We can see that 1 April 2011 is long past us; oops, even 1 April 2012 is behind us now. However, it is unclear if this year, or the next for that matter, will see the mandatory usage of the much-touted reform viz. introduction of International Financial Reporting Standards (IFRS) or the Indian Accounting Standards aligned with IFRS (Ind-AS).
Let us jog our collective memories a bit, as a couple of years can be an extraordinarily long time in the political economy. The earlier avatar of the same alliance government was in a tearing hurry to kowtow to the requests of the lobbying groups from the industry to change regulations regarding mark-to-market requirements for foreign currency transactions (aka AS-11). Several commentators argued that rule changes made little sense as they effectively allowed companies to avoid stating massive accounting losses until the foreign exchange markets changed direction. The Institute of Chartered Accountants of India (Icai), the accounting body in the country, felt that considering the impending introduction of IFRS, as also the probability of misuse of such changes, it would be inappropriate to tweak the accounting rules. But the National Advisory Committee (NAC, the accounting one and not the one setting the country’s political and economic agenda) on Accounting Standards in its wisdom overruled Icai and took a decision with lightning speed in time for the closure of fiscal year in March 2009.
Three years later, one can see reform after another reform being postponed. The direct taxes code was initially set for the year beginning April 2011 and will certainly not happen before April 2013, whence it should become law, assuming Parliament will pass the legislation in the monsoon session. The goods and services tax (GST) reform was initially supposed to start from April 2010; the finance minister even boldly declared several months ago, that it could start in the middle of a fiscal year a la value-added tax (VAT). GST has now officially been postponed without a specific date of closure. It is unclear when the legislation will reach the President for approval, considering it is a Constitution amendment Bill and will require the support of the main opposition party. Additionally, there are several other related initiatives such as the technology backbone which need to be in place. So, it will be a pleasant achievement if the three-year delayed April 2013 deadline is met.
Against this background, pray what are the hindrances to implementing IFRS aligned Ind-AS? It has been known for more time than one can recall now, that the accounting standards will be Ind-AS. NAC reaffirmed the April 2011 deadline even when it changed some accounting rules three years ago. Yet, a year after the passing of the deadline, we continue to discover heretofore unknown major issues. For instance, it emerges that the tax laws and Ind-AS are not in sync, while there is some confusion on accounting treatment of specific transactions in certain industries. Could the revenue department have spent some time in the last two to five years to bring amendments to tax laws through the Finance Bill, instead of spending time on attempts to bring in retrospective amendments to the tax laws?
The ineptness in matters where deadlines are known several years in advance ought to be seen to be believed. Such “reforms” neither require “coalition dharma” nor the support of the opposition. So, can NAC and the government get their act together on what apparently is a relatively easier reform than managing the fiscal deficit. Can we act at least now after missing the deadline by more than 15 months?
Puranika Narayana Bhatta runs a management consulting firm in Bangalore.
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