Bottom-line. Regular readers of this blog will know how I keep harping on about the bottom-line impact of IFRS and Ind AS which is largely under-explored in the Indian context. At the end of the day, it’s about knowing the nitty-gritty of accounting standards and how they affect the business bottom line. For newer readers, I’ll link some of the recent blogs here:
- Misinterpretation and non-compliance of IFRS 9 led this private sector bank to slammed with an INR 2 crore penalty! https://contetra.com/2021/11/11/how-misinterpretation-non-compliance-of-ifrs-can-cost-you-dearly/
- IND AS 116 and its implications on companies! https://contetra.com/2022/02/23/lease-accounting-aspects-no-one-is-talking-about/
- How IND AS 115 had a direct impact on the EBITDA and Net Profits of this automobile industry giant! https://contetra.com/2022/01/21/how-the-new-revenue-recognition-standard-has-been-a-game-changer-for-the-automobile-industry/
Businesses always look to a hero to navigate them through tough times. Well not just tough times, but even in calm seas, it’s reassuring to have a capable captain at the wheel. And that hero is almost always the CFO.
While the value they add to the business processes is well established, this time we thought we’d speak to them specifically about strategic technical accounting. Deciding to tap into the best minds of the industry was a very good idea indeed.
We’re talking heavy hitters here, the crème de la crème of the industry including a trailblazing D2C unicorn. These experts aren’t just armed with experience and expertise – they’ve got the goods to give us a whole new level of financial insight.
India’s first Tax-Free Trade Trove
With over 200 companies setting up shops, GIFT Gujarat International Finance Tec-City has already attracted a whopping investment of $240 million. Quite the GIFT for the financial sector in India!
To understand the grassroot benefits of GIFT City, we reached out to Deepak Aggarwal. With over two decades of knowledge & experience in finance and fintech, Deepak has probably forgotten more things than we will collectively ever know! In his current stint, he is the Managing Partner of Bluereservoir Business Services LLP. GIFT City is a game-changer in the finance world of India. A 10-year tax holiday on profits earned, no GST charged on IFSC clients, exemption from STT, CTT, stamp duty, subsidies, and countless other benefits for all the units operating under the India’s first International Financial Services Centre (IFSC).
“Gift City provides conducive ecosystem for global players to set up their financial services operations in India. It is not surprising that several marquee global funds, banks and other market intermediaries have actually moved-in or are in the process of relocating from several offshore jurisdictions like Singapore and Mauritius to GIFT City. The process of setting up a fund in GIFT city could be quite unsettling at first for all stakeholders involved. However, GIFT City embodies the concept of ease of doing business and provides for a single window clearance from multiple regulators — IFSCA, SEZ, IRDAI, SEBI and others so it is a fairly quick and well laid out process to get an approval. There is nothing better than having operations in a well-regulated and respected jurisdiction like GIFT City. Icing on the cake is saving millions of dollars in the form of tax benefits and lower operational costs. Frankly, that was the most head turning point about GIFT City for me.”
Juxtaposed with the paperwork required for regulatory obligations, the single window clearance will certainly be an added attraction.
IND AS 116: To Lease or Not to Lease?
Since Encube Ethicals is the largest single-site topical manufacturing facility in the world Sandeep Chhajer is the go-to person for IND AS 116. He heads the finance function of Encube as the General Manager. With an on-going experience of more than 15 years, Sandeep has a vast portfolio of working in diverse industries. He said, “Leases under IND AS 16 have been a hot topic recently, and for good reason. The nature of expenses changed from lease rent in previous periods to depreciation cost for the right-of-use asset and finance cost for interest accrued on the lease liability. So, we’re basically looking at improved EBITDA numbers (since both these items are below EBITDA figures). Ind AS 116 or IFRS 16 is a tricky concept and requires different and more extensive disclosures about leasing activities than what we had in the erstwhile GAAP. It certainly gives a clearer picture of the financials and improves transparency for stakeholders.”
Preparing for IFRS 17: A Financial Revolution
IFRS 17 is the new star of IFRS for insurance contracts. With the constantly evolving global financial landscape and the complexities of the IFRS framework, IFRS 17 has evolved with the replacement of IFRS 4. It’s no wonder the implementation has been delayed several times! But, the good news is that it will soon be set into effect.
Let’s ask the CFO of one of the biggest Insurance broker companies of India on the impacts!
Pratima J Arora, CFO of Prudent Brokers, CFO at the most charismatic insurance broking company said, “IFRS 17 will standardize the way insurers account for insurance contracts, making it easier for investors and regulators to understand and compare financial statements across companies. This will promote greater confidence in the insurance industry and help insurers to access capital at more favorable terms.”
Overall, while the transition to IFRS 17 may be challenging for companies in the short-term, the long-term benefits of increased transparency, comparability, and accuracy in financial reporting will be well worth the effort.
ECL: Credit Loss Accounting Gets a Facelift
According to a study by Dun & Bradstreet, 35% of businesses fail to monitor their credit risk exposure, which can lead to increased financial and reputational risk.
Under IFRS 9, ECL requires companies to use forward-looking information and data to calculate expected credit losses on financial instruments. Banks and other financial institutions will need to recognize expected credit losses upfront, rather than waiting until actual losses occur.
An example on how ECL can provide a more accurate representation of the potential losses is when Contetra helped BOB (Bank of Baroda) Cards shift to the simplified approach from the general approach. The financial impact of Contetra’s approach was that we helped BOB cards save a whopping Rs. 7 crores in provisions. How? Through our approach of going into the detailed level segmental performance assessment (which in turn helped us ascertain the most beneficial target group for product sale), a customer-wise segmentation and product-wise segmentation.
[Read more about Contetra’s approach and its impact here.
From Ledger to Measure: Embracing Internal Control Frameworks
In today’s fast-paced business world, staying on top of internal control frameworks is key to mitigating financial risk and maintaining regulatory compliance. But how does a CFO keep up with the ever-evolving landscape of internal control frameworks?
Enter Janet Serrao Agarwal, CFO extraordinaire of TIFIN – one of the world’s most dynamic fintech companies. With over 15 years of expertise in various finance roles, Janet knows a thing or two about effective internal controls. “By adopting a proactive approach and taking advantage of emerging technologies and expert insights, CFOs can ensure that their internal control frameworks are robust and in accordance with the latest reporting standards.”
At Contetra we work with CFOs and senior finance leaders across the world by helping them get the competitive advantage they need – whether it’s creating financial statements that make more sense for a global world, or finance transformation initiatives that drives their business to new heights.
We hope you found this to be an insightful read. Follow us on LinkedIn for more content about #InternationalGAAP #IFRS #BusinessFinance #FPA #FinanceStrategy #ERPImplementation and more!
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