CHAPTER 1: INTRODUCTION

Accounting depicts the clear financial image of the business; hence it should be clearly defined. The word accounting is basically defined as a system that provides numeric or quantitative information about the financial status of an entity. It depicts a clear view of the financial position. Accounting as a language of a business, communicates the financial results of an enterprise, which gives valuable information to decision makers, planners and investors for taking various important decisions. Accounting has its own set of rules which have been developed by accounting bodies. These rules can’t be absolutely rigid like those of the physical sciences. These rules accordingly, provide a reasonable degree of flexibility in line with the economic environment, social needs, legal requirements & technological developments. Rules basically specify the parameter within which, anything could be accepted in the society. Accounting rules provides the framework or boundary within which they can be adopted. Accounting rules are the backbone of accounting, without which there will be no authenticity or reliability of accounting. Accounting principles have to operate within the bounds of rationality. Theses accounting rules are Accounting standards. Accounting standards provide consistency to accounting. It is only on the basis of these accounting standards that the information provided by the business organization is relied upon. It is not possible to compare the business performance in the absence of accounting standards. These Accounting standards can be: Financial Reporting Standards or Standard Accounting Practices. Accounting Standards are issued by various regulatory authorities. Accounting deals with the issues of:i) recognition of events & transaction in the financial statements, ii) measurement of these transaction & events, iii) presentation of these transactions & events in the financial statements in a manner which is meaningful & understandable to the reader, & iv) the disclosure
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requirements. The disclosure requirement would enable the public at large & the stakeholders & the potential investors in particular, to get an insight into what these financial statements are trying to reflect &, in turn, enable them to take informed business decisions. Accounting standards standardize diverse accounting policies with a view to: i) reconcile the non-comparability of financial statements & ii) provide a set of standard accounting policies, valuation norms & disclosure requirements.

IFRS (Background)
International Financial Reporting Standards (IFRS) are Standards,Interpretations and the Framework for the Preparation and Presentation of Financial Statements(in the absence of a Standard or an Interpretation) adopted by the International Accounting Standards Board (IASB). Earlier the International Accounting Standards Committee (IASC) was formed for facilitating the movement towards increased comparability & harmonization. It was formed as an independent body in 1973 by the professional accounting bodies in the US & eight other industrialized countries. Among the professional accountancy bodies of over 75 countries, the Institute of Chartered Accountants of India also joined International Accounting Standards Committee (IASC). The members of IASC have undertaken a responsibility to support the standards promulgated by IASC & to propagate those standard in their respective countries. IASB, founded in 2001, basically a successor of IASC, is a highly professional organization. It is supported by the industry & Government around the world. The aim of the board is to provide transparent & complete information. The demand for high quality global accounting standards increased significantly, when the European Commission required all publicly listed companies within the European

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Union, to prepare their consolidation financial statements in compliance with IFRS. The IASB approved the resolution on IASC Standards at a meeting in April 2001, in which it confirmed the status of all IASC Standards & SIC interpretation in effect as on April1, 2001. IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments. International Financial Reporting Standards comprise:

International Financial Reporting Standards (IFRS) - standards issued after 2001 International Accounting Standards (IAS) - standards issued before 2001 Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001 Standing Interpretations Committee (SIC) - issued before 2001

• •

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CHAPTER 2: NEED FOR IFRS IN INDIA
IFRS is more comprehensive & market driven, since it improves the quality of information, increases market efficiency, and minimizes capital cost. IFRS is said to be “Principle Based”, like Financial Accounting Standard (FAS) & US GAAP. This is more suitable to for the Indian Business. Indian Accounting Standard (AS) is inherited from International Accounting Standards (IAS) or IFRS, which facilitates easy adoption of IFRS. Accounts prepared under IFRS will give confidence to investors & the world community to understand Indian businesses more easily, which ultimately will attract more investments in India. IFRS improves ‘Inter Unit/Inter Firm’ comparison & consistent financial information. Financial Statements made under IFRS are accepted by all stock exchanges in the world. Thus, IFRS facilitates Indian companies seeking entry into any stock exchanges in the world, including the US. IFRS facilitates cross-border acquisitions by Indian companies, international trading in securities, better customer/vendor relationship & timely decision, since financial statements are more transparent. Preparation of Consolidation Financial Statements (CFS) is made easy for a group, when the group has different entities in different countries, all following IFRS, because the reconciliation of two different GAAP can be avoided. Regular review of IFRS by the research wings, make IFRS more qualitative & need-based as per the requirements of modern business, which is not available in any domestic GAAP.

