sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
General »
 Government likely to withdraw tax notice on free banking services
 Senior Citizens Savings Scheme Rules, 2004
 How salaried individuals can avail full potential of I-T benefits
 The Central Board of Direct Taxes unveiled new Income Tax Return forms for assessment year 2018-19 on 5 April. Although the manner of filing returns remains the same as compared to last year, certain changes have been incorporated in the new ITR forms.
 Income Tax efiling: Must-do steps to file your IT return for FY 2017-18 on time till you get Form 16
 What are the tax filing deadlines for financial year 2017-18?
 How income tax department can penalise you for under-reporting, misreporting income
 Start your tax planning right now
 Government confident of meeting fiscal deficit, tax revenue targets
 Clarification with respect to the E-way Bill System
 Here is how you can save on taxes

'Full convergence with IFRS is not possible for India'
June, 23rd 2008

 A recent notification from the Ministry of Corporate Affairs (MCA) confirms the International Financial Reporting Standards (IFRS) convergence/adoption agenda for India.

The MCA states that it has adopted international norms established in IFRS's issued by the International Accounting Standards Board to formulate Indian Accounting Standards after considering the requirements of Indian entities. This process would be continued by the Government with the intention of achieving convergence with IFRS by 2011.

While this is a welcome step, some questions remain unanswered. Considering that the MCA is looking at the harmonization process being implemented through notification of accounting standards, it seems the MCA believes that current accounting standards notified under Companies (Accounting Standards) Rules, 2006 are fairly consistent with IFRS. However, this is not the case as there are significant differences between India's generally accepted accounting principles (GAAP) and IFRS.

It is not clear how IFRS convergence would be achieved in India. Firstly, whether it would be convergence or adoption (adoption may result in nil or negligible departure from IFRS whereas convergence may result in significant departures from IFRS)? Secondly, whether appropriate amendments would be made to Companies Act? Thirdly, whether exceptions to IFRS would be made so as to take care of India-specific issues in the rarest of rare circumstances? Fourthly, whether on adoption of IFRS, would IFRS standards continue to be notified under the Act? Lastly, what standards would apply to small-and medium-size enterprises?

These and many other strategic issues in regards to IFRS adoption/convergence are not clear at this point in time. More importantly because law overrides accounting standards, full convergence with IFRS is not possible unless those laws are amended or an overriding section is enacted with regards to accounting standards. Some key examples are discussed below.

Companies Act, 1956 prescribes statutory depreciation rates. Companies are required to provide depreciation based on useful life of an asset or statutory rates, whichever is higher. In practice most companies apply statutory rates without regard to useful life. Under IFRS, depreciation is based only on the useful life of an asset. Accounting for amalgamation is done based on treatment prescribed by the High Court under an approved scheme, even though it may not conform to accounting standards. Under IFRS, accounting for amalgamation is required to be done purely based on IFRS principles and hence may conflict with directions of the High Court.

Definition of subsidiary under Companies Act is not consistent with definition of subsidiary under IFRS. Further, section 78 of the Companies Act, 1956, permits writing off of preliminary expenses, underwriting commission paid or discount allowed on issue of debentures, premium payable on redemption of debentures etc. to be adjusted against securities premium account. Treatment of such expenses is different in IFRS and in many cases would result in a charge to the income statement.

Companies Act prohibits reopening of financial statements once accounts are approved in the AGM. This requirement will conflict with IFRS which requires comparatives to be restated to give effect to change in accounting policy and prior period items. Further, Schedule VI of Companies Act prescribes specific disclosure requirement and format of balance sheet.

While the MCA notification clearly indicates that India will adopt IFRS, it does not lay down a comprehensive strategy for convergence or adoption. It would only be appropriate for the MCA to announce a strategy as soon as possible focusing on adoption rather than convergence, since if adopted Indian entities can claim that their accounts are prepared under IFRS which will give them a distinct advantage. If we converge and dont adopt IFRS, Indian entities would not be able to claim that they are IFRS compliant, which will defeat the very purpose of embracing IFRS.

Apart from the MCA, tax authorities should consider IFRS implications on direct and indirect taxes and provide appropriate guidance from a tax perspective. The Institute of Chartered Accountants of India should make an all out effort to train and upgrade the profession in IFRS. These milestones need to be achieved at the earliest; else the whole convergence exercise could get trapped in a hopeless tangle causing immense waste of time, resources, capital and cause inconvenience for Indian entities. In any case, since IFRS in one form or the other is fait accompli, Indian entities should not take things lightly, and should prepare themselves for IFRS immediately.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System developers CMS developers Content Management Solutions CMS Solutions CMS India Content Management System India CMS development India Website CMS Website Content Management India Portal CMS India CMS Outsourcing CMS Vendor Complete CMS Custom CMS Services

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions