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Ind AS transition Journey of Indian corporates July 2017

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Page 1: Ind AS transition - Building a better working world - EY ...File/ey... · Ind AS transition resulted in increase in net worth by ... value measurement of financial assets and liabilities,

Ind AS transitionJourney of Indian corporates

July 2017

Page 2: Ind AS transition - Building a better working world - EY ...File/ey... · Ind AS transition resulted in increase in net worth by ... value measurement of financial assets and liabilities,

PrefaceFinancial Year 2016-17 will be remembered for various reasons — demonetization, applicability of Income Computation and Disclosure Standards (ICDS), Goods and Services Tax (GST) bill seeing the light of the day and many more. However, one of the most significant events for Indian corporates in FY 2016-17 was the transition to Ind AS. The journey from erstwhile Indian Generally Accepted Accounting Principles (IGAAP) to International Financial Reporting Standard

(IFRS) equivalent standards, which started about a couple of years back, finally got completed for companies with net worth of over ` 500 crore. Also, the second phase entities (all listed companies or companies with net worth over ` 250 crore) have embarked on the journey as they transition to Ind AS with effect from FY 2017-18.

The enthusiasm and commitment shown by the corporates along with the backing of regulators and professionals ensured that the transition was a true success. The journey was challenging yet very rewarding. Indian corporates and their financials are now at par with globally acceptable reporting standards. The long-term benefits of this transitioning include significantly easy access to global markets, enhanced trust of investor community and overall increased transparency in financial statements.

Several areas of Ind AS require the application of significant judgment and financial reporting is based on various management estimates. To understand the impacts of this transition, we believe this is the best time to analyze and evaluate the first-time Ind AS results of BSE top 100 companies. In this study, we have extended the area of research and are happy to share our insights.

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Cont

ents Overview

Impact analysis by sector

Key standards that made their presence felt

Key disclosures

Conclusion

Glossary

Annexure

01

02

03

04

05

06

07

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4 | Ind AS transition

Overview01Our publication is based on our analysis of the financial results published by all companies in BSE’s top 100 list up to 31 May 2017. Out of the 100 entities, 18 companies being banks, non-banking financial companies (NBFCs) or insurance companies have been excluded as Ind AS is not yet applicable to them. Further, 7 companies close their respective financial years with different year-end dates (other than March year-end). Accordingly, these entities had not reported their financial statements as per Ind AS as at 31 March 2017 and thus have been excluded as well. Therefore, our study is based on observations of 75 standalone financial statements.

In this report, we discuss the overall impact as well as sector-wise impact of the key Ind AS requirements in relation to the previous IGAAP accounting.

Our analysis highlights areas that have significant impact on companies’ net income and net worth. The areas include revenue recognition, consolidation, financial instruments, employee benefits, business combinations, and property, plant and equipment (PPE) among others. Generally revenue recognition, business combination and PPE have a sector-specific impact, while financial instruments, employee benefits cost and consolidation have a company-specific impact.

• Additionally, on gross basis, adjustments in relation to Ind AS transition resulted in increase in net worth by ` 226,000 crore, which was offset by another set of adjustments, which resulted in decrease in net worth by ` 127,000 crore. Therefore, the net increase was ` 99,000 crore.

• The majority of the companies covered in the analysis have availed exemptions under Ind AS 101 relating to deemed cost of property, plant and equipment, fair value measurement of financial assets and liabilities, share based payments and business combinations.

• For many of the companies, the increase in net worth can possibly lead to reduction of return on capital employed.

• Overall, all the companies were able to file the Ind AS financials on time, indicating that the transition was well planned and executed.

