Imperial Journal of Interdisciplinary Research (IJIR)

Vol-3, Issue-4, 2017

ISSN: 2454-1362, http://www.onlinejournal.in

The Impact of IFRS Adoption on Key

Financial Ratios- An Analysis of Wipro
CA Pallavi Gupta1, Dr. Javaid Akhter2 & Dr. Barnali Chaklader3
1
Head of Education – ACCA
2
Registrar- AMU
3
Professor-IMI

Abstract: A number of multi-national companies of multinational companies are establishing their

are establishing their businesses in various business across the world. Emerging economies
countries with emerging economies. Different have immense participation in international trade
accounting framework and guidelines for different and cross border transactions. Government of
countries have created confusion for users of emerging economies has adopted a liberal view
financial statements. India, being an emerging towards foreign investment and trade. Entities in
economy calls for convergence of Indian emerging economies are increasingly accessing the
Accounting Standards (Indian GAAP) with global capital market to fulfill their need of capital.
International Financial Reporting Standards. An Governments in emerging economies are
attempt has been made to assess the impact of IFRS promoting multinational corporations to establish
adoption upon the key financial ratios of Indian their businesses in developing nations. To survive
company namely Wipro Ltd. The study has been with the forces of globalization, it is necessary that
conducted from the year 2009-10 to 2014-15. Debt India should match the international standards in all
Equity ratio, debt to total assets ratio, current respects be it, infrastructure, intellectual capital or
ratio, net profit ratio, return on capital employed international reporting.
and return on equity ratios have been used in the India ranks at third place after United States and
study to arrive at an empirical conclusion. China on the basis of Gross Domestic product,
Empirical analysis revealed that the IFRS adoption 2012 on the basis of Purchasing Power Parity
will create a significant impact on debt to total (World Development Indicators, 1 July 2013) and
assets ratio, net profit ratio, return on capital has been ranked at twentieth place in world
employed ratio and return on equity owing merchandise trade, 2010 (World Trade
adoption of fair value measurement, differential Organization). In 2010 India’s export and import of
revenue recognition norms, differential valuation world merchandise trade summed to 220 billion
of deferred tax asset and liability etc. dollars and 327 billion dollars respectively (World
Trade Organization). In 2011-12 World Economic
Keywords: IFRS, Indian GAAP, IFRS Forum came out with The Global Competitiveness
implementation, ratios Report 2011-12 which includes Global Competitive
Index (GCI) of countries based on their business
1. Introduction and the need for IFRS culture, GCI Index ranks countries based on 12
variables like quality of institutions, labor market
efficiency, financial market development,
Forces of globalization and liberalization have infrastructure etc. India ranks 56th out of 142
turned the way business is being conducted. In the economies in the year 2011-12. India is an integral
era of rapid industrialization and increasing cross part of the globalized economy, being one of the
border transactions it would be appropriate to refer fastest emerging economies of the world.
to the world as an economic village. Global Foreign companies engaged in foreign direct
diversification of portfolio has become an investment are normally exposed to business
important issue of fund management therefore environment and systems that are different from
global financial reporting is a need of hour which their home country. In such a scenario it is
would help to increase understandability of important that these foreign companies are aware
financial statements. Advanced telecommunication of the country differences for the purpose of
system has increased communication amongst establishing or maintaining an efficient global
countries; free trade and outsourcing have opened operation. Harmonization of accounting standards
up many business opportunities for new and constitutes an important issue as a company can
existing business. Due to advanced technology it is find it difficult to follow different accounting
now possible to own a business in one country and standards for the same business in different
do business in another part of the globe. A number

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-4, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

