Conversion to Ind-AS

Key questions that boards and audit

committees should ask
Content
Background .................................................................................................................................................................................................... 1
Role of the board/audit committee ................................................................................................................................................................. 3
Initial considerations ....................................................................................................................................................................................... 4
1. How can our organization capitalize on the opportunities presented by the conversion to Ind-AS? ............................................................... 4
2. What are the most significant risks associated with converting to Ind-AS? .................................................................................................. 5
3. How will converting to Ind-AS affect our stakeholders and what should be done to manage the expectations of capital markets? ..................6
Financial reporting considerations................................................................................................................................................................... 7
4. What are the high-level differences in accounting and disclosures between previous GAAP and Ind-AS, and what
are the estimated effects on the income statement and the balance sheet?.................................................................................................... 7
5. How is the adoption of Ind-AS expected to impact management reporting? ................................................................................................ 9
6.How will Ind-AS affect the accounting for income taxes and tax filings? .....................................................................................................10
Conversion project considerations.................................................................................................................................................................11
7. How do we plan to approach the conversion to Ind-AS and how ready are we to do this? ...........................................................................11
8. What are the key areas that need to be addressed during the conversion?................................................................................................12
9. What is the timeline for our Ind-AS conversion project; what are the resources that will be required and how much will it cost? ...................13
10. What can we learn from the conversion experiences of others, including Europe and Australia? ..............................................................14
Non-financial reporting considerations ..........................................................................................................................................................15
11. Other than financial reporting, which other business areas are likely to be impacted by the conversion? ..................................................15
12. Can our current IT systems handle the business’ revised data collection requirements under Ind-AS? ......................................................16
List of abbreviations ....................................................................................................................................................................................17
 Background
The issuance of IFRS roadmaps applicable to the non-financial In accordance with the clarification, the ICAI has already issued
services sector and the financial services sector by the Ministry exposure drafts (ED) of all IFRS-converged standards that will
of Corporate Affairs (MCA) have crystallized the date of IFRS apply to Indian companies. These standards are likely to be
conversion for Indian companies. In addition, the MCA has known an “Indian Accounting Standards” (Ind-AS).
clarified that companies covered by the IFRS conversion
We welcome the initiatives that are being taken by various
roadmaps will not have an option to use “full IFRS.” Rather, they
regulatory bodies to achieve conversion. We believe that the
will need to comply with IFRS-converged standards that are
conversion to IFRS is a historic step, which will elevate Indian
being issued by the Institute of Chartered Accountants of India
companies and their finance and accounting professionals to
(ICAI) and will be notified under the Companies Act, 1956, as a
greater heights.
separate set of standards. This will effectively create a separate
body of accounting standards, which may not necessarily be
the same as IFRS issued by the International Accounting
Standards Board (IASB).

IFRS conversion roadmap: non-financial services sector

Ind-AS will apply in three phases as below:

Phase Date Coverage

Phase I Opening balance sheet as at i. Companies that are a part of the NSE Index — Nifty 50
1 April 2011*
ii. Companies that are a part of the BSE Sensex — BSE 30

iii. Companies whose shares or other securities are listed on a stock exchange outside India

iv. Companies, whether listed or not, with net worth exceeding `1,000 crores
Phase II Opening balance sheet as at Companies, not covered in phase I, and with net worth exceeding `500 crores
1 April 2013*
Phase III Opening balance sheet as at Listed companies not covered in the earlier phases
1 April 2014*

* If the financial year of a company commences at a date other than 1 April, then it will prepare its opening balance sheet at the commencement of the immediate
following financial year.

1 Conversion to Ind-AS
IFRS conversion roadmap: financial services sector
Like the non-financial sector, the roadmap requires Ind-AS to be applied to companies in the financial services sector in a phased
manner. Given below is the applicability date:

Applicability date
Opening balance sheet as at 1
April 2012
Opening balance sheet as at 1
April 2013
Opening balance sheet as at
01 April 2014
Insurance companies Banking companies
All insurance companies — —
— i. All scheduled commercial
banks
ii. Urban co-operative banks
(UCBs) with the net worth
exceeding `300 crores
— UCBs with the net worth
exceeding `200 crores, but not
exceeding `300 crores
Non-banking finance companies (NBFCs)*
i. NBFCs that are a part of the NSE Index —
Nifty 50
ii. NBFCs that are a part of the BSE Sensex —
BSE 30
iii. NBFCs, whether listed or not, with the net
worth exceeding `1,000 crores
All listed NBFCs and NBFCs with the net worth
exceeding `500 crores, but not covered in the
previous phase

* If the financial year of an NBFC commences at a date other than 01 April, then it will prepare its opening balance sheet at the commencement of the immediate following
financial year.

