Ind AS Important

8/17/2019 Ind AS Important

1/90

ROAD MAP TO IND-AS &

SIGNIFICANT DIFFERENCES

SIRCChennai

23rd April, 2016

1


2/90

CONTENTS

• Road Map for Implementation

• Transition to Ind-AS

•

Other Key Differentiators• Implications

2


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ROAD MAP OR IMP!EMENTATION-

OT"ER T"AN INANCIA! ENTITIES

#ol$ntary Phase%

• Any company may

voluntarily applyInd-AS in respect of

3


4/90


5/90

ROAD MAP OR

IMP!EMENTATION- OT"ER T"ANINANCIA! ENTITIESSecond Phase• Ind-AS is mandatory for the following classes

of companies in respect of their financialstatements for accounting periods

commencing on or after &st April' ()&3+

•

ompanies whose e!uity and " or de#tsecurities are listed or are in the process of

ein. listed on any Stoc$ %&change in India

which are not co0ered in phase &'

•


6/90

ROAD MAP OR

IMP!EMENTATION- INANCIA!ENTITIESirst Phase• Ind-AS is mandatory for the following classes



•

All scheduled commercial #an$s +other than.r#an o-/perative 0an$s and egional ural

0an$s

•

All India Term ending efinancing Institutions6


7/90

ROAD MAP OR

IMP!EMENTATION- INANCIA!ENTITIESSecond Phase• Ind-AS is mandatory for the following classes



•

isted 0s not covered in the first phase'• All unlisted 0s having net worth of s' 25

crore or more #ut less than s' 55 crore'

7


8/90

ROAD MAP OR IMP!EMENTATION

Certain 6eneral Considerations%

• ompanies whose securities are listed

on the S8% %&change will not #ecovered unless they go for a voluntary

adoption'

• All companies adopting Ind-AS are

re!uired to present comparative

information for one year' 9


9/90

ROAD MAP OR IMP!EMENTATION

• The net worth would #e determined on the

#asis of the standalone financial statements as

on 31st 8arch 2514 in accordance with the

definition of net worth as per Section (1*32 of

the Act' or companies which are

incorporated su#se!uently the net worth

would #e on the #asis of the first auditedstandalone financial statements and would

apply to su#se!uent financial years once they

meet the applica#ility threshold'


10/90

Transition to Ind-AS

• Preparation of Ind-AS Openin. 7alance Sheet

• Mandatory E:emptions

•

#ol$ntary E:emptions• Other Key Considerations

15


11/90

Preparation of Ind-AS Openin. 7alance

Sheet

• Not to reco.nise items as assets and

liailities if Ind-AS does not permit their

reco.nition+

• Reco.nise all assets and liailities /hose

reco.nition is re9$ired y Ind-AS+

•

Reclassify assets' liailities' and items ofe9$ity as per Ind-AS re9$irements+

• Meas$re all assets and liailities in

accordance /ith Ind-AS+ 11


12/90


Sheet

Not to reco.nise items as assets and

liailities if Ind-AS does not permit their

reco.nition% 1e:amples2

• Ind-AS-&) Events after the Reporting Period

does not recognise proposed di0idends as

an ad*usting event and hence the same isnot presented as a lia#ility as is the case

with AS-4' The proposed dividend is to #e

disclosed as a note' 12


13/90


Sheet

• The carried forward #alance of any share iss$e e:penses

which are amortised in terms of the special dispensation

under AS-26 are eliminated whilst preparing the opening

#alance sheet' (The treatment to be adopted if already

adjusted against Securities premium Account is not clear).

• Any contin.ent assets or reim$rsements which are not

virtually certain and do not meet the recognition criteria

under Ind-AS-;3 should #e reversed in the opening #alance

sheet'

13


14/90


Sheet

• In the opening consolidated financial

statements) assets and lia#ilities of


15/90


Sheet

Reco.nise all assets and liailities /hose

reco.nition is re9$ired y Ind-AS% 1e:amples2

•

All deri0ati0e financial assets and liailities and emedded deri0ati0es shall #e

recognised if not done earlier'

