With the government decision to defer the implementation of Ind-AS, the new set of Indian Accounting Standards, which are fully converged with IFRS, the enthusiasm for transition to IFRS has receded. However, it still remains an important topic for seminars and conferences. In every conference two issues are invariably discussed. The first issue is why India has decided in favour of convergence with IFRS, rather than adopting IFRS. The second issue is whether India should defer implementation of Ind-AS further. Speakers and delegates argue that if USA can decide to adopt IFRS from 2014, India can also defer the implementation of Ind AS to 2014. The debate continues.
The objective of financial statements is to provide information that is useful to investors, potential investors and other creditors. This objective is met by adopting the accounting policy that results in presentation of economic consequences of transactions and other events on the financial position and performance of the entity and disclosure of useful information. Accounting standards control accounting policy. They stipulate the most appropriate accounting principles and methods and the disclosure requirements. Accounting standards are meant for implementation by entities operating in a particular territory. Therefore, standard setters take into consideration the environment (including the cultural environment and customs of the territory )in which entities operate and competencies of the preparers and auditors of financial statements and that of analysts and investors.
A global standard like IFRS cannot take into account environment and capabilities available in each country. Therefore, national standard setters modify IFRS, if required. However, deviations are kept at the minimum because if subsidiaries of multinational companies, which are operating in different territories, follow different accounting policy, preparation of consolidated financial statement becomes difficult. Sometimes, even governance at the holding company level becomes difficult because the internal MIS used by the board of directors and top management draws information from financial accounting records. Therefore, convergence, with essential deviations from IFRS, is a better option than adoption.
The above argument does not adequately explain why India should not adopt IFRS without any change. The Indian economy has achieved robust growth over the past two decades. Indian business is quick in adopting technological advancements in developed countries. Indian companies are adopting business models which are complex in nature and through joint ventures and collaborations with global leaders, it is learning fast the modern management systems and techniques. Regulators in India are taking existing regulations in developed countries as the starting point in developing regulatory mechanisms. The intellectual capabilities of accountants, auditors, economists and other professionals in India match with capabilities of professionals in developed countries. Indian business environment and stock market conditions are not much different from those available in advanced countries. Therefore, logically India should adopt IFRS, particularly because it aspires to become the dominant economic force in the world at the end of this decade.
I see logic in deciding in favour of convergence over adoption of IFRS. Indian viewpoints do not receive adequate attention at International Accounting Standard Board (IASB). Those are not debated adequately at the IASB before rejection. It is natural that Indian Accounting Standards reflect Indian position, which are significantly different from the position taken by IASB. I consider this a very strong reason for adopting the policy of carving out of and carving in IFRS in formulating Indian Accounting Standards. ICAI and NACAS should be congratulated that they could keep the difference between Ind-AS and IFRS at the minimum without being overwhelmed by strong criticism by accounting professionals of some accounting principles stipulated in IFRS.
It does not make much sense to defer implementation of Ind-AS only because USA will achieve convergence between US GAAP and IFRS in 2014. India should implement Ind-AS as early as possible because India needs foreign capital to achieve the target economic growth. At this stage India cannot argue before investors from other countries that India has not implemented Ind-AS because USA will achieve convergence only in 2014. India must signal the market that it is not backing out from its commitment to implement IFRS from 2011. I hope that the uncertainty regarding the date from which Ind-AS will be applicable will be over early and companies will implement Ind-AS in the right spirit. This will benefit Indian companies and the Indian economy.
