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Abstract

As more countries consider the adoption of International Financial Reporting Standards (IFRS)
that are based on practices prevalent in the English-speaking countries with free markets, its
increasingly important to understand the impact of IFRS on countries of different institutional,
economic, and political environments. This article reports a study that examines the impact of
IFRS on accounting quality in a regulated market, China, where new substantially IFRSconvergent accounting standards became mandatory for listed firms in 2007. Accounting quality
is examined for the period 2005 to 2008 with only firms mandated to follow the new standards.
The empirical results generally indicate that accounting quality improved with decreased
earnings management and increased value relevance of accounting measures in China since
2007. Firms audited by the Big Four are expected to have higher quality before the standard
change evidenced quality improvement to a smaller extent. Further analysis shows that such
changes are less likely to result from changes in economic conditions but from the changes of the
standards. Through the analysis of Chinas adoption of the new substantially IFRS-convergent
standards, the study provides direct evidence on the question of whether IFRS can be relevant to
markets that are still disciplined mainly by regulators rather than by market mechanisms.
Accounting is the lingua franca of business. In India, financial statements are guided by certain
set of principles and concepts. In order to maintain uniformity, the accounting standards in India
are issued by the Institute of Chartered Accountants of India (ICAI) in consultation with
NACAS. The ICAI, recognizing the need to harmonize the diverse accounting policies and
practices in use in India, constituted the Accounting Standards Board (ASB) on April 21, 1977.
According to ICAI,1 The composition of the ASB is fairly broad-based and ensures
participation of all interest-groups in the standard-setting process. However, with the fast
changing economy, liberalization, increasing foreign investment in the country, it has become
now necessary for India to comply with International Financial Reporting Standards (IFRS).
International Accounting Standards are issued by IASB, which was established in 1993; now
known as IASC, it issues IFRS time to time to bring uniformity globally. In India, it is mandatory
to comply with IFRS by 2011. Though there will be adoption of IFRS in a phased manner and an
initiative has been taken by various professional bodies to organize training programs and
seminars for imparting knowledge and creating awareness about IFRS, but the process of
transformation is not as smooth and easy as it appears. Therefore, this paper is an attempt to find

out up to what extent IFRS has been adopted by the organizations, what challenges and
opportunities companies are facing regarding IFRS, and what are the measures that can be taken
to make the process smooth and flawless. The paper focuses on the awareness and adoption of
IFRS in India. Accounting is the lingua franca of business. In India, financial statements are
guided by certain set of principles and concepts. In order to maintain uniformity, the accounting
standards in India are issued by the Institute of Chartered Accountants of India (ICAI) in
consultation with NACAS. The ICAI, recognizing the need to harmonize the diverse accounting
policies and practices in use in India, constituted the Accounting Standards Board (ASB) on
April 21, 1977. According to ICAI,1 The composition of the ASB is fairly broad-based and
ensures participation of all interest-groups in the standard-setting process. However, with the
fast changing economy, liberalization, increasing foreign investment in the country, it has
become now necessary for India to comply with International Financial Reporting Standards
(IFRS). International Accounting Standards are issued by IASB, which was established in 1993;
now known as IASC, it issues IFRS time to time to bring uniformity globally. In India, it is
mandatory to comply with IFRS by 2011. Though there will be adoption of IFRS in a phased
manner and an initiative has been taken by various professional bodies to organize training
programs and seminars for imparting knowledge and creating awareness about IFRS, but the
process of transformation is not as smooth and easy as it appears. Therefore, this paper is an
attempt to find out up to what extent IFRS has been adopted by the organizations, what
challenges and opportunities companies are facing regarding IFRS, and what are the measures
that can be taken to make the process smooth and flawless. The paper focuses on the awareness
and adoption of IFRS in India.

INTRODUCTION

International Financial Reporting Standards (IFRS), together with International Accounting


Standards (IAS), are a "principles-based" set of standards that establish broad rules rather than
dictating specific accounting treatments. From 1973 to 2001,IAS were issued by the International
Accounting Standards Committee (IASC). In April 2001 the International Accounting Standards
Board (IASB) adopted all IAS and began developing new standards called IFRS.
Structure of IFRS
IFRS are considered a "principles based" set of standards in that they establish broad rules as
well as dictating specific treatments .International Financial Reporting Standards comprise:

International Financial Reporting Standards (IFRS) - standards issued after2001


International Accounting Standards (IAS) - standards issued before 2001
Interpretations originated from the International Financial Reporting Interpretations

Committee (IFRIC) - issued after 2001


Standing Interpretations Committee (SIC) - issued before 2001There is also a Framework
for the Preparation and Presentation of financial statements which describes of the
principles underlying IFRS

