Subject : Developments in Accounting Standards—In India and Globally
Speaker : Shri Narendra P. Sarda
Day and Date : Wednesday, 4th September, 2013
Venue : K. C. College, Mumbai
Objective of the lecture: To take participants through a journey of the world of accounting developments internationally and in India.
The speaker first dealt broadly with the journey of Accounting Standards formation in India:
Year 1973 – IASC was formed
Year 1977 – ICAI issued the Preface to Accounting Standards.
Year 1977-1993 – 15 Accounting Standards were notified. The pace was slow as India was an insulated economy.
Year 1993-2000 – This was a period of lull, when there were no new AS notified.
Year 2000 – There was a pressure from regulators to keep pace with the international developments in the accounting world, as India had liberalised its policies and there was expectation from the international community to have financial statements prepared at par with international best practices.
Year 2000-2007 – New Accounting Standards formulated included standards on Consolidation, Segment Reporting, Related Parties, etc. There were not only recognition standards, but also standards on disclosures.
Year 2007 – As India was moving fast towards raising resources from foreign countries and there was a flow of foreign companies setting up operations in India, there was a debate as to whether IFRS should be adopted in totality or whether there should be convergence with IFRS. India decided to converge with IFRS.
The speaker highlighted that 95% of countries have decided to converge with IFRS. He also detailed the difference of adoption and convergence with IFRS.
Adoption – Adopt IFRS in totality.
Convergence – Formulate these as such that they are almost on par with IFRS, with some departures considering local business and legal requirements.
Most of the countries in Europe apply IFRS only for Consolidated Financial Statements (CFS), whereas Standalone Financial Statements (SFS) are allowed to be prepared as per local GAAP.
The speaker was of the opinion that India should have done the same; however, India took a decision of applying converged Indian Accounting Standards to CFS as well as SFS.
A set of 35 converged Accounting Standards was prepared and NACAS reviewed the same and these have been put up on MCA’s website. However, the applicability of the same has not yet been announced.
The speaker informed that at present there are three sets of Accounting Standards in India.
• Converged Accounting Standards (IndAS), which are not yet applicable;
• Mandatory Accounting Standards, which are applicable as per the Companies Act, 1956; and
• ICAI-promulgated Accounting Standards, which are applicable to all the other entities.
The speaker then discussed the carve-outs in converged Accounting Standards (IndAS) which are not part of IFRS.
He listed and discussed in detail the carve-outs on the following standards:
• IndAS 21 – The Effects of Changes in Foreign Exchange Rates;
• IndAS103 – Business Combinations;
• IndAS 19 – Employee Benefits;
• IndAS 11 – Construction Contracts;
• IndAS101 – First Time Adoption of Indian Accounting Standards;
• IndAS 27 – Consolidated and Separate Financial Statements;
• IndAS 20 – Accounting for Government Grants and Disclosure of Government Assistance;
The speaker also informed the participants about the Revised Schedule VI which is based on IAS 1 and IndAS 1 – Presentation of Financial Statements. As per Revised Schedule VI, Accounting Standards are supreme and if there is any variance between the Revised Schedule VI and Accounting Standards, the Accounting Standards will have to be followed. In view of the same, AS-1 which was based on the Old Schedule VI has been under revision to fall in line with the reporting requirements as prescribed in Revised Schedule VI.
While dealing with the Financial Instruments standards, he brought out an interesting fact that IndAS 39–Financial Instruments–Recognition and Measurement is promulgated but not yet applicable. Similarly AS 30, 31 & 32 dealing with Financial Instruments are also not applicable. Hence at present only AS 13–Accounting for Investments is mandatory and there are no applicable standards for Derivative Contracts. However, on the concept of prudence, ICAI came out with an announcement for accounting and recognising losses on Derivative Contracts though there is no standard made applicable.
The speaker then dealt with the conceptual differences between IFRS and Indian Accounting Standards. He highlighted the main differences as follows:
• IFRS is more focused on Fair Value Accounting;
• Under IFRS, more importance is attached to the balance sheet, whereas in India, importance is to assess the profitability;
• IFRS provides importance to Time Value of Money and hence there is discounting approach;
• IFRS gives more importance to the substance of the transaction than to the form of the same; and
• IFRS is based more on judgments.
He also briefly discussed the draft Tax Accounting Standards (TAS) proposed by the Indian tax authorities. He said that the committee formed to prepare draft TAS, has identified 14 AS where there is a requirement to have separate TAS.
After discussing specifics of the Accounting Standards, the speaker dealt with global developments. He elaborated that earlier there was a competition in drafting Accounting Standards between US GAAP and IASB. However, of late, the approach is that of coordination. There are five specific areas where both the organisations are working on joint projects. The same are as follows:
• Financial Instruments;
• FV Measurement;
• Revenue Recognition;
• Lease Accounting; and
• Insurance Contracts.
He also dealt with the economic crisis of the year 2008, which made all the accounting bodies to accept the fact that there is a need for globally accepted Accounting Standards. There has to be more clarity and guidance for accounting and disclosure of Complex Financial Instruments and Off-Balance Sheet items should be examined thoroughly and to the maximum extent avoided.
Before concluding, he also provided an overview of the developments and progress on various joint projects between FASB and IASB.
The lecture was very well appreciated by the audience and concluded with a well deserved vote of thanks to the speaker.
