Financial Reporting, Segment Reporting and

Global Convergence of Accounting Standards

(Accounting Theory and Practice - Tutorial Assignment)

Submitted by: Soumya Sharma

Deepika Gupta
Pooja Jain
M.Com Sem-III

Submitted on: 11th September 2014

Submission Details
S.No.

Topic

Submitted by

Roll No.

1.

Financial Reporting

Soumya Sharma

07

2.

Segment Reporting

Deepika Gupta

33

3.

Global Convergence of Accounting

Standards

Pooja Jain

37

Meaning
Financial reporting is the process of communicating financial information in regards to a
company's position, performance and flow of funds for a specific period to external
users. It can also be defined as a total communication system wherein the business
entity is the preparer or issuer of the statements, its investors and creditors are the
primary users, the professional accounting bodies are the auditors, and the government
and related administrative authorities are the other external users.
Financial reporting generally includes the following documents:
1. External financial statements Balance sheet (position statement), Profit & Loss
Account (periodic income statement), cash flow statement and fund flow
statement.
2. The notes to the financial statements.
3. Press releases and conference calls regarding quarterly earnings and related
information.
4. Quarterly and annual reports to stockholders.
5. Financial information posted on a corporation's website.
6. Financial reports to governmental agencies including quarterly and annual
reports to the Securities and Exchange Commission (SEC).
7. Prospectuses pertaining to the issuance of company stock and other securities.

Objectives
Financial reporting is not an end in itself but is a means to certain objectives. There is
no final statement on objectives of financial reporting. However, consensus on some
points describes the following as the primary objectives of financial reporting:
1. Rational Investment Decision-Making
The basic objective of financial reporting is to provide both current as well as
future investors and creditors qualitative as well as quantitative information about
the state of affairs of the company so as to enable them in making sound
investment decisions. It should aid the investors in undertaking a company

analysis in relation to the industry and the economy in which it operates. Further,
it should facilitate comparison of various investment opportunities in terms of
risks and returns.
2. Management Accountability
A second basic objective of financial reporting is to provide information on
management accountability to judge managements effectiveness in utilizing
resources and running the company. This includes information about future
activities, budgets and forecasts, expansion and acquisition plans etc.

Qualitative characteristics of Financial Reporting Information

According to the International Accounting Standards Board (IASB), the following are the
attributes that a financial report must possess in order to be useful to its users:
1. Relevance A financial report must contain all such items of information that aid
its users in decision-making. The first step is identification and recognition of the
purpose for which the information will be used. Thereafter, the relevance of
information can be judged on the basis of its ability to predict events of interest to
users.
2. Reliability It is that quality which permits users of the information to rely on it
and use it confidently as a basis of decision-making. Information can be termed
as reliable when it is generated after proper application of GAAP, through an
effective system of internal control.
3. Understandability It is the quality that enables even the most unsophisticated
users to interpret the information contained in the financial statements accurately.
4. Comparability It should facilitate investors in comparing the strengths and
weaknesses of the entity relative to some other standard. This requires
application of uniform standards throughout the industry.
5. Consistency This quality complements the comparability attribute to a great
extent. Consistent use of accounting principles over accounting periods
enhances the utility of financial statements by facilitating analysis and
understanding of the data.

6. Timeliness Time is of the essence in decision-making. Investors are able to

derive benefits from financial reporting only when the relevant information is
communicated to them in a timely fashion, so they can grab opportunities as and
when presented.
7. Verifiability Verification provides a degree of assurance as to the reliability of
the data. Investors can thus proceed to use the verifiable information confidently
and take decisions accordingly.
8. Economic Realism It means that figures reported should be an accurate
measurement of business operations in terms of economic costs incurred and
benefits generated in business activity. The objective is to convey facts as it is.
Wherever necessary, even fluctuations in earnings must be reported to the
investors.

Significance of Financial Reporting

Financial reporting is important and valuable for a large number of reasons. Some of
these are as follows:
1. Financial reports are relatively more accessible than any other source of
information about the company.
2. Financial reports contain audited information, which is high on reliability and
boosts confidence of the public.
3. Financial reports contain much more information than just the company financial
statements, which may not be available through any other source.
4. Financial reports provide relevant and useful information to a wide variety of
investors amateurs and professionals alike. They provide a basis for estimating
future share prices and related cash flows, thereby facilitating sound decisionmaking.