Insights ` 1,34,400 crore Increase in the net worth of 55 companies

` 40,900 crore Decrease in the profit of 35 companies

` 35,000 crore Decrease in the net worth of 17 companies

` 5,200 crore Increase in the profit of 39 companies

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Ind AS transition | 5

Overview01Net worth impact Negative Positive

Automobiles and transportation

(107) 9,296

Consumer/Industrial products and retail

(2,293) 16,994

Mining and metals (25,916) 5,854

Oil and gas (386) 49,438

Pharmaceuticals and chemicals

(353) 5,750

Real estate, Infrastructure, power and utilities

(3,795) 3,503

Technology (IT/IES) - 15,338

Telecom, media and entertainment

(2,217) 28,230

Grand total (35,067) 1,34,404

Number of companies 17 55

Net profit impact Negative Positive

Automobiles and transportation

(551) 1,763

Consumer/Industrial products and retail

(1,621) 1,036

Mining and metals (24,929) -317

Oil and gas (8,919) 1,031

Pharmaceuticals and chemicals

(1,145) 117

Real estate, Infrastructure, power and utilities

(409) 688

Technology (IT/IES) (3,133) 713

Telecom, media and entertainment

(201) 254

Grand total (40,908) 5,285

Number of companies 35 39

Revenue impact Negative Positive

Automobiles and transportation

(1,169) 295

Consumer/Industrial products and retail

(5,493) 28

Mining and metals (126) 4,375*

Oil and gas (7,232) 0

Pharmaceuticals and chemicals

(246) 119

Real estate, Infrastructure, power and utilities

(229) 4,568*

Technology (IT/IES) (808) 42

Telecom, media and entertainment

(59) 0

Grand total (15,362) 9,427

Number of companies 53 14

EBITDA impact Negative Positive

Automobiles and transportation (354) 1,997

Consumer/Industrial products and retail (797) 1,169

Mining and metals (23,071) 722

Oil and gas (830) 2,105

Pharmaceuticals and chemicals (557) 163

Real estate, Infrastructure, power and utilities (512) 1,035

Technology (IT/IES) (3,177) 599

Telecom, media and entertainment (616) 303

Grand total (29,914) 8,092

Number of companies 30 45

*Positive impact in revenue on account of merger of entities under common control.

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6 | Ind AS transition

Impact analysis by sector02The key apprehensions of all stakeholders about the transition to Ind AS are whether it will significantly impact key performance indicators of companies and whether it will bring significant volatility in the financial statements. Our analysis suggests that the transition impact on some of the key performance metrics has been a mixed bag.

• Generally, the Ind AS transition has had to a positive impact on net worth (increase in net worth of 55 companies).

• Revenues of the majority (53 out of 75 companies) have decreased.

• EBIDTA and profits have been adversely impacted.

• Overall, all the companies were able to file the Ind AS financials on time, indicating that the transition was well planned and executed

The impact of Ind AS on key performance indicators across multiple sectors is as follows:

Insights

Sector No. of companies

Net worth Revenue EBIDTA Profit

Consumer/Industrial products and retail

21 é ê é êé

Mining and metals 9 êé êé êé ê

Oil and gas 8 é ê êé ê

Technology (IT/IES) 6 é êé êé êé

Automobiles and transportation 13 é ê é é

Real estate, infrastructure, power and utilities

5 êé êé êé êé

Telecom, media and entertainment 5 é ê êé é

Pharmaceuticals and chemicals 8 é ê êé êé

Positive é Negative ê Mixed êé

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Ind AS transition | 7

Impact analysis by sector02 Impact on net worth by sector

Impact on net worth as on 31 March 2016 — Sector perspective

Num

ber

of c

ompa

nies

Num

ber

of c

ompa

nies14

6 3

5 7

1

6

-

11

1 3 2

4 1

7

1 -

5

10

15

CIPR MM OG IT AT RIPU TME PC

Positive NegativePositive Negative

05

10152025 23

11

Lessthan5%

10

3

5% to10%

15

010% to

20%

3 1

20% to30%

4 2

Morethan30%

` 17,300 crore

` 67,970 croreNet worth increase

3 companies — fair value ofinvestments in group companies

7 companies — fair value of PPE

` 30,000 crore23 companies — reversal ofproposed dividendOne of the key metrics representing the financial

soundness of a company is its net worth. Net worth is directly impacted from the accounting positions taken and options availed by the company. It appears that a number of companies were able to successfully identify and utilize the various accounting policy choices available to their advantage.

The impact has generally been favourable on some sectors, such as consumer/industrial products and retail, oil and gas, automobiles and transportation, telecom, media and entertainment, pharmaceutical and chemicals, and information technology. On the other hand, sectors such as mining and metal, real estate, infrastructure, and power and utilities have shown a mixed trend.

Some of the primary reasons for the increase in net worth are as follows:

• Reversal of proposed dividend, which was earlier recognized as per IGAAP

• Fair valuation of PPE

• Fair valuation of investments, resulting in a positive impact to retained earnings

On the other hand, some key factors contributing to the adverse impact on net worth include:

• Reclassification of financial instruments from “equity classified” instruments under erstwhile IGAAP to “debt classified” in Ind AS

• Recognition of impairment loss on financial assets

• Fair valuation of PPE, which also had a positive impact on the net worth of a few companies

• Change in the method of depletion of oil and gas assets for oil and gas companies

Consumer/Industrial products and retail CIPR

Technology IT

Telecom, media and entertainment TME

Mining and metals MM

Automobiles and transportation AT

Pharmaceuticals and chemicals PC

Oil and gas OG

Real estate, infrastructure, power and utilities RIPU

Out of the 75 companies covered in our analysis, 1 company had not reported equity reconciliation and 2 companies had reported “no impact” on net worth as on as on 31 March 2016.

