New Delhi: Raising capital in overseas markets will become cheaper and listing on international exchanges will become less cumbersome for many companies by mid-2008 when Indian accounting standards converge fully with the International Financial Reporting Standards.
Currently, the 29 accounting standards in India—formulated by the apex professional body, the Institute of Chartered Accountants of India (ICAI)—are largely harmonized with the IFRS, but the standards are not yet fully compliant. There are around 40 variations between the Indian accounting standards and the IFRS.
As a result, a task-force has been created by ICAI as a lead body, with regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority and Comptroller and Auditor General, to look into the differences between the two standards and to try to eliminate any obstacles.
“The task-force will first look at converging the standards of publicly-listed companies, then at institutions where public money is invested, like banks and financial institutions, and then small and medium enterprises,” said Sunil Talati, president, ICAI.
Talati noted that there are only five or six significant variations between accounting standards in India and the IFRS and that non-compliance has largely been on account of changes made in the IFRS to accommodate changing global accounting needs.
“Today, 102 countries in the world have adopted IFRS and in three-four years, we are expecting 150 countries to adopt it. China, Israel, Chile and are on the fast track and Chinese accounting practices are expected to converge with IFRS by the end of this year,” said Sir David Tweedie, chairman of The International Accounting Standard Board (IASB).
The IASB is an independent, privately-funded accounting standards body, which formulates the IFRS. It has its headquarters in London.
Tweedie said there is a risk premium attached to India, which raises the cost of raising capital overseas for Indian companies.
Besides, when Indian companies list themselves on international stock exchanges they have two sets of accounting standards—national and international—and these make the whole process of listing much more expensive and cumbersome.
T.V. Mohandas Pai, a board member of Infosys Technologies and a trustee of the International Accounting Standards Committee said non-compliance of Indian accounting practices with IFRS lowers the quantitative rating of the Indian corporate houses.
“Non-compliance is also adversely affecting hedge funds and pension funds being raised in India by foreign companies because they expect a higher rate of return because the risk of investing in India is high,” said Pai.
He said non-compliance is high in areas of foreign exchange transactions, amortization, depreciations and derivative accounting.
Tweedie expects the US Generally Accepted Accounting Practices (GAAP) to converge with IFRS by 2009.
Besides, in order to get more countries to adopt IFRS, IASB will not introduce major changes in IFRS till 2009.
“While we will develop new standards, we will not make them applicable till 2009 ,” said Warren McGreger, director, IASB.