countries. Differences in accounting standards can Reporting Standards are considered as the global
create additional burden on the companies. The standards which every country should adopt.
diversity in standards would limit the transparency Even though the Indian GAAPs are some of the
of financial statements, which is necessary for most developed standards and have consistently
users of financial information to determine whether and successfully benchmarked with the best
management has exercised sound corporate standards and practices. Institute of Chartered
governance in regard to their investment and for Accountants of India (ICAI) expressed its view that
the monitoring of regulators. Therefore it is adoption of IFRS will be beneficial for listed
inevitable to adopt the uniform accounting entities as it will reduce the cost of preparing two
standards across the globe. sets of financial statements and savings in cost of
Unfortunately India has been hit by the capital for Indian companies raising capital abroad.
accounting frauds like Satyam (2009) which has It is expected that implementation of IFRS would
not only tarnished the image of India worldwide bring about improvement in the image of the Indian
but investors have lost the confidence on the industry and Indian accounting profession across
accounting statements. It would be worthwhile to the globe. Implementation of IFRS is a challenging
quote here that not only India but worldwide task and various issues like conflicting regulatory
economy has been victim of accounting frauds like and legal framework, preparedness of industry and
Enron (2001) and Lehman Brothers (2008). The accounting professionals for the same and many
accounting frauds have significantly discredited the more needs to be addressed. At present more than
image of corporate leaders and professional 140 countries have adopted or decided to adopt
accountants in the eyes of investors and public at these standards (Patro.A et al, 2012). India was
large. The level of business ethics is under severe supposed to adopt them from 1st April 2011 but the
attack and the accounting profession under extreme decision was reversed and the IndAs (Indian
inspection. Scenario of distrust exists between the version of IFRS) will be applicable from 1 st April
shareholders and mangers at corporate level. Such 2016. However, many corporates in India like
a situation calls for the uniformity of accounting Wipro, Infosys, DrReddys, Dabur are voluntarily
standards. As pointed out by Zeff (2007) that the preparing their financial statements as per IFRS.
differences in accounting requirements of different
countries are associated with their unique legal, 2. What are IFRS?
economic, social and political structures which
results in differences in accounting standards. International Financial Reporting Standards
Different financial reporting and accounting (IFRS) is a single set of accounting standards that
requirements pose hardships for the users of the corporate sector should adopt to prepare and
financial statements in multi country consolidations communicate financial information to the
and comparison of financial statements. ( Prather- stakeholders across the world. IFRS are designed
Kinsey, 2006) as a common global language of business affairs so
An attempt to bring in parity in the reporting of that the financial statements are comparable and
financial statements has been made by the understandable across international boundaries.
professional accounting bodies by trying to Financial statements that are based on common
formulate a single set of accounting standards to be universal accounting principles will enable the
followed by the world. One of the recent world to exchange and analyze financial
developments in the field of standard setting is the information in a meaningful manner. IFRS
International Financial Reporting Standards comprises of:
(IFRS).International Financial Reporting Standards  International Financial Reporting
(IFRS) is a single set of accounting standards that Standards issued after 2001
the corporate sector should adopt to prepare and  International Accounting Standards issued
communicate financial information to the before 2001
stakeholders across the world. Financial statements  Interpretations originated from the
that are based on common universal accounting International Financial Reporting
principles will enable the world to exchange and Interpretations Committee (IFRIC)- issued
analyze financial information in a meaningful after 2001
manner. This builds a strong case for India to
 Standing Interpretation Committee (SIC)-
match itself with the international reporting
issued after 2001
practices. International Financial Reporting
Standards are expected to improve the image of the
Indian industry and the accounting profession in
3. Indian Accounting Standards
the eyes of the world. Among the finance and Indian GAAPs are issued by the Accounting
accounting fraternity International Financial Standards Board of The Institute of Chartered

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-4, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

Accountants of India. At present there are 32 information asymmetry exists between principals
accounting standards, some accounting standards (shareholders) and agents (managers). Therefore it
are applicable to all type of entities while some are is important to ensure quality reporting to reduce
selectively applicable. The purpose of issuing information asymmetries. Quality financial
accounting standards to bring about the uniformity reporting ensures better control on principal over
in accounting practices across the country. agent. Lang and Lundholm,(1996) has pointed out
The Council of the ICAI, at its last meeting, in their study that the analysts precision and
held on March 20-22, 2014, has finalized the prediction has a positive association with the level
roadmap. The Ministry of Company Affairs has of company’s financial disclosure. Clarity of
issued Companies (Indian Accounting Standards) enforcement laws and litigations, sound accounting
Rules 2015. The accounting standards as specified education system and other environmental
in the annexure to these rules to be called the motivating factors affect the incentives and
Indian Accounting Standards (Ind AS) shall be the competence of preparers, auditors and users of
accounting standards applicable to all classes of financial reports (Jacob.R.A et al 2009).
companies as follows: Various developed and developing countries of
(a) Phase I:- The following categories of the world have either adopted IFRS or have set the
companies will convert their opening balance deadline for adoption of IFRS. One of the
sheets as at 1st April 2016, if the financial year developed nations of the world US has still not
commences on or after 1st April 2016 in adopted IFRS. Djatej et.al (2012) in their research
compliance with Ind As. These companies paper examined the behavioral attributes of US
are: accounting practioners towards the early adoption
 All companies with net worth of Rs 500 of IFRS. Research is based on Theory of Planned
crores or more whether listed (or in the Behavior (TPB) and survey method. TBP states
process of listing at any stock exchange in that an individual’s behavior is directly influenced
India or outside India) or unlisted (including by behavioral intentions which can be predicted as
holding, subsidiary, joint venture or associates attitude, subjective norm and perceived control.
of such companies). The research findings commensurate with the TPB
(b) The following categories of companies will as an accountant’s decision to adopt IFRS is
convert their opening balance sheets as at 1st significantly related with the subjective norms and
April 2017, if the financial year commences the perceived control while attitude is not a
on or after 1st April 2017 in compliance with significant factor. For attitude the author explained
Ind As. These companies are: that social pressure and behavioral control play the
 The companies whose equity and/or debt major role therefore the attitude is not much
securities are listed or in the process of being important. In a similar type of study Ramana and
listed on any stock exchange in India or Sletten (2009) concluded that a country is more
outside India. likely to adopt IFRS if its trade partners or
 Unlisted Companies having net worth of Rs countries within its geographical region have
250 crores or more but less than Rs 500 adopted IFRS.
crores. Perception studies of accounting experts have
(c ) Voluntary adoption been conducted across the globe to study the
 Any company may voluntary basis for implementation and adoption of IFRS.
financial statements for accounting periods Jermakowicz&Gornik-Tomaszewski (2006) did the
beginning on or after 1 April 2015 or study from the perspective of European Union
thereafter. But once followed it cannot be (EU) publicly traded companies by floating a
revoked subsequently. questionnaire to a sample size of 112 companies in
the year 2004. Based on the analysis of data author
concluded that a majority of respondents have
adopted IFRS for the purposes other than the
4. Literature Review
consolidation basically to achieve harmonization in
With the ever increasing growth of internal and external reporting but they would have
multinational corporations there is an agency not adopted IFRS has it not been required by EU
conflict. Companies are owned by shareholders regulation. The other conclusions of study are that
while they are being managed by the directors and the IFRS implantation process is costly, complex,
the management team who may or may not be the burdensome, lacks implementation guidelines and
owners of the company. Divorce between uniform interpretation for key challenges. In a
ownership and management gives importance to similar type of study conducted in US it was
Theory of Agency. Jensen and Mecking,(1976) revealed that the investors of US companies (IFRS
states that the principal agent theory posits that applicable) perceived the convergence benefit from
IFRS adoption and welcomed the convergence

