After missing its date with the Goods and Services Tax and the Direct Taxes Code, the government is also likely to miss the deadline for another major reform initiative – implementation of International Financial Reporting Standards (IFRS) from the next financial year.
Already, banks and insurance companies are outside the ambit of the new accounting standard, at least initially. But, with the Ministry of Corporate Affairs yet to move on introducing the needed seven to eight amendments in the Companies Act, 1956, within the next six months, all Indian companies could get one more year to adjust to the new system.
The changes in the Companies Act will see new disclosure norms for the profit and loss account, balance sheet, financial statements, among others. It will prescribe statutory rates of depreciation and treatment of accounts in mergers and acquisitions.
The amendments should also be preceded by a notification that will announce the new Indian accounting standards that align with IFRS.
Government officials said the ministry is working on the amendments. Industry officials said the amendments are essential if the government has to honour its commitment onIFRS.
“The ministry seems to have identified the areas that needs amendment. Some process is already on,” said N P Sarda, partner, Deloitte Haskins & Sells. He said the government will have to decide on several issues such as depreciation, as current law prescribes a statutory rate as against theIFRS system of a valuation based on a judgement of its usefulness. “The government will have to find a solution,” he adds.
Treatment of revenue, assets an another major area that requires a new approach under an IFRS-compliant regime. “The challenges are many. From historical cost of assets, we will have to move towards fair value methodology and comprehensive disclosures will be required,” said T N Manoharan of the accounting firm of Manohar Chowdhry & Associates.
Jamil Khatri of global consultancy firm KPMG also highlighted the issue of judgement. “How will IFRS handle distributable profits when you add notional gains into the P&L account? Can there be dividend distribution? In Germany, distributable profits are calculated in the old (statutory rate) method, so should India also adopt a similar method? It is for the ministry of corporate affairs to take a call. It should be specified in theCompanies Act,” he said.
Meanwhile, the National Advisory Committee on Accounting Standards (NACAS), the official body that recommends new accounting standards to the ministry, is also working overtime to finalise the draft. The NACAS has almost completed its work, an official said. The committee, whose term ended in July this year, is on a three-month extension to finish theIFRS standard setting assignment.
There are about 400 companies that will have to comply with the new accounting norms by April 1. This includes all 50 bellwether companies in the National Stock Exchange, 30 Sensex companies, those whose shares or securities are listed abroad and those with a net worth of Rs 1,000 crore or more.
The ministry is also in the process of bringing about comprehensive amendments to the Companies Act. It is currently revising the Companies Bill, 2009, on the basis of the recommendations given by a parliamentary panel.