Benefits of Financial Reporting

Adequate and reliable financial reporting is beneficial in the following ways:
1. Economic Decision-Making
In the light of scarcity of resources, maximization of social welfare in an economy
is possible only through an efficient allocation of resources. Two factors, which
influence allocation of resources, are Investments and Credit decisions. The
very people who are the external users of financial reporting take both these
economic decisions. Thus, a reliable assessment of the impact of current
business activities and developments on the earning potential of a company is
essential. Financial reporting is the tool, which provides all such information,
which communicates the ability of the business company to survive, adapt and
grow in the ever-changing business environment.
2. Cost of Capital
Adequate disclosure through financial reporting, devoid of any manipulations and
misrepresentations by the preparers, shall lower the cost of capital for a
company. The reason is that disclosures reduce information asymmetry between
the company and the market and facilitate trading of shares at a high value. If we
assume market efficiency, then markets would interpret the companys
information correctly. Investor confidence is boosted which consequently leads to
a fall in cost of capital.
3. Equilibrium in Share Prices
Adequate disclosure helps minimize fluctuations in companys share prices. This
is because fluctuations occur as a consequence of information asymmetry
between the company and the market. Disclosures reduce uncertainty prevailing
in the market, enabling share prices to remain near equilibrium.

Segment reporting
Society looks to corporations for assistance in the efficient allocation of resources and
expects the corporations to assume the responsibility of providing information. In order
to have efficient allocation of resources the enterprise must made growth of diversified
enterprises that carry on activities in two or more lines of business. This widespread
lead to a need for information about the various segments of an enterprise in addition to
consolidated financial statements about its overall performance but various industry
segments have different operations, different profitability rates, degrees and type of risk
and opportunity of growth. The investors cannot successfully evaluate a diversified
enterprise without having complete information about various segments, consolidated or
total financial statements. It is true that segmentation along industry and geographical
lines is likely to indicate most of the distinguishable components of the diversified
enterprises, which are subject to different profitability, different risk and different growth
prospects. Basically the purpose of segment information is to assist financial statement
users in analyzing and understanding the enterprises financial statements by permitting
better assessment of the enterprises past performance and future prospects.

Benefits of segment reporting

Availability of segment information would play an important role in (1) improving
allocation of resources, (2) helps in investment and credit decisions, (3) also helps in
adjusting the prices of company shares, (4) also reveal the true and fair view of financial
position.

Arguments against segment reporting

Sometimes certain arguments take place against disclosure of information like
sometimes investors invest in a company but a company is made of its different
segments and segment information is very useful in making better analysis of riskreturn. Such information of business is useful to an investor also but sometimes he fails
to understand and evaluate them. Another situation can be when segment information
misleading to investors and other external users who read it. There are many more
reasons due to which problem occur: when data cannot be prepared with sufficient

reliability; several costs has to incur in developing, preparing and providing information;
may also lead to competitive damage.

Bases of segmentation
We can sub divide a diversified company on the bases of: organizational division,
business activities, market structure, geographical segments .The term division has
different meanings in different companies. Organisational division is considered an
appropriate base of segmentation for external financing reporting purposes because it is
sometimes used for internal reporting and managerial control also. Organisational lines
define area of managerial responsibility, planning and control. Therefore segmentation
on such basis meets the information needs of investors and creditors. Secondly data is
readily available and they could be used for external reporting. Thirdly auditors might
also not have to face any difficulty in verifying data, which are already, use by
management.
On the basis of business activity we can have segmentation in 3 categories namely:
1. Broad industries groupings - under this the distinguishable components of an
enterprise are engaged in providing different product or services.
2. Lines of business or product lines - it refer to major business lines or operating
activities in which company is engaged.
3. Individual products and services - it defined groups or categories of products
manufactured or sold and services rendered as reporting units.
On the basis of Market structure we can have solution to the problem that different
markets have different degrees of risk. Information for different market is valuable to
users in determining the future growth and stability of the company.
On the basis of Geographical segments, we should consider similarity of economic
and political condition, relationship between operations in different areas, proximity of
operations, special risk associated with operations in particular area, exchange control
regulations and the underlying currency risks.

Disclosures in segment report

Setting standards of segment disclosure for diversified companies requires the
determining the relevant data to be disclosed and the methodology to be used in these
disclosures. The following items of information have been proposed for disclosure in
published annual reports of diversified companies.

1. Segment revenue
The portion of enterprise revenue that is directly attributable to a segment.
The relevant portion of enterprise revenue that can be allocated on a
reasonable basis to a segment.

