Aviation to telecom: New accounting norms may alter debt math of companies

Companies will have to treat their obligation to meet long-standing operational expenses as debt liabilities.

A change in accounting norms--visible in results from the current quarter--may result in significant changes to the way debt, profits, and key financial ratios are calculated.

The impact could affect already indebted sectors such as telecom, and could necessitate changes to covenants surrounding their agreements with lenders. The accounting of liabilities in the June quarter could result in significant volatility in the results season, which would be the first one where the effect of the new accounting norms come into effect.

The new accounting standard, IndAS 116, effectively requires companies to treat the obligation to meet long-standing operational expenses, like