Companies not covered in the above conversion roadmaps have been given an option to continue to either follow Indian GAAP or
adopt Ind-AS.

2
 Role of the board/audit committee
Converting to Ind-AS will be one of the most fundamental
changes that Indian companies will have to deal with over the
coming years. Such a momentous change will bring with it both
significant opportunities and associated risks. The management
in every company will be responsible for the operational planning
and implementation of the Ind-AS transition, but the ultimate
onus lies with those charged with governance. A company’s
board of directors, particularly its audit committee, will play a
key oversight role. It is crucial for directors to have a general
understanding of what the transition to Ind-AS means for their
organization. The members of the audit committee should have a
greater insight about the implications of Ind-AS so that they are
well equipped to manage the upcoming conversions.
Audit committees need to be sufficiently educated and
knowledgeable about Ind-AS to enable them to fulfil their duties
and discharge their responsibilities. This includes the ability to
use their discretion to arrive at well substantiated perspectives
and give relevant judgment on the management’s analysis of
accounting alternatives and the selection of accounting policies.
In case of listed companies, clause 49 of the listing agreement
requires that all members of the audit committee should be
financially literate and that at least one member should have
accounting or related financial management expertise.
“Financially literate” means the ability to read and understand
basic financial statements, i.e., balance sheet, profit and loss
3 Conversion to Ind-AS
account, and the statement of cash flows. A person is considered
to have accounting or related financial management expertise if
he or she has experience in finance or accounting, or requisite
professional certification in accounting, or any other comparable
experience or background, which results in the individual’s
financial sophistication, including being or having been a chief
executive officer, chief financial officer or any other senior officer
with financial oversight responsibilities.
To help directors and audit committee members perform this role
in a more efficient manner, this publication sets out questions
that will assist them in understanding the potential scope of the
change management exercise that conversion may pose for
their business. In addition, the publication provides guidance
to directors and audit committee members on key questions
that they should ask the management as they prepare for the
conversion.
The questions are organized into four main groups:
A. Initial considerations
B. Financial reporting considerations
C. Conversion project considerations
D. Non-financial reporting considerations
 1. How can our organization capitalize on the opportunities presented by the
conversion to Ind-AS?
The conversion to Ind-AS may present potential opportunities
that companies would want to further examine and explore.
In the absence of any specific guidance under the current Indian
GAAP, companies may currently find themselves accounting
for transactions in a manner that does not best reflect the
substance of the transaction. For example, under the current
A. Initial Indian GAAP, there is no guidance on the identification of leases
contained in sales/purchase or service contracts. Keeping this
considerations in view, companies typically do not identify leases contained
in such arrangements. The application of Ind-AS will require
the management to thoroughly analyze the substance of a
transaction for applying Ind-AS principles. This creates an
opportunity for companies to identify and select accounting that
they believe will result in the most appropriate representation
of their financial results and position. Further, the exposure
draft (ED) of Ind-AS 41 First-time Adoption of Indian Accounting
Standards provides many voluntary exemptions from full
transition. The selection of appropriate exemptions/relaxations
will need careful consideration in any Ind-AS conversion.
A large number of companies operate on a global scale and have
competitors that are not based in India. Being able to provide
4 Conversion to Ind-AS
financial reports to investors and other interested parties based
on the same accounting standards used by those peers may
increase the company’s comparability with its peers.
Once the conversion commences, companies will want to
understand the financial reporting decisions being made by their
peers and other companies around exemptions/relaxations given
on first-time adoption. This will require converting companies to
share their thoughts and perspectives on potential policies with
each other. Notably, companies that have already adopted IFRS
in Europe, Australia or elsewhere can provide useful information.
Further, investors and market analysts will also want to be aware
of the choices that the company is making and how these choices
compare against the ones made by the company’s peers.
Some companies will realize that there is a significant underlying
opportunity in using the conversion project as a means to drive
other areas of change. For example, companies may consider the
conversion to Ind-AS as an opportunity to streamline accounting
and reporting processes or to accelerate the financial statement
close process.

