New accounting rule to help firms identify Rs 1-trn assets, liabilities: EY

The accounting standard is likely to have a significant impact on airline, retail and telecom sectors

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The top 75 listed companies are likely to cumulatively recognise additional assets and liabilities worth over Rs 1 trillion in their balance sheets once new accounting norms related to leasing are implemented, says a report.

Leading consultancy EY has analysed the possible impact of Indian Accounting Standard (Ind AS) 116 mainly on the top 100 companies listed on the BSE.

Ind AS 116 is to replace Ind AS 17 from accounting periods starting April 1, 2019.

The accounting standard is likely to have a significant impact on airline, retail and telecom sectors.

"Balance sheets of top 75 Indian companies may be grossed up by over Rs 1 trillion on transitioning to new leasing standard Ind AS 116," EY said in a release.

The annual reports of top 100 BSE-listed companies, based on their market capitalisation, along with certain additional sector specific entities were analysed.

EY noted that the objective was to understand the impact of Ind AS 116 on key financial metrics, including lease expense, interest cost, depreciation expense, earnings before interest, depreciation and tax (EBIDTA).

The analysis highlighted that most of the companies across sectors are expected to have a significant impact on calculations related to property, plant and equipment and liabilities.

The new standard provides lessors and lessees with various accounting policy choices and practical expedients which can be applied during transition, the release added.

"Based on the accounting options provided under Ind AS 116, entities have multiple different accounting approaches at the time of transition full retrospective and modified retrospective approach (two options within modified retrospective approach)," it said.

Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS) at EY India said that globally, there is a wave of key accounting changes and amongst them, most noticeable is transitioning to the new leasing standard.