Revenue from transactions with other segments of the enterprise.

2. Segment expense

The expenses resulting from the economic activities of a segment that is

directly attributable to the segment.

The relevant portion of enterprise expense that can be allocated on a

reasonable basis to segment.

Expenses from transactions with other segments of the enterprise.

3. Segment profitability

Segment contribution.

Segment net profit

4. Assets

Assets used by or directly associable with a segment.

Assets used jointly by two or more segments to be allocated on a

reasonable basis.

Difficulties in segment reporting

1. Basis of segmentation this causes how a diversified company should be
fractionalized for reporting purposes. The problem lies in the fact that
diversification may exit in different forms such as industry, product lines etc. Each

diversification may create segments that vary significantly in terms of profitability,

growth and risk.
2. Allocation of common cost- common cost for the purpose of preparing needs
to be apportioned between different products. In some cases cost ate
apportioned on a basis, which may be classified as reasonable and reliable.
3. Pricing of inter segment transaction-A diversified company having disparate
segments may have very few inter segment transactions. On the contrary a
diversified enterprise have closely integrated segment, which would surely have
very substantial transactions among themselves.
4. Comparability of segment data- when apparently similar segment in different
firms may be identified differently, the treatment of inter segment transfer may
differ and common cost may be allocated on different basis.
5. Degree of integration in segment activities-in the case of vertically integrated
firm the recognition of external markets for intermediate may not always be
warranted. Similarly in the case of horizontal integrated firm there may be a
circumstances where there is a substantial amount of interdependence between
activities, which are coordinated by management to an extent that the recognition
of separate activities cannot be supported.

Need for interim reporting

In a dynamic business environment with the increased scope and complexity of
business enterprises annual data are insufficient to evaluate developments in general
economic, industry, and company activities and making or revising projections of
earnings and financial position as a basis for investment decision.no doubt annual
report will continue as a report on managements stewardship for the full year and
benchmark for measurement of financial progress over several years. Therefore it is
suggested that company financial reporting should continuously measure and report on
the firms progress and provide information on a less than annual basis for the benefit of
shareholders and other external users.

SEBIS guidelines on interim reporting

1. A company should furnish unaudited financial result on a quarterly basis in the
prescribed Performa within one month of the expiry of the period to the stock
exchange and will make an announcement forthwith to the stock exchange
where the company is listed and also within 48 hours of the conclusion the board
meeting at least in one English newspaper circulating in the whole and published
in the language of the region where registered office is situated.
2. The board of director should take on record the unaudited quarterly results which
shall be signed by the managing director. The company shall inform the stock
exchange where its securities are listed about the data of aforesaid board
meeting at least 7 days in advance and shall issue immediately a press release
in at least one national newspaper and one regional language newspaper about
the data of the aforesaid board meeting.
3. The unaudited result should not differ from audited result of the company. If the
sum of four quarters as regards any item differs more than 20 percent when
compared to its full year figure the company shall explain the reason of such
variance.
4. A company has to prepare half yearly results in the same proforma. The half
yearly results are subject to limited audit review by the auditors of the company.
5. If the sum of the first and second quarterly unaudited results in respect of any
item given in the same proforma format varies 20 percent or more from the
respective half yearly results as determined after limited audit review, the
company has to prepare statement explaining reasons thereof.
6. If a company intimates the stock exchange in advance that it will punish its
audited result within a period of three months from the end of the financial year,
then there is no need to publish the result of the last quarter.

Problems in interim reporting

Accounting problem
1. Inventory problems-it includes determination of inventory quality, valuation
of inventories, and adjustments of valuation.
2. Matching problem-business operations are not similar and uniform
throughout the year. Resources are acquired and output is done in
advance of sales. Some costs related to current sales d not mature into
liabilities or readily measurable expenses until subsequent time. Because
of various lead and lag relationships between cost and sales difficulties are
creating in matching costs and revenues.
3. Extent of disclosure problem-there is a problem of deciding the quantity of
disclosure in reports. In the absence of mandatory interim disclosure,
practices are likely to vary. It causes problem of determining materiality
criteria for deciding the information.

