2 minute read 27 May 2020
Key considerations for NBFCs while preparing their financial statements

How transition to Ind AS has impacted the financial reporting landscape for NBFCs

EY India
By EY India

Multidisciplinary professional services organization

2 minute read 27 May 2020
Related topics Financial accounting advisory services
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  • Ind AS impact analysis for non-banking financial companies

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Our analysis indicates there is scope for improvement in providing explanation for transition to Ind AS and disclosures, specifically those relating to financial instruments.

Phase 1 Non-banking financial companies (NBFCs) including housing finance companies (HFCs) made a mammoth journey in transitioning to the International Financial Reporting Standards (IFRS) convergent Indian Accounting Standards (Ind AS) for the year ended 31 March 2019. Also, the Ministry of Corporate Affairs (MCA) notified Division III to Schedule III of the Companies Act 2013 on 11 October 2018, which stated that every NBFC to which Ind AS applies, shall prepare its financial statements in accordance with the prescribed schedule or with such modification as may be required under certain circumstances. These NBFCs have published their financial results for the year ended 31 March 2019. The results provided useful insights on how the adoption of Ind AS impacted NBFCs and proved to be a testament to their readiness to adopt a significant change in financial reporting.

The major impact of Ind AS on these NBFCs were due to:

  • The ‘expected credit loss’ model (ECL) which replaced the erstwhile incurred loss model 
  • The application of ‘effective interest rate’ (EIR)
  • Fair valuation of financial instruments
NBFCs should focus on strengthening their risk management framework and building reliable loss estimates. Changes should be made in the ECL model to factor in the COVID-19 and moratorium impact.

The other impact areas include fair valuation of employee stock option plan (ESOPs), securitization and assignment arrangements, taxation and presentation and disclosure.

The immediate focus for these NBFCs now is assessing and disclosing the impact of COVID-19 in their financial statements for the year ended March 2020.

Phase 2 NBFCs which are ready to publish their first set of financial results under Ind AS have a lot to learn from the experiences of large NBFCs.

NBFCs should now aim to deploy solutions to automate the financial reporting process for preparation of financial statements including disclosures.

How EY can help

NBFCs need to focus on automation of the financial reporting process, gearing up IT systems and enhancing the quality of disclosures
Manan Lakhani
Director, Financial Accounting Advisory Services (FAAS), EY India

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Summary

Phase 2 NBFCs which are ready to publish their first set of financial results under Ind AS have a lot to learn from the experiences of large NBFCs and they need to show the same rigor and enthusiasm as those who have already transitioned.

About this article

EY India
By EY India

Multidisciplinary professional services organization

Related topics Financial accounting advisory services
Upvote