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8 | Ind AS transition

Impact analysis by sector02 Impact on profit by sector

Impact on profit for the year ended 31 March 2016 — Sector perspective

Num

ber

of c

ompa

nies

Num

ber

of c

ompa

nies

1010

36

2

64

2

10

3 2 3 41

4 4

0

5

10

15

CIPR MM OG IT AT RIPU TME PC

Positive Negative Positive Negative

31

21

6 72

7

05

101520253035

Less than 10% 10% to 50% More than 50%

Profitability under Ind AS has been impacted differently for companies. While its impact has generally been favorable on sectors such as automobiles and transportation, telecom, media and entertainment and information technology, sectors such as oil and gas and mining and metals have been impacted adversely.

Impacts on profit for most of the companies were in the range of 0% to 10%. However, in some companies the impacts were significantly higher. The primary reasons for increase in profits were:

• Measurement of investments at fair value through profit and loss

• Capitalization of spares as PPE

• Reclassification of government grant to profit and loss, which were earlier taken to capital reserve as per IGAAP

The increase in profits was offset partially or in some cases there was a decrease in profits owing to the following factors:

• Recognition of cost of employee stock options at fair value

• Recognition of impairment loss on financial assets using the expected credit loss (ECL) model

• Change in the method of depletion of oil and gas assets, which had a significant negative impact on the net profit of the companies in the oil and gas sector

• Fair valuation of PPE on the transition date positively impacted net worth but increased the depreciation charge for subsequent years, which adversely impacted profits

Consumer/Industrial products and retail CIPR

Technology IT

Telecom, media and entertainment TME

Mining and metals MM

Automobiles and transportation AT

Pharmaceuticals and chemicals PC

Oil and gas OG

Real estate, infrastructure, power and utilities RIPU

Out of the 75 companies covered in our analysis, 1 company had reported no impact on its net profit for the year ended 31 March 2016.

` 5,200 crore Increase in profit of 39 companies

` 40,900 crore Decrease in profit of 35 companies

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Ind AS transition | 9

Impact analysis by sector02 Impact on revenue by sector

Impact on revenue (net of excise) for the year ended 31 March 2016 — Sector perspective

Num

ber

of c

ompa

nies

Num

ber

of c

ompa

nies

Positive Negative

1

20

3 3 16

2 2 2

11

2 3 2 3 15

05

10152025

CIPR MM OG IT AT RIPU TME PC

Positive Negative

101 3

42

38

01020304050

Less than 2% 2% to 5% More than 5%

Consumer/Industrial products and retail CIPR

Technology IT

Telecom, media and entertainment TME

Mining and metals MM

Automobiles and transportation AT

Pharmaceuticals and chemicals PC

Oil and gas OG

Real estate, infrastructure, power and utilities RIPU

Out of the 75 companies covered in our analysis, 8 had reported no impact on their revenue for the year ended 31 March 2016.

“Revenue” for almost for all companies across sectors has been adversely impacted (excluding the excise duty amount). The sectors experiencing the highest impact on their revenue include consumer/industrial products and retail, automobiles and transportation and oil and gas. For nearly 50% of the companies, the transition resulted in a reduction of revenue by up to 2%. In some companies the reduction was over 5%.

Potential reasons for a decrease in revenue could be:

• Recognition of revenue at fair value with adjustments for discounts, incentives, rebates etc.

We believe that in some companies, there was a “financing component” in the transactions. They have now factored this under Ind AS by reporting revenue as the discounted value of future cash flows. This may have resulted in reduction of revenue. The details of this impact shall become more evident once annual reports along with detailed disclosures are published by the companies.

One of the requirements of Ind AS is to include excise duty in revenues, as it is a levy on production and not sales. Accordingly, to the extent of excise duty reported, revenues are expected to increase. The above analysis has been done on revenue excluding excise duty.

Inclusion of excise duty will result in decrease in gross margin percentage across sectors.

` 2,17,600 crore Excise duty included in revenue

` 15,300 crore Decrease in revenue of 53 companies

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10 | Ind AS transition

Impact analysis by sector02 Impact on EBIDTA by sector

Impact on EBIDTA for the year ended 31 March 2016 — Sector perspective

Num

ber

of c

ompa

nies

Num

ber

of c

ompa

nies

Positive Negative

15

3 4 3

10

3 3 46 6

4 3 3 2 24

00

5

10

15

20

CIPR MM OG IT AT RIPU TME PC

Positive Negative

42

24

2 4 1 20

1020304050

Less than 20% 20% to 50% More than 50%

For 45 out of the 75 companies, EBIDTA as per Ind AS financial statements changed positively. However, for the remaining 30 companies, EBIDTA decreased. It is worth noting that the overall EBIDTA increase for 45 companies aggregated to approximately ` 8,000 crore, while the decrease for the remaining 30 companies was approximately ` 30,200 crore.

