Financial Position and Performance of the Indian Companies Pre & Post Adoption of Indian Accounting Standards
*Raj Kumar Sah is a Research Scholar at Punjabi University, Patiala, and Assistant Professor at Shri Ram College of Commerce (SRCC), Delhi University.
**Dr. Harpreet Kaur is Associate Professor at Punjabi University, Patiala.
***Dr. Sumanjeet is Associate Professor at Ramjas College, Delhi University.
Authors can be reached at rajkumarsah42@yahoo.com, Harpreet.pbiuniv@gmail.com, sumanjeetsingh@gmail.com, and eboard@icai.in.
1. Introduction
A globally accepted set of accounting standards results into relevant and reliable information for the stakeholders for their economic decisions because of their being transparent and principles-based standards. Multinational businesses, business combinations and other aspects including the need of global comparability of financial reports of corporate organizations are some of the reasons that people all over the world agree that there should be a single set of financial reporting standards for the whole world.
However, it is definitely a huge challenge to have one set of financial reporting standards for the whole world and this may remain a challenge in the time to come. The basic objective of formulation and implementation of Ind ASs is to improve the two main qualities i.e., the relevance and reliability and thereby the global comparability of the financial reports of the Indian companies. In this backdrop, the present study aims at exploring impact of Ind ASs adoption on the financial position and financial performance of Indian IT and FMCG sector companies.
2. Indian Accounting Standards (Ind ASs): Institutional Framework & Global Convergence
“Ind ASs are formulated by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) under the authority of the Council of the ICAI and are issued by the Ministry of Corporate Affairs (MCA) in consultation with the National Financial Reporting Authority (NFRA).”
Ind ASs are formulated by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) under the authority of the Council of the ICAI and are issued by the Ministry of Corporate Affairs (MCA) in consultation with the National Financial Reporting Authority (NFRA). The ASB of the ICAI finalizes these Ind ASs after following a detailed procedure including wide consultation with various stakeholders including representatives from all the areas including government departments, academicians, other professional bodies viz. the Institute of Company Secretaries of India (ICSI), representatives from the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), etc. Ind ASs are named exactly in the same way as the IFRSs and they are also numbered broadly in the same way as the IFRSs.
As on date, 39 Ind ASs are applicable as notified by MCA. Ind ASs are applied to the companies mandated under the roadmap issued by the MCA for the financial year commencing on or after 01.04.2016 on a mandatory basis.
Much discussion was made throughout the world regarding the adoption of/convergence with the IFRSs. As a result, many issues were found regarding the adoption of/convergence with the IFRSs and the main issues were found related to the huge differences in the laws of the different countries of the world.
The former chairperson of the International Accounting Standards Board (IASB) provided just one example of difficulty in the achievement of goal of convergence with IFRSs in Europe: “In the UK, what is not prohibited is permitted. In Germany, what is not permitted is prohibited. In the Netherlands, what is permitted is simultaneously prohibited even, and in France, what is prohibited is simultaneously permitted even. It becomes very difficult to meet the needs of the countries like, Japan, the USA and China.” (Kieso, Weygandt, & Warfield, 2016).
IASB is the main Accounting Standard body on global level which formulates and issues the IFRSs. The basic objective behind formulation and issue of IFRSs is to enhance uniformity and fairness in the financial reporting by establishing principles and minimizing the number of alternative accounting principles for the financial transactions and other events to the extent possible even though the complete elimination of the said alternative accounting treatments is not possible.
Some countries have adopted IFRSs whereas other countries, instead of adopting, are trying to converge their accounting standards with IFRSs. India has converged its accounting standards with IFRSs. There are many reasons that there has arisen a need to have a single set of financial reporting standards on global level. These reasons include the companies of one country doing businesses in other countries of the world (for example, Wal-Mart Stores, Royal Dutch Shell, etc.), the huge spread of e-commerce business, international financial transactions, listing of companies of one country over foreign stock exchanges, among others.