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Vol-3, Issue-4, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

projects between Financial Accounting Standards quality of information for users and enhancing
Board and International Accounting Standards transparency and comparability of financial
Board but negatively reacted to the potential information. The study recommended that the
adoption of IFRS in the U.S (Lin and Tanyi, 2010). development of appropriate mechanism for
Guerreiro.M.S.et.al.(2012), did the survey based enforcement of accounting standards and the
researched for the large unlisted companies for the collaboration of accounting bodies across the world
implementation and adaption of IFRS (called SNC was considered to be important to reap the benefits
in Portugal). The study is associated with the of international accounting standards.
institutional elements related with the successful The relationship between the accounting
adoption of IFRS. On the basis of empirical standards and accounting quality has been a cause
analysis author has concluded that participation of of much discussion among the accounting
parent company in the decision making process fraternity. Barth et al (2008) examined whether
regarding the conversion procedures, national application of International Accounting Standards
ownership, mimetic behavior and export activities (IAS) is associated with higher accounting quality.
positively influence the preparedness of an It was inferred that the firms of 21 countries which
organization for IFRS. Empirical results depicts were applying IAS evidence less earning
that the type of auditors and the membership of management, more timely loss recognition and
accounting bodies does not affect the level of more value relevance of accounting amounts.
preparedness of the companies for IFRS. Author has also compared the accounting quality
In an online survey of Australian accounting for IAS firms in the period before and after they
professionals 38% of the accounting professionals adopted IAS, concluded that accounting quality has
felt that IFRS implementation had positive impact improved between the pre and post adoption
on the business while according to 26% of the period. Similarly, Leuz et al. (2003) found that
respondents IFRS implementation had no impact firms which prepare reports using IFRS engage in
on the business. Survey highlighted the fact that less earnings management when they are based in
80% of respondent strongly supported the need of countries with developed equity markets, dispersed
simplification of IFRS for smaller organizations ownership structures, strong investor rights, and
such as Small and Medium Enterprise and Not for legal enforcement.
Profit Organizations. (Grant Thorton, 2009). Another comprehensive study conducted by
Similarly Bhattacharjee & Islam (2009) conducted Daske.H (2006) to assess the quality financial
the exploratory research into the benefits and statements after the implementation of IFRS in
challenges associated with the implementation of Australia, Germany and Switzerland revealed that
IFRS in Bangladesh. The study revealed that the disclosure quality increased significantly after the
implementation of IFRS was expected to bring the implementation of IFRS. The study made use of
improvement in quality of financial statements available disclosure quality scores extracted from
through the adoption of uniform set of accounting detailed analyses of annual reports by reputed
standards. IFRS was expected to reduce accounting accounting scholars.
diversity resulting in an increase in cross border Lack of clear guidance from regulatory bodies
listings. and ambiguity regarding the provisions of various
In a comprehensive study Dhar.S.et.al (2011) acts makes it difficult to implement IFRS.
studied the impact of IFRS 2 share based payments Implementation of IFRS will affect industries in
on Indian Companies for the year 2007 and 2008. different manners as every industry has its
Findings revealed that stock option based peculiarities. Indian banking industry is governed
compensation differs from entity to entity and by Banking Regulation Act 1949 and the guidelines
recognition would have a substantial effect on the issued by Reserve Bank of India (RBI). An
performance measures of 22% of the sample size important study in this regard was done by
for the year 2007 and 2008. Firoz.M.et.al (2011).India banks are required to
An exploratory research conducted by Hoque et maintain statutory liquidity ratio prudential norms.
al (2013) to study the economic consequences of As per the RBI norms, banks are required to
adopting IFRS on the accounting conservatism, classify their investments under ‘held to maturity’
capital market effects using market liquidity, cost at amortized cost. IFRS 9 on financial instruments
of capital and debt, earnings quality with gives the option to carry financial instruments at
considerations of earnings management and firm amortized cost or fair value. Valuation at amortized
performance. It was evidenced that the adoption of cost is permitted only when the asset is held in the
IFRs impacts all the factors in different ways. The business model to collect the contractual cash flow
research concluded that the overall effect of the and cash flows arise at specific dates for principal
implementation of IFRS has been positive as the and interest payments. If the bank does not have a
implementation of IFRS reduces the information clear strategy to manage portfolio and established
asymmetry leading to the improvement in the history of the business model, the entire portfolio

