Monday, June 27, 2016

Implementation of Indian Accounting Standards (Ind AS)


Banks shall submit Proforma Ind AS Financial Statements, for the half year ended September 30, 2016 latest by November 30, 2016 to RBI.

Banks shall be guided by the Ind ASs notified by the Ministry of Corporate Affairs. Banks shall also refer to the Report of the Working Group on “Implementation of Ind AS by Banks in India” placed on the RBI website on October 20, 2015.

The Proforma Ind AS Financial Statements shall include the following:-

(a)      Balance Sheet including Statement of Changes in Equity (Annex I & II).
(b)     Profit and Loss Account (Annex III).
(c)     Notes (Annex IV).

Banks may refer to Annex V for the broad application guidance on the major line items/sub-line items in the financial statements.

To begin with, banks which are not in a position to submit both standalone and consolidated proforma Ind AS financial statements for the half year ended September 30, 2016 are permitted to submit only standalone financial statements. However, banks shall submit both proforma Ind AS standalone and consolidated financial statements in the subsequent periods.

Banks shall disclose significant accounting policies including:

(i)      financial assets and liabilities, including use of fair value option in designating financial assets or financial liabilities at Fair Value Through Profit or Loss (FVTPL) upon initial recognition.

(ii)    impairment of financial assets, with the following details:

        Methodology for computation of expected credit losses (ECL).
        Level of segmentation in the portfolio used.
        Criteria used for determination of movement from Stage 1 (12 month ECL) to Stage 2 and Stage 3 (lifetime ECL).
        The method used to compute lifetime ECL.
        The manner in which the forward looking information has been incorporated in the ECL estimates- the information provided should include both discussion of the judgment required and how it is applied in determining the allowance.
        The treatment for non-fund based facilities.
        The methodology for computation of ECL for revolving credit facilities.
        The areas where the bank intends to refine work on in this ECL estimate and the work plan / timeline to achieve it.
        The impact of movement from the current approach to the ECL approach-reconciliation of the stock of provisions under the current reporting requirements with the opening Ind AS 109 allowance. A comparison of the impairment allowance under ECL for the half-year ended September 30, 2016 with the corresponding provisions under the extant Prudential norms on IRACP norms shall also be disclosed.

Banks may note that Ind AS 109 is not specific in terms of the approach to be followed when measuring expected credit losses. The Reserve Bank expects banks to adopt sound expected credit loss methodologies commensurate with the size, complexity, and risk profile specific to individual banks.

(iii)   derivatives and hedge accounting.

(iv)    derecognition of financial assets and financial liabilities.

(v)    employee benefits.

(vi)    offsetting financial instruments.

(vii) income taxes.

(viii)     significant areas of estimation uncertainty , critical judgements and assumptions in applying accounting policies.

(ix)  Approach on exemptions under Ind AS 101 First Time Adoption of Indian Accounting Standards.

8.  For the purpose of preparation of proforma Ind AS financial statements for the half year ending September 30, 2016, the notional date of transition to Ind ASs shall be the beginning of business as on April 01, 2016.

9.  The Proforma Ind ASs Financial Statements shall also include:

(i)      (a) reconciliation of equity reported in accordance with the existing financial reporting requirements as at April 1, 2016 to its equity in accordance with Ind ASs as on the same date.

(b)   reconciliation of equity reported in accordance with the existing financial reporting requirements as at September 30, 2016 to its equity in accordance with Ind ASs as on the same date.

(ii)   Reconciliation of the total comprehensive income in accordance with IND AS for the half year ended September 30, 2016 with the profit or loss under the existing financial reporting requirements.

10.    The reconciliations shall be given in sufficient detail explaining how the transition affected the reported Balance Sheet and financial performance. The detail shall enable RBI to understand the significant adjustments to equity that will impact regulatory capital. The proforma Ind AS financial statements need not be audited.

 Annex V

Guidance for preparation of proforma Ind AS financial statements

1.                   Banks are advised to follow the application guidance given in the Report of the Working Group on Implementation of Ind AS.

2.                   Banks may note that the application guidance provides broad guidance on the major line items/sub-line items in the financial statements. Banks may also note that it is not always necessary or possible to define a term /title/line item specifically and exclusively. Banks are also advised to refer to relevant Indian accounting standards and their framework, as well as the prevailing industry practices, where relevant, to interpret the meaning thereof.

3.                   In order to promote uniformity, banks may present the proforma Ind AS financial statements in the following order:
(i)   Balance Sheet including Statement of Changes in Equity.

(ii) Profit and Loss Account.

(iii)              Notes to Account.

4.      The figures appearing in the financial statements shall be rounded off to the nearest million rupees.

5.      Net realised and unrealised gains and losses on financial assets/liabilities at fair value through profit or loss are included in the head ‘Net Gain/loss on fair value changes’ in Note 21. However, contractual interest income and expense on financial instruments (other than derivatives) held at /designated at fair value through profit or loss may be recognised under interest income and interest expense, respectively. The effect of the same should be suitably adjusted while determining fair value gains and losses. The subhead ‘Others’ in Note 21 would include reclassification from OCI.

Based on RBI circular dated 23/06/2016/ For further clarification please refer www.rbi.org.in ………..Poppy