2. What are the most significant risks associated with converting to Ind-AS?
The conversion to Ind-AS would be one of the most fundamental
changes in financial reporting in the Indian history. The
potentially pervasive nature of the changes at the accounting,
functional, transactional and internal control levels increases
the risk of misstatement. Further, the current financial reporting
environment has little tolerance for mistakes, and it will be
important for all companies to get the conversion right in the
first time. Misstatements, as well as missed reporting deadlines,
present a significant risk to companies that are converting.
A robust system of internal controls is a company’s best
method of ensuring reporting integrity and minimizing the risk
of misstatements. To maintain effective internal controls on
financial reporting, management will need to consider the impact
that changes to financial accounting and reporting may have on
internal controls. A period of change, such as one encountered
during an accounting conversion, could lead to unintended
5
consequences in the design and/or effectiveness of existing
internal controls; hence increasing the risk component. As a
result, risk management functions will need to be engaged in the
conversion process to mitigate the risks involved.
There are various risks associated with the conversion to Ind-AS
that will have to be addressed by the management. The examples
of potentially significant risk areas include:
• Failure to communicate the effects and results to
stakeholders, including boards, audit committees, investors
and analysts
• Accounting and reporting under multiple accounting
frameworks during the transition period
• Maintaining consistency in the manner in which the various
Ind-AS principles are applied throughout the organization,
A. Initial considerations (Cont’d.)
including the potential to have to rethink accounting policy
decisions made by subsidiaries who have already adopted
IFRS or their equivalents
• Retention of key employees
• Excessive costs brought on by ineffective planning, project
management and/or rework
• Unreasonable or excessive work levels, brought on by
inappropriate planning or unreasonable expectations
• Missed deadlines in the conversion timetable
• Inability of the CEO/CFO to conclude and certify on the
effectiveness of the company’s internal controls over
financial reporting as required under clause 49 of the
Listing Agreement

3. How will converting to Ind-AS affect our stakeholders and what should be done to manage the expectations of the
capital markets?
The European and Australian experience in adopting IFRS
was that the conversion from the various local accounting
frameworks to IFRS did not, in and of itself, affect market ratings.
Many attributed this fact to the effective communication with
investors, analysts and regulators about the possible effects
of IFRS on their financial reporting. These communications
were made periodically throughout the conversion process. In
the context of the European Union (EU) transition to IFRS in
2005, the Committee of European Securities Regulators (CESR)
published detailed recommendations on how listed EU entities
can effectively communicate to investors the potential impact of
transitioning to IFRS in 2005. The recommendations identified
the following four key milestones in the transition process:
• Publication of the 2003 annual report (including the
2003 financial statements): Entities should explain (a) how
they intend to carry out the transition to IFRS (plans and
degree of achievement for the transition), and (b) the key
6
differences between their current accounting policies and
the ones they know with sufficient certainty they will have to
apply under IFRS.
• Publication of the 2004 annual report (including the 2004
financial statements): As soon as an entity can quantify
the impact of the change to IFRS on its 2004 financial
statements in a sufficiently reliable manner, it should
disclose the relevant quantified information.
• 2005 interim financial reports (half-yearly and quarterly
financial reports): In the interim financial reports for 2005,
listed entities should start applying as of 1 January 2005,
either IAS 34 Interim Financial Reporting, or, if this is not
possible, at least the IFRS recognition and measurement
principles that will be applicable at the year end.
A. Initial considerations (Cont’d.)
• 2005 annual financial statements: For most listed entities
in Europe, these will be the first complete set of financial
statements presented under IFRS.
Unlike Europe, the regulators in India, viz., ICAI or MCA, have not
prescribed any specific disclosures that should be made during
the transition period. Nonetheless, frequent communication with
investors and analysts is equally important for Indian companies.
Managing investors’ and other stakeholders’ expectations with
respect to the effects of Ind-AS and the company’s progress
toward conversion will be an important area for the boards to
monitor. Further, clear, continuous and consistent communication
with stakeholders will reduce the risk of misunderstandings and
aid a smooth transition. Indian companies will need to sound
investors/ analysts about the expected changes in advance.
They will also need to provide assistance to investors/analysts
to understand financial reporting under Ind-AS to avoid the
potential risk of misinterpretation.
 4. What are the high-level differences in accounting and disclosures between
previous GAAP and Ind-AS, and what are the estimated effects on the income
statement and balance sheet?
The first step in an effort involving the conversion to Ind-AS
is to identify, at a high level, the differences between the new
set of standards and the previous GAAP that will affect the
company’s financial reporting. For Indian companies, this should
be a relatively straightforward exercise, as the most significant
B. Financial differences between IFRS and Indian GAAP are well understood.
Since the ICAI has not made any major differences while issuing
reporting EDs of Ind-AS, the same differences are likely to prevail in the
transition to Ind-AS. But, the “devil will often be in the detail.”
cosiderations This analysis will provide the foundation for further analysis,
including systems as well as any other impact.
Converting to Ind-AS likely will have far-reaching effects on
the way financial reporting is conducted. Some of the key
effects include:
1. Transitional effect on the bottom line: There are several
significant differences, as well as numerous minor
differences between the Indian GAAP and Ind-AS, which
have the potential to materially affect previously reported
financial results. For example, a real estate and infrastructure
company may have the following peculiar impact on the
adoption of Ind-AS (if the EDs in their current form
are finalized):
7 Conversion to Ind-AS
• Change in revenue numbers: Under the Indian GAAP,
real estate companies recognize revenue based on
the “percentage of completion method.” The ED-Ind-
AS 9 Revenue will in most cases allow revenue to
be recognized only on the delivery of the unit to the
purchaser. Apart from the impact on revenue numbers,
this may also significantly affect performance indicators
such as operating profit, EBITDA and EPS.
• Mismatch of profits and cash flow: The application of
service concession contract accounting prescribed in
ED-Ind-AS 7 Construction Contracts by infrastructure
companies will require them to recognize revenue
when the construction of infrastructure asset is in
progress. Actual cash flow will take place only in future
periods when the infrastructure asset is completed
and operation commences. This is likely to result in
a sizeable gap between revenue numbers and actual
cash flows. In the initial years, the company will have
significant revenue and profits, but it may not have any
cash to pay dividends.
The application of Ind-AS will affect many other areas
of financial reporting, such as component accounting,

