International Financial Reporting Standards: The Road Ahead

Abstract
Last 30-40 years have witnessed increasing interdependence among the world nations.
Although nations are physically separated, they seem integrated through cross border flows
of goods, services, people, capital, information and culture. Integration of the capital market
has necessitated the unification of financial reporting methods and hence, the Accounting.
Accounting is a language of any business. It helps to identify, measure and communicate
accounting information to permit informed judgement and decisions by the users of the
information. With the intention of alliance in accounting methods, International Financial
Reporting Standards, IFRS have developed. The paper sums up the developments pertaining
to IFRS. It discusses the worldwide transition from national accounting standards to
international accounting standards and particularly, progression of IFRS in an Indian context
in the form of Ind AS. It also covers the various benefits offered by IFRS and challenges
faced in the process of convergence.

1. Introduction
Although the first discourse on accounting methods is 500 years old, accounting standards as
we know them today are of relatively recent origin. They have largely evolved in well-
developed capital markets of Western countries as an aid to a serious agency problem
intrinsic to corporates. In a corporate entity, ownership is separated from the management.
The providers of capital gain the status of outsiders to the organisation whereas mangers
become insiders. Managers have the real controlling powers with detailed knowledge of the
firm’s overall performance. Being outsiders, owners are always apprehensive that mangers
act in their own self-interest. Thus, they are willing to supply more capital only at a premium
to compensate for this information disadvantage. To ensure flow of capital at low cost, it is
thus pertinent to keep a check on mangers performance through performance reports verified
independently by professional auditors. In this context, uniform accounting and auditing
standards have evolved as a relatively low-cost solution to this serious agency problem.
Improvements and rigorous enforcement of accounting standards has helped to underpin how
capital is allocated, improve financial reporting quality, reduce information asymmetry and
facilitate efficient functioning of capital markets.
Different accounting standards are followed worldwide to tap varied national economic and
social forces. Much of the diversity have resulted from deeply entrenched differences in legal
systems, income tax systems, historical, political and economic ties, size and complexity of
business enterprises, development of financial market, sources of investment and financing,
the level of community education, predominant culture and language and the overall
economic development. These different accounting standards providedifferent accounting
choices, applications of which, therefore, results in different financial reportingquality.

Ongoing globalization of the world economy has brought to the forefront the problems
engendered by differences in these accounting reports. To participate internationally, analysts
and investors require understanding of integrities of different sets of rules and regulations.
Translations and reinstatements of financial statements constitute arduous exercise in terms
of money and time. Further, the robustness of different accounting standards and principles
has been questioned. Uniformity, rationalisation, comparability, transparency and adaptability
in financial statements are very much required for true cross-border economic and financial
integration. As a result, the quest for international harmonization through adoption of
International Financial Reporting Standard (IFRS) has been widely accepted as useful and
rational.

The present paper has been organized into six sections. Introduction is provided in the first
section. The second section discusses the worldwide transition from national accounting
standards to international accounting standards. The third section relates to progression of
IFRS in an Indian context in the form of Ind AS. The fourth section discusses the various
benefits offered by IFRS. Challenges in this process of convergence have been discussed in
the fifth section. Finally, the paper concludes from a foreseeable futureperspective in the
sixth section.

2. International Financial Reporting Standard: The Background

The debate on international harmonization of accounting standards started in the 1960s. It
formally commenced in 1973 with the establishment of the International Accounting
Standards Committee (IASC) assigned with the task of drafting international accounting
standards to gain investors’ confidence and provide a strong investment climate. This private-
sector initiative was founded and funded as per an agreement between the accountancy
bodies of over 75 countries (including the Institute of Chartered Accountants of India).
Between 1973 and 2000, the IASC developed a comprehensive list of accounting standards
and interpretations, a conceptual framework and other guidance.

The ascendency of IASC as the major global standard setter, however, arguably took place in
the 2000s. In 2001, the IASC formally restructured into International Accounting Standards
Board, IASB, a full-time, London-based, independent, privately funded organization to
formulate and implement international accounting standards. All 41 standards issued by the
IASC were adopted and were amended and updated according to industry and accounting
needs to be renamed as IFRS, International Financial Reporting Standards.