The primary reasons for decline in EBIDTA are as follows:

• One oil and gas company recorded an impairment loss to the extent of approximately ` 20,000 crore at the time of the Ind AS transition

• One steel company recorded reclassification gain on equity instrument from profit and loss to other comprehensive income (OCI) to the extent of approximately ` 3,500 crore

• One IT company reversed approximately ` 3,000 crore from the profit and loss account to reserves and surplus relating to profit on transfer of business

The sectors that generally witnessed an increase in EBIDTA were consumer/industrial products and retail and automobiles and transportation.

Consumer/Industrial products and retail CIPR

Technology IT

Telecom, media and entertainment TME

Mining and metals MM

Automobiles and transportation AT

Pharmaceuticals and chemicals PC

Oil and gas OG

Real estate, infrastructure, power and utilities RIPU

` 30,000 crore Decrease in EBITDA of 30 companies

` 8,000 crore Increase in EBITDA of 45 companies

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Ind AS transition | 11

Standards that made their presence felt03This section highlights the key differences between IGAAP and Ind AS and the impact of the key standards. We observed that Ind AS 109 Financial Instruments impacted almost all companies, primarily because there was no equivalent standard on financial instruments under erstwhile IGAAP.

• Most companies were able to select the accounting policy options available under Ind AS 101 to their advantage.

• The majority of the companies continued with IGAAP numbers as deemed cost basis for PPE

• Revenue recognition standards had a negative impact on the majority of the companies across sectors.

The impact of Ind AS on key performance indicators across multiple sectors is as follows:

Insights

Sector Net worth EBIDTA Profit

Ind AS 101 First-time Adoption of Ind AS é - -

Ind AS 109 Financial Instruments é é êé

Ind AS 16 Property, Plant and Equipment êé êé êé

Ind AS 12 Income Taxes ê - -

Ind AS 18 / 11 Revenue Recognition/Construction Contracts

ê ê ê

Ind AS 19 Employees Benefits êé êé êé

Ind AS 10 Events after the Reporting Date é é é

Positive é Negative ê Mixed êé

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12 | Ind AS transition

Standards that made their presence felt03 Ind AS 101 First-time Adoption of Ind AS

Ind AS 101 First-time Adoption of Ind AS

Policy choices available under Ind AS 101

Ind AS 101 prescribes the procedures that an entity is required to follow while adopting Ind AS for the first time. The underlying principle is that a first-time adopter should prepare financial statements as if it had always applied Ind AS. However, it establishes two types of departures from the principle of full retrospective application of Ind AS:

• It prohibits retrospective application of some aspects of other standards (mandatory exceptions).

• It grants a number of exemptions from some of

the requirements of other standards (voluntary exemptions).

The following summary explains the key policy choices available to a company at the transition date and the number of companies that actually availed exemptions relating to fair value of PPE and investments and retrospective applicable of Ind AS. The rest of the companies opted to continue with previous IGAAP carrying value as deemed cost for PPE and Investments.

No. of companies

Key policy choices available at transition date Opted fair value as deemed cost

Opted for carrying value as deemed cost

Retrospective adoption

PPE 7 68 -

Investments in subsidiaries, associates and joint ventures

3 72 -

Business combination - - 1

Foreign currency translation reserve reset to zero * - - -

* We believe that many companies may have opted for this optional exemption, but there may not be an impact on net worth as it is a reclassification within reserves.

We believe that the majority of the companies have continued to avail the benefit of para 46A of AS 11 of erstwhile IGAAP as it was extended to Ind AS in relation to borrowings that existed as of 31 March 2016 (carve-out under Ind AS 101).

As on the transition date, only 25 companies had presented their equity reconciliation statements. Accordingly, for the purpose of evaluation of the impact of Ind AS 101, we have considered equity reconciliation for the year ended 31 March 2016.

` 68,600 crore

` 43,900 croreIncrease in net worth of 3 companiesdue to fair value of PPE

Increase in net worth of 2 companiesdue to fair value of investmentsin group companies

` 630 crore

` 26,600 croreDecrease in net worth of 4 companiesdue to fair value of PPE

Decrease in net worth of 1 companydue to fair value of investment ingroup companies

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Ind AS transition | 13

Standards that made their presence felt03 Ind AS 109 Financial Instruments

Impact on net worth — standalone as at 31 March 2016: Impact on profit — standalone for the year ended 31 March 2016

Out of 75, 74 companies had presented their equity reconciliation statement.

