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IFRS Convergence in India

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IFRS Convergence in India

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  1. Deloitte Haskins & Sells IFRS Convergence in India Ananthi Amarnath Cochin December 20, 2010 © Deloitte Haskins & Sells, Mumbai

  2. Agenda • Global Convergence of Accounting Standards • Convergence of Indian Accounting Standards with IFRS • Conceptual Differences between IFRS and Indian GAAP • IFRS Conversion Issues – Business and Technical Accounting • IFRS Resources

  3. GLOBAL CONVERGENCE of ACCOUNTING STANDARDS

  4. Convergence Drivers • Capital Markets • Regulatory requirements • Internal controls • Performance evaluation

  5. IFRS Objective • Principles based high quality global standards • Emphasis on relevance and disclosures

  6. The Global Move Towards IFRS Current or anticipated requirement or option to use IFRS (or equivalent) Canada 2009/11 Europe 2005 United States (2014/15/16?) China 2007 Japan(2016) India 2011 Brazil 2010 Chile 2009 South Africa 2005 Australia 2005

  7. Use of IFRSs in Europe • Europe moved to IFRSs from 1/1/2005 with about 8000 EU listed companies mandated • Non-EU listed companies allowed to use GAAPs of US, Japan, China, S Korea, and India, other countries to use IFRS – Review in 2011 • EU member states may require IFRSs for non-listed companies and to separate company statements • European Commission has so far endorsed all IASs, IFRSs and all interpretations (except some recent amendments)

  8. Use of IFRSs in Canada • Currently Canadian companies listed in US may use US GAAP for domestic reporting and foreign issuers are allowed to use IFRSs • From 1 January 2011, all Canadian public entities must use IFRSs • Early adoption is permitted on case-by-case basis by securities regulator • Not-for-profit and pension plans are not required to transition to IFRSs

  9. IFRS Adoption • BIGGEST STAMP OF APPROVAL Securities and Exchange Commission (SEC), United States of America have permitted Foreign Private Issuers to file IFRS compliant financial statements (as promulgated by the IASB) without reconciliation to US GAAP SEC has issued a proposed roadmap to assess whether US domestic registrants should be permitted to use IFRS

  10. SEC permits IFRS filings • SEC now permits foreign private issuers to file their financial statements prepared under IFRS in stead of US GAAP – without the need for reconciliation • In November 2008, SEC revised its “roadmap” to include milestones that could lead to mandatory transition to IFRSs starting fiscal years ending on or after 15 December 2014/15/16, with permission to certain entities to adopt early.

  11. Convergence Project in India • Convergence Vs Adoption • In October 2007, ICAI issued concept paper giving the approach and roadmap for convergence • Various study groups have been formed • The convergence exercise will be taken up in phases - listed and bigger companies initially, smaller public companies thereafter, and eventually all private companies/SMEs

  12. Convergence Project in India • The Ministry of Company Affairs has appointed two working groups, headed by Mr. Y.H. Malegam and Mr. Mohandas Pai to finalise the roadmap to IFRS convergence. • SEBI Committee on Disclosures and Accounting Standards (SCODA) is the standing Committee - Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having overseas subsidiaries or by all listed entities.

  13. IFRS in India • On April 5, 2010 Amendment to listing Agreement provides the option of adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries while declaring Consolidated results/financial statements • Standalone results will be as per the existing Indian GAAP

  14. IFRS in India • On January 22, 2010 MCA has released Road Map for convergence with IFRS – For large Companies

  15. IFRS in India – Phase I • The following categories of companies will convert their opening balance sheets as at 1st April, 2011, if the financial year commences on or after 1st April, 2011 in compliance with the notified accounting standards which are convergent with IFRS. These companies are:- a.   Companies which are part of NSE – Nifty 50 b.   Companies which are part of BSE - Sensex 30 c.   Companies whose shares or other securities are listed on stock exchanges outside India d.   Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

  16. IFRS in India – Phase II The companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores will convert their opening balance sheet as at 1st April, 2013, if the financial year commences on or after 1st April, 2013 in compliance with the notified accounting standards which are convergent with IFRS.

