Different Impairment approaches

Impairment - we are used to this term being used for fall in value of fixed assets below their carrying amount in books. Soon, Impairment would be the "word" to be careful of for the company's preparing financial statements. Of course that means, we auditors will have honeymoon period rather a prolonged one. We have our BADA friends who will threaten their clients and if possible general public!! Coming why it is going to be such an important factor in the future. Now, impairment will be require to be tested for financial assets as well.

There are variety of approaches that IASB deliberated. To name them, (i) expected loss approach, (ii) incurred loss approach, (iii) fair value based approach and (iv) IAS 36 based - value in use approach. Finally, they have decided to go ahead with expected loss method, as practically incurred loss is not line with framework, while fair value and value in use concepts require undue costs and efforts on the entity to comply with.

Now, the question is how to determine expected loss. The important variable in determining what expected loss is, is the consideration of conditions surrounding the assets. The conditions that existed through the cycle of similar assets, determination based on conditions of past and existing situations and third appropriate alternative is to have consideration to all reasonable and supportable informations and conditions - may be termed as 'full scope - expected loss method'.

The task is going to get tougher. But the deliberations before standard comes helps in understanding the concepts in better light. Isn't it??

Lease of land

Growth in industries, both manufacturing and services has been the prime focus of the Governments – Central and State. To sprout the growth, State Governments have been offering land or land and buildings on a long-term lease to companies to set up units. These long-term leases are typically for a period of 99 years. Most cases leases will be that of a land rather than land and buildings together. These leases are characterized by lump-sum payments upfront, either refundable or non-refundable. Various accounting and taxation concerns are around these models, which are discussed in the following article.

The GAAP for companies comprise Accounting Standards notified u/s 211 (3C) of the Companies Act, 1956 and requirements of Schedule VI to the Companies Act, 1956. Present provision of Accounting Standards excludes leases from its scope. The accounting has to comply with the requirements of Schedule VI.

Model I

Lets comprehend with an example. A company takes land on lease from SIPCOT for a period of 99 years by payment of non-refundable premium of Rs. 10 Crores. The company cannot transfer the land to any third party during the lease period unless it is under a business combination. If the land is handed back to SIPCOT during the lease period, it is not entitled to refund of any portion of the premium paid.

Accounting: Schedule VI requires disclosure of leaseholds in the Fixed Assets schedule under a separate head. Hence, the land should be disclosed under “Leasehold Land” in Fixed Assets schedule. At what Value? The entire non-refundable premium should be taken as cost and amortised over the lease term (99 years) on Straight Line Basis. Each year amortization is taken to Profit and loss account.

Taxation: The primary analysis to be made is whether the expenditure is revenue expenditure or capital expenditure. The decision of tribunal in the case of Jt. CIT vs Mukand Ltd forms the basis for tax treatment. The assessee argued that the entire expenditure is revenue in nature and should be allowed as a deduction. CIT (A) held that the expenditure is revenue in nature but is attributable to 99 years and hence should be claimed as deduction in each year. The case was before the special bench of the tribunal to determine whether the stand of CIT (A) to allow 1/99^th of expenditure is correct. The tribunal noticed that the payment is a premium for leasing of land and it is not in the nature of advance rent to be adjusted against any future payments required to be made. Further, the tribunal noted that the expenditure bore the characteristics of capital expenditure, since the payment is for a benefit of enduring nature. The tribunal held that the premium is capital in nature and not allowable as a deduction to the assessee. The position of revenue is still questionable. Since, the expenditure is very much business expenditure, it can be argued that if the business expenditure is not allowed as a deduction in a single installment, the expenditure need to be allowed over the lease term.

Model II

A company takes land on lease from SIPCOT for a period of 99 years by payment of a refundable deposit of Rs. 15 crores. The company cannot transfer the land to any third party during the lease period unless it is under a business combination.