The ICAI constituted the ASB. ASB follows the due process for standard setting activities. The huge pace of change in the Indian economy attracted foreign investment in the country. Indian companies are required to follow Ind ASs which are based on IASs and IFRSs. Ind ASs have been applied in the different phases to different types of companies. Professional bodies in the country are taking the implementation of Ind ASs very seriously by means of organizing training sessions and seminars to equip the stakeholders with the adequate knowledge to assist in making the smooth implementation of Ind ASs and also to find out what challenges and opportunities IFRSs may pose and provide respectively.
3. Financial Position: Balance Sheet Architecture & Conceptual Definitions
“The financial condition of an entity can be understood by examining the information contained in its Balance Sheet and its comparative financial condition can be understood by comparing the information contained in its balance sheet with those contained in the balance sheet of another entity.”
Financial position of an entity is reflected by its Balance Sheet. The financial condition of an entity can be understood by examining the information contained in its Balance Sheet and its comparative financial condition can be understood by comparing the information contained in its balance sheet with those contained in the balance sheet of another entity. The relevant comparison can be made by calculation of relevant financial ratios and trends of various items of entities in the same industry. Financial position of an entity is reflected by its leverage, solvency and the level of its working capital. This financial position indicates the ability of an entity to survive and this applies equally whether entity is large or small.
It is a necessity for a business to maintain a proper amount and composition of various assets. Paragraph 4.3 of the Conceptual Framework for Ind AS defines an asset as “A present economic resource controlled by an entity as a result of past events”. It goes without saying that a business cannot survive without resources. Examples of assets include trade receivables etc. and property, plant and equipment etc. which come under the category of current assets and non-current assets respectively.
So far as the liabilities are concerned, an entity should have neither excessive liabilities nor very less liabilities i.e., it should have adequate amount of liabilities to grow the assets it holds. Excessive liabilities position called over leveraged may result into financial failure whereas very less liabilities may result into under growth of the assets of the company. Paragraph 4.26 of the Conceptual Framework for Ind AS defines a liability as “A present obligation of an entity to transfer an economic resource as a result of past events” because of past events if the said obligation is a present obligation. Examples of liabilities include current liabilities such as trade payables etc., non-current liabilities such as long-term borrowings etc.
Paragraph 4.63 of the Conceptual Framework for Ind AS defines equity as “the residual interest in the asset of an entity after deducting all its liabilities”. Examples of equity include equity shares, preference shares not classified as a liability, reserves and surplus such as general reserve, balance in profit and loss statement etc. Equity belongs to the owners of the entity.
“A present economic resource controlled by an entity as a result of past events.” Represents current assets (e.g., trade receivables) and non-current assets (e.g., PPE).
“A present obligation of an entity to transfer an economic resource as a result of past events.” Covers current liabilities (trade payables) and non-current liabilities (borrowings).
“The residual interest in the asset of an entity after deducting all its liabilities.” Encompasses equity shares, qualifying preference shares, and reserves and surplus.
4. Comprehensive Review of Literature
Extensive scholarly and institutional literature examines the transition to converged accounting standards in India and abroad, establishing key empirical benchmarks:
Achalapathi. K.V and Bhanu Sireesha. P (2015)
Found that there was a statistically significant increase in terms of profitability, liquidity and valuation ratios. They also found that the voluntary adoption of IFRSs led to the optimization of ROA (Return on Assets) and ROE (Return on Equity) of Indian companies. They also found no significant impact of convergence on profitability and liquidity of the companies selected by him.
Sambaru M. and Kavita N.V. (2014)
Found that the adoption of Ind ASs in India will be challenging but will be rewarding because of enhanced disclosures. They have found that Ind ASs based financial reporting will be transparent and will be a faithful representation to all the stakeholders. They found that the ultimate impact of Ind ASs will be the enhancement of reliance and trust of the stakeholders in the financial reporting of the companies related to presentation of financial position and performance in a better way by means of Ind ASs.
