Small and medium enterprises will not have to prepare their accounts as per IFRS
- Thursday, January 21, 2010, 8:37
- Finance
Small and medium enterprises (SMEs) in the country will not have to prepare their accounts as per the International Financial Reporting Standards (IFRS) from April 1, 2011, saving them significant cost of switching to the more rigorous accounting standard A government-constituted core panel on IFRS has decided to exempt SMEs from the first phase of convergence falling due in 2011.
“The SME sector, which contributes significantly to the Indian economy, will continue to follow existing Indian accounting standards , which may be modified from time to time to make the sector more competent in the international arena,” said Uttam Prakash Agarwal , president, Institute of Chartered Accountants of India (ICAI).
Convergence to IFRS is a costly exercise which includes an overhaul of operational and IT processes apart from training costs. A small enterprise for this exemption is likely to be one where the investment in plant and machinery is more than Rs 25,00,000 does not exceed Rs 5 crore.
A medium enterprise is one where investment in plant and machinery is more than Rs 5 crore but does not exceed Rs 10 crore.
In November last year, the government had hinted at preparing a watered-down version of IFRS for the SMEs. “Industry preparedness in converging with IFRS is a key factor, specially for SMEs who may feel the convergence as cost-prohibitive ,” R Bandopadhyay , secretary in the ministry of corporate affairs, had said.
Stating company’s accounts as per IFRS will involve huge cost and is being considered world wide as a hurdle for SMEs.
Recently, a core committee of the government finalised the road map for IFRS convergence in India. The ICAI has said that all entities having net worth in excess of Rs 1,000 crore will have to follow IFRS. The list also includes all NSE and BSE listed companies, entities having foreign borrowings of more than Rs 500 crore, insurance entities , mutual funds, venture capital funds and all scheduled banks having operations outside India.
Related posts:
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- Convergence to IFRS by April 2011 as India is signatory to IFRS
- SEBI decided to facilitate setting up of Separate stock exchange for Small and Medium Enterprises (SMEs)
- ICAI issued list of 400 companies for IFRS convergence by April 2011
- Guidance note on Clause 17A of 3CD report – Amount inadmissible u/s. 23 of the Micro, Small and Medium Enterprises Development Act, 2006
I understand the relief expressed that Indian companies will not have to adopt IFRS in 2011. But I wonder whether this will leave India out of step with many other countries.
The new IFRS for SMEs published last year by the IASB is being adopted in many countries. Admittedly in many of these countries there is no robust alternative local GAAP and the SME standard is being introduced rather than full IFRS. But even in countries where a mature local GAAP exists such as South Africa and the UK, the IFRS for SMEs either has already been adopted or is planned to be adopted.
The evidence from South Africa is that there was not a huge cost of adopting the new standard but that does depend upon the nature of the detailed differences between the existing GAAP and the new SME standard. This is an analysis that needs to be done on a country by country basis.
India clearly has a viable alternative to the IFRS for SMEs but I would caution against dismissing the IASB standard completely – you might just find that it returns onto the agenda at some time after 2011.
I, for one, will be watching these pages with interest.