  17. IFRS in India – Phase III Listed companies which have a net worth of Rs. 500 crores or lesswill convert their opening balance sheet as at 1st April, 2014, if the financial year commences on or after 1st April, 2014, whichever is later, in compliance with the notified accounting standards which are convergent with IFRS.

  18. IFRS in India – Road map When the accounting year ends on a date other than 31st March, the conversion of the opening Balance Sheet will be made in relation to the first Balance Sheet which is made on a date after 31st March.

  19. IFRS in India – Road map • Companies which fall in the following categories will not be required to follow the notified accounting standards which are converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified accounting standards which are not converged with the IFRS. These companies are: - • (a)            Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listed on Stock Exchanges outside India. • (b)             Small and Medium Companies (SMCs).

  20. IFRS in India – Road map The draft of the Companies (Amendment) Bill, proposing for changes to the Companies Act, 1956 will be prepared incorporating the recommendation of Sub-Group 1 Report.

  21. IFRS in India – Road map Revised Schedule VI to the Companies Act, 1956 according to the converged Accounting Standards has been submitted by the ICAI to NACAS which, after review, will submit to the Ministry. Amendments to Schedule XIV will also be made in a time bound manner.

  22. IFRS in India – Road map • Roadmap recommended by Core Group of MCA in respect of insurance companies, banking companies and non-banking finance companies. • Insurance companies:- • All insurance companies will convert their opening balance sheet as at 1stApril, 2012 in compliance with the converged Indian Accounting Standards.

  23. IFRS in India – Road map • 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 theiropening balance sheet as at 1st April, 2013 in compliance with the first set ofAccounting Standards (i.e. the converged Indian Accounting Standards).

  24. IFRS in India – Road map • Banking companies:- (b) Urban co-operative banks which have a net worth in excess of Rs. 200crores but not exceeding Rs. 300 crores will convert their opening balance sheets as at 1st April, 2014 in compliance with the first set of Accounting Standards (i.e. the converged Indian Accounting Standards).

  25. IFRS in India – Road map • Banking companies:- (c) Urban co-operative banks which have a net worth not exceeding Rs. 200crores 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.

  26. IFRS in India – Road map • NON-BANKING FINANCE COMPANIES

  27. IFRS in India – Road map • NON-BANKING FINANCE COMPANIES Unlisted NBFCs which have a net worth of Rs. 500 crores or less will not be required to apply the converged Indian Accounting Standards.

  28. Clarification issued MCA on the certain issues in the Roadmap

  29. MCA Clarifications • The Ministry of Corporate Affairs issued clarification on the following issues in the IFRS Roadmap on 4th May 2010: • Determination of Applicability • Applicability for entities that are subsidiaries, joint ventures or associates of companies covered under the convergence roadmap. • Discontinuing use of the first set of Accounting Standards (Converged Accounting Standards) • Calculation of net worth • Removal of options

  30. MCA clarifies on: Determination of Applicability • Whether companies can voluntarily opt to provide comparative figures for 2010-11 in accordance with the converged Accounting Standards?

  31. MCA clarifies on: Determination of Applicability • Previous year figures - Clarification: • Companies should show previous years’ figures as per the F/s for 2010-11. • Option available to add an additional column to indicate what the figures could have been if the Converged Accounting Standards had been applied in the previous year • Companies which make this additional disclosure, for this purpose, convert their opening balance sheet as the date on which this pervious year commences and in that case, a further conversion of the opening balance sheet for the year for which the F/s are prepared will not be necessary.

  32. MCA clarifies on: Determination of Applicability • Whether companies covered in 2nd / 3rd phase for application of the converged Accounting Standards can voluntarily opt to apply the same w.e.f accounting year beginning 1st April 2011?

  33. MCA clarifies on: Determination of Applicability • Clarification: Companies in the 2nd / 3rd phase will have an option for application of the Converged Accounting Standards only for the financial year commencing on 1st April 2011 or thereafter

  34. MCA clarifies on: Determination of Applicability • What is the cut-off date on which the criterion set out in the roadmap shall be applied in order to determine the companies falling in each of the four categories which will convert their opening balance sheet as at 1st April 2011 in compliance with the converged accounting standards

  35. MCA clarifies on: Determination of Applicability • Clarification: • The date of determination of the criteria is the Balance Sheet as at 31st March 2009; OR • the first Balance Sheet prepared thereafter when the accounting year ends on another date.

