Even as India talks about moving its banking into auditing system, that converges with international financial reporting standards (IFRS), from April 2013, a British Parliamentary committee has criticised it saying the mode of accounting has serious flaws, especially in bank audits.
The report of the select committee on Economic Affairs of the House of Lords released last month, said IFRS was an inferior system that limits the auditors' scope to exercise prudent judgment. The report assumes significance since IFRS has been made mandatory for listed companies in the European Union since 2005.
The British report is significant in the backdrop of India's proposed plan to ask banks and non-banking finance companies to convert their opening balance sheet as on April 1, 2013, in compliance with the notified accounting standards that are converged with IFRS.
According to the IFRS road map prepared by the ministry of corporate affairs last year, all scheduled commercial banks and urban co-operative banks, which have a net worth in excess of Rs 300 crore, will have to comply with the new accounting norms. The date for determination of this criterion is the balance sheet as on March 31, or the first balance sheet prepared thereafter when the accounting year ends on another date.
Supporting the UK Parliamentary panel’s view, Jaypal Jain, a teacher associated with University of Oxford, said the accounting (including IFRS) is not just a neutral device of recording economic reality.
“There is no evidence that IFRS is helpful for the sustainable planning and development of India,” he said.
According to Jain, the US is still thinking about implementing IFRS while Japan recently issued a report cautioning about its the negative impacts. Meanwhile, members of the Institute of Chartered Accountants of India, the auditing standard setting body, said the banking sector will not be asked to move towards IFRS converged auditing system without providing sufficient safeguards.
Adding that the April 2013 deadline may get extended as the government has already failed to implement the first phase of IFRS convergence from April 1, 2011. A select list of big companies, excluding banks and NBFCs, were expected to move towards IFRS compliant accounting system from this financial year.