When India announced in 2007 that it would fully adopt International Financial Reporting Standards by 2011, nobody doubted it would. Two years later … nobody is quite so sure.
“Whether all organizations in India adopt IFRS by 2011, we will have to wait and watch,” says Manish Dugar, CFO of Wipro Technologies. “My estimate would be that it would not be possible.”
What happened? Plenty. Foremost, scrapping a national accounting system in favor of IFRS is a formidable task for any nation—and India, like many developing nations, suffers a lack of skilled labor to help make the transition.
Others say Corporate India hasn’t really embraced the idea. After going through a spasm of change to comply with the Sarbanes-Oxley regime in the middle of the 2000s, only to see compliance burdens ease in later years (a phenomenon many U.S. executives can understand), some Indian corporations aren’t eager to commit precious resources to implement something that could become less severe over time.
Added to that is the simple fact that Indian Generally Accepted Accounting Principles are considered to be quite good, with a solid respectable history as national GAAPs go. The problem, some say, is that this solid foundation has bred a bit of complacency at the corporate level.
Krishnamurti
“In India, there is a great deal of pride in Indian GAAP,” says Mahesh Krishnamurti, managing director of Resources Global Professionals in India. “It is actually very comprehensive, very rigorous. Indian GAAP being what it is, people think that since we mastered Indian GAAP we are not so concerned about IFRS.”
India’s difficulties with IFRS could provide some useful insights for the United States, as the Securities and Exchange Commission also grapples with whether to adopt IFRS here. Previous SEC leadership seemed enthusiastic about the idea during the Bush Administration, but current SEC Chairman Mary Schapiro was cool to the idea when she took office in January. Lately the discussion has warmed up again, after several notable speeches from SEC officials and the G-20 meeting in Pittsburgh, where world leaders again called for a single set of global accounting rules.
Still, the real problem in India lies not so much with corporations as with those who have been pushing for IFRS in the first place: the regulators, the standards bodies, and the government. With less than 18 months to go before the April 1, 2011, adoption deadline, nobody has said exactly what Corporate India is supposed to do.
The champions of IFRS in India have been primarily the Securities and Exchange Board of India and the Institute of Chartered Accountants of India. SEBI and the ICAI have held numerous discussions with accounting firms, corporations, and other interested parties about the possibility of customizing IFRS for Indian needs.
Beyond that, little is known. Exactly which parts of IFRS might be amended, as well as when a final decision on that might be made, is unclear. Indeed, it isn’t even clear whether SEBI and the ICAI will want any changes, or simply decide to adopt IFRS wholesale as promulgated by the International Accounting Standards Board. (Despite repeated requests, both SEBI and the ICAI declined to comment for this article.)
Finding Compromises
Some say IFRS accounting for acquisitions or the accounting of foreign exchange transactions may be adjusted to reflect the local circumstances in India. Others speculate that the asterisks will be related to complex industries like banking and insurance.
“Whether all organizations in India adopt IFRS by 2011, we will have to wait and watch. My estimate would be that it would not be possible.”
—Manish Dugar,
CFO,
Wipro Technologies
The lack of information has left Corporate India in a bind. Many would like to get started on the process but can’t, because they don’t know what they need to do.
“It is a bit chicken and egg,” Krishnamurti says. “You look at the organizations that need to take serious steps toward conversion and haven’t yet, because they don’t know for sure what the ground rules are.”
Khatri
Jamil Khatri, a partner at KPMG India, says, “There have been concerns on adherence to the 2011 timelines largely due to the lack of regulatory progress to achieve convergence.” Many corporations have pondered an IFRS conversion project, he adds, but won’t commit to it “in the absence of regulatory clarity on how IFRS convergence will be actually implemented.”
At least some companies, however, have simply chosen to proceed with convergence anyway. These businesses—primarily those with international shareholders and listings on U.S. stock exchanges—have started using IASB’s official version of IFRS without waiting for the ICAI to tell the nation what it requires. Dugar of Wipro and V. Balakrishnan, CFO of Infosys Technologies, both confirm their companies are plunging ahead with IFRS as published by IASB.
“I don’t think there is a panic,” says Kaushik Dutta, leader of the IFRS practice for PricewaterhouseCoopers in India. “But people do not like the uncertainty, especially the larger companies. They are not waiting and are going ahead and publishing the IASB version of IFRS.”
Dugar
Once Indian regulators announce their own national standard, much of Corporate India may not be able to get their books in order by 2011. Dugar says Wipro needed more than a year to become compliant with IASB’s version of IFRS, and that was with plenty of corporate support and help from a Big 4 auditing firm. That means that businesses working toward a 2011 deadline should start conversion work as soon as January—assuming they have the resources of a company like Wipro, when the large majority do not.
Given the possibility of widespread failure to meet a 2011 deadline, regulators and the business community are already considering compromises, according to accountants and corporate executives. A blanket delay isn’t being contemplated yet, they say, but postponements for certain businesses are very much possible.
SEBI’s original plan in 2007 called for IFRS adoption for any company with annual revenues in excess of 1 billion rupee ($20.8 million in today’s dollars), plus a few other types of businesses. Many now believe the 1 billion threshold will be raised to give smaller companies more breathing room.
“Will India meet the 2011 deadline? The answer is definitely yes. It is a matter of credibility … India is an emerging economy that wants to be a world player on the global platform,” Krishnamurti of Resources Global says. “Still, it’s fair to say that there is a growing consensus across most of the major constituencies within India that while the commitment will be met, it will be met based on slightly different foundations and parameters.”
“What the regulator bodies are going to do is maintain the spirit of what exists today, while on the other hand streamlining the number of entities that have to conform and converge,” he continues. “The critical mass will be achieved, but perhaps not in a comprehensive manner by virtue of including every single entity.”
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