•

ertain provisions in the nature ofrestructuring o#ligations) onerous contracts)

decommissioning lia#ilities) site restoration)

warranties) litigation etc' need to #e

reco nised #ased on constr$cti0e oli ations)1


16/90


Sheet

•


17/90


Sheet

• Deferred ta: assets and liailities may need

to #e recognised #ased on the 7alance sheet

approach'

• In the consolidated financial statements

investments in


18/90


Sheet

Reclassify assets' liailities' and items of e9$ity

as per Ind-As re9$irements% 1E:amples2

•

lassification of financial lia#ilities and e!uityshould #e #ased on the s$stance rather than

legal form e'g' redeema#le preference shares)

fully converti#le de#entures) perpetual de#t

etc'

• Compo$nd financial instr$ments need to #e

split into de#t and e!uity components e'g'

artl " o tionall converti#le #onds'19


19/90


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Sheet

• =here the time value of money is material)

the pro0ision should #e on a disco$nted #asis'

•

Share ased payment transactions need to #erecognised on a fair 0al$e #asis'

• Assets and lia#ilities ac!uired in a $siness

comination to #e measured at fair 0al$e'• Non-c$rrent assets held for sale and

Discontin$ed Operations to #e measured at

fair value less costs to sell' 21


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Mandatory E:emptions

Dereco.nition of inancial Assets and !iailities

• o need to recognise any financial asset or

lia#ility which is already derocognised underlocal >AA;'

• Alternatively) the entity may apply

derecognition criteria retrospectively #ychoosing a cut off date'

"ed.e Acco$ntin.

•

Transactions entered into #efore the date of22


23/90


Classification and Meas$rement of inancial

Assets and !iailities

•

?etermination of cash flows for time valuemeasurement of financial assets on the date

of transition when it is impractica#le to assess

the same retrospectively) with ade!uate

disclosures till their de recognition'

• or measurement of e&isting financial assets

and lia#ilities on the date of transition if it is

im ractica#le to determine effective interest23


24/90


Impairment of inancial Assets

• %&haustive search for information when

determining whether there is a significantincrease in the credit ris$ since initial

recognition'

Emedded Deri0ati0es• A first time adopter shall assess whether an

em#edded derivative is re!uired to #e

separated from the host contract on the #asis24


25/90

#ol$ntary E:emptions

Share ased Payment Transactions

•


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Deemed Cost of In0estment Property

• These may #e identified on the date of

transition #ased on Ind-AS criteria of these#eing used to earn rentals or for capital

appreciation as against the AS-13 criteria of it

not #eing intended to #e used or occupied

su#stantially in the operations of the

enterprise'

!eases

•

26


27/90


C$m$lati0e Translation Differences

• umulative translation differences for all

foreign operations +Ind-AS does notdistinguish #etween integral and non-integral

operations, on the date of translation shall #e

@ero and

• >ains and losses on su#se!uent disposal of

foreign operations shall e&clude translation

differences prior to the date of transition'

•

27


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In0estments in s$sidiaries' associates and AA; +i'e' fair value in the

separate financial statements on date of transition or previous

>AA; carrying amount, on the date of transition can #e used'Assets and !iailities of s$sidiaries' associates and


29/90


Desi.nation of pre0io$sly reco.nised inancial

Instr$ments

•

inancial assets are re!uired to #e classifiedinto three types) as under:

1. Fair value through Profit and oss (helps to

eliminate or significantly reducemeasurement or recognition uncertainty or

holding period is less than 12 months) – can

be used irrespective of the business model

discussed below 2


30/90


• inancial liailities are re!uired to #e

classified into three types) as under:

1

!air value through ;rofit and oss +veryselectively,

2' Amortised cost'

•.

