Executive Summary
In pursuance of G-20 commitment given by India, the process of convergence of Indian Accounting Standards with IFRS has been carried out in Ministry of Corporate Affairs through wide ranging consultative exercise with all the stakeholders. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notified by the Ministry and placed on the website. These are: IND ASs 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, 29, 31, 32, 33, 34, 36, 37, 38, 39, 40, 101, 102, 103, 104, 105, 106, 107 and 108.
Introduction
Availability of essential financial information about a company to its shareholders and other stakeholders in accordance with internationally accepted financial norms is considered as an integral and important part of good corporate governance. To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the Government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning with April, 2011 in accordance with the roadmap suggested by Core Group and Technical Groups set up by the Government.
India's commitment to the policy of `convergence' of Indian Accounting Standards with IFRS would allow it to consider local economic conditions and environment while preparing converged accounting standards, thus duly and adequately safeguarding the interests of Indian companies/enterprises. The convergence with IFRS would provide reliable and comparable financial information to investors globally. Such converged accounting standards also aim at bringing more transparency in financial matters, thus seek to protect the interests of investors and improve standards of good corporate governance. They would also enhance the global competitiveness of Indian Industry.
Reliable, consistent and uniform financial reporting is important part of good corporate governance practices worldwide in order to enhance the credibility of the businesses in the eyes of investors to take informed investment decisions. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notified by the Ministry and placed on the website. These are: IND ASs 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, 29, 31, 32, 33, 34, 36, 37, 38, 39, 40, 101, 102, 103, 104, 105, 106, 107 and 108. The Ministry of Corporate Affairs will implement the IFRS converged Indian Accounting Standards in a phased manner after various issues including tax related issues are resolved with the concerned Departments. It would be ensured that the implementation of the converged standards in a phased manner is smooth for the stakeholders. The date of implementation of the IND AS will be notified by the Ministry at a later date.
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Separate Roadmap for Insurance Companies, Banking Companies and Non-Banking Finance Companies
The Core Group approved the Roadmap in respect of Insurance Companies, Banking Companies and Non-Banking Finance Companies on 29th March, 2010. The Core Group referred to the earlier Roadmap for Convergence agreed to, in its meeting held on 11th January, 2010 in respect of companies, other than insurance companies, banking companies and Non-Banking Finance Companies. The recommendations of the Core Group can be summarized as under:
1. Insurance companies
All insurance companies will convert their opening balance sheet as at 1st April, 2012 in compliance with the converged Indian Accounting Standards.
2. Banking companies
(a) All scheduled commercial banks and those urban co-operative banks (UCBs) which have a net worth in excess of Rs.300 crores will convert their opening balance sheet as at 1st April, 2013 in compliance with the first set of converged Indian Accounting Standards.
(b) Urban co-operative banks which have a net worth in excess of Rs. 200 crores but not exceeding Rs. 300 crores will convert their opening balance sheets as at 1st April, 2014 in compliance with the first set of converged Indian Accounting Standards.
(c) Urban co-operative banks which have a net worth not exceeding Rs. 200 crores and Regional Rural Banks (RRBs) will not be required to apply the first set of Accounting Standards i.e. the converged Indian Accounting Standards (though they may voluntarily opt to do so) and need to follow only the existing notified Indian Accounting Standards which are not converged with IFRSs.
** ** **
Commitment towards convergence with IFRS
The Ministry of Corporate Affairs reiterates its commitment to carry out the convergence of Indian Accounting Standards by April, 2011. The Ministry will carryout the exercises for necessary amendments in the Companies Act, the related Schedules VI and XIV as well as the Accounting Standards Rules would also be carried out simultaneously so that the necessary legislative changes can take place to facilitate convergence. In a written reply to a question, Ministry has informed the Government that the converged Indian Accounting Standards are proposed to be made applicable to companies registered under the Act in a phased manner with effect from 1st April, 2011.
The ICAI has been taking a number of measures for capacity building through various training programmes and workshops etc. The Industry Associations have also been conducting various seminars and conferences to get acquainted with various practical issues involved in the convergence process. The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications.
The proposed converged accounting standards have been prepared after following a detailed consultative exercise through issue of exposure drafts by Accounting Standards Board (ASB) of Institute of Chartered Accountants of India (ICAI), examination of comments received thereon and thereafter consideration of such standards by ICAI, National Advisory Committee on Accounting Standards (NACAS) and thereafter by Central Government (MCA) in consultation with M/o Law and Justice.
The revised Schedule VI (Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly.
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Conclusion
Income-tax officers are not prepared to accept the taxable income which would be worked out as per IFRS principle accounting standards to be taxable income for the purpose of Income Tax Act. In fact, there was an apprehension that in this forthcoming budget the Finance Bill may amend the Income Tax Act. Section 145 to mandate that Indian GAAP accounting standard would be the only standard recognized by the Income Tax Department for computing taxable income but the same has not been modified. Besides, IFRS are fair value driven, the fair value concept asks the entity to do the fair value of financial assets and financial liabilities and fair value of investment property etc., and because of this fair value there would be unrealized gains and losses. There is no clarity yet come whether these unrealized gains and losses are taxable in Indian scenario.
