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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

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

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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 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

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

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

cautious with assets and income rather than being neutral with regard to IFRS.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

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

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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. This

industry sector's adherence to IFRS principles stimulates discourse on the robustness of this

sector in India and also regarding probable demand for a seamless implementation. This is due to

the fact that, in addition to particular statistical analysis, a significant area of concern is the

implementation of legal obligations.

Conclusion

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The difficult and complex undertaking of harmonizing the Indian International Financial

Reporting Standards (IFRS) is influenced by a variety of factors. Due to the complex cultural,

economic and legal relations with other countries, India adopted International Financial

Reporting Standards (IFRS) later than many other economies (Singh et al., 2020) The report built

on government protection position to understand economic and cultural diversity and

acknowledge aspects unique to India. The implementation of global standards using IFRS

requires the development of long-term contracts and the implementation of an accounting

framework environment (Iyer et al., 2022). India balances national interests with global

integration while applying IFRS in financial reporting requirements. Policymakers can focus on

contextual, local imperatives by focusing on and enhancing ongoing networks, ensuring that they

are stakeholders in a dynamic and growing Indian economy all will benefit from the platform,

not just international investors. Admittedly, if IFRS is widely adopted in India, careful cultural,

economic and legal considerations must be taken into account to ensure that IFRS complies with

Indian financial reporting rules

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

evaluation of financial reporting quality of the Indian GAAP and Indian accounting

standards. International Journal of Accounting, Auditing and Performance Evaluation,

16(2-3), 200-229.

Bansal, M., & Garg, A. (2021). Do high-quality standards ensure higher accounting quality? A

study in India. Accounting Research Journal, 34(6), 597-613.

Bathla, S., Sharma, A. K., & Kandpal, V. (2023). Stakeholders’ Response to IFRS

adoption/convergence on accounting quality and disclosures: A bibliometric review of

Scopus database. Heliyon.

Firoz, M., & Dalal, S. (2023). The effect of IFRS convergence on risk disclosure: an

investigation into the Indian accounting system. International Journal of Accounting &

Information Management, 31(5), 864-886.

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

and disclosure. Corporate Governance and Sustainability Review, 6(1), 32-45.

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

Convergence, and The Accounting Quality: Evidence from EAGLEs Countries. The

Indonesian Journal of Accounting Research, 23(1), 1-28.

Rajpurohit, P. (2021). First Time IFRS Convergence in India: Impact on Key Accounting

Measures and Accruals Quality. SCMS Journal of Indian Management, 18(4).

Saravanan, R., Mohammad, F., & Kumar, P. (2023). Does IFRS convergence affect the

readability of annual reports by Indian listed companies?. Journal of Applied Accounting

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Singh, G., Kaur, S., & Sharma, R. (2020). Impact of IFRS convergence on financial statements

with special reference to IT sector. International Journal of Public Sector Performance

Management, 6(1), 1-16.

Srivastava, A., & Muharam, H. (2021). Value relevance of earnings and book values during

IFRS convergence period in India. Journal of Financial Reporting and Accounting, 19(5),

885-900.

Srivastava, A., & Muharam, H. (2022). Value relevance of accounting information during IFRS

convergence period: comparative evidence between India and Indonesia. Accounting

Research Journal, 35(2), 276-291.

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Tawiah, V. (2020). Convergence to IFRS: a comparative analysis of accounting standards in

India. International Journal of Accounting, Auditing and Performance Evaluation, 16(2-

3), 249-270.

Weerathunga, P. R., Xiaofang, C., Nurunnabi, M., Kulathunga, K. M. M. C. B., & Swarnapali,

R. M. N. C. (2020). Do the IFRS promote corporate social responsibility reporting?

Evidence from IFRS convergence in India. Journal of International Accounting, Auditing

and Taxation, 40, 100336.