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Section 1 Present Status of Indian Accounting Standard
Section 2 What is IFRS?
Section 11 Conclusion
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4 Accordingly, the Ass depart from the corresponding IFRSs to maintain consistency
with legal, regulatory and economic environment, and keeping in view the level of
preparedness of the industry and the accounting professionals.
4 In some cases, departures are made on account of conceptual differences with the
treatments prescribed in the IFRSs.
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4 IFRS are generally principles-based standards and seek to avoid a rule-book mentality.
Application of IFRS requires exercise of judgment by the preparer and the auditor in
applying principles of accounting on the basis of the economic substance of
transactions.
4 The term IFRS comprises IFRS issued by IASB; IAS issued by IASC; and Interpretations
issued by the Standing Interpretations Committee (SIC) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB.
International
Financial
reporting
Standard (IFRS)
International
Financial International
Reporting
Accounting
Interpretations Standard (IAS)
Committee (IFRIC)
Standing
Interpretations
Committee (SIC)
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4 The IFRS issued by the International Accounting Standards Board (IASB) are
increasingly being recognized as Global Reporting Standards.
4 More than 100 countries such as countries of European Union, Australia, New
Zealand and Russia currently require or permit the use of IFRSs in their countries.
4 In line with the global trend, the Institute of Chartered Accountants of India (ICAI)
has proposed a plan for convergence with IFRS with effect from April 1, 2011.
4 Convergence to IFRS would mean India would join a league of more than 100
countries, which have converged with IFRS.
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4 It would also permit international capital to flow more freely, enabling companies
to develop consistent global practices on accounting problems.
4 But convergence doesn͛t mean that IFRS should be adopted word by word, e.g.,
replacing the term ͚true & fair͛ for ͚present fairly͛, in IAS 1, s
. Such changes do not lead to non-convergence with IFRS.
· The first set of IFRS financial statements for the year ending March 31, 2012 would require
preparation of:
Opening balance sheet as on April 1, 2010
Comparative financial statements ʹ year ending March 31, 2011
· Reporting enterprises would need to ensure preparedness for IFRS reporting as early as April 2010.
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4 eeping in view the complex nature of IFRSs and the extent of differences between the
existing ASs and the corresponding IFRSs and the reasons therefore, the ICAI is of the
view that IFRSs should be adopted for the public interest entities from the accounting
periods beginning on or after 1st April, 2011.
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4 SMEs need not adopt all the IFRS as it will be too voluminous for them.
4 A separate standard for SMEs will be formulated based on the IFRS for SMEs
which is still in exposure draft stage.
4 The proposed standard represents a simplified set of standards for SME's with
disclosure requirements reduced, methods for recognition and measurement
simplified and topics not relevant to SME's eliminated.
4 Compliance with this IFRS for SMEs is not necessary to make India IFRS-
compliant.
4 The format of IFRSs to be adopted for public interest entities should be the same
as that of IFRSs, including their numbers.
4 The numbers of the existing Accounting Standards may be given in brackets for
the purpose of easier identification.
4 Wherever required, a section may be added at the end of the adopted IFRS
indicating the Indian legal and regulatory position.
4 The IFRSs when adopted will also take into account the International Financial
Reporting Interpretations issued by the IFRIC of the IASB.
4 Only in rare circumstances of public interest a carve out from an IFRS may be
made.
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4Better quality of financial
4Currently companies need to
reporting due to consistent
4istorical cost will be substituted 4Convergence to IFRS will prepare additional financial
application of accounting
by fair values for several balance increase the opportunities for statements based on multiple
principles and improvement in
sheet items, which will enable a Indian professionals in abroad reporting formats to arise
reliability of financial statements.
corporate to know its true worth as they will be able to sell capital in global market.
their services as experts in 4This, in turn, will lead to
4Convergence with IFRS will
different parts of the world increased trust and reliance
eliminate the requirement for
placed by investors, analysts and
dual set of financials
other stakeholders in a
statements and thereby
company͛s financial statements
reduces the cost of raising
funds by the companies
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4For the success of convergence in
4Adoption of IFRS by 4Educating Stakeholders
India, certain regulatory amendment is 4Significant one-time costs
approximately 5000 listed comprising of investors,
required. of converting to IFRS
companies by 2011 would result lenders, employees,
(including costs of internal
4For example, The Companies Act in a significant demand for IFRS auditors, audit committee
personnel time, adapting IT
(Schedule VI) prescribes the format for resources. Corporate India and and etc would be a big
systems, implementing
presentation of financial statements for accounting professionals need to challenge as this would
revised reporting policies
Indian companies, whereas the be trained for effective migration require a considerable time
and processes, training
presentation requirements are to IFRS. Additionally auditors and effort
personnel and educating
significantly different under IFRS. So, the would need to train their staff to
investors, analysts and
companies act needs to be amended in audit under IFRS environment
members of the board)
line with IFRS.
