'Convergence can promote mutual recognition of courses by countries'

Q&A/ Sunil Talati

, president, Institute of Chartered Accountants of India (ICAI), believes that the accounting standards set by the institute are largely in consonance with those set by the International Accounting Standards Board.

However, a slight deviation is because of different Codes of Ethics issued by the International Federation of Accountants (IFAC) and ICAI. Excerpts from an interview by Rayana Pandey:

What is the current status on International Financial Reporting Standards (IFRS)?

The accounting standards board of ICAI endeavors to formulate Indian accounting standards on the basis of IFRS. While formulating the accounting standards, the board gives due consideration to International accounting standards issued by the International Accounting Standards Board (IASB) or the IFRS it issues. We then try to integrate them to the maximum extent possible.

The accounting standards issued by ICAI are by and large in consonance with the IFRS. However, the deviation from some IFRS is warranted keeping in view the legal and regulatory requirements of our country.

What impediments do you face in complete convergence as given by the International Accounting Standards Board (IASB)?

The entire suite of International standards issued by the IASB draws its strength from the code of ethics issued by IFAC and contain reference to the various section of that code at a number of places. The IFAC Code of Ethics is structured in the form of a wide array of ethical principles to be followed by professional accountants.

In India, ICAI has also issued a code of ethics to be followed by its members. The ICAI code, on the other hand, is woven around the requirements of the Chartered Accountants Act, 1949, and the various schedules annexed thereto. The structural difference in the two codes of ethics leads to problems in cross-referencing in Indian auditing standards. What are the differences in ethics?

The Chartered Accountants Act, 1949 does not permit sharing of client information by auditors with third parties without the specific permission of the client or unless there is a legal or a regulatory requirement to do so. Accordingly, an auditor does not have access to working papers of his predecessor.

A number of International Standards, for example, standards on using the work of another auditor, using the work of an internal auditor, contain provisions that an auditor may use the work of another professional accountant.

In such situations, these standards envisage that the auditor evaluate the professional competence and independence of such other professional accountant even if both of them are members of the same professional body. ICAI does not allow evaluation of the former's professional competence, as they are the members of the same institute.

There is some issue regarding sole proprietors catering to small and medium enterprises (SMEs). Can you elaborate.

A staggering 71 per cent of the total firm of chartered accountants in our country are sole proprietors. The primary clientele of these firms is small and medium scale enterprises.

Whereas on one hand, ICAI is clear that auditing principles apply equally not withstanding the nature, size or legal form of the client, yet a balance has to be struck between the time and cost of implementation of these standards by small and medium size auditors vis-a- vis corresponding value addition achieved for their small and medium clients.

Can convergence eventually solve the issue of mutual recognition, which is required in some countries?

Mutual recognition between international institutes is an issue that, in addition to full convergence with International standards, is dependent upon a number of other factors like availability of market in other country for providing professional services, state of diplomatic relations between the concerned countries, services agreement between the countries, comparative level of economic growth in the concerned countries and others.

However, there is no doubt that convergence can provide a much needed impetus to the process of mutual recognition between professional Institutes of various countries.

Can you elaborate on the advantages of the accrual based accounting system?

The information contained in reports prepared on an accrual basis have been found useful both for accountability and decision-making.

Such reports allow users to assess the accountability for all resources the entity controls and the deployment of those resources. It also provides for a consistent framework for identification of existing liabilities and potential or contingent liabilities.

What changes will you have to bring about in ICAI syllabus, based on accrual based system?

Although we are talking about implementation of accrual based accounting in government accounting system and in not-for-profit organisations, our syllabus is already based on accrual accounting.We are, in fact, helping the organisations, which are still following cash-based accounting to switch over to accrual based accounting.