` 4,000 crore

` 55,000 croreIncrease in net worth of 47 companiesdue to fair value of financial instruments

Decrease in net worth of13 companies due to ECL

` 3,300 croreDecrease in net worth of 9 companiesdue to fair value of financial instruments

` 4,000 crore

` 55,000 croreIncrease in net worth of 47 companiesdue to fair value of financial instruments

Decrease in net worth of13 companies due to ECL

` 3,300 croreDecrease in net worth of 9 companiesdue to fair value of financial instruments

Under IGAAP, there was no accounting standard on financial instruments. Ind AS 109 provides comprehensive, detailed and

Particulars IGAAP Ind AS Impact

• Fair value of financial assets / financial liabilities

• ►No requirement of fair valuation of financial assets / financial liabilities

• ►Financial assets / financial liabilities required to be recorded at fair value

• ►Generally a positive impact on net profit and net worth

• ECL model • ►Incurred credit loss model for provision on assets

• ►Expect credit loss model applicable on financial assets

• ►Negative impact on the profits and net worth of companies

• Compound financial instrument

• ►Generally instrument classified either as equity or debt

• ►Split accounting applicable for compound instruments

• ►Split accounting may have a positive or a negative impact on the net worth of companies

broadened guidance for accounting of financial instruments under the Ind AS framework. Some key impact areas under Ind AS are as follows:

Positive Impact

Positive Impact

Negative Impact

Negative Impact

No impact

No impact

50 3819 325 5

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Standards that made their presence felt03 Ind AS 109 Financial Instruments

Others areas: Implementation of Ind AS 109 in relation to the following financial instruments has impacted the profit and net worth of companies:

1. Discounting of security deposits : Under IGAAP, financial assets such as security deposits were recorded at their transaction value. Under Ind AS, such financial assets are required to be recorded at fair value. Due to fair valuation requirements, companies are required to record finance income / cost or amortization of deferred cost or revenue. Consequentially, recording of finance income or cost on effective rate of interest (EIR) basis and amortization of deferred revenue or cost on straight line basis have an impact on the profit and net worth of companies.

2. Fair value of derivatives : Under IGAAP, only MTM loss were required to be recognized. Under Ind AS, both MTM gains and losses on derivatives are required to be recognized, which impacts the profit and net worth of companies.

3. Financial guarantees: Under IGAAP, financial guarantees were disclosed as contingent liability. Under Ind AS, financial guarantees are required to be recognized at their fair value.

14 | Ind AS transition

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Standards that made their presence felt03 Ind AS 16 Property, Plant and Equipment

Impact on net worth — standalone as at 31 March 2016: Impact on profit — standalone for the year ended 31 March 2016

Out of 75, 74 companies had presented their equity reconciliation statement.

` 4,000 croreDecrease in profits of 29 companiesdue to increase in depreciation charge

` 840 croreDecrease in net worth of 8 companiesdue to enabling assets etc.

` 700 croreIncrease in net worth of 8 companiesdue to capitalization of spares

` 2,900 croreIncrease in profits of 36 companies dueto reduction in depreciation charge

` 4,000 croreDecrease in profits of 29 companiesdue to increase in depreciation charge

` 840 croreDecrease in net worth of 8 companiesdue to enabling assets etc.

` 700 croreIncrease in net worth of 8 companiesdue to capitalization of spares

` 2,900 croreIncrease in profits of 36 companies dueto reduction in depreciation charge

Particulars IGAAP Ind AS Impact

Capitalization of stores and spares

• Major spares and stand-by equipment generally treated as inventory

• ►Recognized as PPE when they satisfy the criteria for recognition of PPE under Ind AS 16

• Positive impact on net profit and net worth

Major overhaul expenses • Treated as repair and maintenance expenses

• ►Recognized as PPE when they satisfy the criteria for recognition of PPE under Ind AS 16

• Positive impact on net profit and net worth due to capitalization of major overhaul expenses

Change in depreciation / depletion method

• Change in accounting policy

• ►Change in accounting estimates

• ►Positive impact on net profit and net worth of companies

Positive Impact

Positive Impact

Negative Impact

Negative Impact

No impact

No impact

8 368 2958 10

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16 | Ind AS transition

Particulars IGAAP Ind AS Impact

Approach • Income statement approach

• Balance sheet approach

• Resulted in additional deferred tax charge

Recognition • Where an entity unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets to be recognized only when there was virtual certainty

• ►Reasonable certainty required by recording deferred tax assets

• More companies may record deferred tax asset

Ind AS transition adjustments —

• Deferred tax required to be recognized on all Ind AS transition date adjustments

• Deferred tax required to be recognized on all Ind AS transition date adjustments

Deferred tax presentation

• ►Deferred tax charge presented in profit and loss statement

• ►Deferred tax recognized in OCI pertains to items recognized in OCI

Standards that made their presence felt03 Ind AS 12 Income Taxes

Impact on net worth — standalone as at 31 March 2016: Impact on profit — standalone for the year ended 31 March 2016

Out of 75, 74 companies had presented their equity reconciliation statement.