The first major boost to the new standards came with the 25-nations membered European
Union's (EU) decision to adopt them in 2002. With this decision, it became mandatory for
EU-registered companies to adopt IFRS by 2005. This brought in nearly one-third of the
world economy at once under the ambit of IFRS. The EU decision provided momentum
toward a single standard throughout the world by promoting a domino effect within other
countries. IFRS provided the European members with a ready-made high-quality set of
accounting standards which, by and large, replaced the existing 25 conflicting national
accounting standards. Further, adoption of IFRS by Australia, New Zealand, Hong Kong and
South Africa provided momentum for the worldwide adoption of IFRS. The adoption has
been supported by many international organisations, including the G20, World Bank,
International Monetary Fund, Basel Committee, International Organisation of Securities
Commissions and International Federation of Accountants.China has substantially converged
with IFRS in 2006. Russia and Brazil have also adopted IFRS for all companies whose
securities are publicly traded. The East Asian countries such as Malaysia have converged
with IFRS since 2012, Korea since 2011 and Singapore is also going for full convergence
with IFRS since 2009.

The IFRS project has been rationalized by the idea that a global, common accounting
standard will further integrate and enhance the efficiency of financial markets globally. This
will inter alia result in improvement in financial reporting quality through transparency and
accountability, corporate governance and stewardship, informed economic decision making
thereby maximizing the use of economic resources.

Adoption of IFRS is arguably a remarkable success story of international convergence. This

convergence was never self-evident. In many other movements of corporate governance
harmonization, there have been resistance. The adoption of IFRS from such a large cohort of
countries is seen as a great achievement considering various country-specific attributes. It
becomes even more remarkable, as it represents a fundamental change in the conceptual
foundation and basic principles of financial accounting and the trust exhibited in a private
organization, namely, IASB, to formulate and implement accounting standards.

The adoption of International Financial Reporting Standards and plans for convergence or
harmonisation differ widely by jurisdiction. As per IFRS Foundation report, as of September
2018, 87% of profiled jurisdictions require IFRS Standards for most domestically
accountable companies. Out of 166 profiled jurisdictions, 144 require IFRS Standards for all
or most companies, 12 jurisdictions permit all or most companies to use IFRS Standards, 9
jurisdictions have their own national standards or are moving to IFRS Standards and 1
jurisdiction requires IFRS Standards for financial institutions. 15 of 20 G20 economies
require the use of IFRS Standards. 86 of 166 profiled jurisdictions require or permit the use
of the IFRS for small and medium enterprises, SMEs. The GDP of jurisdictions that require
the use of IFRS Standards is $35 trillion of the total world’s $76 trillion. 27,000 domestically
listed companies on 88 major stock exchanges in the world use IFRS Standards. Some of
these jurisdictions like EU and Canada, have adopted IFRS as issued by IASB with or
without limited modification of their local GAAP with IFRS, whereas, emerging countries
like China and India have modified IFRS to meet their domestic conditions such as economic
policy issues, financial regulation norms and taxation.

The remaining major capital markets without an IFRS mandate are (i) the US, with no current
plans to change; (ii) Japan, where voluntary adoption is permitted but not required; and (iii)
China, which intends to fully converge at some undefined future date. In 2002, IASB and
Financial Accounting Standard Board (FASB), the body supporting US GAAP, announced a
programme aimed at eliminating differences between IFRS and US GAAP.
In August 2008, FASB conceded that US could no longer function in the global economy by
prescribing American rules for other countries to follow. Thus, it allowed foreign companies
access to U.S. capital markets while reporting under IFRS. Until this move, any company
wanting to be listed on the New York Stock Exchange (NYSE) or any other U.S. exchange,
had to engage in a costly reconciliation between its IFRS-compliant financial records and the
results under GAAP. In 2012, the SEC announced that it expected separate US GAAP to
continue for the foreseeable future but sought to encourage further work to align the two
standards. International Financial Reporting Standards (IFRSs) are considered a “principles-
based” set of standards. In fact, they establish broad rules rather than dictating specific
treatments. As opposed to this, US GAAP is a rules-based approach. In US GAAP, there is
more instruction in the application of standards to specific examples and industries. The
differences in the compliance is rooted in the different market environmental factors and
structures of corporate governance in which IFRS is implemented.

