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Page 1 Awareness Programme on Ind AS
Awareness Programme on Ind AS
CA Suresh Yadav
26 August 2017
Page 2 Awareness Programme on Ind AS
1
2
3
Key Learnings - First Time Adoption
Key Presentation Aspects of Ind AS Financial Statements
Major Differences in IGAAP and Ind AS
Contents
Page 3 Awareness Programme on Ind AS
Key Learnings – First Time Adoption
Page 4 Awareness Programme on Ind AS
Key steps in Ind AS implementation journey
Impact Assessment
Solution Development
Implementation of Ind AS
Preparation of Financial Statements under Ind AS
► GAAP differences identification
► Evaluation of key arrangements
► Financials & system-related impacts
► Technical evaluation & memos
► Identification of policy choices
► Benchmarking with industry peers
► Engaging with fair valuers
► Identification of policy choices on transition date
► Redesigning chart of accounts
► Adjustments entries outside systems
► Initiating system changes
► Finalization of technical positions and accounting policies
► Going live on systems
► Opening Balance Sheet and Equity Reconciliations
► Comparative Information & Equity / Profit Reconciliations
► Preparation of first Ind AS financial information
► Presentation & Disclosure under Ind AS
~ 1 month
~ 1 month
~ 1 - 2 months
~ 2 - 3 months
Page 5 Awareness Programme on Ind AS
Critical success factors for smooth transition
► Project management – Key work streams ► Accounting and reporting
► Taxation
► Business processes and systems
► Change management, communication and training
► Continuous engagement key stakeholders
► Time and effective investors communications
► Leveraging on resources available
► Education materials by ICAI on Ind AS topics
► ITFG views on questions raised by the industry
► Detailed guidance available through IASB publications/clarifications
► Guidance note on Ind AS compliant schedule III
► Illustrative Ind AS financial statements issued accounting firms
► Published Ind AS financial statements of Phase I Companies
Some companies made detailed presentation to investors
Company Presented on
HUL Dec 2015
TCS April 2016
L&T June 2016
GCPL July 2016
Emami July 2016
Page 6 Awareness Programme on Ind AS
Key Ind AS impacts – Phase I entities
► Each exemption to be evaluated for entity’s objectives:
► Strengthening the balance sheet through fair valuation
► Reflect the economic value of the past acquisitions
► Alignment with IASB IFRS
► Tax implication on transition date and going forward
► Availability of historical information
► Engaging with experts for select matters
► Exemptions can be finalized before the finalization of first annual Ind AS financial statements
Page 7 Awareness Programme on Ind AS
Deemed cost of PPE and Intangibles
Re-computation of costs – Historical cost
break-up
De-capitalization of cost not eligible for
capitalization under IND AS, foreign
exchange, etc.
Assessment of previous GAAP
depreciation whether acceptable under IND
AS?
Retrospective adjustments to Borrowing
Costs
First-time adoption choices
Retrospective IND AS cost
Fair Value as deemed cost
Previous GAAP Carrying Amount
All items vs select items fair value
Impairment v/s fair value downgrade
Impact on Return on Capital Ratios and
impact on profitability
Presentation of Gross Block – Carrying
value to become new gross block
Selection for all PPE or a class of PPE –
ED has been issued for clarifying this
Presentation of Gross Block – Carrying
value to become new gross block
Retrospective adjustments to Borrowing
Costs
Tata Motors, Bharti
Airtel, Hindalco, Tata
Power, M&M, TCS
Tata Motors,
Tata Power,
Tata Steel
ITC,
HUL, L&T,
Wipro, Tata
Chemicals
Page 8 Awareness Programme on Ind AS
Restating Business Combinations
Key Learnings
► Understand data requirements for valuation
► Financial projections for valuation of intangibles
► Use of hindsight is restricted
► Evaluate impact on equity and profitability and return
on capital employed
Determining the
date of
restatement
Availability of
historical
financial
projections
Extensive
disclosure
requirements
Reduction in Goodwill
Fair
valuation of
tangible
assets,
