In January 2022, the Securities and Exchange Board of India (SEBI) got here out with SEBI (Mutual Funds) (Amendment) Regulations, 2022 (‘MF Regulations’), which mandated Asset Management Companies (AMCs) to arrange the monetary statements of their mutual fund (MF) schemes in accordance with Indian Accounting Standards (Ind AS), with impact from April 1, 2023.
Thereafter, SEBI in a round dated February 4, 2022, launched tips on accounting with respect to Ind AS, whereby it additionally prescribed the format for presentation of monetary statements. Based on the above necessities, mutual fund schemes should put together the primary Ind AS monetary statements for the 12 months ending March 31, 2024 together with comparatives for the 12 months ending March 31, 2023 and the opening steadiness sheet as on date of transition i.e., April 1, 2022 as per the rules laid down in Ind AS 101 – First Time Adoption of Ind AS.
The necessities to arrange monetary statements below Ind AS is a major change for mutual funds. Some of the potential areas of affect of Ind AS on mutual fund schemes might be:
- Significant change in presentation format of monetary statements
- Increased disclosures below Ind AS similar to, honest worth disclosures and danger administration disclosures
- Measurement adjustments similar to, accounting for transaction prices on investments (viz. to be charged to income account as a substitute of capitalisation)
- Difference in strategy for honest valuation of investments as required by MF rules and Ind AS 113 – honest worth measurement
- Assessment of debt vs fairness classification for unit capital
- Assessment of affect on distributable surplus
As per proviso to clause 50(1A) of the MF rules, in case of any battle between the necessities of Ind AS and the MF rules and tips issued thereunder, the mutual funds shall comply with the necessities specified below the MF rules. Relevant stakeholders might want to deliberate on the strategy to be adopted on transition and the areas the place MF rules end in a carve out from the applying of Ind AS rules. A clarification from the regulator could also be helpful on this regard.
Mutual funds have to do detailed affect evaluation for transition to Ind AS, align its chart of accounts, determine and put together the related disclosures, and assess any potential affect on its programs and processes. Finance groups are below fixed strain to ship well timed and high-quality monetary reporting in an setting of technological change, elevated regulatory change and elevated scrutiny. Fund homes which have outsourced the preparation of monetary statements to service suppliers might want to provoke the discussions for the actions required for transition to Ind AS.
Considering the big quantity of monetary statements {that a} mutual fund wants to arrange for particular person mutual fund schemes, it also needs to goal to deploy options to automate the monetary reporting course of. Automation permits constant and repetitive preparation of monetary statements and different experiences over a number of variations and reporting intervals.
The date of applicability of Ind AS for adoption of monetary statements shouldn’t be far-off, contemplating half yearly reporting necessities and the requirement to arrange and current comparative interval financials below Ind AS. AMCs and mutual funds might want to gear up for the transition to Ind AS and make essential adjustments to their present programs and processes for preparation of monetary statements and different periodic experiences on the earliest.
(Co-authored by Jigar Parikh – Partner, FAAS EY India & Manan Lakhani – Director, FAAS EY India)
Source: www.financialexpress.com”