No International Financial Reporting Standards, but strict norms take over
March, 29th 2011
The implementation of the International Financial Reporting Standards , or IFRS , has been put off for now, but the government is pressing ahead with the reforms in the way companies present their financials.
The Corporate Affairs Ministry has made it mandatory for large companies to prepare their financials as per a revised format that is expected to provide greater clarity about their finances and liquidity position. For companies, it will mean that the annual accounts filed for the fiscal 2011-12 will be under the revised format.
The schedule VI, which is a part of the present company law, lays down the rules for presenting profit and loss statement and balance sheet. The revised schedule requires companies to separate assets and liabilities into current and non-current categories, a classification missing from financials as of now.
"The revised schedule that calls for classification of a company's assets and liabilities as current and non-current will give a better picture of a company's liquidity position," said Dolphy D' Souza, partner, Ernst & Young, a consulting firm.
The schedule is a format of presenting financial information by companies and not an accounting standard.
The ministry is looking to implement it in a phased manner starting April 1, 2011. In the first phase, companies with a paid up capital of over 5 crore will be required to prepare their income statement and balance sheet as per the revised schedule, said AK Srivastava, joint secretary in the Ministry Of Corporate Affairs. Around 20,000 companies are likely to be covered in the first phase.
The ministry has also asked companies to report their accounts as per a computer-readable reporting language called XBRL (extensible business reporting language) from the next fiscal. XBRL will facilitate better analysis of a company's financial information while also ensuring that there are no reporting lapses.
The ministry on Monday also announced measures to ensure discipline among companies. It has directed its field officers to track companies which have not been filing their balance sheets on time, a mandatory requirement under the law.
Among the companies being closely looked for these defaults are listed companies, subsidiaries of listed companies, companies that have created charge on their assets and companies that have borrowed money from lenders, said Srivastava.
He said once the ministry uncovers the companies defaulting in filing their balance sheets, a process of 'qualitative examination' of their financials may be started to see if there is any default.