International Financial Reporting Standards (IFRS) convergence, has gained momentum all over the world. It has become the most popular discussion though uncertainty still prevails over the implementation date of the IFRS. Let us first understand why companies should implement IFRS as many people are yet not aware of it. With the convergence to IFRS, companies will have an easy access to international capital markets without undergoing through the formalities of conversion and filling process. This will help in cost curtailment, time saving and faster access to global market. It becomes very important to mention here that â€œconvergenceâ€ is different from â€œadaptationâ€. Convergence is an approach towards IFRS which means bringing IFRS into Indian Accounting Standards (IAS).
The accounting treatments in IFRS vary with our Indian Accounting Standards in certain areas but the main objective is to establish a simple structure for both taxationÂ as well as for accounting purpose. In view of this, the Finance Ministry has made a proposal in a Discussion Paper on â€œTax Accounting Standards (TAS)â€ aiming to reduce the â€œburden of businesses with respect to various compliancesâ€.
The proposal emphasis on the matter that presently companies are required to maintain two sets of books of accounts: i.e.
- In accordance with the Accounting Standards of the Income Tax Act and
- In accordance with the Accounting Standards issued by the ICAI under the Companies Act, 1956
Â But under the new proposal the companies will be required to maintain books of accounts in accordance with the ICAI norms under the Companies Act, 1961 and the computation of taxable income will be in accordance with the â€œTax Accounting Standards (TAS)â€. The Finance Ministry further clarifies that the above proposal will not only reduce the burden of taxpayers to maintain two sets of books, it will encourage smooth convergence to IFRS and will reduce accounting issues when comes to preparation of books as per both the Acts.
As per the guidelines of Ministry of Corporate Affairs, in the first phase,companies with networth exceeding Rs 1,000 crore and public limited companies are required to implement IFRS in complete form.