Maruti Suzuki, Tata Steel, BPCL, UltraTech and Coal India may report 3-12% increase in earnings after to the implement ation of new Indian Accounting Standard (Ind-AS). On the other hand, earnings of ITC, Bharti Infratel, Lupin, and Arvind may fall by 4-10%. Companies each with networth of Rs 500 crore or more will adopt the new standards in FY17.
The transition will have a considerable impact on the computation of revenue, operating profit, net profit, and networth of the listed companies. Sectors including metals, telecoms, oil & gas, and real estate are likely to be impacted most. According to analyst estimates, the new norms will increase revenues by 4-5%, while overall EBITDA may drop by 2-3%. Sebi has given publicly-listed companies additional one month to declare results for the June and the September quarters to comply with the new norms.
The new standards Every country stipulates a method for companies to report financial data based on rules called accounting standards. India has so far followed Indian Generally Acceptable Accounting Principle (IGAAP). However, from FY17, it will follow Ind-AS whose principles are closely based on international accounting system called IFRS. This will increase comparability of Indian companies with their international counterparts.
Fundamental difference between existing and new standards The new accounting standards recognise substance over form and importance of the fair value to compute financial statements. This means accurate reporting will gain importance over just complying with legal provisions and it should reflect the most current picture of financials.
Impact on companies It will impact how key financials such as revenue, operating profit, net profit, book value, goodwill, and return on equity will be computed. For instance, under the existing rules, sales are calculated after deducting excise duty. Under the new norms, excise duty will be treated as a tax on manufacturing activity. Hence, it should be a part of revenue. This will increase the revenue of companies, but depress operating margin. However, EPS will remain unchanged.