3. IND AS: IFRS in an Indian Context

India is a recent participant in the IFRS adoption chain when the Ministry of Corporate
Affairs (MCA) announced its roadmap for adoption of the Indian Accounting Standards (Ind-
AS) from the financial year 2016-2017. India implemented a policy of gradual convergence
to IFRS. In the process, it worked towards resolving several local issues and absorbing the
implications of convergence. There are generic issues and other specific issues, for example,
technical, multi-layered legislative and institutional frameworks for accounting and auditing
and banking to be resolved. The solutions to these issues require timely coordination between
various aspects of the Indian legislative and institutional framework for accounting and
auditing.

Resource dependency and continuous interaction with the outside world are reasons for IFRS
adoption in India. In India, the major emphasis of aligning its practiced accounting standards
with the rest of the world has gained momentum since 1991, as part of an initiative to
liberalise the Indian economy and attracting foreign participation in technology, businesses
and investment. As the USA was the major source of such resources, India aligned its
accounting standards with the US GAAP to meet the precondition of transparency in
financial reporting by foreign investors. Successful alignment of Indian GAAP with US
GAAP encouraged essential foreign participation in Indian business. It also provided Institute
of Chartered Accountants of India, ICAI, with experience and the reputation for bringing
such changes in regard to accounting standards, governance, training and regulatory
frameworks.Under its aegis, the Council of the ICAI has, so far, issued twenty-nine
Accounting Standards. However, AS 6 on ‘Depreciation Accounting’ has been withdrawn on
revision of AS 10 ‘Property, Plant and Equipment’, whereas, AS 8 on ‘Accounting for
Research and Development’ has been withdrawn consequent to the issuance of AS 26 on
‘Intangible Assets’. Thus, effectively, there are 27 Accounting Standards at present.

The ICAI being the accounting standards-setting body in India, way back in 2006, initiated
the process of moving towards the IFRSwith a view to enhance acceptability and
transparency of the financial information communicated by the Indian corporates through
their financial statements. This move towards IFRS was subsequently accepted by the
Government of India.However, decision was made to converge and not to adopt IFRS issued
by the IASB. The decision of convergence rather than adoption was taken after the detailed
analysis of IFRS requirements and extensive discussionswith various stakeholders. It has
been decided that there will be two separate sets of Accounting Standards viz. (i) Indian
Accounting Standards converged with the IFRS i.e. Ind AS and (ii) Existing Notified
Accounting Standards.

Ind AS are issued by the Central Government of India under the supervision and control of
Accounting Standards Board (ASB) of ICAI and in consultation with National Advisory
Committee on Accounting Standards (NACAS).ASB is a committee under ICAI which
consists of representatives from government department, academicians, other professional
bodies like ICSI, ICAI, representatives from ASSOCHAM, CII, FICCI, etc. NACASis acting
as the accounting advisory body to the Central Government on formulation
andimplementation of accounting policy and accounting standards for adoption by
companies.NACAS recommend these standards to MCA who then has to spell out the
Accounting Standards applicable for companies in India.

While formulating Ind AS, efforts have been made to keep these standards in line with the
corresponding IFRS and departures have been made where considered absolutely essential.
They have been named and numbered in the same way as the corresponding IFRS. The
changes have been made considering various factors. For example, various terminology
related changes have been made to make it consistent with the terminology used in law, e.g.,
‘statement of profit and loss’ in place of ‘statement of profit and loss and other
comprehensive income’ and ‘balance sheet’ in place of ‘statement of financial position’.
Certain changes have been made considering the economic environment of the country,
which is different as compared to the economic environment presumed to be in existence by
IFRS.

