The Corporate Affairs Ministry has taken a crucial step in accounting reforms that could help improve India’s ranking in ease of doing business besides encouraging increased inbound foreign investment flows.
It has announced a revised roadmap for implementation of the long-awaited new set of Indian accounting standards (Ind-AS) converged with International Financial Reporting Standards (IFRS).
This new announcement has brought more certainty to India’s efforts towards convergence with IFRS, a set of globally recognised accounting standards, say accountancy experts.
The revised roadmap—which does not cover banking and insurance companies and NBFCs—envisages a two phased implementation.
This is a departure to the earlier roadmap—which was to be effective from April 1, 2011—that talked of a three-phased approach.
The revised roadmap announcement comes nearly six months after the Finance and Corporate Affairs Minister Arun Jaitley’s announcement in his maiden budget speech on this matter.
In the first phase, all companies, listed and unlisted, with a net worth over Rs. 500 crore together with their holding, subsidiary, joint venture or associate companies are covered.
The second phase covers all the other listed companies or those in the process of listing and all other unlisted companies with a net worth over Rs. 250 crore, together with their holding, subsidiary, joint venture or associate companies. However, companies that are listed or in the process of listing on SME exchanges are exempt.
These new standards will be mandatory for financial years beginning on or after 1 April 2016, together with comparative information for the previous year.
The standards can be voluntarily applied for financial years beginning on or after 1 April 2015, together with comparative information for the previous year.
Sai Venkateshwaran, Partner and Head-Accounting Advisory Services, KPMG in India said the finalisation of this keenly awaited revised roadmap was a very welcome step.
The adoption of these IFRS converged standards will go a long way in enhancing the transparency in and quality of financial reporting by Indian corporates, as Ind-AS is expected to fill the many gaps in Indian GAAP, he said.
The new revised roadmap has brought few important changes. Unlike the earlier roadmap, there is a requirement for companies to present financial information for the comparative year as well under Ind-AS.
Secondly, apart from covering entities meeting the size thresholds, this roadmap also covers all its related entities, such as holding, subsidiary, joint venture and associate companies, even if such entities wouldn’t have otherwise met the thresholds.
Sandip Khetan, Partner, S.R.Batliboi & Co said the upcoming budget should clear the air around taxation issues, which was one key reason for postponing the implementation of Ind AS in 2011.
While the IFRS/Ind-AS is driven towards meeting the requirements of investors, they are not suitable to determine taxable income.
There has to be clarity as to whether income tax computation would continue based on the existing Indian GAAP or not.
Ashish Gupta, Partner, Walker Chandiok & Co LLP, said the revised roadmap is a welcome change in the direction of increased corporate governance and investor protection.
However, clarifications are still needed on the measurement date of the ‘networth’ and whether the roadmap is applicable for both standalone and consolidated statements, Gupta said.
Sumit Seth, Partner, Price Waterhouse & Co, said the revised roadmap will help elevate corporate financial reporting in India to that of other advanced economies.
It will more importantly reinforce to the global community India’s resolve towards strong corporate governance practices, Seth said.
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