  • How it is implemented ?
After a number of years of deferment the Ministry of Corporate Affairs finally notified thirty nine accounting standards under the Section 133 of the Companies Act 2013 and the Companies (Indian Accounting Standard) Rules, 2015 and subsequent amendments thereof. Applicability of the same has been defined under various phases whereas applicability to Banking Companies, Insurance Companies and NBFCs have been initially deferred for a couple of years with a prohibition of early adoption.
  • Phase wise implementation

Understanding the complication in the first time adoption and transitional issues, the applicability of Ind AS has been made mandatory in a phased manner based on the net worth and listing criteria of the Company.
Phase I

Companies with net worth of five hundred crore rupees and more as on 31st March 2014 or 31st March 2015 either listed or unlisted along with their holding companies, subsidiaries, joint ventures and associates are necessarily required to prepare their financial statements as per Ind AS from the financial year 2016-17 with Ind AS complied comparative figures for previous year.
Companies which announces their quarterly results also needs to prepare and present Ind AS complied quarterly results from this financial year.
Phase II

All listed companies not covered under Phase I and unlisted Companies with net worth of two hundred fifty crore rupees but less than five hundred crore rupees as on 31st March 2014, 31st March 2015 or 31st March 2016 along with their holding companies, subsidiaries, joint ventures and associates are necessarily required to prepare their financial statements as per Ind AS from the financial year 2017-18 with Ind AS complied comparative figures for previous year.
Phase III

Companies not covered in either of the phase I or phase II will be mandatorily required to comply with Ind AS requirement from the Financial Year 2018-19.
  • Practical Aspects

Though transitional working on first time adoption covered under Phase I is completed in case of some of the big corporates and in process for rest of others, still there are Companies still unknown to the concept of Ind AS and the mandatorily requirements.

Each and every entity requires a number of steps to be followed at the time of transition from Indian GAAP to Ind AS i.e. first time adoption of Ind AS. An entities needs to first of all assess the impact areas based on the financial statements as on the transition date in its particular case though the financial effect may not be calculated at the same time. Based on the assessment of impact areas changes needs to be made in the accounting policies to be followed under Ind AS complied financial statements. Accordingly the working needs to be done to be prepare the first Ind AS complied statement of financial position as on the date of transition since the statement of profit and loss for that period need not to be prepared.

This exercise will include reclassification of Balance Sheet items and figures. The next steps comes up prepare financials for the comparative periods i.e., quarterly or half yearly results of the comparative period in case of entities where quarterly results needs to be published and financial statements at the end of the comparative period in every case. Afterwards similar practice will be followed in the reporting period itself. Changes in the ERP or other accounting software’s to be done as per the applicability to the entity.


CA Shanker K Agarwal
Partner at Goel & Goel
Mobile: 8585 9796 85


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