Annual Report Threadbare: New accounting standards from FY16-17

23 February 2015

New accounting standards from FY16-17

Financial reporting set for revamp with introduction of Ind-AS

The Government has unveiled a roadmap to implement Ind-AS

(equivalent IFRS standards) in phases, starting with the

accounting period on or after Apr 1, 2016.

All companies, listed or unlisted, with a net worth of more

than INR5b and their holding company, subsidiary, joint

venture and associate companies will be covered in the first

phase.

Currently, six companies in Nifty-50 report their IFRS financial

statements. We estimate ~94% of the listed companies (by

market cap) to come under the first phase of implementation.

By number of companies, however, merely 16% of the total

would be covered under phase 1.

Exemption has been granted to insurance companies, banking

companies and NBFCs from the applicability of Ind-AS for

preparation of financial statements.

Ind-AS is likely to have a significant impact on a company's

revenue and profitability. It also mandates additional

disclosure requirements not used under the current

accounting standards. These norms should further strengthen

Indian companies’ ability to access foreign capital and global

markets.

NNUAL

EPORT

HREADBARE

The

ART

of annual report analysis

New accounting standards (Ind-AS) to apply

to 94% of the listed companies (by market

cap) in phase 1

Phase 1 implementation to begin for

accounting periods on or after Apr 1, 2016

Insurance companies, banking companies

and NBFC’s exempted under current norms

Six companies in Nifty report IFRS financial

statements

Sr No

Nifty companies

TCS

Infosys

Tata Motors

Wipro

Bharti Airtel

Dr Reddy's Lab

Mkt cap (INR b)

5,239

2,623

1,768

1,605

1,398

580

Source: Company, MOSL

IFRS adopted by more than 100 countries, though some are

still to adopt

The Finance Minister, Mr Arun Jaitley, had indicated in his Budget

Speech in July 2014 that the Indian Accounting Standards (Ind-AS)

will be adopted mandatorily from FY16-17. Companies can also

adopt these standards voluntarily from FY15-16.

The proposed accounting standards (Ind-AS) are IFRS equivalent,

which have been notified by the Ministry of Corporate Affairs

(MCA) in consultation with the National Advisory Committee on

Accounting Standards (NACAS).

Ind-AS adoption will bring India at par with more than 100

countries where IFRS is mandatorily followed. The government’s

commitment to adopt Ind-AS will strengthen India’s ability to

attract foreign capital and also access global capital markets, due

to international comparability of Indian companies.

We estimate 94% of the listed companies (by

market cap) to be covered under phase 1

Phase 1 implementation

By market cap

By number of companies

As % of listed

companies

94.0%

16.1%

Source: Capitaline, MOSL

ART will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe ART's wide canvas - from accounting and auditing issues to

operating performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness.

Ashish Gupta

(Ashish.Gupta@MotilalOswal.com); +91 22 3982 5544

Piyush Chaplot

(Piyush.Chaplot@MotilalOswal.com) /

Aditya Dakh

(Aditya.Dakh@MotilalOswal.com)

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

ART|

Ind-AS

Exhibit 1: EU has adopted IFRS, however, US and Japan yet to come on board

Sr No

Country names

Australia

Brazil

Canada

China

European Union (including

France, Germany, Greece,

Italy, Switzerland, UK)

Hongkong

IFRS compliant Local a/cing std used

Yes

Hong Kong Financial

Reporting Standards

(HKFRS)

Indian GAAP

Indonesian

Financial Accounting

Standards

Japanese GAAP

Will adopt IFRS for unlisted companies also from 2018

Singapore FRS

While HKFRS has been converged with IFRS, differences

remain primarily in respect of transitional provisions

Listed companies have a choice of presenting their

consolidated financial results either under Indian GAAP or

IFRS

Chinese Accounting

Standards

Certain options allowed in IFRS are not allowed in

Brazil and some additional disclosures are required

Certain companies are exempted from IFRS

China has substantively converged with IFRS. However, it is

not a direct translation of IFRS

Remarks

India

Indonesia

Japan

Korea

Russia

Singapore

Taiwan

United Arab Emirates

United States

Yes

US GAAP

Source: PWC, MOSL

Ind-AS to be implemented in two phases; to cover almost 94% of the

companies by market cap in phase 1

As per the MCA roadmap, the new standards (Ind-AS) will be implemented in

two phases:

Phase 1:

Ind AS would be mandatory for accounting periods commencing on

or after April 1, 2016 for: (i) companies whose equity and/or debt securities

are listed or are in the process of listing on any stock exchange in India or

outside India or unlisted companies AND (ii) having a net worth of INR5b or

more.

Phase 2:

Ind AS would be mandatory for accounting periods commencing on

or after April 1, 2017 for: (i) companies whose equity and/or debt securities

are listed or are in the process of being listed within India or outside AND (ii)

having a net worth of less than INR5b. This deadline is also applicable to

unlisted companies having a net worth of INR2.5b or more but less than

INR5b.

Holding, subsidiary, joint venture or associate companies of these entities would

also have to comply with the above deadlines.

