This Article is From Mar 20, 2016

Half of Firms Not Ready for Indian Accounting Standards: Survey

Half of Firms Not Ready for Indian Accounting Standards: Survey
Mumbai: With less than a fortnight left for formal adoption of Indian Accounting Standards, over half of the companies aren't ready for the transition, a survey by PwC found.

The audit and tax consulting firm believes that the level of preparedness for adoption of Indian Accounting Standards goes beyond financial reporting, requiring significant organisational changes.

"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 them are yet to start or plan for the impact assessment of Ind AS (Indian Accounting Standards) adoption," PwC said quoting findings from a February 2016 survey among 100 companies across industry sectors and size.

About 63 per cent of them are covered under mandatory Phase I adoption of Indian Accounting Standards.

Known as Indian Accounting Standards, new accounting and reporting standards that are in line with global practices will kick in from April 1 in a phased manner.

Nearly half (45 per cent) believe management approach for identification of segments will have a major impact on disclosures.

Sumit Seth, a partner at Price Waterhouse & Co, the accounting arm of PwC India, advises companies to follow a step-by-step approach to Indian Accounting Standards.

"Since the impact of Ind AS adoption cascades beyond accounting resulting in several organisational changes impacting direct and indirect taxes, contractual arrangements with customers, suppliers, lenders, and incentive policies including timely communication with various stakeholders, companies will have to follow a step-by-step approach to ensure a smooth transition," he said.

Three-fourths of the respondents expect they will have to report additional non-GAAP (Generally Accepted Accounting Principles) financial measures once they switch to Indian Accounting Standards, says the survey, adding that even though the impact of adopting Indian Accounting Standards will vary from company to company and from across the sectors, better planning will enable firms to address some implementation challenges in advance.

As per the survey, 45 per cent believe that management approach for identification of segments will have a significant impact on the disclosures made by them.

According to PwC, financial services, retail and consumer companies as well as pharma and life sciences will be the most impacted sectors once the transition takes place.

While at present, under the Indian GAAP, segmental information is based on the business and geographical reporting, under the Indian Accounting Standards, segmental information has to be disclosed on the same basis as to how the chief operating decision-makers evaluate financial information for allocating resources and taking stock of performance.

This is important as investors will now see a change in the way segment information is reported using management approach.

Taxation is another area which is expected to have a major impact under the Indian Accounting Standards, PwC said, adding that under this too, the financial services, retail and consumer and technology sectors will be the three most impacted sectors.

Unlike Indian GAAP accounting, income tax is another area there will be major impact as higher use of fair value accounting can potentially increase the minimum alternate tax liabilities for companies, as under Indian Accounting Standards, unrealised gains on various financial instruments like investments and derivatives will get recognised in the income statement.

Also, under Indian GAAP, deferred tax assets on carry forward losses are not recognised due to a very high recognition threshold but under the Indian Accounting Standards, since the threshold is lower there will be higher deferred tax assets, resulting in a positive impact on net income and net worth.

The survey also says the new accounting norms are will likely to have lead to a significant impact on reported revenue across sectors due to the emphasis on multiple element accounting resulting in deferral of some revenue.

Also incentives/consideration paid to customers will get deducted from revenue under Ind AS instead of recording the same as expense under the Indian GAAP.

On the positives, some items like excise duty may be included in gross revenue but accounting for service concessions involving infra PPPs will be very different.

Three-fourths of respondents also expect Indian Accounting Standards to lead to additional non-GAAP measures.

Also, principles-based consolidation guidance may lead to consolidation of additional entities especially SPVs/structured entities.

Arun Jaitley to Visit Sydney With Business Delegation on March 29

Mumbai: Union Finance Minister Arun Jaitley would visit Australia later this month with a high-powered business delegation of CII and speak at SP Jain School of Global Management in Sydney on March 29.

This will be the finance minister's first official engagement in Australia.

The school is working in close consultation with the Indian High Commission and Consulate, the business school said in a statement.

Mr Jaitley's speech and the business delegation he will lead would be an emphatic assertion of India's keenness in engaging more strongly with Australian business and industry, it said.

The school is also working with 3 partners for the event: CII, EY and the Australia-India Business Council.

SP Jain School of Global Management is an Australian business school with campuses in Dubai, Mumbai, Singapore and Sydney.