Study material on GAAP & IFRS for Business and Management students

1. DEPARTMENT OF MANAGEMENT
BUSINESS ACCOUNBTING
Chapter 5: Study Material
Unit 5: International Financial Reporting Standards
International Financial Reporting Standards - Meaning of IFRS; Relevance of IFRS in India, Merits and
Limitations of IFRS; Process of setting IFRS; Practical Challenges in Implementing IFRS; Convergence of
IFRS in India; List of International Financial Reporting Standards issued by IASB.
5.1 MEANING OF IFRS
IFRS standards are International Financial Reporting Standards (IFRS) that consist of a set of accounting rules
that determine how transactions and other accounting events are required to be reported in financial statements.
They are designed to maintain credibility and transparency in the financial world, which enables investors and
business operators to make informed financial decisions.
IFRS standards are issued and maintained by the International Accounting Standards Board and were created
to establish a common language so that financial statements can easily be interpreted from company to
company and country to country.
IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB). The
IASB is an independent standard-setting body within the IFRS Foundation. The IASB is supported by
technical staff and a range of advisory bodies. IFRS Accounting Standards are, in effect, a global accounting
language—companies in more than 140 jurisdictions are required to use them when reporting on their financial
health. They were developed and are maintained by the International Accounting Standards Board (IASB).
The IASB’s objective is that the standards be applied on a globally consistent basis to provide investors and
other users of financial statements with the ability to compare the financial performance of publicly listed
companies on a like-for-like basis with their international peers. IFRS are now used by more than 100
countries, including the European Union and by more than two-thirds of the G20. IFRS are sometimes
confused with International Accounting Standards (IAS), which are older standards that IFRS replaced in
2000.
5.2 RELEVANCE OF IFRS IN INDIA
In India, IFRS is key to making the country's accounting standards match those around the world. This
makes Indian financial reports clearer and more efficient. The Government of India and the Ministry of
Corporate Affairs are working to merge Indian standards with IFRS. This effort helps Indian businesses
appeal more to international investors. Yet, not all Indian companies must follow IFRS. Whether they
need to depend on how much the company is worth. There are also different rules for companies that
are listed or unlisted on any stock exchange in India.
Adopting IFRS can open doors to international markets, make financial reporting more consistent, and
improve the comparison of financial statements. However, switching to IFRS can be costly and requires
staff training. Despite these challenges, using IFRS in India is viewed positively. It helps meet global
accounting standards and boosts India's reputation in international finance.
IFRS isn't required for every company in India. However, for those who qualify and want to compete
globally, adopting IFRS is crucial. As India becomes more integrated with the world economy, the
importance of IFRS in enhancing reporting, accountability, and compliance in India grows.
5.2.1 BENEFITS OF IFRS ADOPTION IN INDIA
The adoption of IFRS in India brings several significant benefits to the financial landscape of the
country, aligning with global practices and enhancing transparency and reliability in financial reporting.
Here are some key benefits:
1. Global Alignment
IFRS in India matches Indian accounting practices with international standards from the International
Accounting Standards Board (IASB). This alignment supports global business and investment, creating
a shared financial language that improves how companies are compared worldwide.
2. Increased Transparency

