³IFRS AND ITS IMPACT ON INDIAN CORPORATES´

In partial fulfillment of the Course: Dissertation In Term ± VIII of the Post Graduate Program in Management (Batch: Aug. 2009 ± 2011)

Prepared by SHANKAR RAO Registration No: 09PG407

Bangalore

1|Page

³IFRS AND ITS IMPACT ON INDIAN CORPORATES´

In partial fulfillment of the Course: Dissertation In Term ± VIII of the Post Graduate Program in Management (Batch: Aug. 2009 ± 2011)

Prepared by SHANKAR RAO Registration No: 09PG407

Bangalore

2|Page

Bangalore

Post Graduate Program in Management Aug. 2009 - 2011 Term ± VIII: Dissertation

Declaration
This is to declare that the report entitled ³IFRS
AND ITS IMPACT

ON INDIAN CORPORATES´ is

prepared for the partial fulfillment of the course: Dissertation in Term ± VIII (Batch: Aug. 2009-2011) of the Post Graduate Program in Management by me under the guidance of Prof. Zohra Bi. I confirm that this dissertation truly represents my work. This work is not a replication of work done previously by any other person. I also confirm that the contents of the report and the views contained therein have been discussed and deliberated with the Faculty Guide.

Signature of the Student

:

Name of the Student (in Capital Letters)

: SHANKAR RAO

Registration No

: 09PG407

3|Page

Shankar Rao Regn.Post Graduate Program in Management Certificate This is to certify that Ms. 2009 ± 2011). Signature of Faculty Guide: Name of the Faculty Guide: ZOHRA BI 4|Page . No. 09PG407 has completed the dissertation entitled ³IFRS AND ITS IMPACT ON INDIAN CORPORATES´ under my guidance for the partial fulfillment of the Course: Dissertation in Term ± VIII of the Post Graduate Program in Management (Batch: Aug.

ACKNOWLE I woul li to t E ENT t i opportunit to express my sincere gratitude to all t ose who have extended their help during my dissertation and have made this study possi le. Bangalore. Their constant guidance. skills and intelligence which helped me to complete my journey of PGPM with ease and grace. I would also take the opportunity to thank my institute ³Alli element of any long lasting endeavour. support and encouragement resulted in the realization of this research. for having created a stimulating atmosphere of academic excellence. support and encouragement throughout my work. I am thankful to my family and friends for their consistent guidance. B i U iv i ´. the basic 5|Page . Lastly I would like to thank the almighty God for providing me strength. I would li e to thank my faculty guide for her excellent support and guidance during the tenure of the dissertation programme.

EXECUTIVE SUMMARY INTRODUCTION OBJECTIVES OF THE STUDY LITERATURE REVIEW ANALYSIS FINDINGS CONCLUSION RECOMMENDATIONS REFERENCES 08 10 19 22 27 98 100 102 104 6|Page .TABLE OF CONTENT C TENTS PAGE NO.

LIST OF TABLE AND CHARTS CONTENT FINANCIAL STATE ENT IFRS CONVERSION PROGRAMME IFRS FINANCIAL STATEMENT APPLICABILITY OF IFRS BENEFICIARIES OF CONVERGENCE WIT IFRS PAGE NO 18 33 33 34 59 DIFFERENT STANDARD OF IFRS AND IAS COMPARATIVE STATEMENT OF IFRS & IAS 77 95 7|Page .

EXECUTIVE SUMMARY 8|Page .

Thus. In addition.. Malaysia. Countries like European Union. Singapore. capturing best practices throughout the world. and fierce competition among corporations. Today¶s financial landscape ± with its dynamic markers evolving market conditions. transparent and easily understood reporting framework which was previously known as the International Accounting Standard (IAS). Even Reserve Bank of India has stated that financial statements of banks need to be IFRS compliant for periods beginning on or after 1 April 2013. Hong Kong. and c) Private companies which hold assets in a fiduciary capacity (e. insurance companies). An essential part of this task is to scrutinize financial statement for compliance with regulatory accounting standards which has given rise to a strong need for IFRS.g. South Africa. IFRS are used in many parts of the world. the US is also gearing towards IFRS as the SEC in the US is slowly but progressively shifting from requiring only US GAAP to accepting IFRS in the long-term. Adoption of IFRS is mandatory for the following entities: a) Public and private companies. Further the major differences between IFRS and Indian Accounting Standards is also highlighted in the report.EXECUTIVE SUMMARY IFRS (International Financial Reporting Standards) is a set of accounting standards developed by the International Accounting Standards Board (IASB) an independent. In India the Institute of Chartered Accountants of India (ICAI) had announced that IFRS will be mandatory in India for financial statements for the periods beginning on or after 1 April 2013. Turkey and many more countries have already started following IFRS reporting. IFRS have become the backbone of financial reporting. Perhaps the greatest challenge is to access an organisation¶s current and expected economic performance. banks. and Pakistan. Starting with an introduction to IFRS will then explain its benefits on all levels. b) Private companies who have issued debt instruments in a public market. 9|Page . Australia. Russia. not forprofit organization. listed as well as those which are in the process of getting listed. GCC countries.is filled with challenges for the riskaverse investor. These standards are used by most capital providers that expect financial information to be presented in a comprehensive. The report work focuses on the effects of implementation of IFRS in Indian companies for which the main issues is to know about the convergence of IAS with IFRS and all the issues related to this convergence with Indian perspectives.IFRS rapidly are becoming a lens through which providers of debt and equity capital examine their investment choices.

INTRODUCTION 10 | P a g e .

with more countries expected to transition to IFRS by 2015. presentation and disclosure of accounting transactions in the financial statements. Accounting Standards (ASs) are written policy documents issued by expert accounting body or by Government or other regulatory body covering the aspects of recognition.INTRODUCTION Basically IFRS is developed to provide a single set of high quality global standards and a global framework for how public companies prepare and disclose their financial statements. (III) presentation of these transactions and events in the financial statements in a manner that is meaningful and understandable to the reader. and (IV) the disclosure 11 | P a g e . IFRS has replaced the older standards IAS (International Accounting Standards). The Accounting Standards are basically set to deal with the issues of (I) recognition of events and transactions in the financial statements. measurement. It provides general guidance for the preparation of financial statements. various accounting bodies are engaged in the task of formulating and implementing accounting policies and practices to show true and fair view of the financial statements. Accounting was created as a mean of measuring and reporting upon such economic activity. the measurement and presentation of financial information is critical as far as allocation of economic resources is concerned. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. In today¶s complex economic environment. Currently. A single standard will also provide investors and auditors with a cohesive view of finances. (II) measurement of these transactions and events. Having an international standard is especially important for large companies that have subsidiaries in different countries. The main purpose of the standard setting bodies is to promote the dissemination of timely and useful financial information to investors and certain other parties having an interest in the company¶s economic performance. over 100 countries permit or require IFRS for public companies. which are the basis of decision making for the stakeholders of the company. Accounting as a business language communicates the financial results of an enterprise to various interested parties by means of financial statements exhibiting true and fair view of its state of affairs as also of the working results. The rules set by them are also called Accounting Standards. Various accounting bodies have been developed to set rules for accounting. Throughout the world.

so far as the ICAI and the Governmental authorities such as the National Advisory Committee on Accounting Standards established under the Companies Act. Therefore translation and re-instatements are of utmost importance in a world that is rapidly globalizing in all ways. Therefore. high quality standards. not only for fuelling growth. The Institute of Chartered Accountants of India (ICAI) as the accounting standards formulating body has always made efforts to formulate high quality Accounting Standards and has been successful in doing so. discussion on convergence of national accounting standards with International Financial Reporting Standards (IFRSs) has increased significantly. India cannot insulate itself from the developments taking place worldwide. the rules and regulations of that other country will apply and this in turn will require that the enterprise is in a position to understand the differences between the rules governing financial reporting in the foreign country as compared to its own country of origin. As the world continues to globalize. In India. The accounting standards and principle need to be robust so that the larger society develops degree of confidence in the financial statements. and firm regulatory framework is the key to economic development. Each country has its own set of rules and regulations for accounting and financial reporting. which are put forward by organizations. In this scenario of globalisation. 12 | P a g e . The emergence of transnational corporations in search of money. In India. but to sustain ongoing activities has necessitated raising of capital from all parts of the world. and various regulators such as Securities and Exchange Board of India and RBI are concerned. 1956.requirements which should be there to enable the public at large and the stakeholders and the potential investors in particular. It has also become imperative for India to make a formal strategy for convergence with IFRSs with the objective to harmonize with globally accepted accounting standards. when an enterprise decides to raise capital from the markets other than the country in which it is located. A financial reporting system supported by strong governance. to get an insight into what these financial statements are trying to reflect and thereby facilitating them to take prudent and informed business decisions. Sound financial reporting standards underline the trust that investors place in financial reporting information and thus play an important role in contributing to the economic development of a country. the aim has always been to comply with the IFRSs to the extent possible with the objective to formulate sound financial reporting standards.

To avoid the hardship. both the public and private sectors are increasingly recognizing the benefits of having a commonly understood financial reporting framework. This will increase the manpower cost for companies. Further. the ICAI has deviated from corresponding IFRS for a limited period till the preparedness is achieved. In this process Indian government. which suggests that more ICT system changes will be seen in the future. IFRS compliant from April 1st. 3) In a few cases. some companies may go to the court to challenge the standard. For example maintenance of information relating to property. companies have to employ staff on a permanent basis to take responsibility for compliance with accounting standards and disclosure requirements. The benefits of a global financial reporting framework are numerous and include: 13 | P a g e . Benefits Associated with implementation of IFRS. such as updating of the fixed asset register and recording and updating of the residual values and useful lives. 2011. to avoid hardship in some genuine cases. 1) As the forces of globalization prompt more and more countries to open their doors to foreign investment and as businesses expand across borders. Impact of IFRS on Indian businesses can be studied in various contexts. the adoption of IFRSs may cause hardship to the industry. 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. 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. But now such deviation will not be there as the new accounting standards are in line with IFRS.India has committed itself at the G-20 to make its companies. till date has issued 35 accounting standards which are in line with existing IAS and IFRS. plant and equipment. plant and equipment) will be a burdensome task. Cost Associ ted With Implementation of IFRS. 1) The transition to IFRS will place a burden on company staff. We will do a cost benefit analysis of the same. in the transition to to IAS 16 (property. Earlier. supported by strong globally accepted standards. Training of staff will be deemed necessary.

‡ More efficient allocation of resources. 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. Complex nature of IFRSs and the differences between the existing ASs and IFRSs. a significant part of the economic activities is carried on by small. banks and insurance entities and largesized entities from the accounting periods beginning effect from April. Challenges for Small and Medium-Sized Entities In emerging economies like India. and ‡ Higher economic growth. ‡ Greater willingness on the part of investors to invest across borders.‡ Greater comparability of financial information for investors. 14 | P a g e . Such entities face problems in implementing the accounting standards because of: ‡ Scarcity of resources and expertise with the SMEs. which have converged with IFRS. ‡ Lower cost of capital. the ICAI is of the view that IFRSs should be adopted for the public interest entities such as listed entities. 2011. 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. Convergence to IFRS would mean India would join a league of more than 100 countries. In this changing scenario. Converging to IFRS by Indian companies will be very challenging and on the contrary it could also be rewarding too.and medium-sized entities (SMEs). India cannot cut off itself from the developments taking place worldwide. the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards (ASs). At present.

