I see opportunities and not challenges. The new standards will give them access to resources around the world at reduced costs. Moreover, it will make it easy for FDI to come into the country. The International Accounting Standards Board (IASB) can help countries cope with transitional challenges they face. Many countries have gone through this period. It’s unlikely that India will have some unique problems.

Do you think the government is on track to bring about the implementation of IFRS by 2011?

The decision to switch to IFRS by 2011 is an important one. There will be challenges along the way, but the benefits far outweigh them. The Ministry of Corporate Affairs has formed a core group and two sub-groups to work on the roadmap. These groups have tight deadlines but I am sure they will come out with their recommendations by November. As a member of the IASB and an Indian, I will lead discussions from the IASB side with these groups in order to effect a smooth transition.

Fair value is a key concept in IFRS. But there are fears that it will be difficult to ascertain fair value in an imperfect market such as India…

First, fair value as a measurement is not required at all times. Over the years, fair value measurements developed inconsistently for different accounting standards. So, we have come out with a proposal to consolidate all the fair value measurement guidance. While creating new standards, the IASB is addressing matters in a way that will be applicable in
all markets. 

We have an extensive consultation process for addressing the issues raised by people from around the world. In my recent visit to India, with the support of the Institute of Chartered Accountants of India (ICAI) and Sebi, we conducted three round tables. We are very sensitive to the feedback gathered from those round tables.

Do IFRS and Indian generally accepted accounting principles (GAAP) look at controlling of businesses differently?

Under Indian GAAP, consolidation is required only if the parent company is listed. It is optional in all other cases. Under IFRS, consolidation is mandatory except in certain limited circumstances. The new exposure draft on consolidation discusses scenarios where consolidation is required even in situations when an entity holds less than 50% ownership but controls the other entity. If by control we mean power to direct the activities of an entity to generate returns for the reporting entity, then perhaps consolidation is not a bad idea. In principle-based accounting standards, we should not go by form but by substance. 

What will happen to third-party manufacturing or services that many companies have got into? Will IFRS consider them as lease arrangements?

IFRS has guidance to determine whether an arrangement is on a lease or not. This is based on the substance of the arrangement and requires an assessment of the terms.  Hence, we cannot say that all arrangements will automatically fall into the ambit of this guidance.

Having been associated with the service industry in India, I feel several of these
arrangements will not be considered as lease arrangements.

Log on to www.outlookbusiness.com for the full interview.