17 July 2014 | Volume 1 Issue 1
India to converge accounting standards with IFRS
India is finally going to fulfil its longstanding commitment to converge its accounting standards with International Financial Reporting Standards (IFRS). While presenting the Union Budget 2014-15, India’s Finance Minister, Arun Jaitley, proposed that from financial year (FY) 2016-17, it would be mandatory for Indian Companies to adopt Ind AS (Indian Accounting Standards converged with IFRS). They could also voluntarily adopt these standards from FY 2015-16. The Finance Minister's announcement for application of Ind AS is a progressive step as this will help the Indian economy get better integrated with the rest of the world. Timelines for the financial sector, including banking and insurance companies, are also expected to be finalised soon.

The introduction of a separate set of standards for computation of taxable income, which was one of the critical challenges in IFRS implementation and significantly delayed previous implementation, is expected to boost the efforts towards convergence. The standards for computation of tax are also expected to be finalised and notified in due course.

Learning from the previous attempt at convergence in 2011, the Indian government should immediately prepare the roadmap for implementation of the new standards. Alongside, the Institute of Chartered Accountants of India (ICAI) should address the challenges faced by the industry by providing quick guidance. The government should also ensure minimum 'carve-outs' from the original IFRS so that the Indian accounting framework gets global acceptance. The set of accounting standards, Ind AS, that was finalised a few years ago, needs to be reconsidered due to the continuous improvements in IFRS and in order to keep pace with global developments in the financial reporting sector.

Considering the mandatory provision of the new Companies Act, 2013 and mandatory application of the new set of accounting standards
[1], the industry would need to work on capacity building in order to face the imposed challenges proactively.

[1] The applicability criteria for determining the Companies for whom Ind AS would be mandatory are unknown.

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