Necessity of IFRS:By adopting IFRS, a business can present its financial statements on the same basis as its foreign
competitors, making comparisons easier Further more, companies with subsidiaries in countries
that require or permit IFRS may be able to use one accounting language company wide
.Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that
must use IFRS, or if they have a foreign investor that must use IFRS .Companies may also
benefit by using IFRS if they wish to raise capital abroad.
How widespread is the adoption of IFRS around the world?
More than 12000 companies in approximately 113 nations have adopted IFRS, including listed
companies in the European Union. Other countrie ,including Canada and India, are expected to
transition to IFRS by 2011.Mexico plans to adopt IFRS for all listed companies starting in 2012.

Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the
next few years. Japan has introduced a roadmap for adoption that it will decide on in 2012 (with
adoption planned for 2016). Still other countries have plans to converge (eliminate significant
differences) their national standards with IFRS

IFRS & INDIA:The issue of convergence with IFRS has gained significant momentum in India. At present, the
ASB of the ICAI formulates Accounting Standards based on IFRS, however, these standards
remain sensitive to local conditions, including the legal & economic environment. Accordingly,
the Accounting Standards issued by the ICAI depart from the corresponding IFRS in order to
ensure consistency with the legal, regulatory and economic environments of India. At a meeting
held in May 2006, the council of ICAI expressed the view that IFRS may be adopted in full at a
future date, at least for listed and large entries. The ASB, at meeting held in August 2006,
considered the matter and supported the councils view that there would be several advantages of
converging with IFRS. Keeping in mind the extent of differences between IFRS and Indian
Accounting Standards, as well as the fact, that convergence with IFRS would be important policy
decision, the AS decided to form an IFRS Task Force .The objectives of the Task Force were to
explore:
The approach for achieving convergence with IFRS , and Laying down a road map for achieving
convergence with IFRS with a view to make India IFRS compliant. Based on the
recommendation of the IFRS Task Force, the council of ICAI, at its 26
Meeting decided to converge with IFRS, for accounting periods commencing on or after 1 April
2011.IFRS will be adopted for listed and other public interest entities such as banks , insurance,
companies and large sized organizations. With an objective to ensure smooth transition to IFRS
from 1 April 2011,ICAI is taking up the matter of convergence with IFRS with NACAS and
other regulators including RBI, IRDA and SEBI .The NACAS has been established by the
Ministry of Corporate Affairs, Government of India .ICAI is taking various other steps as well as
to ensure that IFRS is effectively adopted from 1 April 2011.These include:
Formulations of work plan, and Conducting training programmes for members of ICAI and
others concerned to prepare them to implement IFRS.
ICAI will also discuss, with the IASB those areas, where changes in certain FRS may be
required, to reflect conditions specific to India and areas of conceptual differences. In May 2008,

the MCA issued a press release in which it committed to IFRS convergence by 1 April
2011.Recognizing the convergence efforts of ICAI & MCA, the European Union has recently
allowed entries to use Indian GAAP for listing on a European securities market without
reconciliation through to 2011, and if the convergence plan is achieved, to continue to do so after
2011.

FEATURES
Comparative information: The following are the general features in IFRS:

Fair presentation and compliance with IFRS:

Fair presentation requires the faithful representation of the effects of the transactions, other
events and conditions in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the Framework of IFRS.[3]

Going concern:

Financial statements are present on a going concern basis unless management either intends to
liquidate the entity or to cease trading, or has no realistic alternative but to do so.[4]

Accrual basis of accounting:

An entity shall recognise items as assets, liabilities, equity, income and expenses when they
satisfy the definition and recognition criteria for those elements in the Framework of IFRS.[5]

Materiality and aggregation:

Every material class of similar items has to be presented separately. Items that are of a dissimilar
nature or function shall be presented separately unless they are immaterial.[6]

Offsetting

Offsetting is generally forbidden in IFRS.[7] However certain standards require offsetting when
specific conditions are satisfied (such as in case of the accounting for defined benefit liabilities in
IAS 19 [8] and the net presentation of deferred tax liabilities and deferred tax assets in IAS 12[9] ).

Frequency of reporting:

IFRS requires that at least annually a complete set of financial statements is presented.[10]
However listed companies generally also publish interim financial statements (for which the

accounting is fully IFRS compliant)for which the presentation is in accordance with IAS 34
Interim Financing Reporting.

