Accounting Standards in India:Adoption of IFRS Abstract Accounting Standards arethe principles that governs and conceptualise the accounting practices. Theyworks as a benchmark in the accounting field. Accounting standards are alsocalled generally accepted accounting principle (GAAP).
It is used to measure theimpact of accounting transactions and event.it provides the standardisedtreatment of each and every transaction. For example, depreciation, valuationof stock.in India the institute of chartered accountant of India (ICAI) framesaccounting standards. Every country has its own sets of accounting standardscalled generally accepted accounting principle (GAAP). Globalisation plays avery important role in the growth of the country.
As far as growth of thecountry is concerned, it is totally dependent on the organisational structureof that country. The financial strength and capability of the organisation canbe assessed with the help of financial statements of that company.International Financial Reporting Standards are the international accountingstandards in which the financial reporting is done. IFRS is more transparent,reliable and provide the uniformity among different countries in terms offinancial reporting. The responsibility for developing IFRS is on internationalaccounting standard board (IASB), .which is an independent not for profitorganisation previously known as international accounting standard committee(IASC). Now the cross-bordertransactions can be easily done just because of uniformly in the accountingstandards.
It will help to attract the foreign investor to invest in thatcountry who has adopted IFRS or in the process of adopting IFRS Out of 180 countries more than 150countries including India have adopted international financial reportingstandards so far (IFRS).on 16-February 2015 Ministry of corporate affairs(MCA)has issued the notification to implement ind AS in India for the listed,unlisted ,banking, NBFC ,insurance companies .There are two approaches foradoption of IFRS. India is inimplementation phase of IFRS. .India is not adopting IFRS, it is convergingIFRS. In India the institute of chartered accountant of India (ICAI) set up byan act of parliament 1949 has took the responsibility to converge IFRS. Theconverged form of IFRS in India is known as Ind AS.
This paper will highlightthe introduction, approaches, roadmap of implementation of IFRS, benefits andchallenges of adoption of IFRS in India. This paper will also provide somespace for further researcher to do research on IFRS. Key words: Globalisation,international accounting standards, financial statements IntroductionAccounting is theart of recording transactions in the best possible manner, so as to enable thereader to arrive at judgments and take decisions.
In this regard, it is utmost necessarythat there are a set of guidelines. These guidelines are generally called AccountingPolicies. The intricacies of Accounting Policies permitted Companies to alter theiraccounting principles for their benefit. This made it impossible to makecomparisons.
For the sake of comparison and to avoid discrepancies among accountingprinciple, Standards needed to be set by the recognized Accounting Bodies. Thispaved the way for Accounting Standards to come into Existence. The AccountingStandards are set by the Regulatory Bodies like the International AccountingStandard Board (IASB) and the Financial Accounting Standards Board (FASB).
Accounting Standards are formulated with a view to harmonize different accountingpolicies and practices in use in a country. The objective of AccountingStandards is to curb down the accountingchoices in the preparation of the Financial Statements within the bounds of rationality,thereby ensuring comparability of the Financial Statements of different enterpriseswith a view to provide meaningful information to the various users of theFinancial Statements to enable them to make informed economic Decisions. Adoptionof IFRS means the use of the International Financial Reporting Standards as theprimary GAAP by the domestic listed and unlisted companies in theirconsolidated Financial Statements for the external Financial Reporting. Thismeans that the basis of the presentation note and auditor’s report indicatethat the Financial Statements are prepared on the basis of IFRS. In 2010 theregulatory body of India, Institute of Chartered Accountants of India (ICAI)has issued 32 Accounting Standards numbered AS-1 to AS-7 and AS-9 to AS-32(AS-8 merged with AS-26). In G20, the idea of convergence of Indian GAAP withIFRS was made by the Prime Minister of India Dr. Manmohan Singh to align theIndian Accounting Standards with the IFRS for accounting periods commencing onor after 1st April 2011 in a phased manner as envisaged in theRoadmap to IFRS formulated by the Ministry of Corporate Affairs. The new set ofstandards which has been converged with IFRS is known as India AccountingStandards or Ind AS.
The Ministry of Corporate Affairs has notified 35 Ind ASon 25 February 2011. Significanceof ifrsBy adopting IFRS,there will be growth in the international business which leads to the economicdevelopment of a country. It encourages International Investment which willlead to more foreign capital inflow into the country. Investors would beprovided with the information that is more relevant, reliable, timely, andcomparable across the jurisdictions. IFRS would enhance the comparabilitybetween the markets at lower cost if it can create confidence in the minds ofthe foreign investors that its Financial Statements comply with the globallyaccepted Accounting Standards. It would reduce different accountingrequirements prevailing in various countries thereby enabling the enterprisesto reduce the cost of compliances.
