Adoption of Fair Value Accounting in Indian Accounting System

Of the 14 countries that have adopted IFRS for at least some (but not all) domestic publicly accountable entities, India is one. Hence, India has finally adopted fair value measurement in its business reporting system. For the purpose of defining and measuring fair value in India, the ICAI has introduced converged Indian Accounting Standards in line with IFRS, Ind AS 113 on fair value measurement. Although Ind AS 113 defines fair value, sets out a single Ind AS framework for measuring fair value and requires disclosures about fair value measurements, it does not direct which assets and liabilities too are measured at fair value. Rather, Ind AS 113 is applicable when another Ind AS requires or permits fair value measurements or disclosures about fair value measurements. As per MCA's notification dated 16.02.2015, the first financial reporting on the basis of converged ASs of Indian companies will be mandatorily prepared on March 31, 2017. Analysis of fair value measurement of assets and liabilities made by Indian companies can only be done after preparation of their financial statements for the year 2016-17. It will be interesting to see how Indian companies measure fair value of assets/liabilities, for which no active market exists, using significant unobservable inputs (i.e., Level 3 Inputs) as enumerated in the hierarchy of Ind AS 113