CA Himanshu Goel
First of the idea of IND-AS emerges from the adoption of IFRS as issued by the International Accounting Standard Board First of all in 2002 European parliament has passed a regulation ideas requiring the adoption of IFRS by all EU listed companies. Then most of the countries across the world has adopted these IFRS except India and USA. Later on USA allows IFRS for foreign private issuers with securities traded on US exchanges. After that US standard setter and IASB have been covering and working together on numerous accounting standards this has resulted is the US GAAP slowly inching forward the IFRS. Then in Feb’2016 MCA notified the roadmap for the adoption of IND-AS.
The adoption of the IND-AS will substantially bridge the gap and bring India at par with the world that has adopted IFRS. There are some differences in IND-AS and IFRS therefore financial statement prepared with IND -AS may not be fully compliant with IFRS but it is expected that the ICAI will take up these issues with IASB.
Roadmap of Convergence To Ind AS
1. Voluntary Phase
From 1.04.2015 or thereafter.
2. Mandatory Phase
Phase I
From the period beginning on or after 1.04.2016 for the following companies.
a) Companies whose equity/debt is listed or is in process of listing + Net worth 500 crore or more.
b) Other companies having net worth is 500 crore or more.
c) (Holding + Subsy+ Associate+JV ) of the companies covered under (a) and (b) above.
Phase II
From the period beginning on or after 1.04.2016 for the following companies.
a) Companies whose equity/debt is listed or is in process of listing.
b) Other companies having net worth is 250 crore or more.
c) (Holding + Subsy+ Associate+JV ) of the companies covered under (a) and (b) above.
Note: IND-AS are not mandatorily applicable on the companies which are listed or in process of listing on SME exchange.
3. Exemptions:
Following companies shall not be required to apply Ind-AS for the preparation of their financial statements:
a) Insurance Companies.
b) Banking Companies
c) Non Banking Finance Companies
4. Comparative Information:
Company applying Ind-AS need to present comparative information for at least one year as per the Ind-AS. So, For this companies require to apply Ind-AS From the beginning of the P.Y.
5. Ind-AS to be apply:
Earlier Ind-AS are to be applied on the Standalone Financial Statement. But its not easy for the users to understand the financial statements with different pattern. So, It is compulsory to apply Ind-AS on standalone as well as consolidated. Moreover Sec.129 of companies act require the CFS to be prepared in the same manner in which SFS are prepared.
Notes:
Overseas Subsidiary, associate, Joint Venture and other similar entities of an Indian company may prepare its standalone financials in accordance with the requirement of specific jurisdiction.
Provided that such Indian company shall prepare its CFS in accordance of IND-AS.
6. Once Applicable Forever applicable.
7. Net Worth :- Net Worth is to be taken as per the balance sheet of the 31.03.2014 or in case the company is not closing its accounts on 31.04.2014 than first audited balance sheet after that date.
Net Worth:
Paid Up Share capital
+Free Reserve (created out of profit)
+Security Premium
– accumulated losses
– Deferred Expenditure
8. Every company must have to follow one accounting system either Indian GAAP 06 or Ind-AS for those on which this is not mandatory. But a company following Indian GAAP 06 can follow IND-AS only for those matters which are not contradictory with AS-06 or there is no accounting treatment in AS-06.
9. In case of IFR :
Interim Financial Reporting is made as per the listing agreement under clause 41, as per clause 41 the IFR are to be made as per the AS25. So, this listing agreement needs to be updated :- a serious issue in this is that a company will start applying Ind-AS from the beginning of FY but last year financial reporting are as per Indian GAAP, so this must apply from previous year for better understanding.
10. As per the road map there isn’t any clear evidence of applicability of IND AS on the indirect and step down subsy which are not meeting the applicability criteria, but the companies will need to provide group reporting package for the consolidation, so these companies are suggested to follow the IND-AS.
11. If any company applying IND-AS voluntarily than there is no compulsion on the Subsy/Holding/associate to apply IND AS. But the company applying IND -AS need to provide group reporting package for the consolidation. The companies have to apply IND-AS not the IFRS inspite of the fact the IND -AS are emerges from the IFRS.
First Time Adoption of Ind-AS
Introduction
Adopting Ind-AS, an entirely different basis of accounting, poses a distinct set of problems:
* Sheer magnitude of the efforts involved in adopting a large no. of new accounting Std.
* Requirement of IND-AS is much different then Indian GAAP.
* Large no of information need to be collected which are not previously required under Indian GAAP.
This Leads to introduction of Ind-AS 101 to overcome all the practical difficulties & conversion of previous year FS in accordance with AS by laying down the basic rule & accounting policies for first IND AS Financials.
Objective
The objective of this AS is to ensure that entity’s First Ind-AS financial statements, and Its IFR for the part of the period covered by those FS:-
- Is transparent for the users and comparable over all period presented,
- Provides a suitable starting point for accounting under Ind-AS,
- Can be generated at cost that doesn’t exceeds the benefits of the users.