Accounting: Present GAAP position, the amount should be treated as refundable deposit. But where should it be included? Under Current Assets or Leaseholds? My view is that it should be held under “Leaseholds” rather than “Current Assets”. Considering that the present scenario will be short-lived with the introduction of AS 30,31 and 32, the new treatment needs to be looked into. The deposit which is a financial asset, should be recognised at its fair value – which will be present of value of discounted cash flows. The deposit amount would be increased each year with interest portion with a corresponding credit to profit and loss account. Again regarding the question of presentation, it is only appropriate to present under “fixed assets” rather than under “current assets”. These issues will be addressed once the existing leases standard is revamped based on the discussion paper issued by IASB.

Taxation: The revenue position is unambiguous here, since the amount is refundable it cannot be revenue expenditure or for that matter any expenditure and no expense can be claimed in this regard. On the new treatment as per AS 30,31,32 – the position of revenue cannot be speculated upon.

There will be these never ending spiral issues surrounding the topic of leases in the future as there will be lot of understanding and learning in this regard from the regulatory angle as well as the angle of revenue and professionals.

Budget 2010-11 Analysis of Direct Tax Proposals

The Economic Survey indicates that the Indian economy has survived its worst phase and has not been impacted adversely by the global crisis. This is a good omen that the year ahead will be a rewarding one.

The GDP growth for the third quarter of 2009-10 is reported to be a shade lower than the expected level of 6%. The growth rate for the full year is extrapolated to be between 7.2% and 7.5%. If achieved, this will still be one of the highest growth rates in the world. In the current period, Manufacturing Sector has contributed to the growth more than the Services Sector, with Agriculture Sector registering a negative growth of - 0.2%. The challenges continue to be in:

a) Achieving a double digit growth rate

b) Controlling inflation, specially food prices

c) Reducing the overall fiscal deficit

It is in this backdrop, that the Finance Minister, Shri Pranab Mukherjee had presented his Budget proposals on 26^th February 2010. The budget proposals focused on strengthening infrastructure, power, alternative and renewable sources of energy, and in providing adequate support to health, social security and food security. Overall, the budget was received well and was applauded as a balanced budget by both the economists and the industry leaders. I believe that the direction of budget proposals are in the growth trajectory. However, the significant allocation of Rs.1900 crores to UIDAI and the emphasis on setting up adequate IT infrastructure and interface across government organisations, the positive difference – relative to prior periods - will be ‘implementation’.

A summary of a few select items in the direct and indirect tax segment, proposed in the Budget follows. Unless mentioned otherwise, the amendments proposed to direct taxes will apply from assessment year 2011-2012

Direct Taxes

The new Direct Tax Code will be made effective from 1^st April 2011. This is an important announcement. The summary of the tax amendments is as follows:

• Lower tax burden on individual taxpayers by widening of the tax slabs
• Small companies can convert into Limited Liability Partnerships without attracting capital gains tax liability
• Higher Turnover limits beyond which audit is compulsory, so as to reduce the compliance burden on small business enterprises
• Increased tax-saving investments in Research and Development (R&D) to enhance the competitive ability of the economy
• Tax deduction on investments in long-term infrastructure bonds to encourage savings and for funding infrastructure; and
• Simplification and rationalization of provisions relating to Tax Deduction at Source (TDS).

Personal taxation

Tax rates

The income tax slabs for individual taxpayers to be as follows:

Income upto Rs 1,60,000	Nil
Income above Rs 1,60,000 and upto Rs. 5,00,000	10%
Income above Rs.5,00,000 and upto Rs. 8,00,000	20%
Income above Rs. 8,00,000	30%

The tax slab revisions are moving in the direction of proposal made in the direct tax code. While the amendment in the slab rates last year certainly benefitted higher income group than the medium and lower income group, this years’ slab limit revision is aimed at the middle class. The tax savings would be:

For an individual with taxable income more than Rs. 3,00,000 and less than Rs. 5,00,000	Rs.20,000
For taxable income more than Rs. 5,00,000	Rs. 50,000

Deductions

Deduction in respect of long-term infrastructure bonds

A new section 80CCF is being introduced to allow subscription during financial year 2010-11 made to long-term infrastructure bonds to the extent of Rs. 20,000 as deduction in computation of income of individual and HUF. This will be over and above the existing limit of Rs. 1,00,000 under Section 80C, 80 CCC and 80 CCD of the Act. This provision is available only for subscription made during the year 2010-11, and the long-term infrastructure bonds will be notified by the Government in due course.