CRISIL Study (2016) – “Ind AS Impact”
A study (2016) was made on “Ind AS Impact”. The report found that there were a lot of changes in the financial statements. But it did not forecast any rating or criteria changes because the fundamentals remained the same. The report found that the Ind ASs would improve the quality of financial reporting. Further, the financial statements would be impacted by some of the Ind ASs, especially the revenue recognition and fair valuation. It could also impact many other aspects such as valuation of Assets, Employee Share Based Payments etc.
BSE Top 100 Companies Study (2016)
A study conducted in 2016 made an effort to understand the experience of Indian companies in the process of implementation of Ind ASs. For this purpose, they reviewed the financial results of 60 companies, which are in BSE’s top 100 list. These companies were covered in phase 1 of the Ind AS roadmap issued by MCA. They found the impact of Ind AS on companies as a mixed trend. They found that the companies needed some more time for the purpose of detailed reporting based on Ind ASs.
125-Company Cross-Sector Study (FY 2017)
Further financial results of around 125 companies were studied under a study in the FY 2017 for a period of the first three months. It was found that the companies belonging to the manufacturing and information technology sectors required to make the highest number of adjustments as compared to other sector companies. The other sector companies that followed belong to mining/metals, energy and telecommunications sectors. As per the report, the sample companies are required to make around 10 adjustments, on an average to the reported profit for the quarter ended June 30, 2015.
Shyam, Ashutosh (2016)
Shyam, Ashutosh (2016) opined that the Ind ASs transition will have a significant impact on the computation of many figures, especially the computation of operating profit, net profit, net worth and revenue of the companies. However, they found that the maximum impact of Ind ASs will be there on the sectors like metal, real estate, telecoms, oil & gas etc. They found that the Ind ASs transition will result into increase in revenue by 4-5% and decrease in EBITDA by 2-3%.
Top 5 Financial Statement Impact Areas Survey (2016)
A survey conducted in 2016 found that the top five areas to impact the financial statements after adoption of Ind ASs are leases (including embedded leases), operating segments, taxes, financial instruments (including derivatives) and revenue recognition.
Goyal, Neha (2018)
Goyal (2018) found that the impact of Ind ASs would depend on the company concerned and the industry concerned. He found that all the areas including equity, liabilities, assets expenses, and revenues would be impacted. He also found that the fair valuation of assets and financial instruments contained in the Ind ASs aimed at transparency between carrying value and fair value. However, he pointed out that this would require the corporate organizations to do a hectic work.
ICAI Research Study (2018)
ICAI (2018) found in its study that Ind ASs implementation provides better transparency and disclosures into the state of affairs of the companies. In addition to this, Ind ASs based financial statements display the economic reality of the transactions and other events rather than merely their legal form. This is fair and more transparent for the stakeholders. As per them, Ind ASs have made possible the comparability of financial statements of Indian companies with those of foreign companies in the same industry and has also brought accessibility of Indian companies to global capital markets.
Kirtan P. Raval (2017)
Kirtan P. Raval (2017) in his study discussed all kinds of outcomes, whether positive or negative, of convergence of Indian GAAP with IFRSs. Easy comparability and understandability of financial statements for investors, attraction of foreign capital, global exposure to accounting professionals is discussed as positive outcomes of convergence. On the other hand, more cost and time of convergence for companies, complexities of newly introduced concepts and convergence effect on medium enterprises are considered as negative outcomes of convergence. He opined that the convergence with IFRSs is beneficial to the country even though there are certain negative outcomes associated with convergence.
Manoj Kumara N V, Sowmya Erappa K and Abhilasha N (2016)
Manoj Kumara N V, Sowmya Erappa K and Abhilasha N (2016) in their study explored by collecting response from 30 Chartered Accountants, 20 Accounting Professors, 20 Research Scholars and 30 Accounting Students concluded that the main reason for adopting the IFRSs in India is the better comparability of financial statements. The study also explored that investor are the major beneficiaries of implementation of Ind AS followed by companies and national regulatory bodies. It also highlights and suggests that there is a need for proper training to academicians, chief financial officers, auditors and accountants in order to achieve smooth as well as suggests amending the laws and regulations as soon as possible in order to meet the requirement of IFRSs.
