Govt may plug gaps in accounting standards
NEW DELHI: India will explore whether it could bridge the gaps between its INDAS accounting standards and the International Financial Reporting Standards (IFRS) by removing some of the carve-outs introduced while adopting the global norms five years ago.
India began adopting INDAS gradually from April 1, 2016, replacing the earlier Generally Accepted Accounting Principles (GAAP). INDAS is mostly based on IFRS; however, given India’s legal framework and the practices followed in different sectors, some variations, called carve-outs, were introduced.
Bridging these gaps by removing the carve-outs will make comparisons of Indian and nonresident companies easier.
“Retaining the carve-outs could give rise to a doubt in the minds of foreign investors whether the manner of preparing financial statements of Indian businesses are at par with those in countries that fully follow IFRS,” a person informed about the development said. The move comes at a time India is seeking more foreign investments in manufacturing and infrastructure to steer the economy out of the devastating impact dealt by the pandemic.
India is pursuing long-term capital from pension and sovereign wealth funds into infrastructure by offering tax incentives, given that banks are not in a position to offer long-term financing to projects with a long gestation period.
The implementation of IFRS is a work in progress, as banks and insurers are yet to adopt it.
Experts said some carve-outs may have outlived their utility and, hence, may be reviewed. These include the flexibility in INDAS not to re-classify a liability from non-current to current category in the balance sheet in the event of a loan covenant breach, the flexibility to show foreign currency convertible bonds as equity in certain circumstances, and measurement of the carrying value of property, plant and equipment acquired before FY16 as per the previous accounting regime, said Siddharth Talwar, partner, CFO services, Grant Thornton Bharat LLP.