Financial reporting in India is being influenced by International Financial Reporting Standards (IFRS). IFRS reporting considerations are already impacting business decisions, and not simply through foreign subsidiaries or foreign investors.
In February 2011, the Ministry of Corporate Affairs (‘MCA’) issued a press release stating that 35 Indian Accounting Standards (‘Ind AS’) converged with IFRS are being notified and placed on the its website but effective date of the Ind AS is to be notified at a later date, after various issues (including tax related issues) are resolved within various departments of the government.
In early 2010, the MCA issued various press releases on IFRS roadmap and convergence plan for India specifying the convergence date to be 1st April, 2011 through 2014 for select Indian companies. The highlights and specific timelines as per the MCA press release are given below in the tab ‘Proposed Roadmap’.
At present, it appears that the timeline in the Roadmap is no longer valid for Phase I companies. The new implementation date for Ind AS is awaited from the MCA. It is unclear if the MCA will release a fresh Roadmap or just amend the implementation date for Phase I companies.
Conversion is much more than a technical accounting issue. IFRS or Ind AS may significantly affect any-number of a company’s day-to-day operations and may even impact the reported profitability of the business itself. Conversion brings a one-time opportunity to comprehensively reassess financial reporting and take ‘a clean sheet of paper’ approach to financial policies and processes.
Understanding IFRS or Ind AS and its implications is a business imperative for Indian companies. Take advantage of the resources that PwC has developed to increase your knowledge.
Certain clarifications on IFRS roadmap issued by the MCA
Comparatives
Companies preparing opening balance sheet as at 1st April, 2011 in accordance with the IFRS-converged accounting standards will show previous year’s figures as per non-converged accounting standards. However, an option is given to add an additional column and present comparatives using IFRS-converged accounting standards. In such case, the opening balance sheet shall be prepared as at 1st April, 2010.
Early application
Companies covered in Phase II and III, have an option to early application of IFRS-converged accounting standards only for the financial year commencing on 1st April, 2011 or thereafter.
Cut off date to ascertain the application of IFRS-converged accounting standards
For Banks and NBFCs – Balance Sheet as at 31st March, 2011 or the first Balance Sheet for accounting period which ends after that date.
For other companies – Balance Sheet as at 31st March, 2009 or the first Balance Sheet for accounting period which ends after that date.
Net worth
Net worth is defined as Share Capital plus Reserve less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account. It is to be calculated on the basis of standalone audited balance sheet of the company.
There has been no announcement regarding (i) quarterly reporting under the IFRS-converged accounting standards and (ii) adoption of “IFRS for SMEs” in India.
The MCA press releases have brought some clarity to Indian companies but more clarifications around the applicability and transition provisions are required.
With IFRS set to become the future Indian GAAP and IFRS being a moving target, Indian companies should actively monitor and participate in the IASB’s standard setting process.
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