India Adament to go blindly for IFRS adoption

India is likely to be guided by the International Financial Reporting Standards (IFRS), which are accepted by over a hundred countries. This is even as the US’ commitment to the adoption of IFRS is in doubt. As long as the US does not adopt IFRS, there is no need for India to rush into it, say India Inc insiders. Critics point out that people who do not want Indian accounting standards, Ind-AS, are arguing that the US itself is distancing from IFRS. This is a dim view and India’s interests will be well served if convergence with IFRS is achieved, say IFRS supporters.

The CA Institute President, Mr Jaydeep Shah, asserts that India’s decision on aligning with IFRS will not be dictated by the US stance on the matter.

‘Holistic view’

“Our decision will be taken by the Corporate Affairs Ministry. It will be done after taking a holistic view and not be country-based. The Ministry will certainly evaluate the international scenario”, he said when asked if India will put the brakes on IFRS, now that the US’ commitment is in doubt. Currently, the US, Japan and India are the three main economies that have not adopted IFRS. Canada, Brazil and Russia moved to IFRS last year.

For some years now, India has been developing its own accounting standards (Ind-AS) that seeks to converge with the IFRS. But the implementation date of Ind-AS is yet to be finalised. Mr Shah said the implementation date would be decided by the Corporate Affairs Ministry. He added that he hoped IFRS convergence will get a leg up once the new Companies Bill is enacted. Policymakers here have taken the stance that they would not adopt IFRS, but would only look to converge with it. Ind-AS has many carve-outs from the internationally accepted reporting rules.

A recent 137-page report released by the staff of the US Securities and Exchange Commission (SEC) had declined to recommend IFRS. There is no recommendation on moving US GAAP (Generally Accepted Accounting Principles) to the international reporting rules, which has led many to conclude that the US SEC will not accept IFRS. This will put convergence attempts between US GAAP and IFRS on the backburner. Currently, there is a gap in accounting treatment in such areas as leasing, insurance and losses on financial instruments.

The convergence process, which started in 2010, has dragged on without any success. Accounting experts point out that it would not be proper to compare India’s approach with the US stance. The US concerns are different in the sense that the US GAAP is far more advanced than IFRS. The US GAAP has for long been based on fair value. India has not even migrated to fair value, it was pointed out.

India is yet to take a final stance on the latest US position on IFRS. But there is every possibility that it will continue its march towards convergence with IFRS, despite roadblocks, say experts in the accounting community.

It must be noted that as per IFRS fixed assets are required to be valued at fair market value, that is recognizing even unrealized profits which is against the basic principal to recognize all probable losses and book profit only when realized.    

IFRS expected to be notified by Dec-10

The government on Tuesday said it will notify the new accounting norms in sync with international practice IFRS for India Inc by the end of this year, and ensured that the April, 2011 deadline will not be missed.

Speaking at an Assocham conference on International Financial Reporting Standards (IFRS), Corporate Affairs Secretary R Bandyopadhayay said the accounting standards are almost ready and all issues, including the tax implications for the convergence, will also be resolved.

"By the end of December, we will notify the converged accounting norms...all issues are almost resolved and we are confident that by the next fiscal, that is April, 2011, Indian companies will prepare their accounts books as per the IFRS," Bandyopadhayay said.

The taxation committee of Institute of Chartered Accountants of India (ICAI), which is helping the government with preparing the IFRS convergence, is almost ready with the recommendations, said Corporate Affairs Joint Secretary Renuka Kumar.

Another issue that needs a re-look is projecting value of an asset in account books. While some are in favour of arriving at the value in terms of historical cost, others believe in the fair value concept.

In accounting, fair value is defined as an estimate of the potential market price of a good or service, taking into consideration factors like acquisition, production and distribution costs and replacement costs.

However, the historical cost does not consider these factors and instead, is calculated at the initial value.

Soon after the issues are resolved, the National Advisory Committee on Accounting Standards (NACAS), the final recommending body for IFRS, will notify all the 37 standards.

In the ongoing winter session of Parliament, the government is also expected to come out with an amendment to the Companies Act, 1956 to pave way for the convergence of the Indian accounting norms with the IFRS.

According to the roadmap laid out by the Ministry of Corporate Affairs , companies with a networth of over Rs 1,000 crore, will have to prepare their account books as per the IFRS from April, 2011.

Further, while scheduled commercial banks and urban cooperative banks will adopt it from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April, 2012.

Listed large non-banking finance companies (NBFCs) will converge their opening books of accounts with IFRS norms from April 1, 2013.

Still no Clarity on IFRS , Thank god our Corporate Minister is not acting in haste

IFRS may be fine-tuned to Indian needs

The International Financial Reporting Standards (IFRS), which several large companies in India will need to follow from April 1, will be flexible enough to suit Indian companies, the Union Minister for Corporate Affairs, Mr Salman Khurshid, has said.
“From Day 1, we have said we will converge, not adopt. There will be different standards on specific issues on which we need to have different standards,” Mr Khurshid told Business Line.

“Convergence,” he said, “gives you the flexibility to stop where you want to stop, adjust where you want to adjust and make an exception where you want to make an exception.”

Asked for instances, he said that “fair value” accounting was one of the areas the government had not taken a view yet. “We are working out. There will be areas where ‘fair value’ will apply, there will be areas where it need not apply,” he said.

Stressing that India should not be seen as a country that drags its feet, Mr Khurshid said that it was necessary to ensure that “we do not fall into the trap of some spurious sovereignty idea.”

He said that there was no confusion about alignment of IFRS with tax laws.

“There will be two parallel systems — the accounting system and the tax system,” he said.

On the expertise available in the country to help companies migrate to the IFRS system, the Minister observed that expertise will come only after the system is brought in, since people would come forward to get trained only after there is a market for their knowledge.

“There is no hypothetical training,” he said.