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IFRS - Euphoria over certain doom

PS Prabhakar , Last updated: 10 February 2011  

Oh Lord! Forgive them! They do not know what they do can be the prayers of well meaning people over the inexplicable euphoria and excitement on the possible convergence with IFRS propelled by the ICAI, at the behest of their big brother IASB as the prescription for an all-new accounting regime for India Inc.


Many people have articulated about the possible ill-effects of the proposed introduction of IFRS in India but such dissenting voices are muffled in the said euphoric din by those who neither understand nor bother to understand the implications. IFRS is propounded as the global accounting language by IASB, an organisation whose credentials people know little of but taken for granted just because those are white men and therefore have to be right men and whatever they pronounce is taken as Gospel little feeling even the necessity of evaluating its suitability to Indian conditions.


Each of the five major reasons for thrusting IFRS viz., (a) Prime Minister reportedly committed at G-20 about this; (b) IFRS is from IASB; (c) IFRS is the global accounting language and is therefore necessary to do global business; (d) IFRS can only bring FDI; and (e) IFRS is required / permitted in over 100 countries have been decimated by sane arguments / counter questions, which are: (a) Why did PM not consult the trade bodies or the accounting regulator before he allegedly made that commitment? PM also made the commitment to the nation about bringing back unaccounted Indian wealth from Swiss banks. When he can conveniently side step this issue, why everybody should give credence to his IFS commitment, especially without analysing the pros and cons of it?; (b) IASB is a suspect organisation, a private body of individuals, controlled by the large multinational accounting firms whose ethical values are global news. IASB is funded by such people also and more importantly, there is no token representation from ICAI in it, in spite of ICAI being the second largest accounting body in the world; (c) There is no global trade regime, no global tax regime, not even a globally uniform accounting year and there is no attempt to change any of these as these are perceived as opportunities to make money by the MAFs and it is amusing that globalisation is sought to be achieved only in the methodology of accounting; (d) This is nonsense as Goldman Sachs has conclusively averred in a study that India is capable of funding its investment requirements amply and that it can even lend to other nations soon. Even RBI statistics prove that our FDI requirement is less than 1% of GDP and that we can do well without it; (e) US is not inclined, Japan is not ready; China is re-thinking and many nations which have already adopted IFRS are having a re-think and what 100 countries we are talking about? All of those 100 put together cannot match the size and complexity of India. And, if at all you want to bring IFRS, make it optional for those who are willing to go for it. Why choke it down the throat of others?


Besides such demolitions of the pro-IFRS reasons, many people also pointed out the conceptual problems of IFRS and highlighted several aspects to show how IFRS would be completely repugnant to the business values and conservative and prudent practices followed in our country. For instance, the widely respected Bombay Chartered Accountants Society brought out a brilliant write up on the dangers that will await the investing public in the IFRS scenario in Private Public Partnerships. Anyway, the protagonists of IFRS would have none of any such sensible arguments. To them an unknown devil is better than a known, well, angel!


Of course, as the deadline that was set up drew near, the dissenting voices began to be heard over the euphoric din. And these were not from men or institutions of lighter substance. Serious concerns have been expressed by no less than Ministry of Finance officials, Chairman of Public Accounts Committee, powerful trade bodies like FICCI etc.


The banking and insurance regulators viz., RBI and IRDA are not too enthused by the proposed introduction of IFRS. The Standing Committee on Accounting Issues of IRDA has recommended to the regulator that IFRS should be deferred for the insurance industry till at least 2014.


CBDTs Chairman Mr S.S.N. Moorthy expressed his concern recently at a public forum, I am of the opinion that there should be some more time for implementation (for IFRS). I dont think the Indian companies are ready for implementation.


The Federation of Indian Chambers of Commerce and Industry, one of the countrys most powerful business lobbies, recently asked for the implementation date to be deferred, arguing that the timing was highly unworkable and unfair.


Dr Murli Manohar Joshi, the Chairman of the powerful Parliamentary  Public Accounts Committee in a letter to the prime minister, asking for delaying the new standards, said We should focus our attention on ... the areas where Indian accounting standards differ with IFRS, so that by 2013 or by 2015, the stabilised IFRS can take into account the concerns of Indian accountants and Indian companies. He added that countries such as US and Japan have already deferred IFRS implementation to 2015.


