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Friday, 30 June 2017



Indian Accounting Standards Converged with IFRS (Ind AS)



Ind AS are set of accounting standards notified by Ministry of Corporate Affairs (MCA), converged with International Financial Reporting Standards (IFRS), these accounting standards are formulated by Accounting Standard Board (ASB) of Institute of Chartered Accountants of India (ICAI).

Convergence means alignment of the standards of different standard setters with a certain rate of compromise, by adopting the requirements of the standards either fully or partially. Indian Accounting Standards are almost similar to IFRS but with few carve outs so as to make them suitable for Indian Environment.
Till now, MCA has notified 35 Ind AS. However the date of implementation is yet to benotified.

On 2 January 2015, the Press Information Bureau, Government of India, Ministry of Corporate Affairs (MCA) issued a note outlining the various phases in which Indian Accounting Standards converged with IFRS (Ind AS) is proposed to be implemented in India, for Companies other than Banking Companies, Insurance Companies and NBFCs.
The application of Ind AS is based on the listing status and net worth of a company. Ind AS will first apply to companies with a net worth equal to or exceeding 500 crore INR beginning 1 April 2016. Listed companies as well as others having a net worth equal to or exceeding 250 crore INR will follow 1 April 2017 onwards


Need for Change



The only thing which will be received from such transition is common set of accounting standards. The benefits of having the common standards for financial reporting are the reasons which attract this transition.

These are as follows,

a. Better Comparability-By following a common set of standards, will help the stakeholders to compare the organisations globally, i.e. to create an apple to apple comparison.

b. Better Transparency- The users of accounts will be benefited by this as, same accounting standards will help to them understand the fundamentals of the organisation which will generate better transparency.

c. Many companies having subsidiary or Holding company in different countries are required to follow dual set of accounting standards, local standards on one hand & global standards on the other hand. The transition will be helpful in saving time & cost on the finance department. For example, Swiss pharmaceutical giant ROCHE group, which operates in more than 100 countries, likely to save more than $100 million through Convergence.

 d. Attract Foreign Investment- Since the investors can compare with other organisations globally, it will help them to take investment decision, at the same time it will help the organisation to present their financial position in more efficient way to the world, in a language that all can understand.

 e. Due to transition many companies will be attracted towards India, for investing, for setting up subsidiary, etc., which will result in increase in employment opportunities.

 f. Globalization-Globalization can be understand at three levels i. World Trade- Smooth trade can be achieved. ii. Listing, Securities Markets etc. - Listing of Securities on international Stock Exchanges will be eased. Cross border flow of investment will lead to economic growth. iii. Stakeholders- Stakeholder can easily take the decision in regards to the organisation.

 g. Cost Saving - Saving of time and money in planning and executing of accounting and auditing. - Costs involved in the access to the capital market are expected to reduce. - Labour Cost-In developing countries, the labour cost is cheap, but capital availability is difficult. By convergence the cost of capital will reduce & its availability will also be eased.


Adoption or Convergence From the above discussion one may wonder why to introduceInd AS instead of following IFRS as it is. Some countries had accepted the IFRS as it is instead of convergence, Question is why not India?

One of the main reason is any changes in the IFRS would have impact on books of Indian Companies; it would be hard for companies to adopt or cope up with the IFRS as and when amended.

 At the same time, India is multi regulator nation. In India there are many regulators like, Companies Act, Income Tax Act, Securities Exchange Board of India (SEBI), Insurance Regulatory & Development Authority (IRDA), and Reserve Bank of India (RBI) etc.

To welcome the change in IFRS the respective Rules and Regulation must be amended accordingly, which can be time consuming. If the changes in IFRS are not in consensus with the Rules and Regulation, then there will be chaos in the corporate reporting. So Introduction of Ind AS is a way to buy some time to analyse the situation or the change with a view to take necessary action by MCA as it thinks fit.

 Hence, substantially similar to the IFRSs, the Ind AS have some carve outs to ensure that these standards are suitable for application in the Indian environment In a nut shell, Ind AS can be referred as “International Dish with Indian Flavour”



Conclusion:



As the convergence work is still going on, the practical application of IFRS converged standards are yet to come up. As such, problems in the post application periods cannot be denied and moreover, the types of such problems cannot be forecasted for certain, at this point of time. Hence, preparation of IFRS-converged standards is a challenge before the preparers both in India and outside.
 If I could leave you with one thought, it will be that, I am one of those dreamers who would like to see, by the year 2020, India becoming an important financial hub like Hong Kong, New York or London. To make that happen, there are several important steps to be undertaken, one of them is having account standards that are exactly same as International Standard. Ind AS is no more an option; it is the need of the hour.

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