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. Investors: It will be a great help for those investors who wish to invest outside their own country and looking for a Financial statements. Convergence with IFRSs contributes to investors¶ understanding and confidence in high quality financial statements. For better understanding of financial statements. In addition to 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. 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. Investors¶ confidence would be well-built if accounting standards used are globally accepted. there are legal and regulatory requirements that determine the manner in which financial information is reported or presented in 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. 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. 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.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. This will result in more transparent financial reporting of a company¶s activities which will benefit investors. 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. customers and other key stakeholders in India and overseas. it offers them more opportunities in any part of the world if same accounting practices prevail throughout the world. 15 | P a g e . They are able to quote IFRSs to clients to give them backing for recommending certain ways of reporting.

most investors. This will result in more transparent financial reporting of a company¶s activities which will benefit investors. This is necessary to permit accurate and comparative trend and ratio analysis. 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 µEU Implementation of IFRS and the Fair Value Directive¶). Adopting IFRS by Indian corporates is going to be very challenging but at the same time could also be rewarding. Development of new technology systems should be carefully examined so IFRS requirements can be incorporated. These are: Improvement in comparability of financial information and financial performance with global peers and industry standards. Indian corporates are likely to reap significant benefits from adopting IFRS. Overall. the conversion to IFRS will be a multi-year exercise with numerous changes to technology infrastructure and systems. Replacement and Up gradation in systems: Conversion to IFRS will require extensive upgrades or total replacement of major system. Record retention requirements should be reviewed to ensure that data currently being retained is detailed enough to permit proper restatement of prior-period financials. Coordination of Conversion System: For many organizations. The European Union¶s experience highlights many perceived benefits as a result of adopting IFRS. upgrades and replacements can occur as part of the overall strategic technology planning and procurement process. There are likely to be several benefits to corporates in the Indian context as well.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. With sufficient planning. Hence there will be two sets of accounting standard in India. the adoption of IFRS is expected to result in better quality of financial 16 | P a g e . customers and other key stakeholders in India and overseas. Convert historical data: Historical data from recent prior periods will have to be recast for comparative purposes.

and increase transparency and reliability of their financial statements. This is a significant resource constraint that could impact comparability of financial statements and render some of the benefits of IFRS adoption ineffective 17 | P a g e . the perceived benefits from IFRS adoption are based on the experience of IFRS compliant countries in a period of mild economic conditions. and the consequent saving in financial and compliance costs. analysts and other stakeholders in a company¶s financial statements. will lead to increased trust and reliance placed by investors. This. 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. this could result in significant volatility in reported earnings and key performance measures like EPS and P/E ratios. Given the current economic scenario. 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. Indian companies listed in the US would benefit from having to prepare only a single set of IFRS compliant financial statements. Therefore.reporting due to consistent application of accounting principles and improvement in reliability of financial statements. The current decline in market confidence in India and overseas coupled with tougher economic conditions may present significant challenges to Indian companies. However. This means that such companies will not be required to prepare separate financial statements under Generally Accepted Accounting Principles in the US (US GAAP). to assist Indian corporates in arriving at reliable fair value estimates. IFRS requires application of fair value principles in certain situations and this would result in significant differences from financial information currently presented. This situation is worsened by the lack of availability of professionals with adequate valuation skills. especially relating to financial instruments and business combinations. in turn.

TABLE 1 18 | P a g e .

OBJECTIVE OF STUDY 19 | P a g e .

Thus it has generated curiosity in me to know something about the way the cross border investment demands. risks and overall impact specific to Indian Industry in adoption of IFRS. To give suggestions towards successful implementation of IFRS. To study the convergence of Indian GAAP with IFRS To know about the benefits of convergence of Indian GAAP with IFRS To study the challenges.NEED AND SCOPE OF T E STUDY As a student of Finance and Accounts it is very necessary to know and study about the journey of our country towards the adoption of International Financial Reporting Standards and how is it different from the present Indian General Accepted Accounting Principles. The IASB itself is still in the process of developing new standards and amendments in the existing standards so that it would be easier and quicker for all the countries to adopt IFRS and need further illustration. 4. 2. There is so much to discuss about the upcoming topic ³IFRS´ which is suppose to support the growing international synergy. 3. 20 | P a g e . OBJECTIVES OF T E STUDY The present conceptual paper has been prepared keeping in view the following objectives:   . RESEARCH METHODOLOGY The main goal behind the preparation of this report is to do a rigorous study of the perceived impact of the International Financial Reporting Standards on the Indian Companies and the economy as well. 5. To know the different standards in both IAS and IFRS. Scope of study on this topic as such is thus very wide because full conversion of the accounting standards would need thorough study and interpretation of these standards. The scope of IFRS lies in the fact that it is eventually inevitable for any country to fully converge to IFRS because of its wider applicability and various other reasons.

reports. y Lack of time to do the research was another important limitation.SOURCE OF DATA COLLECTION The data collected for the study is from the secondary sources. This includes internet. text books and various journals and publications pertaining to the subject matter. y As IFRS has not been practically introduced in full fledge. y Nor has the research revealed an empirical study covering the influence of adopting an external financial reporting system on the business management within organizations. magazines & newspapers. 21 | P a g e . research papers. y A particularly interesting research gap is the linkage between financial accounting and managerial accounting relating to the IFRS which is again not covered in the study. y The research is based on secondary resources only so any wrong information in the data collected would lead to wrong understanding about the concept. the implications were difficult to understand. LIMITATIONS OF THE STUDY The main limitations of this research process are: y The findings of these studies mainly represent the influences of the IFRS implementation on external level and not a detailed study on its real impact on the internal level.

LITERATURE REVIEW 22 | P a g e .

These include: (1) the 10 new EU member countries. pensions). they analyzed subsequent events and studies. Other barriers to convergence include underdeveloped national capital markets. and (4) Switzerland. few were expected to require IFRS for non-listed companies. insufficient guidance on firsttime application of IFRS. and limited experience with certain types of transactions (e. Additionally. Topic-³Convergence with IFRS in an expanding Europe: progress and obstacles identified by large accounting firms¶ survey´ Author: Robert K.g. University of Dayton. (3) European Economic Area (EEA) countries. Department of Accounting. Larson and Donna L. (2) EU candidate countries.LITERATURE REVIEW 1. Dayton. This study examined the progress and perceived impediments to convergence in 17 European countries directly affected by the EU's decision. 300 College Park. The two most significant impediments to convergence identified by the survey appear to be the complicated nature of particular IFRS (including financial instruments) and the tax-orientation of many national accounting systems. This suggests the development of a ³twostandard´ system. School of Business Administration. OH Published Year: 2004 The International Accounting Standards Board (IASB) acquired greater legitimacy and stature when the European Union (EU) decided to require all listed companies to prepare consolidated accounts based on International Financial Reporting Standard (IFRS) s beginning in 2005. Street. While all surveyed countries will either require or effectively allow listed companies to prepare consolidated financial statements in accordance with IFRS by 2005. 23 | P a g e . We utilize data collected by the six largest international accounting firms during their 2002 convergence survey.

possibly because they can benefit the most from them. 38 and 40. Topic-³First time adoption of IFRS. the analysis focuses on the disclosure aspects of consolidation because publishing consolidated accounts is considered still a problematic field. financial leverage. CEO¶s compensation. identifying some factors associated with the level of compliance. institutional ownership and cross-listing. This paper investigates whether Hungarian listed companies comply with IFRS disclosure requirements. The statistical analysis used a logistic regression method to attempt to identify systematic differences between firms adopting fair value and others. high tech companies comply best to IRFS rules. Findings show that the majority of French companies maintained historical cost for the 24 | P a g e .The Case of Hungarian Listed Companies´ Authors: Szilveszter Fekete.2. 3. cross-listing and financial sector. and ownership structure. Findings of this research report suggests that corporate size and industry type (more specifically being in the IT&C sector) are statistically associated with the extent of compliance with IFRS disclosure requirements. IAS 16. Results suggest that for this French sample of firms fair value adoption is not linked with size. The sample was composed of the firms of the SBF 120 index. CEO¶s compensation. This study considered the choice of conservatism as an identified criterion for explaining fair value choices. Topic-³Factors Influencing the Extent of Corporate Compliance with IFRS . This suggest that big. Dumitru Matis & Janos Lukacs Published Year: 2008 Since 2005 European listed companies report their financial figures based on IFRSs. Conservatism: Evidences from French listed companies´ Author: Samira Demaria and Dominique Dufour The European Commission set 2005 as the date for the move to IFRS for all companies listed on European stock exchanges. IFRS choices were linked to the characteristics of the firm such as: size. The optional standards included in the study were: fair value exemption of IFRS 1. Fair value option. leverage. The paper studied the first adoption of IFRS within the perspective of the accounting options concerning the fair value method. Although the issue of consolidation is not a new topic for Hungarian specialists.

33-8879 eliminated the need for US listed foreign companies that prepare financial statements in accordance with IFRS (International Financial Reporting Standards) as issued by the International Accounting Standards Board (IASB) to reconcile their financial statements to USGAAP (U. SEC (the U. which is the conservative option. Securities and Exchange Commission) release no. generally accepted accounting principles).S.valuation of assets. This fact could have encouraged her to adopt fair value. 4. the comparability between net asset per IFRS and that per US-GAAP was yet to be enhanced. Topic-³Are IFRS and US-GAAP already comparable?´ Author: Chunhui Liu Published Year: 2009 As per this research paper. However. Many factors could encourage groups to keep on using historical costs: y y y Resistance to change Implementation complexity Uncertainty about fair value effects This industry is trained to buy and to sell investment properties. the traditional conservatism approach stays embedded in French practices. So despite introduction of IAS/IFRS standards. reconciliation from IFRS to US -GAAP for reported net income was still found to be value relevant. which cheer an economic view highlights by the substance over form principle. The evidence showed that net income reported per IFRS as endorsed by EU (European Union) had significantly increased in comparability to that per US-GAAP from 2004 to 2006.S. This study updated the literature on changes in the difference between IFRS and US-GAAP and their value relevance. 25 | P a g e . Significant difference was found between IASBIFRS (IFRS as issued by International Accounting Standards Board) and EUIFRS (IFRS as endorsed by European Union) reported net income in their comparability to US-GAAP reported net income. In addition.

5. Topic-³Implementing IFRS: A Case Study of the Czech Republic´ Author: Pat Sucher and Irena Jindrichovska Published Year: 2004 This empirical paper presented a study of the implementation process for International Financial Reporting Standards (IFRS) in one of the accession countries, the Czech Republic. Based upon a review of the legislation, institutional framework and context, and drawing upon recent interviews with Czech companies required to prepare IFRS accounts, auditors and institutional players in the Czech Republic, the paper highlighted some of the key issues that were arising with the move to the implementation of IFRS reporting for listed group companies and other enterprises in the Czech Republic. The paper considered the issues that rose while implementing new accounting regulations, some of which were not new and had been well covered in the literature, but others of which were particular to the implementation of IFRS reporting. The method of implementation, the scope of IFRS, particular issues with local accounting practice and IFRS, the issue of enforcement of compliance with IFRS and its relationship with audit, the link between IFRS reporting and taxation and the provision of education and training were all considered. There was also a review of the state of preparedness of local group listed entities with respect to the implementation of IFRS reporting. There were many potentially rich areas for accounting research where th work e could also inform the practice of IFRS accounting. The paper provides a contribution by highlighting how one country has moved to implement the requirement for group listed enterprises to prepare IFRS accounts and the issues that then arise for legislators, preparers and users. 6. Topic-³An Experimental Analysis of Accounting Judgments between US GAAP and IFRS Accountants´ Author: Anne M. Wilkins, CPA, MACC Kennesaw State University Published Year: 2010 European and U.S. based accountants were given a case experiment requiring an accounting judgment. The U.S. accountants were more conservative than their European counterparts in applying judgments under uncertainty. As the U.S. moved towards the adoption of international accounting standards, which were more principle than rule based, the importance of judgments in decision-making and their financial statement impact was increased.
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ANALYSIS

27 | P a g e

ANALYSIS
OBJECTIVE 1: to study the convergence of Indian GAAP with IFRS STRUCTURE OF IFRS IFRS are as principles based set of standards that establish broad rules and also dictate specific treatments. International Financial Reporting Standards comprises of
y y y