It is indeed baffling that even when such vocal oppositions are heard loud and clear, the MCA and its sycophantic sidekick ICAI are pressing for the adhering to the so-called deadline of 1st April, 2011 by using pressure tactics by linking the transition to IFRS to the Prime Ministers prestige who has committed to the G-20 countries that India will move to the global accounting standard by that date. We have to assume that no one is unduly pressuring them and no incentives are promised to them.


It is in this murky scenario, an explosive report on Socio-economic Impacts of IFRS on Wider Stakeholders in India authored by Dr.Tomo Suzuki and Prof. Jaypal Jain, of  University of Oxford, UK reportedly submitted to the Institute of Chartered Accountant of India (ICAI) for the Government of India, now in circulation courtesy some anonymous persons, becomes extremely crucial. Obviously such a circulation has been spurned by a genuine apprehension that ICAI may not at all be interested in putting this report out to the wider stakeholders as the report, partially funded by it, has in fact indicted ICAI itself squarely. (There is an article that has been published in the Businessline of 4th Nov, 2011 written by Mr M R Venkatesh, Chartered Accountant briely analysing the contents of this Report).   



This report, which has been prepared after interviewing a cross section of bureaucrats, regulators, trade body representatives, corporate executives, accountants both from mid/small firms as well as multinational accounting firms, past presidents of ICAI etc., has bared not only how the IFRS was brought in and is being pushed in to this (as usual!) unsuspecting nation but also has laid out, in no uncertain terms how the new accounting regime can sourly impact the stakeholders.


The reports executive summarys concluding words are: The introduction of IFRS should be re-examined from at least two distinct perspectives: (1) the use, misuse, and abuse of principles-based Fair Value Accounting (FVA), not only in capital markets but also in the wider arenas of socio-economies. That is, principles-based FVA should be re-examined as a specific mode of information that changes the epistemic, operational, and control frameworks of various organisations, including agricultural organisations, banks, insurance companies, oil & gas industries, and public sectors such as nuclear power plants. (2) The long-term consequence of adoption or convergence which would affect the Sovereign Right and National Strategy to control Indias socio-economy for the sake of sustainable growth. That is, the mode of international standards should be re-examined for whether it will affect the power balance between the Indian Government and international organisations in controlling the sustainable growth of Indias socio-economies.


In fact, this Report ridicules the claims that the pet phrases (adjectives used by the votaries) of IFRS viz., transparency, global,  fair value, high quality etc. as Standard Rhetorics and that the marketing phrases such as more than 100 jurisdictions have already adopted as Extended Rhetorics.


The Report avers that there has been politics over the entire IFRS advent in India while revealing that ICAI changed its attitude almost overnight under the Presidency of Mr Sunil Talati in 2007-08 as he was pressurised...(by IASB)  and that the political game may have been set up in such a way that powerful men and women pressurise a few key targets in the local jurisdiction and this in fact, is appalling.


Though it was stated earlier in this write-up that MCA was rooting for IFRS, the Report presents a view that the then Minister of Corporate Affairs Mr Salman Kurshid and his colleagues clearly recognised the need for a comprehensive review of IFRS on learning about the negative impacts of IFRS. The Report says that the senior members of MCA expressed their concern that the movement towards IFRS convergence had been driven by only a few stakeholders. 


The clock is ticking. There are definitely some vested interests, including the Big four firms (who always put their personal interests ahead of the national interest) in this nation who would like to see IFRS comes to this nation and keep disseminating that all is well and IFRS is the only future bread winning possibility for accounting professionals. But, when the proposed date of convergence for the first phase is less than 60 days, the Companies Bill which needs to become the law to approve the sanctity of IFRS (as even formats will have to be changed) is unlikely to proceed in any significant direction as the only session (Budget) of Parliament that is going to commence before 1st April, 2011 will probably be too busy to attend to this business. There are well meaning oppositions and reservations that have been expressed and no credible replies have been given so far. The major pusher MCA has seen changes in important incumbents in the last fortnight. The Minister Salman Kurshid has gone and the Secretary Mr Bandhopadyaya has retired too. And in ICAI, we are going to see change of guard in the second week of February. May be all these augur well for a postponement of IFRS, pending detailed consultatative process, which is the least thing that can happen today. However, if torpedoing every meaningful opposition, if the protagonists of IFRS will have their way of getting IFRS on 1st April, 2011, then it will be the best All Fools Day gift that the nation deservedly gets.




Chartered Accountant, Chennai


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Published by

PS Prabhakar
(Partner in a CA firm)
Category Accounts   Report

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