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Is IFRS to our advantage?
Most of the countries of the world are sure to move to IFRS from their local GAAPs by 2011, as it has proved to be more effective in many areas other than local GAAP. One of the vital reasons why IFRS is to be adopted is a transparency and comparability it provides to the companies activities and overall performance. Comparability is provided in each country, sector and company. Global relationships can be built across the globe with suppliers, investors and customers, so that the standards provided by IFRS have universal appeal. India will also have to move along with the others, as its business relationships are also global. Hence it is necessary to adopt IFRS so as to benchmark itself with its global peer. India is blessed with quality human capital and to reap the full benefits it should be well informed about international financial markets in order to generate the hitherto untapped capital from international sources. Indian accountants are indeed as competent as their foreign counterparts, hence the major area to be looked into is making their knowledge understandable so as to impart them proper training on IFRS and motivate them to acquire additional certification having international recognition. In India, lack of proper training to those who are responsible for implementing these standards may prove to be fatal in case of SMEs because the workforce employed there will have difficulty in understanding the complexities of IFRS, which will further tend to increase the conversion costs. However IFRS can be sure success, if the Indian companies plan for forthcoming changes in accounting policies and reporting procedures well in advance. It will also help them actively manage market, as well as shareholder expectations.

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CHAPTER 3: GLOBAL CONVERGENCE
The era of globalization has thrown open both opportunities and challenges. Increasing global interaction marked by the Mergers & Acquisitions (M&A) culture which has changed the socio-economic scenario of the globe in all aspects has showed the need for a universal financial accounting standard that is harmonized and adopted globally. The companies will then not face multiple accounting standards. It implies that all the accounting standard setters world wide come to the same platform and agree on a single wisecrack. The improvement of accounting procedures and its implementation needs top priority. International analysts & investors would like to compare financial statements based on similar accounting standards. This led to growing support for an internationally accepted set of accounting standards for cross-border filings. A strong need was felt for a legislation to bring about uniformity, rationalization, comparability, transparency, & adaptability in financial statements. Having a multiplicity of accounting standards around the world is against public interest. It creates confusion, encourages error & facilitates fraud. It makes the accounting language difficult to be translated by the users of the information according to their choice and needs. The cure for these ills is to have a single set of global standards, of the highest quality. Global standards facilitates cross-border flow of money, global listing in different bourses & comparability of financial statements. The figures shown in the financial statements will become live and meaningful if they are transparent, comparable, adequate, consistent and reliable.

Convergence by Different Countries
IFRS hogged the limelight ever since the European Union (EU) decided to adopt it for all of its member states from 2005. Since then more than 8,000 EU listed firms
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have adopted the IFRS. After the EU, many more countries began to adopt the IFRS. As of now, more than 100 countries, either allow or require their firms to use the IFRS, while preparing the financial statements. Some of these countries include Australia, New Zealand, China, Singapore, Japan, Middle East, Africa and members of the EU. The US capital markets are no exception to this trend. They have been losing their sheen as a result of excessive regulations imposed by the existing US GAAP. As an alternative many companies prefer those capital markets where IFRS is accepted. IFRS are used in many parts of the worlds. As of August 27, 2008 more than 113 countries, currently require or permit IFRS reporting. European organizations prominent in European Capital markets are collectively know as the ‘Founding Fathers Member Body Organization’. This will help eliminate obstacles for the international trading of securities by guarantying that accounts of the company, throughout the European Union, are more reliable & clear, without any discrepancies. Member countries may defer application of IAS 2007 for those companies. In a meeting held in Norwalk in the year 2002, efforts were made to reduce the differences between IFRS & GAAP (the Norwalk agreement). In 2006, FASB (US Financial Accounting Standards Board) & AISB issued a Memorandum of Understanding, by which the two bodies will seek to achieve convergence by 2008. The foreign private issuers are additionally permitted to file financial statements in accordance with IFRS as issued by IASB, without reconciliation to US GAAP. The European Commission (EC) - the European Unions legislative & regulatory arm, with a few expectations, requires all public companies domiciled within its borders, to prepare their consolidation financial statements in accordance with IFRS beginning January 1, 2005

