Posts Tagged ‘Institute of Chartered Accountants of India’

IFRS: THE IMPACT ON INDIAN CORPORATE

International Financial Reporting Standards (IFRS) has gained huge momentum in recent years across the world as it is used as a universal financial  reporting language. Almost 100 countries have adopted it while few other countries have declared their willingness to adopt or converge with IFRS over the next two-three years.

.

In the world of globalization, world has become more dependent on each other, which forces more and more countries to open their doors for businesses expansion across borders and to foreign investment. A large number of multi-national companies are establishing their businesses in various countries especially in emerging countries; as a result the companies in emerging countries are increasingly accessing the global markets to fulfill their capital requirement by getting their securities listed on the stock exchanges outside their country. Few Indian companies are also being listed on overseas stock exchanges, but different countries follow their own accounting frameworks, which create a great confusion for users of financial statements, finally it leads to inefficiency in capital markets across the world.

.

Therefore, there is a requirement for a single set of high quality accounting standards that should be spoken by all of them across the globe, to meet the increasing complexity of business transactions and globalisation of capital, which has prompted many countries to go for convergence of national accounting standards with IFRSs.

.

In this changing scenario, India cannot cut off itself from the developments taking place worldwide. At present, the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards (ASs). Complex nature of IFRSs and the differences between the existing ASs and IFRSs, the ICAI is of the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities and largesized entities from the accounting periods beginning effect from April, 2011. Convergence to IFRS would mean India would join a league of more than 100 countries, which have converged with IFRS. Converging to IFRS by Indian companies will be very challenging and on the contrary it could also be rewarding too.

.

Benefits to corporates in the Indian context World Class Peer Standards for Financial Reporting: IFRSs will surely enhance the comparability of financial information and financial performance with global peers and industry. This will result in more transparent financial reporting of a company’s activities which will benefit investors, customers and other key stakeholders in India and overseas. The adoption of IFRS is expected to result in better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.

.

Investors: It will be a great help for those investors who wish to invest outside their own country and looking for a Financial statements, which prepared by using a common set of accounting standards IFRS provides them better comprehensible investment opportunities as opposed to financial statements prepared using a different set of national accounting standards. For better understanding of financial statements, global investors have to incur more cost in terms of the time and efforts to convert the financial statements so that they can confidently compare opportunities. Investors’ confidence would be well-built if accounting standards used are globally accepted. Convergence with IFRSs contributes to investors’ understanding and confidence in high quality financial statements.

.

The industry: It will be easier to raise capital from foreign markets at lower cost if the industry can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards. The burden of financial reporting is lessened with convergence of accounting standards because it simplifies the process of preparing the individual and group financial statements and thereby reduces the costs of preparing the financial statements using different sets of accounting standards.

.

The accounting professionals: Convergence with IFRSs also create more business opportunity to the accounting professionals in a great way that they are able to sell their services as experts in different parts of the world, it offers them more opportunities in any part of the world if same accounting practices prevail throughout the world. They are able to quote IFRSs to clients to give them backing for recommending certain ways of reporting.

.

Challenges to Indian Corporate Laws and regulations: There is a need to bring a change in several laws and regulations governing financial accounting and reporting system in India. In addition to accounting standards, there are legal and regulatory requirements that determine the manner in which financial information is reported or presented in financial statements.

.’

Lack of adequate professionals: There is a lack of adequate professionals with practical IFRS conversion experience and therefore many companies will have to rely on external advisers and their auditors.

.

Replacement and Up gradation in systems: Conversion to IFRS will require extensive upgrades or total replacement of major system. With sufficient planning, upgrades and replacements can occur as part of the overall strategic technology planning and procurement process.

.

.Convert historical data: Historical data from recent prior periods will have to be recast for comparative purposes. This is necessary to permit accurate and comparative trend and ratio analysis. Record retention requirements should be reviewed to ensure that data currently being retained is detailed enough to permit proper restatement of prior-period financials.

.

Coordination of Conversion System: For many organizations, the conversion to IFRS will be a multi-year exercise with numerous changes to technology infrastructure and systems. Development of new technology systems should be carefully examined so IFRS requirements can be incorporated.

.

Conclusion

.

Convergence to IFRS will greatly enhance the transparency of Indian companies which will surely help them to project themselves in global map, which will help Indian companies benchmark their performance with global counterparts. But companies will need to be proactive to build awareness and consensus amongst investors and analysts to explain the reasons for this volatility in order to improve understanding, and increase transparency and reliability of their financial statements. However, the responsibility for enforcement and providing guidance on implementation vests with local government and accounting and regulatory bodies, such as the ICAI in India will play a vital role. The ICAI will have to make adequate investments and build infrastructure for awareness and training program.

.

Successful implementation of IFRS in India depends on the regulator’s immediate intention to convert to IFRS and make appropriate regulatory amendments.

.

OUR Websites: http://www.smcindiaonline.com , http://www.smccapitals.com , http://www.smctradeonline.com , http://www.smcwealth.com

Advertisements