'Avoid knee-jerk response in setting acc standards'

New Delhi, July 2: The Indian industry is aggrieved as the Indian accounting standards do not meet the requirements of international financial reporting standards and would want the government to have an evolutionary approach to the issue rather than a 'knee-jerk' reaction to a crisis or scam, according to Infosys Director T V Mohandas Pai.

''The rest of the world thinks India is a black hole as we do not comply with International Financial Reporting Standards (IFRS) or IASF standards,'' said Mr Pai.

He was of the view that accounting standards in the country should keep pace with fast-changing business realities and not be set as a 'knee-jerk' response to extreme events.

Noting that business was becoming more complex as new forms of business such as e-business have evolved, Mr Pai said complex structures and financial structures require accounting standards which reflect the economies of the transaction.

He was speaking at a session of the conference on 'Role of Accountancy Profession in Promoting Economic and Social Development' organised by the Institute of Chartered Accountants of India to mark the 58th Chartered Accountants' Day celebrations here yesterday.

Mr Pai said the accounting profession needed to avoid 'creative accounting' for as bankrupt U S multinational Enron demonstrated 'percentages can be deceptive'.

Stating that companies had begun to "structure" leasing accounting to avoid accounting as required in the U S GAAP system, he suggested that in such a situation standard setting be done by a board independent of the regulator. The board could have fulltime members comprising academics and industry experts for a tenure of four to five years.

Preparation of financial statements was a time-consuming affair for companies but was necessary to ensure transparency and provide information to investors.

However, Mr Pai said while accounting standards in the country were unable to keep pace with business realities, standard setters were unable to understand business complexities.

Today, a greater emphasis was being laid on leadership by example as the 'Superstar CEO' cult faded out among board of directors of corporate firms. Boards were getting more data-oriented than personality-oriented and were demanding greater accountability, he said.

Being a board member was no longer an invitation to join a club, the Infosys leader said, adding that individual directors have to perform now and meet performance indicators.

UNI