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

y

Standing Interpretations Committee (SIC) - issued before 2001

Meaning of Convergence with IFRS The two terms though used interchangeably but there is an important difference. Adoption is process of adopting IFRS as issued by IASB, with or without modifications i.e., modifications in the nature of additional disclosures requirement or elimination of alternative treatment. It involves an endorsement of IFRS by legislative or regulatory with minor modifications done by standard setting authority of a country. Whereas Convergence- is harmonization of national GAAP with IFRS through design and maintenance of accounting standards in a way that financial statements prepared with national accoun ting standards are in compliance with IFRS. Convergence with IFRS thus implies to achieve harmony with IFRSs and to design and maintain national accounting standards in a way that they comply with the International Accounting Standards. The transition would enable Indian entities to be fully IFRS compliant and give an unreserved and explicit statement of compliance with IFRS in their financial statements. This would also lead to underpin the trust investors place in financial and nonfinancial information. In the new format core accounting principles will still apply and is simply an additional piece of accounting equation. Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the Board of the International Accounting Standards

28 | P a g e

both has important implication and will require synchronization of both internal and external reporting keeping in view that it can have a deep and wide impact on overall aspects of the organization as such mentioned below: y y y y y Affecting investor relations.Committee (IASC). Convergence to IFRS. which is indeed a complex process will. and Investors and market expectations. Performance measures. On 1 April 2001. Changes to the accounting policies. the international stakeholders' and comply with the financial reporting in a language that is understandable to all of them. software. The IASB has continued to develop standards calling the new standards IFRS. But. Changes in numbers reported. however this is becoming more of a necessity then just being a best practice. Changes in financial reporting systems and Improving the IFRS skills for company personnel. India today has become an international economic force. During its first meeting the new Board adopted existing IAS and SICs. In response to the need several Indian companies have already been providing their financial statements as per US GAAP and/or IFRS on voluntary basis. pharmaceutical. the new IASB took over the responsibility for setting International Accounting Standards from the IASC. Changes in procedures adopted by the company. Either convergence or adoptions. auto spare part to name a few. And to stay as a leader in the international market India opted the changes it need to interface Indian stakeholders'. Indian companies has surpassed in several sectors of the industry that includes. It is simply an addition to the existing accounting rules. brings about a change in the following: y y y y y y Change in existing GAAP. 29 | P a g e . HR rewards. ITES. Debts covenants.

While doing so the Central Government had adopted a policy of enabling disclosure of company account in a manner at par with accepted international practices. Income Tax Act. Performance measures. Banking Regulation Act. The IFRS process in India The Indian GAAP is influenced by several standard setters and influenced by Statute. The NACS has taken up initiative for harmonization of accounting standards with IFRS would be continued with an intention of achieving convergence with IFRS by 2013. namely Companies Act. Institute of Chartered Accountants of India is actively promoting the IASB's pronouncements in the country with a view to facilitating global harmonization of Accounting Standards and ICAI has pronounced that Indian GAAP will converge into IFRS with effect from April 1. in case of conflicts. through a process of convergence with the IFRS. and whether it is a desirable goal in the first place. Therefore. 30 | P a g e . This dialogue will be critical to the future of financial reporting and of fundamental importance to the long-term strength and stability of the global capital markets. The legal or regulatory requirement will prevail over the IFRS requirement. The Central Government notified 28 Accounting Standards (AS 1 to 7 and AS 9 to 29) in December 2006 in the Form of Companies (Accounting Standard Rules) 2006. Insurance Act etc and directions from regulatory bodies like RBI. Expectation of investor and market will also be required to be of paramount importance to manage in the adoption of process. and IRDA. critical decisions will need to be made regarding the use of global accounting standards in India. 1956 the Central Government of India prescribes accounting standards in consultation with National Advisory Committee on Accounting Standards (NACS) established under the Companies Act. SEBI. especially transactions recorded at fair values. what sort of investments would be required to achieve that outcome. based on Indian GAAP may need revisiting as it may change in IFRS adoption by fair amount on account of valuation aspect. Market participants will be called upon to determine whether achieving a uniform set of high-quality global accounting standards is feasible. Under the statutory mandate provided by the Companies Act. 2013.In the coming years. 1956. pre-conditions for IFRS adoption by India to be effective need amendments in required legislation and clarity on impact of IFRS adoption on Direct and Indirect taxes.

Anurag Goel. there will be two separate sets of Accounting Standards under Section 211(3C) of the Companies Act. The two sets would be as described below: First set would comprise of the Indian Accounting Standards which are converged with the IFRS (IFRS converged standards). Second set would comprise of the existing Indian Accounting Standards (Existing Accounting Standards) and would be applicable to other companies including small and medium companies (SMCs). This important announcement had cleared all clouds of IFRS convergence and provided the road map in phase manner for ach ieving convergence in India effective April 1. According to the above press release. It shall be applicable to specified class of companies. The table below set out the applicability of First set of standards to specified class of companies in phase manner: 31 | P a g e . 2010. Secretary to discuss and resolve implementation challenges with regard to convergence of Indian Accounti g Standards with n IFRS from 2013. 2013. In November 2009 SEBI decided to provide an option to all listed entities with subsidiaries to submit their consolidated financial statements as per IFRS to be in line with objectiv of e convergence to IFRS by 2013. 1956. On anuary 22. the Ministry of Corporate Affairs issued a press release whi h laid out a c phased plan by which IFRS convergence will be achieved in India for companies other than Banking and Insurance Companies.Ministry of Corporate Affairs has also set up a high powered group com prising of various stakeholders under the Chairmanship of Mr.

On March 31. having net worth of more than 1. 32 | P a g e . Sensex 30 and NBFCs (listed or unlisted). 2012. All other listed NBFC's and other NBFCs having a net worth in excess of Rs 500crores would converge effective April 1.The above enlisted specified class of companies will prepare an opening balance sheet in accordance with IFRS converged standards as of effective date and will follow the IFRS converged standards from the respective effective date as mentioned in above table. A phased approach of convergence is prescribed for urban co-operative Banks. Unlisted NBFCs having a net worth of less than Rs 500crores are not mandatorily required to converge but may voluntarily decide to converge. All scheduled commercial banks will converge effective April 1. Thus.000crores will converge effectively before April 1. the Ministry of Corporate Affairs issued the final road map of Convergence with IFRS for Banking and Insurance Companies also. 2013.e. corporate India needs to publish IFRS financial statements for 2011-2012.. 2010. NBFC which are part of Nifty . There by.50. going by aforesaid directives if. this would require comparatives for 2010-11. 2013. now the entire road map for Convergence with IFRS is conclusively defined for all categories of companies in India. In a nutshell. In brief: All insurance companies will converge with Converged Indian accounting standards effective April 1. 2014. 2010. which were excluded from the earlier notification issued on 22nd January 2010. i. this means that the real work for corporate India starts now. an opening balance sheet is required April 1.

IFRS CONVERSION PROGRAMME TABLE NO 2 Framework for the Preparation and Presentation of Financial Statements There is also a Framework for the Preparation and Presentation of Financial Statements which describes of the principles underlying IFRS. A framework is nothing but the foundation of accounting standards. The framework states that the objectives of financial statements is to provide information about the financial position. IFRS financial statements consist of (IAS1.8) TABLE 3 33 | P a g e . and to provide the current financial status of the entity to its shareholders and public in general. performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions.

vi . have done so primarily for public interest entities including listed and large-si ed entities. therefore.APPLICABILIT OF IFRS TABLE 4 STRATEG FOR CONVERGENCE WITH IFRSs Formulation of convergence strategy for departure of Indian Accounting Standards from the corresponding IFRSs as well as the complexity of the recognition and measurement requirements and the extent of disclosures required in the IFRSs with a view to enforce these on various types of entities. public interest entities and other than public interest entities (otherwise known as µsmall and medium-si ed entities¶) are discussed as follows by Institute of Chartered Accountants of India: Public Interest Entities It is noted that those countries which have already adopted IFRSs. It is also noted that the International Accounting Standards Board also considers that the IFRSs are applicable to public interest entities in view of the fact that it has recently issued an Exposure Dra of a ft proposed IFRS for Small and Medium-si ed Entities3. the criteria for Le el I enterprises as laid down by the Institute of Chartered Accountants of India and the definition of µsmall and medium si ed company¶ as per Clause 2(f) of the Companies (Accounting S tandards) Rules. The ICAI. as notified by the Ministry of Company Affairs (now Ministry of Corporate Affairs) in the 34 | P a g e . With a view to determine which entities should be considered as public interest entities for the purpose of application of IFRSs.. 2006. is of the view that India should also become IFRS compliant only for public interest entities.

a bank. So finally the ICAI is of the view that a public interest entity should be an entity: (i) Whose equity or debt securities are listed or are in the process of listing on any stock exchange. it would not be appropriate to exempt such entities from the application of IFRSs. which IFRSs can be adopted after the industry and the profession is ready in terms of the technical skills required.IFRSs do not involve any legal or regulatory issues or have any issues with regard to their suitability in the existing economic environment. whether in India or outside India. financial institution. or (v) Which is a holding or a subsidiary of an entity which is covered in (i) to (iv) above. This category has further been classified into two parts as follows: 35 | P a g e . or (iii) Whose turnover (excluding other income) exceeds rupees one hundred crores in the immediately preceding accounting year. or (ii) Which is a bank (including a cooperative bank). the ICAI has classified various IFRSs into the following five categories: Category I . a mutual fund. On the basis of this examination. which IFRSs can be adopted after resolving conceptual differences with the IASB. or an insurance entity. therefore. Now the next question is whether the IFRSs should be adopted for Public Interest Entities stage-wise or all at once from a specified future date. a financial institution. 2006. The ICAI is of the view that once an entity gets listed on a stock exchange it assumes the character of a public interest entity and.Official Gazette dated December 7. Similarly. or (iv)Which has public deposits and/or borrowings from banks and financial institutions in excess of rupees twenty five crores at any time during the immediately preceding accounting year. an insurance entity and holding or subsidiary of a public interest entity also assumes the character of a public interest entity. preparedness of industry and any conceptual differences from the Indian Accounting Standards. it needs a revision. a mutual fund. For this the ICAI examined the IFRSs and the existing Accounting Standards with a view to determine the extent to which they differ from the IFRSs and the reasons therefore to identify which IFRSs can be adopted in near future. But the ICAI is of the view that about four years have elapsed since the ICAI laid down the criteria for Level I enterprises so as far as the size is concerned. and which IFRSs can be adopted after the relevant laws and regulations are amended. were considered.

IFRSs may require some time to reach a level of technical preparedness by the industry and professionals keeping in view the existing economic environment and other factors. Non-current Assets Held for Sale and Discontinued Operations (Corresponding Indian Accounting Standard is under preparation) Category III . Accounting for Government Grants and Disclosure of Government Assistance IAS 33. Accounting and Reporting by Retirement Benefit Plans IAS 40. the Effects of Changes in Foreign Exchange Rates IAS 26. Impairment of Assets IAS 38. The following IFRSs have been identified in this category: y y y y y y IAS 2 Inventories IAS 7. Revenue IAS 21. Cash Flow Statements IAS20. The following IFRSs have been identified in this category: y y y y IAS 18.Category I A .IFRSs can be adopted immediately as these do not have any differences with the corresponding Indian Accounting Standards. Construction Contracts IAS 23. Intangible Assets Category II . Earnings per Share IAS 36. This category has further been divided into two parts as follows: 36 | P a g e . Investment Property (Corresponding Indian Accounting Standard is under preparation) y IFRS 2. Borrowing Costs Category I B . The following IFRSs have been identified in this category: y y IAS 11.IFRSs which have conceptual differences with the corresponding Indian Accounting Standards. This category also includes those IFRSs corresponding to which Indian Accounting Standards are under preparation/revision.IFRSs which can be adopted in near future as there are certain minor differences with the corresponding Indian Accounting Standards. Share-based Payment (Corresponding Indian Accounting Standard is under preparation) y IFRS 5.