The a#ove designations can #e either at initialrecognition or on the date of transition'

•. Amortised cost of financial assets and

lia#ilities shall #e determined on the #asis of35


31/90


air #al$emeas$reme

31


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Decommissionin. !iailities incl$ded in Cost of

fi:ed assets

•

8easure the lia#ility on the date of transitionas per Ind-AS 37'

• To the e&tent it is to #e included in the cost of

the asset) the amount should #e estimated#ased on the assumption that it would #e

included when the lia#ility first arose and then

discounted accordingly) using historical ris$

ad usted discount rates #ased on avera e32


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Other Key Considerations in Transition

Ind-AS-( In0entories

• In respect of inventories ac!uired on deferred

settlement #asis) the interest element thereonshall #e e&cluded' This need to #e ad*usted on

the date of transition'

•

Sale of inventories after the reporting periodwould #e an ad*usting event under Ind-AS 15

discussed later which would need to #e

ad*usted on the date of transition'34


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Ind-AS&) E0ents After Reportin. Period

• Any provision for proposed dividend and

related dividend distri#ution ta& after thereporting period shall #e reversed and added

#ac$ to retained earnings'

•

Settlement of a court case after reportingperiod confirms the e&istence of a present

o#ligation and accordingly the previously

created provision needs to #e ad*usted or

fresh rovision need to #e created in terms of3


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Ind-AS (; on 7orro/in. Costs

• Inventories which are manufactured or

otherwise produced in large !uantities on a

repetitive #asis are not considered as

!ualifying assets even if they ta$e a su#stantial

period of time to get ready for their intended

use or sale'

• 0orrowing costs shall #e measured applying

effecti0e interest rate method from the

transition date' Accordin l ) ancillar37


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Ind-AS &( Income Ta:es

• 0alance Sheet method to #e adopted for

computation of deferred ta& asset or lia#ility

#y which the ta& #ase is compared with

accounting #ase' ;rimary impact would #e in

respect of #usiness com#inations and

consolidation ad*ustments'

• Ta* base of an asset is the amount deductible

for ta" purposes against any ta"able economic

bene its that would low to the entit when it39


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Ind-AS ;4 Intan.ile Assets

• .namortised share issue e&penses need to #e

charged off' Amounts in the nature of

transaction cost need to #e reduced from

e!uity'

•

Any unamortised #orrowing costs need to #eanalysed' Initial transaction cost need to #e

reduced from the #orrowings and any

ancillary cost needs to #e considered in the

calculatin the effective interest rate'3


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Ind-AS (& Effects of Chan.es in orei.n

E:chan.e Rates

• oncept of functional currency introduced for

the first time' o first time e&emption

provided' %t is the currency of the primary

economic environment in which the entity

operates %t is normally the currency which

influences the income and e"penses the most

e g shipping company

Ind-AS ;3 Pro0isions' Contin ent !iailities and45


41/90

Other Key Differentiators

• Presentation of inancial Statements 1Ind-AS-

&2

• inancial Instr$ments

• 7$siness Cominations

• Consolidated 6ro$p Acco$nts

• Income Ta:es

• Employee 7enefits Share ased payments

•

Property' Plant ? E9$ipment 41


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Presentation of inancial Statements

• O


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O


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Components of inancial Statements

• Statement of chan.es in E9$ity for the period+

- %t is commonly understood as a statement which depicts the

movement in the various components of e&uity or what is

commonly referred to as shareholders funds

- The components of e&uity for the purpose of statement of

changes in e&uity would include for each class of contributed

e&uity# the accumulated balance of each class of 3ther

$omprehensive #ncome (i.e. the total non+o'ner change ine4uity during the period5 in other 'ords all changes in e4uity

other than transactions from o'ners and distributions to

o'ners) and %etained 6arnings.

+ Some of the major components of other comprehensive4


46/90


• The Statement of $hanges in 64uity includes

the follo'ing information7

- he total comprehensive income for the

period showing separately the amount

attributable to owners and others

- !or each component of e&uity areconciliation of the movement between the

beginning and end of the period arising out of

profit or loss# other comprehensive income and

transactions with owners includin an46


47/90


• Statement of Cash lo/ for the period - The

#asic o#*ective of preparing the cash flow

statement is to provide information to the

users regarding the cash inflows and outflows)which in con*unction with the traditional

financial statements prepared on an accrual

#asis would provide information in respect ofthe following matters) amongst others:

- The a#ility of the enterprise to generate

cash flow from operations' 47


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Principles 6o0ernin. Preparation of

inancial Statements

• Materiality and a..re.ation

• Offsettin.