It serves international clients by providingprofessional opportunities. It would increase their mobility to work indifferent parts of the world either in industry or practice. In this context,it becomes necessary to make an analysis of the adoption of IFRS in India. FinancialStatements of various companies across the globe. The industry would be able toraise capital from the foreign Reviewof Literature1. Ms. ArchanaPatro and Dr. V.
K. Gupta (2012) in their article “Adoption of InternationalFinancial Reporting Standards (IFRS) in Accounting Curriculum in India- AnEmpirical Study” investigated the perceptions of IFRS among the Indianmanagement students and assessed the level of planning for adoption of thestandards and stated that it would assist the management schools anduniversities with decision regarding adoption of IFRS in Indian Accounting curriculum.2. Sarbapriya Ray(2012) in her article “Indian GAAP and its convergence to IFRS: EmpiricalEvidence from India” studied the rationale behind introducing IFRS, made acomparative analysis of the Indian Accounting Standards and IFRS, studied thechallenges involved in IFRS while adopting it in India, and analysed the impactand consequences on financial statements due to IFRS adoption in Wipro Ltd.3.
Titas Rudra andDipanjan Bhattacharjee (2012) in their research paper “Does IFRS influenceEarning Management? Evidence from India” focused on Earning Management in Indiaand the influence of IFRS.4. Dr. BhuvenderChoudhary, Rachit Gupta and Hemant Chauhan (2012) in their research article”Convergence of IFRS in India- Strategy, Benefits and Challenges for InfrastructureIndustry” revealed that the adoption of IFRS will reflect more appropriatelythe revenues of Indian Real Estate developers and their ability to deliver projects.They also believe that IFRS deals with the market risks that are related toreal estate projects more effectively than the percentage completion method.5.
Dr. U.V.Panchal (2012) in his article “IFRS – opportunities and challenges beforeIndia” focused on challenges in the convergence with IFRS faced by India.6.
Sankar Thappa(2012) in his article “IFRSs in Indian Banking Industry: Challenges Ahead”examine the impact of IFRS in Indian Banking Industries, the various phases ofimplementation of IFRS in the banking sector in India and he also highlights onthe challenges ahead in the implementation of IFRS on Indian Banking Sector andthe possible ways to address the challenges.7. Shobana Swamynathanand Dr.
Sindhu (2012) in their research paper “Financial Statements effects on convergentto IFRS – A case study in India” examined the financial statement effects onconvergence to IFRS from the Indian GAAP and they concluded that the IFRS is afair valuation approach and have more transparent disclosures and Indian GAAPis a conservative approach.8. Sarbapriya Ray(2011) in her research article “Emergence of International Financial Reporting Standardin India’s Accounting Scenario” examined the rationale behind adopting IFRS inIndian Accounting Scenario, the dissimilarities among the Indian GAAP and IFRS and the convergence procedure to beadopted to correlate Indian Accounting Standards with IFRS and major divergencethat existed between IFRS and Indian GAAP.9. Pawan Jain(2011) in his research article “IFRS implementation in India: Opportunities andchallenges” discuss the problems faced by the stakeholders in the process ofadoption of IFRS in India.10. C.
A. MohammadFiroz, Prof. A Aziz Ansari and Kahkashan Akhtar (2011) in their article “IFRS-impact on Banking Industry” analyze the impact of IFRS on Indian Banking Industryafter implementation of IFRS standards and they shows the areas in which IndianBanking Industry is required to focus before and after the implementation ofIFRS and their consequences on financial statements of the Banks.11.
GoswamiSuvaran and Sarkar Aniruddha (2011) in their paper “IFRS and its adoption inIndia: A Study” an Endeavour has been made by the authors to ascertain theextent of implementation of IFRS in India.12. Curtis E.Clements, John D.
Neil and Scottstovall O (2010) in their article ” CulturalDiversity, Country size and IFRS adoption decision” empirically examined theIFRS standards adoption decision of 61 countries in an attempt to determine whysome countries have adopted IFRS while other, at least to this point in time, havechosen not to adopt.13. Thomas Jeanjeanand Herve Stolowy (2008) in their article “Do accounting standards matter? An exploratoryanalysis of earnings management before and after IFRS adoption” analyzes theeffect of the mandatory introduction of IFRS Standards on earning quality andmore precisely on earning management. They recommended that the IASB, the SECand the European Commission should now utilise their efforts to harmonizingincentives and institutional factors rather than harmonizing accountingstandards.14. Tanaji G.Rathod (2006) in his article “IFRS: Emerging opportunities and challenges forIndia” investigates the rationale behind the IFRS and its impact on thefinancial and accounting world. The review of literature reveals that variousstudies have been made on convergence of IFRS.
