Multiple listing to get easier for domestic firms

MUMBAI: Life could become a little easier for the chief financial officers (CFO) of Indian companies listed on the US stock exchanges. Shifting to a more internationally acceptable accounting standard may not bring about any dramatic change in the earnings numbers, but it will definitely give them more elbow room while preparing the balance sheet.

• For instance, under the International Finan\cial Reporting Standards (IFRS) a company need not consolidate the accounts of an associate or a subsidiary, if it can demonstrate that the control is only temporary. Besides, a proportionate consolidation is possible under IFRS; so if a company holds 60% in a subsidiary, it can consolidate only up to 60% of the assets.

In many ways, IFRS is a more principle-based accounting system, rather than a rule-based standard outlined by US GAAP. A few other key differences between the two standards are:

• IFRS allows a company to revalue its fixed assets like land and buildings, something that cannot be done under US GAAP.

• In the accounting of derivatives - a tricky terrain for regulators and auditors - US GAAP calls for a detailed mention of the various kind exposures and liabilities from such structured instruments. IFRS permits a less elaborate format.

• Significantly, certain expenses such as R&D, development of internal software etc can be amortised under IFRS. This means instead of showing the amount spent at one go, the company can spread it over the years. If the amount is big, it would help to avert a hit on the earnings. Under US GAAP, however, the cost has to be deducted from the company's income in the same year.

• IFRS also allows separate accounting in unusual circumstances like a hyperinflationary situation. But US GAAP standard is based primarily on the business and economic environment in the US. Some even feel investors and other stakeholders may find an IFRS balance sheet easier to understand.

• Indian companies which had offered ADRs are today required to file its accounts under either US GAAP or Indian GAAP reconciled into US GAAP. When they go for multiple listing in non-US markets, a uniform accounting standard like IFRS could make things simpler.