The era of Ind-AS is finally here

Corporate India had fussed much over the implementation of Indian Accounting Standards (Ind-AS) in the run up to the beginning of the financial year. Some consultants had said only half of the 1000-odd companies that would be covered in the first phase of implementation.

The first impact of the new standards implemented would be out in the open in the financial results for first quarter of FY 16. One of the key features of this implementation is the focus on substance rather than form. This ‘substance’ focus will substantially change the way in which entities like subsidiaries and groups are treated and instruments such as quasi-debt and quasi-equity had been accounted for till now.

 

Diversified companies with numerous subsidiaries including major conglomerates are likely to take a hit.

Under these existing rules, only an entity that is majority owned or wherein another entity controls composition of board of directors is regarded as subsidiary. The new standards replace this with a substance driven framework, wherein even without any shareholding, an entity may be accounted for as a subsidiary.

Hidden incomes may come up for taxation. Tricks like using extraordinary items to inflate profit numbers might become a thing of the past.

Younger, new age companies that are backed by private equity and venture capital funds are also likely to have issues of their own as accounting of instruments such as zero-coupon convertible debentures and redeemable preference shares will change.

At present, all financial instruments are accounted for based on their form. For example, redeemable preference shares are accounted for as equity even though money is repayable. On the other hand, zero coupon convertible debentures are accounted for as debt even though no money is repayable. Going forward, accounting will reflect the substance of the contract. 

Here, are some of the interesting Business Standard stories that documents corporate India’s journey into the new regime

1) Pad up for a long results season

Companies have begun reaching out analysts to explain impact of Ind-AS implementation

2) Is corporate India ready for Ind-AS?

Tax and accounting experts assess the gaps in corporate India's reporting standard that need to be plugged

3) Over half of India Inc not ready for Indian Accounting Standards implementation: PwC

More than 50% of the respondents are yet to plan or commence implementing changes at an organisational level

4) IndAS, governance and audit committee
The committee seldom reviews financial statements in detail; with IndAS in place, this practice has to change, writes Asish K Bhattacharyya