Challenges in Transition to

Ind-AS

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Ind-ASDecember 11, 2015

Ind AS Convergence in India: A quick recap

Previous plan 1 April 2011

July 2014 - Finance Ministers budget speech

January 2015 press release on revised roadmap issued by the MCA

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Feb 2015 roadmap for transition to Ind AS notified & 39 converged (final) standards issued

Revenue and Financial Instruments latest standards

Carve Outs and Carve Ins as compared to IFRS

March 2015 CBDT notified 10 ICDSs to address tax issues

Ind-AS standards published in the official gazette

Implementation roadmap for Ind AS

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Disclosures: First Ind-AS financial statements

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Disclosures: First Ind-AS interim financial statements

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Challenges in Transition to Ind-AS : Pending Regulatory ClaritySEBI

Financial Results Comparative Numbers Limited Review ?

MCA

Opening Balance Sheet and Comparative Year end Balance Sheet - Audit ?

Income Tax

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Income Tax

MAT considerations ?

Transition adjustments Treatment of reserves ?

Others

Conforming changes to other regulations Indirect Taxes, Distributable profits

Challenges in Transition to Ind-AS : General Unintended consequences of carve outs Common control acquisitions.

Early adoption of new financial instruments standard.

Early adoption of new Revenue Recognition standard likely to be deferred

Phased implementation Banks, NBFCs and Insurance companies (impact in diversified groups)

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in diversified groups)

Increase emphasis on judgment in financial statements

Use of fair values including recognition of unrealised gains / increase volatility in earnings

Preparation of consolidated financial statements using uniform accounting policies

Challenges in Transition to Ind-AS : General Key impact on structure of debt / equity instruments with differential

accounting and taxation treatments

Greater focus on quality of earning - Changes expected to

operating results even if net profit does not change

First-time transition to impact retained earnings To review reconciliations

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Impact on some sectors more than others especially power, infrastructure real estate, capital intensive sectors

Extensive disclosures on segments business review relevant

Extensive other disclosures even through it provides transparency on management judgment areas

Challenges in Transition to Ind-AS : Consolidation

Business Combinations - a transaction or other event in which anacquirer obtains control of one or more businesses

Business = Inputs + Processes + Ability to create Outputs

Control is important only holding more than 50% or majority of board isnot sufficient

New Subsidiary PPA (purchase price allocation) as per Fair Value (also

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New Subsidiary PPA (purchase price allocation) as per Fair Value (alsoto consider Contingent Liabilities and Intangible Assets not in the books)and to maintain two separate set of Subsidiary Accounts one forLocal Reporting and another for Group Reporting

Difference in period ends cannot exceed 3 months

Deferred Tax Assets on Unrealised Profit

JV accounting as per Equity Method not as proportional consolidation

Challenges in Transition to Ind-AS : Some Key ImpactsRevenue Recognition

Sale of Goods Instead of mearly transfer of risk & rewards to focus ontransfer of control also

Revenue Recognition Linked Transaction where Individual transactionshave no commercial effect on their own To treat as single arrangement

All expected discounts and incentives (even the cash discount) are required

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All expected discounts and incentives (even the cash discount) are requiredto be presented as a reduction from revenue

Government Grant

Under Ind AS, all financial instruments (including below market borrowings from the Government) are initially recognized at fair value with reference to the market rate of interest for a borrowing with similar terms (currency, tenure etc.)

Challenges in Transition to Ind-AS : Some Key ImpactsShare Based Payments

ESOPs Accounting Based on Fair Value on grant date & graded vesting

SARs Accounting - Based on Fair Value at each reporting date

ESOPs Trust - Treasury Shares, Consolidation of Trust

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Employee Benefits

Under Ind AS, the following components of the movement in the net defined benefit obligation is required to be directly recognised in Other Comprehensive Income (OCI) :-Actuarial gains and losses-Diff of the discount rate on obligation and rate of return on plan assets

Challenges in Transition to Ind-AS : Some Key ImpactsForeign Exchange Fluctuations

Under Ind AS, for long term monetary items such as loans drawn down on or after 1 April 2016, the present policy of capitalisation of foreign exchange fluctuation or recognition in FCMITDA cannot continue

Financial Instruments

Under Ind AS, all financial assets are required to be assessed based on

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Under Ind AS, all financial assets are required to be assessed based on characteristics of their cash flows and/or the business model for managing such instruments

A financial asset is measured at amortized cost only if it meets both of following conditions: the held-to-collect business model and the SPPI criterion (solely payments of principal and interest)

Current Investments in Mutual Funds do not meet the SPPI test, failing which these will be measured at FVTPL (Fair Value through P&L Account)

Challenges in Transition to Ind-AS : Some Key ImpactsNon-Cancellable Lease Interest Free Security Deposit

Under Ind AS, the security deposits are required to be measured at fair value with reference to an appropriate discounting rate

Deferred Tax

Under Ind AS, reference to the balance sheet approach i.e. based onthe differences between carrying value of the assets/liabilities and

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the differences between carrying value of the assets/liabilities andtheir respective tax base as against the existing reference to theincome statement approach i.e. with reference to the differencesbetween taxable profit and profit before tax per the financial statements

Budget, MIS, IT System etc

Impact of changes to consider in Budget and alignment of MIS with Accounts IT System support for handling the changes Training and capacity building of teams.

Thank you

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