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IMPLEMENTATION OF

INTERNATIONAL FINANCIAL REPORTING STANDARDS


(IFRS) IN INDIAN BANKING SECTOR: EFFECTS AND
CHALLENGES

Miss. NAVERIYA BANU & Mr. RANJAN B U


Research Scholars, Mandavya Research & Development Center,
Mandavya First Grade College, Mandya .

INTRODUCTION

India is a country which is rapidly moving towards


globalization, is still in the process of adopting global
reporting standards (i.e. IFRS).
Indian banking sector considered as one of the strongest
industry, where everything is standardized, but even today it
practicing the traditional accounting system i.e. Indian
GAAP.
Adoption of global accounting standards in Indian banking
system will bring more positive drastic changes, where as it
has plenty of challenges also.
This paper/presentation concentrates on effects and
challenges in implementation of IFRS in Indian banking
sector.

OBJECTIVES OF THE STUDY

To comprehend the concept and effects of International


Financial Reporting Standards (IFRS).
To study the major challenges for International
Financial Reporting Standards (IFRS) adoption in
Indian banking sector.
To suggest the appropriate measures for the effective
implementation of IFRS in Indian banking industry.

SCOPE OF THE STUDY

The scope of the study is confined to nationalized banks


and excludes all other industries in India.
The data collected by consulting the accountants and
bankers are belongs to banking industry in and around
Mandya district.
Further the scope is limited to the data collected by the
accountants and bankers are 25 respondents only.
The time covered by the study is one month.

STATEMENT OF THE PROBLEM

In Indian banking industry in order to get the


advantages of IFRS adoption we have to control over
the challenges for the adoption of IFRS, in order to
control them the proper understanding of those
challenges is most important.
Thus the study concentrates on identifying the major
challenges and understanding the effects of IFRS
adoption in Indian banking sector

METHODOLOGY
Quantitative research method is adopted. The data for the study
collected from both primary sources as well as secondary source:

PRIMARY DATA:
Primary data has collected through questionnaire by consulting 25
accountants and bankers of different nationalized banks around
Mandya district.
SECONDARY DATA:
Secondary data has collected from various books, articles,
journals, dailies, and official websites.
The Primary and secondary data are analyzed using simple
arithmetical techniques such as percentage, tables, graphs that
are extensively used for analyzing and interpretation of the data
collected.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

IFRS - stands for International Financial Reporting


Standards
are
high
quality,
understandable,
enforceable and globally accepted accounting standards
issued by IASB (International Accounting Standards
Board).
These standards are a set of international accounting
standards stating how a particular type of transaction
and other event should be reported in the financial
statements.
The ultimate goal of issuing these standards is to
achieve a single set of high quality, common accounting
standards should be in practice around the world

LIST OF EXISTING IFRS:


NO.

TITLE

ORIGINALLY ISSUED

EFFECTIVE

IFRS 1

First-time Adoption of
International Financial
Reporting Standards

2003

January 1, 2004

IFRS 2

Share-based Payment

2004

January 1, 2005

IFRS 3

Business Combinations

2004

April 1,

IFRS 4

Insurance Contracts

2004

January 1, 2005

IFRS 5

Non-current Assets Held for


Sale and Discontinued
Operations

2004

January 1, 2005

IFRS 6

Exploration for and Evaluation


of Mineral Resources

2004

January 1, 2006

2004

IFRS 7

Financial Instruments:
Disclosures

2005

January 1, 2007

IFRS 8

Operating Segments

2006

January 1, 2009

IFRS 9

Financial Instruments

2009

January 1, 2015

IFRS 10

Consolidated Financial
Statements

2011

January 1, 2013

IFRS 11

Joint Arrangements

2011

January 1, 2013

IFRS 12

Disclosure of Interests in Other


Entities

2011

January 1, 2013

IFRS 13

Fair Value Measurement

2011

January 1, 2013

IFRS 14

Regulatory Deferral Accounts

2014

January 1, 2016

IFRS CONVERGENCE PLAN

The Ministry of Corporate Affairs of India as a part of


Government of India, in January 2010 announced a
multi phased plan for transition beginning April 1,
2011 to the new converged accounting standards Indias
attempts to converge the IFRS which has carve outs
that distinguish it from IFRS which is known as Ind
AS.
The MCA has finalized Thirty five Ind AS in
February 2011. The actual date of application of these
Ind AS is yet to be notified.

EFFECTS OF IFRS ADOPTION IN INDIA:

Common basis of comparison:


Adopting a global financial reporting basis will enable the
banks to be understood in the global market place. It would
allow banks to be perceived as an international player.
Improved access to international capital market:
Migration to IFRS will enable Indian banks to have access
to international capital market reducing the risk premium
that is added to those reporting under banking regulation
act.
Escape multiple reporting:
IFRS will eliminate the need for multiple reports and
significant adjustments for preparing consolidated financial
statements or filing financial statements in different stock
exchanges.

MAJOR CHALLENGES FOR IFRS ADOPTION IN INDIA:

Wide Gap:
IFRS is very much different from the present accounting policies
being followed. There are big differences expected in accounting
for financial instruments, business combinations and employee
benefits.
Inadequate Trained People on IFRS:
A large group of trained and skilled accountants and bankers are
required to Indian banks for the effective implementation of IFRS.
Fair Value Measurement of Items in the Financial
Statements:
IFRS uses fair value as a base to measure a majority of items in
the financial statements which yields a true value of a business.
But the Indian banks are preparing financial statements on
historical cost basis, and there are difficulties are there in shifting
from historical cost based of accounting to the fair value based
accounting system.

