The new accounting standards, Ind AS, compulsory from April 2016, will help enhance transparency in financial reporting by corporates, experts said while cautioning that the government should clarify on finer details to ensure a smooth transition to the new system.
Following up with its Budget proposal in July 2014, the government has announced roadmap for implementation of Indian Accounting Standards (Ind AS) that are converged with global norms.
"The adoption of these IFRS converged standards (Ind AS) will also go a long way in enhancing the transparency and quality of financial reporting by Indian corporates," Sai Venkateshwaran, Partner and Head (Accounting Advisory Services), KPMG in India, said in a statement.
Under the roadmap, unveiled this Friday, companies having a net worth of Rs 500 crore or more would have to mandatorily follow the new accounting norms that are converged with global standards from April 1, 2016.
Banking, insurance and non-banking finance companies are exempted from the Ind AS implementation schedule.
Corporates having a net worth of less than Rs 500 crore but are listed or in the process of getting listed will have to compulsorily follow the new norms from April 1, 2017.
Other companies, that are unlisted and have a net worth of Rs 250 crore or more but less than Rs 500 crore, also would have to start implementing Ind AS from April 1, 2017.
Ind AS are converged with the International Financial Reporting Standards (IFRS).
Ashish Gupta, Partner at Walker Chandiok & Co LLP, said implementation of Ind AS would be a welcome step in the direction of increased corporate governance and investor protection.
Pankaj Chadha, who is Partner in a member firm of Ernst&Young Global, said the transition to Ind AS is not just an accounting change and there would be far wider consequences.
Ind AS would have consequences related to business and regulatory matters like changes in systems and processes and executive compensation plans, among others.
To ensure a smooth transition to Ind AS, experts said clarity should be provided quickly on certain aspects such as whether it would be mandatory for both standalone and consolidated financial statements and impact on taxation.
They also opined that transitioning to Ind AS would be challenging since the IT infrastructure of companies' financial reporting systems would need to be revamped.
Sumit Seth, Partner at Price Waterhouse & Co, said Ind AS would "reinforce to the global community India's resolve towards strong corporate governance practices."
"Though not spelled out in the release, it appears that Ind AS may apply in preparation of both the consolidated and standalone financial statements," he added.