> ,nly permissible to achieve substance over form

– aluation allowance# provision for

obsolescence etc not considered as offsetting

– %ndividual %nd-$*s need to be referred to

• re9$ency of reportin.5


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Contents of inancial Statements

• The following information should #e

prominently displayed and repeated as

deemed necessary) for a proper

understanding of the users:

- Name of the reporting entity and any

chan.e thereof from the preceding period'

- =hether financial statements are separate

or of the .ro$p

- ?ate of reporting and period covered1


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• Presentation of 7alance sheet

- o specific format prescri#ed in the Ind-As

- The %&posure ?raft of the IAI suggestingthe format as per Schedule III of the ompanies

Act) 2513 would #e a useful guidance once

notified - The minim$m line items to #e presented as

per the ne&t slide

2


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?escription of the Items

;roperty) plant and e!uipment

Investment ;roperty

Intangi#le Assets

inancial Assets showing the following separately:

Investments accounted under %!uity 8ethod

Trade and /ther eceiva#les ash and ash %!uivalents

0iological assets

Inventories

Total assets classified as held for sale and assets included in disposal groups considered as held for

sale

inancial ia#ilities showing the following separately:

Trade and other ;aya#les

;rovisions

ia#ilities and Assets for urrent Ta&?eferred Ta& Assets and ia#ilities

ia#ilities included in disposal groups considered as held for sale

on-controlling interests) presented within e!uity

Issued apital and eserves attri#uta#le to the owners of the ;arent

3


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• Additional line and su#-line items can #e

presented #ased on assessment of the nature

and li4uidity of assets) function of assets and

amounts) nature and timing of lia#ilities'

• Assets 'ith the same class subject to

different measurement basis (cost 9 fair

value) should be presented in separate lineitems

• here are specific disclosure re&uirements

which are laid down in the %nd-$* or di erent4


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urrent Assets on-urrent Assets /perating ycle

An asset shall #e classified ascurrent) when it satisfies any of

the following criteria:

a, It is e&pected to #e

realised or intended for

sale or consumption on

the companyBs normal

operating cycle'

#, It is held primarily for

the purpose of #eing

sold'

c, It is e&pected to #e

realised within 12

months of the

reporting date'

d, It represents cash and

cash e!uivalents unless

it is restricted from

#eing used or

e&changed within 12

months of the

reporting date'

All other assets are classified as

non-current assets'

A lia#ility shall #e classified ascurrent) when it satisfies any of

the following criteria:

a, It is e&pected to #e

settled within the

normal operating cycle'

#, It holds the lia#ility

primarily for the

purpose of trading'

c, The lia#ility is due to #e

settled within 12

months after the

reporting period'

d, The entity does not

have the unconditional

right to defer

settlement of the

lia#ility for at least 12

months after the

reporting date'

All other lia#iliites are classified

as non-current lia#ilities'

/ne of the critical factorsdetermining the current " non-

current classification is the

operating cycle followed #y the

company' It is defined as the

time period #etween the

ac!uisition of an asset for

processing and their realisation

in cash and cash e!uivalents'

=here the normal operating

cycle cannot #e identified) it is

assumed to have a duration of

12 months'

The following are certain

matters which are relevant in

the conte&t of the a#ove:

=here a company is

engaged in running

multiple #usinesses it

could have a different

operating cycle for each

line of #usiness'

In certain situations an

operating cycle longer

than 12 months is also

possi#le e'g' companies

engaged in

construction " real

estate development)

companies engaged in

manufacture of wines

etc'


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• The follo'ing are certain matters 'hich are

relevant in the conte*t of the above7

+ ;here a company is engaged in running

multiple businesses it could have a different

operating cycle for each line of business.

+ #n certain situations an operating cycle

longer than 1! months is also possible e.g.

companies engaged in construction 8 real

estate development9 companies engaged in

manu acture o 'ines etc. 6

f l


57/90


• Presentation of Statement of Profit and !oss

- o specific format prescri#ed in the Ind-As

D It however prescri#es a single statement

approach 'ith a Profit and oss Account

follo'ed by a Statement of $omprehensive

#ncome 'hich is different from the alternatives

allo'ed by #AS+1

- The entity shall also present the profit and

loss as well as other comprehensive income

attri#uta#le to non-controllin interests and7

f i i l


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?escription of the Items

evenue with Interest evenue calculated using %I to #e shownseparately

>ains and osses arising from derecognition of financial assets

measured at amortised cost

inance ost

Impairment osses on financial assets and reversal thereon

Share of profit and loss of associates and *oint ventures usinge!uity method of accounting

>ain or loss arising out of reclassification of financial assets out of

amortised cost category to fair value category

Ta& er&pense

Total of discontinued operations

9

C t t f i i l St t t


59/90


• Additional line) su#-line items) headings and

su#-headings which are relevant for an

understanding of the users should #e

provided'

• &o items should be classified as

e*traordinary items

• 6*penses should be presented by nature of

items as against #AS+1 'hich also permits

functional classification.

