IFRS based accounts for Small and Medium Enterprises (SME) deferred

Recently read an article in Economic Times on the IFRS adoption by Small & Medium Enterprises.

It is well known fact that change is very difficult. But if is for good, then it is not to be taken as a difficulty and should be welcomed. No pain - No gain. Given that there is a cost involved in adopting IFRS by SMEs, it was felt that the adoption to be deferred. Also, it need to be noted that the IFRS for SMEs are little lenient than the regular ones.

With the Income Tax department, still not able to appreciate the current Accounting Standard, moving to IFRS and that too separate on for SME and non-SMEs will create confusion. 

More than anyone, the Income Tax department should undergo training to appreciate the accounts presented under IFRS. 

Following is the news article, which appeared in The Economic Times:

NEW DELHI: Small and medium enterprises (SMEs) in the country will not have to prepare their accounts as per the International Financial Reporting Standards (IFRS) from April 1, 2011, saving them significant cost of switching to the more rigorous accounting standard A government-constituted core panel on IFRS has decided to exempt SMEs from the first phase of convergence falling due in 2011.

“The SME sector, which contributes significantly to the Indian economy, will continue to follow existing Indian accounting standards , which may be modified from time to time to make the sector more competent in the international arena,” said Uttam Prakash Agarwal , president, Institute of Chartered Accountants of India (ICAI).

Convergence to IFRS is a costly exercise which includes an overhaul of operational and IT processes apart from training costs. A small enterprise for this exemption is likely to be one where the investment in plant and machinery is more than Rs 25,00,000 does not exceed Rs 5 crore.

A medium enterprise is one where investment in plant and machinery is more than Rs 5 crore but does not exceed Rs 10 crore.

In November last year, the government had hinted at preparing a watered-down version of IFRS for the SMEs. “Industry preparedness in converging with IFRS is a key factor, specially for SMEs who may feel the convergence as cost-prohibitive ,” R Bandopadhyay , secretary in the ministry of corporate affairs, had said.

Stating company’s accounts as per IFRS will involve huge cost and is being considered world wide as a hurdle for SMEs.

Recently, a core committee of the government finalised the road map for IFRS convergence in India. The ICAI has said that all entities having net worth in excess of Rs 1,000 crore will have to follow IFRS. The list also includes all NSE and BSE listed companies, entities having foreign borrowings of more than Rs 500 crore, insurance entities , mutual funds, venture capital funds and all scheduled banks having operations outside India.

Cheers,

Gopal