Ind AS-101: First time adoption of Indian Accounting Standards

The objective of Ind AS 101 is to ensure that an entity’s first Ind AS based financial statements, and interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(A) Is transparent for users and comparable over all periods presented

(B) Provides a suitable starting point for accounting in accordance with Indian Accounting Standards.

(C) Can be generated at a cost that does not exceed the benefits.

First time adoption of Ind ASs would require change in various accounting policies. Paragraph 19 of Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires that any change in accounting policy arising out of initial application of an Ind AS is either given retrospective effect or accounted for in accordance with transitional provisions given in different standards. Presently, Ind ASs do not provide any transitional provisions. Retrospective application means applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. The change in accounting policy is applied retrospectively except to the extent it is impracticable to determine specific effect or cumulative effect of the change.

Since Ind ASs are a set of converged financial reporting standards (to IFRSs), transitional provisions of corresponding IFRSs are not included therein. In absence of a simplified transitional standard, all changes in accounting policies would have been given effect retrospectively causing hardship in the IFRS convergence and the process would have been very expensive. Ind AS 101 is in effect a standard that provides transitional provisions to the first-time adopter in respect of all Ind ASs.

The objective of this Ind AS is to ensure that an entity’s first Ind AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) Is transparent for users and comparable over all periods presented;

(b) Provides a suitable starting point for accounting in accordance with Indian Accounting Standards (Ind ASs)

(c) Can be generated at a cost that does not exceed the benefits.

This standard applies to the first Ind AS financial statements and each interim financial report if any. But this standard does not apply to changes in accounting policies for an organisation that already applies Ind AS, such changes are subject of requirements of Ind AS 8 or specific transitional requirements of other Ind AS.

• Implementation of Ind AS
• Selection of Accounting Policies
• Preparation of Opening Ind AS Balance sheet
• Presentation and disclosure in an entity’s in Ind AS Financial Statements and Interim Financial Reports.

Preparation of Opening Ind AS Balance Sheet

On the date of transition to Ind AS, an entity shall prepare and present an opening Ind AS Balance Sheet. This is the starting point for it’s accounting according to Ind AS subject to requirements of Ind AS. Except for restrictions spelt out in the AS, an entity must in its Opening Ind AS Balance sheet:

• Recognise all assets and liabilities for which recognition is required by Ind AS
• Derecognise items as assets and liabilities if Ind AS does not permit such recognition.
• If the Ind AS requires a particular asset, liability or component of equity to be recognised differently from its previous recognition under GAAP, then reclassify it.
• Apply Ind AS in measuring all recognised assets and liabilities.

Meaning of First time Adoption

Ind AS financial statements are the first annual financial statements in which the entity adopts Ind ASs, in accordance with Ind Ass notified under the Companies Act, 2013 and makes an explicit and unreserved statement in those financial statements of compliance with Ind ASs. Refer to Chapter 2 for Ind AS adoption timeline. Therefore, an entity shall include an unreserved statement in the “Basis of Preparation” section of Significant Accounting Policies about adoption of Ind ASs .