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-4, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

has to be measured at fair value, causing volatility in majority of the countries all domestic listed
in financial statements. Similarly IFRS recognizes companies are required to prepare the financial
the impairment model for the assets of the statements as per IFRS. Author took the sample of
organization as against the provisioning norms for 123 countries of the world. Some of the countries
advances as required by RBI. Implementation of included in the research are United Kingdom,
IFRS will require the regulatory changes for Singapore, Newzeland, Italy, France, Germany,
different types of industries. For the banking China, Australia etc. For the purpose of study
industry IFRS will have major impact on advances, author has divided the companies into two
financial instruments, investments and losses categories viz domestic listed companies and the
arising due to revaluation of financial assets. domestic unlisted companies. Domestic listed
Similar type of study was conducted in companies have been observed for the applicability
European Union countries by Gebhardt and of IFRS in four categories viz IFRS not permitted,
Novotny-Farkas (2011). The results indicate IFRS permitted, IFRS required for some and IFRS
stricter application of IAS 39 has reduced the required for all. Domestic unlisted companies have
discretionary power of a bank which was evident also been observed for the applicability of IFRS.
from less income smoothening. Research also There has been widespread debate as to the
supported the notion institutions play an important effect of IFRS earnings management practices
role in shaping the financial reporting outcomes as Tendeloo & Vanstraelen (2005) in their study
it was evident that the effect of IAS 39 was less in concluded, that without the possibility of using
the countries with stricter bank supervision, widely hidden reserves to manage earnings, IFRS-adopters
dispersed bank ownership and the for cross listed turn more to discretionary accruals to manage their
banks. In yet another study with European banks it earnings while when hidden reserves were taken
was found that the application of stricter into consideration, IFRS adopters present the
impairment rules reduces discretion in the main similar earnings management behavior as
operating accrual in banks’ accounts, the loan loss compared to companies reporting under German
provision and, banks exhibit significantly less GAAP. The study also concluded that companies
income smoothing (Gebhardt and Novotny-Farkas that have adopted IFRS engage more in earnings
2010). Whittington (2005) listed several instances smoothing, but this increase in earnings smoothing
where government in EU countries raised strong with the adoption of IFRS is significantly reduced
concern on the viability of IAS 39. Concerns were when the company has a Big 4 auditor. Paananen
mainly raised by the banking industry as under IAS (2008) also concluded that the quality of financial
39 banks were required to measure financial reporting, measured by the degree of smoothing of
instruments at fair value. Fair value measurements earnings, decreased after the adoption of IFRS.
were expected to increase the volatility in bank’s In a similar type of study Auer (1996) compared
balance sheet and earnings, which may affect the the informational content of earnings
stability of financial institutions. announcement (abnormal returns resulting from
Mewawalla & Tulloch (2013) has developed an unexpected earnings) of sample Swiss firms using
‘IFRS Impact Scorecard’ on their research study. IFRS or European Committee Directive compliant
The scorecard assesses the risk of a fall in the share accounting standards as compare to Swiss GAAP.
price of an Indian Company on the adoption of The results indicated a significant increase in the
IFRS. The scorecard indicates the undervaluation variance of abnormal returns for firms adopting
or overvaluation of in share prices on the IFRS as compare to Swiss GAAP. The study
assumption that the company’s financial statements concluded that earnings under IFRS have more
are prepared on IFRS as compare to Indian GAAP. information content than earnings based on Swiss
The author has rated company specific risk for each GAAP, but not more than earnings based on
player in particular sector on a scale of one to five. European Committee Directives.
Based on the scorecard approach 16 of top 50 Nifty There have been major differences in the
50 Index companies comes in low risk zone like reporting and accounting practices of IFRS and
Infosys, Tata Motors , HCL Technologies, etc. 17 Indian GAAP. These differences are expected to
companies lies in moderate risk zone like Cipla, bring significant differences on the profitability,
Bajaj auto, Maruti Suzuki,etc and other 17 lies in liquidity and capital structure of Indian Comapnies.
high risk zone like Reliance Industries, Asian Bahrgava & Shikha (2013) analyzed the
Paints , Punjab National Bank, etc. Authors have consolidated financial statements of Wipro for the
also observed that 88% of companies in India’s year ended 2012 as per Indian GAAP and IFRS.
Nify 50 Index does not report under IFRS. For the purpose of analysis liquidity and
In an exhaustive study conducted by profitability ratios were calculated and reconciled
Haribhakti.S (2008) as to the applicability of IFRS as per Indian GAAP and IFRS. Study concluded
for listed and unlisted companies among the that the variation in total assets and liabilities were
various countries of the world, it was observed that due to the reclassification of equity and liabilities,