Deduction in respect of contribution to the Central Government Health Scheme

Under the existing provisions of section 80D, deduction in respect of premium paid towards a health insurance policy up to a maximum of Rs. 15,000 is available for self, spouse and dependent children. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. For senior citizens of the age of 65 and above, the ceiling level for this deduction is Rs.20,000.

The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies.

Deduction will be allowed in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate of Rs.15,000 or 20,000 as mentioned.

Tax returns

As promised by the Finance Minister in the last budget speech, SARAL II is making a comeback to do away with ITR, with respect to individuals.

Corporate tax

Tax rates

Surcharge on taxes for domestic companies is reduced from existing 10% to 7.5%. No change in surcharge of foreign companies.

MAT rate increased from existing 15% to 18%. Companies having to pay Minimum Alternate Tax MAT will have an additional outflow 3% on this score, irrespective of the reduction of surcharge to 7.5%.

Definition of charitable purposes

An amendment was introduced in the last budget to exclude from the definition of “charitable purposes”, if its activities involve ‘the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity’.

The absolute restriction on any receipt of commercial nature did create hardship to organizations which receive sundry considerations from such activities. To mitigate such difficulties, section 2(15) is amended to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year.

This is a retrospective amendment to be applied in respect of assessment years 2009-10 onwards.

Income deemed to accrue or arise in India

A new explanation is inserted to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,

(a) the non-resident has a residence or place of business or business connection in India; or

(b) the non-resident has rendered services in India.

This amendment is seen to be to neutralize the impact of the decision of Hon’ble Supreme Court, in the case of Ishikawajima-Harima Heavy Industries Ltd., Vs DIT (2007)[288 ITR 408], wherein it was held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. Whereas the intention of the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India. The source rule, therefore, means that the situs of the rendering of services is not relevant. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India.

This interpretation was felt as not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non-resident has a residence or place of business or business connection in India.

This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years

Weighted deduction for scientific research and development

Under the existing provisions of section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction of 150 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research on an approved in-house research and development facility.

In order that Corporate Sector is bestowed with inducements to invest in in-house research, it is proposed to increase this weighted deduction from 150 per cent to 200 per cent.

The existing provisions of section 35(1)(ii) of the Income-tax Act provide for a weighted deduction from the business income to the extent of 125 per cent of any sum paid to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institution to be used for scientific research. Further, under section 35(2AA) of the Act, weighted deduction to the extent of 125 per cent is also allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme.

In order to encourage more contributions to such approved entities for the purposes of scientific research, it is proposed to increase this weighted deduction from 125 per cent to 175 per cent.

Also section 35(1)(iii) is amended so as to include an approved research association which has as its object undertaking research in social science or statistical research, to qualify under Section 35(1)(ii). It is also proposed to amend section 10(21) so as to also provide exemption to such associations in respect of their income.

Investment linked deduction for specified business

Section 35AD is amended to include hotel sector, irrespective of location, allowing 100% deduction in respect of whole of any expenditure of capital nature incurred wholly and exclusively for the purposes of the business. It will include entities in the business of building and operating a new hotel of two-star or above category which starts functioning after 1^st April 2010.

Disallowance of expenditure on account of non-compliance with TDS provisions

The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.

The said section is amended to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

This amendment will be effective for assessment year 2010-11. This provision can be utilized for the tax deductions in respect of financial year 2009-10.

The interest for non-payment of tax deducted at source after deduction will now attract interest at the rate of 18% instead of existing 12%. This amendment will take effect from 1^st July 2010.

