Finally the Institute of Chartered Accountants of India has submitted a set of Indian IFRS to NACAS for notification in the Companies Act. The Indian IFRS are referred to as Ind-AS, and is a substantially diluted version of the IFRS issued by the International Accounting Standards Board. IFRS and Ind-AS differences are caused not only because the standards are diluted, but also because of practice and regulatory environment in India.
There are numerous differences between Ind-AS and IFRS, but the key differences are with regards to accounting of real estate sales, foreign exchange losses, agriculture accounting, investment property, first-time adoption requirements and financial instruments.
Under IFRS real estate sales are accounted using the completed contract method, whereas Ind-AS would require them to be accounted under the percentage of completion method. Foreign exchange losses on long term loans are fully recognised in income statement under IFRS, however, under Ind-AS the losses could be spread over several years on an amortised basis. For investment property, accounting under IFRS is done using either the cost model or the fair value model. Ind-AS does not allow any option and mandates the use of cost model. The first time adoption standard in Ind-AS makes applicability of most critical requirements of IFRS such as leases embedded in service contracts on a prospective basis rather than on a retrospective basis.
Different practices
In addition, practice-related differences are likely to emerge between IFRS and Ind-AS. For example, globally under IFRS, rate regulated assets are not recognised as they do not fulfill the definition of an asset under the IFRS framework. Under current Indian GAAP practice, rate-regulated adjustments is recognised as assets.
It is most likely that this practice under Indian GAAP may be carried forward under Ind-AS. Another example is that of agricultural accounting. Under IFRS biological assets are fair-valued under IAS 41. However, Ind-AS will not contain any standard on agricultural accounting and consequently the practice of measuring biological assets at cost under Indian GAAP most likely would be carried forward under Ind-AS.
Regulatory hurdles
Finally, regulatory hurdles may also widen the gap between Ind-AS and IFRS. The depreciation rates under Schedule XIV of the Companies Act may de facto become the norm though those may not reflect the useful life of an asset for a company and hence may not comply with IFRS. Interpretations and opinions issued by the Expert Advisory Committee of the Institute of Chartered Accountants of India may, at times, not reflect global practice.
The Companies Act needs to be amended to disable certain sections which are not aligned to IFRS accounting. India had made a commitment at the G-20 summit as well as to other institutions such as the European Union that it would converge to IFRS. However given that Ind-AS are far removed from IFRS, it is questionable if we have really converged to IFRS and fulfilled our commitments.
The convergence model is relevant when a country makes only one or two departures from IFRS, due to technical reasons or national interest, acceptable only in the rarest of rare situations.
However, in the given instance the differences are so numerous that people are questioning the need to change from the existing Indian GAAP to another form of Indian GAAP.
Given the existing date uncertainty on IFRS implementation, and the substantial dilution of IFRS, global community would question India's ability to push through major reforms.
By adopting IFRS as it were, India could have played a leadership role in the global arena. Unfortunately, this is a missed opportunity, for a nation that is touted to become the third largest economy in the next few decades.
(The author is Partner & National IFRS Leader, Ernst & Young).