Overview of IFRS in India
If we talk about the current scenario of IFRS in India, Many Indian companies are adopting IFRS not only because they are just expanding their business across the globe but also they are looking for unique and standardize reporting system which will help them to provide true and fair financial picture of the organization. However, different countries have their own IFRS accounting systems and disclosure policies like the US have their US GAAP system where companies in the US needs to be mandatory to follow these standards while doing reporting, similarly, Indian Companies need to follow Indian GAAP with respect to same accounting treatments. These different Reporting methods may create confusion amongst the investors or stakeholders of a company while taking an investment decision. If the reporting or disclosure policies of the financial statement are based on unique and globally accepted standards then it will enable the organizations to deliver fair and trustworthy financial information to its stakeholders. This is one of the major answers of “Why companies are adopting IFRS?”
What does it mean?
IFRS stands for “International Financial Reporting Standards” It is a unique, high quality, easily understandable global accounting standards. It is also known as “principles-based” set of standards which are easy to understand and apply.
• IASB (International Accounting Standard Board) is developed and approves these standards.
• These standards provide disclosure and financial reporting guidelines to the entities who have been engaged in commercial, industrial, financial and similar activities, whether organized in corporate or in other forms
• Upon its inception, the IASB adopted the body of International Accounting Standards.
Why IFRS in India?
Here is the question, Why IFRS in India? We already have Indian GAAP then why companies are going for IFRS in India? IFRS accounting standards offer many benefits over the Indian GAAP.
- Improve Transparency in an accounting system
- Globally Accepted
- New Opportunity
- Allows exercise of professional judgment
- IFRS are increasingly being recognized as Global Reporting Standards for financial statements.
- Indian GAAP is becoming rare because it has some limitations if we compare with IFRS.
- As global capital markets become increasingly integrated, many countries are adopting IFRS
- More than a hundred countries already permit the use of IFRS in their countries.
List of IFRS
| IFRS 1 | First-time Adoption of International Financial Reporting Standards |
| IFRS 2 | Share-based Payment |
| IFRS 3 | Business Combinations |
| IFRS 4 | Insurance Contracts |
| IFRS 5 | Non-current Assets Held for Sale and Discontinued Operations |
| IFRS 6 | Exploration for and Evaluation of Mineral Assets |
| IFRS 7 | Financial Instruments: Disclosures |
| IFRS 8 | Operating Segments |
| IFRS 9 | Financial Instruments |
| IFRS 10 | Consolidated Financial Statements |
| IFRS 11 | Joint Arrangements |
| IFRS 12 | Disclosure of Interests in Other Entities |
| IFRS 13 | Fair Value Measurement |
| IFRS 14 | Regulatory Deferral Accounts |
Proposed Roadmap for IFRS in India
Phase I (opening balance sheet as at 1 April 2011)*:-
1. Companies which are part of BSE – Sensex 30 and NSE – Nifty 50;
2. Companies who are raising capital from outside (whose share listed outside India) India;
3. Companies having a net worth of more than Rs. 1,000 crores
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Phase II (opening balance sheet as at 1 April 2013)*:-
• Companies not covered in Phase 1 and having a net worth exceeding Rs. 500 crores.
Phase III (opening balance sheet as at 1 April 2014)*:-
• Listed companies not covered in earlier phases.
Learn how to prepare financial statements. Sharpen your understanding of International Financial Reporting Standards. Apply IFRS concepts to accounting methods.
Implementation of IFRS in India
- Increase in cost initially due to dual reporting requirement which entity might have to meet until full convergence is achieved.
- Current accounting framework in India is deeply affected by laws and regulations. For the implementation of IFRS may be required changes in various regulatory or laws.
- All stakeholders, employees, auditors, regulators, tax authorities, etc. would need to aware about IFRS. They need to train.
- Organizations would need to incur additional cost for modifying their current accounting and procedures for meeting the new disclosures and reporting requirements.
- Difference between IFRS and Indian GAAP may impact business decision / financial performance of an entity
- Awareness about international standards: If any entity adopts IFRS then it clearly means that there will be a drastic change in the entire set of financial statements. There are a number of differences between IFRS and Indian GAAP. It would be a big challenge to create awareness about the IFRS and its impact on its user.
- Training: Accountants are required to take training on IFRS. This is one of the big obstacles for professionals because there is a lack of training facilities and academic programs on IFRS in India.
- Fair value: IFRS uses fair value as a measurement base for valuing most of the items of financial statements. For the calculation of fair value involves a lot of hard work and valuation experts have to be used.
- Management compensation plan: The terms and conditions relating to management compensation plans would also have to be changed. The reporting of financial results under IFRS is likely to be very different from those under the Indian GAAP.
- Reporting and Disclosure systems: The disclosure and reporting requirements under IFRS are completely different from the Indian reporting requirements.
Difference between IFRS and Indian GAAP
The major focus of IFRS is on getting the Balance sheet right. It is difficult to summarize all the differences here. However, a few of the major differences are given below.
| Points | IFRS | Indian GAAP |
|---|---|---|
| Title of Financial statements | Under IFRS Financial statement Comprises of
|
Indian GAAP Comprises of Following financial statements
|
| Hedge Accounting | Hedge transaction to be classified as a fair value hedge or cash flow hedge. Specific guidance for hedge accounting, documentation | No guidelines for hedge accounting and documentation |
| Fixed Assets | Change in useful life and depreciation method is considered a change in accounting estimates and applied prospectively | Change in depreciation method is considered a change in accounting policy and requires retrospective recomputation of depreciation |
| Revenue | Interest income to be recognized at the effective interest rate | Interest income to be recognized on a time proportion basis |
| Extraordinary items | IFRS disallows the presentation of extraordinary items in the statement of Comprehensive income or in the notes. | Indian GAAP requires extraordinary items to be reported in the profit and loss statement of the entity distinct from the ordinary income and expenses for the period. |
| Change in the depreciation method | Treated as a change in the accounting estimate and hence is accounted for prospectively. | Treated as a change in the accounting policy and is accounted for |
Benefits of IFRS in India
- It would benefit the economy by increasing the growth of international business.
- Implementation of IFRS in India would encourage foreign investment which impacts foreign capital inflows into the country.
- Implementation of IFRS in India would greatly beneficial for investors because any investor primarily wants the information that is fair, trustworthy, timely and comparable across the jurisdictions. It would very easy for investors to compare financial statements of various companies across the globe.
- IFRS in India help to a better understanding of financial statements that would benefit investors who are willing to invest their money across the globe. International companies would be able to raise capital from different markets at a lower cost if it can create confidence in the minds of respective investors that their financial statements comply with globally accepted IFRS accounting standards in India.
- Implementation of IFRS in India would result in a reduction in the cost of compliance.
- IFRS would open many opportunities doors for professional to serve international Clients
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This has been a guide to IFRS in India. Here we have discussed a list of IFRS, Difference between IFRS and Indian GAAP, Benefits of IFRS in India, etc.
