#TaxmannPPT | Overview of Ind AS

Overview of Ind AS

Organized by:

Taxmann March 26, 2022 Presented by:

CA (Dr.) Alok K Garg and CA Chandni Gupta

Agenda • Introduction of Ind AS • Convergence with IFRS • Roadmap for applicability of Ind AS • Major impact of convergence with IFRS on Indian Financial Statements • Schedule III

Introduction of Ind AS Convergence with IFRS Roadmap for applicability of Ind AS

Mike from France

Muko Ono from Japan

Mi Chi Pi from Hongkong

Max from Australia

Maurice from Kenya

Mr. Kejriwal from India

IFRS – All about International Financial Reporting Standards (IFRSs) are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise: (a) International Financial Reporting Standards (developed by the IASB) – 16 IFRS issued and effective; (b) International Accounting Standards (developed by the IASC) -24 IAS; (c) IFRIC Interpretations (developed by the IFRIC Committee) -15 IFRIC; and (d) SIC Interpretations -5 SIC (developed by the SIC Committee).

India is converging to IFRS not adopting IFRS Adoption : Adoption of IFRS, in simple terms, means that the Country applying IFRS would be Implementing IFRS in the same manner as issued by the IASB and would be 100% compliant with the guidelines issued by IASB. Convergence : Ind AS = IFRS - Carve outs + Carve Ins + - Removal of options For e.g, Carve out (Treatment of capital reserve in Ind AS 103), Carve In (Treatment of common control acquisition in Ind AS 103), Removal of option (removal of Fair value measurement for Investment property in Ind AS 40)

India has converged to IFRS…

Where are we moving…..AS to Ind AS Global Vs Indian approach

Fair Value Vs Historical Cost Reporting Vs Accounting Substance over Form Principles based Vs Rule based

Ind AS (Indianised version of IFRS) in India…Why? Used in more than 150 countries across the globe by way of Adoption and Convergence One Language – Enhanced Comparability, Understanding and One set of books

Easy access to global capital markets, Attract foreign investment, low cost of capital More transparent and visible

IFRS Vs Ind AS Literature IFRS Literature  IFRS (issued by IASB)

Ind AS Literature  Ind AS 101 to Ind AS 116

(IFRS 1 to IFRS 16)

 IAS (issued by IASC and revised by IASB)

 Ind AS 1 to Ind AS 41

(IAS 1 to IAS 41)

 IFRIC Interpretations  SIC Interpretations

 Appendix which are integral part of the standard.

List of Applicable Standards Ind AS No. 1 2 7 8 10 12 16 17 19 20 21 23 24

Name of the Standard (Ind AS) Presentation of Financial Statements Inventories Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Events after the reporting period Income Taxes Property, Plant and Equipment Leases (effective till financials for FY 2018-19) Employee Benefits Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange rates Borrowing Costs Related Party Disclosures

IFRS

IGAAP (AS)

IAS 1

AS 1

IAS 2

AS 2

IAS 7

AS 3

IAS 8

AS 5

IAS 10

AS 4

IAS 12

AS 22

IAS 16

AS 10

IAS 17

AS 19

IAS 19

AS 15

IAS 20

AS 12

IAS 21

AS 11

IAS 23

AS 16

IAS 24

AS 18

List of Applicable Standards Ind AS No. 27 28

Name of the Standard (Ind AS)

Separate Financial Statements Investments in Associates and Joint Ventures Financial Reporting in Hyperinflationary 29 economies 32 Financial Instruments- Presentation 33 Earnings Per Share 34 Interim Financial Reporting 36 Impairment of Assets Provisions, Contingent Liabilities and 37 Contingent Assets 38 Intangible Assets 40 Investment Property 41 Agriculture 101 First time adoption of Ind AS 102 Share based payments 103 Business combinations

IFRS

IGAAP (AS)

IAS 27

-

IAS 28

AS 23

IAS 29

-

IAS 32

-

IAS 33

AS 20

IAS 34

AS 25

IAS 36

AS 28

IAS 37

AS 29

IAS 38

AS 26

IAS 40

AS 13

IAS 41

-

IFRS 1

-

IFRS 2

-

IFRS 3

AS 14

List of Applicable Standards Ind AS No. 104

Name of the Standard (Ind AS)

IFRS

IGAAP (AS)

IFRS 4 Insurance contracts IFRS 5 AS 24 Non Current Assets held for sale & 105 Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral 106 Resources 107 Financial Instruments – Disclosure IFRS 7 108 Segment Reporting IFRS 8 AS 17 109 Financial Instruments IFRS 9 110 Consolidated Financial Statements IFRS 10 AS 21 111 Joint Arrangements IFRS 11 AS 27 112 Disclosure of Interests in other entities IFRS 12 113 Fair Value Measurement IFRS 13 114 Regulatory Deferral Accounts IFRS 14 115 Revenue from Contracts with Customers IFRS 15 AS 9 116 Leases IFRS 16 AS 19 Total 39 standards notified vide notification dated Feb 16, 2015, Mar 28, 2018 and March 30, 2019