•

C f i i l S


60/90


• Components of Other Comprehensi0e

Income

- hanges in revaluation surplus

- e measurement of defined #enefit plans

- >ains and losses arising from translation of

financial statements of foreign operations

- >ains and losses arising from investments

in e4uity instruments designated as fair value

through other comprehensive income and from65

C f i i l S


61/90


• Components of Statement of Chan.es in

E9$ity

- Total comprehensive income for the period)

showing separately the amounts attri#uta#le to

the owners and to non-controlling interests'

- or each component of e!uity) the effects

of retrospective application or retrospective

restatement recognised as per Ind-AS 9'

- or each component of e!uity +comprising61



62/90


• Disclos$re of Si.nificant Acco$ntin. Policies

- 8easurement #asis used'

- /ther accounting policies - Significant management *udgements

- Sources of estimation uncertainty +e'g'

litigation provisions #ased on cash flows)

decommissioning provision #ased on future

funding plan) actuarial assumption for pension

lia#ilities) #asis of determination of fair value62



63/90


• Capital Disclos$res

- Eualitative information a#out the o#*ective

policies and processes for the entityBs capital

management and any changes thereon during

the year

- Summary of !uantitative data a#out the

components of capital e'g' su#ordinated de#t

- ompliance with e&ternal imposed capital

re!uirements li$e capital ade!uacy ratio)63



64/90


• Other Miscellaneo$s Disclos$res

- ?ividend related disclosures

- ?omicile and legal from of the entity andaddress of its registered office

- ?escription of the nature of operations and

principal activities

- ame of the parent and ultimate parent

64


65/90

O ll I t i i l R ti


66/90

O0erall Impact on inancial Reportin.

• 7etter and more meanin.f$l presentation of

financial statements and other financial

information

> +urrent and non-current classification of

assets and liabilities facilitates better li&uidity

and cash flow analysis

– *tatement of comprehensive income

facilitates distinction of the impact on the

financial statements arising out of the core

o eratin activities and other activities events66


67/90

inancial Instr$ments


68/90


• Deri0ati0e Instr$ments > currently there are

diverse practices – $*-34 or %+$%

announcement- consistency would creep in

and recognition of both gains and losses eitherthrough Profit and 5oss or ,+% (hedge

accounting adopted) – /reater impact for

entities 'ho 'ere hitherto follo'ing the #$A#announcement and recognising only losses

• Transaction Costs

> %n res ect o lon term borro'in s will69



69/90


Impact on the Or.anisation

• entral Treasury unctions would need to

review their operational processes and

controls'

• Sales personnel would need closer co-

ordination whilst negotiating contracts)

especially derivative contracts +including for

commodities,

•

egal personnel would need to ac!uire new6


70/90

7$siness Cominations


71/90

7$siness Cominations

• Si.nificant Impact on Post Ac9$isition Profits

> Recording of assets at fair value will

normally result in higher depreciation and

amortisation – %n case of intangibles with

indefinite useful life or with higher useful life

lower or no amortisation

– 7oodwill will not have to be amortised

but tested for impairment

– %n case of a business combination in71


72/90

Consolidated 6ro$p Acco$nts


73/90


Reco.nition and Meas$rement

• Preparation of Consolidated inancial

statements

> 5ot of additional *PEs would get

consolidated

– /econsolidation of certain subsidiariessince two companies cannot consolidate the

same subsidiary since control can be e"ercised

only by one entity73



74/90


< +hanges in ownership interest that do not

result in loss of control should be ad0usted

against e&uity 6o guidance under current 7$$P

and hence differing practices were adopted

– 5osses incurred by the subsidiary to be

allocated between the controlling and non-

controlling interest as against the practice under%ndian 7$$P of ad0usting these against the

ma0ority# unless there is a binding obligation to

ma'e good the losses 74



75/90



• >reater co-ordination with the 8anagement

of group companies) especially associates and

*oint ventures primarily due to changes in year

ends and adoption of uniform accounting

policies

• .pdation of group and organisational

structures which would also impact $ey ratios

and other performance indicators'

