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IFRS Diary: IFRS is Finally Here!

Published on Thu, Jul 10,2014 | 16:21, Updated at Thu, Jul 10 at 17:22Source : 

By: Jamil Khatri, Deputy Head of Audit & Global Head of Accounting Advisory Services, KPMG

The Finance Minister today announced that Indian accounting standard would be converged with IFRS in the near term. This envisages voluntary adoption of the IFRS converged standards (Ind AS) from FY 16 and mandatory adoption from FY 17. Timelines for the financial services sector, including banks and insurance companies are expected to be finalized by their respective regulators. 


This is a welcome step and a continuation of recent initiatives to move Indian reporting and governance to international norms, which started with the 2013 Companies Act. The move is also likely to provide additional comfort to international institutional investors, particularly as interest in the Indian equity markets increases. Further, future capital raising by Indian companies in the international markets will be easier since companies will be able to avoid the tedious process of converting Indian GAAP financial statements to IFRS.  


Though this is a good first step, the government needs to avoid the pitfalls that derailed the previous planned implementation in 2011. This would require a detailed roadmap that fully considers the tax impact and aligns the implementation with the remaining provisions of the Companies Act in areas such distributable profits. There are several ways of addressing the tax impact. One way could be by applying Ind AS only to consolidated financial statements, which are de-linked from the financial statements used for tax purposes. Another alternate approach is to notify separate tax accounting standards that would govern computation of taxable income irrespective of the Ind AS basis used for the financial statements.


Capacity building is also essential given that many professionals would need to unlearn what they currently know and develop knowledge & experience in this new area. One approach to address the capacity mismatch would be to consider a phased approach to implementation. This phased approach is also consistent with the recommendations recently made by the ICAI to the MCA. The roadmap for financial services entities should also factor in the impact on capital adequacy and the planned significant changes in IFRS reporting for financial instruments, which are likely to kick-in only by 2017.


Care should also be taken to ensure that the previously issued Ind AS are updated for subsequent changes in the underlying IFRS itself. This is also an opportunity for the regulators to reduce the deviations from IFRS (carve-out's), and ensure that the convergence delivers the intended benefits for all stakeholders.  


By moving forward with the implementation, India can play a significant role in accounting standard setting globally. 



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