Ind AS impact analysis online - PwC India

1 Ind AS impact analysis ContentsForeword p2 / About the report p3 / Ind AS impact analysis p4 / Snapshot of results p5 / Adoption of Ind AS: Changes to reported net income p6 / In-depth: Top impact areas p7 / Adoption of Ind AS: Presentation and disclosure matters p17 / In summary p20 / Publications p22 From 1 April 2016, Indian Accounting Standards (Ind AS) converged with International Financial Reporting Standards (IFRS) have become the new Generally Accepted Accounting Policies (GAAP) for many companies. As a result, commencing the June 2016 quarter, Phase I companies in India have reported their results under Ind during the year, PwC India conducted the Ind AS Outlook Survey1 to evaluate the impact of Ind AS adoption and challenges faced by corporates in India in particular, the key impact areas affecting the net worth and net income of companies.

2 As an update to the survey, this publication summarises the actual impact of Ind AS adoption on corporate India . For the purposes of this report, we have evaluated LQWHULP QDQFLDO LQIRUPDWLRQ UHOHDVHG E\ 75 companies until 14 September 2016. These companies are listed on the National Stock Exchange (NSE) of India and are included in NIFTY 50 and NIFTY NEXT 50 benchmark indices. In our analysis of NIFTY 50 and NIFTY NEXT 50 companies, we have excluded 17 companies that ForewordDUH HLWKHU EDQNV RU QRQ EDQNLQJ QDQFLDO FRPSDQLHV (NBFCs) or insurance companies to whom Ind AS is QRW \HW DSSOLFDEOH FRPSDQLHV ZKR KDYH OHG XQGHU Indian GAAP2 DQG FRPSDQ\ ZKLFK GLG QRW OH ,QG $6 QDQFLDO UHVXOWV IRU WKH TXDUWHU HQGHG -XQH The impact of Ind AS transition presented here is based RQ WKH UHSRUWHG UHVXOWV IRU WKH TXDUWHU HQGHG -XQH 2015 under Ind AS vis- -vis previously reported Indian GAAP our report is based on quarterly published results which do not have detailed disclosures otherwise DYDLODEOH LQ DQQXDO QDQFLDO VWDWHPHQWV ZH PD\ KDYH made certain assumptions and generalisations for the purpose of aggregating the results and analysis .

3 :H KRSH \RX QG WKLV SXEOLFDWLRQ LQIRUPDWLYH DQG that it helps us remain connected with you in a meaningful a variety of additional resources offering more in-depth perspectives on the impact and other aspects of Ind AS, please visit our website at Ind AS Outlook Survey was released at the Meet the experts - PwC IFRS Conference 2016 on 3 February 2016. The results are also available on the PwC India website at Ind AS is not applicable to these companies due to the financial year end being other than 31 PwCAbout the reportDuring approximately ten weeks beginning from 1 July 2016, various companies released their Ind AS interim QDQFLDO LQIRUPDWLRQ :H JDWKHUHG WKH UHVXOWV RI 1,)7< DQG 1,)7< 1(;7 FRPSDQLHV IRU WKH SXUSRVH RI WKLV UHSRUW 7KH SUR OHV RI FRPSDQLHV E\ LQGXVWU\ VHFWRU DUH VXPPDULVHG EHORZ Profiles of companies by industry sector 1%5%6%7%7%8%9%11%12%15%19%Capital projects and infrastructureTelecomOthersIndustrial manufacturingTechnologyPower and miningOil and gasMetalsAutomotiveRetail and consumerPharmaceuticals, lifesciences and healthcarePwC Ind AS impact analysis 3 Ind AS impact analysisA majority of the respondents to our survey in February 2016 indicated that taxes, revenue recognition, operating VHJPHQWV QDQFLDO LQVWUXPHQWV LQFOXGLQJ GHULYDWLYHV DQG OHDVHV LQFOXGLQJ HPEHGGHG OHDVHV ZHUH WKH WRS YH DUHDV WKDW ZRXOG KDYH D VLJQL FDQW LPSDFW RQ QDQFLDO statements following the adoption of Ind AS.

