Tuesday, December 02, 2014


By K P C Rao, LLB, FCMA, FCS.,
CMA (USA)., FIPA (Australia)
Practicing Company Secretary
I            What is International Financial Reporting Standards (IFRS)?

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB). The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting.  Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a cohesive view of finances.

Currently, over 120 countries permit or require IFRS for public companies, with more countries expected to transition to IFRS by 2015. Proponents of IFRS as an international standard maintain that the cost of implementing IFRS could be offset by the potential for compliance to improve credit ratings. IFRS is sometimes confused with IAS (International Accounting Standards), which are older standards that IFRS has replaced.

II        IFRS reporting in India – Proposed Timelines

As per pronouncements made by the Ministry of Corporate Affairs (the ‘Ministry’ or the ‘MCA’) large companies will be required to start preparing their financial statements under accounting standards that are converged with International Financial Reporting Standards (IFRS).  IFRSs are increasingly being viewed as the single set of accounting standards for global capital market participants. It is still too early to tell whether non-profits, private companies and governmental entities will eventually adopt IFRS. However, it is clear that IFRS will play an increasing role in the global business community.

The Ministry issued a roadmap on India’s convergence to IFRS. As per this roadmap, there will be two separate sets of Accounting Standards under Section 211(3C) of the Companies Act, 1956/ Section 133 of the Companies Act, 2013[1]. The first set would comprise Indian Accounting Standards which are converged with the IFRSs (‘Converged Standards’) and will be applicable to the specified class of companies. The second set would comprise existing Indian Accounting Standards and will be applicable to other companies, including Small and Medium Companies (SMCs). The Converged Standards would apply in a Phased manner as indicated below:

Companies covered
Opening balance sheet
Phase I
-     Companies that are part of NSE – Nifty 50 Index
-     Companies that are part of BSE Sensex 30 Index
-     Companies that have shares or other securities listed in overseas stock exchanges ; and
-     Listed and Unlisted Companies with net worth in excess of Rs 1000 Crores

1 April; 2011

Phase II
Listed & Unlisted Companies with networth in excess of Rs 500 Crores but not exceeding Rs. 1000 Crores.
1 April; 2013
Phase III
Listed entities with networth of Rs 500 Crores or less
1 April; 2014
Unlisted Companies with net worth lesser than Rs 500 Crores and Small and Medium sized Companies are exempt.

The Ministry also issued a separate roadmap for companies in the financial services sector as below:
Class of companies
Opening balance sheet
Insurance Companies
April 1, 2012
Banking Companies
Scheduled Commercial Banks
April 1, 2013
Urban Co-operative Banks (USB)
Net worth in excess of Rs. 300 crores
April 1, 2013
Net worth in excess of Rs. 200 crores but not exceeding Rs. 300 crores
April 1, 2014
Net worth not exceeding Rs. 200 crores
Regional Rular Banks (RRB)

Non-Banking Financial Companies (NBFC)
Companies which are a part of NSE – Nifty 50

April 1, 2013
Companies which are a part of BSE – Sensex 30
Companies, whether listed or not, which have a net worth in excess of Rs. 1,000 crores
All NBFCs that do not fall in the above categories
April 1, 2014
Non-listed, which have a net worth in excess of Rs. 500 crores
April 1, 2014
Non-listed, which have a net worth not exceeding Rs. 500 crores

III     Current Status
As of date, thirty five Indian Accounting Standards converged with International Financial Reporting Standards (called ‘IND-AS’) have been notified by the Ministry and placed on the MCA website. In addition, the Ministry announced that it would implement the IFRS converged Indian Accounting Standards in a phased manner after various issues, including tax related issues, were resolved with the concerned Departments. In February 2011, the Ministry announced that the date of implementation of the IND AS will be notified at a later date.

IV      Conclusion
Convergence with IFRS has strategic implications and will require harmonization of internal and external reporting. Business plans, earnings estimates and management remuneration plans that have reported earnings as the basis will require revisiting as these are expected to undergo change due to the impact of IFRS convergence. Managing investor and market expectations will also be of paramount importance for the management and would form a critical component of the convergence process.

The key to successfully managing this change is by preparing for it. It is important that companies plan the transition process and anticipate issues that the business will face on using the IFRS converged standards.

[1] Section 133 : Central Government to prescribe accounting standards:—
The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under Section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

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