The adoption of IFRS beginning April of 2011 will have a big impact on both the Income Statement and the Balance Sheet of power companies in India. Under the present Indian GAAP, rate regulated assets/ liabilities are allowed to be recognized, so companies have recognized as an asset or liability- tariffs, fuel adjustments and advances against depreciation.
With the adoption of IFRS, such assets or liabilities will have to be removed from the financial statements. In terms of numbers the initial impact on account of these regulatory assets under IFRS can be as high as Rs.745 crore in case of Tata Power and Rs.1,034 crore for Reliance Infra.
This issue is not centered only on India. This IFRS rule affects power companies worldwide. Just as an example the regulatory assets and liabilities for the electricity companies in the US is estimated to be $675 billion and $450 billion, respectively, in 2007.
For the convergence and standardization of the accounting standards, such anomalies will have to be taken into stride.