Conceptual causes
Interim reporting restricts the quality of accounting measurements. Also
disclosures in addition to the basic financial statement often cannot be fully
developed and thus interim disclosures become limited in comparisons with
annual disclosures. But users are likely to consider the opportunity loss caused
by delay in receipt of current financial information than the benefit of more
detailed, accurate information received later.
The conceptual issue is whether the interim period is a part of a longer period or
is a period in itself. The former position is known as the integral view the latter as
the discrete view. Under the integral view revenue and expenses for interim
periods are based on estimates of total annual revenues and expenses. The
discrete view holds that earnings for such period are not affected by projections
of the annual results the method used to measure earnings are the same for any
period whether a quarter or a year.

Improving interim reporting

1. Reports on interim period activities should be designed to materially assist
important individual users or group user to achieve major objectives related to
investment and credit decisions.
2. For general distribution should be directed towards meeting the needs of both
current and prospective shareholders and important representatives of these
groups.
3. It should be designed so as to reduce the amplitude of those exchange price
fluctuations that result from misinformation. Misinformation is used here to
include failure to communicate and partial communicate.
4. Substantial disaggregation of data should be reflected in reports for interim
periods. Disaggregation should be emphasis disclosure of information amount
the nature of the events, which underline the reported data.
5. It should incorporate data developed with an emphasis on forecast ability.
Unusual events the effect of which is material in size should be separately
disclosed in reports.
6. Timelines should be emphasized in the reporting of information about interim
period activities. Financial reports should be promptly distributed by publicly
owned business firms to external users at least four times during each fiscal year,
and usually following the end of each three months period.

Global Convergence with International Financial Reporting

Standards (IFRS)
The emergence of transnational corporations in search of money, not only for
stimulating growth, but to maintain on-going activities has demanded flow of capital from
all parts of the globe. This has brought millions of new investors into the capital markets
whose interests are not constrained by national boundaries.
Each country has its own set of rules, regulations and reporting standards. When an
entity decides to raise capital from the markets other than the country in which it is
located, the rules and regulations of that other country will apply. This 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. Translations
and re-instatements of financial statements are of extreme importance in a rapidly
globalizing world.
To ensure the trust and confidence of the investors chasing global opportunities, a
sound financial reporting system, supported by strong governance, high quality
standards and a firm regulatory framework are necessary.
In this background, harmonisation of National Accounting Standards with the
International Financial Reporting Standards (IFRSs) has become necessary.

Convergence with IFRS

Convergence with IFRS refers to achieving harmony of national accounting practices
with IFRS. It may be important to note that convergence with IFRS does not mean
adoption of IFRS in total, but adoption of IFRS provisions.

International

Financial

Reporting

Standards

(IFRS)

Background
IFRS
It stands for International Financial Reporting Standards and includes Standards &
Interpretations adopted by International Accounting Standards Board (IASB) including

International Accounting Standards (IAS) and Interpretations developed by International

Financial Reporting Interpretation Committee (IFRIC).
IFRSs set out the recognition, measurement, presentation and disclosure requirement,
which deals with transaction and events that are important in General Purpose Financial
Statements.
The IFRSs comprises of 9 IFRS, 29 IAS, 16 Interpretations issued by International
Financial Reporting interpretation Committee and 11 Interpretations issued by Standing
Interpretation Committee. Thus, there are 38 standards and 27 interpretations, which
comprise the total IFRS.

Ind AS
The Ind AS are the Indian Accounting Standards converged with IFRSs.
The Indian Accounting Standards are generally the same as IFRSs. While formulating
the Indian Accounting Standards, the aim has always been to comply with the IFRSs as
far as possible. However, few modifications have been made; therefore these Indian
Standards are not the same as the IFRSs.
Under the new standards the complete set of financial statements comprises of the
following:
1. Balance Sheet as at the end of the period (along with the Statement of Changes in
Equity)
2. Statement of Profit and Loss (including Other Comprehensive Income)
3. Statement of Cash Flows for the period
4. Notes comprising the summary of significant accounting polices and other
explanatory information.
5. Balance Sheet as at the beginning of the earliest comparative period when an entity
applies an accounting policy retrospectively.

Why Global Convergence with IFRS?

In general terms, convergence means to achieve harmony in relation to IFRS; in
precise terms, convergence can be considered to design and maintain national

accounting standards in a way that financial statements prepared in accordance with

national accounting standards draw unreserved statement of compliance with IFRS.
International analysts and investors would like to compare financial statements based
on similar accounting standards, and this has led to the growing support for an
internationally accepted set of accounting standards for cross-border filings. A strong
need was felt by legislation to bring about uniformity, comparability, transparency and
adaptability in financial statements. Having multiplicity of accounting standards around
the world is against the public interest. It creates confusion, encourages error and
facilitates fraud. The cure for these ills is to have a single set of high quality global
standards. The goal of the IFRS is to create single set of accounting standards that can
be applied anywhere in the world, allowing investors to compare the performance of
business entities across geographic boundaries.
The harmonization of financial reporting around the world will help to raise confidence of
investors in the information they are using to make their financial decisions.

