The year 2011-12 was meant to be a turning point in India’s financial reporting and regulatory landscape. Lawmakers and standard setters in India had mitted to update the old and somewhat archaic requirements to nverge with International Financial Reporting Standards (IFRS), and to introduce new rporate and tax regulations by 2011.  In 2008, the European mission regnised that these changes were underway, and provided transitional relief for Indian panies reporting within the EU to use Indian GAAP financial statements on a temporary basis until 31 December 2011. 

However, none of these changes have yet materialised and the new standards and regulations are now expected to be rolled out over the next one to two years. In the midst of all these deferments, earlier this year, the Ministry of rporate Affairs (MCA) in India introduced a uple of new requirements that will change the manner in which panies pile, present and file financial information. This will include amendments to the prescribed format of balance sheet and profit and loss acunts as well as introducing eXtensible Business Reporting Language (XBRL) for annual rporate filings; both of these are steps in the right direction for the bigger change that is expected to follow. 

Format of balance sheet and profit and loss acunts
Indian panies have been required to use the format of financial statements prescribed in Schle VI to the Indian panies Act, 1956, and since the format has largely remained unchanged for several decades, the financial statements of Indian panies have grown increasingly out of sync with panies in other parts of the world. 

The MCA has finally introduced the revised Schle VI (New Schle), which prescribes a format closer to the current international practice and which is largely nsistent with IFRS. In the meantime, the MCA has developed another variant of the New Schle, which would be made applicable once the IFRS nvergent standards are introduced in India.

The New Schle became applicable from 1 April 2011 and also requires the parative information to be recast as per this format in the year of transition.  Further, this requirement to recast parative periods would also apply to panies aessing the capital markets for an issue of equity shares from 1 April 2012. 

The New Schle brings about the following significant changes:
 balance sheet structure as per vertical form and profit and loss acunts to be prepared using nature of expense method
 current and non-current classification of assets and liabilities on the balance sheet
 additional disclosure requirements on share capital, including names of shareholders with over 5% shareholding
 additional disclosures on long-term borrowings
 disclosures on overdue sundry debtors
 removal of certain outdated disclosure requirements relating to quantitative information on inventory, licensed and installed capacity, etc.

The New Schle will require a focused effort from panies to ensure smooth implementation. Apart from training personnel involved in the financial reporting process, panies would also be required to make changes to IT and other reporting systems to capture the required information at source. Further, panies would also need to monitor the impact of these new requirements on their ntractual arrangements, such as loan venants, etc, as the key financial ratios are likely to be impacted by these changes.

The bigger challenge for India, however, is to keep this New Schle dynamic and changing in response to changing global trends.

XBRL for annual rporate filings
The MCA has mandated that certain panies in India file their annual financial information with the MCA for the year ended 31 March 2011 using XBRL. The use of XBRL to nvert financial information into machine readable data is already being used in other major enomies of the world such as the USA and the UK.

Its introduction in India is expected to rce the challenges faced by the MCA in piling and maintaining a registry of financial information of over 850,000 panies in India. The XBRL data llected would significantly enhance the MCA’s capabilities in policy formulation and regulatory functions.

MCA has developed the Indian GAAP taxonomy based on current Indian GAAP including the Old Schle VI format. Listed panies and their Indian subsidiaries as well as other unlisted panies with a turnover in excess of INR 1 billion or share capital in excess of INR 50 million are required to use it. Banks, insurance panies, non-banking finance panies (NBFCs) and panies in the power sector are exempt from this requirement, as taxonomies for such sectors are under development. The current mandate prescribes panies to file both their separate and nsolidated financial information using XBRL apart from the Directors Report and Auditors Report.

nsidering that these requirements have been introduced towards the end of the year, the MCA has extended the timelines for panies to file their annual returns for this year. However, despite the extended timelines, the readiness of all stakeholders including the panies, appears far from satisfactory. Most large panies will face the challenge of transitioning from the taxonomy used in the current year to a revised taxonomy under the New Schle the next year and another version to meet IFRS nvergent standards the year after.

Despite all these hiups, panies have weled the move hoping it will ultimately lead to a more efficient regulatory pliance framework providing reliable and aurate information to investors and other users of financial information.