New Delhi: The European Commission (EC) has allowed Indian companies that have listed their global depository receipts (GDRs) on European exchanges time till December 2014 to adopt accounting rules known as international financial reporting standards (IFRS).
Prime minister Manmohan Singh shakes hands with Jose Manuel Barroso, president of the EC, (R), as Herman Van Rompuy, president of the EU, looks on prior to talks at the India EU summit in New Delh. (Bloomberg)
The EC gave the three-year extension after the Indian government failed to meet its commitment to implement IFRS-compliant accounting standards, called Ind-AS, by 31 December.
“Uncertainties remain about the time-table for the implementation of an IFRS-compliant reporting system. As there are no issuers in India who have taken advantage of the voluntary early application of IFRS, there is no experience regarding IFRS enforcement,” said a note issued by the EC. Mint has reviewed a copy of the note.
Indian companies were asked to change their accounting norms to local standards that comply with the IFRS from the year that started on 1 April 2011, according to a a roadmap announced by the ministry of corporate affairs last year. Subsequently, 35 accounting standards, called Ind-AS, were notified but not implemented.
“It is appropriate to extend the transitional period for no more than three years, until 31 December 2014, in order to allow third country issuers to prepare their annual and half-yearly financial statements in accordance with the GAAP of India, in the Union,” the note said.
Prime Minister Manmohan Singh had committed to implement the first phase of IFRS by April 2011 at a Group of Twenty, or G-20, conference in London in 2009. Aligning with IFRS norms will help Indian companies raise cheaper capital overseas, besides making foreign listings and setting up subsidiaries and joint ventures abroad less cumbersome.
More than 150 nations have adopted IFRS, developed by the International Accounting Standard Board (IASB), an independent, privately funded standards body based in London.
More than 350 Indian GDR securities sold by companies including Reliance Industries Ltd, ITC Ltd, State Bank of India, Larsen and Toubro Ltd, Steel Authority of India Ltd, Axis Bank, Tata Power Ltd, Tata Steel Ltd, Cipla Ltd, Ranbaxy Laboratories Ltd are traded on European exchanges.
Jamil Khatri, executive director and global head of accounting advisory services at the consulting firm KPMG, said the extension of the deadline will help Indian companies avoid the trouble of preparing their accounts in more than one standard.
“The move by the EU (European Union) authorities to extend the relief from IFRS for a further period will benefit Indian companies with GDRs listed on the regulated EU markets as they will not have to maintain two sets of books to comply with IFRS,” said Khatri.
“It is now up to the Indian regulators to reciprocate and define India’s final road map for implementation of Ind-AS, the IFRS converged standards, so that these companies’ can transit to Ind-AS prior to the expiry of the extended relief period,” said Khatri.
Vinayak Pai, a Bangalore-based independent consultant on IFRS and business solutions, said companies listed on EU exchanges as a strategy should have voluntarily adopted full IFRS much earlier to demonstrate their aspiration to adopt global best practices.
“An internationally listed company cannot be at the mercy of transitory reliefs, more particularly in a scenario where IFRS convergence in India is a moving target,” said Pai. “The risk to EU-listed Indian companies remains in terms of when India will formally move to IFRS and how much we deviate in carve-outs (exceptions made in Ind-As).”
Pai also said, ESMA, on its part, should seriously need to consider mandating IFRS for EU-listed Indian companies as the SEC (US Securities Exchange Commission) mandates US GAAP (generally accepted accounting principles) with an option to foreign issuers to file under IFRS. ESMA is an independent EU authority that helps in safeguarding the stability of the European Union’s financial system.
“If we adopt IFRS, the cost of borrowing will come down as the accounts will be understood and accepted by all global investors,” said Simon Fernandes, deputy general manager, IFRS, State Bank of India.
Fernandes, said IASB has yet to come up with clear instructions on aspects such as “impairment” and “hedge accounting” for the global banking industry.
Although early adoption is permitted, clarity on certain aspects are needed before that, he said. Reliance Industries, Ranbaxy, Axis Bank and several other companies didn’t respond to emails seeking comment.
sangeeta.s@livemint.com
Anup Roy in Mumbai contributed to this story.