The MCA in India, the nodal ministry for implementation of “Ind-AS converged withIFRS”,
announced the roadmap for its implementation starting on 1 April 2011.However, this date
was deferred in view of the pending resolution of several issues regardingtaxation, the
accounting regulatory framework, banking, awareness, training andimplementation cost of
the Ind-AS.Finally, MCA, via a press release dated 6 January 2015, announced its roadmap
for adoptionof the Ind-AS from the financial year 2016-2017. This was followed by
theannouncement of a roadmap drawn up for the implementation of Ind-AS for
bankingcompanies, insurance companies and non-banking finance companies via a press
release on18 January 2016. The roadmap for adoption of Ind-AS has a phasedapproach based
on the net worth of a company and other factors such as listings onexchanges within and
outside India.

Pursuant to the above announcement, various steps have been taken to facilitate the
implementation of Ind AS. MCA has issued the Companies (Indian Accounting Standards)
Rules, 2015 vide Notification dated February 16, 2015 covering the revised roadmap of
implementation of Ind AS for companies other than Banking Companies, Insurance
Companies and NBFCs. As per the Notification, Indian Accounting Standards (Ind AS)
converged with International Financial Reporting Standards (IFRS) shall be implemented on
voluntary basis from 1st April, 2015 and mandatorily from 1st April, 2016. Separate road-
maps have been prescribed for implementation of Ind AS to Banking, Insurance companies
and NBFCs respectively.

4. IFRS: Opportunities
The increasing adoption of IFRS is driven primarily by the needs of large corporations
seeking access to international public equity markets, large financial intermediaries
(institutions) seeking global investment opportunities and sometimes market providers in the
hope of deepening their own markets.
EU statement issued in Brussels on 7 June 2002 on adoption of IFRS outlined the expected
benefits of IFRS. It stated that it will help to eliminate barriers to cross-border trading in
securities by ensuring that company accounts throughout the EU are more reliable,
transparent and easily comparable. This will in turn increase market efficiency and reduce the
cost of raising capital for companies, ultimately improving competitiveness and helping boost
growth.
The benefits, thus, expected of IFRS have been hereby discussed.

Eliminate barriers to cross-border investing:

The adoption of IFRS facilitate cross-border investments through the easy comparison of
financial statements between countries as evident in the decisions of international investors.
US mutual funds increased their holdings in European companies that adopted IFRS.
International mutual funds have increased stock ownership post IFRS adoption and has
attributed it to reduced information processing costs and greater comparability of financial
statements.

Improves accounting and disclosure quality and reduces earning management:

IFRS are claimed to be high quality accounting standards. It produces more relevant and
faithful information and reduce the scope for managerial discretion through strong
recognition rules, measurement and disclosure requirements. Under IFRS principles-based
accounting standards, many allowable accounting alternatives have been removed. It fosters
accounting measurements that reflect firm’s economic position realistically like use of fair
values for certain valuation purposes. Accordingly, their use is expected to restrict earnings
management behaviour and promote high-quality financial reporting. IFRS, thereby,
enhances the transparency and reliability of financial statements, which subsequently
improve its usefulness for external users such as analysts and investors. Previous domestic
accounting standards were designed to attend tax and government needs and were not
adequately prepared to inform investors, analysts, and other market participants. IFRS are not
only relevant to external parties but are also useful to management decision making as well.

Despite being researched and elaborated for several decades, there is no precise and universal
definition of accounting qualities. They can be traced according to several attributes of
“good”
financial reporting, including accruals quality, timely loss recognition, earnings smoothing,
earnings persistence, value relevance, reliability and predictability.

Accruals can be regarded as the most important element in the financial statements which
reflects the differences between reported earnings and cash flows due to imbalance timing
between payment receipt (outflow) and supply (delivery) of goods and services. Earnings
management can use income-increasing as well as income-decreasing accruals. A higher
magnitude of absolute discretionary accruals indicates a greater level of earnings discretion,
or lower earnings quality. Empirical evidences have noted that firms with better accruals are
more likely to be able to reduce the costs of capital and increase the relevance of earnings.

