Auditing Ind AS 101 — testing the transition date opening balance sheet

Ind AS 101 requires a first-time adopter to prepare an opening Ind AS balance sheet at the date of transition by applying Ind AS standards retrospectively, subject to a defined set of mandatory exceptions (where retrospective application is prohibited — for example, hindsight cannot be used in making the accounting estimates that would have been needed under previous GAAP) and optional exemptions (where retrospective application is permitted but not required — for example, the deemed cost exemption for property, plant and equipment at its previous GAAP carrying value instead of at full Ind AS 16 cost). The audit's job is to establish exactly which exemptions were elected, since each one has its own conditions and each is disclosed separately, and to recompute the resulting equity and profit reconciliation between previous GAAP and Ind AS.

Common exemptions to specifically test

1. 01PPE/intangible assets deemed costIf elected, confirm the previous GAAP carrying amount (or a fair value as at the transition date) was used as deemed cost, and that this election was applied consistently to all assets in the same class, not selectively to inflate or deflate specific asset values.
2. 02Business combinations exemptionWhere elected, confirm past business combinations before the transition date were not restated under Ind AS 103 — goodwill carried forward at the previous GAAP amount, tested for impairment at the transition date rather than recomputed from scratch.
3. 03Cumulative translation differences exemptionConfirm cumulative foreign currency translation differences were reset to zero at the transition date, if elected, with the corresponding adjustment taken to retained earnings.
4. 04Leases exemptionWhere leases were reassessed at the date of transition rather than at inception, confirm the reassessment was done consistently using facts and circumstances existing at the transition date.

Reconciliation testing

Ind AS 101 requires a reconciliation of equity reported under previous GAAP to equity under Ind AS, both at the date of transition and at the end of the last period presented under previous GAAP, plus a reconciliation of total comprehensive income for the latest period in the last previous GAAP financial statements. Each reconciling item should be recomputed and traced to the specific standard driving the adjustment — a reconciliation presented as a single net number, without a line-by-line breakdown by standard, does not meet the disclosure requirement and cannot be effectively audited as presented.