"First-time adoption of Ind-AS - Analysis of presentation requirements"

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IND-AS 101 - First-time adoption of Indian Accounting Standards lays down the rules and principles for an entity to transition from prevailing accounting standards to IND-AS. The general principle is that in preparing its first converged balance sheet, an entity applies IND-AS retrospectively as if the same had been applied to all prior periods going back in history to thedate of inception. The standard provides certain operational relief to preparers of financial statements.The transition standarddelves on key areas including "mandatory exceptions" from the requirement of retrospective application and "voluntary exemptions" that an entity could avail.A key area that needs to be analysed in detail is the presentation requirements upon first-time adoption viz.,the components of financial statements, provision of comparatives, and providinginformation under previous GAAP.

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First IND-AS financial statements

A company's first IND-AS financial statements is the first annual financial statements in which the entity adopts IND-AS, in accordance with IND-ASs notified under the Companies Act, 1956 and makes an "explicit and unreserved statement of compliance" with the converged Indian accounting standards.

The standard requires a company to prepare and present an opening IND-AS Balance Sheet at the date of transition to IND-AS and the same acts as a starting point for its accounting in accordance with IND-ASs. An entity has to use the same accounting policies in its opening IND-AS Balance Sheet and throughout all periods presented in its first IND-AS financial statements. Such accounting policies are required to comply with each IND-AS effective at the end of its first IND-AS reporting period, with the exceptions of the mandatory exceptions and voluntary exemptions. A choice is provided whereby an entity if it elects, could apply a new IND-AS that has been issued but yet to become mandatory if such an IND-AS permits early adoption.

An entity is required to perform the following in the preparation of its opening balance sheet viz (a) recognize all assets and liabilities whose recognition is required by the new GAAP, (b) not to recognize assets/liabilities if the new GAAP specifically does not permit such a recognition, (c) reclassify items that it recognized under AS as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with IND-AS, and (d) apply IND-AS in measuring all recognized assets and liabilities.

The accounting policies that an entity uses in its opening IND-AS balance sheet may differ from those it used for the same date under prevailing "AS". Such resulting adjustments arising from events and transactions before the date of transition are recognized directly in retained earnings (or another category of equity) at the date of transition to IND-AS.

The financial statements under IND-AS should apply consistent accounting policies for the first IND-AS financial statements and the comparative period. A company needs to apply the voluntary exemptions and mandatory exceptions consistently both as at the date of transition, i.e., beginning date of the financial year for which an entity presents financial information under IND-AS and deemed date of transition, i.e., beginning date of the comparative financial year for which an entity presents financial information under IND-AS.

Key terms

The key terms of the standard relevant for presentation purposes is highlighted in the table below.

Date of transition to IND-AS First IND-AS financial statements Opening IND-AS balance Sheet
The beginning date of the financial year on or after April 01, 2011 for which an entity presents financial information under IND-AS in its first IND-AS financial statements. The first annual financial statements in which an entity adopts the converged Indian accounting standards (IND-AS), by an explicit and unreserved statement of compliance with IND-Ass. An entity's balance sheet at the date of transition to IND-AS.

MCA roadmap for IFRS convergence

The Ministry of Corporate Affairs (MCA) laid down the roadmap for IFRS convergence by India Inc, vide its press release of January 2010 and the same is detailed below for a ready reference. It may be noted that there is no formal announcements of the dates of implementation as yet.

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Components of financial statements and periods to be presented

The general rule for first-time adoption is that there is no requirement to provide comparatives under IND-AS. However, companies, if they elect, can provide comparatives under IND-AS.

Irrespective of whichever option is adopted, a company is required to provide corresponding figures for the previous year as per the previous GAAP i.e., prevailing "AS". The corresponding figures for the previous year are required to be reclassified to the extent practicable. It may be noted here that the MCA has issued a revised version of schedule VI on February 28, 2011 and the same is to a large extent influenced by the requirements of IAS 1 – Presentation of financial statements and IND-AS 1 – Presentation of financial statements. And hence, the reclassification would be facilitated once companies start reporting financial statements under the revised schedule VI for financial periods beginning April 1, 2011.

The financial statement components, comparatives and previous GAAP datathat needs to be provided upon first-time transition to the Indian version of IFRS is detailed in the table below.



Option Components of financial statements to be presented on first-time adoption of "IND-AS" Components of financial statements to be presented as per previous GAAP - "AS"
Balance sheet Statement of changes in equity Statement of profit and loss Statement of cash flows Notes Corresponding previous periods financial statements
General requirement:Comparatives under previous GAAP 2 Balance sheets 1
statement of changes in equity 1
statement of profit and loss 1
statement of cash flows Related notes Reclassified previous year's financial statements to be presented to the extent practicable.
Phase 1 – date of converting opening balance sheet – April 1, 2012* As at April 1, 2012, and March 31, 2013 For the year ended March 31, 2013 For the year ended March 31, 2013 For the year ended March 31, 2013 For the year ended March 31, 2013 Corresponding figures for the year ended March 31, 2012
Phase 2 – date of converting opening balance sheet – April 1, 2013 As at April 1, 2013, and March 31, 2014 For the year ended March 31, 2014 For the year ended March 31, 2014 For the year ended March 31, 2014 For the year ended March 31, 2014 Corresponding figures for the year ended March 31, 2013
Phase 3 – date of converting opening balance sheet – April 1, 2014 As at April 1, 2014, and March 31, 2015 For the year ended March 31, 2015 For the year ended March 31, 2015 For the year ended March 31, 2015 For the year ended March 31, 2015 Corresponding figures for the year ended March 31, 2014
Voluntary choice in lieu of general requirement:Comparatives under
Ind-AS 4 balance sheets 2
statement of changes in equity 2
statements of profit and loss 2
statement of cash flows Related notes Reclassified previous year's financial statements to be presented to the extent practicable.
Phase 1 – date of converting opening balance sheet – April 1, 2012* As at April 1, 2011, March 31, 2012 April 1, 2012, and March 31, 2013 For the year ended March 31, 2012 and March 31, 2013 For the year ended March 31, 2012 and March 31, 2013 For the year ended March 31, 2012 and March 31, 2013 For the year ended March 31, 2012 and March 31, 2013 Corresponding figures for the year ended March 31, 2012



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*For the purpose of the table above, the date of converting the opening balance sheet has been considered as April 1, 2012 for the first phase of IFRS convergence for illustrative purposes only.

Conclusion

An entity uses the guidance in Ind-AS 101 for achieving the switch over to the new set of accounting standards. As such, an entity uses Ind-AS 101 only once in its financial reporting history as the same may not be of relevance on a steady-state basis. Nevertheless, the election of certain options upon first-time adoption popularly termed as "voluntary exemptions" have far reaching implications beyond the year of transition.

A number of areas need focus in terms of accounting policy choices, voluntary exemptions,provision of comparatives/historic data and investor communication. A well planned strategy is required to be adopted by preparers and auditors of financial statements to address the challenges and issues associated with a first-time convergence.