ESMA Publishes Report on the Equivalence of the Indian Accounting Standards

In February 2014, ESMA (European Securities and Markets Authority) was asked by EC (European Commission) to draft a report to apprise the commission about the status of convergence between IFRS (International Financial Reporting Standards) and IndAS (Indian Accounting Standards) and the quality the quality of implementation of Indian Accounting Standards. In order to draft this report, the information was collected from various sources including members of ICAI (Institute of Chartered Accountants of India), SEBI (Securities and Exchange Board of India) and other publicly accessible sources.

ESMA has noticed that the Indian accounting standards have not yet been applied in India and original idea of convergence with International Financial Reporting Standards has been delayed. Ministry of Corporate Affairs (MCA) has not yet issued the date from which accounting standards will be applicable. Resultantly, ESMA has identified 3 major issues in regards to developments made towards convergence between standards. These issues are discussed below:

- The preliminary idea and layout of application of converged accounting standards by entities has been under consideration for various years and faced substantial delays. The application of standards was finally deferred. A new layout was presented in 2014 suggesting that publicly traded (listed) and large companies must prepare its consolidated financial statements under Indian Accounting Standards with effect from April 1, 2016. The idea will be implemented after the approval of Indian government and the issue is currently under attention of MCA. However the content and exact time frame for application remains ambiguous.

- The approach adopted by the Indian authorities is to accept the international standards of IASB and modify them as per their needs. Resultantly, ESMA has identified some situations which indicate substantial deviations from IFRSs.

- ESMA feels that India possesses limited expertise to get IFRS implemented. Although ESMA recognizes the work done by institute of chartered accountants of India (ICAI) to produce experts that can enforce Indian Accounting Standards but their expertise has provided no practical benefit.