In pursuance of G-20 commitment given by India, the process of convergence of Indian Accounting Standards with IFRS has been carried out in Ministry of Corporate Affairs through wide ranging consultative exercise with all the stakeholders. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notified by the Ministry and placed on the website. These are: IND ASs 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, 29, 31, 32, 33, 34, 36, 37, 38, 39, 40, 101, 102, 103, 104, 105, 106, 107 and 108.
Introduction
Availability of essential financial information about a company to its shareholders and other stakeholders in accordance with internationally accepted financial norms is considered as an integral and important part of good corporate governance. To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the Government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning with April, 2011 in accordance with the roadmap suggested by Core Group and Technical Groups set up by the Government.
India's commitment to the policy of `convergence' of Indian Accounting Standards with IFRS would allow it to consider local economic conditions and environment while preparing converged accounting standards, thus duly and adequately safeguarding the interests of Indian companies/enterprises. The convergence with IFRS would provide reliable and comparable financial information to investors globally. Such converged accounting standards also aim at bringing more transparency in financial matters, thus seek to protect the interests of investors and improve standards of good corporate governance. They would also enhance the global competitiveness of Indian Industry.
Reliable, consistent and uniform financial reporting is important part of good corporate governance practices worldwide in order to enhance the credibility of the businesses in the eyes of investors to take informed investment decisions. Thirty five Indian Accounting Standards converged with International Financial Reporting Standards (henceforth called IND AS) are being notified by the Ministry and placed on the website. These are: IND ASs 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, 29, 31, 32, 33, 34, 36, 37, 38, 39, 40, 101, 102, 103, 104, 105, 106, 107 and 108. The Ministry of Corporate Affairs will implement the IFRS converged Indian Accounting Standards in a phased manner after various issues including tax related issues are resolved with the concerned Departments. It would be ensured that the implementation of the converged standards in a phased manner is smooth for the stakeholders. The date of implementation of the IND AS will be notified by the Ministry at a later date.
** ** **
Separate Roadmap for Insurance Companies, Banking Companies and Non-Banking Finance Companies
The Core Group approved the Roadmap in respect of Insurance Companies, Banking Companies and Non-Banking Finance Companies on 29th March, 2010. The Core Group referred to the earlier Roadmap for Convergence agreed to, in its meeting held on 11th January, 2010 in respect of companies, other than insurance companies, banking companies and Non-Banking Finance Companies. The recommendations of the Core Group can be summarized as under:
1. Insurance companies
All insurance companies will convert their opening balance sheet as at 1st April, 2012 in compliance with the converged Indian Accounting Standards.
2. Banking companies
(a) All scheduled commercial banks and those urban co-operative banks (UCBs) which have a net worth in excess of Rs.300 crores will convert their opening balance sheet as at 1st April, 2013 in compliance with the first set of converged Indian Accounting Standards.
(b) Urban co-operative banks which have a net worth in excess of Rs. 200 crores but not exceeding Rs. 300 crores will convert their opening balance sheets as at 1st April, 2014 in compliance with the first set of converged Indian Accounting Standards.
(c) Urban co-operative banks which have a net worth not exceeding Rs. 200 crores and Regional Rural Banks (RRBs) will not be required to apply the first set of Accounting Standards i.e. the converged Indian Accounting Standards (though they may voluntarily opt to do so) and need to follow only the existing notified Indian Accounting Standards which are not converged with IFRSs.
** ** **
Commitment towards convergence with IFRS
The Ministry of Corporate Affairs reiterates its commitment to carry out the convergence of Indian Accounting Standards by April, 2011. The Ministry will carryout the exercises for necessary amendments in the Companies Act, the related Schedules VI and XIV as well as the Accounting Standards Rules would also be carried out simultaneously so that the necessary legislative changes can take place to facilitate convergence. In a written reply to a question, Ministry has informed the Government that the converged Indian Accounting Standards are proposed to be made applicable to companies registered under the Act in a phased manner with effect from 1st April, 2011.
The ICAI has been taking a number of measures for capacity building through various training programmes and workshops etc. The Industry Associations have also been conducting various seminars and conferences to get acquainted with various practical issues involved in the convergence process. The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications.
The proposed converged accounting standards have been prepared after following a detailed consultative exercise through issue of exposure drafts by Accounting Standards Board (ASB) of Institute of Chartered Accountants of India (ICAI), examination of comments received thereon and thereafter consideration of such standards by ICAI, National Advisory Committee on Accounting Standards (NACAS) and thereafter by Central Government (MCA) in consultation with M/o Law and Justice.
The revised Schedule VI (Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly.
** ** **
Conclusion
Income-tax officers are not prepared to accept the taxable income which would be worked out as per IFRS principle accounting standards to be taxable income for the purpose of Income Tax Act. In fact, there was an apprehension that in this forthcoming budget the Finance Bill may amend the Income Tax Act. Section 145 to mandate that Indian GAAP accounting standard would be the only standard recognized by the Income Tax Department for computing taxable income but the same has not been modified. Besides, IFRS are fair value driven, the fair value concept asks the entity to do the fair value of financial assets and financial liabilities and fair value of investment property etc., and because of this fair value there would be unrealized gains and losses. There is no clarity yet come whether these unrealized gains and losses are taxable in Indian scenario.
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