Welcome !! to Brand New Standards New Standards in Ind AS which were not available in IGAAP             

Ind AS 27 - Separate Financial Statements Ind AS 29 - Financial Reporting in Hyperinflationary Economies Ind AS 32 - Financial Instruments: Presentation Ind AS 41 - Agriculture Ind AS 101 - First-time adoption of Ind AS Ind AS 102 - Share-based Payments Ind AS 104 - Insurance Contracts Ind AS 106 - Exploration for and Evaluation of Minerals Resources Ind AS 107 - Financial Instruments: Disclosures Ind AS 109 - Financial Instruments Ind AS 112 - Disclosure of Interests in Other Entities Ind AS 113 - Fair Value Measurement Ind AS 114 - Regulatory Deferral Accounts

Ind AS ROADMAP in India

Road map for Companies and NBFC Companies Mandatory Applicable Phase from Companies Other than NBFC companies - MCA Notification dated Feb 16, 2015 (a) Companies with net worth of Rs. 500 crore or more; April 1, 2016 (b) holding, subsidiary, JV or associate companies of above Phase 1 FY 2016-17 companies (a) All Listed Companies (b) Unlisted companies having net worth of Rs. 250 crore or April 1, 2017 more Phase 2 FY 2017-18 (c) holding, subsidiary, JV or associate companies of above companies NBFC companies - MCA Notification dated March 30, 2016 (a) NBFCs (whether listed or unlisted) having net worth of Rs. 500 crore or more; April 1, 2018 Phase 3 (b) holding, subsidiary, JV or associate companies of above FY 2018-19 companies Applicable to

(a) All Listed NBFCs ; (b) Unlisted NBFCs having net worth of Rs. 250 crore or more (c) holding, subsidiary, JV or associate companies of above companies Banks and Insurance Companies

Phase 4

April 1, 2019 FY 2019-20

Deferred till further notice

Net Worth….all about Meaning

As per section 2 (57) of the Companies Act , 2013

Financials

Net worth to be calculated as per Standalone financials

Dates

Calculation

Net worth to be calculated as on 31 Mar 2014 or the first audited accounting period which ends after that date.

Paid up share Capital (+) reserves created out of profits (excludes revaluation reserve etc.) (+) Securities premium account (-) accumulated losses (-) deferred expenditure (-) Misc expenditure not written off as per audited B/S

Points related to Applicability Insurance and Banking companies are not allowed to apply Ind AS even voluntarily.

Companies that are listed or in the process of listing in SME exchanges are not allowed to apply mandatorily but these company can adopt on voluntary basis.

Companies not covered in roadmap as per Net worth/ any other criteria are exempted from Ind AS. For e.g Ind AS is not applicable to Non corporate Entities Net worth has to be calculated as per Section 2 (57) of the Companies Act, 2013 and calculated on the standalone financials.

Ind AS will apply to both Consolidated as well as standalone financials of the company.

Ind AS once adopted either voluntarily or mandatorily can not be revoked in prospective years.

An Indian Company which is Subsidiary, Associate and JV of of a Foreign company should prepare its FS as per Ind AS, if it meets the criteria.

An Overseas Subsidiary, Associate and JV of Indian Company may prepare its SA FS in accordance with the requirement of specific jurisdiction. But, Indian Parent will have to mandatorily prepare its CFS as per Ind AS, if it meets the criteria covered in roadmap.

Major impact of convergence with IFRS on Indian Financial Statements Schedule III

Complete set of financial statements under Ind AS: 1. A balance sheet as at the end of the period; 2. A statement of profit and loss for the period;

3. A statement of changes in equity for the period; 4. A statement of cash flows for the period; 5. Notes, comprising significant accounting policies and other explanatory information; 6. Comparative information in respect of the preceding period; and 7. A third balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

Impact on Financial Statements Format of financial statements has been turned upside down by showing Assets first then Equity and liabilities.

Explicit and unreserved statement of compliance with all Ind AS is required in the notes.

Third Balance Sheet will be prepared in case of retrospective adjustment of change in accounting policy, correction of errors or reclassification of items in financial statements.

Presentation of “Statement of changes in equity” as a separate statement is required under Ind AS. Concept of “Other Comprehensive Income” in the statement of profit and loss has been introduced under Ind AS to route specified items of income and expenses outside profit and loss.

Ind AS requires, classification of current and non-current assets/liabilities into Financial and Non-Financial, thereby giving a holistic view of financial instruments on the face of balance sheet.

Under Ind AS, disclosure of changes in liabilities arising from financing activities is required separately, to give a complete view of cash and non-cash movement in the liabilities.

