SENSEX NIFTY India | Accounting Policy > Computers - Software > Accounting Policy followed by Infosys - BSE: 500209, NSE: INFY


BSE: 500209|NSE: INFY|ISIN: INE009A01021|SECTOR: Computers - Software
May 26, 15:59
14.3 (1.46%)
VOLUME 184,059
May 26, 15:57
12.4 (1.26%)
VOLUME 2,493,993
Mar 15
Accounting Policy Year : Mar '16
Company overview
 Infosys is a global leader in consulting, technology, outsourcing and
 next-generation services. Along with its subsidiaries, Infosys provides
 Business IT services (comprising application development and
 maintenance, independent validation, infrastructure management,
 engineering services comprising product engineering and lifecycle
 solutions and business process management); consulting and systems
 integration services (comprising consulting, enterprise solutions,
 systems integration and advanced technologies); products, business
 platforms and solutions to accelerate intellectual property-led
 innovation including Finacle, our banking solution; and offerings in
 the areas of Analytics, Cloud, and Digital Transformation.
 The Company is a public limited company incorporated and domiciled in
 India and has its registered office at Bangalore, Karnataka, India.
 The Company has its primary listings on the BSE Limited and National
 Stock Exchange of India Limited in India. The Company''s American
 Depositary Shares representing equity shares are also listed on the New
 York Stock Exchange (NYSE), Euronext London and Euronext Paris.
 1.1 Basis of preparation of financial statements
 These financial statements are prepared in accordance with Indian
 Generally Accepted Accounting Principles (GAAP) under the historical
 cost convention on the accrual basis except for certain financial
 instruments which are measured at fair values. GAAP comprises mandatory
 accounting standards as prescribed under Section 133 of the Companies
 Act, 2013 (''the Act'') read with Rule 7 of the Companies (Accounts)
 Rules, 2014, the provisions of the Act (to the extent notified) and
 guidelines issued by the Securities and Exchange Board of India (SEBI).
 Accounting policies have been consistently applied except where a
 newly-issued accounting standard is initially adopted or a revision to
 an existing accounting standard requires a change in the accounting
 policy hitherto in use.
 1.2 Use of estimates
 The preparation of the financial statements in conformity with GAAP
 requires the Management to make estimates and assumptions that affect
 the reported balances of assets and liabilities and disclosures
 relating to contingent liabilities as at the date of the financial
 statements and reported amounts of income and expenses during the
 period.  Examples of such estimates include computation of percentage
 of completion which requires the Company to estimate the efforts or
 costs expended to date as a proportion of the total efforts or costs to
 be expended, provisions for doubtful debts, future obligations under
 employee retirement benefit plans, income taxes, post-sales customer
 support and the useful lives of fixed tangible assets and intangible
 Accounting estimates could change from period to period. Actual results
 could differ from those estimates. Appropriate changes in estimates are
 made as the Management becomes aware of changes in circumstances
 surrounding the estimates. Changes in estimates are reflected in the
 financial statements in the period in which changes are made and, if
 material, their effects are disclosed in the notes to the financial
 1.3 Revenue recognition
 Revenue is primarily derived from software development and related
 services and from the licensing of software products. Arrangements with
 customers for software development and related services are either on a
 fixed-price, fixed-timeframe or on a time-and-material basis.
 Revenue on time-and-material contracts are recognized as the related
 services are performed and revenue from the end of the last billing to
 the Balance Sheet date is recognized as unbilled revenues. Revenue from
 fixed-price and fixed-timeframe contracts, where there is no
 uncertainty as to measurement or collectability of consideration, is
 recognized based upon the percentage-of-completion method. When there
 is uncertainty about measurement or ultimate collectability, revenue
 recognition is postponed until such uncertainty is resolved. Cost and
 earnings in excess of billings are classified as unbilled revenue while
 billings in excess of cost and earnings are classified as unearned
 revenue. Deferred contract costs are amortized over the term of the
 contract. Provision for estimated losses, if any, on uncompleted
 contracts is recorded in the period in which such losses become
 probable based on the current estimates.
 Annual Technical Services revenue and revenue from fixed-price
 maintenance contracts are recognized ratably over the period in which
 services are rendered. Revenue from the sale of user licenses for
 software applications is recognized on transfer of the title in the
 user license, except in case of multiple element contracts, which
 require significant implementation services, where revenue for the
 entire arrangement is recognized over the implementation period based
 upon the percentage-of-completion method. Revenue from client training,
 support and other services arising out of the sale of software products
 is recognized as the related services are performed.