embedded leases, business combination and financial
instruments. Considering these changes, companies can
expect a significant change in their pattern of earnings and
financial position, and should be comfortable in explaining
those changes to their stakeholders.
2. Change in the basis of accounting: Converting to a new
accounting basis will necessitate changes in numerous
accounting policies. The application of new accounting
policies will require companies to closely monitor their
arrangements to identify potential issues such as embedded
derivatives, embedded leases and compliance with debt
covenants. To ensure that the company is applying the Ind-
AS principles consistently across the organization, it may
have to expand its corporate-level finance function. The
management will also need to determine that the selected
policies and their applications are sufficiently described in
the financial statements.
3. Increased volatility of financial results: The Indian GAAP
recognizes fair value measurement at certain places;
however, its use is very limited. As compared to this, Ind-AS
lays down a greater emphasis on the fair value measurement
of assets and liabilities, particularly, financial assets and
liabilities, and recognizing the resulting gains/losses in the
8
income statement or equity. Ind-AS also allows the use of
fair value measurement for certain non-financial assets/
liabilities. For instance, ED-Ind-AS 37 Investment Property
allows the use of the fair value model for investment
property. The increased use of fair value in Ind-AS regime
may result in more volatility in the reported earnings and
equity. Further, to comply with the fair value requirements
of Ind-AS, the company will need to either develop in-house
expertise or engage outside valuation experts.
4. Increased financial disclosures: The reviews of the 2005
financial statements of European companies suggested that
financial disclosures under IFRS increased by more than 30%,
as compared with their previous disclosures. We believe that
the application of Ind-AS will require Indian companies to
5. Changing data needs: The presentation of Ind-AS financial
make significant additional disclosures. For example:
i) Significant judgments made by the management in
applying accounting policies
ii) Assumptions made about the future and other major
sources of estimation uncertainty that involve a
significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year
B. Financial reporting cosiderations (Cont’d.)
iii) Company’s objectives, policies and processes for
managing capital
iv) Fair value of financial instruments (including those
measured at the amortized cost)
v) Information that enables users of financial statements
to evaluate the nature and extent of risks arising from
financial instruments, including the company’s objectives,
policies and processes for managing those risks
To ensure compliance with these disclosures, companies
will need to give both qualitative as well as quantitative
information. This may require changes/updates in the
existing systems/processes.
information may require the use of data that is not
already captured or warehoused. For example, certain
Ind-AS disclosures about the risks of financial instruments
require information that is likely not currently captured.
Management will need to identify their data “gaps” early on
so that any information that needs to be captured will be
captured and recorded for all periods required to
be converted.

