A Study on Convergence of IFRS in India

Presented at : SDM Institute of Management Development Date : 3rd & 4th Aug 2012

Name of Authors : Prof Anand Patil Kausar K Venkata Mahendra Prasad

Introduction
The trend capital markets have become global and continue to expand, the companies have also become Multinational and transnational companies and they also continue to expand. This has given a wide stage for the investors to trade worldwide. The business entities are in position to access to funds globally. For this the investors rely upon the financial statements before taking any decisions on their investments. Every country uses their own accounting standards for the treatments of their accounts and disclosure pattern with respects to the same. This creates confusion among the users or investors while interpreting the financial statements. This gave the initiation to come out with IFRS

Objective of Study

Review the status of Convergence to IFRS in India To analyze the acceptability of IFRS in India To know the benefits of IFRS implementation

IFRS

IFRS-International Financial Reporting Standards, world turns into a Global village. and globally accepted financial reporting

The

High-quality

standards.
They

are meant for general purpose financial statements and for profit oriented entities.

IFRS comprises of :
International

Financial Reporting Standards standards issued after 2001 before 2001 Accounting Standards standards issued

International

Interpretations

from the International Financial Reporting Interpretations Committee issued after 2001 2001 Interpretation Committee issued before

Standing

Status of Convergence to IFRS in India

Emerging

Economy

ICAI

released concept paper on convergence in October 2007. of Corporate Affairs (MCA) Implementation schedule from 1 April 2013

Ministry

Proposed

by ICAI

Convergence of IAS with IFRS

Harmonization of IAS with IFRS Convergence does not mean that IFRS should be adopted word by word. ICAI had published the road map of convergence with IFRS.

Roadmap for Convergence issued by ICAI

Phase 1 : Opening balance sheet as at 1 April 2011*
Companies

which are part of NSE Index Nifty 50 Companies which are part of BSE Sensex BSE 30 Companies whose shares or other securities are listed on a stock exchange outside India Companies, whether listed or not, having net worth of more than INR 1000 Crore (INR 10 billion)

Phase 2 : Opening balance sheet as at 1 April 2012

Companies

not covered in phase 1 and having net worth exceeding INR 500 Crore (INR 5 billion)

Phase 3 : Opening balance sheet as at 1 April 2014

Listed

companies not covered in the earlier phases

ICAI Classification of IFRS as a part of Convergence Strategy

Category

I : IFRS which can be adopted immediately or in immediate future in view of minor differences. II : IFRS which may require some time to reach a level of technical preparedness by the industry and professionals with a view of existing economic environment.

Category

 Category

III : IFRS which have conceptual differences with the corresponding Ind AS, where the further discussion may be required with IASB. IV : IFRS adoption would require changes in laws because compliance of which such IFRS is not possible until laws are amended.

Category

The following changes or amendments would be required, Companies Act 1956 SEBI guidelines IRDI rules RBI & Banking regulation act

Steps taken for Implementation

Respective

changes in Laws through amendments. Conducting development programs about IFRS in various cities across country Supplying educational material on the same HRD minister proposed to implement study of accounting standards from higher education level

Difficulties in Implementation
Guidelines

on various reporting standards &

formats. Regulatory guidelines Securities and Exchange Board of India (SEBI) Income tax Companies act Objections from certain industries.

Why delay in Implementation

Lack

of clarity on the new implementation schedule being planned by the MCA. had suggested April 1, 2013, as the next deadline. The MCA remains tight-lipped. finds no urgency.

ICAI,

Government Some

key IFRSs are under revision by the IASB and these standards will be likely to be applicable from 2013.

Barriers in Implementation
Interest

of different countries. Cost V/S Fair Value Concept. Affect on GDP calculation. Taxation Policies

Benefits of Implementation

Improvement in comparability of financial information, which will result in more transparent reporting of companies activity. Better quality of financial reports, consistent application of accounting principles, which will lead to increase trust in investors Better access to & reduction in the Ko raised from global capital market

Companies Review
Kazakh Subsidiary of Indias PNB

Increase in Assets by 13 % as on May 2012 Bank obligations decreased by 33 % Equity raised by 22.2 % Reduced net loss by 57 %

Wipro Technologies

1.37% increase in the Total assets value 23% increase in the value of Net tax asset including deferred taxes 10% increase in other assets 7% increase in total equity 6% decrease in total liability

Conclusion

It is a difficult task to create two or more different types of financial statements suiting requirements of different countries There is need for standard financial statement for investors of the world looking to invest in the Indian Financial Market The Institute of Chartered Accountants of India had published the road map of convergence with IFRS which will be very soon effective. Of course there are barriers and disadvantages but the fruits of advantages convergence cannot be underestimated. Convergence to IFRS is the need of the hour to walk with the all in the world of financial reporting