IFAC PAIB office requested ICWAI to prepare a note on the implications of IFRS on historical cost statements. The issue came up as ICWAI took a stand in IFAC meeting that if cost statements are made based on ledger balances which are subject to IFRS the impact of fair value estimates would have changed the recorded transaction costs or historical costs. This may change the paradigm of historical costing. But we are not sure if this can really happen.
Two meetings were conducted at Kolkata and Chennai with a small group of interested professionals. Chennai meeting was led by Mr T.P.Ghosh with particpation from various experts and the Kolkata meeting by Prof Asish Bhattacharyya of IIM Calcutta..
The crux of the discussions are as below :
IFRS fair value affected expense balances can make serious impact on historical costing. This is true of many standards like, employee costs, inventory valuation, depreciation, some intangible expenses etc.
Regulated industries will have give misleading cost structure if cost statements are submitted on the basis of fair value influenced IFRS.
Board of directors should be told about the difference in profitability between historical cost structure based profitability and IFRS based.
Due to the potential hazards all companies beyond a threshold limit should maintain profitability measured by cost accounting standards as a discipline whether coming under section 209(1)d) or not .
It is very very very relevant like fertilisers wherein Govt decides subsidies based on historical cost structure.
Views of the portal members are solicited on this subject.
A.N.Raman
CCM ICWAI
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