Ind AS Implementation

A set of accounting standards have been set by the Indian Accounting Standards (Ind AS). This has been notified by the ministry of corporate affairs and this notification coincides with the international financial reporting standards (IFRS).This would enhance the required uniformity and comparability throughout the practices of accounting. The standards board of the institute of Chartered accountants in India has formulated such accounting standards. The way IFRS has been numbered and named similarly Ind AS has also been named and numbered.39 Ind AS has been notified by the MCA.

Though most of the Ind As are extremely close to the IASB IFRS yet there are certain areas in which MCA differs from the principles formulated by the IASB IFRS. Certain areas that differ are related to the usage of the leased asset at about the same rate -straight lining of lease rentals, accounting practices for the conversion of the foreign currency bonds, usage of the Indian GAAP possessing fixed assets’ values and the methodology for treating the exchange differences on the borrowings of the long term foreign currency. The main objective of the accounting standards is to treat several accounting aspects by removing the variations and bringing standardization in the presentation. The intention is the harmonization of the diverse policies of the accounting adopted in presentation as well as preparation of the financial statements by varied reporting enterprises for facilitating the intra firm and inters firm comparison.

 

Timelines


April 1, 2016

April 1, 2017

April 1, 2018

April 1, 2016

All listed and unlisted companies with standalone net worth >= Rs. 500crore (as on March 31, 2014)

All remaining listed companies

Scheduled Commercial Banks (excluding Regional Rural Banks and Urban Cooperative Banks)

NBFCs whose equity and/or debt securities are listed or are in the process of listing with net worth < Rs.500crore

       
  All remaining unlisted companies with standalone net worth >= Rs. 250 crore (as on March 31, 2014) All-India Term Lending Refinancing Unlisted NBFCs with net worth >=Rs. 250 crore but <Rs. 500
     
    Insurers/insurance Companies  
     
    Non-Banking Finance Companies (NBFCs) with a net worth of >= Rs. 500  



Impact of IND AS

 

Each and every area will be covered under Ind AS. This would comprise of the reported assets, liabilities, expenses, revenues and equity. At an elementary level, the focus of the Ind AS would be on substance instead of the legal form and the rewards and the risks associated with the underlying transactions. This would change the accounting that is legal structure based to an accounting that is substance driven. Ind AS would impact the real economics of the transaction and would reflect the underlying rationale of the business.






Conversion process

In an conversion based on Ind AS, the undertaking to change the financial reporting from the current GAAP to the Ind AS is being done by the entity. One of the major aspects includes the differences between the treatment by the IFRS and the Indian GAAP. Certain factors that bring in the differences are as-

 

  • The flexibility and the quality of the present reporting infrastructure

  • The complexity and the size of the entity

  • The effect of the changes of the GAAP on the operations

A phase of the initial diagnostic should make the companies be in a position to be aware of the impact of-

  • The financial statements changed to Ind AS

  • Tax, Business IT and process changed to Ind AS

  • Decisions of the business

  • The underlying approach for the formulation of Ind AS

Converting to Ind AS would be an exercise in change management. Adoption of Ind AS would not only change the financial reporting of an organization but also many other aspects much beyond the financial reporting. Company’s every aspect associated with the financial information possesses the potential to change( for example, compensation plans of the employee and the executive, internal reporting of the management, relations of the investors, information of the analyst and the indicators of the key performance).The process as well as the conversions’ implications can widely vary from company to company on the basis of the number of the variables like the levels revealing the expertise, the degree to which the centralization of the processes has been done, collection of the data and the number of methods presently being used for the accounting purposes.

The methodology ensures that the peculiar pitfalls can be avoided by the conversion team that is inexperienced. This can be done by-

  • Promotion of the reusage of the knowledge

  • Avoidance of dead ends that are expensive because of the poor coordination and planning

  • Ensuring efficient usage of the time of the staff

  • Facilitation of the knowledge transfer by mixing less experienced and experienced staff

  • Improvement of the quality of work

Due to the conversion to Ind As many opportunities would arise and to take the full advantage of the arising opportunities, the methodology for the conversion should not only be customized to the needs of the entity but also be flexible.





