An important role of the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) is to make sure that it works towards establishing a sound financial reporting system in the country which serves the public interest effectively. In pursuance of this fundamental objective, ASB has played role of catalyst in carrying out mega reforms in the financial reporting framework. We at ASB believe that India, a large growing economy, needs to have a robust globally acceptable reporting standards framework. Therefore, IFRS Standards which are considered as gateway to global capital markets have been chosen as the basis for Ind AS. IFRS Standards are developed on the premise of enhancing transparency, understandability, relevance, reliability and comparability of financial statements across the globe. However, these Standards are highly principle based and require application of significant management judgements. Further, there are fundamental conceptual differences between Accounting Standards (AS) vis-a-vis IFRS Standards. Certain accounting areas like Financial Instruments, Investment in Joint Ventures, Consolidation Principles, Revenue Recognition and Measurement, Recognition criteria for Tangible Assets, Income Taxes etc., usher in a paradigm shift in accounting/reporting. Another noteworthy aspect of Ind AS Framework is that it accords high prominence to presentation and disclosures requirements as well.
We are pleased to note that efforts in implementing this high quality Ind AS Framework have begun to make desired impact on the quality of financial information of Indian companies. At this juncture, as standard-setter, we considered it appropriate to undertake an impact study with twin objectives of assessing quantitative/qualitative impact on Indian companies’ financial statements due to Ind AS transition and to seek feedback of key stakeholders, i.e., preparers/providers of financial information. We consider this Ind AS impact study as first phase of our planned task of evaluation of pros-cons of convergence with IFRS Standards.
Quantitative and qualitative impact study is primarily based on high level review of publicly available consolidated financial statements of randomly selected 170 listed companies, covered in first phase of Ind AS implementation roadmap. Our quantitative analysis was focused on Ind AS transition impact on few key financial parameters whereas the qualitative analysis approach was broad review of disclosures relating to areas that were expected to have material changes vis-a-vis existing AS. Additionally, we have also attempted to conduct pulse-check of stakeholders on quantitative/qualitative impact views and feedback about this monumental accounting reform.
As envisaged, this impact study apart from being informative about the impact of transition to Ind AS, will also guide us as a standard setter in continuing with our endeavour of strengthening the high quality financial reporting framework in the country. Feedback sought as a part of the impact study, inter a/ia, covered the aspects related to appropriateness of removal of certain options under Ind AS which were there under IFRS, carve outs that have major challenge in asserting equivalence of Ind AS to IFRS Standards, way forward regarding removal of carve-outs with a perspective to achieve full convergence, etc. No doubt that preparers’ responses will be a highly valuable source of guidance for us in deciding the way forward of carve-outs currently made and also policy to be adopted in future in this regard. Further to ensure implementation of Ind AS in letter and spirit, ICAI issues various guidance material from time to time, identification of challenging areas as a part of this study would help ICAI in providing appropriate guidance to the concerned stakeholders. While India is on the path of convergence with IFRS Standards and aims to achieve full convergence in times to come, this type of fitness test is a step towards making India leading and contributing to the accountancy profession at international level. This impact study would be a good informative reading material for international accounting readers as well.
