Investors prefer accounting levels close to IFRS: Survey

Majority of investors want the government to keep national accounting standards as close to the international norms (called IFRS) as possible, says a survey conducted by the global accounting firm Ernst & Young.

According to a report — IFRS convergence: an investor's perspective — the firm has found that 55 per cent of Indian investors surveyed are willing to accept only a few departures from the IFRS standards set by the International Accounting Standards Board (IASB), while 28 per cent are in favour of full adoption.

It is to be noted that the Corporate Affairs Ministry has recently notified 35 accounting standards that companies will have to follow while preparing their books as per the International Financial Reporting Standard. The government has been maintaining that IFRS would not be adopted in its purest form, but deviations would be made to suit the needs of the Indian dimension. Thus, calling the norms Indian Accounting Standards.

“There are more than 60 departures from the original IFRS standards, in the norms notified by the MCA. Investors feel that in future, when any upgrading is required and made, the standards should be more closely aligned with the IFRS,” the E&Y IFRS leader Dolphy D'Souza said.

The survey also pointed out that about 89 per cent of the participants said they would prefer to see comparable numbers of two fiscal years, in the first year of adoption itself.

“According to the Ind-AS, companies in the first year of adoption of IFRS, may not provide the comparable figures in their statements,” D'Souza said.

A majority of them also felt that conversion option in a foreign currency convertible bond should be treated as derivative and taken into P&L account at fair value.

While 28 per cent participants believed the requirement in Ind-AS to apply the percentage of completion method to real estate sales was appropriate, 53 per cent were in favour of the completed contract method.

Another 19 per cent felt that an option to choose between the percentage of completion method and complete contract method should be available, the survey revealed.

While the date for the convergence is not yet clear, according to the earlier road map laid by the MCA, in the first phase large firms were to prepare their account books acceding to IFRS norms from April 2011.

The second phase will include companies with a net worth of Rs 500-1,000 crore, which will move to IFRS starting April 2013. Listed companies, having a net worth of Rs 500 crore or less, will converge to the new standards in April 2014.