IFRS

PresentersRakesh Kumar Dawson Britto Pankaj Singla

Why IFRS

Diversity of international accounting practice

Accounting

practices can differ substantially across countries for instance. Development Expenses can be capitalised in Australia subject to criteria but are not allowed to be capitalised in United States

Other factors leading to diversity:

Culture Religion

International adoption of IFRS

Apparently diversity creates challenges for international business and investments.

As a result, accounting standard setters and governments have been working on reducing diversity and align accounting requirements worldwide.

Know the Difference

Harmonisation, convergence and adoption Both of these process take place overtime but differ in following respect:

Harmonisation implies reconciling different points of view and reducing diversity, while allowing countries to have different sets of accounting standards Convergence implies adoption of one set of standards across the globe. This is often referred to as Adoption and Standardisation. The objective of IASC was harmonisation while IASB is focused on convergence.

Benefits of convergence

Benefits of Full Adoption

Cost effective to implement a comprehensive system of accounting standards e.g.. Reduced cost of

financial reporting and auditing for MNCs

Enhances the operation and globalisation of capital markets Increased comparability of financial statements Improved allocation of capital by global investors Reduced risk in international investing diversification portfolio

Limitations of convergence

Limitations of Full Adoption

Conflicts with the economic, social and cultural context of different accounting systems. Also, the costs associated to overcome these issues Conflicts with some manifestations of national sovereignty Conflicts with the motive of reporting Unlikely to benefit entities operating in single jurisdiction as compared to MNCs. Inturn increased compliance costs may effect negatively.

Issues with fair value adoption

IFRS reporting in India - Proposed Timelines The Ministry of Corporate Affairs (MCA) issued a press release on January 22, 2010 on the much awaited roadmap on Indias convergence to IFRS. As per this roadmap, there will be two separate sets of Accounting Standards under Section 211(3C) of the Companies Act, 1956 (India). The first set would comprise Indian Accounting Standards which are converged with the IFRSs (Converged Standards) and will be applicable to the specified class of companies. The second set would comprise existing Indian Accounting Standards and will be applicable to other companies, including Small and Medium Companies (SMCs). The Converged Standards would apply in a Phased manner as indicated below:

Phase

Companies covered

Opening balance sheet

First financial statements

PhaseI

Companies that are part of NSE - Nifty 50 Index Companies that are part of BSE Sensex 30 Index 1 April; Companies that have shares or other 2011 securities listed in overseas stock exchanges ; and Listed and Unlisted Companies with net worth in excess of Rs 1000 Crores

31 March 2012

PhaseII

Listed & Unlisted Companies with networth in excess of Rs 500 Crores but not exceeding Rs. 1000 Crores.

1 April; 2013

31 March 2014

Listed entities with networth of Rs 500 1 April; 31 March Crores or less 2014 2015 Unlisted Companies with net worth lesser than Rs 500 Crores and Small and Medium sized Companies are exempt PhaseIII

Convergence with IFRSs: Indian Perspective Indian Accounting Standards (ASs) are formulated on the basis of the IFRSs. While formulating ASs, the endeavor of the ICAI remains to converge with the IFRSs. The ICAI has till date issued 29 ASs corresponding to IFRSs. Some recent ASs, issued by the ICAI, are totally at par with the corresponding IFRSs, e.g., the Standards on Impairment of Assets and Construction Contracts. While formulating Indian Accounting Standards, changes from the corresponding IAS/ IFRS are made only in those cases where these are unavoidable considering: Legal and/ or regulatory framework prevailing in the country. To reduce or eliminate the alternatives so as to ensure comparability. State of economic environment in the country Level of preparedness of various interest groups involved in implementing the accounting standards. T N Manoharan ( President, ICAI)

Benefits of convergence to India

High comparability and credibility with enhanced conducive investment environment. Easy access to finance Increased global investors confidence Enhanced business opportunities Opportunity for Indian accounting professionals on a global frontier

Investment obstacles in Indian markets from perspective of an international investor

Higher Risk Lacks comparability Unfamiliar cultural and political circumstances Reduced economic growth rate Onerous monetary policy and stringent FDI investment licencing laws.

References

http://business.blogs.cnn.com/2012/12/18/counting-indias-obstacle / http://www.grantthornton.in/html/services/ifrs.php