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ACFI317- IFRS Convergence Issues

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Introduction

IFRS is a global accounting standard set by the International Accounting Standards

Board (IASB). India, a country with great culture and great economic prospects, is an interesting

example in the global discourse on International Financial Reporting Standards (IFRS)

convergence (Adhikari et al., 2021). India is a challenging country for our analysis of the impact

of IFRS imports on developing countries due to its size – being the fifth largest country by

nominal GDP In terms of GDP and secondarily in terms of population, the prevailing accounting

practices can have a significant impact beyond borders. Secondly, the accounting system, which

was defined as primitive a few years ago and relied almost entirely on British colonial heritage,

has recently undergone a major transformation for purposes of globalization markets. India has

demonstrated commitment to join the IFRS convergence process. India has been actively

participating in IFRS convergence since 2011. This study proves the growing potential of IFRS

standards convergence with Indian Accounting reporting Standards.

Literature Review

The integration of International Financial Reporting Standards (IFRS) with India’s

accounting reporting standards have raised concerns on the development and direction towards

ongoing convergence. Several key factors that are deeply embedded in the Indian political

economy as well as in corporate circles constitute the ongoing debate on whether to adopt IFRS.

Modern accounting principles coexist with traditional practices that are deeply embedded in

Indian cultural heritage. IFRS changes need a careful balance with appreciation of the role of

cultural variations in financial reporting. Prudence in traditional Indian accounting refers to

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being cautious with assets and income rather than being neutral with regard to IFRS. It might not

be possible to implement IFRS uniformly in India due to the country's numerous regional and

economic discrepancies (Almaqtari et al., 2020).IFRS, as a universal financial reporting

mechanism provides better and more transparent comparisons to facilitate cross-border

investment or attract foreign capital.

Adhikari et al., (2021) study supports the adoption, showing that IFRS adoption reduces

the cost of capital for firms in developing countries. The study by Bansal & Garg (2021) echoes

this sentiment, emphasizing that convergence will facilitate greater access to global financial

markets and stimulate foreign investment and hence Indian economic growth. IFRS are generally

based on Western legal and economic systems hence it fails to fully reflect the reality in

developing countries like India. Research by Shrivastava & Muhram (2022) reveals the

possibility of what might be called “displacement sustainability” in non-Western environments

where IFRS principles can collide with homegrown accounting and cultural and ethical

values. In India, there have also been concerns over the compatibility of fair value accounting

with a risk-averse business environment and family-owned businesses.

Iyer & Chakravarthy (2022) identified various signs that point towards Institutional and

professional factors also being included in the discussion on Convergence of IFRS in

India. Regulatory bodies, professional accounting organizations, and their alignment with

international standards play a significant role. The literature points out historical development of

professional accounting regulation in India shaped by British colonial heritages. Alignment with

IFRS principles of these bodies is a prerequisite for the successful implementation of

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convergence. Studies by Tawiah (2020) warn about significant costs and technical difficulties in

implementing it, especially among smaller Indian firms whose net benefits may be minor.

Indian Accounting Standards (IndAs) were Converged with IFRS and mandated under

section 133 of Companies Act, 201. Implementation of IFRS-converged standards leads to

reduced variability in net income, higher volume magnitude of discretionary accruals, delayed

recognition losses and lower value relevance reported earnings. The study findings imply that

may be there is a learning curve to the benefits of IFRS. The debate extends to financial

instruments as well as accounting. Karunia et al., (2020) research indicates that IFRS-dominated

Indian GAAP in mark-to-market valuation of certain instruments is in contrast to the historical

cost approach This change can provide transparency, for market volatility exposure has increased

to increase volatility. Tawiah(2020) emphasizes the consideration of diverse economic events in

various states and sectors. Some regions, especially those with a deep-seated economic

background are likely to face opposition in terms of adopting IFRS standards (Akhtare et al.,

2022). Economic reforms and policies should address such differences so as to make the

convergence process holistic while benefiting all sections of economy. The literature review

highlights theories of IFRS convergence in India. Proponents argue that the adoption of global

accounting standards provides transparency, comparability, and access to international capital

markets.

