India Gives NBFCs Two Years To Adopt New Accounting Standards

The Securities and Exchange Board of India will reportedly give non-bank financial companies (NBFCs) two years to adopt and implement changes to accounting standards, the Financial Express reported Wednesday (Sept. 25).

The new Indian Accounting Standards (Ind AS) are expected to have a significant impact on NBFCs’ financial management strategies, leading India regulators to defer implementation for these entities, reports said. The standards changes will impact financial figures, presentation and disclosure, as well as various financial ratios including NPA and current ratios.

The changes will also impact how NBFCs disclose borrowing costs and expected credit loss, both of which are expected to affect companies’ financial statements and bottom lines, reports said.

“In an overall view, an increase in quality and comparability of Indian financials with the market will give investors a clear understanding of performance,” stated the article’s authors, AMRG & Associates Senior Partner Rajat Mohan and CEO Gaurav Mohan, “which will be a great achievement. Impact of the financial results and implementation are just transitional in nature.”

Considering the economic impact of NBFCs in India’s market, however, regulators find it key to ensure the NBFC community is able to effectively adopt these changes, reports noted.

A similar disruption is happening in the global market with changes in the International Financial Reporting Standards, which will affect businesses across 140 countries. Among the largest disruptions is how businesses account for outstanding leases, with some investors raising concerns about how these changes will impact the ability to understand a company’s financials.

“There are lot of adjustments to financial metrics already, and the more we have, the more difficult it will be to assess the underlying performance of the business,” Mark Bentley, director of the U.K. Individual Shareholders Society, said in an interview with The Wall Street Journal earlier this year.

In the U.S. regulators have given small businesses more time than other firms to adopt the accounting standard changes.