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Status of accounting convergence in India
The IASB and IFRS have taken great strides towards achieving global accounting convergence in the recent years. The changes have now been proposed in an effort to achieve convergence. In recent amendments, many of the changes made in the IASB to previous standards have accomplished the goal. With regard to the need for convergence with IFRS in India, the council of the ICAI, at its meeting held on 18th to 20th July 2007, has decided to fully converge with the IFRS issued by the IASB from the accounting periods commencing on or after April 1, 2011 for the listed entities and other public interest entities such as banks, insurance companies and large sized entities, subject to its ratification by the government and other legal and regulatory authorities. This means that within the next two years there would be a transition from the Indian GAAP into the IFRS. The ICAI has made an implementation schedule which identified the changes require to be made in the existing standards in order to achieve convergence. The ICAI has made a comprehensive plan for educating and training accountants so that country gets well prepared by 2011. It has released a Concept Paper on ‘Convergence with IFRS in India’. It includes the roadmap and strategy for convergence of the accounting norms of all the listed companies to the IFRS. In India many changes are being made for convergence of international accounting standards. It is also recognized that it is a pre-requisite for attracting foreign investment and for globalization of the economy.

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CHAPTER 4: IFRS V/S INDIAN GAAP
Indian companies are required to adopt IFRS from April 1, 2011. It equally means that our translated national GAAP would be the same, as practiced in more than 100 countries now. However, the adoption of such a translation requires careful analyses because there are many conceptual differences between our national and global standards. Considering the complexity of IFRS principles, the ICAI, in its concept paper, has suggested adoption of IFRS by public companies like banks, insurance, etc. To bridge such differences, the country needs legal sanction from parliament. At this juncture, it would be imperative to list out the major differences:

Promotion of a group concept: The Indian companies are treated as separate legal entities in accounting. However, IFRS encourages the treatment of a group concept for reporting. It considers similar group of companies as a single economic entity. This group concept does not apply for tax or legal purposes.

Treatment of fixed assets: There is a significant difference between Indian GAAP and IFRS, with regard to the definition itself. IFRS defines Fixed Assets on the basis of their usefulness, but Indian GAAP does not do so.

Treatment of depreciation: The assets with different useful lives will be depreciated differently. For one fixed asset, there will be different subcomponents and these sub-components will be depreciated separately, unlike Indian GAAP.

Definition of future cost: Under IFRS, even future obligations can be discounted to a fair value with the current standards and recognized in accounts. However, Indian GAAP will not permit any future costs to be discounted, capitalized or recognized as a liability.

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Treatment of depreciation on revaluation of fixed assets: The companies’ Act does not allow an accountant to consider Depreciation on Revaluation of Fixed Assets to be included in the Profit and Loss Account. It can be set off against the reserve or provision, specially created for the purpose. Instead, in IFRS, the same will be treated in the income statement of the current year.

Separation of capital components: The Companies Act, 1956, required Indian companies to disclose all capital components separately, into equity, preference, debt, etc. Also, there are different provisions which govern the issuance of the same. Such restrictions are not explicitly present in the IFRS.

Sanction for reclassification: The Companies Act permits classification of the capital components into equity, preference shares and debt instruments. Under IFRS, redeemable preference shares for cash will be reclassified as debt. However, such a reclassification in India requires sanction of the Act.

Differences in legal rights: Another point that leaves a gap between current Indian laws and IFRS is, the legal rights attached to capital instruments. Mere convergence will not be enough to remove the conceptual distinctions between Indian accounting rules and international accounting principles.

Change in reserves position: Another problem that requires serious attention is the effect of change in earnings to shareholders due to the application of international principles. Reserves, according to Indian laws, are the past undistributed profits retained by the company. These are distributed to the shareholders as dividend or premium on dissolution. However, if IFRS is implemented, either the shareholders will enjoy more distributable profits or they will have to suffer financial loss.

