Transition to Ind AS is not just a mere Accounting Change

Transition to Ind AS is not just a mere “Accounting Change” i.e. it is not Easy.

The Ministry of Corporate Affairs (MCA), in 2015, had notified the Companies Indian Accounting Standards (IND AS) Rules 2015, which stipulated the adoption and applicability of IND AS in a phased manner beginning from the Accounting period 2016-17. The MCA has since issued three Amendment Rules, one each in year 2016, 2017, and 2018 to amend the 2015 rules. The IND AS are basically standards that have been harmonized with the IFRS to make reporting by Indian companies more globally accessible. Since Indian companies have a far wider global reach now as compared to earlier, the need to converge reporting standards with international standards was felt, which has led to the introduction of IND AS.

While many business owners may feel that the process of adopting and implementing IndAS is more of an accounting change, the real fact is that it is not. The journey of transitioning into IndAS is more like an evolution that not only requires changes in the presentation of financial statements but also in the way in which financial transactions are measured and recorded. In short, it brings a qualitative as well as a quantitative impact on the financial statements.

Qualitative impacts include Impact in the areas of:

As a consequence of the convergence of Ind AS with IFRS Standards, Ind AS is formulated on clearly articulated principles and requires high-quality transparent, comparable, and understandable financial information in the financial statements. It can impact –

  • Presentation of Financial Statements
  • Disclosure requirements

Quantitative impacts include Impact in the areas of:

Ind AS is based on a high quality principle-based comprehensive suite of IFRS Standards, therefore, there is a need to assess the quantitative impact of transitioning to Ind AS on certain critical financial measures. Following are the requirements –

  • Recognition requirements
  • Classification requirements
  • Measurement requirements

Considering the potentially wide-ranging effects of the transition, the implementation effort would impact functions outside of the finance department, including IT, legal, sales, marketing, human resources, and senior management.

A number of related workstreams must be considered in this effort, including:

  • Accounting and financial reporting
  • Tax
  • Business processes and systems
  • Change management, communication, and training methods

In addition, it is critical to have strong project management skills to coordinate the roles of the various business functions and to keep the workstreams running smoothly and on schedule.

Ind AS implementation has provided better insights into the financial affairs of the companies and Ind AS-based financial statements reflect the underlying economics of the transactions/events in a transparent and unbiased manner. It has also improved the comparability and benchmarking of the financials of Indian Companies with Global Peers, thereby improving the accessibility of Indian Companies to Global Capital Markets.

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