Ind AS December 2014 Presented by Shrenik Baid [email protected] +91-22-6669-1312 +91-98-2011-6904 Price Waterhouse & Co. Agenda 1. Ind AS in India 2. Ind AS 101-First-time Adoption of Ind-AS 3. Adoption of Ind-AS Price Waterhouse & Co. December 2014 Slide 2 Ind AS in India • Where are we? • Adoption timelines • Fundamental areas in which Indian GAAP and Ind-AS differ Price Waterhouse & Co. December 2014 Slide 3 Where are we? Roadmap - ICAI - 24 March, 14 2015-16 Comparative period Transition date April 1, 2015 2016-17* a) Equity/ debt securities are listed or in process of listing on any stock exchange in India or outside India b) Net worth# >= Rs. 500 crore c) Holding, subsidiary, joint venture or associate of companies covered under above Only for consolidated financial statements *Mandatory adoption date for specified companies as per roadmap finalized by ICAI Council as on 24 March, 2014 and submitted to MCA for it’s consideration. Roadmap for banks, NBFCs and Insurance Companies will be decided in consultation with RBI and IRDA. # Net worth = Share Capital + Reserves – Revaluation as at 31 March, 2014 audited standalone financial statements Price Waterhouse & Co. December 2014 Slide 4 Adoption timelines Ind-AS Equity EGAAP* EGAAP* 31/12/2014 31/3/2015 Transition Date Opening balance sheet Ind-AS P&L Ind-AS Equity EGAAP* *EGAAP = Existing GAAP Herein, the dates have been assumed and are for illustrative purpose only Price Waterhouse & Co. 31/3/2016 Adoption Date 31/3/2017 Reporting Date Closing balance sheet December 2014 Slide 5 Fundamental areas in which Indian GAAP and Ind-AS differ Indian GAAP Price Waterhouse & Co. • Full compliance, qualification not accepted • More guidance • Focus on substance over form • Focus on risks and rewards • Present value and fair value concepts • Estimates • Restatement of previously issued financial statements • Detailed disclosures Ind-AS December 2014 Slide 6 Ind AS 101-First-time Adoption of Ind-AS 2.1 Introduction and Overview 2.2 Exceptions and Exemptions 2.3. Disclosures Price Waterhouse & Co. December 2014 Slide 7 Introduction and Overview Price Waterhouse & Co. December 2014 Slide 8 Introduction and Overview Objective • Is transparent for users and comparable over all periods presented; • Provides a suitable starting point for accounting under Indian Accounting Standards (Ind-ASs); and • Can be generated at a cost that does not exceed the benefits to users. Application • To the first Ind AS financial statements ; and • Each interim financial report under Ind-AS in the first period. Ind AS 101 is different from transition adjustments in each standard and also it is different from change in accounting policies. Ind AS 101 is for first time adoption of Ind AS only Price Waterhouse & Co. December 2014 Slide 9 Introduction and Overview Ind AS 101 requires • Identify the period for adoption of Ind AS. • Prepare an opening balance sheet at the date of transition to Ind AS. • Select accounting policies that comply with Ind AS, and apply those policies for all periods presented in the first Ind AS financial statements. • Consider whether to apply any of the optional exemptions from retrospective application. • Apply the mandatory exceptions. • Provide disclosures to explain the transition to Ind AS from Previous GAAP. The first Ind AS financial statements are: The first financial statements to contain “an explicit and unreserved statement of compliance with Ind ASs” Price Waterhouse & Co. December 2014 Slide 10 Exceptions and Exemptions Price Waterhouse & Co. December 2014 Slide 11 Ind AS 101 - Mandatory exceptions summary Noncontrolling interests Estimates Hedge accounting Embedded derivatives Derecognition of financial assets and financial liabilities Price Waterhouse & Co. PwC Government loans Classification and measurement of financial assets Impairment of financial assets December 2014 Slide 12 Ind AS 101 - Mandatory exceptions summary Estimates Estimate required by previous GAAP? No Make estimate reflecting conditions at relevant date Price Waterhouse & Co. PwC Yes Evidence of error? No Calculation consistent with Ind AS? Yes Yes Use previous estimate No Use previous estimate and adjust to reflect Ind AS December 2014 Slide 13 Ind AS 101 - Optional Exemptions summary Business combinations PPE, Investment Properties, Intangibles Cumulative translation differences Leases Share-based Leases payments Compound Financial Instruments Assets and liabilities of subsidiaries, associates and joint ventures Investments in subsidiaries, associates