Upward revision in the turnover or gross receipts thresholds, for purposes of audit of accounts and of presumptive taxation

In order to reduce compliance burden of small businesses and professionals, the threshold limit under section 44AB has been increased from Rs. 40 lakhs to Rs.60 lakhs in the case of persons carrying on business and from Rs. 10 lakhs to Rs. 15 lakhs in the case of persons carrying on profession

In view of the amendment proposed above, the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, is increased from Rs. 1 lakh to Rs. 1.5 Lakhs .

For the purpose of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from Rs. 40 lakhs to Rs.60 lakhs.

Conversion of a private company or an unlisted company into a LLP

The Finance (No. 2) Act, 2009 provided for the taxation of LLPs in the Income-tax Act on the same lines as applicable to partnership firms. Section 56 and section 57 of the Limited Liability Partnership Act, 2008 allow conversion of a private company or an unlisted public company (hereafter referred as company) into an LLP. Under the existing provisions of Income-tax Act, conversion of a company into an LLP has definite tax implications. Transfer of assets on conversion attracts levy of capital gains tax. Similarly, carry forward of losses and of unabsorbed depreciation is not available to the successor LLP.

Now, the transfer of assets on conversion of a company into an LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purposes of capital gains tax under section 45, subject to certain conditions. These conditions are as follows:

(i) the total sales, turnover or gross receipts in business of the company do not exceed Rs. 60 lakhs in any of the three preceding previous years;

(ii) the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;

(iii) no consideration other than share in profit and capital contribution in the LLP arises to partners;

(iv) the erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;

(v) all assets and liabilities of the company become the assets and liabilities of the LLP; and

(vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

· Carry forward and set-off of business loss and unabsorbed depreciation are allowed to the successor LLP which fulfills the above mentioned conditions.

· If the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with.

· The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place.

· The actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion.

· The cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it.

· Credit in respect of tax paid by a company under section 115JB is allowed only to such company under section 115JAA. It is proposed to clarify that the tax credit under section 115JAA shall not be allowed to the successor LLP.

Taxation of certain transactions without consideration or for inadequate consideration

Section 56(2)(vii) amended to cover transfer of shares by a company to a firm or company without consideration or at a price lower than the fair market value. The value of such shares will be taxed in the hands of the recipients as income. The assessing officer can make reference to the valuation officer for an estimate of the value of the property under section 56(2).

Deduction for developing and building housing projects

Under the existing provisions of section 80-IB(10), 100 per cent deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local authority before 31.3.2008. This benefit is available subject to, inter alia, the following conditions:

a) the project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority.

b) the built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft. whichever is less.

To allow for extraordinary conditions due to the global recession and the resultant slowdown in the housing sector, the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, has been increased from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 1.4. 2005.

Further, the current norms for built-up area of shops and other commercial establishments in housing projects in order to enable basic facilities for the residents is enhanced. The built-up area of the shops and other commercial establishments included in the housing project is three per cent of the aggregate built-up area of the housing project or 5000 sq. ft., whichever is higher. This benefit will be available to projects approved on or after the 1.4.2005, which are pending for completion, in respect of their income relating to assessment year 2010-11 and subsequent years.

Upward revision in threshold limits for tax deduction at source

Threshold limits for deduction of tax at source has been marginally increased in the following cases:

Section	Nature of payment	Existing threshold limits	Proposed threshold limits
194B	Winnings from lottery or cross word puzzle	5,000	10,000
194BB	Winnings from horse races	2,500	5,000
194C	Payment to contractors	20,000 (for a single transaction)	30,000 (for a single transaction)
		50,000 (for aggregate of transactions)	75,000 (for aggregate of transactions)
194D	Insurance commission	5,000	20,000
194H	Commission or brokerage	2,500	5,000
194I	Rent	1,20,000	1,80,000
194J	Fees for professional or technical services	20,000	30,000

These amendments are with effect from 1^st July 2010.

