Research paper on international accounting standards


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The results of the study suggest no substantial impact on key financial parameters such as equity, total assets, tangible assets, borrowings, profit after tax, and revenue at the aggregate level. However, the study observed diversified impact among various industries as well as on individual companies. Pouradeli, A.

The results indicate that there is no concrete evidence that IFRS, significantly IAS thirty-nine is related to mitigating financial gain smoothing activities of firms in India. However, financial gain smoothing activities do decline in usually listed firms of India once IFRS adoption. They found that majority of the companies have the positive impact on net worth, positive to mixed impact on profits and adverse impact on revenue.

Das, Surajit, and T.

International Accounting Standards and Accounting Quality

Their analysis revealed that, although there is absolute difference in the quantitative indicators, calculated as per financial statement which is prepared as per IFRS and I-GAAP rules simultaneously, there is no statistical evidence except liquidity position to prove this difference. On the other hand, the regression analysis showed some indicative result that adoption IFRS can increase market value by way of foreign investors, foreign acquisition etc. Patil, Ameya et al.

They found that liquidity ratio shows an increase and profitability ratios show no significant difference. This also indicates that the Indian GAAP standards do not result in understatement or overstatement of earnings in case of IT sector companies. Amogh, N. MariGowda e. R e.

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Their study indicated that the adoption of IFRS more beneficial to attract the world capital market and the adoption of rules regarding truthful worth accounting, lease accounting and tax accounting, as well as rules regarding the accounting of economic instruments, explain the changes within the key accounting ratios. Adoption of fair value accounting rules and stricter requirements of certain accounting issues are the reasons for the changes observed in accounting figures and financial ratios.

Tawiah, Vincent, and B. They have also tried to find out whether the impact of IFRS is same for all companies. This study concluded that Ind.


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AS will provide current and quality accounting information on accounting ratios but the quality level will not be same over the years. Bhargava, Vidhi, and D. They found that, variation in total assets and liabilities is because of the reclassification among equity and liability and also because of the difference in the concept of revenue recognition.

The valuation and depreciation of property plant and equipment is also a big cause of difference. Their analysis emphasise the fact that IFRS is a fair value principles based accounting which will improve quality of disclosures and enhance international comparability and understanding of financial statements.

Conceptual Framework of IND-AS In this chapter, we have tried to present the objective of Ind-AS implementation along with its impact in terms of accounting practice, presentation and recognition criteria in the financial statements. The main objectives behind the adoption or convergence of Ind-AS over I-GAAP are i Presentation at fair value; ii Recognition of time value of money; and iii Making the financials more robust by distinguishing the uncertainties more timely in the form of provisions and amplified disclosures. ARO recognizes the present value of the instrument time value of money along with the imputed interest cost of such provision.

Statement of profit and loss entails two sub-parts viz. Fair value measurement is a fundamental concept forming the underlying basis for the Ind-AS framework. The main objective is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions i. Impact on Ind-AS on balance sheet and profit and loss statements can be categorized into three different parts viz.

We have exhibited the presentation changes in the balance sheet and profit and loss statements in the Appendix — 1. Impact on accounting on balance sheet comprises of a recognition of differed tax using Balance sheet approach temporary differences as compared to the Profit and loss approach timing differences in I-GAAP; b accounting for the mergers and acquisitions using fair value approach; c better clarity on the shift in various financial ratios due to the change in accounting policy.

Impact on recognition on balance sheet comprises of a acknowledgment of long-term provisions on present value; b inclusion of ARO on present value basis for the asset; and c recognition of investments on present value. Impact on presentation on balance sheet comprises of a reclassification of financial instruments viz.

Impact on accounting on profit and loss statements comprises of a recognition of dividend on redeemable preference share as interest cost; b changes in amortization charges in agreement with the fact that intangible assets can have an indefinite useful life.

