Companies that were covered in the second phase of Ind-AS transition will present their first Ind-AS financial statements for the year ending March 31, 2018. Companies need to carefully choose the accounting policies and several exemptions and options which are only available at the time of transition. The options chosen will go a long way in ensuring the quality of financial statements.
Companies should also recalibrate their internal control over financial reporting to ensure that the same is effective in Ind-AS environment as well.
Additionally, companies in the banking and NBFC sectors need to prepare for the upcoming transition to Ind-AS, effective from April 1, 2018.
Finance Bill 2018
The Finance Bill 2018, which is likely to be approved by March 31, 2018, needs to be considered by companies in relation to the preparation of financial statements for the year. Companies need to consider the impact of the introduction of the long-term capital gain tax and change in tax rate for a specified group of companies while computing the related deferred tax assets and liabilities.
Additionally, the Finance Bill has put to rest the controversy around the legitimacy of Income Computation of Disclosure Standards (ICDS). The proposed changes are effective retrospectively. Companies need to consider the impact of these changes in relation to their tax outgo.
Related party transactions (RPTs)
The requirement concerning RPTs has been a matter of significant debate since their introduction in the Companies Act, 2013. The 2017 amendment Act contains several key changes aimed primarily at addressing practical difficulties in the application.
For example, to address the issue of related party in the context of a foreign holding company, the 2017 amendment Act has substituted the word company with ‘body corporate’, making sure that all foreign holding companies are also considered as related parties for the purpose of the Act.
Companies need to carefully consider these changes as they finalise the disclosure and approval of these transactions by their respective audit committee and board as appropriate.
The Securities and Exchange Board of India (Sebi) has come out with a voluntary requirement for top 500 companies with market capitalisation to start considering integrated reporting as part of the annual report. This will require careful planning by several companies to come out with a better perspective about the organisation value addition to natural, social, human, manufacturing, intellectual, and financial capital.
Upcoming accounting change
Ind-AS will undergo significant change with the introduction of proposed accounting standard on revenue recognition and leases. Revenue recognition standard is likely to be effective from the accounting periods starting April 1, 2018, whereas leases are expected to go live from April 1, 2019. If the Ministry of Corporate Affairs' notification, making these standards effective, is issued by March 31, companies need to make disclosure of likely impact of these standards in the annual financial statements for the year.
As per the proposed new revenue recognition standard, all open contracts which are outstanding as of March 31 need to be revisited for its appropriate accounting and disclosure in relation to timing and the amount of revenue to be recorded through the financial statements. All transition-related change will be recorded through opening retained earnings.
Key audit matters
Effective April 1, auditors will also be required to comment upon some of the key audit matters as part of the audit report. This will essentially require several debates around key accounting estimates and judgements as applied by the management. Management of companies should consider this change for all disclosures to be made in the current period financial statements as that will become the benchmark for the future reporting by their auditors.
To conclude, companies need to evaluate all the significant accounting and regulatory changes as it may impact the financial statements for the year ended March 31, 2018, or all the future periods.
The writer is partner and national leader, Financial Accounting Advisory Services (FAAS), EY India. Jigar Parikh also contributed to the article. Views expressed are personal