IFRS requires entities to present comparative information in respect of the preceding period for
all amounts reported in the current period's financial statements. In addition comparative
information shall also be provided for narrative and descriptive information if it is relevant to
understanding the current period's financial statements.[11] The standard IAS 1 also requires an
additional statement of financial position (also called a third balance sheet) when an entity
applies an accounting policy retrospectively or makes a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial statements. This for example
occurred with the adoption of the revised standard IAS 19 (as of 1 January 2013) or when the
new consolidation standards IFRS 10-11-12 were adopted (as of 1 January 2013 or 2014 for
companies in the European Union).[12]

Consistency of presentation:

IFRS requires that the presentation and classification of items in the financial statements is
retained from one period to the next unless: (a) it is apparent, following a significant change in
the nature of the entity's operations or a review of its financial statements, that another
presentation or classification would be more appropriate having regard to the criteria for the
selection and application of accounting policies in IAS 8; or (b) an IFRS standard requires a
change in presentation.[13]

Benefits Of Adopting IFRS For Indian companies:The decision to converge with IFRS is a milestone decision and is likely to provide significant
benefits to Indian corporate .Some of them are listed below:
Improved access to international capital markets:
Many Indian entries are expanding or making significant acquisitions in the global arena, for
which large amounts of capital is required. The majority of stock exchanges require financial
information prepared under IFRS. Migration to IFRS will enable Indian entities to have
international capital markets, removing the risk premium that is added to those reporting under
Indian GAAP.
Lower Cost of Capital :
Migration to IFRS will lower the cost of raising funds, as it will eliminate the need for preparing
a dual set of financial statements. It will also reduce accountants fees, abolish risk premiums and
will enable access to all major capital markets as IFRS is globally acceptable.
Enable benchmarking with global peers and improve brand value:
Adoption of IFRS will enable companies to gain a broader and deeper understanding of the
entitys relative standing by looking beyond country and regional milestones. Further, adoption
of IFRS will facilitate companies to set targets and milestones based on global business
environment, rather than merely local ones.
Escape multiple reporting :
Convergence to IFRS, by all groups entities, will enable company managements to view all
components of the groups on one financial reporting platform. This will eliminate the need for
multiple reports and significant adjustment for preparing consolidated financial statements in
different stock exchanges.
Reflects true value of acquisitions:
In Indian GAAP, business combinations, with few exceptions, are recorded at carrying values
rather than fair values of net assets acquired. Purchase consideration paid for intangible assets
not recorded in the acquirers books is usually not recorded in the financial statements; instead
the amount gets added to goodwill. Hence, the true value of the business combination is not

reflected in the financial statements. IFRS will overcome this flaw, as it mandates accounting for
net assets taken over in a business combination at fair value. It also requires recognition of
Intangible assets, even if they have not been recorded in the acquirers financial statements.
New opportunities:
Benefits from the adoption of IFRS will not be restricted to Indian corporate. In fact ;it will open
up a host of opportunities in the service sector. With a wide pool of accounting professionals,
India can emerge as an accounting services hub for the global community.As IFRS is fair value
focused it will provide significant opportunities to professionals including, accountants, values
and actuaries, which in turn, will boost the growth prospects for the BPO/KPO segment in
India

IFRS CHALLENGES:Some of the challenges are listed below:


Shortage of resources :
With the convergence to IFRS, implementation of SOX, strengthening of corporate governance
norms, increasing financial regulations and global economic growth, accountants are most
sought after globally. Accounting resources is a major challenge. India; with a population of
more than 1 billion has only approximately145000 Chartered Accountants, which is far below its
requirement
.
Training :
If IFRS has to be uniformly understood and consistently applied, training needs of all
stakeholders, including CFOs, auditors, audit committees, teachers, students, analysts, regulators
and tax authorities need to be addressed. It is imperative that IFRS is introduced as a full subject
in universities and in the Chartered Accountancy syllabus.
Information systems:
Financial accounting and reporting systems must be able to produce robust and consistent data
for reporting financial information. The systems must also be capable of capturing new
information for required disclosures, such as segment information, fair values of financial
instruments and related party transactions. As financial accounting and reporting systems are
modified and strengthened to deliver information in accordance with IFRS, entries need to
enhance their IT security in order to minimize the risk of business interruption, in particular to
address the risk of fraud, cyber terrorism and data corruption.
Taxes:
IFRS convergence will have significant impact on financial statements and consequently tax
liabilities .Tax authorities should ensure that there is clarity on the tax treatment of items arising
from convergence to IFRS. For example, will government authorities tax unrealized gains arising
out of the accounting required by the standards on financial instruments? From an entity point of
view, a thorough review of existing tax planning strategies is essential to test their alignment