` 18,600 croreDecrease in net worth of 34 companies

` 2,100 croreDecrease in net profits of 44 companies

` 5,100 croreIncrease in net worth of 24 companies

` 7,400 croreIncrease in net profits of 28 companies

` 18,600 croreDecrease in net worth of 34 companies

` 2,100 croreDecrease in net profits of 44 companies

` 5,100 croreIncrease in net worth of 24 companies

` 7,400 croreIncrease in net profits of 28 companies

Positive Impact

Positive Impact

Negative Impact

Negative Impact

No impact

No impact

24 2834 4416 3

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Ind AS transition | 17

Particulars IGAAP Ind AS Impact

Fair value considerations • Revenue recorded on transaction value

• Rebates, discount etc. netted off with revenue

• Recorded at its present value if the financing component is significant

• Negative impact on revenue

Point of revenue recognition

• Revenue recognized on transfer of risk and rewards incidental to ownership of goods

• Addition criteria is entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold

• No significant impact observed

Presentation of excise duty

• Revenue presented excluding excise duty

• Revenue presented including excise duty

• ►Excise duty included in revenue aggregates to ` 2,17,600 crore

Impact on revenue — impact on standalone revenue for the year ended 31 March 2016

Positive impact on revenue on account of merger of entities under common control

Positive Impact

Negative Impact

No impact

14 53 8

Standards that made their presence felt03 Ind AS 18 Revenue recognition

` 15,300 croreDecrease in revenue of 53 companies

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18 | Ind AS transition

Ind AS 19 - impact on profits for the year ended 31 March 2016

Positive Impact

Negative Impact

No impact

39 16 20

Standards that made their presence felt03 Ind AS 19 Employees Benefits

Under IGAAP, re-measurement impact of defined benefits liability /assets was recognized in profit and loss. Under Ind AS, re-measurement impact is required to be recognized in OCI.

• Under Ind AS, companies have re-measured their defined benefit liability / assets, and re-measured gain or loss on defined benefits obligations have been recognized in OCI. Consequently, the re-classification of actuarial gain or loss impacted the net profit of companies positively.

Out of 75, 74 companies had presented their equity reconciliation statement.

` 645 croreIncrease in profits of 39 companies

` 156 croreDecrease in profits of 16 companies

` 645 croreIncrease in profits of 39 companies

` 156 croreDecrease in profits of 16 companies

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Ind AS transition | 19

Under Ind AS, proposed dividends and the corresponding dividend distribution tax are required to be recognized in the year in which they are declared by companies. However, under IGAAP, proposed dividends were recognized in the year to which they pertain even if they were declared after the reporting date.

Standards that made their presence felt03 Ind AS 10 Events after the Reporting Date

Impact on net worth — standalone as at 01 April 2015: Impact on net worth — standalone for the year ended 31 March 2016

Out of 75, 25 companies had presented their equity reconciliation statement. Out of 75, 74 companies had presented their equity reconciliation statement.

` 30,000 crore Increase in net worth of 23 companiesat transition date

` 50,000 croreIncrease in net worth of54 companies at March 2016

Positive Impact

Positive Impact

Negative Impact

Negative Impact

No impact

No impact

23 530 12 20

• Under Ind AS, at transition date and for the year ended 31 March 2016, proposed dividend recognized under IGAAP, has been reversed and recognized in the year in which it is declared. Consequently, net worth of the Companies has been increased significantly.

• However, we have observed that there is one company which has a negative impact on net worth owing to reversal of proposed dividend.

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20 | Ind AS transition

Key disclosures04During our analysis, we observed changes in reportable segments due to Ind AS 108.

During our analysis, we observed that out of

53 companies

74

25 companies

21 companies

reported no changes in their reportable segments

reported changes in their reportable segments

had provided their equity reconciliation statements as at 01 April 2015.

• Ind AS 101 requires the following reconciliation statements

• Equity reconciliation for transition date

• Equity reconciliation for the comparative year

• Total comprehensive reconciliation for the comparative year

• Disclosure for material adjustment to cash flow statement

• Disclosure for recognition or reversal of any impairment loss in opening Ind AS balance sheet

We have conducted our analysis on the basis of the annual results submitted by the companies to the Securities and Exchange Board of India (SEBI). In the annual results submitted by the companies, they have not given comprehensive disclosures as required under various Ind AS.

only

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Conclusion05 • The journey that started with inhibitions and fear

has now been completed and, as discussed, it has been a real success for Indian corporates. Kudos!

