Adoption of Indian Accounting Standards Likely to Improve India’s Place in Global Rankings on Corporate Governance and Transparency in Financial Reporting Says KPMG in India

--Convergence to impact companies beyond the accounting practice

--Expect impact on other stakeholders such as investors and analysts and on areas such as tax planning, compliance with loan covenants, incentive plans, new arrangements for acquisitions, funding, etc.  

--Require changes to systems and processes including, sales and contracting processes, IT systems, internal controls, etc. 

There will be a significant change in the financial reporting framework used by Indian companies to report financial results post the adoption of the International Financial Reporting Standards (IFRS), according to the experts present at KPMG IFRS Conference 2015 organised by KPMG in association with the IFRS Foundation.

The adoption of Indian Accounting Standards, broadly converged with International Financial Reporting Standards (IFRS) and adoption of Income Computation and Disclosure Standards (ICDS or Tax Accounting Standards) for computation of taxable income, both of are expected to become a reality for corporates in India this year. 

The adoption of IFRS converged standards would entail a significant change in the financial reporting framework used by Indian companies to report their financial results.  As a consequence, the reported earnings (Net Income) and financial position (Net worth) reported by all large Indian companies would undergo a change.  The impact of this change would vary from sector to sector and company to company, with some sectors / companies being significantly impacted.   

During the inaugural session, Hans Hoogervorst, Chairman of IASB, said: “India’s recent decision to adopt Ind-AS, which is close to IFRS, is a momentous step that demonstrates the country’s focus on raising standards and increasing the appeal of Indian companies to foreign investors. However, Ind-AS should only be seen as a stepping stone towards full IFRS adoption. Otherwise, Indian companies risk incurring the full costs of transitioning to a new standard without getting the full benefit, such as better access to and lower cost of capital. Only India can make the decision about full IFRS adoption.”

A recent study by the IFRS Foundation shows that 130 of the 138 countries reviewed so far have made a public commitment to IFRS as the single set of global accounting standards. 114 of the surveyed countries require IFRS for all or most publicly listed companies. 12 more countries, including India, permit companies to voluntarily apply IFRS. IFRS provide the financial information for capital markets covering half the world’s GPD. Analysis of IFRS jurisdictions by GDP* shows that the total GDP (2012) of countries requiring or permitting IFRS is $41 trillion US dollars. 

According to Jamil Khatri, Deputy Head of Audit, KPMG in India said, “Considering India’s prominent place in the global economy and the extent of foreign investment in the Indian markets (both FDI as well as FII), India cannot be left behind if it seeks to be a global player. The move to IFRS would also improve India’s place in global rankings on corporate governance and transparency in financial reporting.” 

Various experts at the conference highlighted the benefits of moving to IFRS. They believe it will: enhance the international comparability of financial statements and make the capital market more attractive, reduce capital costs and facilitate international fund-raising by Indian companies, applying full IFRS has significant benefits for Indian multinationals operating across the world and for multinationals operating in India, would improve the management of overseas operations and enhance the international competitiveness of Indian companies and enhance the international standing of the profession.

Speaking on the challenges in IFRS convergence, Sai Venkateshwaran, Head – Accounting Advisory Services at KPMG in India said, “IFRS, as compared to Indian GAAP, are relatively complex, introduce several new concepts and require significant application of judgment and estimates. The key challenges would be in areas such as capacity building, process and technology, investor and stakeholder management and business arrangements.”

The impact of transitioning to IndAs is beyond just accounting. Companies need to plan in advance and invest the time. The new requirements will affect different companies in different ways.  Given the pervasive nature of the impact of these new standards, in addition to the financial reporting impacts, companies will also have to assess impact on other stakeholders such as investors and analysts.  Companies would also have to determine the impact of the standard on areas such as tax planning, compliance with loan covenants, incentive plans, new arrangements for acquisitions, funding, etc.  This would also require changes to systems and processes including, sales and contracting processes, IT systems, internal controls, etc.  

*(Please note: The total GDP figure now 97% refers to the total GDP of all the 138 countries surveyed and not the GDP of the countries requiring or permitting  IFRS.)   

About KPMG  

KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. It strives to provide rapid, performance-based, industry-focussed and technology-enabled services, which reflect a shared knowledge of global and local industries and its experience of the Indian business environment. KPMG in India provides services to over 4,500 international and national clients in India and has offices in Ahmedabad, Bengaluru, Chandigarh, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Mumbai and Pune.  

KPMG International is a global network of firms providing professional services. We have 155,000 outstanding professionals working together to deliver value in 155 countries, worldwide. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.  Each KPMG member firm is a legally distinct and separate entity and describes itself as such.  www.kpmg.com/in    

About IFRS Foundation 

The IFRS Foundation is an independent, not-for-profit organisation working in the public interest, whose primary mission is to develop a single set of high quality, understandable, enforceable and globally accepted International Financial Reporting Standards based upon clearly articulated principles. IFRS are developed by the International Accounting Standards Board (IASB), the independent standard-setting body of the IFRS Foundation.  www.ifrs.org   

For detail on Navigating IFRS Convergence Journey, click here