Ind AS to induce fluctuations in financial statements: report

Mumbai, Aug 29 (PTI) Capital goods and infrastructureare among the sectors that are likely to be most impacted bythe switch to the new Indian Accounting Standards (Ind AS),which is expected to induce volatility in corporate financialstatements, says a Crisil report. The rating agency, which surveyed 80 firms rated byit, found that the difference in reported profit in comparisonto Indian GAAP (Generally Accepted Accounting Principles) wasin excess of 5 per cent for one-third of the firms. "The reported profitability number would be more volatilebecause of changes in fair valuation of derivatives andfinancial instruments (including equity, debt and foreigncurrency loan obligations), amortisation of goodwill andreclassification of actuarial gains/losses," Crisil said. "Companies in sectors such as capital goods,infrastructure, retail, IT services and auto ancillaries aremore likely to be impacted than others on account of revisedaccounting standards," it said. However, it noted that the underlying cash flows andeconomic risks of these companies would remain unaffected asthe revised accounting standards are unlikely to have amaterial impact on the business fundamentals. Accordingly, Crisil said that no major change inoutstanding ratings as well as ratings criteria can beforeseen on account of new Ind AS. It also noted that the revised accounting standards andbetter disclosures will increase information availability onrated companies. In February 2015, the Ministry of Corporate Affairshad notified the Companies (Indian Accounting Standards) Ruleswhich would help bring financial statements closer to economicreality and align them with global standards. As per the guidelines issued by the Ministry, themigration to Indian Accounting Standards is to be done in aphased manner. Under phase I, all companies (listed and unlisted) havinga standalone net worth greater than, or equal to, Rs 500 croreas on March 31, 2014, will have to adopt the revisedaccounting standards. For these companies, 2016-17 will be the first year ofadoption and the financials of 2015-16 will be published as acomparative under the revised accounting standards. While noting that the adoption of Ind AS in a phase-wisemanner is the better approach, Crisil said bringing morecompanies — especially the unlisted ones with networth lessthan Rs 250 crore — under this system is crucial. The move will make financial statements comparable acrosscompanies irrespective of size, and facilitate greater accessto funding from global investors, it added. PTI SSM GK JM SABAS