The International Financial Reporting Standards (IFRS) is unlikely to be implemented from its proposed date of April 2011. This is despite assurances from the corporate affairs minister Salman Khurshid and amidst huge pressure being exerted from corporate houses, who are pushing hard to extend the implementation date by two years.
According to sources in the ministry of corporate affairs, the ministry is all set to implement the new accounting system from April 2011. However, corporate lobbies have approached the Prime Minister's Office (PMO) to extend the deadlines.
"The minister is committed to meet the deadline but the pressure is very hard to extend the deadline. The PMO and PAC (public accounts committee) has already asked for more consultations on the issue," a senior official from the ministry told MAIL TODAY.
"Seeing the huge pressure and the recent PMO's intervention, we feel that the system is unlikely to be implemented by this year," the official added. Earlier this month Khurshid had said that the government will meet the deadline of April 2011 on IFRS implementation. According to the proposed roadmap, IFRS was to be implemented in three phases.
In the first phase, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)-listed companies and those with a networth of over Rs 1,000 crore would switch over to IFRS from April, 2011. From the next year, insurers were to switch over to IFRS.
This would be followed by banks and NBFCs who were supposed to adopt the new accounting system from April, 2013. The rest would follow the norm by 2014. Last month, the Federation of Indian Chambers of Commerce and Industry (Ficci) sought extension of IFRS implementation deadline.
"The deadline of April 1, 2011 for compliance is highly unworkable and unfair given the present situation of ongoing flux and rethinking in the global arena and lack of harmonisation amongst several agencies in India," Ficci said.
However, the government official termed this is a "lame excuse". "We are not starting it on short notice. The corporates were given enough time to switch over to the new accounting practice, which is sought to bring more transparency," he said. One of the complaints of the firms have is that the new system will affect their profitability.
According to Suresh A. Mahadevan, managing director (MD) and head of India equities, UBS Securities India, "The new accounting norms will impact the earnings of many sectors, as under IFRS the expected-loss model will not be allowed."
"IFRS will allow only an incurred-loss model for provisioning, which will impact the earnings of many firms that have long-term debt," Mahadevan said. Realty firms are among the sectors which are opposing the new accounting norms.
According to Jamil Khatri, ED and head of accounting advisory services at KPMG, realty developers' profits would be affected as only delivery-based sales and profits would be recognised under IFRS. "In certain cases, where builders have sold ongoing projects and collected a part of the money for the work completed, they will not be able to report any sale or profit in their books of account," Khatri said.
"A lot of real estate companies set up special purpose entities for acquiring land, which are not disclosed in their books. Now they have to disclose it under new IFRS regime," Khatri pointed out.
Courtesy: Mail Today