India has committed itself at the G-20 to make its companies, IFRS compliant from April 1st, 2011.

Though India has not adopted the IFRS in full but it converged its Accounting Standards (AS) to get those in line with the international reporting standards. In this process Indian government, till date has issued 35 accounting standards which are in line with existing IAS and IFRS.

Impact of IFRS on Indian businesses can be studied in various contexts. We will do a cost benefit analysis of the same.

Cost Associated With Implementation of IFRS.

1) The transition to IFRS will place a burden on company staff. Training of staff will be deemed necessary. Further, companies have to employ staff on a permanent basis to take responsibility for compliance with accounting standards and disclosure requirements. This will increase the manpower cost for companies.

2) Information and communication technology (ICT) systems may not be able to supply information in all instances to be required to achieve compliance with IFRS, which suggests that more ICT system changes will be seen in the future. For example maintenance of information relating to property, plant and equipment, such as updating of the fixed asset register and recording and updating of the residual values and useful lives, in the transition to to IAS 16 (property, plant and equipment) will be a burdensome task.

3) In a few cases, the adoption of IFRSs may cause hardship to the industry. To avoid the hardship, some companies may go to the court to challenge the standard. Earlier, to avoid hardship in some genuine cases, the ICAI has deviated from corresponding IFRS for a limited period till the preparedness is achieved. But now such deviation will not be there as the new accounting standards are in line with IFRS.

Benefits Associated with implementation of IFRS.

1) As the forces of globalization prompt more and more countries to open their doors to foreign investment and as businesses expand across borders, both the public and private sectors are increasingly recognizing the benefits of having a commonly understood financial reporting framework, supported by strong globally accepted standards. The benefits of a global financial reporting framework are numerous and include:

.and medium-sized entities (SMEs). and the • Cost of compliance is not commensurate with the expected benefits Hence keeping in mind Government of India has decided that non-listed companies which have a net worth of Rs. • Greater willingness on the part of investors to invest across borders. Challenges for Small and Medium-Sized Entities In emerging economies like India. • More efficient allocation of resources.• Greater comparability of financial information for investors. Hence there will be two sets of accounting standard in India. and • Higher economic growth. a significant part of the economic activities is carried on by small. • Lower cost of capital. 5000 Millions or less and whose shares or other securities are not listed on Stock Exchanges outside India and Small and Medium Companies (SMCs) will not be required to follow the notified Accounting Standards which are converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified Accounting Standards which are not converged with the IFRS. Such entities face problems in implementing the accounting standards because of: • Scarcity of resources and expertise with the SMEs.

the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards (ASs). Almost 100 countries have adopted it while few other countries have declared their willingness to adopt or converge with IFRS over the next two-three years. to meet the increasing complexity of business transactions and globalisation of capital. as a result the companies in emerging countries are increasingly accessing the global markets to fulfill their capital requirement by getting their securities listed on the stock exchanges outside their country. the ICAI is of the view that IFRSs should be adopted for the public interest entities such as listed entities. . Few Indian companies are also being listed on overseas stock exchanges. which create a great confusion for users of financial statements. Convergence to IFRS would mean India . banks and insurance entities and largesized entities from the accounting periods beginning effect from April. which forces more and more countries to open their doors for businesses expansion across borders and to foreign investment. . A large number of multi-national companies are establishing their businesses in various countries especially in emerging countries. . which has prompted many countries to go for convergence of national accounting standards with IFRSs. but different countries follow their own accounting frameworks. At present. India cannot cut off itself from the developments taking place worldwide.International Financial Reporting Standards (IFRS) has gained huge momentum in recent years across the world as it is used as a universal financial reporting language. In the world of globalization. 2011. Complex nature of IFRSs and the differences between the existing ASs and IFRSs. world has become more dependent on each other. Therefore. there is a requirement for a single set of high quality accounting standards that should be spoken by all of them across the globe. finally it leads to inefficiency in capital markets across the world. In this changing scenario.

. The adoption of IFRS is expected to result in better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements. This will result in more transparent financial reporting of a company’s activities which will benefit investors. . customers and other key stakeholders in India and overseas. Benefits to corporates in the Indian context World Class Peer Standards for Financial Reporting: IFRSs will surely enhance the comparability of financial information and financial performance with global peers and industry. The burden of financial reporting is lessened with convergence of accounting standards because it simplifies the process of preparing the individual and group financial statements and thereby reduces the costs of preparing the financial statements using different sets of accounting standards. The industry: It will be easier to raise capital from foreign markets at lower cost if the industry can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards. it offers them more opportunities in any part of the world if same accounting practices . For better understanding of financial statements. Converging to IFRS by Indian companies will be very challenging and on the contrary it could also be rewarding too. which have converged with IFRS. The accounting professionals: Convergence with IFRSs also create more business opportunity to the accounting professionals in a great way that they are able to sell their services as experts in different parts of the world.would join a league of more than 100 countries. Investors: It will be a great help for those investors who wish to invest outside their own country and looking for a Financial statements. . which prepared by using a common set of accounting standards IFRS provides them better comprehensible investment opportunities as opposed to financial statements prepared using a different set of national accounting standards. global investors have to incur more cost in terms of the time and efforts to convert the financial statements so that they can confidently compare opportunities. . Convergence with IFRSs contributes to investors’ understanding and confidence in high quality financial statements. Investors’ confidence would be well-built if accounting standards used are globally accepted.

