Finance ministry directed ICAI to set up a committee for IFRS
November, 08th 2010
Barely five months from the final implementation of the IFRS, the finance ministry has directed the apex accounting regulator, Institute of Chartered Accountants of India (ICAI), to set up a committee to harmonise the tax-related issues.
As 1,000-plus companies with networth greater than Rs 1,000 crore converge to the international accounting standard from April 1, 2011, there is still lack of clarity as to how corporate houses would adjust their tax dues as per the new accounting standard. A senior government official told FE that the tax committee of the ICAI has been mandated to clear the air over tax issues. ICAI has begun preparing the report which would be submitted in the next one week, an MCA official said. The official said as India moved towards a completely new accounting standard several issues over tax were bound to come up.
Just like India a similar dilemma is also being played out in the US where comments from various stakeholders are being incorporated, the official said. He added that the government was committed to keep the deadline intact and there was no question of a turnaround.
According to the MCA source the government is also trying to work out how biological assets would be treated in the balance sheets. The issue of biological assets still remain that would mainly apply to rubber manufacturers. We are trying to work out how cattle and trees, which as per IFRS are biological assets, would be valued, he said.
He added that even if a tentative time period is taken for the survival of the asset, tax would have to be then adjusted backwards. The problem is what happens if there is a flood or some other natural calamity. How do you adjust that, a source said.
In the run up to the final convergence of IFRS several tax related issues have sprung up. For instance it is unclear how financial instruments would be treated. So far under the Indian GAAP companies were not required to account for their derivatives since they were unrealised. Once the IFRS gets implemented companies would be required to record unrealised gains as well, said Sandip Khetan, director (accounting advisory services) KPMG.
Apart from that historically expenses relating to employee training and feasibility studies conducted by companies were capitalised, but now they would have to be reflected in the profit & loss account as cost. There are several issues for which the government would have to clarify. There has to be framework in place for smooth convergence, which so far has not happened, Khetan said