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.
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.
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.|
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 firstname.lastname@example.org & email@example.com)