 "Hans Hoogervorst")
India adopted the International Financial Reporting Standards (IFRS)-compliant accounting standard, Ind-AS, from April 2016. Around 1,000 companies are currently going through the transition process in the first year. Hans Hoogervorst, chairman, International Accounting Standards Board, the standard-setting body responsible for the development and issuance of IFRS, spoke to Sudipto Dey & N Sundaresha Subramanian on why it is important for companies to communicate well with investors the impact of the new standards on their numbers. Edited excerpts:
What is your first take of India's accounting standard getting IFRS-compliant?
We see this as an enormous progress for India as the quality of accounting will improve. What is important for Indian business is that Indian accounting standards have come very close to international accounting standards. This will reduce the cost of doing business internationally. There are some carve-outs (under Indian accounting standards) from IFRS. But, we have been told that these differences will disappear overtime.
We are an international organisation. We cannot impose our standards on anybody. All the 120 countries that follow our standard do so voluntarily.
Many companies that have adopted the new accounting standard have expressed reservation over giving away too much information to shareholders and the public.
Those complaints are not typically Indian. We hear them everywhere. Accounting is not an exact science. It has a lot to do with judgment and people have differences of opinion. Not even one of my board members agrees with everything in IFRS. That's normal. What we try to do is to listen carefully to the whole world when we set up standards. We make sure we hear all the arguments, before taking a decision. Most countries say even if I agree 95 per cent, I adopt 100 per cent because it is important that our companies get compared to companies in other countries. Investors from around the world can now pick up the financial statements and understand them. That is also the goal of India - a big change that is now happening.
What would be your advice to companies as they go through the transition?
It is extremely important that they communicate well within their company. Every change in numbers needs to be explained. It is important to communicate well with the investor community - explain to them the impact of the new standards.
Europe was the first big continent to adopt IFRS in 2005. It was very similar like here - companies were complaining about the costs, the changes and how to explain to their investors. Ten years later, the European Commission did an evaluation of these companies. They said: 'We still don't agree with everything, but on the whole it has been a tremendous progress." They said it's important for everyone to speak the same accounting language, and be compared to other companies within Europe and outside.
As India grows, it will have more companies spread out across the world. It is in their interest to speak one (accounting) language.
With fears of growing protectionism across the world, what type of challenges does your organisation expect to face in the coming years?
Up to now, there has not been much ideological resistance largely because accounting is seen as a dry and technical topic. What also plays a role is that we work in an extremely transparent fashion. All our discussion papers and meetings are available on the internet -unlike many other international organisations.
There is a growing resistance to globalisation in many countries. In a way, your organisation is seen as globalising the accounting standards. How do you plan to handle the situation?
We might be impacted by that, too. We haven't seen that yet. We spend a lot of time explaining our story, and it is not that simple. The fact that India is taking this giant step for IFRS is good progress for India and the world.
Is there anything more the government can do to facilitate the transition?
The government is already doing a lot with the new company law, new tax laws, new accounting legislation, etc. It probably has a difficult time managing all the changes.
Courts in India have traditionally prepared the ground for mergers and acquisitions. This raises the question in certain cases whether a law or a court order could overwrite a standard.
This is the first time I have heard about this in any country. On a lighter note, the lesson is - don't put accounting in the hands of judges.