The starting point being considered by the conversion methodology is the fact that the conversion process of the Ind AS is more than just the accounting issues and also that the entire process is quite complicated to warrant the project management to be professional. These are the reasons because of which the entire process has been divided into five phases-each stage is associated with a specific portion of the conversion. This involves the facilitation of the indulgence of the specialists on the basis of the need. It is however important to be aware that the overlapping of one phase with the other is possible and it is not necessary for the entities to wait for the completion of one phase before beginning the other. Since the allocation of the activities have been made mandatory as per the phase therefore, a clear breakdown of all the activities by the organisation is not possible all the time. Therefore, tailoring of the activities as per the specificities of the project is necessary, like the starting point and the structure of the project being in place, etc.

Which approach should be adopted by one for the implementation of the process Ind AS?

One should determine the impact that can arise from the applications of the standards set for the Ind AS conversion project not only on the reporting of the finances but also on the business overall. The conversion of the Ind AS would typically impact the areas like the IT Systems, the training being given, the taxes being filed, the internal control methodologies and assessment of the organizational structure’s adequacy.

Designing and developing the solutions together with a plan that is well laid down for the implementation for the first time is required. By doing the assessment of the impact of the project and planning carefully at the beginning of the project, it’ll be possible to determine the major areas important for the business. After the determination of the major areas important for the business, the estimates for the resources should be made,the time and the related costs required for the completion of the project should also be calculated.

A process that has been improperly designed for the conversion of Ind AS can make the company suffer potential risks in the areas that are as-

  • Accounting and reporting under multiple accounting frameworks during the transition period

  • Maintaining accounting policy consistent across the group, including those by subsidiaries who may have already adopted IFRS or their equivalents.

  • Missed deadlines in the conversion timetable.

  • Inability of the CEO/CFO to conclude and certify on the effectiveness of the company's internal controls over financial reporting as required under Companies Act 2013 & Clause 49 of the Listing Agreement.

How AKGVG can help

  • Impact analysis on operations/financial statements of the Entity.

  • Training to employees.

  • Restructuring in tax planning, MIS reporting, financial decision making, IT restructuring for maintenance of books of account.

  • To assist entity in selection of accounting policies and preparation of financial statements.

  • Post IND AS Implementation support.

For the compliance service providers, the MCA, ministry of corporate affairs and the CBDT, central board of direct taxes, have made two new standards. MCA, ministry of corporate affairs has prepared a Roadmap for the IFRS, international Financial Reporting Standards and the IND As, Indian accounting standards for certain companies.

The companies that do not fall under this category are non-banking finance companies, banking companies and insurance companies. In totality ten standards of computing g and disclosing the income would be effective from 1/4/2015 and would be applicable from the year 2016-17. It is optional in 2015-2016 but it would be compulsory in 2016-17 for companies belonging to the categories mentioned above.

The International Accounting Standards Board (IASB) understands that this being the first time would have certain difficulties if implemented practically therefore, IFRS-1 has been published to help the preparers to overcome the hurdles being faced while implementing it. IFRS-1 has been revised and IND-AS 101 has been published.IND-AS-101 mentions the compulsory exceptions as well as the exemptions that one can opt for. Though IND-AS 101 does lower the previous burden of accounting yet it is also a time consuming and a complicated procedure. It for sure would need enormous time for data collection, staff training and many more.

The major challenge would be evaluation of the exemptions available. Another challenge would be aligning of the varied legislations. Making options for exemptions would for sure be challenging while preparing the financial statements. For making the judgements and evaluations, an expertise would be required. Let’s look at certain problems arising due to IND AS.

ICDS and IND-AS

Till now profitability was calculated and considered to be the one arrived at after making the necessary adjustments. This was done for deciding the taxable income. IND AS is based on the fair value accountancy therefore; there would be a huge gaap between what the books of profit would say and what would otherwise be calculated. This would increase the liability of the IND-AS adopters. Now the CBDT has introduced the ICDS and tax would be calculated as per the ICDS. This would bring in the uniformity in the taxation.

Hence, the companies that have opted for IND AS will have to calculate the taxes by two different methodologies. First one for the profits of the books and second one where computation of income would be as per the ICDS, This would help in determination of the taxes as per the standard act. Since the rules are intricate therefore understanding of the changed and the previous norms becomes necessary and we possess the expertise in the same.

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