• The level of preparedness and focus on the transition were two key success factors. Most of the large companies started early and recognized the importance of being ahead of the curve on this transition. Based on our discussions with some CFOs of large organization, the bulk of their time was spent on evaluating the right accounting policy choices available — keeping in mind both the transition date and the long-term impact.

• The immediate focus for these corporates now is on enhancing the quality of disclosures, and it would be interesting to see how the regulators, bankers and analysts respond to the information disclosed and presented under Ind AS.

• There has been a strong need of training felt by organizations. As more and more companies embark on this journey, the industry believes that the shortages of experienced and Ind AS trained resources will be filled in soon.

• There exist certain gray areas in the form of tax positions and legal over-laps, but generally companies believe that they now understand the expectations better and hope to get the buy-in of regulators, bankers and investors on complex issues.

• Phase 2 entities, which are now entering the transition phase, have a lot to learn from the experiences of large corporates, and we hope they show the same rigor and enthusiasm as those who have already transitioned!

Ind AS transition | 21

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22 | Ind AS transition

Glossary06Term Particulars

CFO Chief finance officer

EBIDTA Earnings before interest, depreciation and tax

ECL Expected credit loss

EIR Effective rate of interest

FVTOCI Fair value through other comprehensive income

GST Goods and Services tax

ICDS Income Computation and Disclosure Standards

IFRS International Financial Reporting Standard

IGAAP Indian Generally Accepted Accounting Principles

Ind AS Indian Accounting Standard

MTM Mark to market

NBFC Non-banking financial company

OCI Other comprehensive income

PPE Property, plant and equipment

SEBI Securities and Exchange Board of India

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Ind AS transition | 23

Annexure07BSE top 100 companies 100

The following companies were excluded:

Financial service sector companies not covered in phase I of Ind AS applicability (marked in X) (18)

Companies with a different year end (marked in X) (7)

