Corporate India is likely to switch to the new accounting system as per schedule as all pending issues related to tax implications required for convergence with International Financial Reporting Standards (IFRS) have been addressed by the finance ministry.
“We are on track, the roadmap is clear. The issue has been sorted out with the finance ministry,” corporate affairs minister Salman Khurshid said on Tuesday.
The government maintained that the April 2011 deadline would be met.
The convergence would require minor amendments in the Companies Act of 1956 and some changes in the governing acts of the three professional institutes — ICAI, ICWAI, and ICS.
The issue on whether companies would be taxed on notional gains or loss has been a matter of concern and the issue was still to be addressed.
The finance ministry has adequately addressed the matter, Khurshid said. However, the new system could be significantly watered down to suit Indian companies. The move is aims at providing a breather to corporate India as the new accounting system would mean implementation of a methodology, which is different from the current practice involving calculation of revenue and expenditure among other things.
In the first phase, Nifty 50 or BSE Sensex companies, firms whose securities are listed on stock exchanges outside India and all those with net worth of R1,000 crore were to switch to the new system. Insurance and banks, however, would be required to move to IFRS from 2012, the circular said.
IFRS standards are based on the principle that a financial statement should reflect the true and fair view of business affairs of the organisation. As these statements are used by various constituents of the society and regulators, they need to reflect the true view of the organisation’s financial position. This is different from generally accepted accounting practices (GAAP) followed by Indian companies. At present, there is no definitive standard for derivatives in the Indian accounting system . In IFRS derivatives and hedge instruments will be measured at fair value.
India, along with 150 other countries, has decided to adopt IFRS standards by 2011.