Applicability of this AS
An entity shall apply this IND AS in:
a) Its first Ind-AS Financial Statements. And;
b) Each interim financial report, if any, that it presents in accordance with IND-AS 34, for the part of the period covered by its first IND AS Financial Statements.
This IND-AS does not apply to changes in accounting policies made by an entity that already applies Ind-AS’s. Such changes are subject of:
a) Requirement on changes in accounting policies in IND AS 8
b) Special transition requirement in other Ind-As’s.
Glossary
1. Opening Balance Sheet:- An entity shall prepare and present on opening Ind-AS Balance Sheet at the date of Transition to Ind AS. For example: If the company have to apply Ind-As as in 31.03.2017, the transition date is 1.04.2015 and opening balance sheet must be prepared as on 1.04.2015.
NOTE;-
a) The accounting policy that is used in opening balance sheet may be different from the policies that it is used for the same date using its previous GAAP. The resulting adjustments arise from events and transactions before the date of transitions to IND-AS. Therefore an entity shall recognize those adjustment directly in retained earnings at the date of transition to Ind-AS’s.
b) An entity’s estimates in accordance with Ind-AS at the date of transition to Ind-AS shall be consistent with estimates made for the same date in accordance with previous GAAP, unless there is objective evidence that those estimates were in error. If any information is received after the transition date that must be reported as per the Ind-AS 10.
2. Ind AS Financial Statement:
An entity’s first annual FS in which the entity adopts all the Ind AS’s AND makes an explicit and unreserved statement (MANDATORILY) in compliance with them.
3. Reporting Date:
“END” of the latest period covered by the FS or IFR.
4. Transition Date:
“Beginning” of the earliest period for which an entity present full comparative information under Ind-AS in the first Ind AS financial statements.
Consistent application of AS.
Ind-AS 101 requires any entity to prepare and present an opening Ind-AS B/s at its transition date.
Opening B/S is the starting point for all subsequent accounting.
Accounting Policy in First FS:`
Transition From Indian GAAP to Ind-AS
In preparing opening Ind-AS Financial Statements an entity should:
a) Not recognize items as assets and liabilities if Ind AS does not permit such recognition. lyk : expenses issued on issue of share capital is not an assets as per the Ind-AS. Proposed dividend is not the liability as per the Ind-AS.
b) Recognize all assets and liabilities whose recognition is required by the Ind-AS. lyk: Deffered tax is to be shown on the basis of the Balance sheet items provisions are to be shown only if there is only constructive obligation.
c) Reclassify asstes,liabilties and items of equity as per the requirements of Ind-AS. Lyk: Liabilities & Equity on the basis of legal form not on substance basis.
d) Measure all assets & liabilities in accordance with Ind-AS. Like: Deferred Taxation as per Ind AS 12 and Property Plant and Equipment as per AS 16.
EXEMPTION and EXCEPTIONS
a) Limited exemption in those specified areas where the cost would exceed the benefits to the users of Financial Statements.
b) PROHIBITS retrospective application of Ind AS particularly in those areas where it require judgement by the management about past event and the outcome of same is already known.
REPORTING REQUIREMENT IN FINANCIAL STATEMENTS
a) Transition Adjustments.
There are two statutory requirements:
- Provide Explanatory statement ( how the financial position, financial performance and cash flows are effected).
- Recognise all those adjustments in the Retained earnings at the date of transition.
b) Reconciliations of Equity as per GAAP and as per Ind AS on:
- Date of Transition to Ind AS and
- Reporting Date
c) Reconciliation of total comprehensive Income*** as per Ind AS on reporting date.
***Total Comprehensive Income means:
All Components of Profit and Loss + All components of other comprehensive income.
All components of other comprehensive income means:-
Change in revaluation surplus
+ Actuarial Gain or Loss
+ Gains or loss arising from translating the financial statement of foreign operations
+ Gain or loss on remeasuring available for sale financial assets
+ Gain or loss on hedging instruments in a cash flow hedge.
d) Material Adjustments to the cash flows.
e) Label the previous GAAP information as not being prepared as per Ind AS.
f) Proper Recognistion and reversal of impairment loss ,if any, in first Ind AS FS as per Ind AS 36.
g) For PPE, Intangible Assets and Investments disclose in the opening Ind AS Balance sheet:
- the aggregate of fair values
- the aggregate amount of adjustments to the carrying amount as per previous GAAP.
h) Disclose the fair value of financial assets and financial liablities for each class as per Ind AS and their classification and carrying amount in the previous GAAP
REPORTING REQUIREMENT IN INTERIM FINANCIAL STATEMENTS
Reconciliation of total comprehensive Income*** as per Ind AS for that comparable interim period (current and year to date both).
Reconciliation of its Equity as per GAAP at the end of that interim comparable period to its equity under Ind AS at that date.
(Author is associated with S.S. Kothari Mehta & Co.)
Applicability Phase II is from 01-Apr-2017 and not 01-Apr-2016, if im not wrong.