The new Indian accounting standards (Ind AS), which converge with International Financial Reporting Standards (IFRS) but have key differences, will apply to certain companies in the country that are worth INR500 crores ($92.6m) or more from April 2016.
A study published by PwC India on Wednesday, of which 100 Indian companies across a variety of sectors were surveyed, has found 55% of respondents believe that both net worth and net income within their financial statement could increase or decrease by 20% when IND AS is adopted fully.
PwC India also suggests some of the main differences – dubbed carve-outs – between IFRS and IND AS are presentation, acquisitions and leases.
The survey shows that respondents expect taxes, revenue recognition, operating segments and financial instruments including derivatives to be impacted significantly by the new standards.
"IND AS are relatively more prescriptive and elaborate in many areas compared to the current Indian generally accepted accounting principles (Indian GAAP)", states the survey.
"Further, accounting for mergers and acquisitions, consolidation, share-based payments, financial instruments, revenue recognition, taxes and fair value are some of the topics that are likely to pose interpretation and implementation challenges under Ind AS."
It marks yet another stage in the transition for Indian accountants, who have been moving slowly from India’s GAAP to a common reporting language since February 2011. At which time, the Ministry of Corporate Affairs (MCA) published a total of 39 accounting standards (Ind AS) and adaptation road map.
But in 2014, following the national general election, the Institute of Chartered Accountants of India (ICAI) released a new timetable for the implementation of Ind AS, proposing that companies apply it in consolidated statements after 1 April 2016. The Finance Minister Arun Jaitley ran with this idea and stressed the importance of converging to IFRS in his 2014 maiden speech.
PwC India also shows 75% of the respondents expect reporting of additional non-GAAP financial measures on the transition to Ind AS. But, the move to new standards is unlikely to be a smooth one.
"We also believe that companies may face implementation challenges in these areas, especially in financial instruments, where the new standard is being adopted by India ahead of its global adoption date — i.e. annual periods beginning on or after 1 January 2018", the survey adds.
"It is interesting to note that companies expect segment reporting (being a disclosure standard) to also have a significant impact. This is important as investors may now witness a change in the way segment information is reported — now it will be through the lens of management using the chief operating decision-maker (CODM) approach under Ind AS."
Speaking to The Accountant prior to the Indian general election in March 2014, the then ICAI president K Raghu said he was ready for convergence.
"We have 16,000 members working in various countries, and 22 chapters around the world to serve the interest of these professionals, Raghu explained.
"With a lot of foreign direct investments coming in, developing countries are keen to follow the pattern of reporting in other countries so that they are able to attract foreign capital," he added.
India survey: Challenges in a changing environment