Opinion

For the record

Mohan R Lavi | Updated on March 09, 2018 Published on September 27, 2016

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New accounting norms go unnoticed

About 350 listed companies presented their financial statements under Ind AS — the desi equivalent of International Financial Reporting Standards (IFRS) — for the first time for the quarter ended June 30, 2016, with comparatives for the year ended June 30, 2015.

A circular issued by SEBI on July 4 appeared to send an embedded message to these companies to take it easy on financial reporting under Ind AS by giving an extra month to publish their results and mandating that the auditor doesn’t need to have even a limited review of the comparative figures as well as the numbers for March 31, 2016.

Ignoring it

The impact of the transition to Ind AS has been mixed on Indian companies. The stock exchanges didn’t respond strongly to it.

If one were to list out the top 5 Ind AS Standards that had an impact on the financial results of companies they would be financial instruments, presentation of defined benefit plans in other comprehensive income (OCI), property plant and equipment, revenue recognition and income taxes.

The impact of the standard on financial instruments is not surprising; the equivalent standards under Indian GAAP were recommendatory when they were issued in 2004 and remain so 12 years later. Financial instruments will find a place in any reconciliation statements because the fair values of financial assets and financial liabilities would change whenever financial statements are reported due to the diktat of mark-to-market accounting. In the case of a few companies, fair valuing financial instruments turned their profits as per Indian GAAP into losses. The permanent parking of actuarial gains and losses in OCI was expected since the OCI is a new statement in the Indian scenario.

Jugaad Ind AS

Some large manufacturing companies took the trouble of capitalising spare parts and major inspection costs as per property, plant and equipment. Ind AS standards believe in the mantra of deferring revenue and discounting provisions to present value which a few companies did. Where there are financial results, there will be deferred taxes — almost every company presented this as a reconciling item. Though India initially has apprehensions about prescribing an accounting standard for agriculture, tea companies presented their pre-harvest assets as biological assets.

It is clear that the journey to Ind AS has begun in India. Yet, there are causes for concern. Multiple regulators seem to want to provide relaxations on the implementation to entities they regulate. This encourages companies to implement ‘Jugaad Ind AS’. Probably taking a cue from the July 5 circular of SEBI, some companies published their financial statements as per Ind AS with a disclaimer that these results could change because of changes in regulations. Surprisingly, some companies said there were absolutely no differences between the present accounting standards and Ind AS — a fact that should be taken with a pinch of salt.

A similar variety in financial reporting can be expected for the remaining quarters with minimal impact on the stock exchanges. The real impact of Ind AS may probably be felt only when the full year results are presented in March 2017.

The writer is a chartered accountant

Published on September 27, 2016
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