The shift to the ‘converged International Financial Reporting Standards (IFRS)’ by Indian companies is set to miss its second deadline. The committee, set up under the Central Board of Direct Taxes (CBDT), was assigned an initial deadline of March, which was later extended to July. The deadline, according to sources, is being postponed for a third time to November.
The committee is studying the difference in tax positions, arising out of the shift in the financial reporting norms. According to Mukund M Chitale, chairman, National Advisory Committee on Accounting Standards (Nacas), “The Ministry of Corporate Affairs (MCA) notified the approved Indian Accounting Standards converged with IFRS in February. However, the industry raised concerns pertaining to variation in tax positions after the shift. These issues are currently being studied by the CBDT committee.”
The lack of clarity can be attributed mainly to two broad differences between the proposed Indian Accounting Standards converged with IFRS (referred to as Ind AS) and the existing Indian Generally Accepted Accounting Principles (GAAP), respectively: Fair value against the historical cost concept (implying different valuation rules for financial assets and liabilities) and contractual substance over legal form (leading to variation in calculation of net worth of companies).
The computation of taxable income would, as a result, greatly vary depending on the basis of calculation. Vipul Jhaveri, tax partner, Deloitte, Haskins and Sells says, “At this point, it is unclear whether from a tax perspective companies would have to continue preparing the financial results according to Indian GAAP, even after the shift to Ind AS. Or, would the latter be a one stop solution?”
Ind AS was expected to be implemented by companies from this financial year---April 1, 2011. Due to the lack of clarity on tax-related issues, the deadline was missed. The next date for the implementation of Ind AS would be announced, after the CBDT committee's report, according to Chitale.
The committee, headed by income tax commissioner H Srinivasulu and comprising representatives from the information technology department and independent chartered accountants.
