Simplified merger and amalgamation

Section 391 to 394 of the Companies Act 1956 contains enabling provisions for mergers and acquisitions and prescribes procedures. The Companies Bill 2011 proposes many changes to these requirements. While some of the proposals are expected to make mergers and acquisitions easier, others are meant to preempt abuses.

The bill proposes a simplified procedure for merger and amalgamation. It proposes that merger schemes can be effected without the approval of the Tribunal, subject to compliance with certain procedures. It proposes that the Tribunal will not sanction any scheme of merger, acquisition or other arrangement unless the company's auditor files with it a certificate to the effect that the accounting treatment, if any, proposed in the scheme is in accordance with notified standards.

Measuring rate regulated assets and liabilities

Many governments regulate the pricing of essential services such as natural gas, water and electricity. The objective is to provide price protection to consumers while ensuring fair return to the supplier. These regulatory mechanisms have created significant accounting issues due to the absence of detailed guidance. The Institute of Chartered Accountants of India has in February issued the ‘Guidance Note on Accounting for Rate Regulated Activities'. According to this, an entity measures rate regulated assets and liabilities at inception and subsequently on a best estimate basis. The guidance note is an indication of ICAI's view on the subject. However, its implementation is subject to approval by NACAS (National Advisory Committee on Accounting Standards). Accordingly, the note will be effective from a date announced later. Companies need to understand how the implementation of the note affects their results.

Setting standards for India

The Accounting Standards Board constituted by ICAI formulates the accounting standards. The board's composition is broad-based to ensure participation of all interest groups. These include industry, various departments of Government and regulatory authorities, financial institutions, and academic and professional institutions. The board follows a consultative approach, which includes meeting representatives of specified bodies for their views and issuing an Exposure Draft for comments. While formulating an accounting standard, the board gives due consideration to IFRS (International Financial Reporting Standards). In the recent past, the board's major focus has been to formulate IFRS-converged standards (Ind-AS). It also issued guidance notes on accounting aspects. For example, the Guidance Note on Accounting for Real Estate Transactions, issued in February, applies to projects commencing on or after April 1. It also applies to projects that have commenced but where revenue is recognised for the first time on or after April 1.

Mandating the standards

Until 1999, there was no law requiring companies to follow accounting standards. The AS issued by ICAI were mandatory only for members, who, while discharging their attest function, were required to examine whether the AS were complied with in the presentation of financial statements. In 1999, to provide legal recognition to AS and to get companies to follow accounting standards, an amendment was made in the Companies Act 1956. According to this, every profit and loss account and balance sheet of the company should comply with the AS prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards. NACAS examines the accounting standards issued by ICAI and recommends them to the Government for notification. Till date, AS 1 to 29 (excluding AS-8) have been notified under the Act.