IFRS in India – Beginning of A New Journey

IFRS in India – Beginning of A New Journey, key advantages of moving to IFRS, As per the Companies Act 2013, every company will need to follow accounting standards as notified by the Government while preparing its financial statements. If we read section 129 and 133 along with Schedule III of the same act, we understand that accounting standards are a must while preparing financial statements, check more details from below. Hi Friends Here we are providing Complete details for IFRS in India. Now you can scroll down below and check complete details regarding “IFRS in India – Beginning of A New Journey”

IFRS in India – Beginning of A New Journey

As per the Companies Act 2013, every company will need to follow accounting standards as notified by the Government while preparing its financial statements. If we read section 129 and 133 along with Schedule III of the same act, we understand that accounting standards are a must while preparing financial statements.

In the budget speech of 2015, our finance minister mentioned that the Government is determined to bring globalisation and in that direction, new standards of accounting will be made applicable to Indian Corporate. Ministry of Corporate Affairs published a roadmap to implement such new standards in a phased manner in India. These new standards are globally known as International Financial Reporting Standards (‘IFRS’). In India, our regulators decided not to adopt IFRS but converge with them. That means we will have our own set of standards which are near to IFRS. There might be some differences between IFRS and our standards. So on recommendation of the Institute of Chartered Accountants of India (ICAI), the Government of India had notified IFRS converged accounting standards known as Ind-AS. They will be applicable to some companies with effect from April 1, 2016 and to some others with effect from April 1, 2017. Following table provides a gist of dates from when these will be applicable.

Class of companies	Applicability
Listed companies with net worth of R500 crore or more	April 1, 2016
Unlisted companies with net worth of R500 crore or more	April 1, 2016
Listed companies with net worth of less than R500 crore	April 1, 2017
Unlisted companies with net worth between R250 crore and R500 crore	April 1, 2017

Where applicable, transition date will be one year before the date mentioned in the above table as previous year’s comparable need to be prepared in accordance with same principles. For example, April 1, 2015 was the transition date for the companies applying Ind-AS from April 1, 2016.

Must Read – IFRS An Overview

Worth noting is that this roadmap will not be applicable for banks and insurance companies. Also unlisted companies with net worth below R250 Crore. So practically, in our country, we will have some companies preparing their financial statements as per Ind-AS and others will be according to existing standards from next year. In order to correct this anomaly, the ICAI has taken up a project to revise and improve existing accounting standards in order to bring them at par with Ind-AS. So we will see a lot of changes in accounting field in the near future. The text of Ind-AS (and of course existing accounting standards) is available on ICAI’s website (www.icai.org).

Following are key advantages of moving to the new regime:

1. Globalisation – Our country will be implementing IFRS as per commitment given by our prime minister in G-20. This is a step in the direction of globalisation.

2. Understanding of Financials – Financial statements of Indian corporates will be better understood by counterparts across the world. Similar language of accounting will have inherent benefits.

3. Opportunities – Accounting community in India will be trained in global standards, and hence will find it easy to understand accounting language across the globe. New doors of opportunities will be opened for Indian Accountants

4. Foreign Direct Investment – Such actions should bring more trust in Indian compliance environment and will encourage foreign investors to come and invest here. They will understand results of operations of their Indian entities without maintaining dual financials – one for their head office and other for Indian regulators

5. Better Guidance– The new standards are no doubt better in terms of providing substance based guidance and will require people to take responsibility of professional judgement.

6. New Standards – Advantage of having guidance in new areas cannot be underestimated. Whether it is accounting for agriculture or business combinations like mergers and acquisitions, certainly the new standards bring guidance in order to reduce subjectivity

Every new initiative has its own challenges. Same here and some of these I would like to share with you.

a. Untested waters – Accounting Standards related to revenue recognition (IFRS 15) and related to financial instruments (IFRS 9) will be implemented before other jurisdictions in the world, if no extension is provided by the Indian Government. That might bring challenges in the absence of global clarification and guidance

b. Transition – According to the IFRS, previous year figures are to be provided along with current year numbers. Transition date needs to be kept in mind and care to be taken to plan in advance. The companies need to have strong planning

c. Training – It will be a challenge to provide training to not only accounting people, but also to regulators like tax officials and other stakeholders like bankers so that they can understand the financials prepared under new regime. Besides, chartered accountants will need to study the new standards and understand the impact

d. Tax – Many feel that it might be a challenge to handle Income Tax regulations with new accounting standards. Though the Ministry of Finance has issued new Income Computation and Disclosure Standards (ICDS), which are applicable from the current year itself, yet various issues like minimum alternate tax remain unresolved.

e. Still not IFRS – We will be moving towards IndAS, which are still different from IFRS. There are carve outs and otherwise, which means some of the guidance has not been taken into consideration and there is difference to that extent between IFRS and Ind-AS. Though near, yet Indian companies will not be able to write in the disclosure notes that these financial statements are prepared according to IFRS. They will mention that these financial statements are prepared according to Ind-AS.

f. Subjectivity – Ind-AS are generally substance based and not rule based. It might be a challenge to take decision when the two views. Possibility of misuse of such subjectivity can’t be ruled out

Must Read – What is IASB, FASB, IFRS, Ind AS and US GAAP?

Conclusion

Though there are apprehensions and subjectivity to be creased out, IFRS (read Ind-AS) is certainly a new beginning and one should welcome this change. Not only we will bring globalisation and head towards synchronisation of accounting across boundaries, but will also embrace the best practices. All students must itself, yet various issues like minimum alternate tax remain unresolved. e. Still not IFRS – We will be moving towards IndAS, which are still different from IFRS. There are carve outs and otherwise, which means some of the guidance has not been taken into consideration and there is difference to that extent between IFRS and Ind-AS. Though near, yet Indian companies will not be able to write in the disclosure notes that these financial statements are prepared according to IFRS. They will mention that these financial statements are prepared according to Ind-AS. f. Subjectivity – Ind-AS are generally substance based and not rule based. It might be a challenge to take decision when the two views. Possibility of misuse of such subjectivity can’t be ruled out. Following table provide a quick glance on differences between new standards (Ind-AS) and existing standards (AS): make an effort to read these standards and financials prepared in IFRS from internet, to enhance awareness and knowledge on the subject. It will be a good idea to download a financial statement from internet, which is prepared in IFRS and compare it with Indian company’s financial statement. You will certainly like the notes to accounts part – as these are more detailed in IFRS