2. Adopting IFRS in India makes financial statements clearer. This clarity is essential for investors and
stakeholders because it ensures that financial reports meet global standards. This boosts trust and
understanding of financial reports.
3. Attraction of Foreign Investments
With IFRS, Indian companies become more appealing to foreign investors. Investors prefer companies
whose financial information is clear and matches that of other countries. This global standard opens up
more investment opportunities.
4. Improvement in Financial Reporting
IFRS demands detailed financial information, which enhances the quality of financial data. These
standards make sure that company financial statements accurately reflect the company's financial health.
This creates confidence among stakeholders.
5. Reduced Cost of Capital
Clear and reliable financial reporting under IFRS can lead to lower costs when borrowing money.
Investors feel more secure with lower risks when they trust the financial statements, which means
companies can borrow money at lower interest rates.
6. Standardization of Accounting Practices
IFRS helps standardize accounting rules across different countries. This reduces the complexity and
costs associated with different accounting systems, especially for companies operating in multiple
countries.
7. Enhanced Comparability
With IFRS, financial reports of Indian companies can be compared easily with those from other
countries using IFRS. This is useful for investors and companies that want to compare performance
globally.
Adopting IFRS in India is crucial for integrating Indian businesses into the global economy. It promotes
better economic connections and understanding internationally. This move is expected to make financial
reporting in India more transparent, reliable, and comparable, attracting more international investors
and improving corporate governance.
5.2.2 LIMITATIONS OF IFRS
Lack of detail
Investors, regulators, employees, and the general public rely on the financial reporting system which
requires companies to disclose details of their financial condition annually. This information should be
presented in a consistent manner to allow reviewers to compare it to industry standards. To ensure
standardization of financial reporting, the accounting industry in each country adopts GAAP which
determines the appropriate way for accountants to present financial information on behalf of businesses.
IFRS is less detailed than GAAP. In an effort to achieve global standards that are acceptable to all, the IASB
has had to give up a level of detail that national standards currently enjoy due to the process of developing
these standards over time. In addition, GAAP is considered the gold standard for financial reporting. In the
United States and countries such as Canada, there is little incentive to adopt what some consider a lower
standard for the sake of overall consistency.
Significant adoption costs
Other significant disadvantages of IFRS relate to implementation costs. The accountancy profession in each
country adopting the new standards would have to bear the costs of re-education and training. Businesses
should also invest time and resources in the rehabilitation process. Another problem is the cost for businesses
that operate only at the national level. The transition to IFRS for these businesses far outweighs the benefits.
Capital markets and the standards are not the same in different countries
One of the disadvantages of adopting a single standard is that capital markets are not the same in different
countries. Businesses in a country may depend primarily on bank financing to raise capital; their financial
statements may want to emphasize prudence and a strong balance sheet, as banks only want repayment with
interest; they do not speculate.
In other countries, the main source of capital is the sale of shares. A company in such a country may want to
maximize its financial profitability relative to its balance sheet.
5.3 PROCESS OF SETTING IFRS
International Financial Reporting Standards (IFRSs) are developed through an international consultation
process, the "due process”, which involves interested individuals and organizations from around the world.

3. The “due process” has six stages to ensure compliance at various points throughout:
• Setting the agenda
• Planning the project
• Developing and publishing the discussion paper
• Developing and publishing the exposure draft
• Developing and publishing the standard
• After the standard is issued
1. Setting the agenda
The IASB, by developing high quality financial reporting standards, seeks to address a
demand for better quality information that is of value to those users of financial reports. When deciding
whether a proposed agenda item will address users’ needs the IASB considers:
➢ The relevance to users of the information and the reliability of information that could
➢ be provided,
➢ Existing guidance available,
➢ The possibility of increasing convergence,
➢ The quality of the IFRS to be developed,
➢ Resource constraints.
To help the IASB in considering its future agenda, its’ staff is asked to identify, review and raise issues that
might warrant the IASB’s attention. New issues may also arise from a change in the IASB’s Conceptual
Framework for Financial Reporting.
In addition, the IASB raises and discusses potential agenda items in the light of comments from other
standard-setters and other interested parties, the IFRS Advisory Council and the IFRS Interpretations
Committee, and staff research and other recommendations. In making decisions regarding its agenda
priorities, the IASB also considers factors related to its convergence initiatives with accounting standard-
setters. The IASB’s approval to add agenda items, as well as its decisions on their priority, is by a simple
majority vote at an IASB meeting.
Post standard issuance
Developing and publishing the standard
Developing and publishing the exposure draft
Developing and publishing the discussion paper
Planning the project
Setting the agenda

