Sebi may Relax Disclosure Norms for IPOs

MOVE TO ENABLE smooth transition to new accounting standards (Ind-AS)

The Securities and Exchange Board of India may relax disclosure rules for companies planning to go for initial public offering in order to enable a smooth transition to the new accounting standards (Ind-AS), which will kick in next financial year. The market regulator has recently written to the Institute of Chartered Accountants of India (ICAI) seeking its views on the matter.

ICAI and audit firms are holding discussions with the regulator on the implications of the new standards, said a person familiar with the matter. The new standards are in line with International Financial Reporting Standards (IFRS).

Current Sebi rules mandate firms to disclose the previous five years' financial statements in IPO document. There is no clarity under the new standards whether a company needs to restate its accounts for the previous years if it goes in for IPOs immediately after the new rules come into effect. Because of this lack of clarity , market sources say , several companies have put their IPO plans on hold.

“This will be discussed by Sebi's committee on disclosures and accounting standards and if there is any lack of clarity it would be clarified,“ said the person familiar with the matter.

Sebi didn't respond to a questionnaire sent on Tuesday.

ICAI president Manoj Fadnis said the regulator has approached the institute seeking suggestions. “The issue is whether the company should present the current year figure and the previous year figure as per Ind-AS and the figures for the three preceding financial years as per the Ind-AS or as per the existing AS, or whether there is any other alternative in this regard,“ he said.“The matter is under consideration of the Accounting Standards Board of the ICAI and its suggestions would be submitted shortly.“

Companies having a net worth of more than Rs.500 crore as of March 31, 2014 are required to adopt Ind-AS from April 1, 2016, and provide comparable numbers for the previous year. “These companies would have previously reported the earlier periods under Indian GAAP,“ said Sai Venkateshwaran, partner and head of accounting advisory services at KPMG. They may now report the most recent periods or immediately following periods under Ind-AS, he added.

If such a company plans to file for an initial public offering in April 2016, it may not have financial state ments compliant with Ind-AS for the previous five years. So, “clarifica tion is required from Se bi as to whether and how such a company should comply with the requirements of IndAS for the purposes of preparing its historical five-year financial information in the prospectus,“ said Sumit Seth, partner and IFRS leader at Price Waterhouse.

In the US, when foreign private issuers were given an option to present their financial statements under IFRS, they were allowed to present only the latest two years' IFRS-compliant financial information in the offering document.

“The Sebi's rationale is that investors should be able to compare apples with apples. So, since all account statements from 2016 would be as per IndAS, companies should submit last five years' statements as per Ind-AS,“ said another person close to the development.

The Economic Times, New Delhi, 6th August 2015

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