Corporate India is not fully prepared to handle the new accounting regime that comes in force from April 2011 with the adoption of International Financial Reporting Standards (IFRS), an accounting process recognized by over 100 countries that would replace the Indian GAAP (Generally Accepted Accounting Standards), global consultancy major KPMG said.
Richard Rekhy, COO for KPMG in India, told TOI that Indian accounting professionals are yet to be exposed to the intricacies and methods that would come along with new standards, which recognize fair value accounting against the existing historic accounting model.
"It is an alarming situation that we still do not have enough trained people on IFRS. And with no previous experience with new standards, most of the current lot of accounting professionals will be redundant with important changes in IFRS," Rekhy said.
While corporate India currently follows the standards proposed by the Institute of Chartered Accountants of India (ICAI) and enforced by National Advisory Committee on Accounting Standards (NACAS), from April 2011 they need to switch over to IFRS, issued by the International Accounting Standard Board, a London-based independent body. Firms like KPMG and Ernst & Young have pitched for advisory and consultancy services as the transition means big business opportunity for them.
Following common accounting principles in convergence with IFRS will facilitate better comparability of performance with other businesses and also make financial reporting more transparent to investors, customers and business partners. This becomes crucial at a time when Indian businesses are going global.
However, Rekhy said the transition process is more complex than it appears and it requires changes not only in the accounting procedures but also in IT systems. He added that despite efforts by ICAI to gradually harmonize the existing standards with IFRS, a lot needs to be done and differences exist in many areas. "For example, on the legal and regulatory front, while IFRS require depreciation of all assets over their estimated useful life, Indian GAAP mandates that the depreciation rates cannot be lower than the rates prescribed under the law," he said.
Also, while IFRS uses the fair value concept while dealing with business combinations and financial instruments like investments, derivatives and others, the Indian accounting method is mostly based on the cost/carrying value approach. Changes would need to be made over treatment of employee benefits and share-based payments as well as related party disclosures and revenue recognition.
A senior official with ICAI, however, said steps are being taken to prepare the domestic accounting people for IFRS. "It is true that training of the accounting professionals is required on IFRS. But we are conducting various programmes on IFRS and are also planning a certification course on the various issues related to them," the official said, adding that ICAI is also planning to upgrade the CA curriculum to include changes that would come with the adoption of IFRS.