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and the last one is adoption of XBRL technology for globally standardised financial
reporting.
The paradigm shift marked by introduction of IFRS is redefinition of the basis for
reporting value. The movement away from conventional system of reporting at Historical
Cost has been replaced by a concept of `fair value. This is where we feel lies the added
responsibility of accountants to ensure that valuations reflect the worth of the reporting
entity to the economic society. The broad basis of fair valuation is essentially how much
would the asset fetch in the market today vis--vis how much would the asset earn for
the entity over its useful life. This marks a fundamental departure from reporting using
`how much did it cost the entity. Usage of historical cost based accounting was founded
on the premises of uniformity of value, while usage of fair value is based on the
premises of uniformity of approach. The accountants will have a challenging task of
selecting, and justifying, their selection of a basis for valuation. It must be noted that
though `historical cost, has been included as one of permissible basis for valuation, the
familiarity of the technique must not end up being the primary selection criterion. The
primary selection criterion must remain approximation to the fair value using any of the
specified valuation options.
As stated earlier, one of the salient features of International Financial Reporting
Standards is its explicit recognition of risk management as one of the major corporate
responsibility. Consequently we have, arguably for the first time, requirement of
disclosing in the published accounts the risks that financial instruments are exposed to.
Though the application has not been balance sheet wide, but a beginning has been
made and it virtually covers all major asset components excluding fixed assets and
stock.
Risk management is an emerging application and the erstwhile system of
accounting and disclosure had to evolve to catch up with the same. These new tools
required special treatment so that the accounts reflect usage of the tool and the users
are aware of the same. The new tools of financial risk management, essentially
replaces risk of a kind by risks of another kind it does not, and cannot, eliminate risks
in its entirety. Thus the users of the balance sheet have a right and need to know about
these risks and circumstances under which the reported value of the assets can erode.
Third unique aspect of adoption of IFRS is accepting XBRL as a technology for
financial reporting. Cutting out the technical jargon, XBRL is essentially is process
whereas all elements of financial reports are pre-defined on a global basis and values
are reported against the applicable head. Thus it becomes possible to consolidate or
compare financial reports of companies from different legal and political background.
This will not require the accountants to be information technology professionals. The
XBRL converters will sit on top of accounting applications and convert the report into
XBRL format at a press of a button. Thus within the uniform accounting language
technology will enable us to have uniform reporting format that would accommodate all
local requirements without impairing the trans-legal structure comparability.
India has already announced phase based deadline for implementing IFRS and
the professional community is gearing up to take up the challenge. In the euphoria
associated with implementation of IFRS, we must note that IFRS does not ensure
prevention of corporate malpractice. IFRS requires that disclosures must highlight
qualitative and quantitative impact of the choice made by the accounting body from
among available alternatives. It does not talk about `what one should do but mandates
`given what one has done, what should you tell others about it. It also does not make
reading the balance sheet any simpler for the uninitiated.
IFRS will usher in an intelligent world inhabited by intelligent professionals.