DATA ANALYSIS AND INTERPRETATION:


1. WHETHER THE ACCOUNTANTS AND BANKERS ARE COMFORTABLE
WITH THE PRESENT METHOD OF ACCOUNTING SYSTEM:

OPTION

NO. OF RESPONDANTS

PERCENTAGE (%)

Yes

25

100

No.

00

000

Total.

25

100
Source: primary data.

INFERENCE: From

the above table and graph we can noticed


that, out of 25 respondents the entire 25(100%) respondents
are comfortable with the existing system of accounting, and
no one is uncomfortable with the present method of
accounting in India

2. THE DEGREE OF AVAILABILITY OF TRAINING AND


KNOWLEDGE TO THE RESPONDENTS TOWARDS LATEST
DEVELOPMENTS IN ACCOUNTING IN THEIR ORGANISATION:

INFERENCE: From the above table and graph we can observes that, out of
25 respondents, 07 (28%) of the respondents has an excellent availability of
training and knowledge on the latest developments an accounting by their
banks, while 12 (48%) respondents has Good, 04 (16%) has Satisfactory, and
02 (08%) respondents has poor availability of that training and knowledge in
their organizations.

3.
THE AWARENESS OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) AMONG THE RESPONDENTS:

INFERENCE: From the above table and graph we can come to know the fact
that, out of 25 respondents, only 08 (32%) of them are aware of IFRS and 17
(68%) of the respondents are unknown of IFRS.

4. WHETHER THE RESPONDENTS ARE READY TO MIGRATE


FROM INDIAN BANKING ACCOUNTING SYSTEM TO IFRS:
OPTION

NO. OF

PERCENTAGE (%)

RESPONDANTS
Yes

15

60

No.

10

40

Total.

25

100

INFERENCE: From the above table and graph we can conclude that out of 25 respondents,
15(60%) of the respondents are ready to migrate from existing accounting system to global
accounting standards (IFRS), and 10 (40%) of them are not ready for the migration.

5.
RESPONDENTS OPINION ABOUT THE MAJOR
BENEFIT
OF
IFRS
ADOPTION
IN
INDIA:
OPTION

NO. OF RESPONDENTS

PERCENTAGE (%)

03

12

Increased flow of FDI to India

04

16

Better information to investors.

00

00

Competition with foreign

05

20

10

40

Increased transparency.

03

12

Total

25

100

Improvements in the efficiency


the international capital market.

companies.
Reduced burden of multiple
reporting.

6. ACCORDING TO THE RESPONDENTS, THE MAJOR


CHALLENGE BEHIND THE DELAY IN IFRS ADOPTION:
OPTION

NO. OF RESPONDENTS

PERCENTAGE (%)

Difficulties involved in the


transition process.

03

12

Fair value measurement of


assets and liabilities.

02

08

Accounting policies.

03

12

Lack of knowledge on IFRS.

07

28

Tax implications

04

16

Amendments to the existing


laws.

06

24

Total.

25

100

7. RESPONDANTS RECOMMENDATION TO THEIR


ORGANISATION FOR THE EFFECTIVE IMPLIMENTATION OF
OPTION
NO. OF
PERCENTAGE (%)
IFRS:
RESPONDANTS

Training to the staff.

12

48

Guidance and
assistance of higher
authority.

05

20

Keep investors
informed.

00

00

All of the above.

07

28

Total.

25

100

SUGGESTIONS

The study indentified that the knowledge on International


Financial Reporting Standards (IFRS) is very poor among
the respondents, though the accountants and bankers are
the pillars of the transition process it is suggested to ensure
adequate training and knowledge on IFRS, its benefits, its
implementation from now itself.
An adequate management and government support is very
essential to the banks and other organizations for the
effective implementation of IFRS in India.
The another key success factor for the effective IFRS
implementation is Outsourcing, India can import the
information related to the successful implementation of
IFRS by other countries who are the leaders in the effective
implementation of IFRS.

The Government of India shall provide assistance as well as


incentives to the banks that are ready to migrate to IFRS,
this will definitely helps in the effective and early adoption
of IFRS in Indian banking sector.
The another important suggestion is that the information
given to the various stakeholders including investors,
creditors, suppliers, customers, etc., regarding the
migration from Indian accounting Standards to IFRS in
such a way that it shall not create any confusions among
them, that means it should be reliable, relevant and on
time.
Academicians are also the part of transition process, so it is
suggested to include the IFRS as a curriculum activity
especially for the commerce students from the pre university
level itself.

CONCLUSION

The adoption of IFRS in Indian banking sector will


ensure a greater credibility and faith in the
international capital market. It also helps in
upgrading the status of Indian banks in the views of
investors both domestic as well as Foreign Institutional
Investors (FII).
There can be number of challenges will enter into the
transition process, but the worth of benefits derived
from the transition will definitely overcome those
challenges.
Thus it is suggested to Indian banking sectors that the
IFRS adoption or convergence have to be came into
action as soon as possible.