Icai proposes upgrades for accounting norms

Icai proposes upgrades for accounting norms
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First Published: Wed, Dec 07 2011. 09 10 PM IST

Amarjit Chopra, former president of Icai. File photo
Amarjit Chopra, former president of Icai. File photo
Updated: Wed, Dec 07 2011. 09 10 PM IST
New Delhi: With the ministry of corporate affairs (MCA) not moving ahead on implementing global accounting standards in India, the country’s apex accounting body is proposing upgrades to existing norms to match the International Financial Reporting Standards (IFRS).
One such change is through an exposure draft on fixed assets. The draft particularly pertains to components, spare parts, moulds, dyes and intangibles such as goodwill and is likely to benefit balance sheets as also the profit and loss accounts of companies working in areas such as mining and oil and gas exploration.
The Institute of Chartered Accountants of India (Icai) has sought comments from the public on the draft by 20 December.
IFRS specialists, however, say the proposed changes are cosmetic and will have little impact on Icai’s attempt to transit to global standards.
Prime Minister Manmohan Singh committed to adopt IFRS in the Group of Twenty nations (G-20) conference in London in 2009 by 2011. Accordingly, MCA notified 35 accounting standards (Ind-AS) compliant with IFRS along with a road map earlier this year, but has missed its 1 April deadline for their implementation.
MCA cites taxation issues as also passage of the Companies Bill, 2011, for not having begun to implement IFRS. A direct tax code introduced last year in Parliament has to be first enacted.
Amarjit Chopra, former president of Icai. File photo
“The institute was getting representation from the industry to improve accounting for some fixed assets used in plant and machinery during their construction period so that they can be capitalized rather than expensed for. This helps the balance sheet look better,” said Amarjit Chopra, former president of Icai.
A capitalized item becomes an asset whereas an expensed item is a liability.
Vinayak Pai, a Bangalore-based independent consultant on IFRS and business solutions, said the proposed amendment will not help upgrade existing accounting standards. “The opportunity to make such limited amendments should have been utilized to improve accounting practices in the area of revaluation of fixed assets. Today, upward revaluation is a free choice and results in a positive impact on the balance sheet with the P&L (profit and loss account) being insulated from any resultant impact on account of additional depreciation,” said Pai. He added this is a deviation from IFRS.
Jamil Khatri, executive director and head of accounting advisory services at audit and consulting firm KPMG in India agrees with Pai. “The proposed changes should have been more assertive and things should have been made mandatory as in the case of IFRS as also Ind-AS (notified, but yet to be implemented),” said Khatri. “Icai has just played around with the grammar where words like “may be” have been replaced by “is”. This, in fact, will create more confusion.”
Dolphy D’Souza, partner, assurance and national leader, IFRS services, at Ernst and Young, however, is less critical.
“A recent expert advisory committee?opinion did not allow capitalization?of?enabling assets such as roads and bridges required to construct a factory. The reason provided was that the enabling assets could be used by the public and the company did not have any control on the same,” he said. “The proposed amendment in AS-10 permits capitalization of such expenditure. This will improve company’s balance sheet as well as the P&L.”
Rahul Chattopadhyay, partner at Price Waterhouse, a unit of PricewaterhouseCoopers, also said that despite limited amendments there are some good points in the proposed exposure draft: “Specifying that items for safety and environmental reasons will qualify for recognition as asset because they allow entities to derive future economic benefits will encourage companies to invest in such items.”
sangeeta.s@livemint.com
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First Published: Wed, Dec 07 2011. 09 10 PM IST