Other highlights

· Cancellation of registration obtained under Section 12A: This is an amendment to make it clear that registration made under Section 12A can also be cancelled by the commissioner vide powers under Section 12AA (3). This amendment takes effect from 1^st June 2010.

· Two more centralized centre for processing returns similar to one in Bangalore

· No need to furnish TDS certificates to tax authorities. However, the requirement that deductor should issue Tax Deduction Certificates to deductees, remains undisturbed

· Scope of cases settlement commission expanded to include proceedings related to search and seizures, if additional amount of tax payable exceeds Rs. 50 lakhs.

IFRS – Finally the Indian Blueprint of Roadmap out

Ministry of Corporate Affairs has come up with notification dated 22nd January 2010, putting to rest few of the speculations about transition to IFRS in India. As per the notification, transition to IFRS will happen in three phases. The ICAI and Government have stuck to the initial target of 1st April 2011, but the application will be for a limited few. There is no full convergence, in the sense that not all Indian companies can draw unreserved statement of compliance with IFRS. Status of Banking and Insurance companies will be announced in due, and proposal to amend Companies Act by February 2010 indicate serious action from the Government to transit to IFRS and direction to ICAI to recommend converged Accounting Standards by 31st March 2010 means a whack at the country’s premier accounting body to make timely move to IFRS.

The THREE Phases

In phase I, companies falling under the following categories need to prepare opening Balance Sheet as at 1st April 2011:
· Companies forming part of Nifty – 50 index
· Companies forming part of Sensex – 30 Index
· Companies whose securities are listed outside the country
· Companies (whether listed or not) having networth is in excess of Rs. 1000 Crores

In phase II, companies (whether listed or not) having networth in excess of Rs. 500 Crores are required to prepare opening Balance Sheet as at 1st April 2013.

In phase III, listed companies having networth lower than Rs. 500 Crores are required to prepare opening Balance Sheet as at 1st April 2014.

Further confusions

The notification brings a new dimension to the history of confusions surrounding convergence. There is hue and cry among the MNC audit firms about the definition of networth for the purpose of applicability of IFRS. These are noises which are made for the purpose of being noticed. Networth, in any age is not going mean differently. It is straight-forward and simple. Any case, networth, though defined can never be inclusive of outside liabilities in the form of secured loans, etc. Networth can be only one for the company. When two different networth can be worked, either one is not networth or the persons computing are not worth to do the job. However, noises being made are loud enough for consideration and we can expect some more clarification in this front, any modification to include or exclude items in networth.

If you can break down the companies covered in phase I and list it, there would be few hundred companies which will be covered. Nifty 50 covers most of the companies under Sensex 30 (not sure whether there will be any which is not covered). There may be 100 or so companies listed outside India. Coming to networth in excess of Rs. 1000 Crores, there will be hardly any companies which will be bracketed into this particular category. A rough analysis of financial statements reveals that networth can be abysmally low in comparison with extent of public accountability. I understand there should be some logic in coming at this conclusion, though cannot comprehend the same.

The notifications clearly mentions a new set of standards called converged Accounting Standards, which will be in line with IFRS needs to be applied in phases. So, there will be one more set of Accounting Standards, the existing set. The existing set would be applicable to companies covered in phases II and III and also to the companies which are not covered in any of the phases above, now would mean SMCs, notwithstanding the definition of SMCs in Companies (Accounting Standards) Rules 2006. By 2015, there would be say, 25 – 28% of all companies will be preparing financial statements in line with IFRS. Large portions will continue to be preparing financial statements under existing accounting standards, as understood today, because there are no clear signals on IFRS for SMEs. Since there will be two sets of accounting standards it is inferred that there will be no separate standards for SMEs. There can be other view that no IFRS for SMEs for the time being and may be considered after 2014.