Correction of past mistakes: Under IFRS, past accounting mistakes, which are found later, can be adjusted in the years they relate to, even after
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auditing and disclosure. However, Indian accounting rules do not permit reworking on the audited and disclosed financial statements later.

An analysis of differences between Indian GAAP and IFRS is given in table. Table: Indian GAAP vs. IFRS SL. Particulars Indian GAAP IFRS NO. 1 Conceptual Indian Accounting Standards are At various Difference

stages

IFRS

generally rule based and are less provides scope of judgement flexible in comparison with IFRS. and requires information to be Regulatory authorities like SEBI, presented on the basis of ROC, RBI, IRDA, etc. play a very substance rather than rules. important role in defining rules.

2

Law Standards

vs. ‘Law overrides standards’ is an While applying IFRS usage by accepted principle in India. Latest investor is kept in mind and example is option given to the requirement foreign exchange fluctuation in ASof law and corporates regarding treatment of management takes a back seat. 11 Indian GAAP has direction in True IAS allows overriding true and Fair presentation of financials. and fair concept in extreme cases. Rather the emphasis is on fairly presented statements. For companies of schedule VI of IAS-1 format of balance sheet and its guidelines related statements. For Presentation and of overall

3

Fairly Presented Statements

4

Presentation

the Companies Act, 1956, defines financial statement provides listed requirements, For example it
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companies, Insurance companies, defines certain information, Banks, etc., SEBI, IRDA and other which is to be presented on regulatory authorities also guide as the face of balance sheet. to how the financials are to be 5 Extra ordinary 6 items Reports projected. Extraordinary items are required to There is no provision of be separately disclosed in Indian presenting extraordinary item, GAAP. separately. Generally in India, as per schedule IAS-1 require a business

IV of the companies Act, 1956, a entity to report the financial in business entity is required to the following five statements: present the following. • Balance sheet • Profit and loss A/c • Notes to accounts In a few cases, cash flow statement is required to be presented (AS-3), but is not mandatory for all enterprises. 7 Depreciation • Balance sheet • Income Statement • Cash Flow Statement • Statement of change in Equity • Notes to accounts • Cash Flow statements are mandatory in

nature. Schedule XVI of the Companies IAS-16 Property Plant and Act, 1956, defines minimum rate of Equipments depreciation to be applied by management to company. allows charge

depreciation, based on useful Revenue life of asset. Recognition IAS 18-Provides that revenue

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Revenue recognition

AS-9

provides an option to use either can be recognized when risks proportionate completion method rewards and controls have or completed service method. been transferred to the buyer. In construction contracts,
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stage of completion method can be applied to recognize revenue, if reliable valuation 9 First adoption time No such standard is available is possible. IFRS-1 sets the standard for first time adoption of IFRS in great detail. Previous year comparables are also required 10 to be mentioned. Valuation of Taken over assets to be valued at IFRS 3 taken assets over cost and not on Fair Value. Combinations Business allows the

Assets require Goodwill to be tested for impairment at each balance sheet date. Does not require goodwill to be IAS-36 Impairment of assets tested for impairment at each requires Goodwill to be tested balance sheet date. for to impairment at each is balance sheet date. certain Once impairment recognized on

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Goodwill

12

Reversal

Permitted conditions.

subject

loss

goodwill,

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Share-based employee benefits

reversal is not permitted. Allows Fair Value method, or IAS 19 provides that a shareintrinsic value method. Hence, based payment to employees choice is available here. No such guidance is available is to be taken into account, using Fair Value method. Provides detailed guidelines for treasury share transactions. No such standard in India IAS 29 specifically discusses about financial reporting in Hyper Inflationary
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14

Treasury share transactions Hyper inflationary economies

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Economies. 16 Related party AS 18 define related party, where IAS disclosures 24 – Related defines influence, particularly Party related but for

one party has ability to control the Disclosures influence over the other party in significant making decisions. Related parties have granted,

other party or exercise significant party in terms of control or financial/operating several types of exemption are been relationships within a group. definition and includes close family members. These are the major differences between IFRS and Indian GAAP.