Property. Consolidated and Separate Financial Statements IAS 28. Related Party Disclosures IAS 41. Employee Benefits IAS 27. Interim Financial Reporting IAS 39. Changes in Accounting Estimates and Errors IAS 10. The following IFRSs have been identified in this Category: y y y y y IAS 1. Accounting Policies. Plant and Equipment IAS 32. Financial Instruments: Presentation (Exposure Draft of the Corresponding Indian Accounting Standard has been issued) y y IAS 34. Income Taxes IAS 24. Contingent Liabilities and Contingent Assets Category III B .IFRSs.IFRSs having conceptual differences with the corresponding Indian Accounting Standards that need to be examined to determine whether these should be taken up with the IASB or should be removed by the ICAI itself. Interests in Joint Ventures IAS 37. Presentation of Financial Statements IAS 8. The following IFRSs have been identified in this Category: y y y y y y IAS 12. The following IFRSs have been identified in this Category: y y y y y y IAS 17. Exploration for and Evaluation of Mineral Resources IFRS 8. Operating Segments Category IV . Agriculture (Corresponding Indian Accounting Standard is under preparation) IFRS 3. Financial Instruments: Recognition and Measurement (Exposure Draft of the Corresponding Indian Accounting Standard has been issued) y IFRS 1. Provisions. Investments in Associates IAS 31. Events after the Balance Sheet Date IAS 16. Leases IAS 19.Category III A . First-time Adoption of International Financial Reporting Standards 37 | P a g e . the adoption of which would require changes in laws/regulations because compliance with such IFRSs is not possible until the regulations/laws are amended.IFRSs having conceptual differences with the corresponding Indian Accounting Standards that should be taken up with the IASB. Business Combinations IFRS 6.

Financial Reporting in Hyper-inflationary Economies For Small and Medium-sized Entities: For the µSmall and Medium-sized Entities¶ (SMEs). Insurance Contracts IFRS 7. However. It was noted that the proposed IFRS for SMEs was still at the Exposure Draft stage and it may undergo changes when finally issued. therefore. The ICAI is also of the view that to continue to apply the existing Accounting Standards in India to SMEs with the existing exemptions/relaxations would not be appropriate as it would mean that the ICAI/the Government would have to keep on modifying the existing Accounting Standards as soon as a change is made in the corresponding IFRSs after considering the appropriateness thereof in the context of Indian SME conditions. whether the IFRS for SMEs should be adopted in toto or with modifications should be examined when the said IFRS is finally issued. the following three alternatives were considered: (i) The IFRSs should be modified to provide exemptions/relaxations as has been done in the existing Accounting Standards issued by the ICAI/notified by the Government of India. it would not be appropriate to apply the IFRSs with exemptions/relaxations to SMEs. The ICAI is of the view that since the IASB itself recognises that the IFRSs are too difficult and time consuming for small and medium-sized entities. Accordingly. and 38 | P a g e .IFRSs corresponding to which no Indian Accounting Standard is required for the time being. the relevant IFRSs. can be used as the ³fallback´ option where needed. of the view that it may be appropriate to have a separate standard for SMEs.y y IFRS 4. (ii) The existing Accounting Standards with exemptions/relaxations as at present should continue to apply. The ICAI is of the view that a separate standard for SMEs would be more useful from the following perspectives also: (i) The small and medium-sized entities would not have to consider all the IFRSs which are too voluminous. Financial Instruments: Disclosures Category V . when adopted upon full convergence. (iii) Apply the IFRS for SMEs (the Exposure Draft of which has been issued recently) with or without modifications to suit Indian conditions. y IAS 29. The ICAI is.

µFinancial Instruments: Recognition and Measurement¶. AS 13. Convergence with IFRS ± Stage-wise Approach The ICAI examined whether convergence with IFRSs can be achieved stage wise as below: Stage I: Convergence with IFRSs falling in Category I immediately Stage II: Convergence with IFRSs classified in Category II and Category III after a certain period of time. this may result in mismatch between the requirements of the adopted IFRSs in the first stage and the accounting standards issued by ICAI/notified. (ii) Another problem can be that IFRSs adopted in one stage may not be possible to be implemented fully until the adoption of the IFRSs to be adopted at the later stage in view of their inter-relationship.(ii) It would ensure convergence. it is noted that in order to be an IFRS-compliant country. The ICAI considered in-depth the stage-wise adoption approach and its views thereon are as below: (i) If some IFRSs are adopted in the initial stages and the other IFRSs are adopted later. (iv) Further changes in IFRSs will also make the process more complex as with every revision in IFRS. 2 years after various stakeholders have achieved the level of technical preparedness and after conceptual differences are resolved with the IASB. even for this class of entities. AS 27. (iii) Even. AS 21. has resulted in proposed limited revisions to many other accounting standards such as AS 2. AS 28 and AS 29. Stage III: Convergence with IFRSs classified in Category IV only after necessary amendments are made in the relevant laws and regulations. it is not necessary to adopt the IFRS for Small and Medium-sized Entities to be issued by IASB. For example. say. Thus in this context. at present. µFinancial Instruments: Recognition & Measurement¶. to the extent possible. the issuance of ED of AS 30. Stage IV: Convergence with IFRSs classified in Category V by way of adoption on full convergence. AS 23. AS 11. with the proposed IFRS for Small and Medium-sized Entities being issued by IASB. revisions may be required in the existing Accounting Standards apart from 39 | P a g e . it is found that when one IFRS is adopted. This is because many accounting standards are inter-related. Such an approach is fraught with the danger of missing out certain minute aspects in other standards which may also require revision. it results in a number of changes in the corresponding Indian Accounting Standards. corresponding to IAS 39. corresponding to those IFRSs which are not adopted.

should be adopted from the specified date of 1st April. along with the IFRS number.the changes in the adopted IFRSs.e. Format of converged Accounting Standards The ICAI considered whether the existing Accounting Standards should be revised to make them fully compliant with IFRSs by the specified date or on the specified date the IFRSs themselves should be adopted. such an adoption should be for all IFRSs and that it cannot be on selective basis. the ICAI has decided that IFRSs should be adopted for public interest entities from the accounting periods commencing on or after 1st April. 2011. In order to facilitate reference to the existing Indian Accounting Standards. 2011. Therefore. Indian-specific regulatory/legal aspects may be included in a separate section. the ICAI is of the view that it would be more appropriate to adopt all IFRSs from a specified future date as has been done in many other countries. in the brackets. which would be considered IFRS-equivalent. 40 | P a g e . where appropriate. 2011. In either case. This will give enough time to all the participants in the financial reporting process to help in building the environment supporting the adoption of IFRSs. The ICAI is of the view that it would be more cumbersome to follow the first approach. but after that date this problem will become acute. expected time to reach the satisfactory level of technical preparedness and the expected time to resolve the conceptual differences with the IASB.e. Convergence with IFRS ± All-at-once Approach In view of the above difficulties. the latter will prevail.. IFRSs. including the IFRS numbers.. having certain requirements in conflict with the laws/regulations. Insofar as the legal and regulatory aspects are concerned. The IFRSs should be issued as Indian ASs. After considering the current economic environment. However. i. the second approach should be. on adoption of those IFRSs. i. 2009. The ICAI is of the view that an early adoption of IFRSs should be encouraged. The ICAI is further of the view that this approach is appropriate because to wait for full convergence until the relevant laws/regulations are amended would not be practicable as such amendments may not take place for many years. Though IASB has decided not to issue any revised IFRS or new IFRS effective till January 1. the ICAI is of the view that. the existing Accounting Standard number may also be given. revising the Accounting Standards. The ICAI also examined whether an entity should have a choice to become fully IFRS compliant before 1st April.

The IFRS also prohibits retrospective application of IFRSs in some areas. (b) Provides a suitable starting point for accounting under International Financial Reporting Standards (IFRSs). particularly where retrospective application would require judgements by management about past conditions after the outcome of a particular transaction is already known. and (d) Apply IFRSs in measuring all recognised assets and liabilities. (b) Not recognise items as assets or liabilities if IFRSs do not permit such recognition. 41 | P a g e . the IFRS requires an entity to comply with each IFRS effective at the reporting date for its first IFRS financial statements. An entity shall prepare an opening IFRS balance sheet at the date of transition to IFRSs. but are a different type of asset. An entity¶s first IFRS financial statements are the first annual financial statements in which the entity adopts IFRSs.IFRS A BIRD¶S EYE VIEW IFRS 1 First-time Adoption of International Financial Reporting Standards The objective of this IFRS is to ensure that an entity¶s first IFRS financial statements. liability or component of equity. This is the starting point for its accounting under IFRSs. The IFRS grants limited exemptions from these requirements in specified areas where the cost of complying with them would be likely to exceed the benefits to users of financial statements. the IFRS requires an entity to do the following in the opening IFRS balance sheet that it prepares as a starting point for its accounting under IFRSs: (a) Recognise all assets and liabilities whose recognition is required by IFRSs. contain high quality information that: (a) is transparent for users and comparable over all periods presented. and its interim financial reports for part of the period covered by those financial statements. liability or component of equity under IFRSs. In particular. An entity need not present its opening IFRS balance sheet in its first IFRS financial statements. by an explicit and unreserved statement in those financial statements of compliance with IFRSs. (c) reclassify items that it recognised under previous GAAP as one type of asset. and (c) Can be generated at a cost that does not exceed the benefits to users. In general.

and (c) Transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments. other assets. (b) cash-settled share-based payment transactions. This also applies to transfers of equity instruments of the entity¶s parent. or equity instruments of another entity in the same group as the entity. and the corresponding increase in equity. There are no exceptions to the IFRS. financial performance and cash flows. the IFRS requires an entity to measure the goods or services received. at the fair value of the goods or services received. directly. In particular. or equity instruments of the entity. The IFRS sets out measurement principles and specific requirements for three types of sharebased payment transactions: (a) equity-settled share-based payment transactions. If the entity cannot estimate reliably the fair value of the goods or services received. the entity 42 | P a g e . in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options). in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price (or value) of the entity¶s shares or other equity instruments of the entity.The IFRS requires disclosures that explain how the transition from previous GAAP to IFRSs affected the entities reported financial position. it requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions. IFRS 2 Share-based Payment The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. to parties that have supplied goods or services to the entity. For equity-settled share-based payment transactions. The IFRS requires an entity to recognise share-based payment transactions in its financial statements. other than for transactions to which other Standards apply. including transactions with employees or other parties to be settled in cash. unless that fair value cannot be estimated reliably. including expenses associated with transactions in which share options are granted to employees.

the IFRS generally requires the entity to recognise. using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm¶s length transaction between knowledgeable. (c) for goods or services measured by reference to the fair value of the equity instruments granted. In rare cases. fair value is estimated. For example. as a minimum. The fair value of the equity instruments granted is measured at grant date. the transaction is measured by reference to the fair value of the equity instruments granted. no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition (other than a market condition). by reference to the fair value of the equity instruments granted. ultimately. because it is typically not possible to estimate reliably the fair value of employee services received. and the corresponding increase in equity. an option is reprised) or if a grant is cancelled. That fair value is measured at the date the entity obtains the goods or the counterparty renders service. indirectly. cancellation or settlement of a grant of equity instruments to employees. (b) For transactions with parties other than employees (and those providing similar services). and to take into account the terms and conditions upon which those equity instruments were granted. Furthermore: (a) For transactions with employees and others providing similar services. the amount recognised for goods or services received as consideration for the equity instruments granted is based on the numbe of r equity instruments that eventually vest. Hence. measured at the date the entity obtains the goods or the counterparty renders service. irrespective of any modification. if available. other than market conditions. the services received measured at the grant date fair value of the equity instruments granted. on a cumulative basis. willing parties. vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that. Instead. (e) The IFRS also sets out requirements if the terms and conditions of an option or share grant are modified (e.g. the entity is required to measure the fair value of the equity instruments granted. repurchased or replaced with another grant of equity instruments. the IFRS specifies that vesting conditions. if the presumption is rebutted. (d) the IFRS requires the fair value of equity instruments granted to be based on market prices. In the absence of market prices. 43 | P a g e . are not taken into account when estimating the fair value of the shares or options at the relevant measurement date (as specified above).is required to measure their value. there is a rebuttable presumption that the fair value of the goods or services received can be estimated reliably.

