There are numerous matters
on the IFRS convergence roadmap that still remain to be effected upon or need
clarification. More importantly, the standards are not yet notified under the
Companies Act. So no one knows what the final standards will actually look like.
Nor has the requisite amendment to the Companies Act been made, to amend the
relevant provisions that are in conflict with IFRS, such as S. 78, S. 391, S.
394, Schedule VI, Schedule XIV, etc. In this article, we take a look at some of
the issues relating to applicability of the roadmap itself.
The Ministry of Corporate
Affairs (MCA) roadmap set out is as follows.
The first set of Accounting
Standards (i.e., converged accounting standards) will be applied to specified
class of companies in phases :
(a) Phase-I :
The following categories of
companies will convert their opening balance sheets as at 1st April, 2011, if
the financial year commences on or after 1st April, 2011 in compliance with the
notified accounting standards which are convergent with IFRS. These companies
are :
(a) Companies which are
part of NSE — Nifty 50
(b) Companies which are
part of BSE — Sensex 30
(c) Companies whose shares
or other securities are listed on stock exchanges outside India
(d) Companies, whether
listed or not, which have a net worth in excess of Rs.1,000 crores.
(b) Phase-II :
The companies, whether
listed or not, having a net worth exceeding Rs.500 crores, but not exceeding
Rs.1,000 crores will convert their opening balance sheet as at 1st April, 2013,
if the financial year commences on or after 1st April, 2013 in compliance with
the notified accounting standards which are convergent with IFRS.
(c) Phase-III :
Listed companies which have
a net worth of Rs.500 crores or less will convert their opening balance sheet as
at 1st April, 2014, if the financial year commences on or after 1st April, 2014,
whichever is later, in compliance with the notified accounting standards which
are convergent with IFRS.
In a subsequent
clarification from the MCA it was clarified that the date for determination of
the criteria is the balance sheet at 31st March, 2009 or the first balance sheet
prepared thereafter when the accounting year ends on another date. The
clarification has resolved some questions, but unfortunately has raised many
other questions.
We take a look at some
unanswered questions.
A company gets listed at 1st
April, 2009. 31st March, 2009 it had a networth of Rs.450 crores. At 31st March,
2010 it has a networth of Rs.550 crores which is likely to grow substantially in
following years. How would such a company comply with IFRS ?
Technically, based on MCA
clarification, such a company never applies IFRS since at 31st March, 2009 it
was unlisted and had a networth of less than Rs.500 crores. However this
conclusion seems counterintuitive. In the author’s view, the 31st March, 2009
date should be seen as a dynamic date rather than a static one. Since at 31st
March, 2010, the company was listed and had a networth of greater than Rs.500
crores, in the author’s view, it should be included in phase II of IFRS
implementation.
A listed company has a
networth of Rs.990 crores and Rs.1020 crores at 31st March, 2009 and 31st March,
2010, respectively. Should such a company be included in phase I or II of IFRS
implementation ?
For reasons mentioned above,
the 31st March, 2009 should not be seen as a static, but as a dynamic date. On
that basis the company should be included in phase I of IFRS implementation, as
it has a networth of greater than Rs.1000 crores at 31st March, 2010.
A company with a small
networth of Rs.200 crores, has listed its FCCB on a foreign exchange. Other than
that, the company’s securities are neither listed in India nor abroad. On 1st
April, 2009 the company delists its FCCB. Assume that the company’s networth
will not grow significantly in the future. Should such a company be included in
phase I of IFRS implementation ?
If the testing date of 31st
March, 2009 is seen as static, then the company is included in phase I of IFRS
implementation. However, if the testing date of 31st March, 2009 is seen as
dynamic, then the company is not covered in any of the phases of IFRS
implementation. More importantly it would be counterintuitive to include such
companies for IFRS implementation, as they are neither significant, nor listed
in India or abroad subsequent to the testing date of 31st March, 2009.
It is important that the MCA
provides answers to the above questions to facilitate smooth transition to IFRS.
In the absence of any clarification forthcoming from the MCA, companies are
advised to apply a ‘better safe than sorry’ policy and interpret the
requirements of the roadmap conservatively. A point to be noted is that the
roadmap allows earlier adoption of IFRS voluntarily. Where companies are
reluctant to do so, they should seek a conclusive response from MCA in all
borderline cases discussed above before taking any position on this matter.