4 We also noted that companies would face implementation FKDOOHQJHV LQ WKHVH DUHDV HVSHFLDOO\ LQ QDQFLDO instruments, where the new standard is being adopted by India ahead of its global adoption date annual periods beginning on or after 1 January we analysed the reported results for the 75 companies, we found that consistent with our initial survey results, a majority of the Ind AS adjustments are RQ DFFRXQW RI WD[HV QDQFLDO LQVWUXPHQWV DQG UHYHQXH UHFRJQLWLRQ $GGLWLRQDOO\ UHWLUHPHQW EHQH W REOLJDWLRQV share-based payments, and business combinations and FRQVROLGDWLRQ ZHUH DOVR LGHQWL HG WR EH PRUH FRPPRQ Ind AS areas having a significant impact (% of companies impacted)4 PwC16%23%67%84%85%88%Business combinations/consolidationShare-based paymentsRetirement benefit obligationsRevenueFinancial instruments (including derivatives)TaxesSnapshot of resultsThe impact of Ind AS adoption was observed across various accounting areas.]

5 Presented below is the percentage impact of certain key accounting areas on the UHSRUWHG QHW LQFRPH IRU WKH SUHYLRXV TXDUWHU HQGHG June 2015 under Ind AS vis- -vis previous Indian , the Ind AS adjustments have resulted in an increase in the reported net income of companies by approximately 297 crore INR ( ). This comprises: Net increase in revenues: 1HW IDLU YDOXH ORVV RQ DFFRXQW RI QDQFLDO instruments (including derivatives): Business combinations/consolidation: increase in net income Higher share-based payments expense: Reduction in tax expense: 5 HWLUHPHQW EHQH W REOLJDWLRQV GHFUHDVH LQ net income Increase in expense on account of other adjustments LQFOXGLQJ WKH LPSDFW RI IRUHLJQ H[FKDQJH XFWXDWLRQ DQG FODVVL FDWLRQ RI H[FLVH GXW\ DV DQ H[SHQVH Some companies have reported Ind AS adjustments, net of change in net income is shown below and explained in detail for each area of impact in subsequent sections of this report.]]]

6 Industry sector: Range of impact on net income upon Ind AS adoption PwC Ind AS impact analysis 5 Other than the pharmaceuticals, life sciences and healthcare, industrial manufacturing and automotive sectors, all the sectors have reported an average decrease in net income. Metals, telecom and capital projects and infrastructure sectors have reported the maximum average decrease in net income upon Ind AS as per IGAAPR evenueFinancialinstruments(includingderi vatives)Businesscombinations/consolidati onTaxesRetirement benefitobligationsOther adjustmentsProfit as per Ind ASShare-basedpaymentsReported net income for 30 June 2015 increased by upon Ind AS adoption.(Amounts in crore INR)74, ( )% ( )% ( )%( )%74,982 Pharmaceuticals,life sciences and healthcareIndustrial manufacturingAutomotiveTechnologyRetail andconsumerOthersPower miningTelecomOil and gasCapital projects andinfrastructureMaximumWeighted averageMinimum45%49%89%2%3%4%120%26%-8%- 4%0%-9%-15%-42%-27%-142%-40%-71%-8%-31%M etals12%5%32%-1%-4%-5%-28%-3%-19%6 PwCAdoption of Ind AS: Changes to reported net incomeThere was a positive impact on the reported net income of 41 companies (55%) under Ind AS for the quarter HQGHG -XQH 7KH WRWDO LQFUHDVH LQ ,QG $6 QHW LQFRPH ZDV DSSUR[LPDWHO\ FURUH ,15 7 KHUH ZDV D QHJDWLYH LPSDFW RQ WKH UHSRUWHG QHW LQFRPH RI FRPSDQLHV XQGHU ,QG $6 7KH WRWDO GHFUHDVH LQ QHW LQFRPH ZDV DSSUR[LPDWHO\ FURUH ,15 UHVXOWLQJ LQ DQ RYHUDOO QHW LQFUHDVH RI approximately 297 crore INR ( ).]]