5. How is adoption of Ind-AS expected to impact management reporting?
The changes to accounting policies expected from applying
Ind-AS and the need to record and classify information in specific
ways to comply with the new standards may affect the financial
information generated by the business. Management reporting
formats and processes will need to be reviewed and updated
accordingly. In addition, management will need to consider the
effects on the key performance indicators used for measuring
success and reviewing trends. There may also be effects on the
way budgeting and planning functions operate.
1
Observations on the Implementation of IFRS, published by Ernst & Young LLP, 2006.
9
B. Financial reporting cosiderations (Cont’d.)
One of the significant trends reported in Europe was the
increased use of “non-IFRS” measures1 (i.e., performance
indicators not defined under IFRS) by the management while
communicating business performance to the market. Certain
Indian companies are already using non-GAAP measures for
the purpose of communicating their results to the markets.
It is expected that in the initial years of Ind-AS application,
an increased number of companies may resort to non-GAAP
measures till the time they gain confidence that the
numbers generated by the new standards are well understood
by stakeholders.

6. How will Ind-AS affect accounting for income taxes and tax filings?
While the specific differences between the Indian GAAP and Ind-
AS in accounting for income taxes frequently receive attention in
conversations around a potential conversion to Ind-AS, there are
many other equally important tax-related issues of conversion
that boards and management need to discuss on priority.
Currently, profit before tax (PBT) in accordance with the Indian
GAAP is used to calculate taxable income and tax expense
thereon. Upon the application of Ind-AS, the first question that is
most likely to arise is whether the tax authorities will accept new
standards as a base to determine taxable income, albeit after
appropriate adjustments? Countries that have already adopted
IFRS are following varying practices. For example:
i) There are countries such as the UK, Singapore, New Zealand
and Hong Kong, which are using IFRS as a starting point for
tax computation. Nonetheless, certain adjustments need
10
to be made for items such as unrealized gains/losses, while
computing taxable income.
ii) In countries such as France and Germany, tax computation is
still based on local GAAP.
iii) In very few cases, for e.g., Australia, tax laws entail
detailed rules for the computation of tax liabilities, i.e., tax
computation is based on neither local GAAP nor IFRS.
We believe that the last two approaches will require companies to
maintain two separate sets of books: one for financial reporting
purposes and the other for tax computation, and thereby,
significantly raise the cost of implementation.
The Central Board of Direct Taxes (CBDT) and the ICAI have
constituted a joint study group to identify direct tax issues
arising from the convergence. Additional clarity on tax-related
B. Financial reporting cosiderations (Cont’d.)
issues is expected only once the study group completes its work,
which may take some more time. If the contentious issues are
not resolved in time, it is possible that the tax base will continue
to be determined in accordance with the Indian GAAP. In the
meantime, these issues may continue to result in significant
debate among companies and tax authorities.
Ind-AS conversion may also afford an opportunity to re-examine
and improve the operational efficiency and effectiveness of the
tax function by addressing its legacy data processes, controls and
other organizational issues. A company-wide conversion project
may be viewed as an opportunity to undertake a review of the tax
provision process, with the goal of strengthening or remediating
existing tax controls.
 7. How do we plan to approach the conversion to Ind-AS and how ready are we to
do this?
Converting to Ind-AS will entail a business wide change management
exercise and should be approached using a structured methodology
encompassing the best practices of project management. As with
any major finance transformation project, the full support of the
board and senior management will be critical to the success of the
conversion effort.
C. Conversion Boards should pay close attention to the details of the management’s
proposed approach to the Ind-AS conversion and satisfy themselves
project that it covers all appropriate areas, and is based on sound project
management principles. While the management will be responsible
considerations for the conversion execution, boards need to be confident in the
management’s plan, thoroughness and diligence. Management should
inform the board and the audit committee on a regular basis as to its
plan and progress. As such, audit committees should typically include
a standing Ind-AS agenda update item at their periodic meetings.
Any Ind-AS conversion project should commence with some form
of impact assessment, diagnostic activity or scoping exercise. This
will allow the management and the board of directors to visualize
the extent and complexity of the conversion and allow them to make
better decisions about how to plan, structure and resource the
project and determine the next steps. Typically, the CFO would be the
sponsor.
The major outcomes that management should expect from this
phase include:
11 Conversion to Ind-AS
• The determination, at a high level, of the accounting policy
and financial reporting differences between Ind-AS and the
company’s current accounting policies, including any industry-
specific issues
• The identification of the main business effects expected from
the adoption of Ind-AS
• An assessment, at a high level, of the likely impact on IT
systems and identification of the modifications necessary to
facilitate the collection of the information required to satisfy all
Ind-AS disclosure requirements
• The identification of the nature of potential tax-related effects
of conversion
• The identification of any hurdles to conversion presented by the
existing finance organizational structure
• A high-level road map for future phases of the conversion
• The identification of the potential interdependence between
the Ind-AS conversion project and the current or planned
organization-wide initiatives (for e.g., new accounting system
implementations such as ERP and finance transformation)
• An assessment of whether the company has adequate
resources to complete a conversion
The diagnostic phase should then be followed by solution
development and the implementation phase. As IFRS are dynamic
standards and are constantly changing and evolving, the process of
change is unlikely to cease.