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Impact on recognition on profit and loss statements comprises of a timing of the revenue recognition; b recognition of revenues on multiples component contracts distinctly; and c reporting of revenue on gross basis but net of incentives and discounts. As per the statement of changes in equity, an entity must present a statement of changes in equity as a part of balance sheet.

Source of Data and Sample Size In this study, we have included 56 listed companies be-longing to the manufacturing, services and power generation and distribution sectors. We have collected the audited annual financial statements of these companies for the financial year available in the public domain. Accordingly, these companies have pre-pared financial statements, which comply with Ind-AS applicable for period ending on March 31, , together with the comparative period data for the year ended March 31, We have observed that, few companies, who maintain their accounts on calendar year basis, have provided such information as on December 31, and we have also included these companies in our study.

We have used these ex-post-facto reassertion data of the financial statements variables as provided by these companies in our study. The list of balance sheet and profit and loss variables, which we have used in this study, are presented in Appendix — 2.

History and development

We have presented the industrial break-ups of these selected companies in Table 1. We have also presented the size wise distribution of these 56 select companies in the Appendix — 3. Table 1. Research Methodology First, we have tried to gather the relevant information on the impact of Ind-AS on the financials of the companies by means of the graphical representation of data and colleting the corresponding useful material provided in the individual financial statements of the companies. We have also measured various ratios to understand the impact of Ind-AS in their financial performance.

Finding the Meaningful Information by Presenting the Data in Tabular and Graphical Format Financial Statement Variables: To gauge the impact of changes in accounting policy, we have tried to measure the impact in two different perspectives. The first one is direction of impact i.

We have calculated both dimensional and magnitudinal impact at individual company, industry and sector level across all variables of the financial statement. Then, from the set of company level qualitative figures across all variables of the financial statement, we have calculated the sector wise dimensional impact. Financial Ratios: We have first calculated the financial ratios at the company level and sector level. With the similar approach, we have then calculated the dimension and magnitude level impact of Ind-AS for those ratios at company level as well as sector level.

We have presented a list of these ratios with formula in Appendix We have also plotted the Ind-AS ratios against the I-GAAP ratios across all the companies in the scatter diagram to evaluate its dimensional impact alongside the magnitude by seeing the position deviation from the diagonal line of the company with respect to the various ratios in the graph refer Appendix Non-Parametric Test to Measure the Statistical Significance of Ind-AS Impact We have performed the non-parametric test to find out the statistical significance of the impact of Ind-AS on the important financial statements variables and the financial ratios alongside the dimension and magnitude level impact.

First, we have examined, whether the variables are normally distributed or not by applying the Shapiro-Wilks and Kolmogorov-Smirnov tests refer Appendix 5. Our result indicates that, the study variables and ratios are not normally distributed p-value 2 for paired data values of I-GAAP and Ind-AS for each of the study variables and ratios to determine the statistical significance of the impact of Ind-AS. We have used the following hypotheses to determine whether there is any significant difference between the values of the study variables as well as the financial ratios, which are derived from the individual financial statements of the companies prepared in accordance with I-GAAP and Ind-AS.

Results of Wilcoxon signed-rank test are presented in Appendix 9 for financial statements variables and in Appendix 10 for financial ratios. We have also presented the descriptive statistics of the study variables and ratios in Appendix 6 and 7. Findings In this chapter, we have explained the dimensional impact of Ind-AS alongside the magnitudinal impact to understand the overall impact of Ind-AS more implicitly.


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  • In Table 2, major balance sheet and profit and loss variables are presented in terms of their dimension and magnitude of impact. Against each variable, we have presented the dimension level impact in the first row and the magnitude 3 level impact in the second row. Table 2. Here, we have discussed the broader variable wise impact of Ind-AS on manufacturing and services sectors. Then we have drilled it down to the industry and company level followed by the discussion on the contribution of the minor variables in the cumulative impact.

    The above impact is what we have understood from the graphical and tabular representation of data and notes of the companies' financial statements. Alongside, we have also presented the Wilcoxon signed-rank test result regarding the statistical significance of the financial variables, which we have found affected.