Major difference in format of balance sheet in IGAAP v/s Ind AS IGAAP

Ind AS

(Division I to Schedule III)

(Division II to Schedule III)

Equity

Asset

Liability

Equity

Asset

Liability

Sch III Div 1 vs Sch III Div 2

Impact on Financial Statements Under Ind AS, non-adjusting events occurring after reporting period are disclosed in financial statements, whereas in IGAAP it was disclosed in report of approving authority.

Discounting of provisions is required in Ind AS, if effect of the time value of money is material, thereby leading to additional finance cost in the statement of profit and loss.

Bifurcation of Compound financial instruments like convertible debentures, convertible preference shares, leads to recognition of Equity and Liability under Ind AS, thereby changing critical financial ratios like debt/equity, Interest coverage ratio, etc.

Application of fair value concept under Ind AS requires entities and users are to monitor current market situation on a regular basis to understand the impact of the same on financial performance and position.

Extensive disclosures required under Ind AS as compared to AS, for example: Entity’s Risk management strategy

Substance of a transaction is valued over its legal form while accounting for revenue, leases, financial instruments, business combination, etc.

Ind AS requires extensive use of management judgement as these standards are principle based rather than rule based.

Additional guidance is given with respect to Financial Instruments, Share Based Payment, Agriculture, Hyperinflationary economies, Insurance contracts, Fair Value measurement, Regulatory Deferral Accounts, Service Concession Arrangement, Combination under common control, etc.

Impact of Ind AS on Listed Companies 2015-16

INR in Cr

PPE

41,292

DTL

10,239

2016-17

INR in Cr

Investment in Subsidiaries

26,858

2016-17

INR in Cr

Service Income

(721)

Proposed dividend

909

2015-16

CCCPS

Reason Fair valuation as deemed cost for PPE: The Company have considered fair value for property, viz land admeasuring over 30,000 acres, situated in India, with impact of INR 41,292 crore in accordance with stipulations of Ind AS 101 with the resultant impact being accounted for in the reserves.

The impact of transition adjustments together with Ind AS mandate of using balance sheet approach (against profit and loss approach in the previous GAAP) for computation of deferred taxes has resulted in charge to the Reserves, on the date of transition, with consequential impact to the Statement of Profit and Loss for the subsequent periods.

Reason Under previous GAAP, investments in subsidiaries were measured at cost. Under Ind AS, the Company has elected the option of fair value the investments in certain subsidiaries basis the requirements of Ind AS 101, First Time Adoption of Indian Accounting Standards for deriving the carrying value of these Investments (‘deemed cost’).

Reason Matching concept- deferred over the period of rendering of services instead of recognizing service income at the time of initial sale IGAAP: Proposed dividend after balance sheet date but before approval of FS was an adjusting event Ind AS: to be recognised only when approved by SH in AGM

Reason Under IND AS, the CCD is analyzed as a compound financial instrument and is separated into a liability and an equity component.

The fair value of the liability component is initially measured at amortised cost determined using a market rate for an equivalent non-convertible bond. The residual amount is recognised in equity. The finance cost arising on the liability component is included in finance cost in the Statement of Profit and Loss. The carrying amount of the conversion option as reflected in the equity is not remeasured in subsequent periods. CCD issued by the Company are of fix to fix nature hence there is no amount towards fair valuation of liability and whole of the amount has been recognised as equity.

History of Schedule III Schedule

Notified

Old Schedule VI to the Companies Act, 1956

Remarks Provides for vertical and horizontal form of Balance Sheet

Revised Schedule VI to the Companies Act, 1956

28 Feb 2011 (Applicable: 1 April 2011)

Provides for only vertical format of Balance Sheet Applicable to companies which are preparing its financial statements as per Accounting Standards (Indian GAAP).

Schedule III to the Companies Act, 2013 (Division I)

26 March 2014 (Applicable: 1 April 2014)

Schedule III to the Companies Act, 2013 (Division II)

6 April 2016

Applicable to companies other than NBFCs which are preparing its financial statements as per Ind AS.

Schedule III to the Companies Act, 2013 (Division III)

11 Oct 2018

Applicable to NBFC Companies which are preparing its financial statements as per Ind AS.

Amendments to Division I and II

11 Oct 2018

Amendments to Division I, II and III

24 March 2021

CA (Dr.) Alok K. Garg CA, CS, Dip. IFRS (ACCA) UK, Cert. Ind AS (ICAI), Cert. BRSR (ICAI), B.Com (Hons.)

caalokgarg@gmail.com +91 9999991543

CA Chandni Gupta CA, B.Com (Hons), Cert. Ind AS (ICAI), BRSR (ICAI) All India Rankholder CA Final and IPCC Founder, IFRSworld

chandni@ifrsworld.in +91 9958108075