8. What are the key areas that need to be addressed during the conversion?
No two Ind-AS conversion projects will ever be the same.
However, while the specific issues that the companies will
face during their conversion will vary widely because of all the
variables at play, the key areas that the management and
boards will need to address during the conversion should be
broadly similar.
1. Project launch and planning activities: The initial decisions
made during the project set-up phase tend to be crucial for
eventual project success. These include:
a. Creating a project management function to coordinate
project activity and monitor/report progress
b. Structuring the project team based on the results of the
impact assessment phase
c. Assigning sufficient resources to the project and
determining that the team comprises individuals with
appropriate skills to fulfil their responsibilities
2. Revision of accounting policies: Reassessing accounting
policies under Ind-AS will be one of the most important
elements of the project because the decisions made in this
area will drive many of the changes required throughout
the business and will have direct implications for the future
business results. For instance, accounting policy decisions
will affect data collection requirements, which, in turn, will
affect IT system requirements, business processes to collect
and record the data, internal control systems covering
data validity and functional resourcing requirements.
The tax-related effects of revisions of accounting policies
will also need to be addressed in the conversion process.
12
Audit committees and boards will need to review and be
comfortable with the policies selected by management.
3. Application of Ind-AS 41: Another key area that the
management will need to address with respect to accounting
policies is how it will apply Ind-AS 41. The ED-Ind-AS 41
provides guidance for businesses on how to adopt Ind-AS
for the first time and provides companies with a number of
voluntary exemptions and mandatory exceptions from the
requirements of other standards. The decisions made in
applying Ind-AS 41 will often have a significant effect on the
financial statements for many years to come.
4. Development of skeleton financial statements compliant
with Ind-AS: Companies will have to redraft the sections
of their financial statements to meet Ind-AS disclosure
requirements. There are multiple benefits in preparing a
skeleton set of financial statements during the preliminary
phases of the project as it focuses attention on the actual
disclosure requirements of the business, and therefore, is
crucial in the process of identifying “data gaps” that need
to be plugged. It is also useful to put the overall change
management challenge in perspective and give project
teams a concrete goal.
5. Preparation/restatement of financial information from
Indian GAAP to Ind-AS for comparative accounting periods:
The compilation of comparative financial information for
inclusion in the first set of Ind-AS financial statements may
prove to be one of the most challenging areas of the project.
The board, through its audit committee, needs to be satisfied
as to whether careful consideration has been given to
Conversion to Ind-AS
C. Conversion project considerations (Cont’d.)
the approach adopted by the management to compile
this information.
6. Transition approach: While some companies outside the
India converted “top-side” only at a consolidated level, this
spreadsheet approach is not ideal. Accounting treatments
and controls should be pushed down to the subsidiary
and transaction level. This will be very useful in compiling
relatively more accurate data and maintaining effective
control. Further, the spreadsheet approach may not work
in long term. The audit committee will need to carefully
consider and opt for the transition approach that is more
appropriate and better suited to its business.
7. Identifying and resolving data capture issues: The increased
level and complexity of certain financial disclosures expected
under Ind-AS may require significant project resources to
identify and set up processes to collate this data. Some of the
data underlying the new disclosures may be time consuming
to extract or may need significant analysis before it is ready
for disclosure purposes. Boards need to be satisfied that
the management’s plans include adequate mechanisms to
identify and resolve data gaps.
8. Retraining of personnel: Boards need to be satisfied in terms
of adequate investment being made in retraining employees
throughout the organization in order to meet their changed
technical knowledge needs, as well as be equipped to
facilitate the roll out of accounting policy changes and the
associated revised business processes and procedures.