Another common attribute of accounting quality is timely loss recognition or, in other terms,
accounting conservatism. Accounting conservatism is defined as the situation in which there
is more thorough verification for good news than bad news. Consequently, higher accounting
conservatism implies that firms will have a timelier news disposition for the bad news vis-a-
vis good news.

Accounting quality can also be looked through the volatility of accounting information.
Investors react positively with the smoothness in the reported earnings as it reflects the
overall stability. Interestingly, it has been found that investors are willing to lower their risk
premium in the presence of non-volatile earnings path, although highly volatile cash flow.
However, earnings smoothing may be used as part of managerial opportunistic behavior to
meet budget targets, job security or hiding firm real underlying performance and is, thus, ill-
advised and more likely to be value destroying.

Furthermore, earnings persistence has also become the focus of researchers and investors
alike as it is useful to measure firms value and financial condition. Earnings persistence is
defined as the extent to which the earnings (or cash flows) can provide information to future
earnings (or cash flows). The higher the explanatory power of current to future earnings
and/or cash flows, the more persistence the earnings or cash flow is.

Enhances comparability:
Accounting convergence and higher quality information under IFRS are the likely drivers of
the comparability improvement. Information comparability is “the quality of information that
enables users to identify similarities in and differences between two sets of economic
phenomena”. These statements assert that there are two equally important facets of
information comparability: the similarity facet, which indicates whether firms engaged in
similar economic activities report similar accounting amounts, and the difference facet, which
indicates whether firms engaged in different economic activities report dissimilar accounting
amounts. Because improvement in one facet of comparability does not automatically lead to
improvement in the other facet, the overall benefit of IFRS adoption on cross-country
information comparability is contingent on whether adoption improves both facets of
comparability, or at least improves one without impairing the other. It is intuitively appealing
that mandatory IFRS adoption improves the similarity facet of cross-country information
comparability, and some empirical evidence from prior studies is consistent with this
intuition.

More importantly, the effect of IFRS adoption on the difference facet of cross-country
comparability has not been addressed at all. This facet of comparability is important for
mandatory IFRS adoption because “an overemphasis on uniformity may reduce
comparability by making unlike things look alike”. For example, if IFRS allow fewer
accounting choices than local accounting standards, then their adoption could force firms to
treat different economic transactions in a more similar way, thus, diminishing the difference
facet of comparability. These results, thus, suggest that IFRS adoption improves the
similarity facet of cross-country information comparability without discernibly impairing the
difference facet of comparability.

There are several potential benefits associated with enhanced information comparability. For
example, more comparable information enables global markets to operate with less friction.
Several studies also suggest that greater information comparability facilitates international
transactions and minimizes exchange costs. Comparability is positively associated with
analyst forecast accuracy, and negatively associated with forecast optimism dispersion.

Value relevance of accounting Information:

Many studies have compared the value relevance of domestic GAAP and IFRS to investors
through an Ohlson price regression model. This model helps to explain value relevance of
accounting information. It explains market value per share using earning per share and book
value of equity per share. Studies have found that both earning per share and book value of
equity per share significantly and positively explain market value per share during the periods
followed by IFRS adoption although earning per share was not a significant predictor prior to
IFRS adoption. Even for a country categorized by strong investor protection and high-quality
financial reporting and enforcement, IFRS adoption has been found to affect the associations
between accounting information and market value.

It is important for managers, accounting report preparers, regulators and investors to draw
upon national experiences to gain insight regarding whether IFRS adoption improves
accounting information to investors for valuation purposes. However, evidence of enhanced
value relevance of IFRS accounting information is country-specific. While Australian
evidence suggests that the combined relevance of book value of equity and earnings has
altered little with IFRS adoption, evidence from the European Union is less consistent.

