IFRS to spell next big outsourcing opportunity

In an article in the Financial chronicle on the convergence to International Financial Reporting Standards (IFRS) from US GAAP by 2015 and its implications on the outsourcing opportunity for India, Dolphy D’souza, partner at Ernst & Young says that India is the only place where there would be available pool of talent and if the CAs can acquire the necessary skills, there is a huge opportunity to be tapped.

From Sep, 80-hour course for global accounting standards

In an article on the 80 hour course launched by the Institute of Chartered Accountants of India (ICAI) in September, that will allow the chartered accountants to follow the International Financial Reporting Standards, or IFRS which will converge with

Indian Accounting Standards (IAS), by April 2011.

According to Dolphy D’Souza, partner at audit and consulting firm, Ernst and Young India Pvt. Ltd, the 80-hour course is a good starting point.

“There are over 10,000 Indian companies, including banks and financial institutions, which will adopt IFRS by 2011. In fact, I feel students undergoing chartered accountancy courses now and in future should also have a specialized paper in IFRS as that is going to be the future accounting norms”. D’Souza further says that Ernst and Young India is an early adapter in understanding the nuances of IFRS and it sent employees to train in the European Union when it adopted IFRS in 2005. “We are looking at an opportunity to help train manpower in various companies for adopting IFRS. ”says D’Souza.

He comments that ICAI needs to go beyond just introducing a course for CAs and should lobby with the ministry of corporate affairs, of which ICAI is a part, to bring about the necessary amendment in the Companies Act, 1956, to make IFRS mandatory, besides lobbying with the income-tax department, central banker Reserve Bank of India, insurance regulator Insurance Development Regulatory Authority, and stock market regulator Securities and Exchange Board of India to bring about changes in their regulations which will allow smooth adoption of IFRS. D’Souza feels that ICAI is going a bit slow on these fronts

Source: Live Mint

Aug 6 2008

http://www.livemint.com/2008/08/06003959/From-Sep-80hour-course-for-g.html

It’s a fait accompli, lets brace up for it.

In an article for the Economic Times, Dolphy D’Souza , Partner Ernst and Young writes that  while the government decision regarding the adoption of international norms established in IFRS IFRS’s issued by the International Accounting Standards Board is a welcome step, the ministry for corporate affairs(MCA) alo needs to understand that there are significant differences between India’s generally accepted accounting principles (GAAP) and IFRS. However the government needs toa dress key questions such as , whether it would be convergence or adoption, whether appropriate amendments would be made to the Companies Act, whether exceptions to IFRS would be made so as to take care of India-specific issues and lastly what standards would apply to small- and medium-size enterprises.Mr. D’Souza points that certain laws need to be amended because they override accounting standards. He exemplifies that the various provisions of Companies 1956 act, that prescribe statutory depreciation rates and which define subsidiary are not consistent with IFRS standards. Similarly, accounting for amalgamation is required to be done purely based on IFRS principles as opposed to the currents situation based on treatment prescribed by the High Court. He further comments that it is hence imperative for MCA to announce astrategy as soon as possible focusing on adoption rather than convergence
”Apart from the MCA, tax authorities should consider IFRS implications on direct and indirect taxes and provide appropriate guidance from a tax perspective. The Institute of Chartered Accountants of India should make an all out effort to train and upgrade the profession in IFRS” says D’Souza.Hence, these milestones need to be achieved at the earliest. . In any case, since IFRS in one form or the other is fait accompli, Indian entities should not take things lightly, and should prepare themselves for IFRS immediately

Source:

The Economic Times.

19 Jun 2008

http://economictimes.indiatimes.com/News/Economy/Policy/Its_a_fait_accompli_let_us_brace_up_for_it/articleshow/3143807.cms

 

Do we need a fair value accounting?

In an article for the Economic Times, Dolphy D’Souza, Partner Ernst and Young say that the current credit crisis seems to have initiated a debate whether the fair value accounting has exacerbated the crisis.Mr. D’Souza points that some criticize the fair value valuation on grounds that it results in notional notional gains and losses, since the eventual settlement price of the financial assets/liabilities could be substantially different., but these criticizing criticising fair value accounting do not seem to provide any credible alternatives. He questions that whether going back to the historical cost accounting would be appropriate because then the financial assets are stated at outdated values and hence are not relevant or reliable. He says,” . In the current market scenario, any accounting which fails to highlight the liquidity risk, in the way that fair value accounting does, would not serve the interest of investors and other stakeholders .”He further comments that US Federal Reserve research shows that fair value estimates for bank loans

can vary greatly depending on the valuation inputs and methodology used.

“The danger to relevance, reliability and comparability of financial statements

using calculated, hypothetical, non market based fair values was well illustrated in an exercise conducted by Ernst & Young to determine employee stock option charge. By making changes to the input variables, all within the allowable parameters of IFRS, option expense as a percentage of reported income was found to vary as much as 40% to 155%. “ says D’Souza .He states that the amendments were made under IFRS to reduce reported profit and loss volatility. He also points out that users need financial statements that have predictive value in terms of providing a sound basis for decision-making, which is different from providing them  with financial statements that give the impression that they are themselves predictions though, , FASB and IASB have so far chosen not to follow this path. Mr. D’Souza emphasizes that instead of abandoning fair valuation governments should consider other measures such as reducing capital adequacy norms, or making investments in the affected companies or buying of toxic assets

.