with changes created by IFRS. Tax, other regulatory issues and the risks involved will have to be
considered by the entities.
Communication:
IFRS may significantly change reported earnings and various performance indicators. Managing
market expectations and educating analysts will therefore be critical. A company management
must understand the differences in the way the entity performance will be reviewed, both
internally and in the market place and agree on key messages to be delivered to investors and
other stake holders. Reported profits may be different from perceived commercial performance
due to the increased use of fair values, and the restriction on existing practices such as hedge
accounting. Consequently, the indicators for assessing both business and executive performance
will need to be revisited.
Management compensation and debt covenants:
The amount of compensation calculated and paid under performance based executive, and
employee compensation plans may be materially different under IFRS, as the entitys financial
results may be considered different. Significant changes to the plan may be required to reward an
activity that contributes to an entitys success, within the new regime. Re negotiating contracts
that referenced reported accounting amounts, such as, bank covenants or FCCB conversation
trigger, may be required on convergence to IFRS

Objectives Of The Study

The present conceptual paper has been prepared keeping in view the following objectives:
1. To develop an insight about the global financial reporting language i.e. IFRS.
2. To know about the likely beneficiaries of convergence of Indian GAAP with IFRS
3. To study the challenges and risks specific to India in adoption of IFRS.
4. To give suggestions towards successful implementation of IFRS.
Discussion of the objectives
Beneficiaries of convergence with IFRS
The researchers point out several beneficiaries to the convergence of Indian GAAP with IFRS.
Some important ones are discussed as below.
1. The Investors. Convergence with IFRS makes accounting information more reliable,
relevant, timely and comparable across different legal frameworks and requirements as it
would then be prepared using a common set of accounting standards thus facilitating
those who want to invest outside India. Convergence with IFRS also develops better
understanding of financial statements globally and also develops increased confidence
among the investors
2. The Industry. The other important set of beneficiary as the researchers perceive is the
industry which in the event of convergence with IFRS will be benefited because of, one,
increased confidence in the minds of the foreign investors, two, decreased burden of
financial reporting, three, it would simplify the process of preparing the individual and
group financial statements, four, it leads to lower cost of preparing the financial
statements using different sets of accounting standards.
3. Accounting Professionals. Although there would be initial teething problems,
convergence with IFRS would definitely benefit the accounting professionals as the later
would then be able to sell their expertise in various parts of the world.

4. The corporate world. Convergence with IFRS would raise the reputation and
relationship of the Indian corporate world with the international financial community.
Moreover, the corporate houses back in India would be benefited because of ,one,
achievement of higher level of consistency between the internal and external reporting,
two, because of better access to international market, three, convergence with IFRS
improves the risk rating and makes the corporate world more competitive globally as
their comparability with the international competitors increases.
5. The Economy. All the discussions made above explains how convergence with IFRS
would help industry grow and is advantageous to the corporate houses in the country as
this would bring higher level of consistency between the internal and external reporting
along with improving the risk rating among the international investors. Moreover the
international comparability also improves benefiting the industrial and capital markets in
the country.

CATEGORIZATION
Convergence with IFRS in India :

In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has proposed
a roadmap for convergence with IFRS for certain defined entities (listed entities, banks and
insurance entities and certain other large-sized entities) with effect from accounting periods
commencing on or after April 1, 2011. Large-sized entities are defined as entities with turnover
in excess of Rs.l00 crores or borrowings in excess of Rs.25 crores
.
Accordingly, as part of its convergence strategy, the ICAI has classified IFRS into the following
broad categories:
CategoryI: IFRS which can be adopted immediately or in the immediate future in view of no or
minor differences (for example, construction contracts, borrowing costs, inventories).
Category II : IFRS which may require some time to reach a level of technical preparedness by
the industry and professionals, keeping in view the existing economic environment and other
factors (for example, share-based payments).
Category111 : IFRS which have conceptual differences with the corresponding Indian
Accounting Standards and where further dialogue and discussions with the IAS may be required
(consolidation, associates ,joint ventures, provisions and contingent
Liabilities).
Category: IFRS , the adoption of which would Require changes in laws/regulations because
compliance with such IFRS is not possible until the regulations/laws are amended (for example,
accounting policies and errors, property and equipment,
First-time adoption of IFRS).