Challenges to Indian Corporate Laws and regulations: There is a need to bring a change in several laws and regulations governing financial accounting and reporting system in India. the conversion to IFRS will be a multi-year exercise with numerous changes to technology infrastructure and systems. there are legal and regulatory requirements that determine the manner in which financial information is reported or presented in financial statements. With sufficient planning. . upgrades and replacements can occur as part of the overall strategic technology planning and procurement process. . . .’ Lack of adequate professionals: There is a lack of adequate professionals with practical IFRS conversion experience and therefore many companies will have to rely on external advisers and their auditors. Coordination of Conversion System: For many organizations. . Replacement and Up gradation in systems: Conversion to IFRS will require extensive upgrades or total replacement of major system.prevail throughout the world. In addition to accounting standards. . . They are able to quote IFRSs to clients to give them backing for recommending certain ways of reporting. This is necessary to permit accurate and comparative trend and ratio analysis.Convert historical data: Historical data from recent prior periods will have to be recast for comparative purposes. . Record retention requirements should be reviewed to ensure that data currently being retained is detailed enough to permit proper restatement of prior-period financials. Development of new technology systems should be carefully examined so IFRS requirements can be incorporated. Conclusion .

However. which will help Indian companies benchmark their performance with global counterparts. Successful implementation of IFRS in India depends on the regulator’s immediate intention to convert to IFRS and make appropriate regulatory amendments.Convergence to IFRS will greatly enhance the transparency of Indian companies which will surely help them to project themselves in global map. such as the ICAI in India will play a vital role. and increase transparency and reliability of their financial statements. the responsibility for enforcement and providing guidance on implementation vests with local government and accounting and regulatory bodies. . But companies will need to be proactive to build awareness and consensus amongst investors and analysts to explain the reasons for this volatility in order to improve understanding. The ICAI will have to make adequate investments and build infrastructure for awareness and training program. .

Given the current economic scenario. These are: Improvement in comparability of financial information and financial performance with global peers and industry standards. detailing the strategy for adoption of IFRS in India with effect from April 1. the perceived benefits from IFRS adoption are based on the experience of IFRS compliant countries in a period of mild economic conditions. customers and other key stakeholders in India and overseas. The adoption of IFRS is expected to result in better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements. There are likely to be several benefits to corporates in the Indian context as well. This means that such companies will not be required to prepare separate financial statements under Generally Accepted Accounting Principles in the US (US GAAP). Overall. most investors. Even in the US there is an ongoing debate regarding the adoption of IFRS replacing US GAAP. especially relating to financial instruments and business combinations. This will result in more transparent financial reporting of a company’s activities which will benefit investors. Adopting IFRS by Indian corporates is going to be very challenging but at the same time could also be rewarding. This has been strengthened by a recent announcement from the ministry of corporate affairs (MCA) confirming the agenda for convergence with IFRS in India by 2011. This situation is worsened by the lack of availability of professionals with adequate valuation skills. and the consequent saving in financial and compliance costs. 2011. Indian companies listed in the US would benefit from having to prepare only a single set of IFRS compliant financial statements. West Asia and AsiaPacific regions either require or permit the use of IFRS. However. Africa.The use of international financial reporting standards (IFRS) as a universal financial reporting language is gaining momentum across the globe. Indian corporates are likely to reap significant benefits from adopting IFRS. to assist Indian corporates in arriving at reliable fair value estimates. this could result in significant volatility in reported earnings and key performance measures like EPS and P/E ratios. This. The Institute of Chartered Accountants of India (ICAI) has recently released a concept paper on Convergence with IFRS in India. financial statement preparers and auditors were in agreement that IFRS improved the quality of financial statements and that IFRS implementation was a positive development for EU financial reporting (2007 ICAEW Report on ‘EU Implementation of IFRS and the Fair Value Directive’). will lead to increased trust and reliance placed by investors. Over a 100 countries in the European Union. A recent decision by the US Securities and Exchange Commission (SEC) permits foreign companies listed in the US to present financial statements in accordance with IFRS. in turn. The European Union’s experience highlights many perceived benefits as a result of adopting IFRS. IFRS requires application of fair value principles in certain situations and this would result in significant differences from financial information currently presented. The current decline in market confidence in India and overseas coupled with tougher economic conditions may present significant challenges to Indian companies. and increase transparency and reliability of their financial statements. Therefore. This is a significant resource constraint that could impact comparability of financial statements and render some of the benefits of IFRS adoption ineffective . and Better access to and reduction in the cost of capital raised from global capital markets since IFRS are now accepted as a financial reporting framework for companies seeking to raise funds from most capital markets across the globe. Indian companies will have to build awareness amongst investors and analysts to explain the reasons for this volatility in order to improve understanding. analysts and other stakeholders in a company’s financial statements.