- The Reserve Bank of India has decided to delay the implementation of the Indian Accounting Standard rules by banks as the requisite legislative amendments are still under consideration.
- GAAP (Generally Accepted Accounting Principles): It is a collection of commonly-followed accounting rules and standards for financial reporting.
- International Financial Reporting Standards (IFRS): It is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB). These were designed to avoid credit shocks like those seen in the aftermath of the global financial crisis in 2008.
- Currently, the banks and non-banking financial companies currently follow Indian generally accepted accounting principles (GAAP) standards and are due to switch to Indian Accounting Standards (Ind AS) from 1 April 2018.
- However, other corporate entities started complying with Ind AS with effect from 1 April 2016.
Indian Accounting Standard (Ind-AS)
- With increasing global reach of Indian companies, there was a need to converge reporting standards with international standards was felt, which has led to the introduction of IND AS.
- The IND AS are basically standards that have been harmonised with the International Financial Reporting Standards (IFRS) to make reporting by Indian companies more globally accessible.
- Ind AS or Indian Accounting Standards govern the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company.
- National Advisory Committee on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA).
- Indian Accounting Standard is the Accounting standard adopted by companies in India and issued under the supervision of Accounting Standards Board (ASB).
Note: ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc.
Change required to implement IndAS:
- Amendment to the Banking Regulation Act: The schedule in BR Act relating to financial statement disclosures needs to be changed to the IndAS format.
- Section 29 of the Banking Regulation Act deals with the accounts and balance sheets of public sector banks. Private sector banks are covered by the Companies Act, which is based on the new accounting standards.
- In 2016, the RBI had proposed implementation of new accounting standards for banks for both standalone financial statements and consolidated financial statements with effect from April 1, 2018.
- However in April 2018, the central bank had postponed the implementation of the Indian Accounting Standards (Ind AS) by the banks by one year.
- The Ind AS were supposed to kick in at the start of the new fiscal year that starts on 1st April 2019, but has been deferred again.
- The implementation of new accounting standards for banks has been delayed because of the legislative changes and additional capital requirements in the process.
- The new accounting standards would require banks to make provisions when they judge that a loan is likely to sour, rather than waiting for a triggered event.