IND AS 101 VS.IFRS1


Ind AS 101 corresponds with IFRS1 except the following differences

1 Opening balance sheet :


IND AS 101 states that entities have filed financial statements prepared in accordance with IFRS
with regulatory authorities can adopt ,for the purpose of IND AS 101 ,the balance sheet so filed
as athe end of the immediately preceeding financial year as the opening IND AS balance sheet
after making adjustments for difference between IND ASs and IFRSs .IFRS 1 does not have any
such specific requirement
2 First IND AS Financial Statements :
IND AS 101 specifies that an entity first IND AS financial statements are the first annual
financial statements in which the entity adopts IND ASs in accordance with IND ASs notified
under the Companies Act 1956 whereas IFRS 1 provides various examples of first IFRS
financial statements.
3Non-application:
IFRS 1 provides various examples of instances when an entity does not apply this IFRS.IND AS
101 does not provide the same.
4Transitional Date:
IFRS 1 defines transitional dates as beginning of earliest period for which an entity presents full
comparative information under IFRS .IND AS 101 however provides that the date of transition is
the beginning of the current period and in addoition provides an option to present comparative
financial statements in accoradance with IND AS one a memorandum basis .
5 Previous GAAP:
IFRS defines previous GAAP as basis of accounting that a first time adopter used immediately
before adopting IFRS .IND AS 101 however defines previous GAAP as basis of accounting
THAT afirst time adopter used immediately before adopting IND AS for complying with the
reporting requirements in India.
6 Non IFRS Information:

IFRS1 requires specific disclosures if the entity provides non IFRS comparative information
and historical summaries. Such disclosures are not required under IND AS 101.
7 Dates and Implementation:
IFRS 1 provides for various dates from which a standard could have been implemented.
However for IND AS 101 purposes ,all these dates have been changed to coincide with the
transition date elected by the entity adopting these converged standards i.e. Ind AS .
8Terminology:
Different Terminology is used in AS 101, eg the term balance sheet is used instead of Statement
Of Financial Position and Statement Of Profit And Loss is used instead of Statement Of
Comprehensive Income.
9Reconciliations:
IFRS requires reconciliations for opening equity ,total comprehensive income cash flow
statement and closing equity for the comparative period to explain the transition to IFRS from
previous GAAP.IND AS 101,provides an option to provide a comparative period financial
statements on memorandum basis .Accordingly entities that do not provide a comparatives need
not provide reconciliation for total comprehensive income, cash flow statements and closing
equity in the first year of transition but are expected to disclose significant differences pertaining
to total comprehensive income .Entities that provide comparatives would have to provide
reconciliations which are similar to IFRS

COMPARISON BETWEEN IFRS 2 WITH IND AS 102


1 The transitional provisions given in IFRS 2 and portions related thereto have not been given in
Ind AS 102, since all transitional provisions related to Indian ASs, wherever considered
appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting
Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting
Standards. This has resulted in deletion of Paragraph IG8 in Appendix E. In order to maintain
consistency with paragraph numbers of IFRS 2, the paragraph number is retained in Ind AS 102:

2..Cross-reference to paragraphs B1-B4 of IFRS 3 contained in paragraph 5 of IFRS 2 has been


modified as cross-reference to Appendix C of Ind AS 103 in paragraph 5 of Ind AS 102. This is
consequential to the insertion of Appendix C in Ind AS 102 to deal with business combination of
entities under common control.

3.Different terminology is used in the Standard. e.g., the term balance sheet is used instead of
Statement of financial position.
80 .
4. Paragraph number 3 appears as Deleted in IFRS 2.In order to maintain consistency with
paragraph numbers of IFRS 2 ,the paragraph number is retained in IND AS 102 81.

RESEARCH METHODOLOGY

CONCLUSION

Looking at the present scenario of the world economy and the position of India convergence with
IFRS can be strongly recommended. But at the same time it can also be said that this transition to
IFRS will not be a swift and painless process.. Implementing IFRS would rather require change
in formats of accounts, change in different accounting policies and more extensive disclosure
requirements. Therefore all parties concerned with financial reporting also need to share the
responsibility of international harmonization and convergence. Keeping in mind the fact that
IFRS is more a principle based approach with limited implementation and application guidance
and moves away from prescribing specific accounting treatment all accountants whether
practicing or non-practicing have to participate and contribute effectively to the convergence
process. This would lead to subsequent revisions from time to time arising from its global
implementation and would help in formulation of future international accounting standards. A
continuous research is in fact needed to harmonize and converge with the international standards
and this in fact can be achieved only through mutual international understanding both of
corporate objectives and rankings attached to it.

BIBLIOGRAPHY

http://www.bdointernational.com/Services/Audit/IFRS/Pages/default.aspx.
http://www.iasplus.com
www.icai.co
www.ifrs.com
www.ifrsbox.co

INDEX

SR NO

TOPIC

Abstract

Introduction

Scope Of Study

PAGE NO