7 For the 41 companies, the positive impact on their reported net income ranged from to of the previously reported net income under Indian GAAP. On a weighted average basis, the increase in net income has been )RU WKH FRPSDQLHV WKH QHJDWLYH LPSDFW RQ WKHLU UHSRUWHG QHW LQFRPH UDQJHG IURP WR RI the previously reported net income under Indian GAAP, resulting in a weighted average decrease in net with +/- impact on net income upon Ind AS adoptionPositive impactNegative impact55%45%Increase in net incomeDecrease innet ( ) (*Weighted average)+ increase in net income* ( ) reduction in net income*( )( )PwC Ind AS impact analysis 7In-depth: Top impact areasCompanies have reported an increase in tax credits ranging from to , resulting in a weighted average increase in tax credits of increase in tax expense ranges from to , resulting in a weighted average increase in tax expense of Percentage impact on reported net income.

8 H DQDO\VHG WKH TXDUWHUO\ QDQFLDO UHVXOWV DV DW -XQH WR XQGHUVWDQG ERWK WKH SRVLWLYH DQG QHJDWLYH impacts of key accounting areas on the reported net income, including the impact by industry sector. Our analysis UH HFWV WKH FKDQJHV LQ UHSRUWHG QHW LQFRPH IRU WKH TXDUWHU HQGHG -XQH XQGHU ,QGLDQ *$$3 YLV YLV ,QG AS, except revenue, which has been analysed at the respective line item the population, the reported tax amounts of 88% of the companies were impacted. There was an overall decrease in reported tax expenses of 516 crore INR ( ).Of these companies, 47% reported an increase in tax credits of 1,268 crore INR, thereby reducing WKH WD[ H[SHQVH E\ )XUWKHU UHSRUWHG an increase in tax expense of 752 crore INR ( ) resulting from Ind AS Ind AS, deferred taxes are recorded based on the temporary difference (as opposed to timing differences under Indian GAAP).]]

9 This approach under Ind AS is broader and results in deferred taxes on more items, and also additional deferred taxes on some items. Moreover, the lower recognition threshold under Ind AS compared to the virtual certainty supported by convincing evidence presently required to recognise deferred tax assets on carried forward losses under Indian GAAP has also resulted in the reporting of increased deferred tax assets/tax credits under Ind intax creditsIncrease in tax ( ) (*Weighted average)( ) increase in tax expense*( )( ) increase in tax credits* Deferred tax liability on undistributed earnings from subsidiaries and joint ventures (JVs) Deferred tax asset on carried forward business and long-term capital losses Deferred taxes on unrealised profits on intra-group transactionsKey adjustments8 PwCPharmaceuticals, life sciences and healthcare had the KLJKHVW QHW WD[ FUHGLWV RI FURUH ,15 UHSUHVHQWLQJ of the total net increase in tax credits across industries.]

10 Metals and capital projects and infrastructure also showed a net increase in tax credits at approximately 172 crore INR (21 %) and 75 crore INR (9%) and mining had the highest net increase in tax H[SHQVH RI DSSUR[LPDWHO\ FURUH ,15 UHSUHVHQWLQJ 44% of the total net increase in tax expense across LQGXVWULHV IROORZHG E\ DXWRPRWLYH DW DURXQG FURUH ,15 DQG WHFKQRORJ\ DW DURXQG FURUH ,15 Percentage impact on net incomeFinancial instruments (including derivatives)Of the population, 85% of the companies were impacted GXH WR IDLU YDOXDWLRQ RI QDQFLDO LQVWUXPHQWV LQFOXGLQJ derivatives). There was an overall decrease in reported net income of 1,179 crore INR ( ) on account of QDQFLDO LQVWUXPHQWV Of these companies, 48% have reported a gain of approximately 1,151 crore INR on account of fair YDOXDWLRQ RI QDQFLDO LQVWUXPHQWV LQFUHDVLQJ QHW income by Further, 52% of the companies have UHSRUWHG D ORVV RI DURXQG FURUH ,15 UHGXFLQJ QHW LQFRPH E\ 8 QGHU ,QGLDQ *$$3 LQYHVWPHQWV DUH FODVVL HG DV FXUUHQW or long-term.]]