Critical Discussion

Diverse views of stakeholders including professional associations and policy authorities

have expressed different views on critical issues related to the adoption and harmonization of

International Financial Reporting Standards (IFRS) in India. The challenges, concerns and

potential benefits associated with bringing India’s financial reporting system in line with
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international standards are frequently raised in discussion. Certain industries and sectors, such

as real estate and manufacturing, are worried about the operating cash flow pressure from the

Ind AS transition by 2020. Debt concerns and possible loss of competitiveness, FICCI survey

suggested the registration will be Rs 125 billion on the implementation of IFRS (Bathhla et

al.,2023). The link between perception and feasibility requires careful consideration when it

comes to government support and increasing the capacity of SMEs. Concerns remain about the

applicability of appropriate accounting in risk-free trading situations. This gap is particularly

evident in areas such as the accounting for goodwill, where which historically Indian GAAP

allowed for cash payments while IFRS prescribed fair value (Srivastava& Muhram,2021).Fair

value volatility also highlights the potential for volatility, raising concerns about its suitability for

Indian businesses financial reporting.

The debate extends to financial instruments as well as accounting. Karunia et al., (2020)

research indicates that IFRS-dominated Indian GAAP in mark-to-market valuation of certain

instruments is in contrast to the historical cost approach This change can provide transparency,

for market volatility exposure has increased to increase volatility. Potentially negative changes

for Indian companies operating in a dynamic and sustainable economic environment are

unpredictable (Adhan 2020). The study also revealed differences in revenue recognition practices

between Indian standards and IFRS. The debate has focused on the timing and criteria for

revenue recognition, with implications for financial statement users and comparability.The

adoption of IFRS principles in this sector encourages conversation about the industry's resiliency

in India as well as the potential flexibility needed for smooth integration. Beyond the particular

statistical analysis, one of the main concerns is the issue of legal rights and their enforcement.

Conclusion
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The Indian IFRS harmonization initiative is a complex and multifaceted project driven by

a wide range of variables. India’s complex cultural, economic and legal ties are reflected in the

country’s late adoption of International Financial Reporting Standards (IFRS) (Singh et al.,

2020). The study identified the government’s conservative stance emphasizing the value of

appreciating and understanding India’s unique economic and cultural diversity. Long-term

contracting requires agreement between accounting practices and remediation to adopt the global

standards proposed by IFRS (Iyer et al., 2022). India’s transition to IFRS is about balancing

national interests with global integration, in addition to financial reporting requirements. Policy

makers can ensure that the forum is beneficial to various stakeholders in India’s dynamic and

expanding economic environment and not just foreign investors to focus on contextual issues,

changes that they will be made for local demand and fostering sustained dialogue. To harmonize

IFRS with Indian accounting reporting rules, it is important to understand that further

harmonization of IFRS in India requires careful analysis of cultural, economic and legal issues.

References
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Adhana, D. (2020). Convergence of International Financial Reporting Standards (IFRS) in Indian

Accounting Curriculum. Alochana Chakra Journal, 9.

Adhikari, A., Bansal, M., & Kumar, A. (2021). IFRS convergence and accounting quality: India

a case study. Journal of International Accounting, Auditing and Taxation, 45, 100430.

Akhtar, M. A., Khan, K. A., & Tripathi, P. K. (2022). The impact of IFRS convergence on key

financial indicators of Public Sector Undertakings listed on NSE, India. International

Journal of Behavioural Accounting and Finance, 6(4), 333-347.

Almaqtari, F. A., Farhan, N. H., Al-Homaidi, E. A., & Mishra, N. (2020). An empirical

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Iyer, S. V., & Chakravarthy, L. (2022). Examination of the convergence route to IFRS reporting

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Karunia, A. N., NurFauzia, A., & Yulitaningtias, N. Z. (2020). National Culture, IFRS

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