[Submitted by CA. Rajesh Sankar,
June 23, 2008
The ICAI has released a 'Concept Paper on Convergence with IFRS in India', which details the strategy and roadmap for convergence of Indian GAAP with IFRS effective April 1, 2011. More than 100 Countries currently require or permit the use of or have a policy of convergence with IFRS. Certain other countries have announced their intention to adopt IFRS from a future date, e.g., Canada from the year 2011, and China from the year 2008. Financial Accounting Standards Board (FASB) of USA and IASB are also working towards the convergence of the US GAAP and the IFRS.
Keeping in view the complex nature of IFRS and the extent of differences between the existing AS and the corresponding IFRS and the reasons there for, the ICAI is of the view that IFRS should be adopted for the public interest entities such as listed entities, banks and insurance entities and large-sized entities from the accounting periods beginning on or after 1st April, 2011.
What is IFRS ?
The International Accounting Standard Board IASB is a standalone, privately funded accounting standard setting body established to develop global standards for financial reporting. It is the successor to the International Accounting Standards Committee (IASC), which was created in 1973 to develop International Accounting Standards (IAS). Based in London, the IASB assumed accounting standard-setting responsibilities from the IASC in 2001. Since that time, the standards that the IASB develops and approves have been known as International Financial Reporting Standards (IFRS). The term IFRS comprises IFRS issued by IASB; IAS issued by IASC; and Interpretations issued by the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
Benefits of Convergence
Convergence with IFRS would bring the following benefits to Indian corporates
. Better access to global capital markets
Convergence with IFRS will enable Indian corporates to have easier access to global capital markets and eliminates barriers to cross-border listings
. Reduces the cost of capital
Currently companies that seek to raise capital in global market are required to prepare and present the financial statements in IFRS. Convergence with IFRS will eliminate the requirement for dual set of financials statements and thereby reduces the cost of raising funds by the companies.
. Better Comparability
IFRS will give more comparability among sectors, countries and companies. Further, convergence with IFRS will facilitate companies to set goals based on global business environment.
. Single Reporting
Convergence with IFRS eliminates multiple reporting such as Indian GAAP, IFRS, US GAAP.
Challenges of Convergence
. Change to regulatory environment
Indian accounting structure is influenced by laws and regulations. The success of the convergence effort in India will depend on support received from government, regulators (RBI, SEBI and IRDA), tax authorities, courts and tribunals. For example, amendment will be required in Companies act 1956 for depreciation. Currently Companies are required to provide depreciation based on useful life of an asset or statutory rates, whichever is higher. Under IFRS depreciation is based on only on the useful life of an asset.
Corporate India and accounting professionals need to be trained for effective migration to IFRS. Additionally auditors would need to train their staff to audit under IFRS environment.
. Educating Stakeholders
Educating Stakeholders comprising of investors, lenders, employees, auditors, audit committee and etc would be a big challenge as this would require a considerable time and effort
. Complexity in the financial reporting process
Under IFRS, companies would need to increasingly use fair value measures in the preparation of financial statements. Companies, auditors, users and regulators would need to get familiar with fair value measurement techniques.
Benefits derived from convergence are lot but also the challenges. The success of the convergence to IFRS in India will depend on cooperation from government, regulators and tax departments. The apex body of accounting profession ICAI should make an all out effort to train accounting professionals and educate stakeholders.