    Finally, we have discussed about the impact of Ind-AS on the performance of the companies by means of the financial ratios. While, port and real estate industries have observed material negative impact. At the company level, the impact of Ind-AS on assets for the manufacturing sector is within the range of Chart 1. Industry wise magnitudinal impact of Ind-AS on major balance sheet items In the manufacturing sector, non-current financial investments, other current financial assets inclusive of customers bill discounted and unbilled revenue , other current and non-current assets inclusive of trade receivable and prepayment have significant positive impact both at magnitude and dimension level.

    Current financial investments has significant positive impact at dimension level, but the adverse impact on magnitude level; whereas PPE and other non-current financial assets have significant adverse impact at dimension level, but positive impact on magnitude level. For the services sector, non-current financial investments has significant positive impact both at magnitude and dimension level.

    Similarly, non-current loans and security deposits, other non-current financial assets inclusive of deposits, redeemable preference shares and derivative instruments and other current assets have significant negative impact both at magnitude and dimension level. Current financial investments and other non-current assets have significant positive impact at dimension level, but the negative impact on magnitude level.

    In This Section

    Impact of Ind-AS on other current financial assets, non-current investment and inventories are statistically significant for the manufacturing sector and other non-current financial assets is statistically significant for the services sector. Impact on PPE comes out as statistically insignificant across all sectors. From the data, it appears that majority of the companies were able to successfully identify and utilize the various accounting policy choices available to their advantage. The impact of Ind-AS on total equity is positive for majority of the companies across all sectors and the same is also reflected by its magnitude.

    On the other hand, industries like media, real estate, trade and power have shown a mixed trend. Overall, net worth has witnessed an increase by 10 percentage points for the select 56 companies under Ind-AS reporting.

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    The spread of the impact of Ind-AS on equity as well as on other equity is relatively vast in the manufacturing sector as compared to the services. We have witnessed that, changes in the total equity is largely contributed by the other equity. Chart 2. Others includes debt and equity instruments through OCI, effective portion of cash flow hedge reserve, revaluation surplus, exchange difference on translating the financial statements of a foreign operation, other items of OCI, money received against share warrants, etc.

    From the financial statements of these companies, we have found that, adverse impact is arisen mostly due to the reallocation of redeemable preference shares from equity share capital to financial liability under non-current borrowings as it does not contain any equity component. On the same time, we have also found that employee welfare trust, which is financed through interest free loan by the company and warehousing the shares for the distribution to the employees of the company which have yet not vested, has been consolidated on line by line basis resulting a reduction in the equity share capital of the company.

    Statistical test indicates that, impact of Ind-AS on total equity and other equity are statistically significant for the manufacturing sector as well as all industry level , but insignificant for the services sector. Some of the primary reasons for the increase in equity are a fair valuation of investments, resulting in a positive impact to retained earnings; b fair valuation of PPE; and c reversal of proposed dividend, which was earlier recognized as per I-GAAP. On the other hand, some of the key factors contributing to the adverse impact on net worth are a reclassification of financial instruments from 'equity classified' instruments to 'debt classified' under Ind-AS; b recognition of impairment loss on financial assets; and c fair valuation of PPE, which also had a negative impact on the net worth of a few companies.

    Liabilities On Liabilities side, the overall impact of Ind-AS is adverse in nature largely supported by the services sector.

    In the manufacturing sector, other current financial liabilities inclusive of instruments and deposits have significant positive impact both at magnitude and dimension level. Similarly, current provisions have significant negative impact both at magnitude and dimension level. Other current liabilities inclusive of deferred revenue, government grant, customers bill discounted and current-tax liability net have significant positive impact at dimension level, but negative impact on magnitude level; whereas deferred tax liabilities net have significant negative impact at dimension level, but positive impact magnitude level.