Improves analysts’ earnings forecast:

With the adoption of IFRS, the quality of financial reports has been enhanced, and
particularly the quality of earnings. It helps to improve analyst forecast accuracy. Studies
have found a positive effect of mandatory adoption of IFRS on the quality of analysts’
information environment measured in terms of analysts’ forecast accuracy, number of
analysts following firms, dispersion of earnings forecasts, and dispersion of target price
forecasts. Through higher disclosure and transparency in financial statements, IFRS enables
analysts to issue earnings forecasts that are more accurate and less dispersed, and
disagreement in issuing target price reduced to minimum. Further, countries with a big gap
between local standards and IFRS, should present a bigger improvement in accounting
quality, which in turn would improve analysts’ forecast accuracy.

Market efficiency, liquidity and the cost of equity capital:

IFRS-based disclosures appear to have improved the efficiency of stock prices. Stock’s
market volatility are driven more by news about the firm itself, rather than by news about
other firms. There is a famous saying in market that ‘liquidity begets liquidity’. This is
because more investors with money to invest and more companies seeking additional equity
capital are drawn to more liquid markets. Market operators also like to run more liquid
markets for fairly obvious reasons of self-interest. It has been found that IFRS have a
potentially beneficial role to play in fostering more liquid markets. Regarding cost of
capital,research suggests that there is a negative association between IFRS adoption and cost
of equity capital. This is because, IFRS has assisted in the development of efficient equity
market, that has helped firms totap cheap capital. Outside suppliers of capital provide funds
at lower rate because of higher trust in the organisationas assured through their financial
statements. Stockholders foresee benefits because the firm’s existing activities would become
more valuable, future growth opportunities would become more worthwhile and some
otherwise marginal projects would become economically viable.

5. IFRS: Challenges

The past decade saw sporadic efforts to identify the challenges of implementation of IFRS
with respect to complex nature, communication, translation and its uniform interpretation,
and to understand the challenges faced by users and practitioners, with respect to education,
staffing, cost, training and IT infrastructure.Challenges in the process of convergence to IFRS
have been hereby discussed.

IFRS transition and implementation obstacles:

IFRS implementation is considered to be a costly procedure, particularly for smaller
companies. Thewidespread changes relating to deferred taxes, segment reporting, property,
plant andequipment valuation, intangible assets depreciation and unquestionably the
increased
disclosure requirements are not easy for the majority of accountants to learn. Personnel
training has emerged as one of the major problems faced. The task of implementing IFRS is
further complicated byIFRS continually evolving, and not yet being finalised in many
jurisdictions. This challenge lessens the opportunity of a smooth transition to full compliance
and requires accountants to be constantly on the alert leading to continuous training of
accountants as additional cost associated with IFRS. As a result, the transition is carried out
by the external auditors in the majority of the companies. In such a case, auditors might fail
to play their proper gate keeping role and cannot be considered as monitors of management’s
actions. IFRS implementation problems are aggravated by the fact that most firms have
toprepare a different set of accounts for tax purposes. These accounts are prepared
accordingto the provisions of tax legislation. Thus, thecompanies bear a cost relating to the
application of two accounting system. This has suggested the need for further attention from
ICAI to simplify the proposed convergence process. Special efforts are required from the
accounting bodies on training and awareness of the proposedchanges among the present and
the future work force. This also requires the attention of IASB toattain smooth global
adoption of IFRS.

Existing institutional and legislative framework:

A country’s accounting policy making system comprisesof the capital markets structure and
level of development, legal requirements, professional accounting standards, tax law
andmanagerialphilosophy. The existing institutional and legislative framework is not
developedenough to allow an integrated application of IFRS. It is a common complain thatthe
supervisory authorities do not provide adequate guidelines concerning thepractical
application of IFRS. A major source of these difficulties is the lack ofcomprehensive training
regarding the technical aspects of the application of IFRS.Agency theory suggests several
variables like firm size, ownership diffusion, leverage and type of auditor influences
compliance with IFRS by influencing the magnitude ofagency costs.

