With the new accounting standards on board, all corporate entities who have a net worth of Rs 500 crore or more are required to comply and adopt the new standards in the fiscal year of 2017.
The process wherein the period of undergoing will have a considerable impact on the computation of generation of revenue, operating profit, net profit, and networth of the listed companies. Other sectors such as telecoms, oil & gas, natural resources and real estate are also likely to be impacted most from this. With the new norms in place, analysts are estimating that there will be an appreciation in revenues by 4-5 percent, albeit there may be a drop by 2-3 percent in the overall Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The Securities and Exchange board of India (Sebi) asked public-listed companies to declare results of June and September quarters under provision of the new norm.
Why we need the New Accounting Standards
Every county has a method or process wherein it stipulates a financial report data based on rules called accounting standards. Here, In India we follow the Indian Acceptable Accounting Principle, albeit from the FY17, India will comply with the Indian Accounting Standard (Ind-AS ) wherein its principles are based on international accounting system, also known as IFRS. Coming to the question as to why India needs this new accounting standard, is because it will increase the comparability of local Indian companies with their international counterparts.
What are the primary advantages of the Ind-AS
The Ind-As recognizes the facets of substance and the paramount of fair value to compute financial statements. In layman words, this new accounting standard will render an accurate report over all necessary legal provisions and will display the most current picture of the financials.
Impact on companies
The Ind-As will give an effect to how the financials within the company such as revenue, operating profit, net profit, book value, goodwill, and return on equity will be computed. Under the new norms, excise duty will be treated as a tax on manufacturing activity. This would boost the revenue of companies, but the operating margin would show depreciation on charts. However, earning per share (EPS) will remain unchanged. The new Ind-AS will provide an impact on the financial assets and liabilities which would also be interpreted and measured.
According to the institute of chartered accountants of India (ICAI), with the new implementation of international reporting standards, sectors including financial services and infrastructure are predicted to be impacted while on the other hand manufacturing will not have much adverse impact.
According to Mr. Manoj Fadnis, The president of the ICAI, “There will be some impact (on the financial statements) as higher levels of disclosures will be required and for the first time there will be more ‘fair value’ accounting. It will have a well defined standard in place for financial instruments which would be made applicable. So, there will be some changes in which financial statements are reported,” he said.
The exemption included within the Ind-As road map as declared by the Central Government are Banking, insurance and non-banking finance companies.
The corporate affairs ministry’s roadmap entails that all companies, listed or unlisted, with a sigma net worth exceeding Rs 500 crore , also where such companies having their subsidiaries, joint venture, associate companies and holding companies which have a a sigma net worth exceeding Rs 250 crore’s up to Rs 500 crore’s will be regulated within the ambit of the Ind-AS rules starting from April 2017.