Accounting Standards
The International Financial Reporting Standards (IFRS)
roadmap issued by the Ministry of Corporate Affairs (MCA) stated that the IFRS
standards would be submitted to the MCA by 30 April 2010. It is widely believed
that The Institute of Chartered Accountants of India (ICAI) would facilitate the
notification of the IFRS standards in the Companies Accounting Standard Rules
through the National Advisory Committee on Accounting Standards (NACAS).
As per the roadmap issued by the MCA, there shall be two
separate sets of accounting standards u/s.211(3C) of the Companies Act, 1956.
The first set shall comprise the Indian Accounting Standards which are converged
with the IFRS and apply to the specified class of companies. The second set
shall comprise the existing Indian Accounting Standards and apply only to the
companies not covered in any of the phases of the roadmap or till the date of
applicability of IFRS for companies covered in
later phases.
Under IFRS, there are 29 International Accounting Standards (IAS)
and 9 IFRS, 11 Standing Interpretations Committee (SIC) interpretations and 16
International Financial Reporting Interpretations Committee (IFRIC)
interpretations, a total of 65. At the end of March, more than 40 of these
promulgations were not yet issued by the Institute of Chartered Accountants of
India.
Under the circumstances, corporate entities have raised
questions on how the commitment made in the roadmap can be achieved. More
importantly, entities do not know if they should start preparing for IFRS as
issued by the International Accounting Standards Board (IASB) or there will be
certain changes/exceptions to those standards. If there are changes, what will
those changes be ? Particularly, what is not clear is, whether Indian companies
will be able to use all the options allowed under IFRS or ICAI/MCA shall remove
certain options while adopting IFRS in India. For example, under IFRS, IAS-19
provides a number of alternatives to account for actuarial gains and losses,
such as the corridor approach, full recognition to income statement, full
recognition to reserves instead of the income statement. In India, it may be
possible that some of these alternatives may not be allowed.
The author is not in agreement that the alternative
accounting available under IFRS should be eliminated. This would not provide a
level playing field to Indian entities vis-à-vis international companies which
will have this benefit. It may be noted that Australia introduced IFRS
initially by eliminating multiple alternatives under IFRS. However, at a later
date they realised that this was not workable and reverted back to a full IFRS
providing all the options available under IFRS to Australian companies.
Considering the number of pending standards, there is a clear
need to significantly accelerate the process of issuing the IFRS standards. Any
time provided for public exposure will further delay the issuance of these
standards. Currently issuance and notification of standards happens on a
standard by standard basis. This process, if followed for IFRS, will take a long
time and there is no way that the 30 April deadline would be met. To smoothen
the process, the ICAI/NACAS should expose and notify all standards at one go.
For companies covered by the convergence roadmap, we may mention that it is
more of an operational issue and the ICAI/NACAS/MCA will resolve the same
in due course. The Indian Government is committed to achieve convergence with
IFRS in India. Thus, entities should not slow down their conversion
efforts.