The notification talks of companies, whereas IFRS is clearly based on the concept of Group, there is no question of separate financial statements for the Parent. When a parent falls under Phase I, whether the subsidiary needs to prepare financial statements in Phase I or as applicable to it as an individual entity is an issue to be addressed. There can be arguments that since consolidation is mandatory, subsidiary have to be under converged standards. But statutory clarity is required to avoid confusion. However, clarity is inevitable, when subsidiary falls under Phase I and parent falls under Phase II or III.

There is one more clarity needed. The notification talks of opening balance sheet as of 1st April. It can be inferred that comparatives need not be presented for the first year in each of the phases, similar to the Hong-kong model of IFRS convergence.

Next issue to be considered is whether companies not required to comply with converged Accounting Standards will be able to adopt the converged accounting standards? This question is important because the listed companies which are not covered in phase I, would like to present financial statements under converged standards. There may also be other sufficiently large unlisted companies which would like to have their financials under converged standards.
Last but not the least of all is, there is still no clarity on first-time adoption, whether there would be any reconciliations required with previous GAAP and options that would be available while adopting for the first time.

Nevertheless, Government from time to time has been reiterating its firm commitment to converge and this is one more indication of the stand, there is little dilution in the impact that it was meant to make.

A little about IFRSs

There are a few who have asked why I haven’t written on IFRSs and I’m sure there may be a few others thinking the same. I wonder why I have not written on something which is close to my heart. I have decided that I will tell a very little about IFRSs from what I know, to begin with.

First What is IFRSs?
IFRSs are accounting standards which are aimed at universal acceptability. They are set with the objective of suiting global requirements. The abbreviation is International Financial Reporting Standards. It includes International Accounting Standards (IASs), IFRICs and SICs (Interpretations). The nomenclatures are different due to some revamping of the board setting the standards. The latest name is IFRSs. IFRSs are nothing but global accounting standards.

Next, Why IFRSs?
The answer is obvious in present day scenario. Everything is globalised rather localized today. The market is in unison across the world. The economic meltdown in US is felt all across the globe. The investors and consumers are almost knit together into a single bundle all over the world. There is no country that stands on its own today. With the extent of localization around the world, a need for uniform reporting was felt. To cater to such needs, IFRSs were formulated. As said earlier, they aim at uniformity in reporting of an enterprise, irrespective of its geographical jurisdiction. Post IFRSs era, Financial statements of enterprise in Europe, Asia or US will be the same. The investors will be in a better position to comprehend financial information. Yes, IFRSs are needed for globalised economies.

How is it different from Accounting Standards in India?
This is the question in most of our minds. The answer would be surprising for many, as I realized it to be. There is not much difference between our AS and IFRSs. This is because, IFRSs and AS are principle based and AS derives its roots to erstwhile IASs and now IFRSs. The present differences, probably is due to the extent of activities that is undertaken by the IASB (board) in relation to IFRSs and the lack of it in Indian scenario. However, with the issue of standards on Financial Instruments, the gap is narrowed down, still minor differences on disclosures exists, though not in principles. Other major difference is Fair Value focus of IFRSs, which though present in AS is not as mandatorily evident as in the case of IFRSs. The differences will be ironed out with the convergence by 2011 as proposed by Government of India and ICAI.

What is convergence?
To have a global accounting language, India, rather ICAI had two alternatives. One – Adopt IFRSs as issued by the IASB or Two – Adapt IFRSs into our AS such that compliance of AS will result in compliance of IFRSs. The ICAI has as always gone in with alternative two. This process of upgrading our AS is called as convergence, in simple terms. For technical meaning refer ICAI’s publication ‘Concept Paper on Convergence with IFRSs’

What should we professionals do?

We should not wait for 2011 to happen. We should get updated to IFRSs as early as possible and make transition process smooth for our clients. We should remove the block that IFRSs are something new. Lets have a secret unveiled now. If you know AS, you know 80% of IFRSs. There is just a gap of 20% that can be bridged with ease. There is nothing new but a little bit extra, in the form of more disclosures. Positive approach towards IFRSs is that we need to have.

Looking forward for your comments.