Listed and unlisted companies with a net worth of over Rs 1,000 crore, those in the elite Sensex and Nifty club and those listed on overseas stock exchanges, will have to prepare their balance sheets as per international accounting standards for the financial year beginning April 1, 2011.
The ministry of corporate affairs had in 2008 said all Indian Accounting Standards must converge with the International Financial Reporting Standard (IFRS) by 2011. The convergence is expected to increase the credibility of Indian companies globally. Besides other things, the IFRS requires marking assets to market value that is expected to adversely impact the financial statements of many companies initially.
In the road map laid down by a core group set up by the ministry, the adoption of international accounting standards will happen in a phased manner. Initially, companies with a net worth of over Rs 1,000 crore will be asked to converge with the IFRS in the year beginning April 1, 2011.
In the second phase, both listed and unlisted companies with a net worth over Rs 500 crore but less than Rs 1,000 crore will have to converge with the international accounting standards from the financial year beginning April 1, 2013.
The third and final phase will see all listed companies with a net worth of Rs 500 crore and less convert their opening balance sheet in compliance with IFRS from the financial year beginning April 1, 2014.
However, SMEs and unlisted companies having net worth of less than Rs 500 crore have been exempted from IFRS compliance. For banking and insurance companies, the core group will submit a report separately by February 28 this year.
The government had set up the core group last July. It comprised secretary MCA besides representatives from all regulatory bodies, the RBI, Sebi, IRDA, ICAI, National Advisory Committee on Accounting Standards and industry representatives.
Further, two sub groups were created, and both have submitted their reports to the ministry. The recommendations have been accepted. It has been decided that the necessary changes required in the Companies Act and other legislations will be completed by March 31 this year so that they are applicable from the financial year starting April 1, 2010.
There are over 7.8 lakh active companies of which about 5,000 are listed and about 80,000 are public companies. The remaining 7 lakh companies are private limited companies. The government therefore has decided that all public interest companies should converge with the international accounting standards first. The definition of public interest is yet to be decided, the sources added.
While converging the Indian accounting standards with IFRS, certain taxation issues relating to fair valuation of fixed assets, computation of book profit under minimum alternate tax, taxes on business combinations etc may arise and the ?entities converging with IFRS have to be assured that they would not be subjected to adverse tax effect?. Further, the National Advisory Committee on Accounting Standard (NACAS), has still not issued notification relating to the accounting standards of financial instrument, which demand accounting and disclosure of MTM losses and gains.