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Investors and all stakeholders should be made aware of the implications of the transition to new accounting standards, according to Sai Venkateshwaran, Partner and Head, Accounting Advisory Services, KPMG.
Convergence of practicesThe Ministry of Corporate Affairs (MCA) has notified the Companies (Indian Accounting Standards) Rules, 2015, to facilitate convergence of Indian accounting practices with International Financial Reporting Standards (IFRS).
The new rules, christened IndAS, will have to be adopted by the companies in a phased manner from FY16-17 with a comparative year, FY15-16, which makes it important for companies to understand them right from this financial year.
In an interaction with BusinessLine here on Thursday, Venkateshwaran said the likely changes in reporting norms and their impact need to be communicated to investors properly to avoid any misunderstandings while preparing other stakeholders.
Different treatment“At the micro level, firms need to change the way they deal with business processes and accounting.
“This might lead to some changes such as a little reduction in net worth, if we compare with IFRS, which is already being used by some big corporates,” he said.
From a company’s perspective, significant up-skilling has to be done, he said. “For example, if a sales team negotiates a deal, it may have a different impact. Or if a treasury team negotiates derivatives and fund instruments, they may have to see the implications differently in the new regime,” Venkateshwaran pointed out.
The preparedness of companies, however, is mixed. According to a recent survey by KPMG, mixed trends were noticed, with some expressing preparedness while others displayed partial preparedness or a lack of preparation.
But awareness is higher than it was in 2011.
Outdated, lacks clarity“The present accounting systems are outdated and do not deal with complex processes with not many standards on fund instruments and little clarity on merger/acquisition repositioning.
“This way, IndAS is a significant leapfrog,” he added.
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