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Changes in Global Accounting Rules to Affect Indian Standards

June 6, 2011 (Knight Ridder/Tribune Business News) NEW DELHI -- Four important rules under the international financial reporting standards (IFRS) have been changed even before India could bring its accounting norms in line with global benchmarks.

The changes relate to consolidation of financial statements, joint arrangements, better disclosures of interest in other entities and measurement of fair value.

These, when adopted by Indian companies, will restrict the flexibility they currently enjoy, and will have a bearing on profit, experts said. India is committed to the international accounting standards, which has already been adopted by some 150 countries.

The Indian government in February notified new standards, which have not been implemented so far as there are concerns around taxation issues, which require new legislation.

The implementation date was 1 April.

"Given the changes taking place in core IFRS, the question that needs to be debated is should India Inc. wait for the dust to settle and defer implementation of Ind-AS (Indian accounting standards) to, say, 2014," said Vinayak Pai, a Bangalore-based independent consultant on IFRS and business solutions.

Pai said this is possible as the new IFRS standards will be effective from January 2013, and Indian rules have not yet been implemented.

More changes may happen in the next couple of years as IFRS is undergoing a dynamic process, said Dolphy D'Souza, partner, assurance and national leader, IFRS Services, at Ernst and Young.

"Although IASB (International Accounting Standards Board) keeps revising standards, it's more dynamic now because the US is also converging US GAAP (generally accepted accounting principles) with IFRS by 2014," said D'Souza.

These are the risks associated with convergence models such as Ind-AS rather than adoption, according to Jamil Khatri, executive director and head of accounting advisory services at audit and consulting firm KPMG in India.

"What do you do when the main set of standards changes?" Khatri asked.

While Ind-AS allows accounting choice under joint ventures through two routes --proportionate consolidation and through equity method--IFRS allows only the equity method, thus making IFRS a more rights and obligations-based standard rather than the current legal form, Khatri said.

"Switching over to the equity method may put pressure on profits," he added.

The changed standard for consolidation of financial statements has come out with principle-based definition of control applicable both to subsidiaries and special purpose entities (SPEs), unlike earlier where SPEs were treated differently.

It also provides guidance to de facto control in an entity, which is diffused under Ind-AS.

According to Rahul Chattopadhyay, partner, Price Waterhouse, the new standard may have some impact on the financial services sector.

The government should revise Ind-AS relating to consolidation as India may start implementing Ind-AS with consolidated accounts, Pai said.

The third standard relates to more disclosure requirements for interests in other entities such as associates, joint venture companies and other off balance sheet vehicles, something that, experts said, Indian accounting standards are flexible about.

The fourth change relates to measurement of fair value, which Khatri said is more of a guidance note and will only help Indian accountants have a real definition.

Copyright (c) 2011, Mint, New Delhi

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