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The Corporate Affairs Ministry has taken a crucial step in bringing in accounting reforms, which could help improve India’s ranking in the World Bank’s ‘ease of doing business’ index, and increase inbound foreign investment.
The Ministry has announced a revised roadmap for implementation of the long-awaited Indian accounting standards (Ind-AS).
The announcement brings more certainty in India’s efforts to converge with International Financial Reporting Standards (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 from the earlier roadmap, which was to be effective from April 1, 2011, and had a three-phased approach.
The revised roadmap comes nearly six months after 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 ₹500 crore together with their holding, subsidiary, joint venture or associate companies, are covered.
The second phase covers all other listed companies or those in the process of listing and all other unlisted companies with a net worth over ₹250 crore, together with their holding, subsidiary, joint venture or associate companies. However, companies that are listed or are in the process of listing on SME exchanges are exempt.
The new standards will be mandatory for financial years beginning on or after April 1, 2016, 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 transparency in and quality of financial reporting by Indian corporates, as Ind-AS is expected to fill the gaps in Indian GAAP, he said.
The new roadmap has brought in a few important changes. Unlike earlier, there is a requirement for companies to present financial information for the comparative year as well under Ind-AS.
Second, apart from covering entities meeting size thresholds, this roadmap also covers all its related entities, such as holding, subsidiary, joint venture and associate companies, even if these entities would not have otherwise met the thresholds.
Sandip Khetan, Partner, SR 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 IFRS/Ind-AS is driven towards meeting the requirements of investors, these are not suitable to determine taxable income.
There has to be clarity as to whether income tax computation will 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 ‘net worth’ and whether the roadmap is applicable for both standalone and consolidated statements, he 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 India’s resolve towards strong corporate governance practices to the global community, he added.
The article appeared in the Hindu Business Line. The article can be found here.