India Puts Accounting Practices in Line with International Standards

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Mar. 16 – The Indian Ministry of Corporate Affairs recently said that it had aligned 35 Indian accounting practices with international standards, marking an important step to bringing International Financial Reporting Standards (IFRS) to India and making financial statements of Indian firms read similarly to those of their international peers.

However, a few discrepancies between the two rubrics will still remain, the Wall Street Journal reported.

These include:

  • Revenue recognition for real-estate sales on the basis of percentage completion method (IFRS generally requires revenue recognition when the final possession is given to the customer)
  • Accounting for the equity-conversion option of a foreign currency convertible bond as an “equity” component (IFRS requires the foreign-currency-based equity conversion option to be periodically marked to market)

Whereas under the previous  list of discrepancies firms had to adhere to Indian accounting standards, the second category of differences between IFRS and Indian accounting standards will permit a company to choose which set of standards fits better:

  • Deferring exchange differences on long-term foreign-currency monetary assets and liabilities, and recognizing such differences over the period of the underlying asset/liability (IFRS requires all such differences to be immediately recognized in the profit-and-loss account)
  • Considering Indian GAAP carrying values as “deemed cost” for fixed assets acquired prior to transition date (IFRS offers no such choice on transition)
  • Eliminating IFRS principles relating to embedded leases and service-concession arrangements for an initial period

Choosing IFRS principles usually allows a company to have better access to overseas capital markets and to align its statements with those of its parent company.

However, some investors do worry about the ministry’s commitment to enacting such changes, as no strict timeline was provided for their implementation.

To read the ministry’s notification, please click here.