We Indians have the habit of reacting only when a major crisis blows on our face, whereas ideally one should take vanguard action at the hint of a brewing crisis. The Accounting Standards (AS) issued by the Institute of Chartered Accountants (ICAI) of India lags behind the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

While the revised IFRS 39 on financial instruments has been in vogue since 2004 (though admittedly suffering periodic tinkering), the AS-30 on the same issue becomes mandatory only from April 1, 2011. The trouble in the world financial markets have been brewing since last October triggered mainly by reckless trading in the derivative markets.

Maybe the ICAI did not get wind of what was in store for the Indian corporates from their exposure in these markets. But the bottom line is its virtual eleventh hour exhortation to its members and corporates to implement AS-30 straightaway, that is, from the financial year 2007-8 itself, failing which auditors would be obliged to report true results by marking the securities to market in keeping with the mandate of AS-1.

There are reports that number of Indian corporates and banks that have taken a huge hit from their exposure to the derivatives instruments, be it in respect of commodities or foreign currencies, may look askance at the ICAI directive on the smug plea that the Ministry of Company Affairs (MCA) has not yet bestirred.

The saga of accounting standards in India is a saga of turf war. The MCA has, vide Section 211 of the Companies Act, 1956, reserved to itself the right to notify accounting standards which corporates have to comply with.

AS-30 hasnt been notified by the MCA and this is not surprising because when the ICAI itself has given a long rope to corporates, it would be idle to expect the MCA to be more proactive.

Thus one may witness heightened hostilities between corporates and auditors because even if the former choose to brush the losses under the carpet, the latter being subject to the disciplinary jurisdiction of the ICAI would be obliged to adhere to its mandate and sweep back the dirt from under the carpet for everyone to see.

One only hopes that the MCA toes the ICAI line in the interest of uniformity and discipline as well as to prevent an unseemly spectacle being played out when corporates and auditors get pitted against each other willy-nilly.

The lag and ragtag effects get considerably accentuated on the tax front inasmuch as the Income-Tax Act toes its own independent line on the issue, making it the third regime on the issue of applicability or otherwise of an accounting standard although admittedly its writ runs only in matters impinging on income-tax computations.

The tax administration has come out in poor light in this regard, adapting so far not even 10 per cent of the standards issued by the ICAI. Ironically, the affected corporates would be pining for adoption of AS-30 pronto by the income-tax law because that would reduce their tax bills considerably.

In other words, they could well cry on two sets of shoulders on the shoulders of the MCA for postponement and on the income-tax administration for early adoption.

If the MCA acquiesces, they can go to town with a rosy picture of profits and assets than warranted and if the tax administration acquiesces, they can save on taxes in the immediate run.

If both acquiesce, they can have best of both the worlds.