Updated October 18, 2023
Overview of IFRS in India
Let’s talk about the current scenario of IFRS in India. Many Indian companies are adopting IFRS not only because they are expanding their business globally but also because they are looking for a unique and standardized reporting system that will help them provide an accurate and fair financial picture of the organization. However, different countries have their own IFRS accounting systems and disclosure policies. The US has its US GAAP system, and companies in the US need to be mandatory to follow these standards while reporting. Similarly, Indian companies must follow Indian GAAP concerning the same accounting treatments.
These different Reporting methods may create confusion amongst the investors or stakeholders of a company while making an investment decision. Suppose the reporting or disclosure policies of the financial statement are based on unique and globally accepted standards. In that case, it will enable the organization to deliver fair and trustworthy financial information to its stakeholders. This is one of the primary answers to “Why are companies adopting IFRS?”
What Does it Mean?
IFRS (International Financial Reporting Standards) is a list of rules and regulations that companies must follow when they record any financial transactions.
- IASB (International Accounting Standard Board) developed and approved these standards.
- These standards provide disclosure and financial reporting guidelines to the entities engaged in commercial, industrial, economic, and similar activities, whether organized in corporate or other forms.
- Upon its inception, the IASB adopted the body of International Accounting Standards.
Why IFRS in India?
Here is the question: Why is IFRS in India? We already have Indian GAAP, so why are companies using 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 is increasingly being recognized as a Global Reporting Standard for financial statements.
- Indian GAAP is becoming rare because it has some limitations compared to 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 of 1 April 2011)*:-
1. Companies that are part of BSE – Sensex 30 and NSE – Nifty 50;
2. Companies who are raising capital from outside (whose shares are listed outside India) India;
3. Companies having a net worth of more than Rs. 1,000 crores
Phase II (opening balance sheet as of 1 April 2013)*:-
• Companies not covered in Phase 1 and net worth exceeding Rs. 500 crores.
Phase III (opening balance sheet as of 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
- An increase in cost is initially due to dual reporting requirements, which the entity might have to meet until full convergence.
- The current accounting framework in India is deeply affected by laws and regulations. The implementation of IFRS may require changes in various regulations or laws.
- All stakeholders, employees, auditors, regulators, tax authorities, etc., must be aware of IFRS. They need to train.
- Organizations would need to incur additional costs for modifying their current accounting and procedures to meet the new disclosures and reporting requirements.
- Differences between IFRS and Indian GAAP may impact an entity’s business decision / financial performance.
- Awareness about International Standards: If any entity adopts IFRS, there will be a drastic change in the entire set of financial statements. There are several differences between IFRS and Indian GAAP. Creating awareness about the IFRS and its impact on users would be a big challenge.
- Training: Accountants are required to take training on IFRS. This is one of the significant 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. Calculating fair value involves a lot of hard work, and valuation experts must be used.
- Management Compensation Plan: The terms and conditions of management compensation plans would also have to be changed. The reporting of financial results under IFRS will likely differ significantly from those under the Indian GAAP.
- Reporting and Disclosure Systems: IFRS’s disclosure and reporting requirements differ entirely from the Indian reporting requirements.
Difference Between IFRS and Indian GAAP
The primary focus of IFRS is on getting the Balance sheet right. It isn’t easy to summarize all the differences here. However, a few of the significant differences are given below.
|Title of Financial Statements||Under IFRS, financial statements comprised of
||Indian GAAP contains the following financial statements
|Hedge Accounting||Hedge transactions are 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 practical life and depreciation method is considered a change in accounting estimates and applied prospectively.||A change in depreciation method is considered a change in accounting policy and requires retrospective recomputation of depreciation.|
|Revenue||Interest income is to be recognized at the effective interest rate.||Interest income is to be recognized on a time-proportion basis.|
|Extraordinary items||IFRS disallows the presentation of extraordinary items in the statement of Comprehensive income or 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.||It is 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 the international business.
- Implementing IFRS in India would encourage foreign investment, which impacts foreign capital inflows into the country.
- Implementing IFRS in India would be incredibly beneficial for investors because investors primarily want fair, trustworthy, timely, and comparable information across jurisdictions. It would be straightforward for investors to compare the financial statements of various companies across the globe.
- IFRS in India helps better understand financial statements that benefit investors willing to invest their money globally. 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 professionals to serve international Clients.
This has been a guide to IFRS in India. Here, we have discussed a list of IFRS, the difference between IFRS and Indian GAAP, the Benefits of IFRS in India, etc.