Introduction: As you all are aware that on 16 Feb 2015, the Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) Rules, 2015 laying down roadmap for the application of IFRS converged standards (Ind-AS) to Companies on 30 March 2016, the notified the Companies (Indian Accounting Standards Amendments ) Rules 2016. For implementation of Ind-AS phase wise approach has been considered which cover large companies to small companies. Now companies on which Ind-AS becomes mandatory has been issued Ind-AS compliant quarterly financial results. All the companies which are covered under the Phase-II must start conversion of Indian GAAP FS in Ind –AS compliant financial statement so it would be easy when Ind-AS becomes applicable from the next year, comparative information will be available with the company which ensures effective, timeliness and error free transition to Financial Statements from Indian GAAP to Ind-AS.
For the purpose of practical approach of Ind-AS Financial Statements following consideration must be taken care of:
Step 1: Applicability of Ind-AS:
To check the applicability one need to consider criteria prescribed by Ministry of Corporate affairs in which following criteria’s has been defined.
1. Non-Financial Companies i.e. Companies other than banking companies; insurance companies and separate phase-wise approach for Ind-AS to NBFCs. Salient features of the roadmap are:
(a) Voluntary Phase: Non financial company and its holding, subsidiary, joint venture or associate company may apply Ind-AS on a voluntary basis in financial statements for accounting periods beginning on or after 1 April 2015.
(b)Mandatory Phase 1: Applicable for the accounting periods beginning on or after 1 April 2016
(i) Companies whose equity and/or debt securities are listed or are in the process of listing in any stock exchange in India or Outside India and have net worth of INR 500 crores or more
(ii) Companies other than those covered in 1(b)(i) above and have net worth of INR 500 crore or more.
(iii) Holding, subsidiary, joint venture or associate companies of companies covered under 1(b) (i) and (ii) above.
(c) Mandatory Phase 2: Application of Ind-AS is mandatory for the accounting periods beginning on or after 1 April 2017, for the non financial companies specified below:
(i) All companies whose equity and/or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and were not covered in the earlier phase of Ind-AS application.
(ii) All companies having net worth of INR 250 crore or more and were not covered in the earlier phases of Ind-AS application.
(iii) Holding, subsidiary, joint venture or associate companies of companies covered under paragraph 1(c)(i) and (ii) above.
(d) However, companies whose securities are listed or in the process of listing on the SME exchanges will not be required to apply Ind-AS. Such companies can continue applying with Accounting Standards notified under the Companies (Accounting Standards) Rules 2006, unless they choose to apply Ind-AS on voluntary basis.
How to calculate Net Worth: The net worth will be computed as per section 2(57) of the companies Act, 2013.
Eg. The companies which are following in Mandatory phase I, the net worth will be computed as per the standalone balance sheet of the company as at 31 March 2014 or the first audited balance sheet for accounting period which ends after that.
I am not going to cover applicability criteria’s for the NBFC companies for which roadmap separately covered from the accounting periods beginning on or after 1 April 2018 onward with comparatives for the periods ending 31 March 2018 or thereafter.
Step 2: Listed Companies: For companies whose equity share are listed on a recognised stock exchange in India, clause 33 of the SEBI (Listing obligation and Disclosure requirements) Regulations, 2015 (Listing Regulations) deals with preparation and presentation of interim financial information. Among other matters clause 33 of the listing regulations requires that the quarterly and year to date results will be prepared in accordance with the recognition and measurement principles laid down in AS-25 Interim financial reporting under Indian GAAP or Ind-AS 34 Interim financial reporting, whichever is applicable.
Listed Companies which are covered under phase I has already been started publishing its result complying IND-AS and SEBI circular issued dated 30 November 2015 and Revised formats for Financial Results and Implementation of Ind-AS by Listed Companies-SEBI-Circular dated July 05,2016. The SEBI circular dated 30 November 2015 also states that the company which presents quarterly financial results in accordance with Ind-AS financial statement will comply with the requirements of paragraph 32 of Ind-AS 101.
Now Many listed companies which were covered under mandatory phase I has already presented quarterly results as per compliance mentioned in SEBI circular so now after we should start planning for the companies which are covered under mandatory phase-2.While preparing the quarterly results the company should prepared with the Current year quarterly result simultaneous Ind-AS compliant results also so that when in the next year from 1 April 2017 Ind-AS becomes applicable the company already have comparative information which needs to be disclosed as per SEBI. This would result in error free preparation of financial information which needs to be presented while making Quarterly result.
Step 3: Format for Ind-AS conversion
The company must develop a format in such a manner so that it should be easily readable by the management and any conversion adjustment can be easily explainable in front of any Authorities if required.
Eg: Like while developing the format following could be useful for the companies, I am not giving detailed format however giving extract so that it can be better understood.
Quarterly movement TB and one more column i.e Ind-AS adjustment starting with Q1 and accordingly for Q2,Q3 and Q4 and it should be linked to Face of Financial statement so it would become easy in end to make Ind-As compliant financial statement.
Step-4: Direct Tax impact: Section 145(2) of the Income tax Act 1961 empowers the Central government to notify Income Computation and Disclosure Standards (ICDS) for any class of assesses or for any class of Income. The Central Government now notified 10 ICSD effective from the tax year 2015-16 for compliance by all the taxpayers following mercantile system of accounting for the purpose of computation of Income chargeable to Income tax under the head “PGBP” and “Income from other source.
So while finalising the financial statement company must keep in mind the differences as per IND-As and as per ICDS so that necessary corrective measure can be taken on time.
Conclusion: ‘Prevention is better than cure’
Phase-2 companies should start preparation of Ind-AS compliant statement simultaneously so it is easy to apply Ind-AS requirement in effectively and correctly manner.