However, a detailed analysis onadoption of IFRS in India has not been done. Hence, the study is undertaken tofill this research ResearchMethodologyThe study is basedon secondary data which include journals, websites, books, and periodicals. Thescope of the study includes phase-wise and sector-wiseImplementation ofIFRS in India. For sector-wise analysis, all the phase I companies are taken.
Objectivesof the StudyThe objectives ofthe study are to • PresentPhase-wise implementation of IFRS in India.• Testing theSector-wise implementation of IFRS in India. Ifrsreporting in India:Phase-wise Phase I Voluntary Compliance for accounting periodsbeginning on or after 1st April, 2015Companies can voluntarilycomply with Ind-AS.
However, this choice is irrevocable. No threshold limits ofnet worth or turnover for compliance of Ind-AS voluntarily.Any type of company,whether listed or not, public or private, if voluntarily wants to comply withInd-AS can do so.
Para 4 of the Rules 2015prescribes as to which type of Companies shall comply with Ind-AS.Any company may comply withthe Indian Accounting Standards (Ind AS) for financial statements foraccounting periods beginning on or after 1st April, 2015, with the comparativesfor the periods ending on 31st March, 2015, or thereafter ( Para 4.1 of therule) No threshold limit specified – subsidiaries, associates and JVs are required not to follow Ind-AS for this category of company , however on practical note the group companies will follow Ind-AS Once applied the Company has to follow consistently and for ever, regardless of fall in net worth etc.Phase II Mandatary Adoption for accounting periods beginning on or after 1stApril, 2016 • All companies with the Net worth of Rs.
500crores or more either as on 31.03.2016 have mandatorily adopted Ind AS for thefinancial year commenced from April 1, 2016 under Phase I. Phase III II Mandatary Adoption foraccounting periods beginning on or after 1st April, 2017 • From April 1, 2017.
• All companies listed or in the process ofgetting listed.• Interim reporting is applicable to listedCompanies from quarter ending 30.06.2017.• Unlisted Companies having Net worth of Rs.250 crores but less than Rs. 500 crores either as on 31.03.
2014, 2015, 2016 or2017. Phase IV II Mandatary Adoption for accountingperiods beginning on or after 1st April, 2018 • All NBFCs having Net worth of Rs. 500crores or more from Apr 1, 2018.
• All listed NBFCs.• Unlisted NBFCs having Net worth of Rs 250crores but less than Rs 500 crores from Apr 1, 2019 Conclusion IFRS is aglobalization theme and many countries in the world like Hong Kong, Australia,Pakistan, Russia, South Africa, Singapore, Turkey, and European Union were following.Approximately, 150 Countries across the world are following IFRS.
Adoption ofIFRS means the use of the International Financial Reporting Standards as theprimary GAAP by the domestic listed and unlisted companies in their consolidatedFinancial Statements for the external Financial Reporting. This means that thebasis of the presentation note and auditor’s report indicate that the FinancialStatements are prepared on the basis of IFRSs. It will provide a chance for Indiato integrate with the common Accounting International Standards which will savethe cost which has to be incurred by MNC’s and internationally listed corporatefor maintaining dual accounting and reporting system. IFRS would enhance thecomparability between the Financial Statements of various companies across theglobe. The industry would be able to raise capital from the foreign markets at lowercost if it can create confidence in the minds of the foreign investors that itsFinancial Statements comply with the globally accepted Accounting Standards.
Itwould reduce different accounting requirements prevailing in various countries therebyenabling the enterprises to reduce the cost of compliances. It servesinternational clients by providing professional opportunities. It wouldincrease their mobility to work in different parts of the world either inindustry or practice. The Government has created general awareness about IFRSand the ground is prepared to bring necessary changes in the accountingpractices. The Ministry of Corporate Affairs is constrained delaying theadoption of IFRS. It is made optional to the companies to either report theirFinancial Statements based on the existing Indian AS or adopt IFRS. A decisionmay be taken to make the application of IFRS mandatory from the year 2016.
Though the time line for convergence of Indian GAAP with IFRS is April 2011,many large listed companies have already adopted new standards and those whoare in transition will be actively incorporating the change in the comingyears. References Choudhary, B.,Gupta, R. & Chauhan, H. (2012).
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