FE: There seems to be a reluctance to adopt the International Accounting Standards Committee (IASC) norms in the US.

Mirza: This is definitely a problem. The US is the largest market and it is important for IASC standards to be harmonised with those prevailing there. The US lobby is strong, and they have formed the G4 nations, with the UK, Canada, and Australia (with New Zealand) as the other members. IASC merely enjoys observer status in the meetings of the G4, and cannot vote. Even when the standards are only slightly different, the US accounting body treats them as a big difference, the idea being to show that their standards are the best. We have to work towards bringing about greater acceptance of the IASC standards.

FE: Howreal is the threat from G4?

Mirza: G4 has evolved as a standard setting body and has recently issued its first standard on pooling of interest method. (Mergers can either be in the nature of purchase or in the form of pooling of interest like HLL-BBLIL). It is also expected to publish new or revised papers on reporting financial performance, business combinations, joint ventures, leases, and contributions. So far, the FASB (the US standard setting body) was the world's standard setter because of mandatory compliance with US Gaap for listing on the New York Stock Exchange (NYSE). The US congress had to, however, step in and overrule the FASB standard on stock option.

FE: Post IAS 39 (which deals with the recognition and measurement of financial instruments), what is the role of IASC?

Mirza: IASC has just completed a comprehensive set of "core standards" that can be endorsed by IOSCO for listing in global markets. IAS 39 was approved by IASC at its board meeting in December 1998. Thestandard which becomes effective from January 1, 2001, requires that all financial assets and liabilities including derivatives will have to be recognised on the balance sheet. Effectively it means that instead of being included in notes or treated as off balance sheet, it will form part of the balance sheet. A major departure from E62 (the exposure draft which precedes the standard) is that instead of being applicable only to listed corporates, the standard will apply to all corporates. Initially, the financial instruments will be measured at cost and subsequently at fair value. The fair value is the amount paid to acquire or receive a financial instrument. But the practical problem is likely to be the measurement of fair value for, say, financial assets which are not quoted. IAS 39 is an interim solution and a joint working group is working on the comprehensive standard. Though effective January 1, 1999, Australia will have a standard identical to IAS 39. It was the only country to vote against it. The US,UK, and France abstained. IASC will be also involved in interpreting standards known as Standing Interpretation Committee's interpretations (SICs).

FE: Is the core standard setting process complete with IAS 39?

Mirza: The process of setting core standards is all but over except for the standard on investment properties. But IOSCO will go ahead with the review. Each stage from the Draft Statement of Position (DSOP) to Accounting Standard (AS) normally takes three months, and hence technically, at least a year will lapse before the process is complete. Let me give an example. Company A owns a building which is occupied by tenants. Should it be depreciated or should it be taken at cost (IAS 16 requires that it must be depreciated).

FE: For acquisition accounting, if part of purchase consideration is contingent on a future event (for example, achieving pre-set profit level), an estimate of the amount is included as part of the cost of acquisition. Under US Gaap, cost is not recognisedtill the contingency is resolved. Why is IAS 22 more liberal?

Mirza: I am not in a position to comment on that as IAS 22 is being revised. SIC is coming out with an interpretation. One will have to wait till then.

FE: If an intangible asset/brand is self-generated for an amalgamating company, can the amalgamated company claim depreciation on the brand?

Mirza: According to IAS 38, the cost of an intangible asset acquired as part of a business combination is its fair value as on the date of acquisition. If the asset is freely tradable, the market price is the best measurement of cost. If the asset has no active market, the cost is determined based on the amount that would have been paid in an arm's length transaction. If the cost of an asset acquired as part of business combination cannot be reliably measured, then the asset is not recognised but included in goodwill. Subject to these conditions, in the situation referred to, it is possible to amortise the intangible asset.