Sushma Vishnani, Saumya Gupta & Hemendra Gupta (2021)
Sushma Vishnani, Saumya Gupta & Hemendra Gupta (2021) analysed the effect of adopting Ind ASs by Indian companies. They analysed the impact of Ind ASs in respect of some specific aspects such as value relevance, earnings management and earnings persistence of the reported financials. The study also found that there would be quality improvement in the quality of financial reporting as a result of Ind ASs adoption. Besides, it would lead to enhancement in market-based measures.
Accounting standards (ASs) are the generally accepted principles, rules and procedures that are followed while preparing, reporting and maintaining the financial statements of an enterprise. These ASs are implemented all over the world. In India, National Accounting standards have been converged with IFRSs resulting into Ind ASs to bring the status of the Ind ASs at par with the global standards. Now, it is the question whether the Ind ASs are being followed in India, and what the current implementation status of Ind ASs is.
5. Objectives & Research Methodology
5.1 Objectives of the Study
The present study aims at achieving the following two objectives:
- To assess the impact of adoption of Ind ASs on the financial position and financial performance of Indian companies in the FMCG and I.T. sectors.
- To have a comparative view of the companies in FMCG and I.T. sectors because of adoption of Ind ASs on the financial position and financial performance of such companies.
5.2 Data Source
Financial data were extracted from audited annual reports which were published for the financial years 2010-2011 to 2019-20 of 10 IT industry and 20 FMCG companies. In respect of companies other than three kinds of companies i.e., banking companies, insurance companies and non-banking financial companies, MCA notified the mandatory implementation of Ind ASs to all listed and unlisted Indian companies having net worth of Rs. 500 crores or more from the financial year commencing on or after 01.04.2016 and for other listed and unlisted companies having net worth of Rs.250 crores or more from the financial year commencing on or after 01.04.2017.
It may be stated that non-banking financial companies have also been mandated by MCA to apply Ind ASs from the financial years commencing on or after 01.04.2018 or 01.04.2019, as the case may be, depending on the listing and net worth criteria. In addition to this, the Ind ASs will also apply to the parents, subsidiaries, associates and joint ventures of such companies mandatorily required to apply Ind ASs.
Such companies, to which Ind ASs are applicable as stated above, are also required to prepare “Reconciliation of Equity” and “Reconciliation of total comprehensive income” for the respective previous year as per the provisions of Ind AS 101 “First Time Adoption of Indian Accounting Standards” to understand the factors contributing to the change from ASs to Ind ASs.
5.3 Determination of Sample Size and Sampling
The selection of the companies has been made on simple random basis taking into account the qualifying conditions. Finally, a list of 30 companies were selected comprising of 10 companies from IT sector and 20 companies from FMCG sector.
5.4 Statistical Tools
To compare and interpret the financial position and financial performance of the selected companies for the purpose of study, independent sample t-test and paired sample t-test have been applied.
6. Analysis & Empirical Findings
6.1 Financial Position of the FMCG and IT Sector Companies Pre & Post Adoption of the Ind ASs
For measuring the financial position of the companies pre and post adoption of the Ind ASs, the present study has compared the financial position of the companies for the period of pre and post adoption of the Ind ASs. It has been hypothesized that, “there is no significant change in the financial position of the companies under FMCG and IT sectors in pre and post adoption of Ind AS.”
To test the above hypothesis, t-statistics has been applied and alpha level has been set at 5 percent. Outcomes of the test are reveled in table 1 and 2 respectively.
