Data representation

Based on our research we arrived at the following values:

Euclidean Distance: 50.97

Jaccard’s Coefficient: 0.38

The detailed data of the analysis has been provided in the following appendices

Appendix I – The data collected for each of the accounting issue regarding the division into required,
recommended, allowed and not permitted categories

Appendix II- The data collected regarding the similarities and dissimilarities

Appendix III- The Euclidean and Jacardian distances.

Findings & Recommendations

Euclidean Distance
The data analysis for the Euclidean distances revealed interesting insights. The summary of the data collected as follows:

Type IFRS Indian GAAP

Required 47 37

Recommended 1 8

Allowed 20 15

Not permitted 6 7

Based on above table two inferences can be drawn out which are as follows:

 IFRS more comprehensive and stringent compared to Indian GAAPs

 Most methods classified under required and allowed compared to recommended and Not permitted

This inference becomes more clear if we look at the chart below:

We also tried to find out the specific accounting issues which are contributing the majority of the Euclidean
distance. For this purpose we found out the percentage contribution of each accounting category.

Accounting Issue Euclidean Distance Percentage

Inventories 1.00 1.96%
Changes in accounting policies and fundamental errors 1.41 2.77%
Development and research costs (R&D) 4.24 8.31%
Subsequent events 1.00 1.96%
Construction contracts 0.00 0.00%
Income taxes 4.61 9.04%
Fixed assets (property, plant and equipment) 8.63 16.92%
Leases 5.24 10.27%
Revenue 4.47 8.77%
Retirement benefits 4.58 8.98%
Foreign currency 3.00 5.89%
Business combination 3.32 6.51%
Goodwill 1.41 2.77%
Contingencies 0.00 0.00%
Intangible assets 0.00 0.00%
Hedging with financial instruments 2.83 5.55%
Financial instruments 2.83 5.55%
Accounting for associates 1.41 2.77%
Consolidated financial statements 1.00 1.96%
Total 50.97 100.00%

The pie chart given below clearly indicates that the maximum contribution to the Euclidean distance was from following:

1. Fixed assets,
2. Leases,
3. Income Taxes,
4. Retirement benefits
5. Revenue

Jaccard’s Coefficient
The table summarizes the Jaccard’s coefficient value for each accounting issue.

Accounting Issue Jaccard's Coefficient

Inventories 0.60
Changes in accounting policies 0.33
Development and research costs (R&D) 0.39
Subsequent events 0.50
Construction contracts 0.50
Income taxes 0.13
Fixed assets (property, plant and equipment) 0.40
Leases 0.42
Revenue 0.17
Retirement benefits 0.44
Foreign currency 0.21
Business combination 0.42
 Goodwill 0.50
Contingencies 0.00
Intangible assets 0.50
Hedging with financial instruments 0.50
Financial instruments 0.00
Accounting for associates 0.00
Consolidated financial statements 0.75
Average 0.38

The graph below provides us with a clear insight into level of similarities and
dissimilarities.

Maximum Similarity:

• Inventories
• Goodwill
• Intangible assets
• Hedging
• Consolidation

Minimum Similarity:

• Financial instruments
• Accounting for associates
• Contingencies

Conclusion

 Compared to the Euclidean distance for Portugal calculated by Alexandra Fontes

et al of 38.96 the Indian GAAPs are less convergent to IFRS

 The Jaccard’s coefficient for Indian GAAP and IFRS of 0.38 further augments the
finding compared to Portugal and IFRS of 0.585

 Accounting areas where major differences exist are identified and analysts can
direct efforts in those areas to reconcile financial statements of companies in
IFRS and Indian GAAP

 The Indian GAAPs though have a roadmap for harmonization with IFRS are still
divergent and companies required to adhere to IFRS will face significant
challenge in preparing both IFRS and Indian GAAP simultaneously
Limitations and challenges faced

 The classification into types: Recommended and allowed becomes ambiguous as

the standards may not explicitly recommend it.

 The 4 types are not mutually exclusive and collectively exhaustive. For instance
there are cases where several conditions are considered for a given issue.

 No standard benchmarks available over time periods or across different

standards (countries) except similar estimations in literature.

 The accounting standards keep changing and the quantitative metrics need to be
calculated every time to study the drift. We have used reports which contained
data only up to 2009. Hence any changes in accounting rules after that period
may not have been accounted for.

 The importance assigned to each accounting issue is same and it may not be the
case in reality.

 The 43 accounting issues identified may not cover all the existing issues but only
the major ones

REFERENCES

 Alexandra Fontes, Lucia Lima Rodrigues, Russell Craig. “Measuring convergence

of National Accounting Standards with International Financial Reporting
Standards.” Accouting Forum 29, no. 4 (December 2005): 415-436.

 Business Today. “India Inc. Gears up for New Accounting Standards.” 17 May
2009.

 CMA Management. “India announces convergence with IFRS.” October 2007.

 Muhammad Jahangir Ali, Kamran Ahmed and Darren Henry. “Harmonization of

Accounting Measurement Practices in South Asia.” Advances in International
Accounting 19 (2006): 25-28.

 Pascual Garrido, Angel Leon, Ana Zorio. “Measurement of formal harmonization

progress:: The IASC experience.” The International Journal of Accounting 37, no. 1
(2002): 1-26.

 Zabiholllah Rezaee, L Murphy Smith, Joseph Z Szendi. “Convergence in

accounting standards: Insights from academicians and practitioners.” Advances
in Accounting 26, no. 1 (June 2010): 142-154.
 APPENDIX- I

Inventories
1. Assignment of costs to inventor
2. Impairment
Changes in accounting policies and fu
3. Changes in accounting policies
4. Fundamental errors
Development and research costs (R&
5. Development costs
6. Research costs
7. Amortization period
APPENDIX II
Inventories
1. Assignment of coststoinven
2. Impairment
Changesinaccountingpoliciesan
3. Changesinaccountingpolicies
4. Fundamental errors
Developm entandresearchcosts
5. Development costs
6. Researchcosts
7. Amortizationperiod
Subsequentevents
APPENDIX III

Inventories
1. Assignment of costs to inve
2. Impairment
Changes in accountingpolicies
3. Changes in accounting policie
4. Fundamental errors
Development and research cos
5. Development costs
6. Research costs
7. Amortization period