Convergence with International Financial Reporting Standards (IFRS) in India has not progressed much after the issuance by the Ministry of Corporate Affairs (MCA) of 35 Indian Accounting Standards converged with IFRS (Ind AS) in February 2011. Further, the issued Ind AS deviate from IFRS in several areas.

In its recommendation to the MCA, the Institute of Chartered Accountants of India (ICAI) has proposed April 1, 2013 as the new implementation date for Ind AS.

The main reason cited by the ICAI for such a deferral is that some key IFRS are under revision by the International Accounting Standard Board (IASB) and these standards will be likely to be applicable from 2013. Further, implementation of Ind AS would require resolution of taxation issues relating to the transition to Ind AS.

Transitional relief

Ordinarily, the European Commission (Commission) regulations require issuers with securities listed on the European Union (EU) regulated markets, to provide financial statements prepared in accordance with IFRS as issued by the IASB.

However, in December 2008, to support the efforts of countries that had undertaken to converge their accounting standards to IFRS, the Commission granted a transitional relief for issuers to provide financial statements prepared using Chinese, Canadian, South Korean or Indian Generally Accepted Accounting Principles (GAAP). This transitional relief was granted for financial statements relating to periods starting before January 1, 2012.

Thus, a majority of Indian companies with securities listed in the EU have historically provided financial statements prepared in accordance with Indian GAAP and have not been required to prepare IFRS-compliant financial statements.

With the deferral of Ind AS in India and given the major deviations between Ind AS and IFRS, there have been doubts on whether companies with Global Depository Receipts (GDR) listed on the EU regulated markets will be required to changeover to IFRS for their reporting to EU stock exchanges for accounting periods beginning April 1, 2012.

Meeting standards

The Commission monitors and prepares at regular intervals reports on the progress made by countries that have been granted transition relief with their respective programmes.

Following on-the-spot investigation in January 2011, the Commission observed that Indian accounting standards appear to have a number of differences from IFRS, which could be significant in practice, and uncertainties remain about the timetable for implementation of an IFRS-compliant reporting system.

However, to ensure that Indian companies do not face any undue hardship till full implementation of IFRS in India, the Commission has recently proposed an extension of the transitional relief until December 31, 2014, which would provide India with three more years to become fully compliant with IFRS. The proposal is now awaiting final clearance from the European Parliament and the Council of the European Union.

This extension, once finally approved, will be a big relief for Indian companies with GDR listed on the regulated EU markets, since it will push mandatory IFRS reporting by these companies to EU stock exchanges beyond the new date recommended by the ICAI for adoption of Ind AS in India (that is, April 1, 2013).

In the absence of such relief, these Indian companies would have had to prepare two separate sets of financial statements, which can be quite cumbersome and costly.

It is now up to the Indian regulators to ensure that India is able to implement Ind AS within the extended timelines provided by the Commission.

Further, it remains to be seen whether Ind AS, when finally implemented, would continue to differ with IFRS, and how the Commission will react to such differences between the two sets of standards.

(The author is Global Head of Accounting Advisory Service, KPMG.)

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