inventory &
contingent
liability
Availability of
Ind AS
financials of
acquired
entities
Key
Challenges
Amortization
impact on fair
value uplift
Company Name Restated From
Bharti Airtel Ltd. July 07, 1995
UPL Ltd. June 01, 2005
Tata Chemicals Ltd. April 01, 2007
Wipro Ltd. Apr. 01, 2008
TCS Apr. 01, 2013
Wipro Ltd. Apr. 01, 2008
Cipla Ltd. July 15, 2013
Sun Pharma Annual Report not available
Page 9 Awareness Programme on Ind AS
FTA – Investments in subsidiaries, associates and joint ventures
Company
Name
Investment In Group
Entities
Impact on net worth
(Standalone FS)
Bharti Airtel Ltd. Fair value of certain
subsidiaries
Increase
Cipla Fair value of certain
subsidiaries
Decrease
Tata Steel Fair value of a subsidiary Decrease
ITC Ltd. Previous GAAP carrying
amount
No change
HUL Previous GAAP carrying
amount
No change
M&M Previous GAAP carrying
amount
No change
Tata Power At Cost No change
L&T Ltd. At Cost No change
FTA – Investments in subsidiaries,
associates and joint venture
► Cost as per Ind AS 27
► Deemed Cost as per Ind AS 101:
► Previous GAAP carrying value
► Transition date fair value
Page 10 Awareness Programme on Ind AS
Key Presentation Aspects of Ind AS Financial Statements
Page 11 Awareness Programme on Ind AS
Balance Sheet
Statement of Profit and Loss
- Profit or Loss
- Other Comprehensive Income
Statement of Changes in Equity
Cash Flow Statement
Notes to Financial Statements
Complete set of Ind AS Financial Statements
► Ind AS 1 carve-out – single statement of
profit and loss
► IND AS 1 deals with the requirements of
the various presentation and
disclosures
► Schedule III – IND AS complaint – GN
Issued by ICAI clarifying the various
aspects of disclosure requirements
► Other IND AS presentation and
disclosure requirements
Page 12 Awareness Programme on Ind AS
► Equity v/s Liabilities:
► Equity Shares
► Instruments entirely equity in nature
► Compound Instruments
► Debt instruments
► Statement of Changes in Equity
► Total comprehensive income
► Reconciliation of changes in equity during the
period
► Financial v/s Non-Financial classification
of various assets and liabilities
► Consolidated financial statements
► Bargain purchase gain
► Ind AS 1 carve out – Capital Reserve
► Non Controlling Interest:
► Gain/Loss on Change in Proportion
► Losses attributed to NCI
Presentation of Balance Sheet
Page 13 Awareness Programme on Ind AS
Examples – Equity v/s Liability classification
Balance Sheet CaptionsEquity
Instruments
Instruments
entirely equity
in nature
Compound
Instruments
Financial
Liabilities
Equity Share Capital √
0% Compulsorily convertible debentures √
12% Non-cumulative Redeemable Preference
Shares√
6% Optionally convertible preference shares with
fixed conversion√
10% Non-convertible Debentures √
Page 14 Awareness Programme on Ind AS
Examples – Financial v/s Non-financial classification
Balance Sheet Captions Financial Liabilities Financial Assets Neither
Term Loans / Bank overdraft √
Bank Overdraft √
Deferred tax liability √
Security Deposits √
Retention Money payable – capital creditors √
Trade Deposits √
Employee benefit provisions (compensated absences) √
Trade payables √
Provision for anticipated losses and other contingencies √
Tangible, Intangible Assets and CWIP
Investment in Shares / Mutual Funds √
Capital Advances √
Security Deposits √
Loans / advances to related parties and others √
Advance tax √
Inventories √
Trade receivables √
Cash and bank balances √
Page 15 Awareness Programme on Ind AS
► Property, Plant & Equipment:
► Gross Block on First-time adoption
► Additional Information for Gross Block
► Land & Building – Separate v/s
Combined
► MAT Credit Entitlement:
► Presented under deferred tax asset
► Separate note for nature and amount
Presentation of Balance Sheet
► Investments:
► Subsidiary, Associate, JV
► Investment measured at FVOCI
► Market value v/s Fair value
► Current / non-current v/s Business Model
► Impairment on FVOCI investments
► Impairment of Financial Assets:
► Presentation vis-à-vis Classification (Secured,
Unsecured & Doubtful
Page 16 Awareness Programme on Ind AS
Presentation of Profit or Loss
Revenue:
Pre-GST and post-GST.
