New Delhi: With just a day to go to synchronize accounts of large firms with global book keeping norms, India is yet to fully finalize the required changes to make it possible.
The corporate affairs ministry on 26 February formalized rules required to make Indian accounting standards (Ind-AS) compliant with international financial reporting standards (IFRS).
“We are ready with the set of Ind-AS. But till the finance ministry comes up with the tax norms under IFRS, we can’t go ahead,” an official at the corporate affairs ministry said, requesting anonymity.
Prime Minister Manmohan Singh told an international meet in 2009 that India will by April 2011 adopt rules to comply with the first phase of IFRS.
Companies with a net worth of Rs 1,000 crore or more and also listed firms need to align their accounts with IFRS in the first phase. The next two phases are scheduled to follow in 2013 and 2014.
The corporate affairs ministry had set a deadline of 1 April to comply with the first phase of IFRS.
It would be best to implement the required rules by side-stepping tax issues, said a finance ministry official, who declined to be named.
His ministry was hamstrung as it has to wait for the new companies Bill to be cleared by Parliament as its provisions will determine decisions on tax, the official said. For instance, to work out a method of calculating minimum alternate tax, the finance ministry will have to wait till the new companies bill is enacted, and schedule 6 (which deals with balance sheet and profit and loss account) of the existing Companies Act is revised, the official said.
Parliament is likely to approve the Bill in the monsoon session expected to start in July.
As an interim solution, the ministry is moving towards restricting IFRS convergence to consolidated accounts. “Adopting IFRS for (tax) purposes will prove to be burdensome for industry. The ministry, therefore, feels IFRS adoption should begin with consolidated account and extended to standalone account in a phased manner, just as it has happened in some countries,” the finance ministry official said.
This seems to be a valid approach, according to Jamil Khatri, executive director and head of accounting advisory services at consultancy firm KPMG in India.
“Many countries in Europe, such as Germany, France and the UK, require IFRS only for the consolidated accounts of listed companies,” he said.
For computing tax, standalone and not consolidated accounts are considered, so this could be a solution, Khatri added.
Not everyone is sure it is a workable solution. “What if a company has no subsidiaries?” asked Vinayak Pai V., a Bangalore-based independent IFRS and business solutions consultant. “For such companies, standalone account will be the same as consolidated. Will they not be at a disadvantage vis-a-vis those having consolidated account?”
The Companies Act does not provide for a consolidated statement, Pai said.
Since the tax department has not communicated officially on IFRS, companies and experts are anxious about three aspects: whether Indian accounting standards will apply to standalone or consolidated accounts; whether they will be at a disadvantage on account of tax legislation; and how much time will they have to prepare for all eventualities.
The finance ministry may be at least six months away from finalizing details on the convergence with IFRS.
“For computation of taxable income, CBDT (Central Board of Direct Taxes), along with Icai (Institute of Chartered Accountants of India), is working on Ind-AS-compliant accounting standards, which will be ready in six months,” the finance ministry official said.
“Companies may land up facing more complications in tax issues on adoption of Ind-AS,” said Dolphy D’Souza, partner, assurance and national leader, IFRS Services at the consulting firm Ernst and Young. “So it is imperative that they start planning from now as to what their liabilities and problems would be like, and put up their concerns to the group formed by Icai and CBDT.”