•

7


76/90


77/90


78/90

Employee 7enefits and Share 7ased


79/90

Employee 7enefits and Share 7ased

Payments


• >reater engagement with actuaries'

•

loser co-ordination with Senior8anagement) finance) ( and operations

personnel'

•

eview of compensation and ( policies andarrangements with vendors and other service

providers'

7


80/90

Property Plant ? E9$ipment


81/90

Property' Plant ? E9$ipment

• Re0al$ation of Assets

> 6o selective revaluation permitted

– 8pdation of revaluation on a regularbasis

– /epreciation charge to be charged off

to %ncome *tatement 6ven companies notadopting #nd+AS need to follo' the same in

terms of the $ompanies Act9 !>1"

– *ince it is an option it can affect91



82/90


• nrealised E:chan.e Differences

> hese are re&uired to be charged off in

all cases prospectively

- +ompanies who have opted for the

transitional relief for continuing treatment of

capitalisation in terms of para ?A of AS+11 till

the tenor of the loans or till != 2424 his would

impact comparability of results

– 7reater volatility in the results of92



83/90



• Identifying the relevant components would

re!uire reconfiguration of the fi&ed assets

register' The 8aintenance of the fi&ed assets

register would #ecome a cum#ersome

e&ercise since greater granularity would #e

re!uired in the compilation thereof'• Su#stantial system changes would have to #e

underta$en) the cost of which may not always

#e commensurate with the #enefits'93

Intan.ile Assets


84/90

Intan.ile Assets

Reco.nition and Meas$rement

• Intangi#le assets can have indefinite useful

lives) identification of which should #e

ade!uately and appropriately demonstrated

and *ustified' Such assets need to #e su#*ected

to an annual impairment assessment

• air valuation is now permissi#le especially if

an active mar$et e&ists

94

Re0en$e Reco.nition


85/90

Re0en$e Reco.nition

• ?efinition of FrevenueB given in the Ind AS 19 is

#road compared to the definition of FrevenueB

given in e&isting AS #ecause it covers all

economic #enefits that arise in the ordinarycourse of activities of an entity which result in

increases in e!uity) other than increases

relating to contri#utions from e!uityparticipants' /n the other hand) as per the

e&isting AS ) revenue is gross inflow of cash)

receiva#les or other consideration arising in9

Re0en$e Reco.nition


86/90

Re0en$e Reco.nition

• Ind AS 19 specifically deals with the e&change

of goods and services with goods and services

of similar and dissimilar nature' In this regard

specific guidance is given regarding #artertransactions involving advertising services'

This aspect is not dealt with in the e&isting AS

'• Ind AS 19 provides guidance on application of

recognition criteria to the separately

identifia#le components of a single96

Re0en$e Reco.nition


87/90

Re0en$e Reco.nition

• ?isclosure re!uirements given in the Ind AS 19

are more detailed as compared to e&isting AS

'

• Ind AS 19 specifically provides guidance

regarding revenue recognition in case the

entity is under any o#ligation to provide free

or discounted oods or services or awardcredits to its customers due to any customer

loyalty programme' %&isting AS does not

deal with this aspect' 97

Implications


88/90

Implications

• Impact of transition on the profit" loss)

financial position and net worth of the entity D

preparation of Income and %!uity

econciliation• ommunication with the 0oard and " or Audit

ommittee

• Increased volatility in results

• Increased disclosure re!uirements D #oth

!uantitative and !ualitative D greater99


89/90

Implications


90/90

Implications

• Training considerations

• Impact on management reporting - change in

8IS" G;Is etc'

• hange in #usiness models

• oan covenants

• ?ividend distri#ution

• Investor relations

Ind AS Important

Documents

Transcript of Ind AS Important