Jugaad globalisation

In 2009, the Institute of Chartered Accountants of India (ICAI) drew up a road map for the transition of Indian Accounting Standards to International Financial Reporting Standards (IFRS). ICAI submitted it to the Ministry of Corporate Affairs (MCA). The desi equivalents of the standards were christened Ind-AS; three notifications were issued in 2010 in rapid-fire succession and the notified standards were put on the MCA website.

And then nothing happened. The standards were never implemented thanks to issues that could never be fathomed — tax concerns and pressure from certain industries were being talked about as possible reasons.

In Budget 2014, Finance Minister Arun Jaitley delivered a four-liner on India having to go the ‘Ind-AS’ way. A month and an half before Jaitley’s next Budget, a press release from the MCA detailed the new roadmap. Listed companies and companies with a net worth in excess of ₹500 crore and their holding companies, subsidiaries, associates and joint ventures would need to transition from April 1, 2016.

Listed companies with a net worth below ₹500 crore, or unlisted companies with a net worth of ₹250-500 crore along with their holding companies, subsidiaries, associates and joint ventures would need to transition from April 1, 2017.

Since comparative numbers also have to be restated, the actual dates of transition would be one year prior to the above dates. The MCA release gives an option to move voluntarily to Ind-AS from April 1, 2015 but this may not see many takers. History shows us that unless there is a mandate by law, Indian entities embracing a rule is more an exception than a rule.

The MCA move is a relief after years of inaction. However, it is puzzling why the ministry issued a press release instead of a formal notification. It could have waited till the National Committee on Accounting Standards (NACAS) came out with the revised Ind-AS standards.

Significantly, banks, insurance companies and non-banking financial companies are not included in the above press release — this could be due to instructions being awaited from the the RBI and insurance regulator Irda.

The Companies Act, 2013, and its amendments have ensured that India is 60 per cent IFRS-compliant — the balance 40 per cent were the Ind-As standards being notified. It would be interesting to note that in 2003, the ICAI had come out with a trilogy of accounting standards on a very critical topic — financial instruments, But even after 11 years, the standards are not mandatory.

Ironically, if a notification follows the press release, India will be moving to IFRS when the utility of those standards itself are being questioned. Critics claim that IFRS, adopted by the EU in 2002, has made accounting less prudent by undermining or even jettisoning the principle that financial statements must be true and fair.

The Accounting Standards Board in the US (FASB) recently left its global counterpart, IASB, in the lurch on a joint insurance contracts project. During the credit crisis, IFRS standards used by banks were scanned closely and many holes were found, which resulted in a new Standard IFRS9 on Financial Instruments. India has not even implemented the old standard!

In all likelihood, the notion of a single global accounting language will remain a myth. IFRS standards are good, bad and ugly in bits. By going for a delayed and juggaad implementation of these standards, India has missed out on the good parts.

The writer is a chartered accountant

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