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One of the key issues with the Ind AS roadmap is the alignment of implementation dates between NBFC companies and non NBFC companies. For example, phase 1 non NBFC companies go live on Ind-AS from 1-4-2016, with a transition date of 1-4-2015. The first Ind AS financial year will be 2016-17. In the case of NBFC, phase 1 companies will go live on Ind-AS from 1-4-2018, with a transition date of 1-4-2017. The first Ind AS financial year will be 2018-19.
In the case of NBFC company, early adoption of Ind AS is prohibited. This poses a unique challenge to a consolidated group that has an NBFC company and a non NBFC company. Consider the diagram below.
When the NBFC is on the top of the structure, the problem is very acute. In this case, the non NBFC companies below the NBFC Parent company (M Co, T Co & S Co) will prepare Ind AS for financial year 2016-17 as they are in phase 1. For 2016-17, the NBFC Parent will prepare stand-alone and CFS under Indian GAAP, since it is prohibited from early adopting Ind AS.
For purposes of consolidation by the NBFC Parent; M Co, T Co & S Co will have to continue preparing their accounts under Indian GAA P as well. Therefore M Co, T Co & S Co will end up preparing accounts both under Indian GAAP & Ind AS, which will be a huge burden.
When a NBFC is below a non NBFC company, the NBFC will prepare Indian GAAP accounts for standalone purposes and to enable non NBFC parent to prepare Ind AS CFS, the NBFC will also prepare Ind AS accounts. In the above diagram, the NBFC subsidiary will prepare Indian GAAP stand-alone financial statements since it is prohibited from early adopting Ind AS. However to enable M Co to prepare Ind AS CFS, the NBFC subsidiary will also need to provide Ind AS numbers to M Co.
Conclusion
A group that has NBFC and non NBFC companies will bear a huge burden of preparing financial statements under both Indian GAAP and Ind AS. RBI/ MCA can remove this burden by allowing NBFCs, particularly those that are not systemically important to early adopt Ind AS.
In the author’s opinion, in such an instance, NBFC should have the option of earlier adoption of Indian AS. A clarification will avoid confusion and duplication.
