a.
Fair Value Accounting
The
conceptual difference between the accounts under IFRS and under the Indian
GAAPs is that in many instances the figures in accounts under the IFRS will be
reported on the basis of ‘fair value’ of the items, whereas such
items by and large are reported at present at ‘cost’, unless the fair value
happens to be lower than the cost. The fair value concept demands that if an
item has appreciated in value over its cost, the appreciation will be recognized
and if it has declined in value, the decline will also be recognized.
Assessment of fair value using valuation model
brings with it an undesirable level of subjectivity which produces an inherent
risk and a question mark on reliability. There is a higher scope for
manipulating the financial statements prepared on fair value basis. The So
Called Fair Value would heavily depend upon availability of data, assumptions
made by the management and the intentions of management. How fair is Fair
value, is a very big question?
Argument
in favor of fair value accounting is that it helps in determining the true
worth of business. The present value of business is known to the investors and
helps them take decisions based on the financial statements. No one can deny
the fact that financial statements prepared on the basis of fair value gives
more useful information to prospective investors. In many cases it provides greater
level of transparency (except in cases where complex models are used).
From
a careful analysis we can conclude that benefits of fair value based accounting
outweighs the disadvantages. However strong measures should be taken by
regulatory authorities to improve the verifiability of estimates used in
financial statements based on fair value (As discussed earlier the guidance
provided by SA 540 is a right step in this direction)
Convergence: - The road ahead
The Term “convergence” means to
achieve harmony with IFRS in precise terms. It would mean to design and
maintain national accounting standards in a way that financial statement
prepared in accordance with national accounting standards draw unreserved
statement of compliance with IFRS.
There is feeling among many that
Accounting standards will give way to IFRS. ICAI and Government of India is
very clear that India is not migrating to IFRS, but the existing accounting
standards will be redesigned in such a manner that the moment Indian Accounting
standards is followed it will be treated as following international standards. As a part of the initiative, ICAI has released exposure
draft on Accounting Standards which has been sent to NACAS for approval.
At the same time, it is important to
understand that IFRS need not be adopted word by word. The national standards
should meet the requirements of IFRS and there is no prohibition in including
additional disclosure requirements or removing optional treatment.
The roadmap issued by Ministry of
Corporate Affairs requires IFRS to be implemented in a phased manner. IFRS will
be implemented in three phases, starting from April 1, 2011 as shown in the
table below:
|
Phase
|
Companies/ Entities covered
|
Date of Conversion
|
|
1
|
·
Companies
which are part of NSE Index- NSE 50
·
Companies
which are part of BSE Sensex- BSE 30
·
Companies
whose shares or securities are listed on overseas stock exchanges
·
Companies
whether Listed or not having net worth of more than Rs 1,000 crores.
|
1st April 2011
|
|
2
|
·
Companies
whether Listed or not, having a net worth exceeding Rs 500 crores but not
exceeding Rs 1,000 crore.
|
1st
April 2013
|
|
3
|
·
Listed
companies having a net worth of Rs 500 crores or less.
|
1st
April 2014
|
|
Roadmap for Others
|
||
|
|
·
Insurance
Companies
|
1st
April 2012
|
|
|
Banking
Companies
·
All
SCBs and UCBs having net worth greater than Rs 300 crores
·
All
SCBs and UCBs having net worth greater than Rs 200 crores but less than 300
crores.
|
1st
April 2013
1st
April 2014
|
As we can see from the above, in
first stage only BSE 30, NSE 50, companies with net worth of more than Rs 1,000
crores and overseas listed are required to converge in 2011. Initiative has
been taken by companies towards convergence.
However the process of convergence has not taken place as planned by
the Ministry. At this point of time, notification is not issued with regards to
implementation of IFRS. It is very unlikely that the IFRS convergence will take
place starting April1, 2013.
Time for Leadership
Movement
to IFRS is inexorable and the initiative involves multiple corporate functions,
not solely finance. So you have a choice: either to sit back and wait for it to
happen or mobilize the company to attempt to extract every possible benefit and
dodge every avoidable obstacle.
By
starting now, companies are likely to spread out cost, get the jump on
competition, and reel the scarce talent before it vanishes. Fire drill
atmosphere and last minute projects can be avoided. Processes and systems can
be integrated with other initiatives, such as an ERP upgrade or a merger or acquisition.
Most important, by starting early, IFRS can be implemented at a pace that suits
the company and its circumstances and in their own terms. An IFRS project
should not be a distraction from the primary activities of the business. It
must be integrated, coordinated and aligned.
Accordingly, it is paramount for all the stakeholders, the government,
regulatory authorities and ICAI to work together in achieving full convergence
with IFRS. If the means are worked out well, the end is bound to come as
planned. If not, it is India Inc which will be the ultimate loser because
whether we like it or not convergence is inevitable and is here to stay
Appendix
List of IFRS issued vis a
vis Indian Accounting Standards
This
can be clubbed under the following categories
a.
