The switch to Indian Accounting Standards (Ind AS) will impact companies the most in financial services, retail and pharma sectors even as half of the firms polled are yet to plan for the new standard which kicks-off from April 1, says a survey.
"More than 50 per cent of the respondents are yet to plan or commence implementing changes at an organisational level. Also, 39 per cent of respondents are yet to start or plan for the impact assessment of Ind AS adoption," revealed the PwC survey of 100 companies revealed.
The survey by PwC said 45 per cent of the respondents believe management approach for identification of segments will have a significant impact on the disclosures made by companies.
"The impact of Ind AS adoption cascades beyond accounting resulting in several organisational changes for which companies will have to follow a step-by-step approach for a smooth transition to Ind AS," Price Waterhouse and Co's partner Sumit Seth said.
In a statement, it said companies in the financial services, retail and consumer as well as pharmaceuticals and life sciences will be hit the most after the adoption.
Adoption of Ind AS will also result in companies across sectors reporting lower revenue because of the emphasis on multiple element accounting which can result in deferral of some revenue, it said, citing the example of sale of goods together with extended warranties.
It cited under the Indian GAAP system being followed at present, segmental information is disclosed based on business and geographical reporting, while under the Ind AS, it will be as per the inputs used by the chief operating decision maker.
"This is important as investors may now see a change in the way segment information is reported using the - 'management approach'- it will now be through the 'lens of management'," it said.
There will also be a major impact on taxation as companies migrate to adopt the Ind AS framework, it said, adding that increased use of fair value accounting can potentially increase Minimum Alternate Tax (MAT) liabilities.
It explained that under Ind AS, unrealised gains on various types of financial instruments such as investments and derivatives will get recognised in the income statement (subject to certain conditions), which until now were not recognised under the present Indian GAAP.
Also, there can be a higher recognition of deferred tax assets in transition as under the Indian GAAP they were not recognised on carry forward losses due to a very high threshold of "virtual certainty". The threshold is lower under Ind AS.
