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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
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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
companies of companies listed or are in the process of
being listed on any stock exchange in India or outside
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
companies of companies listed or are in the process of
being listed on any stock exchange in India or outside
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;
Source: compiled from Ind-AS: Adopting IFRS-converged financials – implications and challenges– Motilal Oswal Detailed Report 2019
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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
Source: compiled from Ind-AS: Adopting IFRS-converged financials – implications and challenges– Motilal Oswal Detailed Report 2019
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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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