The ministry of corporate affairs (MCA) does not plan to push for an ordinance to ensure India meets the deadline on conforming to International Financial Reporting Standards (IFRS), reversing its earlier stance, according to two officials at the ministry. The ministry is now of the view that an ordinance won’t be required to make the appropriate changes in the Companies Act, 1956, as a new version of the legislation will be in place by the beginning of the next fiscal.
“The ministry does not plan to push for an ordinance…because it feels there is enough time between now and April, by which time the new Companies Bill would be enacted,” said one of the officials cited above. Both officials spoke on condition of anonymity.
Industry and the Institute of Chartered Accountants of India (Icai) are concerned that there may not be enough time to make the changes in time without an ordinance.
“Icai has given its recommendations on the entire set of amendments (except those related to agriculture and insurance) that would be required to be made in Indian standards which will help them converge with IFRS,” said Amarjit Chopra, president, Icai. “I would say there is very little time now if we have to meet our commitments of 1 April 2011.”
Several amendments to the Companies Act are needed to allow Indian standards to converge with IFRS. These include accounting of depreciation, financial statement presentation, accounting for business combinations such as mergers and acquisitions, presentation of previous years’ accounts, definition of controls, etc.
Icai’s recommendations were submitted to the National Advisory Committee on Accounting Standards (Nacas), which is the government’s advisory body for Indian accounting standards.
Accounting standards have to start conforming to IFRS starting 1 April, moving away from norms such as Indian GAAP (generally accepted accounting principles).
Given the possibility of a delay in the passage of the new Companies Bill, stakeholders such as Icai, Nacas and the MCA had reached an understanding earlier this yearthat an ordinance would be issued. The new Companies Bill, which has provisions for several of these amendments, is still to be passed by Parliament.
An ordinance is promulgated by the Indian President when Parliament is not in session. To remain valid, however, it has to be ratified by lawmakers within six weeks of Parliament convening its next session.
While several of the changes will happen once the new Companies Bill is enacted, some will have to be done by issuing circulars thereafter. An ordinance will address all required changes at one go.
“There are several areas where the Companies Act needs to be amended for said Dolphy D’souza, partner, Ernst and Young.?implementation of IFRS,” “Some standards suggested by Icai, which are in line with IFRS, can be notified only when the Companies Act is amended.”
Industry is not certain the deadline can be met.
“The main question raised by the companies we are working with is that when are the amendments happening and what will happen if the Bill is deferred beyond the winter session of Parliament?” said Jamil Khatri, executive director and head of accounting advisory services at KPMG in India. “Besides, there are incidental issues which will go beyond the passage of the Bill and hence the ordinance will be the best option.”
The Companies Act was re-introduced in Parliament last year when the Congress-led United Progressive Alliance was voted back to power in 2009. It’s still awaiting approval as suggestions made by a Parliamentary standing committee have to be incorporated.
MCA announced a three-phase IFRS convergence schedule in January. In the first phase, listed companies, including those on overseas exchanges, and those with a networth of Rs.1,000 crore, will adopt the standards in April. The second phase will comprise companies with a networth of Rs.500-1,000 crore, which will move to IFRS starting April 2013. Listed companies having a networth of Rs.500 crore or less will converge in April 2014.
