New Delhi: Companies will have to be more transparent, disclosing from April 1 the accounting policies used in preparing financial statements for the reporting period that could influence the decisions of investors, shareholders and creditors.
As part of their financial statements, companies are required to disclose the accounting policies adopted in preparing the statements.
The new disclosure requirement is part of the Indian Accounting Standards Amendment Rules, 2023, brought out by the Ministry of Corporate Affairs, to align these standards with changes in global best practices.
The new rules mandate that businesses must disclose “material accounting policy information” in their financial statements, replacing the earlier requirement to disclose “significant accounting policies.”
‘Material policies’ indicate the ability to influence the decisions of users of financial statements such as shareholders, investors and lenders. Experts said the new guidelines to decide what constitutes material accounting policy information would go a long way in giving a clearer picture of the company’s affairs.
In addition, the management needs to revisit its approach of disclosing ‘boiler-plate accounting policies’ in the annual report and make the disclosure more relevant and appropriate.
The move comes amid efforts to improve the quality of financial reporting. The National Financial Reporting Authority (NFRA) is conducting an audit quality review of public interest entities and the government is working on further amendments to the Companies Act to further strengthen the regulatory regime for statutory auditors.
“Auditors have to evaluate and discuss with the management about the subjective criteria for considering accounting policies for preparation of Ind AS financial statements as ‘Material Accounting Policy Information’ and ‘Immaterial’. Tax Advisory Firm “It is in line with international accounting standards,” said Bhavin Kapadia, partner, NA Shah Associates.
Shah said the concept of ‘physical accounting policy’ would improve the overall readability of the financial statement. This amendment has been introduced in the Accounting Standard on Presentation of Financial Statements (Ind AS1).
According to Sai Venkateswaran, partner at KPMG in India, the amendments allow companies to make the information contained in financial statements more relevant and less cluttered.
Venkateswaran said there were also concerns about disclosures being made in a manner that obscured relevant information.
“Accounting policies are among the most detailed sections, and are often boilerplate disclosures, essentially reproducing guidance from the standard itself. The revisions now require companies to provide more relevant commentary instead,” Venkateswaran said. how accounting policies have been applied in the context of the company, in particular one or more transactions or related transactions. The focus is also on preventing relevant information from being obscured.
The revised Ind AS1 requires companies to review their accounting policies and ensure their relevance to their operations. This will enhance disclosure practices and improve transparency, thereby benefiting stakeholders such as investors, creditors and regulators, said Sandeep Khaitan, global head of accounting and reporting consulting at global consulting firm Unicus Consultech.
Disclose accounting policies in financial statements: Govt
New Delhi: Companies will have to be more transparent, disclosing from April 1 the accounting policies used in preparing financial statements for the reporting period that could influence the decisions of investors, shareholders and creditors.
As part of their financial statements, companies are required to disclose the accounting policies adopted in preparing the statements.
The new disclosure requirement is part of the Indian Accounting Standards Amendment Rules, 2023, brought out by the Ministry of Corporate Affairs, to align these standards with changes in global best practices.
The new rules mandate that businesses must disclose “material accounting policy information” in their financial statements, replacing the earlier requirement to disclose “significant accounting policies.”
‘Material policies’ indicate the ability to influence the decisions of users of financial statements such as shareholders, investors and lenders. Experts said the new guidelines to decide what constitutes material accounting policy information would go a long way in giving a clearer picture of the company’s affairs.
In addition, the management needs to revisit its approach of disclosing ‘boiler-plate accounting policies’ in the annual report and make the disclosure more relevant and appropriate.
The move comes amid efforts to improve the quality of financial reporting. The National Financial Reporting Authority (NFRA) is conducting an audit quality review of public interest entities and the government is working on further amendments to the Companies Act to further strengthen the regulatory regime for statutory auditors.
“Auditors have to evaluate and discuss with the management about the subjective criteria for considering accounting policies for preparation of Ind AS financial statements as ‘Material Accounting Policy Information’ and ‘Immaterial’. Tax Advisory Firm “It is in line with international accounting standards,” said Bhavin Kapadia, partner, NA Shah Associates.
Shah said the concept of ‘physical accounting policy’ would improve the overall readability of the financial statement. This amendment has been introduced in the Accounting Standard on Presentation of Financial Statements (Ind AS1).
According to Sai Venkateswaran, partner at KPMG in India, the amendments allow companies to make the information contained in financial statements more relevant and less cluttered.
Venkateswaran said there were also concerns about disclosures being made in a manner that obscured relevant information.
“Accounting policies are among the most detailed sections, and are often boilerplate disclosures, essentially reproducing guidance from the standard itself. The revisions now require companies to provide more relevant commentary instead,” Venkateswaran said. how accounting policies have been applied in the context of the company, in particular one or more transactions or related transactions. The focus is also on preventing relevant information from being obscured.
The revised Ind AS1 requires companies to review their accounting policies and ensure their relevance to their operations. This will enhance disclosure practices and improve transparency, thereby benefiting stakeholders such as investors, creditors and regulators, said Sandeep Khaitan, global head of accounting and reporting consulting at global consulting firm Unicus Consultech.
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