If an entity obtains control of one or more other entities that are not businesses. This IFRS: (a) Requires all business combinations within its scope to be accounted for by applying the purchase method. the entity has incurred a liability to settle in cash (or other assets). (b) How the fair value of the goods or services received. For share-based payment transactions in which the terms of the arrangement provide either the entity or the supplier of goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments. or as an equity-settled share-based payment transaction if. IFRS 3 Business Combinations The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a business combination. the IFRS requires an entity to measure the goods or services acquired and the liability incurred at the fair value of the liability. the acquirer. The IFRS prescribes various disclosure requirements to enable users of financial statements to understand: (a) The nature and extent of share-based payment arrangements that existed during the period. or the components of that transaction. The result of nearly all business combinations is that one entity. with any changes in value recognised in profit or loss for the period. the entity is required to premeasure the fair value of the liability at each reporting date and at the date of settlement. A business combination is the bringing together of separate entities or businesses into one reporting entity. the bringing together of those entities is not a business combination.For cash-settled share-based payment transactions. and to the extent that. 44 | P a g e . or the fair value of the equity instruments granted. the entity is required to account for that transaction. obtains control of one or more other businesses. and to the extent that. the acquiree. no such liability has been incurred. during the period was determined. as a cash-settled share-based payment transaction if. and (c) The effect of share-based payment transactions on the entity¶s profit or loss for the period and on its financial position. Until the liability is settled.

(ii) In the case of a liability other than a contingent liability. its fair value can be measured reliably. (f) Requires goodwill acquired in a business combination to be recognised by the acquirer as an asset from the acquisition date. (h) requires the acquirer to reassess the identification and measurement of the acquiree¶s identifiable assets. initially measured as the excess of the cost of the business combination over the acquirer¶s interest in the net fair value of the acquiree¶s identifiable assets. at the acquisition date. irrespective of the extent of any minority interest. or more frequently if events or changes in circumstances indicate that the asset might be impaired. liabilities and contingent liabilities that satisfy the above recognition criteria to be measured initially by the acquirer at their fair values at the acquisition date. it is probable that any associated future economic benefits will flow to the acquirer. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. liabilities and contingent liabilities recognised in accordance with (d) above.(b) Requires an acquirer to be identified for every business combination within its scope. liabilities and contingent liabilities that satisfy the following recognition criteria at that date. in exchange for control of the acquiree. (c) Requires an acquirer to measure the cost of a business combination as the aggregate of: the fair values. and (iii) In the case of an intangible asset or a contingent liability. the acquiree¶s identifiable assets. liabilities and contingent liabilities and the measurement of the cost of the business combination if the acquirer¶s interest in the net fair value of the items recognised in 45 | P a g e . (g) Prohibits the amortisation of goodwill acquired in a business combination and instead requires the goodwill to be tested for impairment annually. at the date of exchange. plus any costs directly attributable to the combination. and its fair value can be measured reliably. (e) Requires the identifiable assets. and equity instruments issued by the acquirer. The acquirer is the combining entity that obtains control of the other combining entities or businesses. regardless of whether they had been previously recognised in the acquiree¶s financial statements: (i) In the case of an asset other than an intangible asset. and its fair value can be measured reliably. of assets given. (d) Requires an acquirer to recognise separately. liabilities incurred or assumed. in accordance with IAS 36 Impairment of Assets.

IFRS 4 Insurance Contracts The objective of this IFRS is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this IFRS as an insurer) until the Board completes the second phase of its project on insurance contracts. each exchange transaction shall be treated separately by the acquirer. and (b) From the acquisition date. using the cost of the transaction and fair value information at the date of each exchange transaction. In particular. If so. This results in a step-by-step comparison of the cost of the individual investments with the acquirer¶s interest in the fair values of the acquiree¶s identifiable assets. this IFRS requires: 46 | P a g e .accordance with (d) above exceeds the cost of the combination. (j) Requires disclosure of information that enables users of an entity¶s financial statements to evaluate changes in the carrying amount of goodwill during the period. (i) Requires disclosure of information that enables users of an entity¶s financial statements to evaluate the nature and financial effect of: (i) Business combinations that were effected during the period. A business combination may involve more than one exchange transaction. and (Iii) Some business combinations that were effected in previous periods. If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is affected because either the fair values to be assigned to the acquiree¶s identifiable assets. to determine the amount of any goodwill associated with that transaction. liabilities or contingent liabilities or the cost of the combination can be determined only provisionally. (ii) Business combinations that were effected after the balance sheet date but before the financial statements are authorised for issue. The acquirer shall recognise any adjustments to those provisional values as a result of completing the initial accounting: (a) Within twelve months of the acquisition date. the acquirer shall account for the combination using those provisional values. liabilities and contingent liabilities at each step. for example when it occurs in stages by successive share purchases. Any excess remaining after that reassessment must be recognised by the acquirer immediately in profit or loss.

it does not address accounting by policyholders. The IFRS applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. (c) Using non-uniform accounting policies for the insurance liabilities of subsidiaries. (b) Measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services. (c) Requires an insurer to keep insurance liabilities in its balance sheet until they are discharged or cancelled. 47 | P a g e . its financial statements present information that is more relevant and no less reliable. as a result. or more reliable and no less relevant.(a) Limited improvements to accounting by insurers for insurance contracts. The IFRS permits an insurer to change its accounting policies for insurance contracts only if. It does not apply to other assets and liabilities of an insurer. (b) Disclosure that identifies and explains the amounts in an insurer¶s financial statements arising from insurance contracts and helps users of those financial statements understand the amount. an insurer cannot introduce any of the following practices. However. although it may continue using accounting policies that involve them: (a) Measuring insurance liabilities on an undiscounted basis. and to present insurance liabilities without offsetting them against related reinsurance assets. The IFRS exempts an insurer temporarily from some requirements of other IFRSs. except for specified contracts covered by other IFRSs. An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. (b) Requires a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance assets. In particular. or expire. such as financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement. including the requirement to consider the Framework in selecting accounting policies for insurance contracts. timing and uncertainty of future cash flows from insurance contracts. the IFRS: (a) Prohibits provisions for possible claims under contracts that are not in existence at the reporting date (such as catastrophe and equalisation provisions). Furthermore.

by sale or otherwise. In particular. (b) Introduces the concept of a disposal group. (b) The amount. the appropriate level of management must be committed to a plan to sell the asset (or disposal group). and depreciation on such assets to cease. The IFRS: (a) Adopts the classification µheld for sale¶.The IFRS permits the introduction of an accounting policy that involves remeasuring designated insurance liabilities consistently in each period to reflect current market interest rates (and. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. the IFRS requires: (a) Assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell. and liabilities directly associated with those assets that will be transferred in the transaction. timing and uncertainty of future cash flows from insurance contracts. and an active programme to locate a buyer and 48 | P a g e . and (b) Assets that meet the criteria to be classified as held for sale to be presented separately on the face of the balance sheet and the results of discontinued operations to be presented separately in the income statement. For the sale to be highly probable. The IFRS requires disclosure to help users understand: (a) The amounts in the insurer¶s financial statements that arise from insurance contracts. being a group of assets to be disposed of. Without this permission. other current estimates and assumptions). For this to be the case the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. IFRS 5 Non-current Assets Held for Sale and Discontinues Operations The objective of this IFRS is to specify the accounting for assets held for sale. if the insurer so elects. an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities. (c) Classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation. and the presentation and disclosure of discontinued operations. together as a group in a single transaction.

from the rest of the entity. natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area. operationally and for financial reporting purposes. or is classified as held for sale. Exploration and evaluation expenditures are expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. and (a) Represents a separate major line of business or geographical area of operations. Further. a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use. A component of an entity comprises operations and cash flows that can be clearly distinguished. In other words. In addition. Exploration for and evaluation of mineral resources is the search for mineral resources. oil. the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. (b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or (c) Is a subsidiary acquired exclusively with a view to resale. An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. except as permitted by paragraph 9. 49 | P a g e . A discontinued operation is a component of an entity that either has been disposed of. IFRS 6 Explorations for and Evaluation of Mineral Resources The objective of this IFRS is to specify the financial reporting for the exploration for and evaluation of mineral resources. including minerals. and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.complete the plan must have been initiated.

and is not expected to be renewed. Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When facts and circumstances suggest that the carrying amount exceeds the recoverable amount. An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. This includes continuing to use recognition and measurement practices that are part of those accounting policies. an entity shall measure. 50 | P a g e . an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS.Exploration and evaluation assets are exploration and evaluation expenditures recognised as assets in accordance with the entity¶s accounting policy. Thus. One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive): (a) The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future. (c) Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area. The IFRS: (a) Permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8. (b) Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned. (c) Varies the recognition of impairment from that in IAS 36 but measures the impairment in accordance with that Standard once the impairment is identified. (b) Requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. present and disclose any resulting impairment loss in accordance with IAS 36. Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with IFRS 8 Operating Segments.

including entities that have few financial instruments (e. an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The IFRS applies to all entities.g. a financial institution most of whose assets and liabilities are financial instruments). and (b) The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date.(d) Sufficient data exist to indicate that. The qualitative disclosures describe management¶s objectives. policies and processes for managing those risks. these disclosures provide an overview of the entity's use of financial instruments and the exposures to risks they create. An entity shall disclose information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources. The quantitative disclosures provide information about the extent to which the entity is exposed to risk. the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Together. The principles in this IFRS complement the principles for recognising. 51 | P a g e . and how the entity manages those risks. although a development in the specific area is likely to proceed. An entity shall provide sufficient information to permit reconciliation to the line items presented in the balance sheet. a manufacturer whose only financial instruments are accounts receivable and accounts payable) and those that have many financial instruments (e.g. IFRS 7: Financial Instruments: Disclosures The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate: (a) The significance of financial instruments for the entity¶s financial position and performance. measuring and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement. based on information provided internally to the entity's key management personnel. When this IFRS requires disclosures by class of financial instrument.

The scope of the standard: IFRS 8 applies to the financial statements of any entity whose debt or equity instruments are traded in a public market or who is seeking to issue any class of instruments in a public market. It would appear that one of the reasons for the changed standard was a goodwill gesture to the US authorities in order to facilitate a speedy removal of the 'reconciliation requirement' that is currently in place for entities seeking a listing on the US capital markets. IFRS 8 quotes the example of a corporate headquarters that may earn no or incidental revenues and so would not be an operating segment. IFRS8 is very close to SFAS 131 . Operating Segments. Some commentators have criticized the 'management approach' as leaving segment identification too much to the discretion of the entity and therefore hindering comparability between financial statements of different entities. 52 | P a g e . This definition means that not every part of an entity is necessarily an operating segment. Other entities that choose to disclose segment information should make the disclosures in line with IFRS 8 if they describe such disclosures as 'segment information'. In some entities the function could be fulfilled by a group of directors rather than an individual and y For which discrete financial information is available. The issue of this international financial reporting standard (IFRS) is as a result of ongoing dialogue between the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB).the equivalent US standard.IFRS 8: Operating Segments In November 2006 the IASB issued IFRS 8. Identification of operating segments: IFRS 8 defines an operating segment as a component of an entity: y y that engages in revenue earning business activities Whose operating results are regularly reviewed by the chief operating decision maker. The term 'chief operating decision maker' is not as such defined in IFRS8 as it refers to a function rather than a title.

internal and external. of (i) the combined profit of all operating segments that did not report a loss and (ii) the combined loss of all operating segments that reported a loss or y Its assets are 10% or more of the combined assets of all operating segments. of all operating segments y its reported profit or loss is 10% or more of the greater. information about the segment would be useful to users of the financial statements. 2. IFRS 8 states that if the total external turnover reported by the operating segments identified by the size criteria is less than 75% of total entity revenue then additional segments need to be reported on until the 75% level is reached. IFRS 8 gives entities discretion to report information regarding segments that do not meet the size criteria. in the opinion of management. Both should be based on the information provided to the chief 53 | P a g e . This means that if a segment is identified as reportable in the current period but was not in the previous period then equivalent comparative information should be presented unless it would be prohibitively costly to obtain. If segments have similar economic characteristics then they can be aggregated into a single operating segment and viewed together for the purposes of the size criteria. Disclosures by reportable operating segments IFRS 8 provides a framework on which to base the reported disclosures.Identification of reportable segments: Once an operating segment has been identified the entity needs to report segment information if the segment meets any of the following quantitative thresholds: y its reported revenue (external and inter-segment) is 10% or more of the combined revenue. Entities can report on such segments where. in absolute amount. Entities are required to report a measure of profit or loss and total assets for each reportable segment. 1. IFRS 8 requires that current period and comparative segment information be reported consistently. Entities are required to provide general information on such matters as how the reportable segments are identified and the types of products or services from which each reportable segment derives its revenue.

