Large Indian firms may have to adopt international accounting norms, IFRS, from the next fiscal when the new direct tax regime comes into effect, bringing clarity on the tax structure for companies. In a meeting held recently, the Corporate Affairs Ministry and the Finance Ministry is learnt to have found a common ground on how companies would be taxed under the International Financial Reporting Standards (IFRS).
“We are expecting that with the Direct Taxes Code in place, there will be clarity on how companies would be taxed. So, after that companies can smoothly converge,” a senior MCA official told PTI.
According to the roadmap laid by the MCA, companies with a networth of over Rs 1,000 crore were to converge their account books as per IFRS from April 1 this year, but no clarity on tax-related issues had pushed the date for implementation. One of the key contention was introduction of Minimum Alternate Tax (MAT) under the DTC regime.
Under IFRS, assets such as investments and derivatives are fair valued with corresponding gains/losses recognised through the profit and loss statement. An important issue that needs to be resolved is imposing tax on notional loss or gain.
Another issue that needs a re-look is projecting value of an asset in the account books. While some are in favour of arriving at the value in terms of historical cost, others believe in the fair value concept.
In accounting, fair value is defined as an estimate of the potential market price of goods or service, taking into consideration factors like acquisition, production and distribution costs and replacement costs.
However, the historical cost does not consider these factors and instead is calculated at the initial value. Once the issues are resolved, over 1,000 large companies will have to prepare their accounts as per the new norms.
Further, while scheduled commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April, 2012.
Large, listed non-banking finance companies (NBFCs), will converge their opening books of accounts with IFRS norms from April 1, 2013.