With just four months to go before the new internationally consistent financial reporting standards kick in, the accounting professionals are awaiting clarification from the Ministry of Corporate Affairs on a number of issues, particularly the taxation aspect. The final standards are expected to be released by December-end.
The issue relates to the need for tax neutrality irrespective of whether the accounts are stated as per the new norms or the existing Indian Generally Accepted Accounting Principles (GAAP). The new norms are being framed for consistency with the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board which are in vogue in over 100 countries.
“Considering the fact that there are just four months for the transition to happen, we are really late in the day, but we are hearing it will happen,” said Sumesh ES, partner, Walker, Chandiok & Co, an accountacy firm.
“For taxation, the government has set up a committee with members from the Institute of Chartered Accountants of India (ICAI) and the Central Board of Direct Taxes. We are expecting communication to come shortly but we really don’t know when,” he added.Online GST Certification Course by TaxGuru & MSME- Click here to Join
Sumesh was speaking after making a keynote presentation at a conference on transition to the IFRS organised by Confederation of Indian Industry and Grant Thornton here today. He said clarifications were also needed regarding exemption on deemed costs and on IFRIC 4, an IASB standard which requires lease treatment of contracts like outsourcing or capacity-sharing in telecom companies.
The new standards, to be called Converged Indian Standards, have been released as exposure drafts by the Ministry of Corporate Affairs and need to be formally notified by the National Advisory Committee on Accounting Standards (NACAS), a specially constituted panel.
The government has announced a roadmap for phased transition to the new standards, with the earliest beginning from April 1, 2011. The Phase I would cover companies other than banks and insurance firms which have a net worth of over Rs 1,000 crore, those listed in NSE Nifty 50 or BSE Sensex 30 indices, and those listed on overseas stock exchanges. The networth as on March 31, 2009 would be considered for IFRS compliance.
Under Phase II beginning April 1, 2013, listed and unlisted companies with networth between Rs 500 crore and Rs 1,000 crore would have to comply with the Converged Standards. Also, once a company adopts IFRS standards, it would not be able go back to Indian GAAP even if its status changes.
Sumesh said that an intermediate standard called IFRS-1 has been prepared for first-time adopters of IFRS. This could be used only the first time the accounts are stated under IFRS norms, he said. The transitional standard of IFRS-1 contains exemptions to ease the burden of cost and complexity that would result from applying standards on a fully retrospective basis.
The final IFRS-compliant standards too would have necessary modifications keeping in view the economic and legal environment in India, said MK Patodia, past chairman, CII-Andhra Pradesh.