Phased implementation of Ind AS may pose challenges: Report

Under Ind AS, there'll be change in accounting treatment of items such as extended warranty on sales

Phased implementation of Ind AS will result in inconsistent accounting standards being followed by various companies and may lead to challenges in undertaking their economic analysis, says a report.

Some companies will continue to follow Indian Generally Accepted Accounting Principles (IGAAP) as others are moving to Ind AS.

The phase-wise adoption of Ind AS, beginning April 2016, carries significant impact across industries such as IT services/technology, pharmaceuticals, infrastructure and telecom.

"This will pose significant practical challenges in undertaking economic analysis, which is a fundamental part of any TP (Transfer Pricing) analysis," said a white paper of PwC on 'Transfer pricing: Impact of Ind AS'.

As per the database of 2017, the paper said that out of the 10,4592 companies (excluding insurance, banking and non- banking finance companies), approximately 10 per cent will fall under Phase I and 32 per cent under Phase II.

The remaining 58 per cent companies are presently not under Ind AS Phase I and Phase II transition.

The analysis concludes that IND AS will have significant interplay with transfer pricing (TP) in areas such as control, contractual managements, financial instruments, said Kunj Vaidya, Leader Transfer Pricing, Price Waterhouse & Co LLP, India.

"One of the more significant issues in practice will also be comparability arising on account of change in accounting treatment of revenue and expenses under Ind AS. The white paper identifies key areas that companies should review from the perspective of TP policy, planning and documentation," he added.

Under Ind AS, there will be a change in accounting treatment of items such as extended warranty on sales, financing benefit on sales, discounts, volume rebates, sales incentives, share-based payments, and impairment of intangibles, among others.

"Companies will have to undertake a thorough analysis to assess whether the TP treatment of such items as operating or non-operating will undergo a change from the TP perspective," the paper said.

Consequently, Advance pricing agreements (APAs) are also likely to be impacted as Ind AS may impact the underlying TP methodologies and critical assumptions, it added.