4. 2. Planning the project
When adding an item to its active agenda, the IASB decides whether to conduct the project alone or jointly
with another standard-setter. Similar due process is followed under both approaches. When considering
whether to add an item to its active agenda,the IASB may determine that it meets the criteria to be included in
the annual improvements process. The IASB assesses the issue against criteria such as
➢ Clarifying,
➢ Correcting,
➢ Well defined and sufficiently narrow in scope that the consequences of the proposed
➢ change have been considered,
➢ Completed on a timely basis,
All criteria must be met to qualify for inclusion in annual improvements. Once this assessment is made, the
amendments included in the annual improvements process will follow the same due process as other IASB
projects. The primary objective of
the annual improvements process is to enhance the quality of IFRSs by amending existing IFRSs to clarify
guidance and wording, or correcting for relatively minor unintended consequences, conflicts or oversights.
After considering the nature of the issues and the level of interest among constituents, the IASB may establish
a working group at this stage and a project team for the project will be selected. The project manager draws
up a project plan under the supervision of the directors of the technical staff and the project team may also
include members of staff from other accounting standard-setters, as deemed appropriate by the IASB.
3. Developing and publishing the discussion paper
A discussion paper is not a mandatory step in the IASB’s due process. Normally the IASB
publishes a discussion paper as its first publication on any major new topic as a vehicle to
explain the issue and solicit early comment from constituents. If the IASB decides to omit
this step, it will state its reasons. Typically, a discussion paper includes a comprehensive overview of the issue,
possible approaches in addressing the issue, the preliminary views of its authors or the IASB, and an invitation
to comment. This approach may differ if another accounting standard-setter develops the research paper.
Discussion papers may result either from a research project being conducted by another
accounting standard-setter or as the first stage of an active agenda project carried out by the
IASB. If research has been performed by another accounting standard-setter, issues related
to the discussion paper are discussed in IASB meetings, and publication of such a paper
requires a simple majority vote by the IASB. If the discussion paper includes the preliminary
views of other authors, the IASB reviews the draft discussion paper to ensure that its
analysis is an appropriate basis on which to invite public comments.
For discussion papers on agenda items that are under the IASB’s direction, or include the
IASB’s preliminary views, the IASB develops the paper or its views on the basis of analysis
drawn from staff research and recommendations, as well as suggestions made by the IFRS
Advisory Council, working groups and accounting standard-setters and presentations from
invited parties. All discussions of technical issues related to the draft paper take place in
public sessions.
When the draft is completed and the IASB has approved it for publication the discussion
paper is published to invite public comment. The IASB normally allows a period of 120 days
for comment on a discussion paper, but may allow a longer period on major projects (which
are those projects involving pervasive or difficult conceptual or practical issues).
After the comment period has ended the project team analyses and summarises the
comment letters for the IASB’s consideration. Comment letters are posted on the IASB’s
website. In addition, a summary of the comments is posted on their website as a part of
IASB meeting observer notes. If the IASB decides to explore the issues further, it may seek additional comment
and suggestions by conducting field visits, or by arranging public hearings and round-table meetings.
4. Developing and publishing the exposure draft

5. Publication of an exposure draft is a mandatory step in due process. An exposure draft is
the IASB’s main vehicle for consulting the public. Unlike a discussion paper, an exposure
draft sets out a specific proposal in the form of a proposed IFRS (or amendment to an IFRS).
The development of an exposure draft begins with the IASB considering issues on the basis
of staff research and recommendations, as well as comments received on any discussion
paper, and suggestions made by the IFRS Advisory Council, working groups and accounting
standard-setters and arising from public education sessions.
After resolving issues at its meetings, the IASB instructs the staff to draft the exposure draft.
When the draft has been completed, and the IASB has balloted on it, with a minimum of nine
votes necessary to publish an exposure draft, the IASB publishes it for public comment.
An exposure draft contains an invitation to comment on a draft IFRS, or draft amendment to
an IFRS, that proposes requirements on recognition, measurement and disclosures. The
draft may also include mandatory application guidance and implementation guidance, and
will be accompanied by a basis for conclusions on the proposals and the alternative views of
dissenting IASB members (if any).
The IASB normally allows a period of 120 days for comment on an exposure draft. If the
matter is exceptionally urgent, the document is short, and the IASB believes that there is
likely to be a broad consensus on the topic, the IASB may consider a comment period of no
less than 30 days, but it will set such a short period only after formally requesting and
obtaining prior approval from 75 per cent of the Trustees. The project team collects,
summarises and analyses the comments received for the IASB’s deliberation.
After the comment period ends, the IASB reviews the comment letters received and the
results of other consultations. As a means of exploring the issues further, and soliciting
further comments and suggestions, the IASB may conduct field visits, or arrange public
hearings and round-table meetings. The IASB is required to consult the IFRS Advisory
Council and maintains contact with various groups of constituents.
5. Developing and publishing the standard
The development of an IFRS is carried out during IASB meetings, when the IASB considers
the comments received on the exposure draft. Changes from the exposure draft are posted
on the website.
After resolving issues arising from the exposure draft, the IASB considers whether it should
expose its revised proposals for public comment, for example by publishing a second
exposure draft. If the IASB decides that re-exposure is necessary, the due process to be
followed is the same as for the first exposure draft
As it moves towards completing a new IFRS or major amendment to an IFRS, the IASB
prepares a project summary and feedback statement. These give direct feedback to those
who submitted comments on the exposure draft, identify the most significant matters raised
in the comment process and explain how the IASB responded to those matters.
At the same time, the IASB prepares an analysis of the likely effects of the forthcoming IFRS
or major amendment. The analysis will therefore attempt to assess the likely effects of the
new IFRS on:
➢ The financial statements of those applying IFRSs,
➢ The possible compliance costs for preparers,
➢ The costs of analysis for users (including the costs of extracting data,
➢ Identifying how the data have been measured and adjusting data for the purposes of
including them in, for example, a valuation model,
➢ The comparability of financial information between reporting periods for an individual
entity and between different entities in a particular reporting period, and
➢ The quality of the financial information and its usefulness in assessing the future
cash flows of an entity.
When the IASB is satisfied that it has reached a conclusion on the issues arising from the
exposure draft, it instructs the staff to draft the IFRS. A pre-ballot draft is usually subject to