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ISSN: 2454-1362, http://www.onlinejournal.in

differences in the concept of depreciation and IFRS has improved the value relevance of either
valuation of fixed assets and revenue recognition book value or net income. The authors concluded
criterion. A comparative study of financial that IFRS adjustments to net income are generally
statements as per Indian GAAP and IFRS of Wipro value irrelevant and IFRS adjustments to book
for the year 2009-2010 shows significant impact on value were found to be generally relevant. The
leverage ratio, total equity and total liability findings of Bartov et al (2005) were inconsistent
position. However total assets position, return on with those of Hung & Subramanyam (2007) in
equity, return on asset, total asset turnover and net which earnings as per German accounting rules are
profit ratio are not significantly affected by higher as compare to earnings under IFRS and US
converging to IFRS. The author analyzed the GAAP. The inconsistency may be due to two
significant changes and concluded that the change different samples as the sample used by Bartov et
is attributed to fair value measurements as against al (2005) is larger and includes all firms traded at
the conservative approach in Indian German Stock Exchanges from 1999 to 2000.
GAAP.(Swamynathan.S andSindhu, 2013). Similar type of study was conducted by Stent et
Similar type of studies have been conducted al (2010) on the listed companies of Newzeland
internationally also. Goodwin and Ahmed (2006) Stock Exchange. Sample was further stratified into
studied the impact of IFRS adoption on the net late adopters of IFRS and early adopters of IFRS.
income, assets, liabilities and equities of the firms. Sample includes the 101 late adopters of IFRS and
For the purpose of study the author took financial 40 early adopters of IFRS. The study aimed to
statements for the year ended 31 December 2004 assess the impact of IFRS on the key financial
for 135 firms of Australia. Analysis indicates that elements namely assets, liability, equity, income
the transition to IFRS has not been onerous for and expenses. The scope of study further extends to
small firms. Small firms are required to make a examine the effect of IFRS adoption on key
fewer changes in equity and net income as compare financial ratios namely return on equity, return on
to larger firms. Net income and equity has assets, leverage ratios, asset turnover and return on
increased for smaller firms primarily due to sales. The study concluded that the financial
deferred tax adjustments. For larger firms liabilities element most affected after migration to
has increased by a wide margin resulting in the Newzeland IFRS was liabilities, income taxes and
decrease of equity. The study concluded that the employee benefits were identified to be the main
IFRS transition does not have as detrimental effect reason for the same. In 57% of companies it was
on small firms as on medium and large firms. observed that the equity has decreased. Financial
These findings are consistent with another study Instruments was found to be the most important
conducted by Goodwin et al. (2007) which reason for the increase in assets for 26% of the
concluded that on an average IFRS has resulted in companies. IFRS adoption had created a significant
increase in liabilities and leverage ratios and a impact on all the key ratios except for asset
decrease in equity and earnings. turnover ratio. The study further concluded that the
Aisbitt (2006) discovered in her study on the small firms were less significantly effected as
companies registered in UK, that the impact of compare to large firms and the impact of IFRS
IFRS adoption on company’s equity seems to vary adoption on early and late adopters were found to
and the effect was attributable to company’s be different.
individual accounting policies and circumstances Lu.M (2009) analyzed the financial statements
rather than national differences in accounting. The of leading European pharmaceutical companies.
study concluded that there was no particular pattern These companies were previously prepared there
in changes in equity in the UK. The study financial statements based on US GAAP and
identified the balance sheet items which may have subsequently converted to IFRS. Analysis revealed
the most significant impact on equity as Retirement that under IFRS, current ratio and return on assets
benefits obligations, Property, plant and equipment, increases, asset turnover tends to decrease and debt
Deferred Tax assets, and Goodwill and Intangible to equity ratio decreases. The results further
assets. revealed that the upon the adoption of IFRS
In a study conducted on the financial statements research and development expense decreased and
of 80 German Firms for the year 1998-2002 in the intangible assets increased despite of the fact
Germany by Hung & Subramanyam (2007) it was that development cost was not capitalized.
concluded that the value of total assets and equity Harris and Muller (1999) examined the
and variation in book value and net income are reconciliation statements between IFRS and US
significantly higher under IFRS as compare to GAAP prepared by the firms under Form 20F. The
German Accounting rules (HGB). Study further results of the study indicated that the differences in
concluded that that under IFRS book value plays a earnings and book values of equity are insignificant
more important role as compare to net income between IFRS and US GAAP and the differences
although there was no evidence to support that