o o The measurement basis for each item separately reported should be the one used in the information provided to the chief operating decision maker. In such circumstances the measure used in the segment report should be the one that management believes is most consistent with those used to measure the corresponding amounts in the entity's financial statements. entities accounted for under the equity method. IFRS 8 specifies disclosures that are needed regarding profit or loss and assets where the amounts are included in the measure of profit or loss and total assets: o o Revenues . post-employment benefit assets and rights arising under insurance contracts. and carrying value of investment in. o o o Depreciation and amortization. The amount of additions to non-current assets other than financial instruments. the total of the reportable segments' liabilities to the entity's liabilities and 54 | P a g e . or assets or liabilities. Material items of income and expense disclosed separately. Share of profit after tax of. Interest revenues and interest expense. deferred tax assets. These must not be netted off unless the majority of a segment's revenues are from interest and the chief operating decision maker assesses the performance of the segment based on net interest revenue. The internal reporting system may use more than one measure of an operating segment's profit or loss.operating decision maker. If the chief operating decision maker is regularly provided with information on liabilities for its operating segments then these liabilities should also be reported on a segment basis.internal and external. Material non-cash items other than depreciation and amortization. Entities are required to provide a number of reconciliations: y y y y the total of the reportable segments' revenues to the entity's revenue the total of the reportable segments' profit or loss to the entity's profit or loss the total of the reportable segments' assets to the entity's assets where separately identified.

If revenues from single external customer amount to 10% or more of the total revenue of the entity then the entity needs to disclose that fact plus: y y The total revenue from each customer (although the name is not needed) and The segment or segment reporting the revenues. IFRS 9: Financial Instruments (replacement of IAS 39) (Significant for Banks and Financial Institutions) The IASB¶s tentative project plan for the replacement of IAS 39 consists of three main phases: A few definitions: 55 | P a g e . Entities also need to provide information on non -current assets on a geographical basis. and therefore does not effectively segment report. The entity-wide disclosures are needed even where the entity has only a single operating segment. Entity-wide disclosures: nless otherwise provided in the segment report IFRS 8 requires entities to provide information about its revenue on a geographical and class of business basis. but not on a class of business basis.y The total of the reportable segments amounts for every other material item disclosed to the corresponding amount for the entity.

loans and receivable portfolio are accounted on amortized cost basis. Equity Instruments: y Under RBI norms. when there are more than an infrequent number of sales in a portfolio. such as caps and floor or normal prepayment or extension terms. Loans and Receivables: y Under IFRS 9. investments in equity instruments are fair valued The gains or losses are either recognized in the income statement or in a reserve account 56 | P a g e . joint ventures). such loans are accounted on a fair value basis. do not taint amortization accounting y A loan with a convertible option is also not eligible for amortization accounting and will have to be accounted for on a fair value basis with changes taken to the income statement y Loan portfolio is accounted for on a fair value basis in cases where banks transfer/securitize their loan portfolio y y Amortization accounting is also not allowed for certain non-recourse loans For example : when a loan to a real estate developer states that the principal and interest on the loan are repayable solely from the sale proceeds of a specific real estate y In such cases.Held to Maturity Classification: y y y Banks have to invest in government securities to comply with RBI¶s prudential norms As per current RBI rules. these securities may have to be accounted for on a µfair value¶ basis. since the bank¶s business model is not to hold the securities to maturity. provided these loans do not contain any exotic embedded derivatives y Basic embedded derivatives. such investments are accounted for at µamortized cost¶. the µcontractual cash flow characteristics¶ is not met and hence. with the fair value changes taken to the income statement. are marked to market y y y Net losses are recognized but net gains are ignored Under IFRS 9. investment in equity instruments (other than subsidiaries. Under IFRS 9. y Under IFRS 9. the entire portfolio would have to be accounted for at fair value.

banks would need to employ in-house valuation experts y Adoption of the expected cash flow approach would. The convergence programme would start with the diagnosis part and designing of different training programmes for professionals with the convert budgets etc. and is irrevocable.y That choice is required to be made at the inception.org REVIEW: The previous part of the analysis focuses on the in depth study of the convergence of Indian GAAP with IFRS. financial institutions. The framework of the preparation and presentation of financial statements is then specified with the applicability of IFRS. Then an explanation on 57 | P a g e . Impairment of Loans (The upcoming standard«. potentially. The strategy for the convergence with IFRS for different entities and its approaches would help us know how to best implement the process on the respective concern. It starts with the meaning of convergence and the entire process of how the convergence with IFRS in India has been planned by the concerned regulatory bodies. for purposes of amortization accounting y y It will lead to significant increase subjectivity and judgment Estimation of future cash flows after adjusting for credit losses would be operationally challenging and would need significant modification to the IT systems y To meet the requirements of regular fair valuation (where amortization accounting test is failed). The phase wise convergence with the effective date for the category of companies has been clearly mentioned.) y The IASB¶s proposed standard on Impairment of loans is looking at a model that is based on expected losses rather than incurred losses y In other words. banking companies. reduce profitability for expanding loan books in earlier years due to the inclusion of expected credit losses in the computation of interest revenue and would thus diminish banks ability to pay dividends. Source: www. scheduled commercial banks.iasb. the proposed standard requires estimated credit losses to be included in the determination of the effective interest rate. Then implementation of the entire process would be done so as to get the required fruitful outcomes. insurance companies and NBFCs. IFRS is applicable to all listed companies. would be the second step of the IFRS convergence programme. on an instrument by instrument basis.

.e. 58 | P a g e .each module of IFRS (i. This shows how the primitive method of accounting is modified and the new process is going to affect our financial statements henceforth. from IFRS 1 to 9) has been properly explained.

Beneficiaries of con ergence with IFRS There are many beneficiaries to the convergence of Indian GAAP with IFRS like economy. TABLE 5 The In estors: Convergence with IFRS makes accounting information more reliable. India is going to get many opportunities of 59 | P a g e . it would simplify the process of preparing the individual and group financial statements. y y y increased confidence in the minds of the foreign investors. relevant. investors. Convergence with IFRS also develops better understandi g of n financial statements globally and develops increased confidence among the investors. y It would lead to lower cost of preparing the financial statemen using different sets of ts accounting standards. decreased burden of financial reporting. accounting professionals and also the company itself. industry. The Industry: The industry would be benefitted in several ways from the convergence of IFRS and Indian GAAP. timely and comparable across different legal frameworks and requirements as it would then be prepared using a common set of accounting standards thus facilitating the investors outside India.OB ECTIVE 2: To know the benefits of con ergence of Indian GAAP with IFRS. Accounting Professionals: Although there would be initial problems but convergence with IFRS would definitely benefit the accounting professionals as the later would then be able to sell their expertise in various parts of the world.

y Convergence with IFRS would improve the risk rating and would thereby make the corporate world more competitive globally as their comparability with the international competitors¶ increases. Following are some of the benefits of adopting IFRS: y y y y y y y Improved access to international capital markets Lower cost of capital Benchmarking with global peers Enhanced brand value Avoidance of multiple reporting Reflecting true value of acquisitions Transparency in reporting 60 | P a g e . Benefits of Adopting IFRS: Globalisation has prompted more and more countries to open their doors to foreign investment and as businesses expand across borders the need arises to recognise the benefits of having commonly accepted and understood financial reporting standards. Moreover the international comparability also improves benefiting the industrial and capital markets in the country.outsourcing of the accounting and financial statements preparation from companies across the globe. The benefits to the corporate world can be as follows: y achievement of higher level of consistency between the internal and external reporting because of better access to international market. The Corporate world: Convergence with IFRS would raise the reputation and relationship of the Indian corporate world with the international financial community. industry as a whole and also to the Government would lead to a growth in the economy. The Economy: The benefit to the Indian corporate. individual investors.

Its benefits have brought a lot of popularity of this common accounting concept among nations worldwide. 61 | P a g e .REVIEW: The analysis of Objective 2 shows how IFRS has impact on many people and also the economy as a whole.

OBJECTIVE 3: To study the challenges. to overcome the challenges. Financial reporting issues would extend to various significant business and regulatory matters like: y y y y y y structuring of ESOP schemes. But there are also a number of challenges that India is likely to face while dealing with convergence with IFRS. a Core Group has been constituted by Indian regulatory to identify inconsistencies between IFRS and as listed below: y y y y Companies Act SEBI Regulations Banking Laws & Regulations. risks and overall impact specific to Indian Industry in adoption of IFRS. tax planning. One of the big impediments to implementation of IFRS in India is in the case of Mergers and Acquisitions where the High Court approval is required. The first and far most would be from the differences between Indian GAAP and IFRS. The High Court has got the authority to stay application of accounting standards or to prescribe accounting requirements in the case of merger and amalgamation situations. CHALLENGES IN THE CONVERGENCE WITH IFRS FACED BY INDIA The various benefits are tempting the policy makers in India to follow IFRS and it is expected that a large number of Indian companies would follow IFRS from 2011. The preparers. modification of IT system. compliance with debt covenants Educating investors to understand the changed financial reporting's under IFRS Therefore. The convergence with IFRS is not just a technical exercise but also involves an overall change in not only the perspective but also the very objective of accounting in the country. users and auditors will continue to encounter practical implementation challenges after the execution of IFRS. training of employees. and Insurance Laws & Regulations. All this would deter smooth transition to 62 | P a g e .

Besides. 63 | P a g e . the entire compensation package will need to be revised. though a departure from IFRS is essential bearing in mind the needs and requirements of the Indian economy. legal and implementation challenges that cause unavoidable reasons for departures from IFRS. There are many areas where the differences lie between the Indian GAAP and IFRS. such as accounting for derivatives or provision for non-performing assets. Thus the unhelpful attitude of corporate world poses another challenge in convergence with IFRS standards. practical. fixed assets accounting. accounting of financial instruments and foreign exchange. and these requirements of the RBI are currently at variance with the IFRS. In spite of many favourable points of convergence with IFRS. The challenges are: 1. 3. Maintaining consistency with the legal and the regulatory requirements prevalent in India. For example. the variable pay component of most TCS employees is about 30 % of the total compensation package and this variable pay being based on items of Profit/Loss Account which will be defined differently under IFRS. Thus Indian GAAP is a long way behind IFRS. stock options. deviations are bound to exist due to various conceptual. Everybody is reluctant to change and this is a universal fact. 2. group accounts etc. The RBI also prescribes accounting requirements for banks. compensation structure will have to be renegotiated by most senior employees who have variable methods of compensation. presentation of financial statements. Managements compensation. Now all the salary structure.IFRS in India. tax liability and distributable profits are all based on Indian GAAP and AS (Accounting Standards) at present. deferral of VRS cost or ESOP accounting being based on intrinsic method. There has been reluctance in India to adopt fair value approach in measurement of various assets and liabilities where as IFRS is based on the fair value approach. debt covenants. The macro environment of the country where it is applied is another important reason for departure from IFRS. For example.

