The Firm

Show Timings:

Friday: 10.30 pm, Saturday: 11.30 am

Sunday: 9:30am & 11.00pm


New Accounting Standards: Implementation Roadmap

Published on Tue, Jul 15,2014 | 21:14, Updated at Tue, Jul 15 at 21:14Source : 

By: Sai Venkateshwaran – Partner & Head, Accounting Advisory Services, KPMG India

The finance minister’s announcement to introduce new accounting standards converged with International Financial Reporting Standards (IFRS) is very welcome.  It is expected that companies would be permitted to voluntarily follow the new Indian Accounting Standards (Ind-AS) from 2015-16, which become mandatory from 2016-17.  The timelines for financial services sector, including banks and insurance companies is also expected to be finalized soon. The Tax Accounting Standards (TAS) are also expected to be notified in due course.

Finance Minister’s Budget Speech extract

There is an urgent need to converge the current Indian accounting standards with the International Financial Reporting Standards (IFRS). I propose for adoption of the new Indian Accounting Standards (Ind AS) by the Indian companies from the financial year 2015-16 voluntarily and from the financial year 2016-17 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of AS Ind for the Banks, Insurance companies etc. Standards for the computation of tax would be notified separately.

This comes at a time when the capital market activity is picking up, both in India and globally, and this certainly comes as a boost to further strengthen our capital markets.  This would lead to better comparability and transparency in financial reporting thereby increasing its global acceptance, which in turn should result in lowering the cost of capital and improving valuations.

Implementation Roadmap
As a next step, we expect that the government will announce the detailed roadmap for Ind-AS implementation.

Learning from the past efforts at convergence in 2011, the Ministry of Corporate Affairs (MCA) should finalize the roadmap for implementation at the earliest so as to allow covered companies to start their preparations well in advance of the transition date.  This roadmap should consider implementation in a phased manner, like was announced earlier.  The phasing of companies should also take into account the various challenges involved in the implementation, including sectoral issues, as well as wider issues around capacity building, etc.

The roadmap for financial services sector, in particular banks and insurance companies would need to also keep in mind the International Accounting Standard Board’s (IASB) timelines for implementation of IFRS 9, its new standard for financial instruments, which after a couple of deferments is now expected to be applicable from 2017.  The implementation timelines required for this sector could be more considering the complexities involved, including massive system changes that would be required to deal with the new requirements.

Revision of Ind-AS standards
The MCA had published Ind-AS standards in 2011.  However, these standards are outdated due to several changes in the corresponding IFRS standards, including in important areas such as revenue recognition, consolidation, financial instruments, etc.  Considering this, the MCA and National Advisory Committee on Accounting Standards (NACAS) or National Financial Reporting Authority (NFRA) should immediately update and issue the new set of standards that are aligned to the current version of IFRS.

When the Ind-AS were published in 2011, there was a lot of criticism for these standards, especially from the international community, stating that there were significant carve-outs and deviations as compared to IFRS, and therefore these standards did not serve the objective of convergence with IFRS.  Keeping this in mind, the MCA should keep the carve-outs to the bare minimum when finalizing the new Ind-AS standards to ensure that there is global acceptability for financial statements prepared using these standards when they are issued.

Tax accounting standards
The issue of TAS would also address one of the big implementation challenges that was faced by corporates, which resulted in significant push back to the earlier convergence effort.  Companies were uncertain of the tax implications of the changes that would be adopted for accounting purposes.  The new TAS would now pave way for taxable income being delinked from accounting income as both will be prepared under separately defined frameworks, thereby ensuring that any change in accounting framework does not have any tax implications.

Next Steps For Companies
Companies should use the next two years to start assessing the impact that the new standards would have on them, and start preparing for the change.  Prior experience has shown that the implications of this change are not restricted to just the accounting function, but has an organization wide impact, and possibly the way the company does business, raises capital, etc.  Therefore, it is best for companies to start early and carry out the transition in a smooth and efficient manner.

Summing Up
On the whole, the announcement is a continuation of the new government’s thrust towards aligning governance in India with international norms.  By moving forward with the implementation, India can play a significant role in accounting standard setting globally.  While preparing the detailed implementation plan, the pitfalls that resulted in unsuccessful implementation of Ind AS in 2011 should be avoided and proactively addressed.


Copyright © Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of is prohibited.