In a move towards IFRS, tax accounting standard on cards

As part of an integrated exercise for introduction of a new Indian Accounting Standard (Ind AS), the Government has initiated moves to put in place a Tax Accounting Standard (TAS) too.

The simultaneous exercises, experts told BusinessLine , will avoid confusion in determining taxable corporate income in financial reporting as well as complete the twin process within the two-year timeframe. The absence of a TAS had caused postponement of introduction of Ind AS in 2011.

The country restarted the preparation for the convergence towards International Financial Reporting Standards (IFRS) through Ind AS by 2016-17 after the Finance Minister announced it in his Budget speech. The process of standard setting gathered momentum recently, K Raghu, President of the Institute of Chartered Accountants of India (ICAI) said.

“In August, ICAI will meet the Central Board of Direct Taxes to deliberate on the proposed TAS,” he said. The TAS was aimed at making the Ind AS tax neutral and it would help remove the reservations of the companies on this score, ICAI President explained.

Raghu said ICAI would also submit its suggestion on the roadmap for implementation of new accounting standard in August. The revised recommendations on accounting standards would, however, be submitted by ICAI later.

According to Rahul Chattopadhyay, Partner of the audit firm Price Waterhouse, quite a bit of work has already been done. “This would help completing the exercises,” he added. Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India, TAS would address the biggest concern for the corporate taxpayers and provide relative stability in tax treatments.

The Ministry of Corporate Affairs, which is spearheading the move to involve the stakeholders, also needs to take actions in institution building, such as the National Financial Reporting Authority (NFRA) and Registrar for valuers. Though the Companies Act 2013 paved the way for creation of NFRA, the Government is yet to notify formation of the regulator.

Venkateshwaran said till NFRA is put in place, the National Advisory Committee on Accounting Standards (formed under the Companies Act, 1956) will be allowed to continue work on the new accounting standards.

Source: http://www.thehindubusinessline.com

Shift to new accounting norms by FY16 difficult, say experts

India Inc may find it difficult to adopt the Indian Accounting Standards (Ind-AS based on international standards) by 2015-16, as suggested by finance minister Arun Jaitley in his maiden Budget speech, due to complexities in adapting to accounting changes required in short time coupled with amendments that may be required in the income tax laws, said corporate law and accounting experts.

The International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

Over 130 countries in the world have move to accounting standards set up by IFRS whereas Indian companies are following the "Generally Accepted Accounting Principles (GAAP). The finance minister, however, wants India Inc to shift to Ind-AS, an accounting standards issued by corporate affairs ministry based on IFRS.

On July 10, the finance minister proposed adoption of Ind AS for all companies except banks and insurance companies, voluntarily with effect from financial year 2015-2016 and mandatorily with effect from financial year 2016-2017.

However, as per N Venkatram, managing partner - audit, Deloitte Haskins & Sells LLP, it may be impractical for companies to shift to Ind-AS in the limited time frame.

“It is unclear as to whether the new standards will be applied to the stand-alone company accounts or to their consolidated accounts. If Ind-AS is applied only to the consolidated financial statements, companies will have to continue with a different set of standards to satisfy the tax authorities, who would look to the stand-alone financial statements to determine tax liability. This is not a desirable situation,” said Venkatram.

Experts said there are key differences between Indian GAAP and Ind-AS relate to areas such as financial instruments, business combinations (mergers and acquisitions), revenue recognition, stock option accounting, etc.

Explaining the difference, Sai Venkateshwaran, head of accounting advisory services, KPMG India said: "If a company is doing an acquisition of another company, as per current accounting standards, the current carrying value of the assets and liabilities of the acquired entity are consolidated, with the balance amount of the acquisition cost being attributed to goodwill. However, under Ind-AS, such acquired assets and liabilities would be recorded at their fair values, with a corresponding adjustment to the goodwill. This generally results in a step up in the value of assets, recognition of previously unrecognized assets, such as intangibles, and a reduction in goodwill." This would in turn impact reported earnings and EPS as the assets are amortized / depreciated resulting in a higher charge to the P&L, said Venkateshwaran.

According to Pankaj Chadha and Jigar Parikh, partners in a member firm of Ernst & Young Global, impact on transition to Ind-AS will impact all industries, however each sector will have different challenges.

“Accounting for derivatives and embedded derivatives will have significant impact in sectors like manufacturing, telecom – for e.g. procurement contracts whose pricing are linked to currency or commodity price index may require separation of embedded derivative,” said Chadha.

According to Parikh, the exchange difference accounting is not based on functional currency concept in Indian GAAP.

