ACCOUNTING STANDARDS AND REPORTING REQUIREMENTS UNDER THE INSOLVENCY AND BANKRUPTCY CODE

Introduction

The Insolvency and Bankruptcy Code (IBC) is a crucial legislation in India that addresses insolvency and bankruptcy matters, providing a comprehensive framework for the resolution of distressed companies. As part of the insolvency process, accounting standards and reporting requirements play a pivotal role in ensuring transparency, accuracy, and consistency in financial information. This article aims to discuss the key accounting standards and reporting obligations imposed by the IBC on stakeholders involved in the insolvency process.

Accounting Standards under the IBC

The IBC recognizes the importance of accurate financial reporting during the insolvency process and requires the adherence to specific accounting standards. The primary accounting standards applicable under the IBC are:

1. Indian Accounting Standards (Ind AS): Ind AS are converged with the International Financial Reporting Standards (IFRS) and are mandated for certain companies under the Companies Act, 2013. When an insolvency process is initiated, the resolution professional (RP) or the liquidator is required to prepare and present financial statements in compliance with Ind AS. These financial statements provide a fair and accurate representation of the company’s financial position, performance, and cash flows.
2. Valuation Standards: The IBC mandates the use of recognized valuation standards for determining the fair value of assets and liabilities during the resolution process. The Insolvency and Bankruptcy Board of India (IBBI) has prescribed the Registered Valuers Organizations (RVOs) and their respective valuation standards. These standards provide guidelines and methodologies for the valuation of various assets, including tangible and intangible assets, stocks, and financial instruments.

Reporting Requirements under the IBC

The IBC establishes a robust reporting framework that ensures timely and accurate dissemination of information to stakeholders involved in the insolvency process. The key reporting requirements include:

1. Information Memorandum: The RP is responsible for preparing an Information Memorandum (IM) that provides comprehensive details about the corporate debtor, its operations, assets, liabilities, and financial position. The IM serves as a crucial document for potential resolution applicants and assists them in making informed decisions during the bidding process.
2. Resolution Plan: Once the resolution applicants submit their bids, they are required to prepare a resolution plan in accordance with the format prescribed by the IBBI. The resolution plan should include a viable proposal for the revival of the corporate debtor, details of the proposed capital structure, and the manner of distribution of proceeds among stakeholders. The plan should also comply with the applicable accounting standards.
3. Annual Reports: The RP or the liquidator is responsible for preparing annual reports that provide an overview of the insolvency process, including the financial position and performance of the corporate debtor. These reports are submitted to the National Company Law Tribunal (NCLT), creditors, and other stakeholders. The reports ensure transparency and accountability in the management of the insolvency proceedings.

Conclusion

Accounting standards and reporting requirements play a significant role in the insolvency process under the IBC. They facilitate accurate financial reporting, fair valuation of assets, and transparent disclosure of information to stakeholders. Adhering to these standards and obligations ensures the integrity and credibility of the insolvency process, enhancing the prospects of successful resolution and maximizing the value for all stakeholders involved.