Decoding the IndAS Impact for Indian Companies
As Indian companies declare the results for the first quarter of the 2016-17 financial year, under the new IndAS regime (IFRS converged accounting standards in India), we at Protiviti have analysed the impact of adopting IndAS by these companies. Our analysis has been carried on a sample of almost 125 companies, across all the major sectors and industries, except for the banking and financial service industry (BFSI), for which the transition shall commence from financial year 2018-19 onwards. This study has been performed based on the analysis of the quarterly results reported by the listed companies, with the net worth of more than INR 500Cr (US$75mn).
The overall impact of GAAP adjustments made on the profit after tax (PAT) for 30 June 2015 is approximately INR 20bn (US$ 300mn) decrease in PAT (net of debit and credit adjustments of INR 57bn and INR 37bn respectively). The total absolute value of the GAAP adjustments made by the selected companies, ignoring debit or credit adjustments in 30 June 2015 quarter is approximately INR 94bn (US$ 1.5bn).
40% of the companies that are included in the study have provided a profit (PAT) reconcilliation, for the comparative financial year ended 31 March 2016. The total impact of adjustments made by these companies is of INR 8bn, increase in PAT (net of INR 121 bn and INR 113 bn credit and debit adjustments respectively).
Our analysis covers 26 of the 41 eligible Nifty 50 companies and 74% of the total companies included in our study are large cap and mid cap companies. 9 of the Nifty 50 companies represent the BFSI sector which is not required to transition to IndAS until financial year 2018-19.
Although, companies have reported the quarter 1 results under the IndAS framework, they will have time until 31 March 2017 to re-look at the transition adjustments, in light of any change in the regulation/s that take place before 31 March 2017, which will be the first annual reporting period under IndAS. For example, the ongoing amendments/clarifications to the recommendation by Central Board of Direct Taxes (CBDT), on the treatment of Minimum Alternative Tax (MAT) for the adjustments to retained earnings, could result in additional companies opting for the fair valuation exemption with respect to property, plant and equipment.