To harmonize the accounting norms with global Standards, the Finance Minister, Mr. Arun Jaitley, had announced in the Last Budget session for the implementation of Indian Accounting Standards (Ind AS) which are converged with the International Financial Reporting Standards (IFRS). On Jan 2, 2015 MCA came up with a Road Map for the implementation of the same; soon to be followed by a notification.
Background:
In 2009, our Former Prime Minister Mr. Manmohan Singh had made a commitment at the G-20 Summit to align Indian accounting Standards with the IFRS. Subsequently, the Institute of Chartered Accountants of India (ICAI) and the Corporate Affairs Ministry issued Road Maps to converge Accounting Standards from April 1, 2011.
However, industry sought a delay in implementation, citing lack of preparedness and the need for more deliberation to suit local intricacies, including implications of fair value requirements and the consequent impact on direct tax. Henceforth, draft Accounting Standards were not finally notified.
On April 9, 2014, again ICAI, proposed a road map for convergence of Ind AS with IFRS. According to this, there would be 2 sets of AS: Ind AS and Existing Notified AS.
It proposed that the Ind AS should be applied by specified class of companies by preparing consolidated financial statements for financial periods beginning on or after April 1, 2016, alongwith Comparatives for the year ending March 31, 2016.
In the Budget speech of FY 2014-2015, the Finance Minister stated that there is an urgent need to converge the current Indian AS with IFRS. He had proposed for the adoption of Ind AS by the Indian companies from FY 2015-2016 Voluntarily; and from FY 2016-2017 on a mandatory basis.
Highlights:
- Companies can comply with the new norms voluntarily from 1st April, 2015 but following classes of Companies will have to comply mandatorily with the New Ind AS from the prescribed dates, as mentioned below:
- Companies whose equity and/or debt securities are listed or are in the process of listing on any stock exchange in India or outside India and having net worth of Rs 500 crore or more shall have to follow the new norms from 1st April, 2016. Comparatives for the year ending 31st March, 2016, to be prepared because all the opening balances should also comply with IFRS.
- Companies having a Net-worth of less than Rs 500 crore but are listed or in the process of getting listed shall have to follow the new accounting norms from April 1, 2017 And Comparatives for the year ending 31st March, 2017.
- Other Companies, that are Unlisted having a Net-worth of Rs 250 crore or more but less than Rs 500 crore, shall have to start implementing the new accounting norms from April 1, 2017.
- The deadline mentioned above shall also apply to Holding, Subsidiary, Joint Venture or Associate Company of the company; in all the cases mentioned above.
- Banking Companies, NBFCs and Insurance companies are exempted from complying with these new norms.The Finance Minister had said in his Budget speech that the Regulators will separately notify the date of implementation for them, on the basis of an international consensus.
- Companies whose securities are listed or in the process of listing on SME exchanges shall not be required to apply New Accounting Standards. Such companies shall continue to comply with the existing accounting norms.
- Companies shall follow the Ind AS for all the subsequent financial statements ,if they opted once.
- Companies not covered by the above roadmap shall continue to apply existing accounting standards prescribed in Annexure to the Companies (Accounting Standards) Rules, 2006.
Significant differences between Existing Indian AS and IFRS:-
| Basis of Difference | Existing Indian AS | IFRS |
| First time adoption of accounting frameworks | In India, there is no specific guidance on first time adoption. | There is a specific statement by IASB to apply IFRS for the first time. First time adoption of IFRS requires full retrospective application of IFRS at the reporting date for IFRS based financial statements of an entity. |
| Extraordinary Items | Disclosure of events or transactions, distinct from the ordinary activities of the entity, which are not expected to recur frequently. | Not allowed |
| Business Combinations | No particular AS has been issued by ICAI till date. | All business combinations are Combinations as per IFRS 3. |
| Minority interests at acquisition | Stated at minority’s share of pre- acquisition carrying value of net assets. | Stated at minority’s share of the fair value of acquired identifiable assets, liabilities and contingent liabilities. |
| Pooling of interest Method | Required for certain amalgamations when all the specified conditions are met. | Prohibited.
|
| Capitalisation of borrowing costs | There is no choice rather than to capitalize the borrowing cost. | Permitted as a policy choice for all qualifying assets, but not required. |
| Biological assets | No specific guidance. Historical Cost is used, in general. | Measured at fair value less estimated point-of-sale costs. |
| Dividends on ordinary equity shares | Accounted in the year of proposal. | Accounted in the year of Declaration. |
| Events occurring after the Balance Sheet date | Non adjusting events are not required to be disclosed in the financial statements. | Non adjusting events are required to be disclosed in the financial statements. |
Our Analysis:
Para 6 of IFRS-1 states:
“An entity shall prepare and present an opening IFRS Statement of financial position at the date of transition to IFRSs. This is the starting point for its accounting in accordance with IFRSs.”
As per our view, if an entity is implementing IFRS from FY 2016-2017, then it actually has to implement it from FY 2015-2016 for the purpose of Comparatives, because the Opening Balances should also be IFRS compliant. Though it has been stated as optional to implement IFRS from FY 2015-2016, it seems that it is de-facto mandatory w.e.f. 1st April, 2015, i.e., from FY 2015-2016.
Adoption of IFRSs still cannot ensure a perfect accounting world:
Uniformity in Accounting Standards is a gigantic step towards understanding financial statements prepared in different nations; however, uniformity alone is not a total solution. Environmental factors such as culture, language, legal system and economic conditions are also of paramount importance.
No set of Accounting Standards can replace the necessity for accountants to have the highest level of ethical character. Corporate financial scandals like Enron, Satyam, and the like, rarely occur from deficiencies in Accounting Standards alone; but frequently result from weaknesses in the ethical character of the perpetrators, which include top management, accountants and auditors. Greed and over-reaching ambition have led to disastrous consequences for the affected entities and their stakeholders.
It is rightly said “Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income”.
(Author Neha Somani & Aman Nijhawan are associated with Vinod Kothari & Company and can be reached at [email protected] & [email protected])
