India has dropped its plans to introduce a new accounting norm for agriculture as part of the move to converge its accounting standards with globally adopted International Financial Reporting Standards (IFRS). The Institute of Chartered Accountants of India (ICAI), the account standards setting body of the country, has decided not to go ahead with its draft accounting standard for agriculture due to India-specific concerns in assessing the fair value of the agricultural sector.
“We are not announcing the standards for agriculture. The main concern is about fair valuation,” ICAI President Amarjit Chopra said, adding that it would not have any impact on India’s proclaimed decision to converge its accounting standards with IFRS from April 2011.
“India is not the only country that has decided to follow a separate accounting system for agriculture. There are several others,” Chopra said.
Agriculture is one of the key areas — others being real estate, property, plant and purchase, mergers, etc — where India will have diverging accounting norms or “carve outs” as compared to IFRS.
“The carve outs will be less than 10,” said Manoj Fadnis, central council member of ICAI. “Wherever we have proven right, our existing accounting practices will continue”, he said adding that ICAI is simultaneously taking up such cases with the International Accounting Standards Board (IASB), the standard setting body for IFRS.
The divergence with IFRS will, however, create minimal problems for the companies with overseas presence as they will have to furnish separate accounts for only those business sectors where Indian accounting standards are different from IFRS.
“IFRS is mostly a guideline-based standard while Indian accounting standards are rule based. While we intend to converge our standards with IFRS wherever possible, there are several instances where rule-based standards will continued to be preferred by the Indian regulators,” Chopra explained.
Banking is one area where ICAI expects the Reserve Bank of India (RBI) to object to complete conversion from rule-based accounting norms to judgement-based accounting practices. “RBI may like to have objectivity to determine non-performing assets as far as advances are concerned. These matters will be considered before finalising norms for the banking sector,” Chopra said.
ICAI’s accounting standard board has already submitted 30 revised standards for government approval. The new set of standards will come in place once the government approves it through a notification.