Corporate governance at country and firm levels is believed to have an important influence
on many aspects of the firm’s behaviour such as its disclosure policy, transparency, financial
policy, the quality of its accounting numbers, choice of auditor and so forth; and to influence
the properties of analysts’ forecasts, as well as its cost of capital. IFRS is more likely to be
adopted in countries with strong corporate governance codes, because the loss ofprivate
benefits for company insiders is relatively smallerand consequently, more voluntary
disclosure of information.

The compliance with IFRS predominately depends on a national regulatory framework.It has
been argued that accounting standard setting is futile in the absence ofenforcement. Without
enforcement theaccounting rules will be only symbolic in nature unless accompanied by
sound program for monitoring compliance andimposing sanctions for non-compliance. The
best accounting standards are only as good as the effectiveness of theregulatory
process.voluntary or“laissez faire” approach will not yield the desired research unless
accounting regulations are legally backed. Evidences suggest that in many developing
countriesprofessional self-regulation has failed to regulate accounting and financial reporting
effectively. Therefore, in the public interest, the regulation of accounting by an
independentauthoritative body, deserves seriousconsideration. The intervention of
governments through accounting anddisclosure standards may be crucial to ensure a higher
reliability of financial reports,which is vital for the expansion of a developing country’s
capital market and industries.

For the numerous reasons; the unique regulatory and legal features vary among countries. As
there can be differences in the enforcement of accounting standards, there will be no reason
to expect that financial reports will be comparable in different parts of the world.The
comparability of the information content of firms is greater in countrieswhere there is a high
enforcement regime and the divergence between domestic and IFRS is predominately high.

Fair value concerns:

A major issue in applying the IFRS is using the fair value accounting as the prime source of
measurement for asset/liability. The IASB endorses the fair value approach in the context of
relevance. Therefore, IASB has taken up the function of improving the reporting
requirements. However, from the evidence of the financial crisis and the Enron case, the use
of fair value is expected to increase volatility in the reported values of assets and earnings.
More importantly, most respondents believe that IFRS allow considerable discretion to both
accountants and auditors to exercise their judgment. Within this context, it has been
expressed the reservation that IFRS provide considerable scope to firms to influence
accounting numbers through the application of appropriate accounting treatments.

Variables of interest:
Various variables of interest are subjectively influenced. Thereremains a debate on what
exactly constitutes accounting quality and how it should be measured. It cannot be directly
observed and collected from commercial databases. Discretionary accrual models have been
criticized for their measurement errors and low power settings, which limit their ability to
monitor earnings management. Additionally, discretionary accrual models may not be
appropriate in the cross-country setting because of data restrictions. Another example is
measures of the cost of capital. Much more can be done to refine these and other measures as
a means of increasing the confidence in financial reports.

Internal management systems:

Building in flexibility is a prerequisite to dealing with a world marked by constant change
and innovation. World's premier business thinkers—C.K. Prahalad Krishnan—explain that
the internal management systems that can become an impediment in transition to IFRS as it is
likely to impact the organisations key processes of daily operations with customers and
vendors and the way in which they communicate with investors. These modifications may
further change employee responsibilities. Many of the metrics used by investors and analysts
to assess and compare companies are likely to change.As more companies consolidate their
businesses under the new financial reporting requirements, they may need to renegotiate
financing agreements, adjust debt covenants and reconsider the implications for other long-
term contracts such as leases and derivative arrangements. Internal operations may need to
change as companies begin to integrate the new reporting scheme throughout their
businesses. Control over processes and information may need to be revisited, new treasury
and cash management strategies devised and information technology systems upgraded. IFRS
may impact in terms of the amount of taxes paid and the effective tax rate. Because various
aspects of corporate culture have long conformed to GAAP, businesses may need to modify
compensation structures and appropriately train their workforce under IFRS.

Differences in socio-economic conditions:

Although capital and product markets have integrated, entrenched differences in socio-
economic conditions, culture and value systems cause substantial differences in accounting
practices across countries and these differences cannot be removed overnight. Most market
and political forces are local and will continue to be so in future. Consequently, the extent of
convergence in actual financial reporting practice remain unclear. With differences in the
degree of compliance, the potential benefits of a common set of accounting standards may
never be realised in full. It is one thing to have uniform standards and another to have
uniformity in practice.