Indian Scenario
The globalization of the business world and the attendant structures and the
regulations, which support it, as well as the development of e-commerce makes it
imperative to have a single globally accepted financial reporting system. Increasing
complexity of business transactions and globalization of capital markets call for a single
set of high quality accounting standards. Thus, the case for a single set of globally
accepted accounting standards has prompted many countries, including India to pursue
convergence of national accounting standards with IFRS.
As evidenced by the global experience, convergence with IFRS would also pose
significant challenges for corporate India. Additionally, there are certain specific
challenges that are unique to India. Unlike in several other countries, the accounting
framework in India will depend on cooperation received from the Government,
Regulators Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI)
and Insurance Regulatory and Development Authority (IRDA), Tax authorities, Courts
and Tribunals.

The IFRS has been classified into four broad categories as part of its convergence
strategy, which can be detailed as follows:

First category describes IFRS which can be adopted immediately or in the

immediate future in view of no or minor differences (for example, construction
contracts, borrowing costs, inventories).

Second category includes IFRS which 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 (for example, share-based
payments).

Third category includes IFRS which have conceptual differences with the
corresponding Indian Accounting Standards and where further dialogue and
discussions with the IASB may be required (consolidation, associates, joint
ventures, provisions and contingent liabilities).

Last

category

comprises

of

IFRS,

which

would

require

changes

in

laws/regulations because compliance with such IFRS is not possible until the
regulations/laws are amended (for example, accounting policies and errors,
property and equipment, first-time adoption of IFRS).
The following areas, where significant accounting changes are anticipated are
discussed below:
1. Business Combinations:
IFRS 3 requires the net assets taken over, including contingent liabilities and
intangible assets to be recorded at fair value, unlike Indian GAAP, which
requires, the recording of net assets at carrying cost. Likewise, there are
differences in treatment of amortization of goodwill, reverse acquisitions,
measurement of contingent consideration in a business. The changes brought in
by IFRS 3 primarily involve providing greater transparency and insight into what
has been acquired, and allowing the market to evaluate the managements
explanations of the rationale behind a transaction.

2. Group Accounts:
There are many key differences with regard to the accounting for Group
Accounts under IFRS.
Under IAS 27, Consolidated and Separate Financial Statements, the preparation
of group accounts is mandatory, subject to a few exemptions, whereas,
preparation of Consolidated Financial Statements is required only for listed
entities under Indian GAAP.
3. Fixed Assets and Investment Property:
As per the provisions contained in IAS 16, Property, Plant and Equipment
mandates component accounting, whereas, AS 10 recommends, but does not
require, component accounting. IFRS requires depreciation to be based on the
useful economic life of an asset. In Indian GAAP, depreciation is based on higher
of useful life or Schedule XIV rates. Major repairs and overhaul expenditure are
capitalized under IFRS as replacement costs, if they satisfy the recognition
criteria, whereas, in most cases, Indian GAAP requires these to be charged off to
the profit and loss account as incurred.
4. Presentation of Financial Statements:
IAS 1 Presentation of Financial Statements is significantly different from the
corresponding AS 1. While IAS 1 sets out overall requirements for the
presentation of financial statements, guidelines for their structure and minimum
requirements for their content; Indian GAAP offers no standard outlining overall
requirements for presentation of financial statements.

Steps Involved
1. Recognition - It refers to recognizing all the assets and liabilities as required by
IFRS. This might result in recognition of any item not previously recognized. For
example, an entity might be required to recognize prevent value of the

decommissioning liabilities in the cost of plant, property or equipment as laid

down in IAS 16 Property, Plant and Equipment.
2. Derecognition - It refers to derecognizing all the assets and liabilities that do not
meet IFRS recognition criteria but have been earlier recognized under local
GAAP. For example, proposed dividend is required to be adjusted in the financial
statements as per AS-4 Contingencies and Events Occurring after the Balance
Sheet if it relates to the reporting period and is proposed before the finalization of
financial statements in accordance with the statutory requirements laid out in
Schedule VI to the Companies Act, 1956.
3. Reclassification - It refers to the reclassification of items recognized under local
GAAP into classification required by IFRS. For example, redeemable preference
shares are required to be shown as a liability under IFRS instead of equity as
under Indian GAAP.
4. Measurement - It refers to the measurement of recognised assets & liabilities by
applying IFRS.