and joint ventures FV FVmeasurement measurement Financial of of financial assets or financialon Instruments liabilities initial at initial recognition recognition Designation of financial previously assets recognised and Financial financial instruments Liabilities Designation of contracts to buy or sell a non-financial item Extinguishing financial liabilities with equity instruments Severe hyperinflation Price Waterhouse & Co. PwC Joint arrangement Insurance contracts Compound concessions Instruments arrangements Investments in subsidiaries, associates and Revenue joint control entities Stripping cost Non-current assets held for sale and discontinued operations Decommissi-oning liabilities Service December 2014 Slide 14 Ind AS 101 - Optional Exemptions summary Business Combinations Ind AS 103 need not be applied to combinations before date of transition • BUT, if one combination is restated, after a particular date of choice, all subsequent combinations need to be restated When the exemption is used • No change in classification • Post combination carrying amount deemed cost for assets and liabilities measured at cost • Assets and liabilities measured at fair value restated at date of transition – adjust retained earnings Price Waterhouse & Co. PwC December 2014 Slide 15 Ind AS 101 - Optional Exemptions summary Business Combinations Assets and liabilities not recognised at the time of a business combination under previous GAAP are: • Recognized as if subsidiary adopted Ind ASs at the same date Subsidiaries not consolidated under previous GAAP are: • Consolidated as if subsidiary adopted Ind ASs at the same date • Goodwill is the difference between cost of investment and net assets recognised at date of transition Price Waterhouse & Co. PwC December 2014 Slide 16 Ind AS 101 - Optional Exemptions summary Business Combinations Goodwill is recognised at the carrying amount under previous GAAP and adjusted for • Intangibles that are not recognised under Ind AS • Intangibles that must be recognised under Ind AS • Contingent consideration not recognised; and • Tested for impairment Goodwill deducted from equity remains in equity Price Waterhouse & Co. PwC December 2014 Slide 17 Ind AS 101 - Optional Exemptions summary Property, Plant and Equipment For property, plant and equipment, an entity can choose to measure the value using: • Carrying value as per previous GAAP (para D7AA of Ind AS 101). • Cost in accordance with Ind AS. • Fair value at the date of transition as deemed cost. • A revaluation carried out at a previous date (like a IPO) less accumulated depreciation till the date of transition as deemed cost, subject to certain conditions. This exemption can also be applied to intangible assets that meet the criteria for revaluation in Ind AS 38 and to investment properties where the cost method in Ind AS 40 is applied. The exemption may not be used for any other assets or for liabilities. If a company elects option under para D7AA, then its Ind AS financial statement will not qualify to be compliant with IFRS. Price Waterhouse & Co. PwC December 2014 Slide 18 Ind AS 101 - Optional Exemptions summary Other key exemptions Exemption Impact Cumulative translation differences The cumulative translation reserve may be reset to zero. Leases A company may elect to assess whether an arrangement contains a lease at the date of transition, rather than at the inception of the arrangement. Share-based payment A company may choose (but is not required) to apply Ind AS 102 to any equity instruments that were granted before date of transactions transition to Ind ASs. In addition, a company may choose (but is not required) to apply Ind AS 102 to a liability relating to a cash-settled share-based payment that was settled prior to the date of transition to Ind AS. Compound financial instruments Price Waterhouse & Co. PwC A compound financial instrument does not need to be bifurcated if the liability component is not outstanding at the transition date. December 2014 Slide 19 Ind AS 101 - Optional Exemptions summary Other key exemptions Exemption Impact Assets and liabilities of subsidiaries, associates and joint ventures A subsidiary that adopts Ind AS later than its parent can elect to apply Ind AS 101 or to use the carrying amounts of its assets and liabilities included in the consolidated financial statements, subject to eliminating any consolidation adjustments. If a parent adopts Ind AS later than its subsidiary, the parent, in its consolidated financial statements, must measure the assets