The ministry of corporate affairs (MCA) has moved a cabinet note to amend the Companies Act of 1956 with the aim of converging Indian company law with the International Financial Reporting Standards (IFRS). The government seems will go the ordinance way and clarity with regards to taxation still has to come in.
CNBC-TV18's Menaka Doshi discussed the IFRS issue with Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), Prabhakar Kalavacherla, member, IASB and TV Mohandas Pai, head, SEBI Sub-Group on IFRS and asked them if it would be a big deal if India was unable to meet the April 1 deadline.
Below is a verbatim transcript of their interview. Also watch the accompanying video for more.
Q: Are you happy with the fact that India has picked convergence over adoption?
Tweedie: You have to choose what you want to do. Our mission is very simple; we have got to have one single set of global standards. It doesn't matter whether transaction takes place in Delhi, Denver or Durban, it should be same. The best answer is in South Africa; we should all have it and do it the same way. That is actually what we are trying to do.
The trouble is that people sometimes think that what the rest of the world thinks is the right answer and that's where we have to look at it. Perhaps India can persuade the rest of us that we should change, not India. The only trouble is that's going to take time.
There is a big statement being made where the G20 has asked us to complete this next year. India is a leading member of the G20. India opts out – that's really what happened if you do that. We could all do this. There are certain things I don't like about IFRS. I would like a carve out for me but it's not an offer.
I think the real thing to do and we have said it to every country - accept it. Then try and change it. You have the opportunity. We are putting out a request for what should the board do next year once our present programme is finished. The issues that India is concerned about - agriculture, foreign currency translation and the volume of disclosures are all there.
India's chance is to get in and get it fixed. If India opts out, people will say – well you were not in anyway so what is it to you? And that is going to be a problem. If India wants a real leadership role, the way to get it and I have seen that happen before in other countries - get in change the system from inside. Don't throw rocks from outside as it's not nearly as effective.
Q: A question that companies often bring up when I am talking to them about how they are moving on the convergence aspect and they say what happens if this is postponed by a year or two? We are going to have a new direct tax law come into effect in April 1, 2011. They ask - why can't we just have this when the law is compliant with the IFRS or speaks the same language? What is the problem if we push this by two-years in India?
Kalavacherla: Let me answer this in two parts. One is that India made a commitment that it will adopt to IFRS by 2011. There is the aspect that India made a promise to the G20 and to the EU. That's something we need to bear in mind whether we want to go back on our word.
The second thing which is more important in my mind is what is really happening? In my capacity as an Indian board member going to various countries, everybody wants to know what India's position on this issue is. The more we delay the adoption of convergence; India standing in the global debate is going to get diluted. This is my biggest worry.
My real worry is not April 1, 2011 or April 1, 2012. What is important is how is India going to lead the debate on some of the issues like agricultural accounting, foreign currency transactions, pension accounting etc. The debate needs to be led by us also and we are not leading the debate and that's my worry.
Q: Are you saying that if we don't converge next year and keep our word, we won't be part of the debate that decides upon crucial issues?
Kalavacherla: The point we need to understand is that unless you are within the tent, your voice is not going to be counted as effectively as it would be if you are outside.
Q: Is there in some sense a bit of fear mongering that if you don't meet the April 1 deadline where you have given your word then you won't be part of the global debate? The reason I ask is that isn't it better to converge or adopt?
Pai: This has been debated by the MCA. We had a core committee with the regulators, we had a committee of CFOs and a committee of opinion makers. The consensus was to have a roadmap where we will have a staggered convergence with IFRS. So the top 200-300 companies which are already global which probably already have an IFRS statement or US GAAP statement converging.
So that will show the way to others when you have another set of companies converging and then you have the banks coming in at the end. Why would the banks come in at the end? It is because some standards on derivatives which impact the banks are under revision and banks want stability and the Basel committee is also looking into accounting and there are some open issues.
Having it staggered gives people enough time to understand what this means to make an impact analysis and I don't like a big bang approach because everybody needs to get on and get educated in this matter.
For example tax - tax is a very critical issue for a corporate. That's where the fear is about taxation. I would personally think we should continue to file our tax returns under Indian GAP even though we produce financial statements under IFRS or converge IFRS. The reason is we are going through a tax law next year and even for the tax authorities they need to understand what an impact this will have on accounting.
