India Clarifies IFRS Convergence Issues , by Robin Pilgrim, LawAndTax-News.com, London

The 'Core Group', constituted by the Indian Ministry of Corporate Affairs, to manage convergence of Indian Accounting Standards with the International Financial Reporting Standards (IFRS) from the year 2011, has published certain clarifications of earlier announcements about the changeover, as follows:

Companies covered in Phase I will prepare their financial statements for 2011-12 in accordance with converged accounting standards but will show previous years’ figures as per non-converged accounting standards.

However, there will be an option to add an additional column to indicate converged accounting standards figures, had these been applied in that previous year. Companies which make this additional disclosure will, for this purpose, convert their opening balance sheet as at the date on which this previous year commences and, in that case, a further conversion of the opening balance sheet for the year for which the financial statements are prepared will not be necessary.

Companies covered in 2nd / 3rd phase will have an option to apply converged accounting standards only for the financial year commencing on April 1, 2011 or thereafter.

Phase I companies (other than banking companies, insurance companies and non-bank financial companies), converting their opening balance sheet as at April 1, 2011 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2009 or the next balance sheet prepared after that date. This applies to:

* Companies which are part of the NSE – Nifty 50;
* Companies which are part of the BSE – Sensex 30;
* Companies whose shares or other securities are listed on stock exchanges outside India; and
* Companies, whether listed or not, which have a net worth in excess of INR10bn (USD222m).

As per the proposed roadmap for Banks and NBFCs, in phase I, converting their opening balance sheet as at April, 1, 2013 to converged accounting standards will be determined according to criteria pertaining on balance sheet dates as at March 31, 2011 or the next balance sheet prepared after that date. This applies to:

* Banks - i.e. all scheduled commercial banks and those urban co-operative banks which have a net worth in excess of INR3bn (USD66m);
* NBFCs - i.e. finance companies which are part of NSE – Nifty 50;
* companies which are part of BSE – Sensex 30;
* and companies, whether listed or not, which have a net worth in excess of INR 10bn (USD222m).

With regard to parent companies covered in any one of the three phases for the changeover to converged accounting standards, having subsidiaries, joint ventures or associates not covered under the same phasing plan, the consolidated financial statements are to be prepared with converged accounting standards in accordance with the same timetable as the parent company.

When one or more companies in a group fall in a phase other than the phase applicable to the parent company, they can continue to prepare stand-alone accounts according to the phase applicable to them, but the parent may need to make convergence amendments to these accounts for the purposes of consolidation. Such subsidiaries, joint ventures or associate companies may opt for early adoption of converged accounting standards.

Once a company starts following converged accounting standards on the basis of the eligibility criteria, it will be required to follow such accounting standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it.

For the purpose of calculation of qualifying net worth of companies, the following rules will apply:

* The net worth will be calculated as per the audited balance sheet of the company as at March 31, 2009 or the first balance sheet for accounting periods which end after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For companies which are not in existence on March 31, 2009, the net worth will be calculated on the basis of the first balance sheet ending after that date.

The rules for calculation of qualifying net worth to be recommended to the scheduled commercial Banks/ urban cooperative Banks/ NBFCs are as follows:

* The net worth will be calculated as per the audited balance sheet of the scheduled commercial Banks/ urban co-operative Bank/NBFC as at March 31, 2011 or the first balance sheet for accounting periods which ends after that date;
* The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account;
* For scheduled commercial Banks/ urban co-operative Banks/NBFCs which are not in existence on March 31, 2011, the net worth will be calculated on the basis of the first balance sheet ending after that date;

Despite the intention to converge Indian standards with IFRSs, the Core Group accepts that some deviations will remain. When the notified converged accounting standard is not fully consistent with the IAS/IFRS as issued by the IASB, Indian companies will continue to follow converged accounting standards as notified by the Government of India and not adopt IFRS.