The CA institute favours a regime where depreciation rates for company law purposes are based on the useful life of an asset. The depreciation rates should also be indicative and not prescriptive as is the case now, Mr Amarjit Chopra, President of Institute of Chartered Accountants of India (ICAI), has said.
Also, the Centre should set up working groups to decide on separate depreciation rate for regulated industry sectors such as power, oil and gas and telecom, says Mr Chopra.
Currently, depreciation rates are specified under the Company Law through Schedule XIV, which is rule-based. Schedule XIV rates specify the minimum rates in the sense that companies can adopt rates higher than those prescribed, but with enough justification.
However, companies today are not permitted to adopt rates lower than the Schedule XIV rates even if the bonafide technological evaluation makes a case.
If indicative rates are spelt out, a company would have the flexibility to adopt either a lower or higher rate.
Under the scheme of the proposed company law, the depreciation rates are to be delegated to the rules.
So every time the rates are to be changed, the Government need not go for Parliament approval, sources said.
Sticking to time-line
Meanwhile, the ICAI President also said that the CA institute will stick to its earlier timeline of April 1, 2011 for making the accounting standards on financial instruments mandatory. The existing accounting standards AS 30, AS 31 and AS 32 are now recommendatory in nature.
On international financial reporting standards (IFRS), Mr Chopra said that the CA institute will in the next three months converge its current accounting standards with the IFRS and send it to the National Advisory Council for Accounting Standards (NACAS) for its approval.
India is looking to converge its Generally Accepted Accounting Principles (GAAP) with that of IFRS from April 1, 2011 over three phases.