Professional Education

India Inc to adopt IFRS framework

MUMBAI: Jamil Khatri is a busy man these days. The executive director at professional services firm KPMG, who till October 2008 was the head of its US GAAP (Generally Accepted Accounting Principles) audit group, is now in charge of the firm’s accounting advisory group that helps clients switching over to IFRS.

IFRS, or 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.

Mr Khatri is busy as not only is his new role wider than his earlier one, but also because he has a looming deadline to meet—the ministry of corporate affairs, in a recent notification, stipulated that most top companies will need to adopt IFRS from April 1, 2011. This leaves Mr Khatri and his team with just about a year to enable the switchover for their clients. "But the best part is companies have realised the importance of the deadline," Mr Khatri tells ET while on his way to yet another client’s office to monitor the progress.

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 impact is also on the tax and operating structures, which could alter once IFRS comes into place. But the biggest challenge in convergence with IFRS, is that our chartered accountants will have to unlearn all that they have spent the past 20-30 years practising. This puts a big emphasis on training.

"There is no running away from this reality," says Abhishek Ashthana, director (operations) at Piron, a Delhi-based specialist firm that trains and offers consulting services in accounting and finance. "The active involvement of all the big four consulting firms has helped matters as companies are now realising the impact of the switchover. They’ve also realised that the training would have to include all departments, including the non-finance teams.”

The training is also getting tighter. 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 crore. From 2013, IFRS would probably encompass the entire gamut of the Indian corporate world.

Dry runs have started and there are companies that have started all-round implementation. According to Piron, Chennai-based Ashok Leyland has customised the training programme to ensure that all departments from IT, marketing to production and logistics is part of the training process.

Since phase 1 of the convergence includes all top notch companies, players such as L&T, JSW have adapted the training procedure according to their needs. In the case of companies like Tata Steel and Hindalco, which had made large overseas acquisitions, the need to adopt IFRS had been taken as their international subsidiaries currently follow that accounting standard.

Companies are hence forming core groups that would first experience implementation of the new standards and then pass it on to the rest of the company, which in HR parlance is popularly called ‘training the trainer’. "This helps in large companies where there are subsidiaries spread all over the country. The core group of the company is the first to customise the training so that they can then teach an operations team or the marketing team, the impact of such a concept," says Mr Khatri.

Since IFRS is new, the number of people proficient in it is also limited. Most such experts are housed in large multinational service firms such as PricewaterhouseCoopers, Deloitte, Ernst & Young or KPMG or in specialist training companies like Piron. While there was an initial reluctance among senior professionals, younger employees are more keen as they see the potential in getting certified. Some younger finance professionals are aware of the overseas growth opportunities with such programmes. Common standards, apart from making things easier for buyers, sellers and other stakeholders across borders, can also prompt people to switch across countries. Training courses for IFRS have started with the key audience being chartered accountants, cost accountants and other finance professionals. There are short-term courses jointly organised by KPMG and the Institute of Chartered Accountants of India. Professionals, who receive an IFRS certification, can use that in any other part of the world.

The training is also getting tighter. 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 and companies having net worth of Rs 1,000 crore. From 2013, IFRS would probably encompass the entire gamut of the Indian corporate world.

Talking about the entire procedure, Piron’s Asthana says that his firm first assesses the annual reports of companies to gauge its locations and likely impact areas. Training modules and course contents are then prepared accordingly and company employees are given access to learning portals.