and liabilities of the subsidiary at the same carrying amounts as in the Ind AS financial statements of the subsidiary, adjusting for normal consolidation entries. Investments in subsidiaries, jointly controlled entities and Associates In their separate financial statements, first-time adopters can measure their investment in subsidiaries, jointly controlled entities and associates at either: • Cost, determined in accordance with Ind AS 27; • fair value at the Ind AS transition date, or • Deemed cost, defined as previous GAAP carrying amount at the Ind AS transition date. Price Waterhouse & Co. PwC December 2014 Slide 20 Disclosures Price Waterhouse & Co. December 2014 Slide 21 Ind AS 101 - Disclosures Comparative information • An entity is mandatorily required to provide comparative financial statements for atleast one period. Entity can provide comparative financial statements for more than one period. • Opening balance sheet (related disclosures in notes) as at transition date to be presented. • Comparative financial statement to be presented in accordance with Ind AS. Non Ind AS comparative information and historical summaries • Allows entities to disclose non-Ind AS information in the Ind AS financial statement. • Any financial statement information in accordance with previous GAAP shall be labelled as Previous GAAP information and disclose the nature of main adjustments required to make it comply with Ind AS. Adjustment of GAAP differences on Ind AS transition date • GAAP differences on Ind AS transition date are adjusted directly in retained earnings (or, December 2014 if appropriate, another category of equity). Price Waterhouse & Co. PwC Slide 22 Adoption of Ind-AS • Challenges in adopting Ind-AS • Managing the Change • Project Management Framework • Model steps for Ind AS implementation Price Waterhouse & Co. December 2014 Slide 23 Challenges in adopting Ind-AS - Managing and communicating the change - Data capturing - Aligning different policies, practices and system across the group having presence in multiple jurisdictions and having different reporting requirements including tax and statutory reporting - Conforming accounting with changes in business - Aligning the business practices considering Ind AS accounting requirements - Training across the organization - Lack of appropriately skilled resources in the market Price Waterhouse & Co. December 2014 Slide 24 Managing the Change Project Framework Establishing an environment to support the project Controls and Documentation Ensuring the conversion process is controlled and documented Technical Accounting Advice Communication Technical accounting information along with and practical application advice Knowledge Sharing Embedding Monitoring the the Change pace and communication of the work Price Waterhouse & Co. Price Waterhouse & Co. Creating a sustainable reporting environment December 2014 Slide 25 Project Management Framework A well thought out project structure on lines below ensures that an entity is able to get appropriate management focus on project and on technical front “get it right the first time” which is very essential for a successful project. Steering Committee Decision Maker Auditor TRC Technical Review Committee Issue Originators INVITEES Expert Work Streams Technical Champions Needs WS1 o Loans o Income recognition Price Waterhouse & Co. WS2 o Financial Reporting o Employee benefits WS3 o Investments o Derivatives o Consolidation WS4 o Ind AS 107 o Segmental Reporting • Technical support material • Roles & Responsibilities • Timelines • Nodal offices December 2014 Slide 26 Model steps for Ind AS implementation Diagnostic study • Identification of key GAAP differences between IGAAP & Ind AS and accounting policy options under Ind AS, • Ind AS 101 – First-time adoption of Ind AS implication, • Finalise accounting policy under Ind AS and optional exemption under Ind AS 101 to be opted. Ind AS conversion • Quantification of GAAP differences, • Preparation of Ind AS financial statement, • Ensuring completeness of disclosures, • Audit of Ind AS financial statement. Price Waterhouse & Co. December 2014 Slide 27 Thank You Shrenik Baid [email protected] +91-22-6669-1312 +91-98-2011-6904 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 Pricewaterhouse & Co. All rights reserved. “PwC”, a registered trademark, refers to Price Waterhouse & Co. (a partnership firm in India) or, as the context requires, other member firms of PwC International Limited, each of which is a separate and independent legal entity.