Cash Discounts, Promotions and Sales Incentives
Dividends on Preference Share:
Non Discretionary Finance cost
Discretionary Profit appropriation
Separate presentation of Interest Income
on financial assets:
Measured at Amortized cost and at FVOCI
Remeasurement Gain/Loss :
Defined Benefit Plan OCI
Defined Contribution Plan P&L
Other Operating Income v/s Other Income
– decide based on company’s activities
Page 17 Awareness Programme on Ind AS
► Items that will not be reclassified to P&L:
► Changes in revaluation surplus
► Re-measurements of defined benefit plans
► Fair value gains / losses of equity instruments
through OCI
► Share of OCI in Associates and Joint Ventures,
to the extent not to be classified into P&L
Items of Other Comprehensive Income
► Items that will be reclassified to P&L:
► Exchange differences in translating foreign
operations
► Fair value gains / losses of debt instruments
through OCI
► Effective portion of gains / losses on hedging
instruments in cash flow hedge
► Share of OCI in Associates and Joint Ventures,
to the extent to be classified into P&L
Page 18 Awareness Programme on Ind AS
Key Differences between IGAAP and IND AS Schedule III
Description Division I Division II
Compound Financial
Instruments
No Such Requirement Shall be classified and presented under
the relevant heads of Equity and
Liabilities.
Investment Property Part of Investment Separately on Face of Balance Sheet
Non Current Assets Held for
sale
No Such Requirement Separate Disclosure
Capital Advance Classified under Loans and
Advances
Classified under Other Non-Current
Assets
Trade Receivable Separate Disclosure for more
than 6 months due
No Such Disclosure Required
Bank Deposits with more than
12 months maturity
Classified under Other Bank
Balances
Classified Under Other Financial Assets
Page 19 Awareness Programme on Ind AS
Key Differences between IGAAP and IND AS Schedule III
Description Division I Division II
Details of Purchases/Sales
under broad heads
Required Not Required
Extra Ordinary Items Presented separately on the
face of P&L
No Concept of Extra Ordinary Items
Prior Period Items Separate Disclosure No Concept of Prior Period Items
Requires Restatement of comparatives
Earnings Per Share No Separate Disclosure for
Continuing and discontinuing
operations
Separate Disclosure for Continuing and
discontinuing operations
Page 20 Awareness Programme on Ind AS
Extensive Presentation & Disclosures
Key Disclosures
required
Net worth reconciliation
Financial Instruments
Business combinations
& Consolidation
Effective Tax Rate, key
estimates and judgements
Operating Segments
Related Party Transactions
42
50
56
46
32
61
87
76
63
54
0
10
20
30
40
50
60
70
80
90
100
TCS ITC HUL Tata Motors Emami
PAGES OF CONSOLIDATED F INANCIALS
Mar-16 Mar-17
Page 21 Awareness Programme on Ind AS
Operating Segments
Company IGAAP IND AS
Godrej Consumer Not Reported 4
Ashok Leyland Not Reported 2
TVS Motors 3 -
M&M 10 7
L&T 6 5
HUL* 5 5
* HUL has changed its segment in line with its recent change in organization structure and in accordance with IND AS 108
► Most companies reported no change in the segment reporting
► However, in case of some companies segment reporting has been changed due to
► Difference between risk and return approach under Indian GAAP vs. Management Approach (Basis CODM reviews the business components)
Page 22 Awareness Programme on Ind AS
Ind AS 107 – Financial Instruments: Disclosures
► Critical financial instrument disclosures
► Fair value – including for financial assets and financial liability measured at amortized
cost
► Fair value hierarchy – disclosure based on inputs (Level 1, Level 2, Level 3)
► Financial risk management
► Capital management
► Qualitative and quantitative disclosures of financial risk management
► Market risk – interest rate risk, foreign currency risk, other price risk
► Credit risk – details of ECL allowance (12-mths, lifetime), reconciliation of carrying
amount of assets on which ECL is provided
► Liquidity risk – maturity profile of financial liabilities based on undiscounted cash flows
► Capital management – Objective, net debt, gearing ratio
Page 23 Awareness Programme on Ind AS
Major Differences in IGAAP and Ind AS
Page 24 Awareness Programme on Ind AS
Wider ambit of Control framework – Key Issues
Contractual
arrangement
Participative v/s
protective rights
Control
through agents
Potential
voting
rights
De-facto
control
An investor controls an
investee when it is exposed,
or has rights, to variable
returns from its involvement
with the investee and has the
ability to affect those returns
through its power over the
investee.
