Ind AS adjustments result in an increase in reported net income: PwC

Sep 22, 2016

  • Pharmaceuticals, life sciences and healthcare, industrial manufacturing and automotive sectors, reported an average increase in net income for April to June 2015 quarter
  • Metals, capital projects & infrastructure and telecom sectors reported the maximum average decrease in net income upon Ind AS adoption
  • Total increase in Ind AS net income was approximately 297 crore INR in Q1’ FY16 – 0.4%

Mumbai: With the adoption of Indian Accounting Standards (Ind AS), majority of the companies had to make adjustments on account of taxes, financial instruments and revenue recognition.

As per PwC’s Ind AS Impact Analysis, which analysed the reported results for all the Ind AS impacted NIFTY 50 and NIFTY NEXT 50 companies, retirement benefit obligations, share-based payments, and business combination & consolidation were also identified to be more common Ind AS adjustments. These findings are generally consistent with PwC’s initial survey results published in February 2016.

This analysis shows that there was a positive impact on the reported net income of 41 companies (55%) under Ind AS for the quarter ended 30 June 2015. The total increase in Ind AS net income for these was approximately 3,918 crore INR (5.2%). There was a negative impact on the reported net income of 34 companies (45%) under Ind AS. The total decrease in net income was approximately 3,621 crore INR (4.8%), resulting in an overall net increase of approximately 297 crore INR (0.4%).

The percentage impact of certain key accounting areas on the reported net income for the previous quarter ended 30 June 2015 under Ind AS vis-à-vis previous Indian GAAP are:

  • Net Increase in revenues: 26.5%
  • Net fair value loss on account financial instruments (including derivatives): 1.6%
  • Business combination/consolidation: 0.9% increase in net income
  • Higher share-based payments expense: 0.2% decrease in net income
  • Reduction in tax expense: 0.7% increase in net income
  • Retirement benefit obligations: 0.6% decrease in net income

Other than the pharmaceuticals, life sciences & healthcare, industrial manufacturing and automotive sectors, all other sectors have reported an average decrease in net income. Metals capital projects & infrastructure and telecom sectors have reported the maximum average decrease in net income upon Ind AS adoption.

Analysis of the top impact areas:

  1. Taxes: The reported tax amounts of 88% of the companies surveyed were impacted. There was an overall decrease in reported tax expenses of 516 crore INR (0.7%). Of these companies, 47% reported an increase in tax credits of 1,268 crore INR, thereby reducing the tax expense by 1.7%. Further, 53% reported an increase in tax expense of 752 crore INR (1.0%) resulting from Ind AS adoption.

  2. Financial instruments (including derivatives): 85% of the companies surveyed were impacted due to fair valuation and accounting of financial instruments (including derivatives). There was an overall decrease in reported net income of 1,179 crore INR (1.6%) on account of financial instruments. Of these companies, 48% have reported a gain of approximately 1,151 crore INR on account of financial instruments increasing net income by 1.5%. Further, 52% of the companies have reported a loss of around 2,330 crore INR, reducing net income by 3.1%.

  3. Revenue: 84% of the companies surveyed had an adjustment on revenue. Twenty eight companies (44%) have reported an increase and 35 companies (56%) have reported a decrease in revenue. There was an overall increase in reported revenues of around 19,761 crore INR (2.5%) under Ind AS. Excluding the impact of excise duty gross up adjustment, there was an overall decrease in reported revenues of around 11,497 crore INR (1.4%).

  4. Retirement benefit obligations: Of the surveyed companies, 67% companies had an adjustment on account of retirement benefit obligations. There was an overall decrease in reported net income of approximately 411 crore INR (0.6%) on account of actuarial gain and losses being reclassified to OCI under Ind AS, compared to the profit and loss account under Indian GAAP.

Ends

About the Ind AS Impact Analysis Report
This analysis report is a follow up to the Ind AS Outlook Survey released in February 2016, to evaluate the impact of Ind AS adoption and challenges faced by corporates in India. This analysis evaluated interim financial information released by 75 companies until 14 September 2016. These companies are listed on the National Stock Exchange (NSE) of India and are included in NIFTY 50 and NIFTY NEXT 50 benchmark indices. This analysis of NIFTY 50 and NIFTY NEXT 50 companies excluded 17 companies that are either banks or non-banking financial companies (NBFCs) or insurance companies to whom Ind AS is not yet applicable, 7 companies who have filed under Indian GAAP and 1 company which did not file Ind AS financial results for the quarter ended 30 June 2015.

The impact of Ind AS transition presented here is based on the reported results for the quarter ended 30 June 2015 under Ind AS vis-à-vis previously reported Indian GAAP results. Since our report is based on quarterly published results which do not have detailed disclosures otherwise available in annual financial statements, we may have made certain assumptions and generalisations for the purpose of aggregating the results and analysis.

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