6. external review, normally by the IFRS Interpretations Committee. Shortly before the IASB
ballots the standard, a near-final draft is posted on its limited access website for paying
subscribers. Finally, after the due process is completed, all outstanding issues are resolved,
and the IASB members have balloted in favour of publication, the IFRS is issued, followed
by publication of any project summary and feedback statement and any effect analysis.
6. Post standard issuance
After an IFRS is issued, IASB members and staff hold regular meetings with interested
parties, including other standard-setting bodies, to help understand unanticipated issues
related to the practical implementation and potential impact of its provisions. The IFRS
Foundation also fosters educational activities to ensure consistency in the application of
IFRSs.
The IASB carries out a post-implementation review of each new IFRS or major amendment.
This is normally carried out two years after the new requirements have become mandatory
and been implemented. Such reviews are normally limited to important issues identified as
contentious during the development of the pronouncement and consideration of any
unexpected costs or implementation problems encountered. A review may also be
prompted by:
Changes in the financial reporting environment and regulatory requirements,
Comments made by the IFRS Advisory Council, the IFRS Interpretations Committee,
standard-setters and constituents about the quality of the IFRS.
The review may lead to items being added to the IASB’s agenda. The IASB may also
continue informal consultations throughout the implementation of the IFRS or amendment.
5.4 PRACTICAL CHALLENGES IN IMPLEMENTING IFRS
The International Accounting Standard Board develops IFRS. However, the local government, as well as
accounting and regulatory authorities, such as the ICAI in India, are responsible for convergence with IFRS.
Therefore, ICAI must make infrastructural investments to guarantee IFRS compliance. India faces a number
of limitations and practical difficulties in adopting and adhering to IFRS. Therefore, the laws and rules
regulating financial accounting and reporting in India must be changed. As a result, there will be a number of
obstacles on the road to IFRS convergence. Which are:
Regulatory framework – The Indian Accounting Standards, which are essentially convergent with IFRS, are
India’s own accounting standards framework. Full convergence can be difficult because Ind AS and IFRS still
differ from one another. In order to guarantee consistent application and compliance, the regulatory framework
needs to be revised and brought into line with IFRS.
Cost and Complexity – IFRS is an expensive set of accounting standards that requires a lot of time and money
to apply properly. The implementation of IFRS calls for extensive training programmes for finance experts as
well as large investments in infrastructure, systems, and processes, all of which can be expensive for
businesses, especially smaller ones.
Taxation effect: The structure and procedures for compiling financial statements will change as a result of
the adoption of IFRS, which will, therefore, inevitably alter the tax liability. Since the tax authorities employ
Accounting Standards for taxation purposes, there has been no change in the Indian tax legislation as a result
of the implementation of IFRS, despite the fact that the converged Indian Accounting Standards with IFRS
have undergone sufficient adjustments. For Indian officials, a full overhaul of the tax system will present
significant difficulties.
Lack of Knowledge awareness: Indian corporate sector now uses new accounting concepts called
International Financial Reporting Standards. There aren’t enough IFRS study courses or training facilities.
According to recent observations, India now lacks qualified personnel who can adopt IFRS. The regulators
must conduct training courses and awareness campaigns to ensure the smooth adoption of IFRS. Investors,
businesses, stock exchanges, banks, and other stakeholders must be aware of financial reporting standards.
Reporting and Disclosure Requirements – The companies making the switch to IFRS must create solid
systems and processes to accurately and promptly collect and submit the required information. It can be
challenging to ensure compliance with the higher disclosure obligations, especially for businesses with
constrained resources or intricate processes.

