The Securities and Exchange Board of India (Sebi) could likely relax norms to hasten unlisted companies to tap the primary market. The market regulator recently eased disclosure norms for listing of startups.
The relaxation this time could be an easing in the requirement of furnishing financial statements for the past five years to three years, according to various people connected with the issue.
But as Indian companies have to move toward a new Indian accounting standard (Ind AS), from April 1, 2016, all financial statements for a company going for IPO would also have to be as per Ind AS. This would mean re-stating the accounts for five years, which is not only an accountant’s nightmare but also an arduous task as the new standard could throw up different profit or loss numbers.
Realising this difficulty, Sebi has asked ICAI, the nodal body for setting accounting standards, to suggest guidelines. An ICAI official said that it has scheduled the issue for discussion at its next accounting standards board meeting later this month.
Although Sebi did not respond to queries mailed by HT, the regulator is also looking at global precedents in this issue. It had done the same when it looked at why start-up firms were keen on listing overseas and came up with exemptions on disclosure norms for start-ups, a feature widely prevalent in the US.
Sebi is keen to encourage the IPO market as sentiments in the equity markets have improved and small retail investors — the mainstay of a vibrant primary market — have been returning to equities after a three-year gap. The more than 15% rise in mutual fund folios is also a strong indicator.
“When foreign companies listed in the US were permitted to migrate to IFRS (a new accounting standard) the SEC (Sebi’s counterpart in the US) allowed companies going for a public issue to restate accounts under IFRS for two years. However, until there is clarity we have been advising our clients to be prepared for at least three years of restatement,” said Jamil Khatri, partner at KPMG.
The final announcement from Sebi could likely be made in a couple of months as ICAI also has clear views on the issue.
“Apart from the relaxation, Sebi is also thinking of a proforma information where the likely impact on profits or loss are given if the accounts are restated under Ind AS,” said another person connected with the preparation of accounting guidelines.