Diluted IFRS will defeat its purpose,say experts

Experts tracking the implementation of IFRS here said that the government’s attempts at making ‘an India variant’ of IFRS defeats the purpose of aligning itself to the international accounting standard,as per the commitments made at the G-20. However,MCA sources argued that a blind implementation of IFRS would hurt Indian companies.

An M&A expert said that FIIs and foreign private equity players would want a uniform accounting standard to be able to compare the performance of companies across geographies. Multiplicity of accounting standards complicates the issue many fold for investors, he said.

Over the last one-year,following industry pressure,MCA has changed at least three key provisions in the IFRS. As per one of the important changes the government has brought about,Indian companies would not have to reflect their losses accrued due to the foreign exchange differences in the profit & loss account. The companies would merely have to carry forward the value to the next year.

In another development MCA has agreed to allow realty firms reflect the percentage of completion of their projects in the quarterly results. The change is significant because IFRS,as followed globally,treats under-construction properties as inventory and revenues for such properties could only be reflected once it is fully constructed.

Executive director & head accounting advisory services for KPMG Jamil Khatri said that the India variant of the IFRS would reflect only 75% of the IFRS followed globally. The government has diluted almost 25% of the original IFRS, he said. He said that the move is making foreign firms wary of the market. One of the reasons why India chose to move towards IFRS was to converge with the rest of the world. However since the government has diluted some important provisions it is causing some concern among foreign investors, Khatri said.

Partner at Ernst & Young Dolphy D’Sousa concurred. He said that diluting important provisions was putting a question mark on India’s commitments. In my interaction with foreign investors,they feel that the IFRS which is taking shape is just another form of Indian GAAP, he said.

Kahtri argued that though the government’s initiative to dilute the provisions would help the Indian companies in the short term,it could have an adverse impact in the long run. Once companies want to get listed abroad,it would have to follow two different accounting standards. One for India and the other for the US, he added. As many as 300 Indian companies have global treasury operations to manage their funding requirements.

A London-based FII which has major exposure to the infrastructure sector in India said that India’s IFRS should not go the Chinese way. China claims that it follows IFRS,however,their version is starkly different from the standards followed elsewhere. So we only hope India does not go that way, he said. He added that in China,state-owned firms which account for over 60% of the economy have exceptions to several provisions of the IFRS.

Defending its decision to make exceptions to the IFRS standards,an MCA official told FE that the government would not merely impose the global accounting standard on India without taking the historicity of the country into account. We cannot just blindly follow a global accounting standard just because it is supposed to be in sync with globalisation. If we followed every nitty gritty of IFRS as proposed by the International Accounting Standards Board,then our companies would have been adversely hit, the official said.