Source : http://www.financialexpress.com/

Proposed New Roadmap for Implementation of Ind AS converged with IFRS

 Proposed New Roadmap for Implementation of Ind AS converged with IFRS

For convergence of Indian Accounting Standards with International Financial Reporting Standards (IFRSs), a Press Release (No.2/2010) laying down roadmap for application of converged IndianAccounting Standards (Ind AS) by companies(other than Banking companies, Insurance companies and Non-Banking Finance Companies) was issuedon

22nd January, 2010.  Further, a Press Release (No.3/2010) related to the roadmapfor the

application of the converged Indian Accounting Standards (Ind AS) by the Banking Companies, Insurance companies and Non- Banking Finance Companies was issuedon 31st March, 2010. Subsequently, in response to the requests seeking clarifications on the roadmaps, a Press Release (No. 4/2010) containing a consolidated statement on clarification of roadmap was issued on May 04, 2010. However,  the Ind AS placed on

the website of the MCA could not be implemented due to various reasons from 1stApril,

2011 as per the aforesaid roadmaps issued.

A revised roadmap for implementation of Indian Accounting Standards (Ind AS) finalised by the Council of the ICAI, at its last meeting, held on March 20-22, 2014, as follows, has been submitted to the Ministry of Corporate Affairs for its consideration:

1.    As stated in earlier roadmaps for achieving convergence, there shall be two separate sets of Accounting Standards notified under the Companies Act,  1956.  First  set would comprise the Indian Accounting Standards (Ind AS) converged  with  the IFRSs which shall be applicable for preparation of consolidated financial statements as definedin the Companies Act, 2013, of the specified class of companies. The second set would comprise the existing notified  Accounting  Standards  (AS)  and shall be applicable for  preparation of individual  financial  statements  of  the companies preparing consolidated financial statements as per Ind AS and for financial statements of  other companies.

2.        The first set of Accounting Standards i.e. converged IndianAccounting Standards (Ind AS) shall be applied to the following specified class of companies for preparing their first Indian AccountingStandards (Ind AS) consolidated financial statements for the accounting period beginning on or after April 1, 2016, with comparatives for the year ending 31st March 2016 or thereafter:

(a)              Whose equity and/or debt securities are listed or are in the process of listing on any stock exchange in India or outside India; or

(b)              Companies other than those covered in (a) above, having net worth of Rs.

500 crore or more

(c)              Holding,  subsidiary,  joint  venture  or  associate  companies  of  companies covered under (a) or (b) above.

3.       Companies to which Indian  Accounting  Standards  (Ind  AS)  are  applicable  shall prepare their first set of consolidated financial statements in accordance with the Indian Accounting Standards (Ind AS) effective  at  the  end  of  its  first  Ind  AS reporting period unless otherwise specified, i.e., companies preparing consolidated financial statements for the accounting period beginningon or after April 1, 2016

shall be  required to apply the  Ind AS effective for financial year ending on 31st

March 2017.

4.      Calculation of net worth

For the purpose of calculation of qualifying net worth of companies, the following rules shall apply:

(a)     The net worth shallbe calculated as per the stand alone audited balance sheet of the company falling under any of the categories covered under 2 above as at 31st March 2014 or the first balance sheet for accounting periods which end after that date.

(b)    The net worth shall be calculated as the paid-up Share Capital plus Reserves and Surplus less Revaluation Reserve.

(c)     For companies which are not in existence on 31st March 2014 or an existing company meets the criteria for the first time after 31st March, 2014, the net worth shall be calculated on the basis of the first balance sheet ending after that date.

5.        Voluntary Adoption

(a)    Companies not mandatorily required to follow Indian Accounting Standards (Ind AS)   shallhave the option to apply the Indian Accounting Standards (Ind AS) voluntarily for their consolidated financial statements provided they prepare consolidated financial statements under the Indian Accounting Standards (Ind AS) consistently thereafter.

(b)   The option to apply the Indian Accounting Standards (Ind AS) voluntarily, once exercised,  therefore,  shall  be  irrevocable.  Such  companies  would  not  be required to prepare another consolidated financial statements in accordance with existingAccounting Standards (AS).

6.      Discontinuing  use  of  the  first  set  of  Accounting  Standards  (i.e.  the  Indian Accounting Standards)

Once a company starts following the first set of  Accounting  Standards  for consolidated financial statements, i.e., the Indian Accounting Standards (Ind AS) on the basis of  the  eligibility criteria, it shall be required to follow such Accounting standards for all the subsequent Consolidated Financial Statements even if any of the eligibility criteria does not subsequently apply to it.

7.      The  roadmap  for  banks,  NBFCs  and  Insurance  Companies  will  be  decided  in consultation with RBI and IRDA.