Studying the IFRS (International Financial Reporting Standards) scene, Jamil Khatri, Head of Accounting Advisory Services, KPMG, considers that the most expected policy development in the coming year will be the issuance of new converged Indian accounting standards by the ICAI (Institute of Chartered Accountants of India).
“The ICAI will issue new Indian accounting standards in various areas such as acquisitions and share-based payments. Similarly, many existing Indian accounting standards will be modified to ensure conformity with the equivalent IFRS. These revised standards would, however, need to be notified by the National Advisory Committee on Accounting Standards (NACAS),” he adds, during a recent year-end email interaction with Business Line.
Given the regulatory and policy challenges in the path to convergence, the Government of India appointed a Core Group to facilitate convergence. This Core Group has constituted two sub-committees to evaluate the various regulatory and policy related challenges to convergence. While these sub-committees and the Core Group are currently working through various matters, we may see quite a few policy developments in the coming months, Jamil feels.
“The successful convergence with IFRS effective April 1, 2011 would require the regulators to address the policy matters in 2010. The regulators seem to be conscious of this and are working towards providing guidance as soon as possible.”
Excerpts from the interview.
On amendments to regulations
To ensure that regulations do not conflict with the converged Indian accounting standards, the Ministry of Corporate Affairs (MCA) would need to amend various provisions of the Companies Act. For example, Schedule XIV of the Companies Act, which prescribes the minimum rates of depreciation, would need to be amended. Other regulators such as the Reserve Bank of India would also need to make similar conforming amendments.
The regulators would need to evaluate whether the converged Indian standards and related regulations (collectively, the converged standards) would be in full conformity with IFRS, or whether any deviations should be provided for. For example, it is possible that the RBI may insist that banks continue with the minimum norm-based provisioning. Such a requirement would represent a ‘carve-out’ from IFRS.
On first-time transition
The converged standards are likely to become effective from April 1, 2011. This date is unlikely to be extended. The regulators will provide guidance on how the provisions of the converged standards need to be applied retrospectively to past transactions and asset/ liability balances as of April 1, 2011.
Retrospective application (subject to certain exemptions) is required to ensure full conformity with IFRS. It is likely that retrospective application will be required through the issuance of a new accounting standard to deal with first-time transition.
The regulators are also likely to provide guidance on whether the adjustments arising out of application of the converged standards should be made to the opening net worth as at April 1, 2011, or whether the profit and loss account for March 31, 2010 should be revised using the converged standards. If financial statements for March 31, 2010 are required to be revised, the adjustments due to first-time transition would be recorded in the opening net worth as at April 1, 2010.
It is unlikely that all companies or all listed companies will be required to follow the converged standards from April 1, 2011. The regulators are likely to indicate final criteria for determining, which companies should follow the converged standards. This approach will ensure that large listed companies with global operations/ investors/ creditors are the first set of companies to use the converged standards.
On early adoption
The Securities and Exchange Board of India (SEBI) has proposed early adoption of IFRS by listed companies on a voluntary basis. This proposal is likely to be finalised. It should be noted that the SEBI proposal relates to early adoption of IFRS as issued by the International Accounting Standard Board (IASB). The converged standards discussed above may or may not be in full conformity with IFRS as issued by the IASB (for example, the converged standards may not be in conformity if certain carve-outs are used in India).