July 17, 2001
Ref.No.PR 111/2001
MEETING OF THE ACCOUNTING STANDARDS COMMITTEE OF SEBI
The Accounting Standards Committee set up by SEBI under the Chairmanship of Shri Y H Malegam met today to discuss various issues pertaining to Accounting Standards and Financial Reporting applicable to companies including Dot Com Companies. The following are the major recommendations given by the Committee:
- Accounting Standards
The Committee in its previous meetings as well as the Kumar Mangalam Birla Committee on Corporate Governance had recommended the following financial disclosures for listed companies:
- Consolidation of Accounts
- Segmental Reporting
- Deferred Taxes
- Related Party Transactions
- Earning per Share
As a part of SEBI’s efforts to enhance Financial Disclosure Standards, SEBI has been closely interacting with ICAI. The issuance of the Accounting Standards on the above areas was taken up by SEBI with ICAI, which is represented in the SEBI’s Accounting Standards Committee.
ICAI President who participated in today’s deliberation mentioned that standards have been issued in the above areas. He also informed that ICAI would be issuing Accounting Standards in respect of other areas such as ‘Intangible Assets’, ‘Impairment of Assets’, ‘Discontinuing Operations’, ‘ Accounting for Investments in Associates’, etc. by December 2001. SEBI and the Accounting Standards Committee appreciated the efforts of ICAI to issue the Accounting Standards in the above mentioned areas within a short span of time. The Committee also noted that the issue and adoption of the above Accounting Standards would help to bridge the gap that now exist between International Accounting Standards and Indian Accounting Standards and will raise the level of financial disclosures to the international standards.
The Committee was of the view that the impact of the Accounting Standards issued by ICAI on the above five subjects would be visible in the annual accounts of the companies from the financial year 2001-2002.
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Additional Disclosures in the Quarterly Financial Results
In the light of the issuance of the above Standards and their applicability to the continuous disclosure requirements, the Committee recommended that the following additional disclosures may be prescribed in the quarterly unaudited financial results.
- While ICAI has prescribed that accounting Standard on Segment Reporting would be applicable from the financial year 2001-2002, companies shall be required to furnish segment-wise Revenue, Results and Capital Employed in the quarterly unaudited financial results with effect from the quarters ending on or after September 30, 2001. The format for providing segment information will be prescribed by amending the Clause 41 of the Listing Agreement shortly.
- Companies shall be required to comply with the accounting standard on "Accounting for Taxes on Income" in respect of the quarterly unaudited financial results with effect from the quarters ending on or after September 30, 2001.
- Companies shall be required to calculate and disclose Earning Per Share in accordance with the Accounting Standard on "Earning Per Share" with effect from the quarter ending on or after September 30, 2001.
- Companies shall be mandatorily required to publish consolidated financial statements in the annual report. Companies shall have the option to publish consolidated quarterly financial results in addition to the unaudited quarterly financial results of the parent company as currently required as per the Clause 41 of the Listing Agreement.
- Companies shall be required to make disclosures in compliance with the accounting standard on "Related Party Disclosures" in the annual reports.
- Disclosure and Accounting by Dot com Companies
The Committee adopted the report of the Accounting Standards Sub Committee on Dot Com Companies.
The Sub Committee was of the view that the traditional valuation models applicable to brick and mortar companies may not be applicable to dot com companies in view of their uncertain revenue streams and unpredictable and rapidly changing business models. Hence, it was felt that instead of prescribing models for valuation of dot com companies, sufficient amount of information should be made available to the investors to take well informed investment decision.
The Sub Committee has recommended that dot com companies shall be required to disclose all relevant qualitative and quantitative business information. These requirements may also be made applicable to all other companies wherever it is relevant. SEBI’s Committee on Disclosure on Offer Documents which is also chaired by Shri Y H Malegam would consider the recommendations of the Sub Committee for additional disclosures in the offer documents applicable to dot com and other companies.
The Sub Committee has also recommended that the Guidance Note on Accounting by Dot Com Companies issued by ICAI shall be made mandatory for dot com companies and they are required to give a declaration in the offer document confirming their complete compliance with the Guidance Note