specifically defined in the standard. This is a principled-based

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A Standard-wise Comparison:
If we compare IFRS’ as it is in present form’ & IAS or Indian GAAP, there are certain key areas which need to be addressed. A brief comparative analysis is given in the following table: A comparative Analysis of IFRS, IAS, & AS IFRS/IA Description S AS/Indi an Disclosure of Accounting Policies Financial Financial Statements of change in equity or a statements of recognized expenses to income figure or in Description Basic Features of IFRS

GAAP IFRS/IA First time adoption of AS1 S/AS30 IFRS/Presentation Financial Statements/Disclosure in similar Institutions. the Statements of Banks & of

addition to balance sheet, income statement, & cash flow statements. An entity preparing IFRS for the first time, must apply IFRS in the current periods, as well as the previous period. Thus, IFRS preparation to be done from April 1, 2010 will be even. No separate AS is available for banking & similar industries.

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IFR3/IA S27/SIC 12/IAS2 2

Business d -special entities/business combination financial purpose

S14/AS

Accounting of amalgamati on/consolid ated financial statements

The

ultimate must

parent produce financial

combination/consolidate 21 statements/consolidation

company

consolidated

statements. (IAS). On the other hand, in the India context, it is optional. Only ‘purchase method’ of amalgamation is permitted in IFRS. Goodwill arising out of consolidation is subject to impairment at least annually & is at amortized. IRFS deal with cross-holding & complex holdings of subsidiaries & minority in detail, which is a regular feature of modern business, where AS14 & AS21 have not been updated to meet the current

IFRS4

Insurance companies

Not availabl e & Not e AS17

Not available Not available Segment reporting

requirements. A detailed guideline has been given in IFRS for Insurance companies. No separate AS is available in India for this transaction. This IFRS is applicable for annual adopts reporting. the IFRS management
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IFRS6

Exploration resources Operating

for

evaluation of mineral availabl IFRS8/I AS14

segments/segments reporting

reporting identify

approach,

to

operating

segments, unlike AS 143 of business or geographical segments. This principle is discretely based on chief operating decision make (CODM) of the internal management report. Thus by adopting IFRS, segment reporting in financial statement will have a new IAS2 Inventories AS2 Valuation of IAS7 Cash flow statements AS3 look. No significant difference with AS

inventories Cash flow IFRS cash flow statements statements do not require showing movement in borrowings but can be netted off. Liquid investments & fixed deposits with an original maturity value not exceeding three months, forming part of cash & cash equivalent. profit Though AS inherited from

IAS8

Net profit or loss for the AS5 period, fundamental errors & changes in accounting practices

Net

or loss for IAS, benchmark treatment the period, of prior period item is not prior period permitted in AS. More
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items

& detailed

treatment in IFRS

is for

changes are available accounting IAS10 Events after balance AS4 policies Contingenc ies balance IAS12/S Income tax/income tax- S22 IC21/SI C25 recovery of revalued non-depreciation assets/ changes in tax status of an entity of its shareholders sheet date Accounting income

changes in treatment of changes in accounting policies. Significant changes to be under financial

sheet date

& brought

events after statement in IFRS, unlike in AS, to mention as to accounts. More detailed

for taxes on interpretations have drawn in IFRS particularly for revalued value. difference assets & fair is Temporary approach

focused in IIFRS, which is AS16 Property, equipment plant & AS10 Accounting for assets not available in AS. IFRS defines fixed assets revaluation is permitted

fixed recognition in more detail; with sufficient regularity. In AS10 there is no such requirement for upward revaluation. Not any

AS17/SI Lease/operating 27 substances transaction,

lease- AS19 of

Leases

significant

C15/SIC incentives/evaluating involving

difference, since AS has been inherited from IFRS, except SIC15, SIC27.

legal form of a lease.