Source: The Economic Times

 

21 Nov 2008,

http://economictimes.indiatimes.com/News/News_By_Industry/Services/Consultancy__Audit/Do_we_need_fair_value_accounting/articleshow/3738921.cms

Fair value accounting is fair

In an article for Hindu Business Line, ,, Dolphy DsOUZA, Partner Ernst and Young states that the International Accounting Standards Board (IASB) has given significant importance to fair valuation in the International Financial Reporting Standards (IFRS) because many IFRS standards require the use of fair valuation principles for recognition, measurement and disclosure. Mr.D’Souza says that fair value is a market-based measure that is not affected by factors specific to a particular entity; ; accordingly it represents an unbiased measurement that is consistent from period to period and across entities. He further says that fair value measure is to be preferred to the hundreds of rules underlying historical cost income because reporting on fair value basis ensures that we take control of the reported numbers out of the hands of corporate management. Mr. D’Souza points that the problem with the fair valuation lies with its measurement. Though for non financial assets, fair value may not be a difficult exercise, however, for illiquid assets or liabilities it may be necessary to use a model to derive the value. He further comments that a fair value model should be based on inputs and assumptions that marketplace participants would use. The market prices of some of these inputs can be readily observed. The other problem lies with measuring the future market volatility because; the measure of volatility on pricing an option is commonly based on past volatility. Mr. D’Souza states that though, fair valuation is at times subjective and displays a degree of potential unreliability to the values , they are still very useful to decision-making because they represent the economic reality as opposed to an accounting ‘fiction’ in the form of historical cost and giving up on fair valuation and going back to historical cost would certainly be a retrograde step .He suggests that one way of addressing the lack of reliability , is to make valuation systems and processes more robust while another alternative is limiting the application of the fair value model to those assets and liabilities that have real or determinable market values .Unfortunately, IASB has so far chosen not to follow this path and neither has it considered it seriously.

Source: The Financial Express

Oct 20, 2008

http://www.blonnet.com/mentor/2008/10/20/stories/2008102051001300.htm

IFRS implementation issues

In an interview to Hindu Business Line on the implementation of International Financial Reporting standards, Dolphy DsOUZA, Partner Ernst and Young observes that India needs to step up action in order to reap benefits of IFRS convergence because major stock exchanges across the world today require or accept IFRS, a common accounting language for preparing financial statements. When asked, what needs to be done to implement IFRS, Dolphy D’Souza says that certain regulatory amendments have to be taken up quickly because without regulatory approvals the whole thing will fall flat. While explaining the impact IFRS would have on the Indian industry, Mr. Souza comments that IFRS as a common accounting language will help Indian companies benchmark their performance with global counterparts. Similarly, “global Indian companies can easily escape the burden of filing multiple reports under multiple GAAPs. With the knowledge of IFRS, the Indian Chartered Accountant would be globally acceptable.” says Douza.On being asked what efforts would be required by Indian companies to migrate to IFRS framework , Mr. Dsouza replies that conversion to IFRS is more than a mere technical exercise because the consequences are far wider than financial reporting issues and extend to various significant business and regulatory matters including compliance with debt covenants, structuring of ESOP schemes, training of employees, modification of IT systems and tax planning .Mr.D’Souza further says that there are significant differences between Indian GAAP and IFRS especially in areas of business combinations, group accounts, fixed asset accounting, presentation of financial statement, accounting for foreign exchange and financial instruments. Mr.D’Souza further says that many Indian companies underestimate the efforts involved to convert to IFRS and that they need to speed up since IFRS would become effectively mandatory in 2010.

Source: Hindu Business Line

June 09, 2008

http://www.blonnet.com/mentor/2008/06/09/stories/2008060951261200.htm

1. IFRS 1: First time adoption

In a column for the Hindu Business Line, Dolphy D’Souza, Partner Ernst and Young, writes that the most critical aspect while converting from local GAAP to a new accounting framework IFRS aspect, is to restate the opening balance sheet as if the new accounting framework was always followed.Mr. D’Souza points out that due to major differences of Schedule XIV depreciation rates, residual values, capitalization of exchange differences and component accounting. it becomes difficult to adopt IFRS from local GAAP.Fortunately, IFRS 1 allows certain exemptions such as in the case of fixed assets, these could be fairly valued as of the opening balance sheet date (date of transition) and the same would constitute a deemed cost under IFRS. Mr. D’Souza further says that the exemption allowed by IFRS 1 in regards to accounting of business combinations is important in Indian context since under IFRS business combinations are accounted for on the basis of fair valuation principles. First time adopters of IFRS also have the choice of recognizing all the cumulative actuarial gains and losses at the date of transition to IFRS even if it uses the corridor approach for later actuarial gains and losses which may leave some actuarial gains and losses unrecognized. Similarly, that first time adopter also may not have to apply apply IFRS 2 share-based payment to equity instruments that were granted after November 7, 2002, that vested before the later of the date of transition to IFRS and January 1, 2005.Mr. D’Souza notes that While IFRS provides exemptions, in a few cases, it also prohibits retrospective application of IFRS. Such is evident in the case of hedge accounting. A converting company needs to recognize and reclassify items as assets, liability and component of equity to change from Indian GAAP to IFRS.Mr. Dsouza recommends that while Indian entities start preparing themselves for converting to IFRS by first identifying the key differences between the two GAAPs.Mr. D’Souza observes that those who approach IFRS adoption as a mere technical exercise will not be able to fully optimise on the benefits of adopting IFRS.

Source: Hindu Business Line

Aug 18, 2008

http://www.blonnet.com/mentor/2008/08/18/stories/2008081850421200.htm