It is not just Indian accounting standards, which would converge fully with the International Financial Reporting Standards (IFRS) by 2011, but cost accounting standards (CAS) would also need to be in tune with the global model.
The Institute of Cost and Works Accountants of India (ICWAI), the apex body to regulate the profession of cost accountants, is working out the impact of IFRS on costing principles.
“IFRS would affect the structure of cost of product and hence the Institute bringing in necessary changes and preparing its members,” said ICWAI President GN Venkataraman. IFRS are interpretations and the framework for the preparation and presentation of financial statements adopted by the International Accounting Standards Board (IASB).
The ICWAI has taken this initiative at the behest of the International Federation of Accountants (IFAC), the global organisation for the accountancy profession, which is for the first time addressing costing and has come out with guidelines on the impact of IFRS on costing principles.
Post-IFRS, moving away from historical cost, value of asset would be based on current cost, which would impact not only the raw material cost but also finished goods and overheads, said Chandra Wadhwa, past president of ICWAI and added that this would ultimately affect the cost of production and would directly impact the industry.
Under historical basis approach, assets are presented on the balance sheet at their value at the time of acquisition (generally represented by the purchase cost). However, experts believe that in today’s time with widespread use of complex and complicated financial instruments and risk management strategies have rendered yesterday’s prices obsolete. Under the IFRS, historical cost has been abandoned and replaced by a current cost system for a more accurate financial reporting.
At present, there are over 100 countries where the IFRS is followed. Once the Indian accounting standards converge with the standard, it would be first applicable for the listed companies, followed by other entities. By 2011, about 150 countries would have adopted the IFRS. However, the US plans to move to the pattern by 2014.
According to Wadhwa, ICWAI would bring out cost accounting standards in line with the IFRS and would make changes in those, which are already out. The institute has issued six CAS and would come out with the rest 33 in two years.