Firms may get more time as govt refers IFRS issue to CoS News Archive News

Even as corporates brace up to converge with International Financial Reporting Standards (IFRS) from next year,there are dissenting voices within government departments.

Written by Shruti Srivastava

New Delhi | October 28, 2010 03:15 AM IST

3 min read

Even as corporates brace up to converge with International Financial Reporting Standards (IFRS) from April 1 next year,there are dissenting voices within government departments raising issue with its hasty implementation. The matter has been referred to a Committee of Secretaries (CoS),an official source told The Indian Express. The CoS will help resolve and finalise the proposal of introducing a Bill laying down changes in the Companies Act,1956,for the purpose of IFRS implementation,the source said.

A finance ministry official said convergence with international accounting practices although important any precipitous decision would harm the corporates. It is difficult to implement IFRS from April next year because the National Advisory Committee on Accounting Standards (NACAS) has still not notified the IFRS-compliant accounting standards (AS). And they have little time for notifying the As. the time NACAS has,for notification,is too little. Simultaneously,the stakeholders education is another issue yet to be accomplished, the sources said.

This may impact the 300-odd companies which are likely to converge to the IFRS beginning next fiscal because convergence will also have certain tax implications as the IFRS mandates marking assets to market and India’s income tax act calculates tax on the basis of real income. Mark-to-market means assessing an asset on fair value. This is the biggest challenge the government is struggling to resolve.

According to the Institute of Chartered Accountants of India (ICAI),it is the finance ministry that has to clarify the matter and amend I-T Act for the purpose. However,finance ministry officials are of the view that worldwide two separate accounts are maintained by companies one is for tax purposes and the other is IFRS-compliant for disclosures. Therefore,there are no tax implications as such and the Indian companies can also prepare two sets of accounts. The finance ministry is planning to take up the issue with the corporate affairs ministry.

In fact,the officials claimed,maintaining two sets of accounts would help in avoiding confusion as the IFRS is important mainly for disclosures.

It is to be noted that the US and Japan have still not committed towards the adoption or convergence with the IFRS. For the income tax purpose,all subsidiaries of a group have to be assessed individually and not as a group. However,IFRS prefers a consolidated statement of the group and not of subsidiaries. This fundamental difference will create huge confusion for corporates and more so for shareholders.

Another challenge would be to deal with fair value accounting that gives rise to recognition of notional P&L. Notification of IFRS-complaint accounting standards and clarity on tax issue apart from educating the stakeholders are a few key issues which are yet to be resolved and have made it difficult for corporates to chalk out a plan for convergence beginning next fiscal.

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Committee of Secretaries IFRS