| Table 1: Group Statistics of T-Test on Financial Position | |||||
|---|---|---|---|---|---|
| Variable | IndASs | N | Mean | Std. Deviation | Std. Error Mean |
| FPOS | Pre Ind AS | 105 | 203108.2712 | 286142.27702 | 27924.62690 |
| Post Ind AS | 105 | 201500.6833 | 282465.18833 | 27565.77979 | |
(Source: Calculation and compilation done by authors based on secondary data)
| Table 2: Independent Samples T-Test on Financial Position | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Model Condition | Levene’s Test for Equality of Variances | t-test for Equality of Means | ||||||||
| F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | 95% CI Lower | 95% CI Upper | ||
| FPOS | Equal variances assumed | .008 | .930 | .041 | 208 | .967 | 1607.58790 | 39238.46331 | -75748.47861 | 78963.65442 |
| Equal variances not assumed | — | — | .041 | 207.965 | .967 | 1607.58790 | 39238.46331 | -75748.55433 | 78963.73014 | |
(Source: Calculation and compilation done by authors based on secondary data)
Table 1 shows the group statistics of the test. Table 1 revealed that the financial position of the companies post adoption of Ind AS is slightly decreasing (201500.6833) as compared to the financial position pre adoption (203108.2712) of the Ind ASs (post FPOS < Pre FPOS). As shown by table 2, the mean difference is not statistically significant (t=0.041, p=0.967). Outcomes of the test indicate that there is no significant difference in financial position of the companies listed in NSE Nifty. Results could not reject our null hypothesis.
6.2 Financial Performance of the Companies Pre & Post Adoption of the Indian Accounting Standards
The present study has compared the financial performance (operating profit) of the companies for pre and post adoption of the Ind ASs. The basic purpose was to find if there is any change in the operating profit after implementation of Ind ASs. It has been hypothesized that, “there is no significant change in the operating profit of the companies under FMCG and IT sectors for pre and post adoption of Ind ASs.”
To test the above hypothesis, t-statistics has been applied and alpha level has been set at 5 percent. Outcomes of the test are reveled in table 3 and 4 respectively.
| Table 3: Group Statistics for T-Test on Operating Profit | |||||
|---|---|---|---|---|---|
| Variable | Ind_AS | N | Mean | Std. Deviation | Std. Error Mean |
| OPBT | Pre Ind AS | 105 | 5634.52 | 8337.65 | 813.67117 |
| Post Ind AS | 105 | 9180.16 | 12616.98 | 1231.29134 | |
(Source: Calculation and compilation done by authors based on secondary data)
| Table 4: Independent Samples t – Test for Operating Profit | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Model Condition | Levene’s Test for Equality of Variances | t-test for Equality of Means | ||||||||
| F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | 95% CI Lower | 95% CI Upper | ||
| OPBT | Equal variances assumed | 14.983 | .000 | -2.40 | 208 | .017 | -3545.65 | 1475.85 | -6455.19 | -636.14 |
| Equal variances not assumed | — | — | -2.40 | 180.28 | .017 | -3545.65 | 1475.85 | -6457.81 | -633.48 | |
(Source: Calculation and compilation done by authors based on secondary data)
Table 3 shows the group statistics of the test. The table revealed that the operating profit of the companies taken into the study, for their post adoption of Ind AS is higher than that of pre adoption period (post profit 9180.16 > Pre-Profit 5634.52) but the variability in profitability is found higher in the post implementation period (Post standard deviation 12616.98 > Pre standard deviation 8337.65). As displayed in table 4, the mean difference is statistically significant (t = -2.40, p = 0.017). Outcomes of the test indicate that there is a significant difference in operating profit of the companies listed on NSE for pre and post adoption of Ind ASs. Results displayed in table 3 and 4 together reject our null hypothesis.
6.3 Financial Position and Performance of the FMCG Companies Pre & Post Adoption of the Indian Accounting Standards (Ind ASs)
To measure the financial position of the FMCG companies for pre and post adoption of the Ind ASs, the present study has compared their financial position and performance. It has been hypothesized that, “there is no significant change in the financial position and performance of the FMCG companies for pre and post adoption of Ind AS.”
