The Indian Ministry of Corporate Affairs (MCA) has announced plans to implement IFRS for all listed companies by 2016, with the exception of banks, insurers and shadow banking companies.
The announcement follows the call made in July 2014 by Minister Arun Jaitley, who proposed the mandatory adoption of Indian accounting standards (Ind AS), which are IFRS-converged, by financial year 2016-2017 and on a voluntary basis from April 2015.
According to the MCA, the Indian IFRS-converged accounting standards will apply also to non-listed companies whose net worth is INR 5000m ($78,7m) or above.
According to the Institute of Chartered Accountants of India (ICAI), more than 550 listed companies will be affected by the change. But the number of companies, either listed or non-listed, applying Ind As will increase as the following year the net worth threshold will go down to INR 2,500m.
Banks and insurers won’t be affected at this stage, as their accounting is not governed by the Companies Act. The accounting rules for insurers are set in the Insurance Regulatory Development Act, whereas banks follow the Banking Regulation Act.
"In further stages they might be covered as well. These acts have differences but there is work going on to make them compatible and prepare for the transition," IFRS expert Eish Taneja told The Accountant.
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By GlobalDataThe government’s announcement brings closer to completion the process of IFRS convergence started in 2010, which has been subsequently postponed.
"We have now a government which is in majority, so it has the power to enforce the decision. The previous government could not do so, although it was trying," Taneja noted.
Skills gap
ICAI president Kumar Raghu told The Accountant that his institute recommended the implementation of IFRS to the government. He warned, however, the new standards will require new types of financial information, and presumably first-time adoption issues will be rife.
"Any new system of accounting will bring implementation challenges, for both preparers of financial statements and auditors. We are a very big country, with a large number of accountants. We have to train all of them," Raghu said.
ICAI have already prepared 500 seminars around the country. And Taneja, who also trains Big Four firms’ staff on IFRS, acknowledged there is a skill gap that needs to be addressed.
One of the new areas that the IFRS-converged standards will bring to India is the concept of fair value, as Taneja and Raghu pointed out.
"In India we don’t have a strong body or association that can monitor the concept of fair valuation. There are registered valuers, who are supposed to do fair valuations, but there is no strong body to monitor them," Taneja said.
Oversight
The MCA’s announcement did not mention the controversial National Financial Reporting Authority (NAFRA), a new regulator under the Companies Act which hasn’t been implemented yet.
Taneja said that NAFRA’s composition and team members could be announced in the next months.
"I think is a good bold step, in line with the PCAOB [Public Company Accounting Oversight Board] in the US. It’s going to handle accounting standards and professionals, who were not under big scrutiny. They have been handled by the institutes, which is quite lenient," Taneja said.
ICAI president disagreed and hoped the government will not pass enabling legislation to implement the NAFRA.
"Our institute is doing its job. The NAFRA is a duplication of authority there is no need to one more regulator," Raghu said.
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