9. What is the timeline for our Ind-AS conversion project, what resources will be required and how much will it cost?
The main consideration regarding the timeline will be: “Will the
organization be ready on time?”
By performing an impact assessment or diagnostic exercise and
conducting careful planning at the beginning of the project, it
should be possible to determine the major areas relevant to the
business and, from there, construct reasonable estimates of the
resources required, the time to complete the project and the
related costs that will be incurred.
13
C. Conversion project considerations (Cont’d.)
There are few meaningful benchmarks that exist regarding effort
and cost, as the impact of changes in accounting principles on
functional areas and related processes varies significantly among
companies and within industries, depending on pre-existing
business or accounting processes. The size and complexity of
accounting conversion projects means that there are so many
variables affecting the timeline and cost considerations that
concrete assessments are not possible without an appropriate
diagnostic and project plan.
Conversion to Ind-AS

10. What can we learn from the conversion experiences of others, including Europe and Australia?
Indian business has the benefit of the experience of countries that have already converted to IFRS. We have detailed some of the issues encountered and the key lessons one can learn from their
experiences in the following table:
Issues identified
The scale and complexity of the project and the time frame needed were underestimated.
The project lacked adequate buy-in from the company’s senior management early on in the project.
The projects suffered from poor project management.
Slight accounting differences can have a significant effect on financial results.
Unfamiliarity of “numbers” and principles arising from changes
Poor communication existed between project team and business units regarding effects of changes.
Changes were often not fully embedded in back offices and general ledger systems. As a result,
“stand-alone manual workarounds” were created, including “spreadsheet accounting.”
The top-side solutions did not work.
Tax personnel were frequently underrepresented in the conversion process.
14
C. Conversion project considerations (Cont’d.)
Key lessons learnt
Conducting a thorough impact assessment, followed by a detailed planning exercise up front, is crucial for a
successful transition. Conversions could entail functional changes as well as technical accounting changes.
The “tone from the top” is an important driver of change. The board sponsorship of the project is crucial.
The importance of having a proper project management office function capable of coordinating project activities
and a well- structured conversion methodology cannot be overemphasized.
A methodical approach to review accounting differences is essential to assess the overall financial impact.
Technical training will be a critical component of the conversion, especially for business unit heads, who may not
be familiar with the implications of the changes that new standards will bring. Investor relations will also need a
strong educational grounding to communicate the impact to investors.
Invest the time necessary to roll out business process changes such as accounting practices, updated control
mechanisms and changes in reporting requirements to the wider organization.
EU companies that used manual workarounds to meet short deadlines are now redesigning processes and
augmenting their systems to eliminate the inefficiencies these workarounds created. Indian companies should
use the time available to proactively address these changes.
The top-side solutions do not cause the organization to adjust, and the finance group feels “all the pain.” It is
important to “push down” the conversion to the transaction level throughout the organization as early
as possible.
The tax implications of the conversion process may extend beyond accounting effects. The early involvement
of tax personnel in the process may mitigate the potential for unexpected results. Companies will benefit
from sufficient resources and adequate lead time to address tax issues and to make necessary changes to tax
processes and technology.
Conversion to Ind-AS
 11. Other than financial reporting, which other business areas are likely to be
affected by the conversion?
Ind-AS is expected to impact a wide range of business functions
beyond financial reporting. These may include changes to the
management’s internal reporting, data gathering and IT systems,
the use of key performance indicators, the content of employee
and executive compensation plans, the activities of investor
relations, changes to policies and procedures and the
D. Non-financial resultant impact on internal control documentation and
certification requirements.
reporting The following parameters outline some of the potential effects:
1. Performance reporting: The accounting recognition and
considerations measurement changes brought about by Ind-AS will affect
the measures used by companies and investors to assess
performance and may result in the realignment of the
management’s performance targets, financial covenants
and performance-related remuneration.
2. Financial covenants: The key performance indicators and
ratios used by businesses to measure performance are also
closely linked with the financial covenants that a company
may have in its contracts. A complete review of and the
modification to contracts containing financial covenants
may also be required.
3. Executive compensation: Compensation committees should
be able to articulate their process for establishing the
compensation for executives based on the objective criteria
15 Conversion to Ind-AS
tied to the company’s performance targets. Companies should
expect earnings, earnings per share and the financial position
to change. In so far as these changes also affect the metrics
used to evaluate or compensate executives, evaluation and
compensation guidelines may also need to change.
4. Investor relations: During the transition, it will be important
to manage investor expectations and respond quickly to issues
to avoid misunderstandings. Going forward, companies will
need to be aware that analysts will have access to comparable
global data on their industry sectors against which they
can benchmark their results, and be prepared to respond
accordingly. Further, an effective communication strategy
to address investor queries and concerns arising during and
immediately after the transition will be vital.
5. Dividend distribution policies: Boards may need to review,
and if necessary, amend dividend distribution policies in
light of the company’s changed financial situation that could
emerge from applying Ind-AS.
6. Regulatory capital: For companies operating in a regulated
environment (for e.g., insurance companies, banks, etc.) and
where the Ind-AS financial statements will be the basis for
regulatory reporting, the conversion to Ind-AS is likely to have
an impact on regulatory capital. This may require additional
capital, and where regulated subsidiaries are involved, the
amount of distributions may be restricted to the parent.