To test the above hypothesis, paired sample t-statistics has been applied and alpha level has been set at 5 percent. Outcomes of the test are reveled in table 5 and table 6 respectively.
| Table 5: Paired Samples Statistics of FMCG Profitability and Financial Position | |||||
|---|---|---|---|---|---|
| Pair | Variable Condition | Mean | N | Std. Deviation | Std. Error Mean |
| Pair 1 | FMCG Pre FPOS | 160600.31 | 45 | 164978.15 | 24593.49 |
| FMCG Post FPOS | 158970.33 | 45 | 158426.70 | 23616.86 | |
| Pair 2 | FMCG Pre OPBT | 4285.94 | 45 | 5068.87 | 755.62 |
| FMCG Post OPBT | 6279.90 | 45 | 7177.56 | 1069.97 | |
(Source: Calculation and compilation done by authors based on secondary data)
| Table 6: Paired Samples Test of FMCG Profitability and Financial Position | ||||||||
|---|---|---|---|---|---|---|---|---|
| Pair Comparison | Paired Differences | t | df | Sig. (2-tailed) | ||||
| Mean | Std. Deviation | Std. Error Mean | 95% CI Lower | 95% CI Upper | ||||
| Pair 1: FMCG Pre FPOS – FMCG Post FPOS | 1629.97 | 8451.52 | 1259.88 | -909.15 | 4169.09 | 1.294 | 44 | .203 |
| Pair 2: FMCG Pre OPBT – FMCG Post OPBT | -1993.96 | 2276.05 | 339.29 | -2677.76 | -1310.15 | -5.877 | 44 | .000 |
(Source: Calculation and compilation done by authors based on secondary data)
Table 5 displayed that the financial position of the FMCG companies has declined post adoption of the Ind ASs. Before adoption of the Ind ASs, the financial position of the FMCG companies listed on NSE was 160600.31, which has gone down to 158970.33 for the post adoption period. Though the difference was not found statistically significant in the test, yet the outcomes displayed in table 6 (t = 1.294, p = 0.203). Hence, results could not reject our null hypothesis.
The performance, taken as operating profit, for these FMCG companies for post adoption has shown remarkable changes. It has increased from 4285.94 in pre-adoption to 6279.90 in post adoption period. That change was found statistically highly significant, as shown in table 6 (t = -5.877 and p = 0.000). Results rejected our null hypothesis for comparison of the profitability during pre and post adoption of the Ind ASs by the FMCG companies listed on NSE.
6.4 Financial Position and Performance of the IT Companies Pre & Post Adoption of the Ind ASs
The present study has further compared the financial position and profitability of IT companies listed on NSE. The data for this purpose on financial position and profitability have been divided into pre and post period of implementation of Ind ASs. It has been hypothesized that, “there is no significant change in the financial position and profitability of the IT companies for pre and post adoption of Ind ASs.”
To test the above hypothesis, paired sample t-statistics has been applied and alpha level has been set at 5 percent. Outcomes of the test are reveled in tables 7 and 8 respectively.
| Table 7: Paired Samples Statistics of IT Profitability and Financial Position | |||||
|---|---|---|---|---|---|
| Pair | Variable Condition | Mean | N | Std. Deviation | Std. Error Mean |
| Pair 1 | IT Pre FPOS | 234989.24 | 60 | 348735.53 | 45021.56 |
| IT Post FPOS | 233398.44 | 60 | 345700.03 | 44629.68 | |
| Pair 2 | IT Pre OPBT | 6645.94 | 60 | 10047.32 | 1297.10 |
| IT Post OPBT | 11355.36 | 60 | 15197.23 | 1961.95 | |
(Source: Calculation and compilation done by authors based on secondary data)
| Table 8: Paired Samples Test of IT Profitability and Financial Position | ||||||||
|---|---|---|---|---|---|---|---|---|
| Pair Comparison | Paired Differences | t | df | Sig. (2-tailed) | ||||
| Mean Diff | Std. Deviation | Std. Error Mean | 95% CI Lower | 95% CI Upper | ||||
| Pair 1: IT Pre FPOS – IT Post FPOS | 1590.80 | 6590.27 | 850.80 | -111.64 | 3293.25 | 1.87 | 59 | .066 |
| Pair 2: IT Pre OPBT – IT Post OPBT | -4709.42 | 5914.09 | 763.50 | -6237.19 | -3181.65 | -6.17 | 59 | .000 |
(Source: Calculation and compilation done by authors based on secondary data)
Table 7 displayed that the financial position of the IT companies has slightly declined post adoption of the Ind ASs. Though the difference was not found statistically significant at 5 percent in the test, yet the outcomes displayed in table 8 (t = 1.87, p = 0.066). Hence, results could not reject our null hypothesis. On the basis of the outcomes displayed in table 7 and 8, this study inferred that the financial position of the IT companies has not improved after adoption of the Ind ASs.