Benefits of Convergence with IFRS

1. Improved access to international capital markets
2. Access to low-cost foreign funds.
3. Easier Comparability with global peers
4. Elimination of multiple reporting costs
5. Opportunities for professionals
6. More efficient allocation of resources
7. Greater economic growth
8. Increased credibility of domestic capital markets to foreign capital providers and
potential foreign merger partners
9. Greater transparency and understandability- a common financial language
10. Portability of knowledge and education across national boundaries
11. Consistency with the concept of single global professional credential; and
12. Ease of regulation of securities market

Challenges in the way of Global Convergence

IFRS poses a great challenge to the drafters of financial statements and auditors and
users such as:
1. Legal and regulatory considerations: In some cases, the legal and regulatory
accounting requirements in India differ from the IFRS; in such cases, strict
adherence to IFRS in India would result in various legal problems.
2. Economic environment: The economic environment and trade customs and
practices prevailing in India may not, in a few cases, be conducive for adoption of
an approach prescribed in an IFRS.
3. Level of preparedness: In a few cases, the adoption of IFRS may cause
hardship to the industry. To avoid the hardship, some companies have gone to
the court to challenge the standard.
Thus, to avoid hardship in some genuine cases, ICAI has deviated from
corresponding IFRS for a limited period until such time as preparedness is
achieved.
4. Frequency, volume and complexity of changes to the international financial
reporting standards: It has clearly been a very challenging time for preparers,
auditors and users of financial statements, following the publication of new and
revised IFRS. The following changes evidence the frequency, volume and
complexity of the changes to the international standards:
The IASB Improvements Project resulted in 13 standards being amended,
as well as consequential amendments to many others.
Repeated changes of the same standards, including changes reversing
the previous stances of the IASB, and changes for the purpose of
international convergence.
Complex changes on accounting standards, such as those on financial
instruments, impairment of assets and employee benefits, require
upgrading of skills of those professionals who implement them, in order to
keep up with the changes.

5. Challenges for small and medium-sized enterprises and accounting firms:

In emerging economies like India, a significant part of the economic activities is
carried on by small- and medium-sized enterprises (SMEs). SMEs face problems
in implementing the accounting standards because:
Resources and expertise within the SMEs are scarce; and
Cost of compliance is not commensurate with the expected benefits.

Way Forward
Convergence is a continuous process. The convergence of financial reporting and
accounting standards is a valuable process that contributes to the free flow of global
investment and achieves substantial benefits for all capital market stakeholders. It
improves the ability of investors to compare investments on a global basis and, thus,
lowers their risk of errors of judgment. It has the potential to create a new standard of
accountability and greater transparency, which are of significant value for market
participants including regulators.
Focused on realistic economic representation, financial reporting should address the
legitimate needs of key stakeholders and provide a comprehensive overview of financial
information. Every stakeholder should gain from active participation in shaping the
successive phases of the convergence process.
Convergence is lengthy process and it may take years to reach the important goal of a
single set of accounting standards.
There is an urgent need to understand the complexities in IFRS implementation.
Cultural, legal, and political obstacles may exist in the convergence path. With the
assistance of the appropriate authorities, these intricacies can be minimized.
Legislators, regulators, and standard-setting bodies need to be aware of the technical
faults in the current convergence process and, where appropriate, they should take
action to ensure reasonable progress. Reconciliation and restatement of financial
statements is costly, not only in monetary terms but also in terms of resources.
The complicated nature of some IFRS is perceived as a barrier to convergence in many
countries. All entities will have to consider their own roadmap and gear up for complying

with IFRS differences. Convergence to IFRS will be quite challenging and entities
should ensure that their convergence plans are designed in a phased manner.
The convergence with IFRS is now at a very crucial stage in India. The Indian
corporates are now entering into a new era of financial reporting. This opens up new
challenges and also the opportunities for the profession.
A successful transition requires a well thought of plan and hopefully well in advance.
There is a need to develop an enabling regulatory framework and infrastructure that
would assist and facilitate IFRS convergence. The government would need to frame
and revise laws in consultation with the NACAS and the ICAI. Similarly, regulators such
as IRDA, RBI, SEBI and CBDT would have to consider accepting IFRS in place of the
existing set of prescribed accounting rules.