    For the services sector, other current financial liabilities have significant positive impact both at magnitude and dimension level, but current provisions exhibited the opposite impact. As per the statistical test, impact of Ind-AS on total liabilities is statistically significant for services sector.

    Test result further indicates that though the impact on current provisions is statistically significant, impact on non-current provisions and deferred tax liabilities net are statistically insignificant across all industry group. Impact of Ind-AS on other current financial liabilities inclusive of derivative instruments and deposits is statistically significant for the manufacturing sector. Accordingly, to the extent of excise duty reported, revenues from operation as well as total income and expenses are expected to increase.

    As, excise duty is levied on the production and not sales, this change is prominently visible in the manufacturing sector. In our study, we have presented the income, expenditure and revenue from operations excluding the excise duty and service tax alongside the reported one refer chart 3 and 4 to understand the impact of Ind-AS on the income and expenditure side more evidently.

    Chart 3.


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    • Industry wise magnitudinal impact of Ind-AS on major major profit and loss statement items Chart 4. Magnitudinal impact of Ind-AS on Revenue Revenue net of excise duty is adversely impacted for most of the companies across sectors, but opposite trend at magnitude level is visible in services sector.

      The industries experiencing the prominent adverse magnitudinal impact on their revenue, include, automobile, cement, pharmaceutical and consumer goods industries. Although a substantial positive impact on revenue is evident in real estate industry, it is predominantly impacted due to a single company, citing the timing of recognition of revenue as the reason for the same. We have found that, potential reasons for the decrease in revenue are a recognition of revenue at fair value with adjustments for discounts, incentives, rebates etc.

      Similarly, employee benefits expenses and other expenses have significant negative impact both at magnitude and dimension level. Deferred Tax have significant positive impact at dimension level, but the negative impact on magnitude level. For the services sector, other income and finance costs have significant positive impact both at magnitude and dimension level. Deferred tax have significant positive impact at dimension level, but the negative impact on magnitude level, whereas employee benefits expenses has significant negative impact at dimension level, but the positive impact on magnitude level.

      Statistical test tells that, result, impact of Ind-AS on total income and expenses, both including and excluding excise duty are statistically significant for manufacturing sector, but insignificant for the services sector. Interestingly, at all industry level, impact of Ind-AS on total income and expenses including excise duty is statistically significant but insignificant when excise duty is netted out. Impact of Ind-AS on other income and finance cost are statistically significant across all industry group.

      The spread of company level magnitudinal impact of Ind-AS on profits PAT refer chart 6 is relatively wide in the services sector as compared to the manufacturing. Chart 5. Industry wise magnitudinal impact of Ind-AS on profit and tax Chart 6. Under Ind-AS all derivatives are measured at fair value and changes recognized in profit and loss except for derivatives forming part of effective hedge , whereas under I-GAAP, premium and discount on forward contracts were amortized over contract period and in other types of derivative contracts only unrealised losses were recognised in profit and loss resulted a decrease in profit level.

      The key reasons for increase in profits are a measurement of investments mutual funds, government securities, etc. Impact on Ind-AS on profit after tax is statistically insignificant across all industry level as per the statistical test. This is predominantly observed for the manufacturing sector, whereas services sector presented the mixed impact. Overall, other comprehensive income has an adverse effect around Chart 7. Impact of Other Comprehensive Income 6. Our purpose is to gauge the impact of Ind-AS on these financial ratios. List of these ratios and their sector wise impact is presented in table 3.

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      Dear Fellow Section Members,. The importance of our Section to so many is reflected in the large number of volunteers who give their time and energy for our collective benefit. Over this past year, more than individuals have served our Section in various volunteer capacities, and all are deeply and sincerely appreciated.

      Being a member of the International Accounting Section provides for important interactions among individuals from different countries across a breadth of issues — research, education, and practice. Recent Activities As many of you know, over the past few years the AAA greatly improved the financial information provided to the individual sections. As a result, the Executive Committee of the International Section has been Read More.

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