Risks involved in Introducing IFRS in India y Implementing IFRS has increased financial reporting risk due to technical complexities. y y At the ground level. Basically the idea is that it should be made mandatory for the companies to prepare consolidated financial statements which would require them to provide information about their unlisted companies as well under IFRS.4. This would result in tax benefits of hybrid instruments where 'interest' is treated as receiving a dividend. y IFRS financial statements are significantly more complex than financial statements based on Indian GAAP. Similarly implementation challenges also crop in the convergence with IFRS because of complexities of the recognition and measurement requirements and the extent of disclosures required by IFRS on different types of entities that are public interest and other than public interest entities. Indian Standards remain sensitive to local conditions. discount allowed on issue of debentures. This would bring about a change in income statement leading to enormous confusion and complexities. 64 | P a g e . treatment of expenses like premium payable on redemption of debentures. underwriting commission paid on issue of debentures etc is different than the present method used. y Another risk involved is that the IFRS do not recognize the adjustments that are prescribed through court schemes and consequently all such items will be recorded through income statement. manual workarounds and management time taken up with implementation. IFRS will introduce changes in the very concepts and definitions of in a few areas like change in the definition of 'equity'. This complexity threatens to undermine the usefulness of IFRS financial statements in making decisions. including the legal and economic environment so it would become very difficult for the economy to converge into IFRS. it will be difficult for the small and medium firms and the accounting companies to keep pace with the process of convergence with IFRS and it will be more challenging for them. y In IFRS framework. The risk is that the preparation of financial reports will become just a technical compliance exercise rather than a mechanism for communicating performance and the financial position of companies.

It will always be checked to see if the IFRS pronouncements fit for application in a particular country and its environment. lenders. Head of Accounting Advisory Services. measurement. Internal stakeholders include: y y y y the management of the company. As rightly known the stakeholders who need to understand the financial statements would be affected in one way or the other.y Laws and pronouncements are always country specific and no country can abandon its own laws altogether. management of companies would also like to address the requirements of stakeholders in a smooth and meaningful manner. regulators. However. board of directors (including independent directors). audit committee. the new converged standards essentially serve the same objectives as the previous standards ² that of providing timely and useful financial information about companies for stakeholders to assist in decision-making. This also shows our unpreparedness towards the convergence process. KPMG. Various stakeholders will be impacted by the transition to IFRS so the stakeholders want to understand how this change affects them. In fact it is not yet very clear whether IFRS would be directly adopted or will they converge into Indian GAAP. Jamil Khatri. and employees And external stakeholders include: y y y y y investors (current and potential shareholders). research analysts and credit rating agencies 65 | P a g e . there are likely to be significant changes in the recognition. Similarly. Impact Assessment As per the Mr. disclosure and presentation of various aspects of items in the financial statements. These would be internal or external stakeholders.

such investments may be reported at cost. While the underlying business situations continue to be the same. some of the investments may be recorded under IFRS at fair value with the movement of fair values between different periods reported in equity or the income statement. such situation existed even under the Indian GAAP though not reported in the same manner. Now. Setting the expectation of stakeholders for the anticipated changes would ensure that the stakeholders understand the impact in the right perspective. the investors should understand that this is additional financial information available. debt-equity ratio and current ratio. may be different under IFRS compared with the Indian GAAP. Thus the main focus would be to: y Understanding what external stakeholders may want to know and how they use financial statements. 66 | P a g e . Identifying matters that need resolution for their understanding and providing information on a timely basis. therefore. y y Recognising that communication is important. Currently. the fact that the movement in fair values is recorded through the income statement in the future may affect the profitability of the company.All these stakeholders use the financial statements for a variety of purposes and therefore changes in the reported financial statements due to transition to IFRS would need to be understood by them for their decision-making. and y Understand that the users of financial statements may not always be accountants and. It is highly likely that the reported profitability and other financial parameters. For example. would need to be explained the impact of implementation of IFRS in a simple language. such as net worth. It is also unclear currently if the ability of companies to pay dividends would be dependent on the profits reported under IFRS financial statements or a different formula would be set for determining distributable profits. So the companies need to work so as to ensure that their stakeholders will be appropriately prepared to understand and use the financial statements under IFRS. This may affect all investors. Though the reported profit may be different.

The audit committees and board of directors recommend and approve the financial statements of companies and. for example: y y y y estimating the useful life of assets. therefore. but is also helping them to anticipate and understand the change that may arise as not managing the expectation may lead to some kneejerk reactions. properly timed and appropriately comprehensive. they need to know and understand what they are approving. there would also be several areas where there would be significant exercise of judgment by management. etc.It is important that the stakeholders feel confident that a company is not only effectively managing the transition to IFRS. While approving such decisions. analysts. estimates of fair values for investments and other financial instruments. Communication is most effective when the impact is clearly understood by the management and the company so that the message is clear and appropriate. Election of exemptions and accounting policies from several choices available. Therefore. 67 | P a g e . In the current environment where financial reporting by companies is under significant scrutiny by investors. IFRS affect the employees in general because IFRS may impact the reported profits and often a portion of employee incentives are linked to the company¶s profits. identification of significant components in assets. In addition. The stakeholders should be communicated early. Indian companies are fortunate that they could learn from the experience of other economies such as the European Union and Australia. Other employees in the finance function would need to know IFRS implications in greater details as they need to prepare the financial statements. Messages need to be direct. the directors need to be knowledgeable enough to understand the implications of each of these matters so that they make appropriate decisions. providing effective and timely communication should help companies mitigate this risk. regulators & directors have a heightened sense of responsibility for financial reporting. but not too early about what's going on with the IFRS transition.

Apart from the need to prepare and explain the IFRS financial statements, management also have to set up the processes, for example ± IT process, MIS and budgeting process ± and make changes to the processes. Understanding of IFRS would be required in the day-to-day decision making of the management, for example, their ability to raise funds, mergers and acquisitions activity, and the structure of business contracts. As most external stakeholders would be unprepared, a company would need to anticipate difficulty in the first year of IFRS convergence due to use of a different accounting language. It is possible that some companies may start voluntary disclosing some information and impact of IFRS on a pro-forma basis to the capital markets or investors even before the mandatory date of transition to IFRS so as to make a good start. Thus an entity may use this IFRS transition as an opportunity to enhance ongoing stakeholder communication rather than treating it as a one-off exercise. Impact assessment is an enabler to produce IFRS financial statements that compare to and eventually replace an entity¶s current financial statements. However, it is equally important for the entity to see how IFRS information will affect the perception of its business performance. Business Re-engineering Converting is not just a technical exercise. It provides executives with opportunities to challenge the way in which their organization is viewed and evaluated by investors, other key stake-holders and competitors. Every important decision that an entity makes will be affected by IFRS, making it essential for the management to anticipate changes in the market perception.

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The Impact of IFRS on Indian Industries
Impact on Real Estate Industry: According to the stringent revenue recognition norms laid down by the IFRS, all real estate companies that form part of the NSE¶s Nifty-50 or BSE¶s Sensex-30 will have to report financial returns. As per researchers Indian real estate companies are booking revenues even before they start the construction because of the currently used percentage of completion method of accounting, which allows companies to book revenues provided an agreement of sale has been signed with the buyer and thus a specified percentage of the project cost has been incurred. As a result, Indian real estate companies¶ revenues are higher by as much as 30% as compared to the work done by them. For years, developers in India have been recognising revenue the moment an agreement for sale of a flat is signed. They do this after completing about 20-25% of the total construction work, mainly to assure investors that the project is safe. So, under India¶s Generally Accepted Accounting Principles (GAAP), revenue is earned the moment an under-construction flat is booked. However, under the IFRS, only when an apartment is constructed and ownership rights are transferred will revenue from such transaction be recognised. Thus it is a challenge to follow the new accounting norms as there will be shortfall of revenue in some quarters. In the first phase of the roll-out, the IFRS norms will impact companies with net worth of over Rs 1,000crore or those who have issued Foreign Currency Convertible Bonds (FCCBs) or Global Depository Receipts (GDRs). And also developers would not find it acceptable to pay tax on a notional basis when there is no revenue recognition in the books. However, the Institute of Chartered Accountants of India (ICAI) has decided not to exempt any sector/industry from adopting these standards as it could trigger off an avalanche of such requests from sectors like banking. Thus it is believed that the adoption of International Financial Reporting Standards (IFRS) will reflect more appropriately the revenues of Indian real estate developers and their ability to deliver projects and will also deal with the market risks that are related to real estate projects more effectively than the percentage completion method. The revenue recognition is thus a major challenge, which is not accepted even in some of the developed countries like
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US and moreover Singapore has not accepted the method and they are continuing with the percentage completion method. The Current Revenue Recognition Policies of IFRS will also allow revenue booking ahead of construction. According to the percentage of completion method, developers can recognise revenues in proportion to the construction cost incurred in a year, provided the ownership of the apartment has been transferred to the buyer. Furthermore, land cost is allowed to be part of construction cost and the agreement of sale between buyer and seller is supposed to transfer the ownership to the buyer. For example: to calculate the percentage of completion accounting method of a project, which has total cost of $100 (of which $30 is the land cost) and revenue of $120, if a developer has incurred 30% of the total cost ($30), he/she can recognise 30% of revenue (i.e., $36). Since the land costs are usually a part of the construction cost, developers can recognise this revenue even prior to starting any construction. Hence, developers have started using this provision to their advantage and have started booking revenues for projects even before any construction commenced. Thus the revenues recognised by leading Indian real estate companies were significantly higher than the cash received from customers in the year 2008. Ideally, revenues should be close to the cash received from customers especially because most customer payments are construction-linked but they can exceed the cash received from customers when
y

Revenues have been booked but no invoice has been raised to the customer because the company has not reached any construction milestone.

y

The customer has been invoiced but the builder has yet to receive payments. Such instances were rare because during FY 08, real estate investments were appreciating and customers did not have any reason to delay payments.

According to IFRS guidelines on real estate that will be adopted in India in 2011 (IFRIC 15), revenues can be recognised only when the risk and rewards of ownership have been transferred. IFRS allows the use of the percentage completion method only if one of following conditions is met:

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For so me companies. 71 | P a g e . sales will have to be reversed at the time of cancellation. and rewards of ownership of the work-in-progress passes on a regular basis to the buyer (as the construction progresses). Since IFRS allows revenue recognition only if the project has been delivered. Whereas IFRS would make it difficult for builders to evade the completed contract method of accounting. cancellation and revenue restatements can be material. an IFRS compliant company¶s financial statement will provide a better perspective of its execution capabilities. real estate developers may minimise the downside by restructuring their sale agreements so that they transfer the risk and reward continuously to the buyers (during the construction period). i. y Execution Risk ± Execution risk becomes critical. Indian real estate developer Lok Housing and Construction Limited announced that it would have to restate revenues of almost 50% of the past three years¶ sales because many buyers had cancelled the corresponding sale agreements. for the quarter ending December 31. For example. For partially completed projects. and since they will get more control and ownership of the apartment (while it is being constructed).. This also bodes well for homebuyers since it would make sale agreements more favourable for them than they currently are. y If the control. 2008.y If the contract is a construction contract. Most builders allow refund after deducting a penalty.e. i. y Market Risk ± A fall in real estate prices below the purchase prices would result in homebuyers asking for a refund of their payment amount. recognising a portion of the total revenues may not properly reflect the execution risk inherent in these projects.e. if sales are recognised at the time of signing of sale agreement. especially during an economic downturn when most projects get delayed because the builders have little or no cash.. Therefore. risks. if the buyer provides the materials and the contracting entity only provides services. y If the contract is for rendering services. the contract is such that buyer has complete control over the design and specification of the property until its completion. IFRS addresses the following two key risks involved in revenue recognition with respect to the sale of real estate projects (under-construction).

The IFRS conversion effort provides opportunities for achieving synergies with other IT projects and strategic initiatives. Organizations benefit when they identify and integrate the efforts of the IT team early in the IFRS conversion process. Source: www. Repercussions of IFRS on Banking¶ financial performance y Adoption of IFRS requires a significant change to such existing policies and could have a material impact on the financial statements of financial companies 72 | P a g e . financial reporting policies for provision for loan losses and investments are specified by the RBI.2indya. IFRS is likely to impact financial performance. they are preparing themselves for the worst. financial instruments and derivative accounting according to auditing and consultancy firm KPMG. IFRS is an accounting-driven but it can drive major changes to IT systems as well as business processes and personnel. Impact on Indian Bank: The financial impact of convergence with IFRS (International Finance Reporting System) will be significant for banks in India. IT efforts will comprise a mix of short. In banking companies.As developers in India are aware that IFRS will have an adverse impact in the initial few years as the revenue will be skewed in the year of completion.com Impact on Indian Informational Technology Industry: The main effect on the IT industry is that the changes in the systems and in the updating of the existing to the newer version of IFRS enabled accounting software. directly affecting capital adequacy ratios and the outcomes of valuation metrics that analysts use to measure and evaluate performance. particularly in areas relating to loan loss provisioning.and long-term projects within the organization¶s overall IFRS initiative. Experience indicates that IT costs generally constitute more than 50 percent of IFRS conversion costs.

