A double transition for corporate India: New accounting rules, new auditors

Mumbai: Companies adopting the proposed Ind AS 118 accounting standard could face a double challenge if the transition coincides with a change of statutory auditor. Differences in interpretation and the need to reassess comparative figures could potentially add to audit work, necessitate revisions and delay reporting, audit experts said.

The timing could leave incoming auditors dealing with two transitions at once: familiarising themselves with a new business and assessing changes to financial statements under a new reporting framework.

“The first financial statements prepared under the new framework will create some overlap between outgoing and incoming auditors,” said Samir Shah, audit leader, Deloitte Haskins & Sells LLP. “The existing auditor may review the first quarter of 2027-28, while the incoming firm will handle the full-year financial statements.”


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The incoming auditors will need to prepare for the transition and deal with comparative figures from the previous year, which would have been audited by the outgoing auditor.

A Prime Database study shows that the tenures of 1,030 auditors across 997 companies are due to expire in this financial year. Of these, 385 auditors have completed the maximum 10-year tenure and must rotate out. A further 314 auditors across 305 companies are due to expire in 2027-28.

Meanwhile, Ind AS 118, which is awaiting notification by the corporate affairs ministry, has been recommended for implementation from April 1, 2027, for annual reporting periods beginning on or after that date. The National Financial Reporting Authority has also recommended corresponding changes to Schedule III of the Companies Act, which prescribes financial statement formats.

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The two transitions could place additional demands on incoming auditors, who will be developing their understanding of the business while evaluating new classifications, allocations and recast comparatives.

“An earlier audit opinion would not, by itself, resolve the judgements involved in the new presentation,” said Vishal Divadkar, managing partner, MSKA & Associates, a BDO International member firm. “Differences in interpretation could lead to additional audit work, rework and reporting delays. Companies should document their accounting conclusions early, retain supporting evidence and engage with incoming auditors well ahead of the transition,”

Paras Savla, partner, KPB and Associates, said that Indian auditing is entering its most demanding phase in a decade, a rare convergence as long-serving auditors rotate out and financial statements themselves change shape.

The proposed Ind AS 118, the new Indian accounting standard based on IFRS 18 issued by the International Accounting Standards Board, seeks to make corporate financial performance more comparable by introducing defined categories and mandatory subtotals in the profit and loss statement. It also sets out requirements for disclosures on management-defined performance measures.

The standard changes how income and expenses are classified and presented, rather than how profit is measured. It introduces defined categories for operating, investing and financing activities, alongside income taxes and discontinued operations.

The transition will involve significant accounting judgements, including how companies aggregate or disaggregate financial information, classify income and expenses, and determine the appropriate presentation of operating costs.

Experts said that companies may also need to review charts of accounts, transaction-recording systems and consolidation processes, introduce new disclosure data points and revise internal controls.

These changes could add to the work facing incoming auditors, who will need to understand not just the revised presentation but also the systems and controls supporting the reported figures.

One significant change concerns the presentation of expenses. Companies will be able to classify them by nature, by function or through a combination of the two, depending on which approach provides the most useful information. This could require changes to finance systems, data collection and internal controls, particularly for companies moving to a function-based presentation.

Ketan Dalal, who chairs the audit committees of Zensar Technologies, Torrent Power and HDFC Life Insurance, said the standard's objective was to improve comparability and comprehension. “But in today’s challenging business environment, the transition will put considerable pressure on companies and audit committees,” he said.

The transition will require companies to involve finance teams, auditors and audit committees early, experts said. Those changing auditors around the implementation date will also need to ensure that outgoing and incoming firms communicate on key accounting judgements and the evidence supporting comparative figures.