Mandatory vs Voluntary adoption:

A link has been drawn between the benefits of adoption and the strength of the firm’s
commitment to comply with the standards. More ‘serious’, voluntary adopters have been
found to benefit more from larger increases in market liquidity and larger declines in the cost
of capital. Voluntary adoption ofIFRS results in improved accounting quality rather than
mandatory adoption.

6. Conclusion
Considering the normative, positive consequences of IFRS, numerous researches have tried
to investigate whether the transition from one’s national GAAP to IFRS will bring about
some improvements in the accounting quality. Nevertheless, researches were not conclusive.
Although some studies have documented the increase in accounting quality many have
proved mixed, ambiguous or even negative findings. Country-specific factors and enterprise
specific factors have played their own role during the convergence process. The impact of
IFRS is never guaranteed just because of mere adoption of the uniform standards but rather
tends to rely largely on the dynamics of the locality of the adoptee. When faced by
complicated change in the environment, people do not fully adjust their behaviour overnight.
In the case of IFRS adoption, standard-setters, preparers and those who issue guidance to
them, auditors, analysts and other users of financial statements, and regulators, can all take a
significant amount of time to adapt. Moreover, IFRS are not static: new standards are being
introduced and existing standards revised frequently. Further, the mandatory adoption ofIFRS
may not be the onlyfactor responsible for improving analysts’ informationenvironment, as
managers’incentives, the enforcement of accounting standards, and a country’s investor
protection mechanisms can also affect the information environment.

With respect to education and training, there is a big role for the universities and alsofor
accounting firms and professional bodies in equipping university graduates for a career
inaccounting, in developing well-trained teachers and researchers, and in catering for the
professional development needs of practitioners.

The professional debate about IFRS involved primarily highly skilled auditors and other
experts representing the big multinational auditing firms, representatives from industrial
multinational firms and accounting academics (associated with standard setters or not). These
groups have institutional and political vested interest in a common world standard and have
always emphasied on the alleged superiority of the conceptual foundation of IFRS compared
to the local standard. Accounting standards should also have the force of law. Auditor
independence is crucial in establishing the credibility and reliability of accounting reports,
and in verifying the correctness of the statement that a company’s financial statements
comply with IFRS.

Despite the one-time fixed costs to implement IFRS, accountants point out that the savings
over time will dwarf the initial outlay, because the compliance costs of duplicate accounting,
the bulk of which investors ultimately bear, will disappear. It could even mean greater profits
for firms. A recent study found that among various companies reporting results under both
GAAP and IFRS, majority showed higher earnings with the international standards in place.
Investors will also have reason to rejoice, as the new standards make company financials
easier to compare, enabling them to invest inter nationally with more knowledge and
confidence. Like investors, auditors will appreciate the switch as it grants them greater room
for judgment and interpretation. It may be the case that the IASB will emerge as the leading
standard settingbody. In any event, there will be more IFRS adoptions,although some
countries will continue to allow local departures. There is a need for a sharper focus on
differences acrosscountries in the regulatory underpinnings of IFRS, in compliance
monitoring, in enforcement,and the importance of high quality corporate governance at both
country and firm levels.

MCA’s announcement of the roadmap for implementation of Ind-AS starting 1 April 2016
conveyed the Indian Government’s commitment to adopting Ind-AS, but also brings forth
discussion on the implementation challenges for various stakeholders. Issues such as
awareness, training, cost, interpretation, IT infrastructure and staffing have been unanimously
perceived as challenges during the implementation process in the context of
India.Experiences of banking industry in the process of convergence would be interesting to
investigate as it represents both the users’ and preparers’ perspective. As a user, it deploys its
funds from customers… based on accounting reports developed from accounting standards.
As a preparer, it accounts for transactions regarding non-performing loans, hedge accounting
valuation,regulatory compliance and taxation. Further efforts from ICAI on training and
awareness may be undertaken in the future. The ICAI has been found to be competent enough
in the past and will prove to be so in the future as well.
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