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Google India revenues fall 56% in FY19 as company cites new accounting standard

Updated : October 23, 2019 06:39 AM IST

Google India attributed the sharp decline in revenues to a new accounting standard

But revenues from advertising in the overall pie have declined to 28 percent

Besides advertising, the main contributors of Google India’s revenues were IT services (35 percent) and IT enabled services (36 percent)

The Indian unit of Google’s 2018-19 profit grew 16 percent at Rs 473 crore despite a 56 percent fall in revenues at Rs 4,147 crore from a year before.

Google India was able to eke out a profit thanks to a steep fall in expenses to Rs 3,416 crore.

The company attributed the sharp decline in revenues to a new accounting standard, but revenues from advertising in the overall pie have declined to 28 percent, according to regulatory filings sourced from Tofler.

Advertising has long been one of Google India’s biggest revenue channels. In 2017-18, Google India posted a nearly 30 percent jump in revenues from the year before.

A spokesperson for Google India declined to comment.

Besides advertising, the main contributors to Google India’s revenues were IT services (35 percent) and IT-enabled services (36 percent). The company is a third-party reseller of the advertising space of the Google Adwords program. It also sells other Google advertising products and services in India to advertisers looking to market their products and services to consumers and business users over the internet.

Google has cited the IND AS 115 standards as the reason for the steep fall in revenues. IND AS 115 came into effect for reporting periods from April 1, 2018 after the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules 2018.

According to the Tofler filing, under IND AS 18, the company was acting as principal in the advertising and other reseller agreements with Google Asia Pacific Pte Ltd (GAP), as the company was primary obligor to the customer for providing services as per an advertiser agreement. As a result, revenues and associated direct cost of sales were reported on a gross basis.

Under IND AS 115, GAP is the principal in advertising, as it owns, operates and controls the Adwords program and the underlying technology and web properties as well as inventory on which the Ads are displayed of the advertiser or end-user, while commercially i.e. as per the reseller agreement, the transaction between GAP and Google India is on a principal to principal basis. As per IND AS 115, as the control to operate the Adword platform is

with GAP and not with the company, revenues and associated direct cost of sales are presented on a net basis in the statement of profit or loss and comprehensive income, the filing said.

Accounting experts said companies globally have had to adapt to new accounting standards, and services companies in IT and advertising will be the most impacted.

"The standards governing recognition of revenues have changed globally from last year. It has replaced earlier accounting standards and companies have had to change their revenue recognition models," said Sai Venkateshwaran, partner and head of CFO Advisory at KPMG in India.

Venkateshwaran said the impact varies from sector to sector, based on their type of arrangements with their customers, including the tenure of the arrangements, the multiple components bundled, the period over which services are rendered and so on. “IT services, BPO services, telecom, construction, and advertising are among the sectors more impacted by this change. For simpler transaction models such as the sale of goods, the impact is minimal, but in services contracts or those which span multiple periods and components can be more impacted under by this change," he said.

Google India revenues fall 56% in FY19 as company cites new accounting standard

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