By K P C Rao, LLB,
FCMA, FCS.,
CMA (USA)., FIPA
(Australia)
Practicing
Company Secretary
kpcrao.india@gmail.com
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:
Phase
|
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
|
Optional
|
|||
Regional Rular Banks (RRB)
|
Optional
|
|||
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
|
Listed
|
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
|
Optional
|
|||
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.
*****
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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