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CONCEPT – INDIAN ACCOUNTING STANDARDS (IND AS)
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- What is the Ind-AS : The Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by companies in India and issued under the supervision of Accounting Standards Board (ASB) which was constituted as a body in the year 1977. ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc. Indian Accounting Standard provides principles for recognition, measurement, treatment, presentation and disclosures of accounting transactions in financial statements prepared as per Indian Accounting Standard.
- The IFRS : India embarked on its journey of convergence to International Financial Reporting Standards (IFRS) in 2006 with the Institute of Chartered Accountants of India (ICAI) setting up a Task Force to consider the adoption of IFRS. In 2007, this Task Force published a comprehensive Concept Paper that recommended a convergence strategy rather than full fledged adoption. The ICAI suggested that IFRS converged accounting standards should be adopted for public interest entities such as listed entities, banks and insurance entities and large-sized entities from the accounting periods beginning on or after April 1, 2011.
- The convergence process : It received a fillip with India making a commitment to converge the national accounting standards with IFRS at the G20 summit in Pittsburgh in 2009. The Ministry of Corporate Affairs (MCA) released a road map in January 2010 which entailed IFRS convergence in a phased manner commencing from April 1, 2011 onwards for corporates, with the banking industry converging later from April 1, 2013 onwards. The delayed migration to IFRS converged standards by the banking industry, was on account of the anticipated changes in the global standards for financial instruments by June 2011 as the International Accounting Standards Board (IASB) had embarked on a different joint project.
- RBI chips in : For a smooth convergence for the Indian banking system, the Reserve Bank of India (RBI) set up a Working Group in July 2010, under the Chairmanship of Shri P R Ravi Mohan. The MCA published 35 Ind AS on its website in February 2011. However, it did not notify the implementation date and consequently, entities which were supposed to converge to IFRS from April 1, 2011, April 1, 2012 and April 1, 2013 as per the 2010 roadmap, issued by MCA, did not migrate to Ind AS. Further, globally, due to the lack of agreement between the IASB and the FASB, the IFRS 9 project which was scheduled for completion by June 30, 2011 was substantially delayed. The lack of clarity regarding the implementation of Ind AS and, more importantly, the absence of a finalised version of IFRS 9 by the IASB, severely impeded efforts by the Indian banking industry to move towards IFRS converged accounting.
- Ind AS and IFRS : The Ind AS are named and numbered in the same way as the International Financial Reporting Standards (IFRS). National Advisory Committee on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA). Based on the international consensus, the regulators will separately notify the date of implementation of Ind-AS for the banks, insurance companies etc.
- Govt. push : The Finance Minister in his speech on the Union Budget for 2014-2015, while expressing the urgent need for convergence of extant accounting standards with IFRS, announced the implementation of Ind AS by Indian companies voluntarily from the financial year (FY) 2015-16 and mandatorily from FY 2016-17, stating that the regulators would separately notify the date of implementation of Ind AS for banks, insurance companies, etc. In July 2014, the International Accounting Standards Board (IASB) released IFRS 9: Financial Instruments, thus paving the way for the implementation of Ind AS by the Indian Banking System.
- Not for PSBs in 2019 also : The delay in introduction for the second year running will spare the country’s banks from adding another layer to the $190 billion pile of bad loans on their books. The RBI said that legislative amendments needed to implement the new Indian Accounting Standards are still under consideration by the government. The new rules - based on the IFRS9 standards created in the aftermath of the financial crisis - were supposed to kick in at the start of the new fiscal year that starts on April 1, 2019, after being delayed in 2018. Fear was that Indian PSBs would have had to increase provisions by as much as 1.1 trillion rupees ($16 billion).
- The risk for government : The new accounting standards would require banks to make provisions when they judge that a loan is likely to sour, rather than waiting for the borrower to start missing payments. That would have forced public sector lenders to raise “substantial" amounts of extra capital, beyond the estimated 1.9 trillion rupee infusion already committed by the GoI. Some feel the impact on Indian banks as a whole would have been less in 2019 than in 2018, as PSBs have taken hefty provisions and write-offs in past years, and there are signs that asset quality is improving.
- An example : We provide an image to understand how Accounting Standards are listed.
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