 The Company accounts for volume discounts and pricing incentives to
 customers as a reduction of revenue based on the ratable allocation of
 the discount / incentive amount to each of the underlying revenue
 transactions that result in progress by the customer towards earning
 the discount / incentive. Also, when the level of discount varies with
 increases in levels of revenue transactions, the Company recognizes the
 liability based on its estimate of the customer''s future purchases.  If
 it is probable that the criteria for the discount will not be met, or
 if the amount thereof cannot be estimated reliably, then discount is
 not recognized until the payment is probable and the amount can be
 estimated reliably. The Company recognizes changes in the estimated
 amount of obligations for discounts in the period in which change
 occurs. The discounts are passed on to the customer either as direct
 payments or as a reduction of payments due from the customer.
 The Company presents revenues net of indirect taxes in its Statement of
 Profit and Loss.
 Profit on sale of investments is recorded on transfer of title from the
 Company and is determined as the difference between the sale price and
 carrying value of the investment. Lease rentals are recognized ratably
 on a straight-line basis over the lease term. Interest is recognized
 using the time-proportion method, based on rates implicit in the
 transaction. Dividend income is recognized when the Company''s right to
 receive dividend is established.
 1.4 Provisions and contingent liabilities
 A provision is recognized if, as a result of a past event, the Company
 has a present legal obligation that is reasonably estimable, and it is
 probable that an outflow of economic benefits will be required to
 settle the obligation. Provisions are determined by the best estimate
 of the outflow of economic benefits required to settle the obligation
 at the reporting date. Where no reliable estimate can be made, a
 disclosure is made as contingent liability. A disclosure for a
 contingent liability is also made when there is a possible obligation
 or a present obligation that may, but probably will not, require an
 outflow of resources.  Where there is a possible obligation or a
 present obligation in respect of which the likelihood of outflow of
 resources is remote, no provision or disclosure is made.
 1.5 Post-sales client support and warranties
 The Company provides its clients with a fixed period post-sales support
 for corrections of errors and support on all its fixed-price,
 fixed-timeframe contracts. Costs associated with such support services
 are accrued at the time when related revenues are recorded and included
 in the Statement of Profit and Loss. The Company estimates such costs
 based on historical experience and the estimates are reviewed annually
 for any material changes in assumptions and likelihood of occurrence.
 1.6 Onerous contracts
 Provisions for onerous contracts are recognized when the expected
 benefits to be derived by the Company from a contract are lower than
 the unavoidable costs of meeting the future obligations under the
 contract. The provision is measured at lower of the expected cost of
 terminating the contract and the expected net cost of fulfilling the
 1.7 Tangible assets and capital work-in-progress
 Tangible assets are stated at cost, less accumulated depreciation and
 impairment, if any. Direct costs are capitalized until such assets are
 ready for use. Capital work-in-progress comprises the cost of fixed
 assets that are not yet ready for their intended use at the reporting
 1.8 Intangible assets
 Intangible assets are recorded at the consideration paid for
 acquisition of such assets and are carried at cost less accumulated
 amortization and impairment.
 Research costs are expensed as incurred. Software product development
 costs are expensed as incurred unless technical and commercial
 feasibility of the project is demonstrated, future economic benefits
 are probable, the Company has an intention and ability to complete and
 use or sell the software and the costs can be measured reliably.  The
 costs which can be capitalized include the cost of materials, direct
 labor, and overhead cost that are directly attributable to preparing
 the asset for intended use.
 1.9 Depreciation and amortization
 Depreciation on tangible assets is provided on the straight-line method
 over the useful lives of assets estimated by the Management.
 Depreciation for assets purchased / sold during a period is
 proportionately charged. Intangible assets are amortized over their
 respective individual estimated useful lives on a straight-line basis,
 commencing from the date the asset is available to the Company for its
 use. The Management estimates the useful lives for the other fixed
 assets as follows :
 Depreciation and amortization methods, useful lives and residual values
 are reviewed periodically, including at each financial year end (Refer
 to Note 2.8).
 1.10 Impairment
 The Management periodically assesses, using external and internal
 sources, whether there is an indication that an asset may be impaired.
 An impairment loss is recognized wherever the carrying value of an
 asset exceeds its recoverable amount. The recoverable amount is the
 higher of the asset''s net selling price or value in use, which means
 the present value of future cash flows expected to arise from the
 use of the asset and its eventual disposal. An impairment loss for an
 asset is reversed if, and only if, the reversal can be related
 objectively to an event occurring after the impairment loss was
 recognized.  The carrying amount of an asset is increased to its
 revised recoverable amount, provided that this amount does not exceed
 the carrying amount that would have been determined (net of any
 accumulated amortization or depreciation) had no impairment loss been
 recognized for the asset in prior years.