IFRS for SME¶s provide high quality and internationally respected set of accounting standards. Impact on SME: In India SME¶s contribution to GDP is presently 17% which is likely to go up to 22% by 2012. while public sector banks meet mandatory lending requirements. and credit rating agencies. One of the reasons for this state of affairs is SME¶s bring-out financial statements that are useful only for owner-managers / tax authorities / government authorities. Users of the financial statements of SME do not have to meet needs of public capital markets but. Banking sector. liquidity and solvency. IFRS for SME¶s are meant to meet financial reporting needs of entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users. y By virtue of operating in a regulated industry. employs over 42 million workers and is estimated to create one million jobs every year. y Application of IFRS may result in higher loan losses and impairment charges. Further SME¶s in India contribute to 45% of industrial output. financial institutions and corporate sector. IFRS for SME¶s will provide a platform for growing business that is preparing to enter capital markets where application of full IFRS is required. Financial statements thus produced are not comparable nor carry enough credibility. 40% of exports.y In addition to the financial accounting impact. IFRS for SME permits financial reporting information which helps capital providers makes better decisions resulting in a more efficient functioning of capital markets and a lower cost 73 | P a g e . Banking companies are subject to regulatory reviews and inspections and are also subject to minimum capital requirements. SME sector is neglected by private banks and finan cial institutions. existing and potential creditors. the convergence process is likely to entail several changes to the financial reporting systems (including IT systems) and processes adopted by banks. thereby impacting available capital and capital adequacy ratios. rather are more focused on assessing shorter-term cash flows. Despite such laudable contribution SME sector does not get required financial support from concerned Government departments. External users include owners who are not involved in managing the entity.

IASB has published excellent training material for µIFRS for SME¶s¶ which can be accessed by everyone. In addition to accounting standards. Therefore many companies will have no option but to rely on to external advisers and their auditors. Entities enjoy improved access of capital at lower costs. In general to state µfinancial statements comply with IFRS for SME¶s¶ is not difficult. whereas these may be considered to be a financial liability under the IFRS for SMEs. The article discusses basic critical requirements that can be complied with (to enable an SME to state its accounts are compliant with IFRS for SME¶s) by most of SME¶s at a very minimum cost and reap very high benefits. 1956 determines the classification and accounting treatment for redeemable preference shares as equity instruments of a company. the Companies Act. For instance. The requirements of IFRS for SME¶s are almost similar to generally accepted accounting practices. Most of the requirements are already being complied with while preparing financial statements for µincome tax purposes¶ and other general purposes. There is shortage of professional with practical IFRS conversion experience in India. A recent survey among the small and mid-size private companies revealed that y More than half of them believe that there should be a separate accounting standards for SMEs y Less than half of them (43%) are not even aware of the IASB issuance of IFRS for SMEs. there are legal and regulatory requirements that determine the manner in which financial information is reported or presented in financial statements. 74 | P a g e . A little more fine tuning of presentation and disclosure would enable an SME to state it complies with µIFRS for SME¶s¶ thus increasing the credibility manifold. This would open many doors for SME¶s including for Accessing finances. There is an urgent need to address these challenges and work towards full adoption of IFRS and IFRS for SMEs in India in particular. Joint ventures and collaborations. indicating the need for more education In India there is a need of change in several laws and regulation governing financial accounting and reporting in order to fully convergence of SMEs with IFRS.of capital for the economy as a whole.

I have also discussed about the impact of IFRS convergence on different sectors of our country.REVIEW: The above analysis shows how adoption and convergence of IFRS has its own challenges for an individual. company and the economy as a whole. 75 | P a g e . It¶s also a risky process so the professionals need to get proper training to fruitfully execute the entire process.

76 | P a g e .OB ECTIVE 4: To know the different standards in both IAS and IFRS.

Agriculture IFRS 1. currently there are no corresponding Standards available under Indian GAAP for the following IAS/IFRS: IAS 26.Accounting and Reporting by retirement Benefit Plans IAS 29.First Time Adoption of International Financial Reporting Standards IFRS 2.Insurance Contracts IFRS 6.Share Based Payment IFRS 4.Financial Reporting in Hyperinflationary Economies IAS 40-Investment Property IAS 41.TABLE 6 However.Exploration for and Evaluation of Mineral Resources 77 | P a g e .

78 | P a g e .Comparative statements of International Financial Reporting Standards and Indian Accounting Standards: I. Indian Accounting Standards already issued by the Institute of Chartered Accountants of India (ICAI) corresponding to the International Financial Reporting Standards.

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Accounting Standards presently under preparation corresponding to the International Financial Reporting Standards 94 | P a g e . III.II. International Financial Reporting Standards not considered rele ant for issuance of Accounting Standards by the ICAI for the reasons indicated.

Table 7 95 | P a g e .

Therefore it is said that India should go along and face the challenges. But due to lack of industry specific guidance in IFRS and general reliance on Indian GAAP there are no industry specific themes in IFRS. forecast and management accounts. ICAI has also decided to adopt IFRS for public interest entities from accounting periods commencing on or after april1 2011. Implementation in other countries has not revealed any visible pattern in industry wise adoption of these standards. There is need to improve upon the disclosures which may help to view financial statements not only from compliance perspective but also as a way of communicating and explaining performance.OBJECTIVE 5: To give suggestions towards successful implementation of IFRS SUCCESSFUL IMPLEMENTATION OF IFRS IN INDIA Looking at the risks we cannot escape or avoid from converging or accepting IFRS. converging to IFRS using an endorsement process and possibly accepting temporary carve outs and quirks seems to be a safer route to take. y Tax authorities should consider IFRS implications on direct and indirect taxes and provide appropriate guidance from a tax perspective. Some suggestions for successful implementation of IFRS are: y If India does not have an active role in standard setting process internationally. This method has been successfully adopted by many countries. In view of various challenges and difficulties it seems to be more appropriate to adopt all IFRSs from a specified future date as it is. The Institute of Chartered Accountants of India should make an all out effort to train and upgrade the profession in IFRS. study the likely risks and accordingly get prepared for IFRS. y It should be made compulsory for the companies to prepare IFRS compliant statements along with Indian GAAP compliant statements so that the likely problems can be traced in advance and corrected as far as possible. y Successful implementation of IFRS would require companies to fully use IFRS as their basis of daily primary financial reporting as well as for performance tracking in the form of budgets. There is a strong case for convergence and harmonizing accounting principles and standards at the international level. This goes more strongly with India as we have witnessed a good growth with globalization and it has helped Indian companies to raise funds from offshore capital market. IFRS requires industry specialization. 96 | P a g e .

a high degree of mutual international understanding about corporate objectives. Suggestions for increased convergence The researchers put forward certain suggestions to enable harmonization in published company annual reports at the international level 1. should be brought in line with these. if any. 6. industry and the country¶s needs as a whole. 2. 5. Local stock exchange can be used for cooperating in taking action against companies that fail to comply with the IFRS. Governing bodies of the various accounting profession can also be used to apply disciplinary procedures in case of non-convergence with IFRS. IASB should encourage member bodies to adopt IFRS and formulate and reformulate their rules that they are in line with IFRS 4. IASB should publicize standards developed by it and get support from the accounting profession. financial reporting objectives and harmonization objectives need to be achieved. 3. member countries and corporate management all over the world.Thus to implement IFRS successfully and smoothly. The IFRS implementation is a strategic decision for every company so it should be done by the consent and cooperation of highly qualified professionals who have got proper knowledge on the implementation of IFRS. REVIEW: The suggestions for successful implementation of IFRS has been given keeping in mind the company. Political pressure on International Accounting Standards Board (IASB) should be avoided from various interest groups like private sector and government agencies. 97 | P a g e . Legislation should be passed to the effect that in case of any changes or amendments in IASB. the local standards.

FINDINGS 98 | P a g e .

relevant. y It would also raise the reputation and relationship of the Indian Corporate World with the international financial community like the SEC. y It would simplify the process of preparing the individual and group financial statements for the companies thus reducing cost and time. NASDAQ etc. y It would also develop better understanding of financial statements globally and also develops increased confidence among the interested parties. NYSE. 99 | P a g e . y It would also benefit the industrial and capital markets in the country thereby helping in the growth of the economy. y It would be prepared using a common set of accounting standards thus facilitating those who want to invest outside India. timely and comparable across different legal frameworks. following were the findings: y Convergence with IFRS makes accounting information more reliable.FINDINGS After a thorough study on the topic. y Adopting IFRS would also help the Indian Companies in improving their risk rating thereby making them more competitive globally.

CONCLUSION 100 | P a g e .

India is getting ready to implement the globally accepted IFRS from fiscal 2011 onwards.CONCLUSION The vision of achieving a single language of financial reporting across the world is going to materialise gradually by the convergence and adoption of IFRS by every company across the globe. 101 | P a g e . All accountants whether practicing or non-practicing have to participate and contribute effectively to the convergence process keeping in mind the fact that IFRS is more a principle based approach with limited implementation and application guidance and moves away from prescribing specific accounting treatment. measurement. International Financial Reporting Standards remove some of the subjectivity from financial reporting and provide a consistent basis for recognition. presentation and disclosure of transactions and events in financial statements. Looking at the present scenario of the world economy and the position of India. It has been believed that the need of IFRS is widely accepted in the present scenario of Liberalization. This would lead to subsequent revisions from time to time arising from its global implementation and would help in formulation of future international accounting standards. A continuous research is also needed to harmonize and converge with the international standards and this in fact can be achieved only through mutual international understanding both of corporate objectives and rankings attached to it. change in different accounting policies and more extensive disclosure requirements. Therefore all parties concerned with financial reporting need to share the responsibility of international harmonization and convergence. Privatization and Globalization (LPG) era. But still the country is not sure if the implementation would bring uniformity in the accounting system or not. But this transition to IFRS will not be a swift and painless process because implementing IFRS would require change in formats of accounts. convergence with IFRSs are strongly recommended.

RECOMMENDATIONS 102 | P a g e .

However. financial statements prepared as per the IFRS would give better benefits than the Indian GAAP. which will help Indian companies benchmark their performance with global counterparts. y Ensure Top-level commitment y Create demand from other stakeholders y Implementation in exactness y Legalization of IFRS y Proper and timely training on IFRS y Regulation of the auditing of the financial statements Convergence to IFRS will greatly enhance the transparency of Indian companies which will surely help them to project themselves in global map. Successful implementation of IFRS in India depends on the regulator¶s immediate intention to convert to IFRS and make appropriate regulatory amendments. and increase transparency and reliability of their financial statements. such as the ICAI in India will play a vital role. the responsibility for enforcement and providing guidance on implementation vests with local government and accounting and regulatory bodies. The ICAI will have to make adequate investments and build infrastructure for awareness and training program.RECOMMENDATIONS As it is now evident that. So the following recommendations should be kept into consideration during the process for a smooth endeavour. 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. 103 | P a g e . It would thus be recommended that Indian Companies should adopt IFRS as soon as possible.

REFERENCES 104 | P a g e .

icai. Business Standard.icai. Ernst and Young. Web support: y y y y y y y www.REFERENCES Reports & Articles: y y y y Reports of Institute of Chartered Accountant of India (ICAI) Reports of International Accounting Standard Board.gov.sebi.org 105 | P a g e .org www.mca.iasb.bseindia.com www.. Financial Express Reports from Price Water Cooper.SIC Economics Times. KPMG and Deloitte.in www.org/ www.nseindia.com www.gov.in http://ifrs. IFRIC.

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