In last decade the Global market has become local. Entities
are reaching new markets world over to sell their
products & services, tap capital markets & banks for funds.
This has necessitated the need for a financial statement,
prepared using a uniform and globally accepted accounting
What is IFRS:
IFRS is an accounting framework that establishes recognition,
measurement, presentation and disclosure requirements
relating to transactions and events that are reflected in the
IFRS was developed in the year 2001 by the International
Accounting Standards Board (IASB) in the public interest to
provide a single set of high quality, understandable and
uniform accounting standards.
The accounting professions as well as the government are
fully geared to make the transition in line with India’s
commitment at the G-20 Summit.
The Indian government had envisaged a phased transition
To make a common platform for better understanding of
To create comparable, reliable, and transparent financial
To facilitate greater cross-border capital raising and trade.
To having company-wide one accounting language which have
subsidiaries in different countries.
Synchronization of accounting standards across the globe.
The Ministry of Corporate Affairs has laid down a three-phase
implementation programme for Indian companies.
Benefits of IFRS on Indian Corporates and Proffessionals
The convergence benefits the economy by increasing the growth of its
Improvement in comparability of financial information and financial
performance with global peers and industry standards.
Adoption of IFRS is expected to result in better quality of financial
reporting due to consistent application of accounting principles and
improvement in reliability of financial statements.
The industry is able to raise capital from foreign markets at lower cost if
it can increase confidence in the minds of the foreign investors that their
financial statements comply with globally accepted accounting
It encourages international investing and thereby leads to more foreign
capital flows to the country.
Benefits to the investors who wish to invest outside their own country.
Investors want the information that is more relevant, reliable, timely
and comparable across the jurisdictions.
The investors’ confidence would also be strong if accounting
standards used are globally accepted. Convergence with IFRs
contributes to investors understanding and confidence in high quality
The burden of financial reporting is lessened with the convergence of
accounting standards because it simplifies the process of preparing
the individual and group financial statements and thereby reduces
the costs of preparing the financial statements using different set of
Convergence with IFRS’s also benefits the accounting professionals in
a way that they are able to sell their services as experts in different
parts of the world.
They are able to quote IFRS to clients to give them backing for
recommending certain ways of reporting.
IFRS Convergence: Issues & Key Challenges
The preparation of financial statements in accordance with IFRS is always
Furthermore challenges have been increased by several newer standards
and amendments that have a significant impact both on the presentation
of the primary statements and the accompanying disclosures.
Adoption of IFRS requires a lot of preparatory work for companies in terms
of comprehending, training and modification of software and IT systems.
Experts said that companies fear a fall in their bottomlines as they were
not sure how the IFRS regime would pan out. IFRS requires that all
transactions and assets be accounted at fair value or marked to market.
This may reduce the profits of several companies depending on the sectors
they operate in. For instance, they said, real estate and banking may be hit
hard by the new standards.
Shortage of Resources
India with a population of more than 110 Crores has only approx 150,000
Chartered Accountants far below its requirements.
IFRS has to be uniformly understood and consistently applied.
To be introduced as a full subject in universities and Chartered
Training to be given to all stakeholders, CFOs , Auditors, Audit
Committee, Analysts, Regulators, Tax authorities etc. etc.
Financial accounting and reporting systems must be able to produce
robust and consistent data for reporting.
The system must be capable of capturing new information for required
disclosures, such as fair values of financial instruments, related party
transactions, segment information etc.
Extra security for addressing potential risk of business interruptions
particularly Fraud, Cyber terrorism and data corruption etc.
IFRS convergence will have significant impact on tax liability
Tax authorities should ensure full clarity on the tax treatment for e.g,
unrealised gains or losses on various accountings required for financial
Tax planning strategies has to be revisited.
IFRS may significantly change reported earnings and various
Managing market expectations and educating analysts for a particular
business will be critical.
Reported profits may be different from perceived commercial
performance due to the increased use of fair values and the restriction on
existing practices. Consequently indicators for assessing the performance
need to be revisited.
IFRS is value driven, which results very often in unrealized gains and
Whether this can be considered for the purpose of computing
distributable profits will have to be debated.
Management Compensation and debt covenants
IFRS may significantly change the calculation of performance based pay.
Present plan will be materially different under IFRS.
Significant changes to the plan may be required.
Re-negotiation will be required for contracts that referenced reported
accounting, such as bank covenants on convergence to IFRS.
Significant one time cost of converting to IFRS.
Ensure compatibility with local tax regime, RBI, SEBI, Courts, tribunals etc.
Extensive reliance on fair value measurements for standards relating to
financial instruments and business combination.
Scarcity of resources and expertise with the SMEs to achieve compliance
Cost of compliance not commensurate with the expected benefits
Convergence of accounting standards toward a common set of high-quality
accounting principles is in the public's best interest and would provide a
more uniform language for financial reporting. The rapid pace of change and
proliferation of complex standards may create challenges for some
stakeholders, including some in the financial statement preparer
Adequate time to react to changes and new standards, and an intensive
effort to inform all stakeholders of these changes, will need to be provided,
especially with a view toward global implementation.
We personally believe that achieving a single set of high-quality global
accounting standards is a very important goal. However, we also believe that
we are a fair distance away from achieving that objective. Some of the
momentum around IFRS has downplayed a few real challenges associated
with uniform adoption of IFRS.
The need of the hour is that the industry should not try to over ride the
commitment made by the government in G-20 for converging the domestic
accounting standards with the global reporting standards