  36. MCA clarifies on: Determination of Applicability • What is the cut-off date on which the criterion set out in the roadmap shall be applied in order to determine the scheduled commercial banks/urban co-operative banks/NBFCs falling in each of the categories (as set out in the roadmap for Banks and NBFCs) which will convert their opening balance sheet as at 1st April 2013 in compliance with the converged Accounting Standards?

  37. MCA clarifies on: Determination of Applicability • Clarification: • The date of determination of the criteria is the Balance Sheet as at 31st March 2011; OR • the first Balance Sheet prepared thereafter when the accounting year ends on another date.

  38. MCA clarifies on: Status of subsidiaries, JVs and Associates of entities who are covered under roadmap • Whether it would be permissible for the companies which are not individually covered under the phasing plan for application of the Converged Accounting Standards to voluntarily opt for application of the Converged standards even for their standalone F/s?

  39. MCA clarifies on: Status of subsidiaries, JVs and Associates of entities who are covered under roadmap • Clarification: • Criteria to be considered for each company’s standalone accounts • Companies covered in a particular phase having subsidiaries, JVs or associates not covered in those phases will prepare consolidate F/s according to Converged Accounting Standards • One of more companies in a group will continue to prepare F/s in accordance with the Accounting Standards applicable to the particular phase to which it belongs but parent will need to make amendments to these accounts in order to consolidate as per Converged Accounting Standards • Such subsidiaries, JVs or associates may have the option to early adopt the Converged Accounting Standards.

  40. MCA clarifies on: Discontinuing use of Converged Accounting Standards • Does a company have the option to go back to preparing F/s in accordance existing Indian Accounting Standards if it no longer satisfies the specified criteria in the future? • Clarification: • No. • Once a company starts following the Converged Accounting Standards on the basis of the eligibility criteria, it will be required to follow such Accounting Standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it.

  41. MCA clarifies on: Calculation of Net worth • Rules for calculation of qualifying net worth • Clarification: • Networth will be calculated as per audited balance sheet of the company as at 31st March 2009 or first balance sheet for accounting periods which ends after that date • Networth = Share Capital + Reserves – Revaluation Reserves – Miscellaneous Expenditure – Debit Balance in Profit and Loss A/c • For companies which are not in existence on 31st March 2009, networth will be calculated on the basis of the first balance sheet ending after that date.

  42. MCA clarifies on: Calculation of Networth • Rules for calculation of qualifying networth recommended to Scheduled Commercial Banks / Urban Cooperative Banks / NBFCs • Clarification: • Networth will be calculated as per audited balance sheet of the Bank / NBFC as at 31st March 2011 or first balance sheet for accounting periods which ends after that date • Networth = Share Capital + Reserves – Revaluation Reserves – Miscellaneous Expenditure – Debit Balance in Profit and Loss A/c • For Banks / NBFCs which are not in existence on 31st March 2009, networth will be calculated on the basis of the first balance sheet ending after that date.

  43. MCA clarifies on: Removal of Options • Situation where Notified Converged Accounting Standards ARE NOT fully consistent with IAS / IFRS • Clarification: • Companies will follow the first set of Accounting Standards i.e. the Converged Accounting Standards and NOT IFRS.

  44. Regulatory updates

  45. Steps to reduce inconsistencies between regulations • The ICAI has taken the following steps for Identification of inconsistencies between various Laws and Regulations: • Constitution of a Group on Liaison with Governmental and Regulatory Authorities • Group has constituted separate Core Groups to identify inconsistencies between IFRSs and the following statutes: • Companies Act • SEBI Regulations • Banking Laws & Regulations • Insurance Laws & Regulations • CBDT

  46. Convergence Status • Exposure drafts on converged standards were released for public comments by ICAI • The converged accounting standards along with revised Sch VI and Sch XIV have been finalized by NACAS and recommended to the Government for notification.

  47. Progress of Convergence

  48. Standards Cleared by Council

  49. Exposure Drafts issued and comments considered by ASB

  50. Exposure Drafts issued and comments to be considered by ASB