The profitability, at the same time, for these IT companies, for post adoption of Ind ASs has shown remarkable changes. It has increased from 6645.94 in pre-adoption period to 11355.36 in post adoption period. That change was found statistically highly significant, as shown in table 8 (t = -6.17 and p = 0.000). Results rejected the null hypothesis for comparison of the profitability during pre and post adoption of the Ind ASs by the IT companies listed on NSE. The study revealed that there is a remarkable improvement in the profitability of the Indian IT companies since the implementation of the Ind ASs.
7. Summary and Conclusion
The present study conducted on the IT and FMCG companies listed on NSE revealed the significant finding on their financial position and performance. Companies taken together into the study revealed that unanimously there is a significant increment in the operating profit of these companies. For financial position, there is no evidence of any significant positive change, as expected, after the implementation of the Ind ASs.
It is interesting to observe that the profitability of both the sectors, IT and FMCG, individually has shown a significant improvement post adoption of the Ind ASs. The Ind ASs have already been converged with IFRSs. The converged Ind ASs is landmark change in the history of accounting standards of the country. By making National Accounting Standards at par with IFRSs, the companies and accounting professionals in India enjoy the benefits of global accounting standards. In spite of many challenges, implementation of Ind ASs will result into a significant improvement in the corporate financial reporting including global comparability mainly because of the Ind ASs being principle-based standards, besides their being more transparent and containing more disclosures.
“For the effective implementation of Ind ASs, there is a need of a systematic and step-by-step plan, the integration of resources and appropriate training to all the stakeholders, especially those involved in preparation and presentation of the financial statements involving the application of Ind ASs and those involved in auditing such financial statements.”
For the effective implementation of Ind ASs, there is a need of a systematic and step-by-step plan, the integration of resources and appropriate training to all the stakeholders, especially those involved in preparation and presentation of the financial statements involving the application of Ind ASs and those involved in auditing such financial statements. Entities have already implemented the Ind ASs as well as the changes into the systems. Ind ASs have already been implemented in a phased manner. Thus, the financial statements prepared on the basis of Ind ASs will continue to provide useful information to the users of financial statements, especially the primary users of the financial statements.
8. Implications and Limitations of the Study
Theoretical Rationale: Income/Expense Reclassification & Ind AS 113 Fair Valuation
The increase in the financial performance (in terms of operating profit) of the Manufacturing sector and I.T. sector companies may be because of the reason that either some elements of financial statements related to income which were not recognized as income under the ASs are now being recognized as income under the Ind ASs or some elements of financial statements related to expenses which were recognized as expenses under ASs are not being recognized as expenses under the Ind ASs or both might have happened.
Further, the deterioration in the financial position of the Manufacturing sector and I.T. sector companies may be because of the fair valuation of assets and liabilities (especially with reference to Ind AS 113 “Fair Value Measurement”) implying that the fair value of assets might have gone down or the fair value of liabilities might have gone up or both might have happened in contradiction of the permission of the valuation of assets and liabilities on historical cost basis under ASs. However, the authors are of the view that application of Ind ASs may yield a lot of benefits to the companies belonging to both these sectors in terms of global comparability of financial statements, listing on international stock exchanges, borrowing from foreign counties at a lower rate of interest etc.
Sample Horizon & Future Research Scope
However, it is important to note that the conclusions and implications of the present study are based on the financial statements of 20 companies belonging to FMCG sector and 10 companies belonging to I.T. sector over a period of 10 years from 2010-11 to 2019-20. Hence, the future researchers may undertake a further study taking a larger number of companies including those from other sectors also and over a longer number of years to explore more.
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