12. Can our current IT systems handle the business’ revised data collection requirements under Ind-AS?
Since Ind-AS is likely to change certain data collection efforts
as a result of the changes in accounting policies and financial
statement disclosure requirements, IT systems used to collect
and report financial data may need to be modified in order
to meet the new requirements. It will be important to identify
as early as possible the specific impact on IT systems and
understand how easily changes can be made to a company’s
existing systems. The age, flexibility and upgrade path of the
current IT systems will be instrumental in determining whether
the existing systems can be enhanced or must be replaced.
While the effect of the Ind-AS conversion on each company’s
IT systems will be different, the experience in Europe and
Australia was that the systems most likely to be affected were the
financial, treasury and human resources systems. The impact on
IT systems and business processes often was not considered until
16
D. Non-financial reporting considerations (Cont’d.)
late in the project, resulting in manual workarounds and heavy
reliance on spreadsheets. One would also expect that the need
for IT system changes will be greater for companies operating in
industries in which the differences between Indian GAAP and Ind-
AS are more significant (for example, financial services, utilities,
mining, oil and gas).
When the volume of IT system changes required in order to be
Ind-AS ready is significant, management should consider the IT
resource requirements as well as whether the Ind-AS project plan
reflects the IT upgrade timelines. In addition, many companies
may already be planning to replace or upgrade their existing
financial systems. As such, the new Ind-AS requirements should
be included in the system selection process and constitute a part
of the design phase.
Conversion to Ind-AS
 Abbreviations
AS Non-converged accounting standards currently applicable in India (non- Indian GAAP GAAP applicable in India in the pre-Ind-AS scenario, i.e., pre-conversion GAAP
converged standards) applicable in India
ASB Accounting Standards Board of ICAI IRDA Insurance Regulatory and Development Authority
BSE Bombay Stock Exchange MCA Ministry of Corporate Affairs
CESR Committee of European Securities Regulators NACAS National Advisory Committee on Accounting Standards
CFO Chief Finance Officer NBFC Non-Banking Finance Company
CFS Consolidated financial statements NSE National Stock Exchange of India
EAC Expert Advisory Committee of ICAI OCI Other comprehensive income
ED Exposure draft RBI Reserve Bank of India
ED-Ind-AS Exposure draft of Ind-AS ROI Return on investments
EPS Earnings per share RRB Regional Rural Bank
ESOP Employee stock option plan SCB Scheduled Commercial Bank
FVPL Fair value through profit or loss SCI Statement of comprehensive income
GAAP Generally Accepted Accounting Principles SCODA SEBI Committee on Disclosures and Accounting Standards
IAS International Accounting Standards SEBI Securities and Exchange Board of India
IASB International Accounting Standards Board SEC US Securities and Exchange Commission
ICAI The Institute of Chartered Accountants of India SFS Standalone financial statements
IFRIC International Financial Reporting Interpretations Committee SIC Standing Interpretations Committee
IFRS International Financial Reporting Standards SOCIE Statement of changes in equity
Ind-AS Indian Accounting Standards (IFRS-converged standards) being issued by ICAI SORIE Statement of recognized income and expenses
that will apply to Indian companies covered by IFRS conversion roadmaps
UCB Urban Co-operative Bank

17 Conversion to Ind-AS
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EYIN1009-096 Conversion to Ind-AS

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