7. Small and Medium Scale Businesses – The small and medium enterprises sector cannot be disregarded
because of their significant presence in India relative to other nations and because they are crucial to economic
growth. The implementing of IFRS difficulty in India is exacerbated by the lack of resources and accounting
expertise in the MSE sector.
Investor and Stakeholder Education – As a result of the implementation of IFRS, Investors, Analysts, and
other stakeholders may need to be informed about the changes in financial reporting practices. To ensure
accurate interpretation and understanding of the financial statements issued under IFRS, clear communication
and awareness-building initiatives are required.
Regulatory Coordination – Coordination between several regulatory organizations, such as the Ministry of
Corporate Affairs (MCA), the Institute of Chartered Accountants of India, and the Securities and Exchange
Board of India, is necessary to adopt IFRS in India effectively. Coordinating their efforts and guaranteeing
the consistent implementation of IFRS across the regulatory landscape can be difficult.
5.5 CONVERGENCE OF IFRS IN INDIA
Indian Accounting Standards are formulated by the Accounting Standard Board (ASB) of the ICAI as notified by
the Ministry of Corporate Affair. These standards are framed keeping in mind the economic environment and
practices of India. They are made to suit the Indian companies and the disclosure requirements of the Indian
government.
The IFRS, on the other hand, are made keeping global standards and environment in mind. Convergence would
mean bridging the gap between the two, i.e. the IFRS and the India AS. Convergence will involve alignment of
the two sets of standards. The compromise is done by adopting the policies of the IFRS either fully or at least
partially.
Following are the few benefits of Convergence.
5.5.1 Benefits of Convergence
1] Beneficial to the Economy
If the accounting standards are converged it will promote international business and increase the influx of capital
into the country. This will help India’s economy grow and expand. International investing will also mean more
capital for domestic companies as well.
2] Beneficial to Investors
Convergence is a boon for investors who wish to invest in foreign markets or economies. It makes it much easier
for them to study and compare the financial statements of foreign companies. Since the financial statements are
made using the same set of standards it is also easier for the investors to understand and analyze them.
3] Beneficial to the Industry
With globally accepted standards the industry can also surge ahead. So convergence is important for the industry
as well. It will allow the industry to lower the cost of foreign capital. If companies are not burned by adopting
two different sets of standards it will allow them easier entry into the market.
4] More Transparency
Convergence will benefit the users of the financial statements as well. It will make it easier for them to understand
the financial statements. And this will generate better transparency and raise the confidence of the investors to
invest funds.
5] Cost Saving
Firstly it will exempt companies from maintaining separate accounting books according to separate standards.
This will save a lot of work hours and money for the finance department. And also planning and executing
auditing will also become easier.
It will be especially helpful for those companies that have subsidiaries in many countries. And the cost of capital
will also reduce since capital would be more accessible and easily available.
5.5.2 Difficulties of convergence with the IFRS
There are some significant challenges of converging the IFRS and the Indian AS. Some of them are as follows,
• Other than the Accounting Standards, India has many rules and regulations to implement them. These rules
will have to be updated as well.
• Accounting is done via software these days, like Tally, Oracle, etc. Convergence with IFRS means this
software will have to be updated at great costs.
• Also, there is a lack of trained and efficient personnel. The accountants, auditors, etc will have to undergo
training and learning programmes for the updated standards.

8. 5.6 LIST OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ISSUED BY IASB
IFRS # IFRS Standard
1 First-time Adoption of International Financial Reporting Standards
2 Share-based Payment
3 Business Combinations
4 Insurance Contracts
5 Non-current Assets Held for Sale and Discontinued Operations
6 Exploration for and Evaluation of Mineral Resources
7 Financial Instruments: Disclosures
8 Operating Segments
9 Financial Instruments
10 Consolidated Financial Statements
11 Joint Arrangements
12 Disclosure of Interests in Other Entities
13 Fair Value Measurement
14 Regulatory Deferral Accounts
15 Revenue from Contracts with Customers
16 Leases
17 Insurance Contracts
18 Presentations and Disclosures in Financial Statements
19 Subsidiaries without Public Accountability: Disclosures

9. Exercises:
A. Choose the correct option:
1. IASB stands for
a. International Accounting Standards Bureau
b. International Advisory Standards Board
c. International Accounting Standard Board
d. International Accountancy Standards Bureau
2. Which among the following is not a benefit of adopting IFRS?
a. Attraction of Foreign Investments
b.Improvement in Financial Reporting
c. Reduced Cost of Capital
d. IFRS is less detailed than GAAP
3. International Financial Reporting Standards (IFRSs) are developed through an international consultation
process ___________.
a. Process of Standard Reporting
b. Due process
c. Consulation Reporting
d. Convergence
4. Which among the following is the first step in developing IFRS?
a. Fixing the policy goals
b. Clarification of standards from the management
c. Setting the agenda
d. None of these
5. Adoption of IFRS will alter the tax liability.
a. True
b. False
Answers: (1) c, (2) d, (3) b, (4) c, (5) b
B. Answer the following questions in brief:
1. What do you mean by IFRS?
2. List down the limitations of IFRS.
3. Write a brief note on ‘ Convergence of IFRS in India’
C. Answer the following questions in detail:
1. What is the relevance of IFRS?
2. Explain the practical challenges in implementing IFRS.
3. Explain the process of setting IFRS.