Global accounting respite for SMEs

Small and medium enterprises (SMEs) in the country will not have to prepare their accounts as per the International Financial Reporting Standards (IFRS) from April 1, 2011, saving them significant cost of switching to the more rigorous accounting standard A government-constituted core panel on IFRS has decided to exempt SMEs from the first phase of convergence falling due in 2011.

The SME sector, which contributes significantly to the Indian economy, will continue to follow existing Indian accounting standards , which may be modified from time to time to make the sector more competent in the international arena.

Convergence to IFRS is a costly exercise which includes an overhaul of operational and IT processes apart from training costs. A small enterprise for this exemption is likely to be one where the investment in plant and machinery is more than Rs 25,00,000 does not exceed Rs 5 crore. A medium enterprise is one where investment in plant and machinery is more than Rs 5 crore but does not exceed Rs 10 crore.

In November last year, the government had hinted at preparing a watered-down version of IFRS for the SMEs. Industry preparedness in converging with IFRS is a key factor, specially for SMEs who may feel the convergence as cost-prohibitive. Stating company’s accounts as per IFRS will involve huge cost and is being considered world wide as a hurdle for SMEs.

Recently, a core committee of the government finalised the road map for IFRS convergence in India. The ICAI has said that all entities having net worth in excess of Rs 1,000 crore will have to follow IFRS. The list also includes all NSE and BSE listed companies, entities having foreign borrowings of more than Rs 500 crore, insurance entities , mutual funds, venture capital funds and all scheduled banks having operations outside India.

Indian Inc Waiting For IFRS

International Financial Reporting Standards, is the modern financial reporting framework that the whole world, including India, is adopting. Apart from the benefits of having a uniform accounting standard worldwide, IFRS would also enable Indian companies to tap global financial markets and will encourage free flow of capital, goods and labour across borders. Since some of these reporting standards are market sensitive, they sometimes have material impact on reported results which could lead to stock price volatility.IFRS is a new concept that in many cases is vastly different from the manner in which it treats the accounting of items in a company’s profit and loss account and the balance sheet. Since some of these reporting standards are market sensitive, they sometimes have material impact on reported results which could lead to stock price volatility.

The biggest names in the accountancy world come together for the first time to address issues involved in India's transition to IFRS at the Implementing IFRS conferences being organized by Get Through Guides (GTG) with ACCA as platinum sponsors. Implementing IFRS would witness eminent speakers from distinguished financial bodies, renowned accounting firms and financial heads of domestic companies sharing their views on the systems and processes that companies in India need to implement to ensure a smooth transition to IFRS.

India Inc will experience drastic changes in the way financial statements are reported. India is among the 150-odd countries that have decided to adopt the International Financial Reporting Standards (IFRS) in 2011. Starting fiscal year 2011, IFRS will be coming to about 400 Indian companies that constitute the Sensex, the Nifty 50 and companies whose securities are listed on stock exchanges outside India as well as companies having net worth of Rs 1,000 croreStarting fiscal year 2011, IFRS will be coming to about 400 Indian companies that constitute the Sensex, the Nifty 50 and companies whose securities are listed on stock exchanges outside India as well as companies having net worth of Rs 1,000 crore.