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ISSN: 2454-1362, http://www.onlinejournal.in

was found to be much more smaller between US Associates in

GAAP and any other accounting standard. Consolidated Financial
Statements
5. Mapping of IFRS with Indian GAP As 24 Discontinuing IFRS 5 Non Current
Operations Assets held for Sale and
Table 1 shows the mapping of Indian GAAP with Discontinued
IFRS. Operations
AS 25 Interim Financial IAS-34 Interim
Table 1. Indian GAAP and corresponding IFRS Reporting Financial Reporting
AS 26 Intangible Assets IAS-38 Intangible
Indian Accounting Corresponding IFRS Assets
Standard (Indian AS 27 Financial IAS-31 Interests in
GAAP) Reporting of Interests in Joint Ventures
AS 1- Disclosure of IAS-1 Presentation of Joint Ventures
Accounting Policies Financial Statements AS 28 Impairment of IAS-36 Impairment of
AS-2 Valuation of IAS-2- Inventories Assets Assets Goodwill
Inventories AS 29 Provisions, IAS-37 Provisions,
AS 3 Cash Flow IAS-7 Cash Flow Contingent Assets and Contingent Assets and
statements statements Contingent Liabilities Contingent Liabilities
AS 4 Contingencies and IAS-10 Events after the AS 32 Financial IFRS 7 Financial
events Occurring after Reporting Period instruments Disclosure instruments Disclosure
the Balance Sheet Date No equivalent Indian IAS-26 accounting and
AS 5 Net Profit or Loss IAS-8 Accounting Accounting Standard Reporting of Retirement
for the period, prior Policies, Changes in Benefit Plan
period items and Accounting Estimates No equivalent Indian IAS-29 Financial
Changes in Accounting and Errors Accounting Standard Reporting in Hyper
Policies. Inflationary Economies
AS 6 Depreciation IAS-16 Property, Plant No equivalent Indian IAS-40 Investment
Accounting & Equipment Accounting Standard Property
AS 10 Accounting for No equivalent Indian IAS-41 Agriculture
Fixed Assets Accounting Standard
AS 7 Construction IAS 11 Construction No equivalent Indian IFRS 2 Share Based
Contracts Contracts Accounting Standard Payment
AS 9 Revenue IAS-18 Revenue No equivalent Indian IFRS 4 Insurance
AS 11 The Effects of IAS 21 The Effects of Accounting Standard Contracts
Change in Foreign Change in Foreign No equivalent Indian IFRS 6 Exploration for
Exchange Rates Exchange Rates Accounting Standard & Evaluation of Mineral
AS 12 Accounting for IAS-20 Accounting for Resources
Government Grants Government Grants and
Disclosure of
Government Assistance 6. Research Gap and Objectives
As 14 accounting for IFRS 3 Business
Amalgamation Combinations India was supposed to implement IFRS from 1 st
AS 16 Borrowing Cost IAS-23 Borrowing Cost April 2012 previously but the implementation was
As 17 Segment IFRS 8 Operating postponed and as per the Government decision now
Reporting segments it will be applicable from 1st April 2016.
AS 18 Related Party IAS 24 Related Party Some Indian companies started preparing dual
Disclosure Disclosure set of financial statements prior to financial year
AS 19 Leases IAS-17 Leases ending 2012 in anticipation of IFRS
As 20 Earning per IAS 33 Earning per implementation. At this juncture sufficient time has
Share Share lapsed and it would be wise step to analyze the key
As 21 Consolidated IAS 27 Consolidated financial ratios as per the Indian GAAP and IFRS
Financial Statements and Separate Financial financial statements.
Statements In this study the financial statements of Wipro
AS 22 Accounting for IAS-12 Income Taxes Ltd has been analyzed from the year 2009-2010 to
Taxes on Income 2014-2015. Consolidated financial statements as
AS 23 Accounting for IAS-28 Investments in per Indian GAAP and consolidated financial
Investments in Associates statements as per IFRS have been analyzed to

