First, the BRIC nations, Brazil, Russia, India and China, started blossoming as emerging economies with awesome growth. Then recently Brazil teamed up with Turkey to challenge the hegemony of the US led nuclear suppliers' group to bail out Iran from its nuclear apartheid status. And now India has made bold to question the International Financial Reporting Standards (IFRS) that reflect more the practices in advanced markets.
The Institute of Chartered Accountants of India (ICAI) while agreeing to abide by IFRS by and large has reserved to itself the right to modify them wherever absolutely required to suit Indian laws and conditions.
Earlier, when International Accounting Standards (IAS) ruled the roost, India was with some justification lampooned for choosing to dilute the international norms for the same reasons — to suit unique Indian laws and conditions. But there is a vital difference between the earlier and present reluctance.
The earlier reluctance was more a reflection of the desire to protect vested interests. For example, corporates by and large wanted to perpetuate opacity in accounting by steering clear of presenting consolidated accounts of parents and their subsidiaries. They also for tax reasons wanted to show assets taken on financing lease as hired rather than owned.
More profound reasons
Now the reluctance to wholesale adoption of IFRS is for more profound reasons and not to give the Indian companies wiggle-room. The ICAI wants to walk gingerly realising mainly the futility of putting ‘fair value' to anything and everything, assets as well as liabilities, irrespective of whether market for all of them exists or not.
The US' morbid fascination with trading in convoluted derivative products is at the base of this tendency. Valuing assets and liabilities at their fair value often introduces an element of subjectivity, especially when there is no active market for a product and allows corporates to book profits or losses out of thin air either through manipulations or propitious circumstances may be contrived.
Moreover, chronic tinkering with fixed assets year after year is not in sync with the going concern concept under which fixed assets are not valued at market price which is necessitated only when a company is under liquidation. Similarly, there is no reason why loans taken from a company should be tinkered with given the fact that for a company its liability is not mitigated or enhanced depending upon what is happening in the market on the interest and other fronts.
The ICAI is, therefore, rightly apprehensive of those standards which seek to constantly and chronically tinker and fiddle with value of assets and liabilities when they are not held for trading purposes. One of the standards of IFRS with which India Inc seems to be uncomfortable but is unexceptionable and which sooner than later it has to embrace is the need to show employee remuneration more transparently like, for example, by adding the concession in the matter of interest on loans to employees to their salary.
In fact, this is the taxman's approach of capturing whatever benefit he gets from his employer into his tax net but curiously resiled from by the Direct Taxes Code (DTC) in the Revised Discussion Paper (RDP) presumably to humour the middle class, or thanks to some lobbying power.
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