Highlights of the recent ICAI press release and proposed roadmap (dated 9 April 2014)
ICAI has submitted the roadmap submitted to the Ministry of Corporate Affairs for its consideration, which is expected to take decision in the matter shortly.
Certain clarifications on IFRS roadmap
Specified class of companies
Companies applying Ind AS for preparing their first consolidated financial statements under Ind AS for the accounting period beginning on or after 1 April 2016 should prepare comparatives for the year ending 31 March 2016 or thereafter.
Companies, other than specified class of companies, have an option to voluntarily adopt of IFRS-converged accounting standards for their consolidated financial statements for financial year commencing on 1 April 2016 or thereafter.
Net worth is defined as share capital plus reserve less revaluation reserve. It is to be calculated on the basis of standalone audited balance sheet of the company as at 31 March 2014 or the first balance sheet for accounting periods which end after that date.
For companies that were not in existence on 31 March 2014 or existing companies that meet the criteria for the first time after 31 March 2014, the net worth shall be calculated on the basis of the first balance sheet ending after that date.
There have been no announcements regarding (i) quarterly reporting under the IFRS-converged accounting standards and (ii) adoption of ‘IFRS for SMEs’ in India. With IFRS set to become the future Indian GAAP and being a moving target, Indian companies should actively monitor and participate in the IASB’s standard-setting process.
In India, when businesses were simple, accounting standards were simple. Today, businesses have become complex and India needs comprehensive accounting standards. Move towards IFRS is an attempt to bridge this gap. This move would lead to certain fundamental changes and would impact businesses at large. Companies will have to examine the implication of this move on their performance and business.
It is important to note that conversion to IFRS will require the retroactive restatement of certain historical periods presented within a company's first set of IFRS based financial statements. Those restated periods could show a host of changes to a company's key metrics, bottom-line performance and financial position.
Implication of change in accounting would have a direct implication on the way businesses are run. For example, it could affect credit rating, debt covenants, dividend distribution, employee KPI and bonuses, managerial remunerations, financial-product's design, taxes, exit clause of your investors, contingent consideration (on acquisition).
IFRS may not bring significant accounting changes to all companies. The impact of the move could be quite significant for certain companies with complex transactions. The impacts of change to IFRS need careful analysis. Prior to embracing full-fledged conversion, a preliminary study would help you (1) assess the level of complexities and challenges, and (2) prepare and plan for effective and efficient conversion exercise.
We believe as a result of all of these developments that companies should consider the following:
Given the strategic and business issues related to IFRS, as well as the investment of time necessary to transition a company to a new accounting language, IFRS should remain an area of focus for most companies.