Indian
Accounting Standards already issued by ICAI corresponding to IFRS
|
SI.No
|
Indian Accounting
Standards
|
International Financial
Reporting Standards
|
||
|
No:
|
Title of standard
|
No:
|
Title of Standard
|
|
|
1
|
AS 1
|
Disclosure of Accounting
Policies
|
IAS 1
|
Presentation of Financial
Statements
|
|
2
|
AS 2
|
Valuation of Inventories
|
IAS 2
|
Inventories
|
|
3
|
AS 3
|
Cash Flow Statements
|
IAS 7
|
Cash Flow Statements
|
|
4
|
AS 4
|
Contingencies and events
occurring after the balance sheet date
|
IAS 10
|
Events after the balance
sheet date
|
|
5
|
AS 5
|
Net Profit or Loss for the
Period , Prior Period Items and Changes in Accounting Policies
|
IAS 8
|
Accounting Policies ,
Changes in Accounting Estimates , and Errors
|
|
6
|
AS 6
|
Depreciation accounting
|
|
Corresponding IAS has been
withdrawn since the matter is now covered by IAS 16 and IAS 38
|
|
7
|
AS 7
|
Construction Contracts
|
IAS 11
|
Construction Contracts
|
|
8
|
AS 9
|
Revenue Recognition
|
IAS 18
|
Revenue
|
|
9
|
AS 10
|
Accounting for Fixed
Assets
|
IAS 16
|
Property , Plant and
Equipment
|
|
10
|
AS 11
|
The Effects of Changes in
Foreign Exchange Rates
|
IAS 21
|
The Effects of changes in
Foreign Exchange rates
|
|
11
|
AS 12
|
Accounting for Government
Grants
|
IAS 20
|
Accounting for Government
Grants and Disclosure of Government Assistance
|
|
12
|
AS 13
|
Accounting for Investments
|
|
Corresponding IAS has been
withdrawn now since the matter is now covered by IAS 32 , 39 , 40 and IFRS 7
|
|
13
|
AS 14
|
Accounting for
Amalgamations
|
IFRS 3
|
Business Combinations
|
|
14
|
AS 15
|
Employee Benefits
|
IAS 19
|
Employee Benefits
|
|
15
|
AS 16
|
Borrowing Costs
|
IAS 23
|
Borrowing Costs
|
|
16
|
AS 17
|
Segment Reporting
|
IFRS 8
|
Operating Segments
|
|
17
|
AS 18
|
Related Party Disclosures
|
IAS 24
|
Related - Party
Disclosures
|
|
18
|
AS 19
|
Leases
|
IAS 17
|
Leases
|
|
19
|
AS 20
|
Earnings Per Share
|
IAS 33
|
Earnings Per Share
|
|
20
|
AS 21
|
Consolidated Financial
Statements
|
IAS 27
|
Consolidated and Separate
Financial Statements
|
|
21
|
AS 22
|
Accounting for taxes on Income
|
IAS 12
|
Income Taxes
|
|
22
|
AS 23
|
Accounting for Investment
in Associates in Consolidated Financial Statements
|
IAS 28
|
Investment in Associates
|
|
23
|
AS 24
|
Discontinuing Operations
|
IFRS 5
|
Non Current Assets held
for sale and Discontinued Operations ( AS 10 deals with accounting for fixed
assets retired from active use)
|
|
24
|
AS 25
|
Interim Financial
Reporting
|
IAS 34
|
Interim Financial
Reporting
|
|
25
|
AS 26
|
Intangible Assets
|
IAS 38
|
Intangible assets
|
|
26
|
AS 27
|
Financial Reporting of
Interests in Joint Ventures
|
IAS 31
|
Interests in Joint
Ventures
|
|
27
|
AS 28
|
Impairment of Assets
|
IAS 36
|
Impairment of Assets
|
|
28
|
AS 29
|
Provisions , Contingent
Liabilities and Contingent Assets
|
IAS 37
|
Provisions , Contingent
Liabilities , and Contingent Assets
|
|
29
|
AS 30
|
Financial Instruments :
Recognitions and Measurement
|
IAS 32
|
Financial Instruments
:Presentation
|
|
30
|
AS 31
|
Financial Instruments :
Presentation
|
IAS 39
|
Earnings Per Share
|
|
31
|
AS 32
|
Financial Instruments :
Disclosures
|
IFRS 7
|
Financial Instruments :
Disclosures
|
b.
IFRS not
considered relevant for issuance of accounting standards by ICAI for the
reasons indicated
|
SI.No
|
International Financial Reporting Standards
|
Reasons
|
|
|
No:
|
Title of standard
|
||
|
1
|
IAS 29
|
Financial Reporting in Hyper Inflationary Economies
|
Hyper inflationary conditions does not prevail in
|
|
2
|
IFRS1
|
First Time Adoption of International Financial Reporting
Standards
|
In India, Indian AS is being adopted since the last many years
and IFRS are not being adopted for the first time. Therefore , the IFRS 1 is
not relevant to
|
c.
Accounting Standards presently under preparation
corresponding to IFRS
|
SI.No
|
International Financial Reporting Standards
|
|
|
No:
|
Title of standard
|
|
|
1
|
IAS 26
|
Accounting and Reporting by Retirement benefits plans
|
|
2
|
IAS 41
|
Agriculture
|
|
3
|
IFRS 2
|
Share based Payment
|
|
4
|
IFRS 4
|
Insurance Contracts
|
d.
Guidance Notes issued by ICAI corresponding to IFRS
|
SI.No
|
International Financial Reporting Standards
|
Title of Guidance Note
|
|
|
No:
|
Title of standard
|
||
|
1
|
IFRS 6
|
Exploration for and Evaluation of Mineral Resources
|
Guidance note on Accounting for Oil and Gas Producing Activites
|