All other companies not covered under phase 1 and 2, shall follow the existing

standards specified under the Companies (Accounting Standards) Rules, 2006.

23 February 2015

ART

Ind-AS

Exhibit 2: Phase-wise implementation of Ind-AS

Source: Company, MOSL

The net worth shall be calculated in accordance with the standalone financial

statements of the company as on March 31, 2014.

Once a company starts following Ind-AS (either voluntarily or mandatorily), it

shall be required to follow Ind-AS for all the subsequent financial statements

even if the net worth criteria does not subsequently apply to it.

Insurance companies, banking companies and NBFCs shall not be required to

apply Ind-AS for preparation of their financial statements. These companies

might later fall under the purview of Ind-AS.

We estimate that phase 1 of Ind-AS shall cover ~94% of the companies by

market capitalization although this would be only 16% of the listed companies

(by number of companies).

Currently, six companies of the Nifty companies present their IFRS financial

statements on a consolidated basis.

New standards to have significant impact on the company’s revenue and

profitability

The new standards (Ind-AS) will compel companies to make wider disclosures on

transactions and associated companies as well as provide explanations on

various numbers.

These rules will impact the way financial assets and liabilities are classified and

measured. Many off-balance-sheet items will now have to be reported. Certain

associate companies which were earlier not consolidated may now be required

to be consolidated under the new norms.

These standards will impact a company's top line and bottom line. Apart from

the financial impact, these standards will also require other organizational and

business changes.

Currently, 39 Ind-AS have been notified, the most significant ones being revenue

recognition and financial instruments (Refer Exhibit 3 for Ind-AS notified).

23 February 2015

ART

Ind-AS

Exhibit 3: Annexure: List of Ind-AS notified till date

Notifications

Indian Accounting Standard (Ind AS) 101

Indian Accounting Standard (Ind AS) 102

Indian Accounting Standard (Ind AS) 103

Indian Accounting Standard (Ind AS) 104

Indian Accounting Standard (Ind AS) 105

Indian Accounting Standard (Ind AS) 106

Indian Accounting Standard (Ind AS) 107

Indian Accounting Standard (Ind AS) 108

Indian Accounting Standard (Ind AS) 109

Indian Accounting Standard (Ind AS) 110

Indian Accounting Standard (Ind AS) 111

Indian Accounting Standard (Ind AS) 112

Indian Accounting Standard (Ind AS) 113

Indian Accounting Standard (Ind AS) 114

Indian Accounting Standard (Ind AS) 115

Indian Accounting Standard (Ind AS) 1

Indian Accounting Standard (Ind AS) 2

Indian Accounting Standard (Ind AS) 7

Indian Accounting Standard (Ind AS) 8

Indian Accounting Standard (Ind AS) 10

Indian Accounting Standard (Ind AS) 12

Indian Accounting Standard (Ind AS) 16

Indian Accounting Standard (Ind AS) 17

Indian Accounting Standard (Ind AS) 19

Indian Accounting Standard (Ind AS) 20

Indian Accounting Standard (Ind AS) 21

Indian Accounting Standard (Ind AS) 23

Indian Accounting Standard (Ind AS) 24

Indian Accounting Standard (Ind AS) 27

Indian Accounting Standard (Ind AS) 28

Indian Accounting Standard (Ind AS) 29

Indian Accounting Standard (Ind AS) 32

Indian Accounting Standard (Ind AS) 33

Indian Accounting Standard (Ind AS) 34

Indian Accounting Standard (Ind AS) 36

Indian Accounting Standard (Ind AS) 37

Indian Accounting Standard (Ind AS) 38

Indian Accounting Standard (Ind AS) 40

Indian Accounting Standard (Ind AS) 41

Description

First-time Adoption of Indian Accounting Standards

Share-based Payment

Business Combinations

Insurance Contracts

Non-current Assets Held for Sale and Discontinued Operations

Exploration for and Evaluation of Mineral Resources

Financial Instruments: Disclosures

Operating Segments

Financial Instruments

Consolidated Financial Statements

Joint Arrangements

Disclosure of Interests in Other Entities

Fair Value Measurement

Regulatory Deferral Accounts

Revenue from Contracts with Customers

Presentation of Financial Statements

Inventories

Statement of Cash Flows

Accounting Policies, Changes in Accounting Estimates and Errors

Events after the Reporting Period

Income Taxes

Property, Plant and Equipment

Leases

Employee Benefits

Accounting for Government Grants and Disclosure of Government Assistance

The Effects of Changes in Foreign Exchange Rates

Borrowing Costs

Related Party Disclosures

Separate Financial Statements

Investments in Associates and Joint Ventures

Financial Reporting in Hyperinflationary Economies

Financial Instruments: Presentation

Earnings per Share

Interim Financial Reporting

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Intangible Assets

Investment Property

Agriculture

Source: Ministry of Corporate Affairs, MOSL

23 February 2015

ART

Ind-AS

NOTES

23 February 2015

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ART

Ind-AS

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