Intangibles will pose a challenge: M P Vijay Kumar

Typically, the challenges faced by technology companies are on account of the variety of assets they hold and the intangibles they create out of the business. In terms of measurement of tangible assets, the proposed Indian accounting standards aren't far from existing ones. Therefore, this might not prove to be an arduous journey. It is the intangible part that will pose the challenge.

Also, on the fair value measurements of financial instruments and business combinations, there is no detailed prescription in the existing standards. As such, both measurement and disclosure of these in terms of data they need to maintain and also to fulfil the disclosure criteria, could be another challenge. There will be a consequential amendment to the accounting systems and data capturing methods. But considering the expertise and guidance available at the global level, companies might not face an uphill task here.

On the revenue measurement and recognition front, the draft standard on revenue measurement will pose a challenge in terms of identifying performance obligation and allocating consideration towards each obligation. This might cause deferment, or at times even early recognition, of revenue, contrary to the present environment. Though there would not be much change in revenue over the period, from a time consideration, this might impact earnings and, consequentially, the performance parameters of executives whose compensation is linked to revenue. Though the proposed standards might not throw up a significantly different answer, it would necessarily require a change in the thinking and approach towards recognising revenue from any contract with customers.

Any guidance from regulating authorities in these critical areas would certainly help in a smoother transition.

M P Vijay Kumar
Chief financial officer, Sify Technologies