Real estate companies may be exempted from the new stricter international accounting norms with the Institute of Chartered Accountants of Indiathe regulator of accounting and auditing profession-pushing for the continuation of the prevailing lenient regime that recognizes revenue in line with progression of construction and not at the time of delivery.
ICAI feels that international norms would impact the financial statements of real estate companies and not offer a true measure of their operations. "Various entities from the real estate sector have sent their views against the international norm as it would require the developers to recognize revenue in their financial statements based on the completion method i.e. only in the last year of the completion of the project. In that case, the profit and loss account of the developers will not truly reflect the performance of the business since no revenue will be recognized during the years when the project remains under-construction . In other words, profit and loss account will not reflect the proper performance of the business," ICAI president Amarjit Chopra told TOI.
India Inc. is gearing up for convergence with global accounting norms and this will happen in a phased manner beginning April 2011. In the first phase, companies which will convert their opening balance sheets with the new accounting standards include those part of NSE Nifty 50, BSE Sensex 30 and companies whose shares or other securities are listed on stock exchanges outside India, or companieswhether listed or not-which have a net worth in excess of Rs 1,000 crore.
The second phase, which kicks off in April 2013, will cover companies (whether listed or not) with a net worth exceeding Rs 500 crore but not exceeding Rs 1,000 crore. Listed companies , which have a net worth of Rs 500 crore or less, will convert their opening balance sheet on April 1, 2014. Chopra said that in case of realty firms, the norms treat construction of real estate as sale of goods.