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check the possible impact of IFRS transition on servicing in 175+ cities in 6 continents. On 31
solvency, liquidity and profitability of the March 2015, the company posted revenues of $7.6
company. On the basis of abovementioned billion. Wipro’s shares are listed National Stock
objectives, the following hypotheses are framed: Exchange and New York Stock Exchange.
H1: Transition to IFRS from Indian GAAP has (wipro.com)
no impact on Debt Equity Ratio (D/E).
H2: Transition to IFRS from Indian GAAP has Table 2. Descriptive Statistics of Financial
no impact on Debt to Total Assets Ratio(D/TA). . Ratios
H3: Transition to IFRS from Indian GAAP has
no impact on Current Ratio (CR). Ra M Me Stan Ske kur Min Max
H4: Transition to IFRS from Indian GAAP has tio ea dia dard wne tosi imu imu
no impact on Net Profit Ratio (NP ratio) n n Dev ss s m m
H5: Transition to IFRS from Indian GAAP has iatio
no impact on Return on Capital Employed n
(ROCE). Financial Ratios calculated under Indian GAAP
H6: Transition to IFRS from Indian GAAP has D/ 0.1 .07 .127 1.10 - 0.02 0.34
no impact on Return on Equity (ROE). E 31 80 0 18 0.1 00 00
0 805
7. Methodology D/ 0.3 0.3 0.03 1.18 1.6 0.35 0.44
T 83 80 20 96 381 00 00
Based on existing literature six financial ratios A 3 0
have been selected for analysis. Lantto & C 2.1 2.2 0.18 - 0.1 1.82 2.27
Sahlstrom(2009) analyzed operating profit margin R 30 20 35 1.26 804 00 00
ratio, return on capital employed, return on 0 0 85
invested capital, current ratio and Price Earnings
N 0.1 0.1 0.01 - - 0.15 0.18
ratio. In the present study analysis has been done
P 67 70 10 0.78 0.1 00 00
by calculating debt equity ratio and debt to total
rat 7 0 32 009
assets ratio, For checking the liquidity position of
io
the company current ratios has been calculated.
Profitability position of the company has been R 0.2 0.2 0.02 0.87 - 0.21 0.27
checked through net profit ratio, return on capital O 31 25 40 86 0.5 00 00
employed and return on equity. As IFRS is not C 7 0 002
mandatory in India but some of the companies are E
preparing the IFRS financial statements R 0.2 0.2 0.01 - 2.0 0.21 0.24
voluntarily. Dual set of consolidated financial O 32 32 26 1.01 561 00 76
statements viz: Indian GAAP and IFRS were E 2 8 32
available for Wipro Limited from the year 2009-10 Financial Ratios calculated under IFRS
to 2014-2015. The selected financial ratios have D/ 0.0 0.0 0.04 0.07 - 0.04 0.14
been calculated as per Indian GAAP and as IFRS E 90 85 20 31 2.4 00 00
financial statements. Descriptive analysis for ratios 0 0 445
has been presented by calculating mean, median, D/ 0.3 0.3 0.03 1.04 1.6 0.31 0.40
Standard Deviation, Skewness, Kurtosis, Minimum T 45 45 15 01 376 00 00
and Maximum using MS Excel. Further empirical A 0 0
analysis has been done using Wilcoxon Signed C 2.3 2.3 0.28 - - 1.91 2.66
Rank Test. R 20 15 36 0.20 0.9 00 00
0 0 60 093
8. Data Analysis N 0.1 0.1 0.01 - 2.1 0.12 0.15
P 40 41 11 1.35 185 00 00
Wipro Limited (NYSE:WIT) provides rat 2 8 80
comprehensive IT Solutions and Services, io
including Systems Integration, Information R 0.1 0.2 0.04 - - 0.12 0.25
Systems Outsourcing, IT Enabled Services, O 93 00 72 0.56 0.2 00 00
Package Implementation, Software Application C 3 0 98 810
development and maintenance, and Research and E
Development Services to corporations globally. R 0.2 0.2 0.01 - 0.4 0.20 0.23
Wipro is a leader in providing IT Solutions and O 19 20 18 0.56 472 00 40
Services for the corporate segment in India. As of E 0 0 52
March 2015, the company has 160000+ employees Differences between ratios calculated under Indian

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ISSN: 2454-1362, http://www.onlinejournal.in

