Institute of Chartered Accountants pushes global norm
August, 07th 2007
The accounts of all the companies would speak the same language across 150 countries by 2011.
Institute of Chartered Accountants of India (ICAI) is looking at 1st April 2011 as the deadline by which the 29 accounting standards in India will converge with the international financial reporting standards(IFRS), Sunil Talati, president ICAI informed.
IFRS has been issued by the International Accounting Standards Board (IASB), an autonomous body, and are now increasingly being recognised as global reporting standards.
More than 100 countries currently have a policy of convergence with the IFRS. China and Canada have announced their intentions to adopt IFRS in the near future.
The US has also taken up several projects with the IASB to eliminate mismatches between US GAAP and the IFRS.
The move is particularly significant in the Indian context in times when the Indian corporates are going for cross-border acquisitions and mergers.
ICAI is now concentrating on working out the likely impact of the switch to IFRS on the Indian business community.
The change will first be implemented on level one or as public limited listed companies, informed Talati.
The move will, however, call for some major changes, particularly in the way the companies show the value of their fixed assets in their balance sheets.
Adopting the IFRS would imply a shift towards the Fair Value concept from the historical cost convention.
This would have an impact on the re-valuation of fixed assets by the companies.
AS10 was the Indian Accounting standard for accounting of fixed assets.
According to the Fair value concept each asset has to be considered as a cash generating unit, and after taking into account the discounting factors, one arrives at the net realisable value or the present market value of the asset, said A Bandopadhyay, member of Central council of ICAI.
Regarding asset revaluation, another point that remains to be addressed is that which class of assets are to be reviewed by the companies following the fair value method; property, plant and equipment, etc.
Accounting for amalgamations, valuation of inventories and accounting of complex financial instruments are some of the other areas that also need to be reviewed extensively.
The Accounting Standards Board (ASB) was of the view that certain implications of the convergence need to be considered such as conflicting legal and regulatory requirements, technical preparedness of industry and accounting professionals,and the economic environment prevailing in the country.
Therefore the Board was of the view that before taking any decision on the matter, it would be useful to develop a concept paper which could be discussed with various interest groups involved including the government, National Advisory Committee on Accounting Standards (NACAS), regulators and industry associations.
Revision of some of the norms would require changes in the legislation. Around eight to ten such accounting standards have been identified.
ICAI will work with the government, RBI and SEBI on them.