 1.11 Retirement benefits to employees
 The Company provides for gratuity, a defined benefit retirement plan
 (''the Gratuity Plan'') covering eligible employees. The Gratuity Plan
 provides a lump-sum payment to vested employees at retirement, death,
 incapacitation or termination of employment, of an amount based on the
 respective employee''s salary and the tenure of employment with the
 Liabilities with regard to the Gratuity Plan are determined by
 actuarial valuation, performed by an independent actuary, at each
 Balance Sheet date using the projected unit credit method. The Company
 fully contributes all ascertained liabilities to the Infosys Limited
 Employees'' Gratuity Fund Trust (''the Trust''). Trustees administer
 contributions made to the Trust and contributions are invested in a
 scheme with Life Insurance Corporation of India as permitted by law of
 India.  The Company recognizes the net obligation of the Gratuity Plan
 in the Balance Sheet as an asset or liability, respectively in
 accordance with Accounting Standard (AS) 15, ''Employee Benefits''. The
 Company''s overall expected long-term rate-of-return on assets has been
 determined based on consideration of available market information,
 current provisions of Indian law specifying the instruments in which
 investments can be made, and historical returns. The discount rate is
 based on the Government securities yield. Actuarial gains and losses
 arising from experience adjustments and changes in actuarial
 assumptions are recognized in the Statement of Profit and Loss in the
 period in which they arise.
 Certain employees are also participants in the superannuation plan
 (''the Plan'') which is a defined contribution plan. The Company has no
 obligations to the Plan beyond its monthly contributions which are
 periodically contributed to a trust fund, the corpus of which is
 invested with the Life Insurance Corporation of India.
 Provident fund
 Eligible employees receive benefits from a provident fund, which is a
 defined benefit plan. Both the eligible employee and the Company make
 monthly contributions to the provident fund plan equal to a specified
 percentage of the covered employee''s salary. The Company contributes a
 portion to the Infosys Limited Employees'' Provident Fund Trust. The
 trust invests in specific designated instruments as permitted by Indian
 law. The remaining portion is contributed to the government
 administered pension fund. The rate at which the annual interest is
 payable to the beneficiaries by the trust is being administered by the
 government. The Company has an obligation to make good the shortfall,
 if any, between the return from the investments of the trust and the
 notified interest rate.
 Compensated absences
 The employees of the Company are entitled to compensated absences which
 are both accumulating and non-accumulating in nature. The expected cost
 of accumulating compensated absences is determined by actuarial
 valuation using projected unit credit method on the additional amount
 expected to be paid / availed as a result of the unused entitlement
 that has accumulated at the Balance Sheet date.  Expense on
 non-accumulating compensated absences is recognized in the period in
 which the absences occur.
 1.12 Share-based payments
 The Company accounts for equity settled stock options as per the
 accounting treatment prescribed by Securities and Exchange Board of
 India (Share Based Employee Benefits) Regulations, 2014 and the
 Guidance Note on Employee Share-based Payments issued by the Institute
 of Chartered Accountants of India using the intrinsic value method.
 1.13 Foreign currency transactions
 Foreign-currency-denominated monetary assets and liabilities are
 translated at exchange rates in effect at the Balance Sheet date. The
 gains or losses resulting from such translations are included in the
 Statement of Profit and Loss. Non-monetary assets and non-monetary
 liabilities denominated in a foreign currency and measured at fair
 value are translated at the exchange rate prevalent at the date when
 the fair value was determined. Non-monetary assets and non-monetary
 liabilities denominated in a foreign currency and measured at
 historical cost are translated at the exchange rate prevalent at the
 date of transaction.
 Revenue, expense and cash-flow items denominated in foreign currencies
 are translated using the exchange rate in effect on the date of the
 transaction. Transaction gains or losses realized upon settlement of
 foreign currency transactions are included in determining net profit
 for the period in which the transaction is settled.
 1.14 Forward and options contracts in foreign currencies
 The Company uses foreign exchange forward and options contracts to
 hedge its exposure to movements in foreign exchange rates. The use of
 these foreign exchange forward and options contracts reduces the risk
 or cost to the Company and the Company does not use those for trading
 or speculation purposes.
 Effective April 1, 2008, the Company adopted AS 30, ''Financial
 Instruments : Recognition and Measurement'', to the extent that the
 adoption did not conflict with existing accounting standards and other
 authoritative pronouncements of the Company Law and other regulatory
 Forward and options contracts are fair valued at each reporting date.
 The Company designates certain foreign exchange forward and options
 contracts as cash flow hedges to mitigate the risk of foreign exchange
 exposure on highly probable forecast transactions.  The Company records
 the gain or loss on effective hedges, if any, in the hedging reserve
 until the transactions are complete. On completion, the gain or loss is
 transferred to the Statement of Profit and Loss of that period. To
 designate a forward or options contract as an effective hedge, the
 Management objectively evaluates and evidences with appropriate
 supporting documents at the inception of each contract and subsequently
 whether the contract is effective in achieving offsetting cash flows
 attributable to the hedged risk. Changes in the fair value relating to
 the ineffective portion of the hedges and derivative instruments that
 do not qualify or have not been designated for hedge accounting are
 recognized in the Statement of Profit and Loss.
