Corporates’ financial statements that are heavily relied upon by investors and stakeholders may now see enhanced “readability” and “utility”, thanks to a policy shift ushered in by the Corporate Affairs Ministry (MCA).

The MCA has mandated corporates to disclose “material accounting policy information”, moving away from “significant accounting policies” that is in vogue, to improve the readability and usefulness of financial statements. 

The MCA move to amend the Indian Accounting Standards Rules for this purpose would now require companies to reframe their accounting policies to make them more “entity specific”.. 

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The practice of reproduction of accounting standards and describing them as “significant accounting policies” of the company concerned would now have to be done away with as the Centre will not accept this approach of corporates, experts said. 

With the latest MCA rule change, India has aligned itself with the “material” concept already required under internationally recognised International Financial Reporting Standards (IFRS).

The Government has now changed the requirement to disclosing of ‘significant accounting policies’ into “material accounting information policies” and these changes, if implemented, could lead to more meaningful disclosure of accounting policies, experts said.

“If implemented properly, this change will improve the readability and usefulness of financial statements,” Avinash Chander, former Technical Director at CA Institute, told businessline.

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More meaningful

Amarjit Chopra, former President of ICAI, said the move will not impact the financial statements, but would definitely make them “more meaningful” for those who rely on it for their financial decisions. 

The rule change will apply for financial statements closing after March 31.

“The intention of the government seems to be that corporates must disclose accounting policies that are relevant to their company and even if they are relevant, how they have applied them in a specific situation,” an accounting expert said.

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“If these requirements are implemented properly, they should result in avoiding clutter. The size of the accounting policies page in the annual report will get reduced and one can focus on what the company has done rather than thinking of what the company might have done”.

Earlier, people used to copy and paste the requirements of accounting standards, now they have to apply their mind and specifically say what they have done in specific situation, another expert noted. 

For example, if an accounting standard allows alternatives, then one should disclose which alternative has been adopted by the company. 

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