India likely to adopt watered-down IFRS version

In barely six months, nearly 1,500 companies in India will be moving to a different way of writing their accounts. They’ll subscribe to the International Financial Reporting Standards or IFRS, junking the Indian generally accepted accounting practices (GAAP) that they follow now.

IFRS was earlier considered to be the gateway to listing companies abroad without a single additional document needed — IFRS was enough.

But two sources familiar with the development said there may be at least seven areas where Indian standards will continue to be adopted rather than going the whole hog on IFRS.

“Some standards would be offering exemptions in the form of options for compliance with IFRS standards. So if you can’t comply with A, then you have option B and so forth,” said an official from one of the Big Four accounting firms, not willing to be named.

The final accounting practices that companies in the BSE 30 and NSE 50 index, those listed overseas and having a networth of Rs1,000 crore as on March 31, 2009, have to comply with in the first phase effective April 1, 2011, are currently being readied.
From what is being shared verbally, it seems there would be a ‘simplification’ of the standards.

“In about 6-7 standards, there will be accommodation because we are not adopting IFRS, we are converging to it. So the key applications will be the same, but there will be relaxations and options. Officials of the International Accounting Standards Board (IASB)  have given their green signal to this — that such variations will be considered as compliance —  during their last visit,” said Sunil Talati, former president of Institute of Chartered Accountants in India (ICAI).

Adoption would mean setting a specific timetable by which listed companies would have to use IFRS as issued by the IASB.
Conergence means the Indian Chartered Accountants Society and the IASB continuing to working together to develop high quality and compatible accounting standards on-the-go.

Asked whether the standards are being made less stringent, Jamil Khatri, executive director — IFRS, at KPMG, said: “There is a debate going on whether we need to have carve-outs in a couple of areas. There are many countries that have accepted carve-outs that are different than those issued under IFRS. There may be three areas where we may see carve-outs.”

He said there would be two accounting policy choices and companies can eliminate one of them.

Asked what the three areas were, Khatri said they included areas where fixed assets need to be capitalised on foreign exchange difference, and the option whether to revalue fixed assets and carry them forward or instead of revaluation, continue valuing according to Indian GAAP.

“Most of them will relate to first-time adoption of IFRS. What is being discussed is that don’t change the past, apply IFRS prospectively,” Khatri said.

But others in the accounting world frown at such adaptations.

“This is khichdi IFRS. Nobody can use them for listing abroad. They’ll have to go for fresh set of documentations in that case,” said the official at Big Four.