22 January, 2015

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4 benefits to Indian company with the applicability of Ind-AS in India

The Corporate Affairs Ministry has announced a revised roadmap for implementation of the new set of Indian accounting standards (Ind-AS) converged with International Financial Reporting Standards (IFRS).
The revised roadmap—which does not cover banking and insurance companies and NBFCs—envisages a two phased implementation.



In the first phase, all companies, listed and unlisted, with a net worth over Rs 500 crore together with their holding, subsidiary, joint venture or associate companies are covered. 


The second phase covers all the other listed companies or those in the process of listing and all other unlisted companies with a net worth over Rs 250 crore, together with their holding, subsidiary, joint venture or associate companies. However, companies that are listed or in the process of listing on SME exchanges are exempt.

This is a departure to the earlier roadmap—which was to be effective from April 1, 2011—that talked of a three-phased approach.

These new standards will be mandatory for financial years beginning on or after 1 April 2016, together with comparative information for the previous year.

The standards can be voluntarily applied for financial years beginning on or after 1 April 2015, together with comparative information for the previous year.
The objective of IFRS is to set the Balance Sheet right, and hence a significant volatility may come in Profit & Loss statement.

The key benefits to India companies with the applicability of Ind-AS are:

1)       Improved access to Global Market
Majority of the Stock exchange globally require financial information as per IFRS. If the financial information is as per Indian Accounting Standard then a risk premium is added in pricing.

2)       Lower Cost of Capital
Convergence with IFRS means the Indian companies need not prepare two sets of Financial Statements to comply with the requirements abroad and this would lead to lower cost of administration, removal risk premium and hence pricing and the companies can approach any market for capital.

3)        Benchmarking with Global Peers
Preparing accounts as per IFRS will give better understanding of performance relative to the Global peers / benchmarks. Targets and Milestones will be set based on global business environment instead of Local.

4)      True Value of acquisition
In Indian GAAP except for a few exceptions net assets acquired is recorded on the carrying value instead of fair value. Hence the true value of the combination is not reflected. IFRS overcomes this flaw as it mandates accounting of business combinations at fair value.














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