In a move that will come as a big relief for India Inc, the ministry of company affairs is considering delaying the adoption of International Financial Reporting Standards, or IFRS.
According to highly placed sources, IFRS, which was to come into effect from April 1 this year for all big corporates, is now likely to be made optional meaning companies may not have to compulsorily transition, at least on that date.
They could be given a choice to either report their financial statements based on the existing Indian accounting standards, or adopt IFRS.
A notification to this effect is likely in the next few weeks, sources said. IFRS are a set of international accounting principles, promulgated by the International Accounting Standards Board.
The whole of Europe adopted IFRS a few years ago, but the US is yet to make it mandatory.
India had agreed to implement IFRS in three phases starting this April. The first phase covers all Sensex and Nifty companies and companies with a net worth of over Rs1,000 crore.
But over the last few months, many corporates made representations to the ministry asking for exemption from IFRS implementation.
They argued that IFRS, which is based on fair value or market value accounting, would lead to a lot of volatility in financial reporting.
A large section of the chartered accountant fraternity is also opposing its implementation.
But PR Ramesh, audit head at Deloitte India, said the move would be inappropriate because an accounting framework cannot be optional in its application.
IFRS-equivalent standards were to be made applicable to public interest entities with a view to ensuring that financial reporting in India is of an international quality. Allowing a choice would, in effect, permit entities to choose their own levels of quality standard of financial reporting, Ramesh said.
DD Rathi, director, UltraTech, the cement major, points out that large corporates are generally prepared for IFRS but there is no clarity on tax treatment under the regime.
Also, the government is yet to make amendments under Companies Act. In this situation, it is best to defer IFRS by a year, he said.
MR Venkatesh, a Chennai-based chartered accountant, said the chartered accountant fraternity is also totally unprepared for this paradigm shift.
Not only the accounting fraternity but also revenue department seems clueless on how to go about the situation, he said.
Problems also multiply because not all companies are making the shift to IFRS from April 1.
This engenders a situation where, two companies doing the same transaction may be taxed differently because one follows IFRS and the other the Indian accounting standard.
Experts said there are also issues regarding companies needing to maintain two sets of accounting records for direct and indirect taxes or go for a converged IFRS presentation.
The Institute of Chartered Accountants of India president Amarjit Chopra had earlier said the organisation has started spearheading the convergence movement five years back in 2006 and is committed to meet the April 1 deadline.