Control of
silo
Key Learnings
► Assessment of contractual arrangements
► Impact on the KPIs, profitability and equity
► Data/financial information requirements
► Communication with the key stakeholders
Company Name Application of new Control framework
HUL HU Foundation;
Child Nutrition Initiatives
TCS Employee welfare trusts
Tata Chemicals Change in control assessment impacted
the profit by INR 57 crores
ITC No change
L&T Some of the subsidiaries treated as JV
In most companies impacted on account of change in
joint venture accounting from proportionate
consolidation to equity method of accounting
Page 25 Awareness Programme on Ind AS
Measurement of Financial Assets
Debt (including hybrid contracts)
Pass
No
Neither (1) nor
(2)BM with objective that results
in collecting contractual cash
flows and selling FA
1 32
No
Yes
Derivatives Equity
No
Yes
Amortised
costFVTPL
FVOCI
(with recycling)
FVOCI
(no recycling)
‘Contractual cash flow characteristics’ test
(at instrument level)
Fail
Hold-to-collect
contractual cash
flows
Conditional fair value
option (FVO) elected?
Fail Fail
Held for trading?
Yes No
FVOCI option
elected ?
‘Business model’ test (at an aggregate level)
Page 26 Awareness Programme on Ind AS
Measurement of Financial Liabilities
Held-for-trading
Changes due to own
creditFVO used as per criteria
prescribed?
Includes embedded
derivatives
Amortized cost Fair value through
profit or loss
Yes
No
Yes
No
No
Yes
Other fair value
changes
OCI
Profit or loss
Separate embedded derivative
Host debtEmbedded
derivative
Page 27 Awareness Programme on Ind AS
Financial Instruments – Key Issues
► Debt v/s Equity:
► L&T – FCCB split accounting; Preference Shares
treated as liability
► Tata Steel/Tata Power – Perpetual securities/loans
treated as Equity
► Raymonds – Change of terms of Preference Shares
and debentures in subsidiaries
► Grasim – Preference Shares treated as liability
► Adani Ports – Split accounting into liability and
equity components
► ITNL – Preference shares treated as liability
► Financial guarantee contracts (standalone
financial statements:
► Separate accounting for parent vis-à-vis subsidiary
► Expected Credit Loss (ECL):
► Availability of historical credit information
► ECL provision based on historical loss rate +
expected default + Time value of money
► Unbilled receivables – Whether a financial assets?
Whether ECL provision is required?
► De-recognition of financial assets
► Assessing risk v/s rewards in factoring /
securitization arrangements
► Bills discounting shown as borrowings
Page 28 Awareness Programme on Ind AS
Deferred Tax – Key Issues
► Balance Sheet Approach vs income statement approach
► Deferred tax on unabsorbed depreciation and carry forward losses
► Virtual certainty vs. reasonable certainty assessment
► Deferred tax presentation – Items recognized in OCI or equity
► Deferred tax implication in the consolidated financial statements
► Impact of deferred tax on consolidation adjustments e.g. unrealized profits
► Stock reserve – Tax rate to be of the destination country
► DTL on undistributed profits of subsidiaries, associates and joint venture
► Key disclosure requirements
► Effective tax rate reconciliation – More critical if different tax jurisdictions
► Expected utilization on DTA on tax losses and unrecognized DTA
Page 29 Awareness Programme on Ind AS