Companies covered in the review 75

Companies covered by our review

List of BSE top 100 companies as on 23 May 2017

Sr. No. Company Sector Companies excluded

1 Tata Consultancy Services Limited Technology (IT/IES)

2 Reliance Industries Limited Oil and Gas

3 HDFC Bank Limited Bank / Insurance / NBFC / Financial Institution X

4 ITC Limited Consumer/Industrial Products and Retail

5 Housing Development Finance Corporation Limited Bank / Insurance / NBFC / Financial Institution X

6 State Bank of India Bank / Insurance / NBFC / Financial Institution X

7 Oil And Natural Gas Corporation Limited Oil and Gas

8 Hindustan Unilever Limited Consumer/Industrial Products and Retail

9 Infosys Limited Technology (IT/IES)

10 Maruti Suzuki India Limited Automobiles and Transportation

11 Indian Oil Corporation Limited Oil and Gas

12 Kotak Mahindra Bank Limited Bank / Insurance / NBFC / Financial Institution X

13 ICICI Bank Limited Bank / Insurance / NBFC / Financial Institution X

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24 | Ind AS transition

List of BSE top 100 companies as on 23 May 2017

Sr. No. Company Sector Companies excluded

14 Coal India Limited Mining and Metals

15 Larsen & Toubro Limited Real estate, Infrastructure, Power and Utilities

16 Bharti Airtel Limited Telecom, Media and Entertainment

17 Sun Pharmaceutical Industries Limited Pharmaceuticals and Chemicals

18 Tata Motors Limited Automobiles and Transportation

19 NTPC Limited Technology (IT/IES)

20 Wipro Limited Technology (IT/IES)

21 HCL Technologies Limited Technology (IT/IES) X

22 Axis Bank Limited Bank / Insurance / NBFC / Financial Institution X

23 Ultratech Cement Limited Consumer/Industrial Products and Retail

24 Power Grid Corporation of India Limited Real Estate, Infrastructure, Power and Utilities

25 Asian Paints Limited Consumer/Industrial Products and Retail

26 Hindustan Zinc Limited Mining and Metals

27 Bharat Petroleum Corporation Limited Oil and Gas

28 Vedanta Limited Mining and Metals

29 Indusind Bank Limited Bank / Insurance / NBFC / Financial Institution X

30 Mahindra & Mahindra Limited Automobiles and Transportation

31 Bajaj Auto Limited Automobiles and Transportation

32 Eicher Motors Limited Automobiles and Transportation

33 Hero Motocorp Limited Automobiles and Transportation

34 Bosch Limited Automobiles and Transportation

35 Bharti Infratel Limited Telecom, Media and Entertainment

Annexure07

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Ind AS transition | 25

List of BSE top 100 companies as on 23 May 2017

Sr. No. Company Sector Companies excluded

36 Adani Ports And Special Economic Zone Limited Real Estate, Infrastructure, Power and Utilities

37 Bajaj Finance Limited Bank / Insurance / NBFC / Financial Institution X

38 Yes Bank Limited Bank / Insurance / NBFC / Financial Institution X

39 Nestle India Limited Consumer/Industrial Products and Retail X

40 Bajaj Finserv Limited Bank / Insurance / NBFC / Financial Institution X

41 Shree Cement Limited Consumer/Industrial Products and Retail

42 Godrej Consumer Products Limited Consumer/Industrial Products and Retail

43 Motherson Sumi Systems Limited Automobiles and Transportation

44 ICICI Prudential Life Insurance Company Limited Bank / Insurance / NBFC / Financial Institution X

45 Lupin Limited Pharmaceuticals and Chemicals

46 Grasim Industries Limited Consumer/Industrial Products and Retail

47 Hindustan Petroleum Corporation Limited Oil and Gas

48 Zee Entertainment Enterprises Limited Telecom, Media and Entertainment

49 Siemens Limited Consumer/Industrial Products and Retail X

50 Dabur India Limited Consumer/Industrial Products and Retail

51 Ambuja Cements Limited Consumer/Industrial Products and Retail X

52 Tata Steel Limited Mining and Metals

53 Piramal Enterprises Limited Pharmaceuticals and Chemicals

54 JSW Steel Limited Mining and Metals

55 Cadila Healthcare Limited Pharmaceuticals and Chemicals

56 Indiabulls Housing Finance Limited Bank / Insurance / NBFC / Financial Institution X

57 Avenue Supermarts Limited Consumer/Industrial Products and Retail

Annexure07

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26 | Ind AS transition

List of BSE top 100 companies as on 23 May 2017

Sr. No. Company Sector Companies excluded

58 Britannia Industries Limited Consumer/Industrial Products and Retail

59 Hindalco Industries Limited Mining and Metals

60 Cipla Limited Pharmaceuticals and Chemicals

61 Dr.Reddy's Laboratories Limited Pharmaceuticals and Chemicals

62 Titan Company Limited Consumer/Industrial Products and Retail

63 Rural Electrification Corporation Limited Bank / Insurance / NBFC / Financial Institution X

64 Bank of Baroda Bank / Insurance / NBFC / Financial Institution X

65 Tech Mahindra Limited Technology (IT/IES)

66 Marico Limited Consumer/Industrial Products and Retail

67 UPL Limited Pharmaceuticals and Chemicals

68 Power Finance Corporation Limited Bank / Insurance / NBFC / Financial Institution X

69 Bharat Electronics Limited Mining and Metals

70 Bharat Heavy Electricals Limited Consumer/Industrial Products and Retail

71 Interglobe Aviation Limited Automobiles and Transportation

72 Pidilite Industries Limited Consumer/Industrial Products and Retail

73 NMDC Limited Mining and Metals

74 NHPC Limited Real estate, Infrastructure, Power and Utilities

75 DLF Limited Real estate, Infrastructure, Power and Utilities

76 LIC Housing Finance Limited Bank / Insurance / NBFC / Financial Institution X

77 Gail (India) Limited Oil and Gas

78 Sun Tv Network Limited Telecom, Media and Entertainment

79 Petronet LNG Limited Oil and Gas

Annexure07

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Ind AS transition | 27

List of BSE top 100 companies as on 23 May 2017

Sr. No. Company Sector Companies excluded

80 Punjab National Bank Bank / Insurance / NBFC / Financial Institution/ Pharmaceuticals and chemicals

X

81 Aurobindo Pharma Limited Technology (IT/IES)

82 ABB India Limited Consumer/Industrial Products and Retail X

83 ACC Limited Consumer/Industrial Products and Retail X

84 Idea Cellular Limited Telecom, Media and Entertainment

85 Container Corporation of India Limited Automobiles and Transportation

86 United Spirits Limited Consumer/Industrial Products and Retail

87 Havells India Limited Consumer/Industrial Products and Retail

88 MRF Limited Automobiles and Transportation

89 Colgate-Palmolive (India) Limited Consumer/Industrial Products and Retail

90 Cummins India Limited Consumer/Industrial Products and Retail

91 Oil India Limited Oil and Gas

92 TVS Motor Company Limited Automobiles and Transportation

93 Emami Limited Consumer/Industrial Products and Retail

94 Steel Authority of India Limited Mining and Metals

95 Bharat Forge Limited Consumer/Industrial Products and Retail

96 Procter & Gamble Hygiene & Health Care Limited Consumer/Industrial Products and Retail X

97 Ashok Leyland Limited Automobiles and Transportation

98 Berger Paints India Limited Consumer/Industrial Products and Retail

99 L&T Finance Holdings Limited Bank / Insurance / NBFC / Financial Institution X

100 Punjab National Bank Bank / Insurance / NBFC / Financial Institution X

Annexure07

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