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IAS18/S Revenue/revenue barter AS15 IC31/SI C29 transactions advertising disclosure, concessions arrangements involving services, services, &

Accounting for retirement benefit the financial statements of

IFRS deals in ESOP & project measure unit the method to employees’

in obligation, which will help the companies to consider ‘employee prudent cost’ way in in a the

financial statement. explains the

IAS21

The effect of change in AS11 foreign exchange rate.

employers The effect IFRS of in foreign

change treatment in more detail.

exchange IAS23 Borrowing cost AS16 rate. Borrowing cost IFRS allows dual (bench mark & alternative) treatment of capitalization IAS24 Related disclosures party AS18 Related party disclosure of borrowing cost. IFRS does not permit

identification of goodwill of capital reserve. Also, investment should be measured by the equity method. Thus, the cost of investment should be considered in the financial statement, whereas AS23 allow for valuation of according to AS 13. IFRS allows

IAS31/S Financial reporting of AS27

Financial

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IC13

interest controlled monetary by venture.

in

joint

reporting of multi=treatment interest joint ventures in presentation & alternative for for

of joint method. the

ventures/jointly entity-noncontribution

ventures, like-bench mark Thus, multiple choices are available companies. Though AS27 was established from IAS, it allows only alternatives method (line by line) of accounting. No significant difference

IAS33

Earnings per share

AS20

Earnings per (EPS) Discountin g operation Accounting for investment

share with AS. No significant difference with AS. IFRS deals with derivatives in detail which is not available in India.

IAS35 IAS40

Discounting operation Investment property

AS24 AS13

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CHAPTER 5: OPPORTUNITIES FOR INDIA INC.
 Easy and improved international capital markets accessibility: adoption

of IFRS may improve the capital accessibility of Indian corporate entities, as several domestic companies are approaching globally huge resources to cater to their fund requirements. Today, most of the stock exchanges demand information under IFRS constraints and convergence to IFRS will enable Indian corporate to access the global financial market easily. To have a more dynamic financial market in a country, the opportunities should be identified beyond the boundaries of the countries. It would be possible to have more business collaborations and associations only through global standardization of reports and maintenance of transparency.  Reduction of the cost of capital To get financial support from finance companies, it is now necessary to prepare a dual set of financial statements. This will reduce the cost of chartered accountants, and IFRS will be globally accessible at lower costs. Cost of raising capital/fund can be minimized under the IFRS as there is no need to prepare a duel set of financial statements.

 Global benchmarking and brand value Organizations adopting IFRS will naturally come on an international common platform which will be helpful for comparison purposes. Global benchmarking is helpful for the organization to build its own brand image.

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 True value acquisitions Many business associations are failing because of the erroneous valuation of their assets and liabilities. There is a wide gap between the Indian and US GAAP. The valuation procedures and models are absolutely different in many situations. Business combinations in Indian GAAP are not recorded on fair values of assets acquired. They are recorded at carrying values. In case of intangible assets (e.g. Goodwill, patent, copyright, and trademarks) purchase consideration paid on their acquisition is not recorded in the buyers’ book and, therefore, is not reflected in the financial statements. In such cases, financial statements fail to communicate the true and fair value of business combinations. Creation of a common procedure for the valuation of assets and liabilities will help future business associations and collaborations. IFRS overcomes this problem as it is mandatory to undertake accounting of net assets taken over at fair value.
 Eliminating the need for multiple reporting: the task of maintaining

multiple reports and submitting financial statements by a company can be eliminated by adopting the provision under IFRS by all group entities.
 New opportunities: benefits from the IFRS wave will not be restricted to

the Indian corporate sector. It will, perhaps, open up a plethora of opportunities in the services sector. With the wide pool of accounting professionals, India can emerge as an accounting services hub for the global community. As fair value is a center point in IFRS, it can provide a lot of opportunities to the accounting community.

