Market regulator Securities and Exchange Board of India’s (Sebi) proposed changes to the disclosures being made by listed firms will give them an option to present consolidated financial statements under the International Financial Reporting Standards (IFRS). Consolidated statements give a better picture of a company’s financial health and are at present being prepared under Indian GAAP (Generally Accepted Accounting Principles).
Most countries are working towards the adoption of IFRS, which will bring about key changes in accounting standards. The Indian government, too, is working to ensure convergence of Indian GAAP with these new standards by 2011. But the norms applicable to Indian companies are yet to be finalized.
Sebi’s move may mean that firms will continue to present stand-alone and consolidated statements under Indian GAAP. In addition, they can present consolidated statements under IFRS voluntarily. However, if IFRS replaces Indian GAAP for consolidated statements, there is scope for confusion, as firms may interpret the IFRS norms in different ways. It would be better, therefore, if firms are allowed to change accounting methods after the rules are in place. When the listing agreement amendments are notified, there will be more clarity on this issue.
Among other issues, Sebi’s move to make companies present balance sheets along with their quarterly results is a welcome move. Changes in a company’s debt position or working capital stress can become visible early. Along with the balance sheet, a brief cash flow statement would prove handy.
While profit and loss statements can be massaged, reporting changes in a company’s cash position is much more transparent. Companies earlier reporting results within 30 days will now get 45 days to post results. But unaudited results are now history. Instead, results will be reported after a limited review or a proper audit; this delay reduces their utility.
While disclosures and their quality is one aspect, the form of disclosures leaves a lot to be desired. This is important as the level of disclosures is increasing. It is time that Sebi mandates companies to present information in a digitized manner that can be easily accessed and processed. At present, investors have to wade through scanned documents that take time to download and are at times barely legible.
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