 1.15 Income taxes
 Income taxes are accrued in the same period that the related revenue
 and expenses arise. A provision is made for income tax, based on the
 tax liability computed, after considering tax allowances and
 exemptions. Provisions are recorded when it is estimated that a
 liability due to disallowances or other matters is probable. Minimum
 Alternate Tax (MAT) paid in accordance with the tax laws, which gives
 rise to future economic benefits in the form of tax credit against
 future income tax liability, is recognized as an asset in the Balance
 Sheet if there is convincing evidence that the Company will pay normal
 tax after the tax holiday period and the resultant asset can be
 measured reliably. The Company offsets, on a year-on-year basis, the
 current tax assets and liabilities, where it has a legally enforceable
 right and where it intends to settle such assets and liabilities on a
 net basis.
 The differences that result between the profit considered for income
 taxes and the profit as per the financial statements are identified,
 and thereafter, a deferred tax asset or deferred tax liability is
 recorded for timing differences, namely the differences that originate
 in one accounting period and reverse in another, based on the tax
 effect of the aggregate amount of timing difference. The tax effect is
 calculated on the accumulated timing differences at the end of an
 accounting period based on enacted or substantively enacted
 regulations. Deferred tax assets in situation where unabsorbed
 depreciation and carry forward business loss exist, are recognized only
 if there is virtual certainty supported by convincing evidence that
 sufficient future taxable income will be available against which such
 deferred tax asset can be realized.  Deferred tax assets, other than in
 situation of unabsorbed depreciation and carry forward business loss,
 are recognized only if there is reasonable certainty that they will be
 realized. Deferred tax assets are reviewed for the appropriateness of
 their respective carrying values at each reporting date. Deferred tax
 assets and deferred tax liabilities have been offset wherever the
 Company has a legally enforceable right to set off current tax assets
 against current tax liabilities and where the deferred tax assets and
 deferred tax liabilities relate to income taxes levied by the same
 taxation authority. The income tax provision for the interim period is
 made based on the best estimate of the annual average tax rate expected
 to be applicable for the full financial year.  Tax benefits of
 deductions earned on exercise of employee share options in excess of
 compensation charged to Statement of Profit and Loss are credited to
 the securities premium reserve.
 1.16 Earnings per share
 Basic earnings per share is computed by dividing the net profit after
 tax by the weighted average number of equity shares outstanding during
 the period. Diluted earnings per share is computed by dividing the
 profit after tax by the weighted average number of equity shares
 considered for deriving basic earnings per share and also the weighted
 average number of equity shares that could have been issued upon
 conversion of all dilutive potential equity shares. The diluted
 potential equity shares are adjusted for the proceeds receivable had
 the shares been actually issued at fair value which is the average
 market value of the outstanding shares. Dilutive potential equity
 shares are deemed converted as of the beginning of the period, unless
 issued at a later date. Dilutive potential equity shares are determined
 independently for each period presented.
 The number of shares and potentially dilutive equity shares are
 adjusted retrospectively for all periods presented for any share splits
 and bonus shares issues including for changes effected prior to the
 approval of the financial statements by the Board of Directors.
 1.17 Investments
 Trade investments are the investments made to enhance the Company''s
 business interests. Investments are either classified as current or
 long-term based on the Management''s intention. Current investments are
 carried at the lower of cost and fair value of each investment
 individually. Cost for overseas investments comprises the Indian rupee
 value of the consideration paid for the investment translated at the
 exchange rate prevalent at the date of investment.  Long-term
 investments are carried at cost less provisions recorded to recognize
 any decline, other than temporary, in the carrying value of each
 1.18 Cash and cash equivalents
 Cash and cash equivalents comprise cash and cash-on-deposit with banks
 and financial institutions. The Company considers all highly liquid
 investments with a remaining maturity at the date of purchase of three
 months or less and that are readily convertible to known amounts of
 cash to be cash equivalents.
 1.19 Cash flow statement
 Cash flows are reported using the indirect method, whereby profit
 before tax is adjusted for the effects of transactions of a non-cash
 nature, any deferrals or accruals of past or future operating cash
 receipts or payments and item of income or expenses associated with
 investing or financing cash flows. The cash flows from operating,
 investing and financing activities of the Company are segregated.
 1.20 Leases
 Lease under which the Company assumes substantially all the risks and
 rewards of ownership are classified as finance leases. Such assets
 acquired are capitalized at fair value of the asset or present value of
 the minimum lease payments at the inception of the lease, whichever is
 lower. Lease payments under operating leases are recognized as an
 expense on a straight-line basis in the Statement of Profit and Loss
 over the lease term.
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