No Mandatory Clause for Companies to Keep Two Books of Accounts

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Oct. 21 – Organizations aspiring to move around to international auditing norms, the International Financial Reporting Standard (IFRS) may be spared from preserving two books of accounts — one under the Companies Act and the other for taxation purposes – if a Finance Ministry proposal gets implemented. The application, which was drafted in a discussion paper on Tax Accounting Standards issued by the government, aims at reducing the compliance burden on businesses.

It would be arduous for tax payers to preserve two sets of account books i.e. first in accordance with the Accounting Standards issued by the ICAI/notified under the Companies Act, 1956, and another in accordance with the Accounting Standards notified under the (Income Tax) Act.

As a result, the Accounting Standards notified under the Act should be made relevant only to the calculation of taxable income and a taxpayer should not be obligated to maintain account books on the basis of Accounting Standards notified under the Act.

According to the scheme, the companies will be required to pay taxes as per the Tax Accounting Standards, while books of accounts will have to be maintained in agreement with the ICAI norms notified under the Companies Act, 1961.

According to the Finance Ministry, the anticipated Tax Accounting Standards, while enabling smooth transition to IFRS, will provide assurances on accounting issues for tax purposes as it removes alternatives and will cover all tax accounting issues.

The Central Board of Direct Taxes has invited suggestions on the paper, prepared by an expert committee, by November 11, 2011.

The Committee was created in 2010 to learn the coordination of ICAI’s accounting standards with the direct tax laws in India, suggesting methods for determining a tax base for the purpose of Minimum Alternate Tax in case of companies migrating to IFRS and appropriate amendments to the Income Tax Act in view of transition to the IFRS system.

Although insecurity still comes out over the execution date of the IFRS, as per the previous layout laid out by the MCA, companies will have to organize their accounts as per the new norm in a phased manner, beginning with companies that have a net worth of over Rs. 1,000 crore from April 1.

While listed commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will have to convert their opening balance sheets under IFRS from April 2012. Large, listed non-banking finance companies will converge their opening books of accounts with IFRS norms from April 1, 2013.

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