ESMA publishes report on the equivalence of the Indian Accounting Standards

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30 Oct 2014

The report fulfils the mandate received by the European Securities and Markets Authority (ESMA) from the European Commission (EC) in February 2014 to provide it with an update on the level of convergence of the Indian Accounting Standards (Ind AS) towards International Financial Reporting Standards (IFRSs) and the quality of application and enforcement of the Ind AS.

In drawing up the report, ESMA relied on information provided by representatives of the Institute of Chartered Accountants of India (ICAI) and the Securities and Exchange Board of India (SEBI) as well as other information publicly available.

ESMA notes that the originally phased approach of convergence with IFRSs has been postponed and Ind AS are not yet applicable in India. A transition date has not been formally announced by the Ministry of Corporate Affairs (MCA). This leads ESMA to identify three major areas of concern with respect to the progress made towards convergence:

  • The initial roadmap for implementation of the converged standards by companies has been spread over several years and experienced significant delays. Adoption was finally postponed. A new roadmap issued in 2014 proposes that listed and large entities mandatorily use Ind AS for the preparation of consolidated financial statements from 1 April 2016. However, the roadmap is under the consideration of the MCA and will only be effective after a formal decision of the Indian government. ESMA notes that the adoption timeframe of Ind AS and their exact content remains uncertain.
  • The strategy followed by the Indian authorities regarding the convergence process has been to adopt IFRSs as issued by the IASB and modify them for the specific Indian legal and economic context. Consequently, the converged Ind AS have removed a number of options available within IFRS and introduced several compulsory carve-outs, some of which may constitute significant departures from IFRS according to ESMA. (ESMA also notes that he ICAI expressed its commitment to remove these carve outs, when possible.)
  • ESMA states that the expertise in India regarding IFRS application and enforcement remains limited. Even though ESMA acknowledges that the ICAI has made a significant effort to prepare auditors and preparers for the implementation of Ind AS, ESMA believes this expertise to be rather of a theoretical nature and of unproven practical value.

Three of the annexes to ESMAs report provide deeper insight and offer an overview of the main differences between the converged Indian standards and IFRS (Annex II), an impact analysis of adopting Ind AS (Annex III), and an overview of the proposed new roadmap (Annex IV).

Please click for access to the report including all annexes on the ESMA website.

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