India counts

Accounting standards can be either rule-based or principle-based. US GAAP shone as an example of the former and International Accounting Standards (renamed IFRS and authored by the International Accounting Standards Board, or IASB) represented the latter. But is virtually impossible to prescribe rules for every type of business transaction — Enron and other accounting accidents demonstrated the gaps in US GAAP.

The problem with principle-based standards is that there can be no one-size-fits-all principle that can be laid down which weakens the Standard. The IASB seemed to have hit upon an international jugaad solution — principle based standards with some rules thrown in. IFRS-115 – Revenue from Contracts with Customers radically altered the model for recognition of revenue.

Entities to whom the Standard was applicable asked for time as they felt that applying the new revenue recognition norms would need take a hard look at all contracts that yielded revenue. US GAAP deferred the application of the Standard by a year; IFRS reluctantly deferred it by a year while India decided to defer the decision to defer it!

India has always “followed” International Accounting Standards in prescribing Standards for the country. Post IFRS, India decided to go for a conversion strategy instead of embracing IFRS lock, stock and barrel. The Ministry of Corporate Affairs (MCA) took more than half a decade to finalise and announce a road-map for transitioning to IFRS. As per the road-map, converting to Ind AS is applicable only for a few companies and in instalments but is not applicable to banks, insurance companies and non-banking financial companies, probably because it is felt that these would feel the heat of the accounting standards on financial instruments.

This mollycoddling should be stopped and the regulators should realise that one cannot be bone-dry after getting into water.

It is advertised that presenting financial statements in IFRS would enable companies to access capital at low rates in international markets. This would mean converting to full-blown IFRS and not the desi version.

The list of Indian companies who have listed abroad as on date is not too long.

Like the Chinese regulators, the Securities and Exchange Board of India (SEBI) appears to be taking steps to lure companies including startups to list in India. SEBI already provides an option to companies to present their financial statements in IFRS. Ind AS would thus be only another variety of accounting standards.

Given this background, it is now time to ‘Make in India’ accounting standards. Reading any IFRS standard requires time, patience and effort since the standards keep cross-referencing paragraph numbers within the Standard and with other standards too.

The Institute of Chartered Accountants of India can simplify these standards without diluting their recognition and measurement norms. It is also observed that the Illustrative Examples (IE’s) given in IFRS Standards have also found their way into the Indian standards.

It is imperative that the IEs should be based on Indian case studies. Users of accounting standards would easily relate to a Standard that talks of Ludhiana instead of London.

The writer is a chartered accountant

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