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4For example, the Indian
4Under IFRS, companies 4ue to the significant
4Companies also need to standard on intangibles is
would need to differences between Indian
communicate the impact of based on the concept that all
increasingly use fair value GAAP and IFRS, adoption of
IFRS convergence to their intangible assets have a
measures in the IFRS is likely to have a
investors to ensure they definite life, which cannot
preparation of financial significant impact on the
understand the shift from generally exceed 10 years;
statements. Companies, financial position and
Indian GAAP to IFRS. while IFRS acknowledge that
auditors, users and financial performance of
certain intangible assets may
regulators would need to most Indian companies
have indefinite lives and useful
get familiar with fair
lives in excess of 10 years are
value measurement
not unusual
techniques
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· ICAI has categorize the IFRS in five categories based on the extent of changes or the extent
of support required from the regulatory authorities:
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IFRSs which do not have any differences IFRS which has certain minor
with the corresponding Indian differences with the corresponding
Accounting Standards Indian Accounting Standards
4 IAS 2 Inventories
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IFRSs which may
require some time to reach a IFRS 2, Share-based
IAS 21,The Effects of level of technical preparedness by Payment
Changes in Foreign the industry and professionals (Corresponding Indian
Exchange Rates keeping in view the existing Accounting Standard is
economic environment and other under preparation)
factors
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IFRSs having conceptual differences with IFRSs having conceptual differences with the
the corresponding Indian Accounting corresponding Indian Accounting Standards
Standards that should be taken up with the that need to be examined to determine
IASB whether these should be taken up with the
IASB or should be removed by the ICAI itself
4 IAS 17,Leases 4 IAS 12, Income Taxes
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IFRSs, the adoption of which would require IFRSs corresponding to which no Indian
changes in laws/regulations Accounting Standard is required for the time
because compliance with such IFRSs is not being.
possible until the regulations/laws are
amended.
4 IAS 1, Presentation of Financial Statements
4 IAS 8, Accounting Policies, Changes in 4 IAS 29, Financial Reporting in yper-
Accounting Estimates and Errors inflationary Economies
4 IAS 10, Events After the Balance Sheet ate
4 IAS 16, Property, Plant and Equipment
4 IAS 32, Financial Instruments: Presentation
(Exposure raft of the Corresponding Indian
Accounting Standard has been issued)
4 IAS 34, Interim Financial Reporting
4 IAS 39, Financial Instruments: Recognition
and Measurement (Exposure raft of the
Corresponding Indian Accounting Standard
has been issued)
4 IFRS 1, First-time Adoption of International
Financial Reporting Standards
4 IFRS 4, Insurance Contracts
4 IFRS 7, Financial Instruments: isclosures
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4 owever, the ICAI concluded that such a stage-wise approach may result in
several application complexities because many accounting standards are inter-
related. So, considering the challenges to transition, the ICAI has opted for an
approach whereby all IFRS should be adopted for the defined entities for
accounting periods commencing on or after April 1, 2011.
4 The ICAI believes that this transition period till April 1, 2011 will enable all
participants in the financial reporting process to help in building the environment
supporting the adoption of IFRS.
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4 Complex tasks are easier when divided into manageable pieces and it is true for
IFRS convergence project also. Project can be broken down into three key phases.
4 Benefits derived from convergence are lot but also the challenges. The success of the
convergence to IFRS in India will depend on cooperation from government, regulators and
tax departments.
4 Ultimately, it is imperative for Indian entities to improve their preparedness for IFRS
adoption and get the conversion process right. Given the current market conditions, any
restatement of results due to errors in the conversion process would be detrimental to the
company involved and would severely damage investor confidence in the financial system.
4 The transition to IFRS is likely to be challenging for corporate India. owever, if the
transitioned is planned and managed successfully, it will generally be positive for financial
reporting in India. This will improve the quality and transparency of the financial reporting
process and further align corporate India to the global economy and the global capital
markets.
4 There is an urgent need to address these challenges and work towards full adoption of IFRS
in India. The most significant need is to build adequate IFRS skills and an expansive
knowledge base amongst Indian accounting professionals to manage the conversion projects
for Indian entities . This can be done by leveraging the knowledge and experience gained
from IFRS conversion in other countries and incorporating IFRS into the curriculum for
professional accounting courses.