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CHAPTER 6: CHALLENGES IN IFRS IMPLEMENTATION
India made it mandatory that all listed companies have to switch over to IFRS. However, their deadline (2011) is too short to be accomplished. Many corporate commented on the practical difficulty of meeting the target. Jubilant Organosis, a Parma company, changed its complete accounting procedures in the year 2002 and immediately after 7 years, it had to change over to IFRS. In such situations, the financial loss incurred by the company and the wastage of time will be enormous. The complete overhauling of the accounting process is a lengthy process, which normally an organization completes with the lot of efforts. Jubilant gave a training session to the accountants for three full days. According to Paritosh Basu, group controller, Essers, the auditors are very keen about the critical issues of accounting. They have to be very clear in every single aspect too. He again pointed out that the changes required are, not only in procedures of accounting, but also in accounting software and systems, and Excel based accounting. Emerging economies including India are facing various challenges/ difficulties in adopting IFRS. These include: • Issues relating to non-compatible, legal and effective regulatory requirements; • Issues relating to differences in economic conditions/environments of the countries; • Issues pertaining to quality education of accounting to produce/prepare auditors;
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• Issues relating to SME accounting; and • Translation/description issues. India with a population, more than 1.2 crores, has only approximately 145,000 chartered accountants, which is inadequate and far below its requirement. The following points need serious consideration.  Training For successfully implementing IFRS in India, it is the need of the hour to provide training to all interested parties, including teachers, students, auditors, CFOs, tax professionals, etc. it is imperative that IFRS is introduced as a full subject in universities and chartered accountancy syllabi.  Information system Financial accounting and financial reporting are the backbone of any accounting system, and therefore, the system must be able to produce robust and consistent data for reporting financial information. Information must be collected from every section of the organization and used for disclosure purposes. So far as financial accounting and reporting are concerned, these have been modified to provide information according to IFRS. In such conditions, entities need to enhance their IT security in order to minimize the risk of business interruption, particularly to address potential fraud, cyber and data corruption.  Taxes It is expected that IFRS convergence will have a significant impact on financial statements, and consequently on tax liability. Tax authorities should ensure that there is clarity on the tax treatment of items, arising out of convergence to IFRS.

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 Communication Managing market expectations and educating analysts will be critical and IFRS may significantly change reported earnings and various performance indicators. Therefore this must be a major thrust area. Management of the company must be particular, while viewing and analyzing the company’s performance.  Management compensation Since compensation to employees is one of the major monetary motivational factors, IFRS provides a performance based approach for its computation. In India, there may be a difference in opinion about this provision.  Distributable profits Unrealized profit\loss is another issue in the adoption of IFRS, and since IFRS is based on fair value considerations, it is hard to ignore these. Whether this profit/loss can be considered for the purpose of computing distributable profits will have to be debated in order to ensure that the distribution of unrealized profits will not eventually lead to the reduction of share capital.  Action Plan A result-based action plan and road map is the need of the hour for this transition. We still have to see concrete steps in this direction. It is hoped that both the ICAI and the government will act in tandem to make this transition and the actual implementation a success. In reality, we do not have much choice but to be prepared to adopt IFRS by the prescribed date.

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 Impact on Financial Results The moment companies will adopt IFRS, there are bound to be changes in the financial reports. For example, the depreciation rates might differ and hence the value of assets as well as the profitability of the organization might differ from what is being shown at present. This may have an impact on the equity and might confuse the investor.  Amendments in the Law IFRS, once implemented, will have far-reaching effects on the existing regulatory set up. It will be all-encompassing and have a bearing on the legal provisions of the Income Tax Act, Company Law, etc. The IFRS, therefore, needs to be seen in a holistic manner and dedicated efforts from all fronts need to be made urgently to ensure that a seamless and smooth transition takes place. If the above challenges can be tackled and corrective action initiated, and convergence with IFRS will be a great step forward in the adoption of global uniform accounting practices.

Conclusion:
The convergence of financial reporting and accounting will help understand the accounting language globally, and in the process, lead to free flow of international investments in the capital market. It will also help the investor to compare the investment on a global basis, analyze accounting and understand and avoid global investment risks. It would facilitate accounting and reporting for companies with global operations and eliminate some costly requirements, like reinstating of

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financial statements. It has the potential to create a new standard of accountability and greater transparency, which are of great importance to all market participants including regulators. Standards must be simple and understandable as far as possible, recognizing the complexity of transactions, and should be practical and cost effective too. With a focus on realistic economic representation, accounting standards should address the legitimate needs of key stakeholders and provide a comprehensive overview of the financial information. It will create a common platform for better understanding of accounting internationally. The main benefit of convergence is that businessmen can present their accounts in the same way as that of any other country. This will lead to a more healthy international competition by making comparison easy. Companies should facilitate accountants to participate in training and intensive workshop programs. Companies should mobilize resources, in terms of funds and manpower for a smooth transition. In-house dialogues and group discussions with expert agencies should be done on any issue and matter so that it is properly understood and the company is benefited in the long run.

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