An impact study of IFRS

Conventional accounting measures profit on the income statement as an indicator of a company's performance while simultaneously excluding future profits by matching realised revenues against accrued cost. In contrast, Fair Value Accounting (FVA) defines profit on the Balance Sheet as an increase in net assets over a period. The discomforting factor for many is when the fair value of assets is measured by estimated future cash flows; it could include unrealised future profit. The fundamental accounting principle of conservatism would get the short shrift.

FVA can often be driven by different models and estimates which officially have to be determined by the management.

That leads us to a fundamental question — how will the fair value of assets and liabilities be “negotiated” between management and auditors? We may end up with a long chain of professional referencing where professional valuers, management and auditors flourish in an environment where no one is held accountable by the system, while the increased costs are borne by investors.

All this explains why the top honchos in the ICAI are rooting for IFRS but it is indeed inexplicable why Corporate India, especially those who have no need for foreign capital, have not raised their voice on these lines. Similarly, investor forums too have been silent.

Business Line : Opinion : An impact study of IFRS