Mumbai, Aug 12 (UNI) Implementation of the International Financial Reporting Standards (IFRS), that is set to be introduced from April 2011, will require radical change in mindset among accountant professionals, business houses and legislators.
Experts observed this at a one-day summit ''IFRS: Countdown to Convergence'' here today.
Speaking about IFRS that is set to replace the existing Generally Accepted Accounting Practices (GAAP) accounting system, Dolphy D'Souza partner, Ernst&Young said, ''One should not look at the IFRS as a mere technical exercise as it will have profound business implications. As India is one of the few countries where accounting systems are imbedded in the law, government will also need to make changes in the tax system and Companies Act, otherwise there will be chaos.'' Mentioned among them were legislative conflicts on Section 78 (Preferential Capital), Clause 41, of SEBI on mutual funds and ESOPS and RBI directives on derivatives.
Mr D'Souza said radical changes in accounting systems should be expected under the IFRS, which would follow a ''fair valuation'' method of accounting, instead of a historical accounting. Company statements would show the liquidity state of the company, he said.
Major changes would occur in accounting items like goodwill and depreciation, which will no longer follow a regulated method of calculation, unrealized gains, employee stock option plan (ESOP) and in valuation of fixed assets.
A simplified version of the IFRS for SMEs (Small and Medium size enterprises) is being developed, he added.
''We will need to capture the concept and flavour of each of the meanings and terms,'' Sailesh Haribhakti, independent director, who spoke on how IFRS would affect Indian companies said.
He said the IFRS framework would provide wider scope than the existing GAAP system as it is adaptable for new business ventures like derivatives, Intellectual Property (IP), royalty and IT-based industries.
Though companies may need to comply up to 2,000 disclosures and chartered accountants will have to familiarize themselves on the new system, its (IRFS) acceptance in more than 100 countries would also enable Indian companies to be more competitive and flexible in entering into alliances. The US Securities&Exchange Commission (SEC) has also allowed foreign private filers in the US to file IFRS-compliant financial statements, he added.
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