GAAP & IFRS hence in case profitability ratios and in debt to total
D/ 0.0 - 0.08 1.02 2.2 - 0.20 assets ratio p is less than .05.
E 41 0.0 51 87 640 0.02 00
0 07 00 Table 3 Results of Wilcoxon Signed Rank Test
0
D/ 0.0 0.0 0.00 0.14 0.0 0.04 0.04 Ratio P value Result
T 38 35 06 95 005 00 00 D/E .916 Accept H1
A 3 0 D/TA .020 Reject H2
C - - - - 1.0 - - CR .173 Accept H3
R 0.1 0.0 0.10 1.06 897 0.09 0.39 NP ratio .027 Reject H4
90 95 01 25 00 00 ROCE .026 Reject H5
0 0 ROE .046 Reject H6
N 0.0 0.0 - 0.57 - 0.03 0.03
P 27 28 0.00 48 2.2 00 00
rat 6 2 01 194 9. Analysis of Reasons of Differences
io For Ratios
R 0.0 0.0 - 1.44 - 0.09 0.02
O 38 25 0.02 84 0.2 00 00 Empirical analysis shows that there have been
C 3 0 32 192 significant differences in debt to total assets ratio,
E net profit ratio, return on capital employed and
R 0.0 0.0 0.00 - 1.6 0.01 0.01 return on equity. An analysis of causes of
O 13 12 08 0.44 088 00 36 differences under both set of financial statements
E 2 8 80 has been shown below:
 Causes of difference between Debt to
Table 2 illustrates descriptive statistics of all six Total assets ratio
financial ratios, which were calculated as per The reclassification of secured loans and
Indian GAAP and as per IFRS financial statements. unsecured loans as termed under Indian GAAP into
Mean and standard deviation (SD) of all financial current and noncurrent liability under IFRS has
ratios under Indian GAAP and IFRS have been been the cause of difference of debt under Indian
calculated. Minimum and maximum has been GAAP. Unsecured loans are very high under Indian
displayed to provide some insight into the range GAAP financial statements as compare to IFRS
between the ratios calculated under both standards. financials. Recognition principles for deferred tax
Finally, skewness was calculated to check the liabilities, financial lease obligations and
symmetry of the values around the mean and provisions have resulted in differences in total
kurtosis, to check the normality of distribution. noncurrent liabilities. Differential principles of
Similarly to Lantto and Sahltström (2009), the valuing derivative liability, accrued expenses, and
results indicate that the ratios are not normally advance from customers had contributed to the
distributed and there is a considerable variation in differences of debt under both set of accounting
ratios. Owing to the fact that, the distributions of standards. Recognition of proposed dividend as
ratios were not normally distributed as high level of current liability under Indian GAAP is another
kurtosis was marked in case of Debt Equity Ratio a cause of difference as it is not recognized as current
simple t-test was not used to test the statistical liability under IFRS. Differences was found
significance. Empirical analysis of the differences between the total assets under Indian GAAP and
between the ratios calculated from the two set of IFRS. The differences in the valuation principles of
financial statements has been done using Wilcoxon provision for doubtful debts, investments, financial
Signed-Rank Test. This test is the non-parametric lease and advances to employees have contributed
version of a paired samples t-test that does not to the increase in current asset under IFRS. Non
assume normal distribution. current assets were different Indian GAAP due to
Table 3 shows the empirical results of test differences in valuation principles of goodwill,
which clearly indicates that transition to IFRS will property plant & equipment, intangible assets and
affect the profitability position of the company as investments. Valuation of Property, Plant &
all the three profitability ratios were found to have Equipment has been different under both set of
the significant impact. Significant impact was also accounting standards due to interest capitalization
found on the Debt to Total Assets ratio. Empirical and classification of operating lease.
results indicate the difference in ratios for the two  Causes of difference between Net Profit
sets of financial statements were not significant for ratio
Debt Equity Ratio and Current Ratio. Significance Earnings after Taxes (excluding other income)
level has been tested at 95% confidence level, under Indian GAAP and IFRS were varying due to

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Imperial Journal of Interdisciplinary Research (IJIR)
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ISSN: 2454-1362, http://www.onlinejournal.in

the differential recognition principles under both option expense, deferred taxes, finance expense
set of accounting standards. There have been and share in earnings of associates etc. Equity
differences in depreciation, amortisations, comprises of share capital which is approximately
Employee stock option expense, deferred taxes, same under both the reporting standards. Under
finance expense and share in earnings of associates IFRS share application money received and
and revenue recognition norms. Revenue under pending allotment is reported under other liabilities
both set of financial statements has been varying whereas Indian GAAP requires share application
due to the concept of multiple element money pending allotment to be presented
arrangements under IFRS, treatment of cash separately from equity. Reserves and surplus have
payment to customers pursuant to sales promotion differed due to various recognition principles
activities are treated as sales discount under IFRS adopted under both set of accounting standards.
and deducted from revenue while under Indian Reserves and surplus have specifically decreased
GAAP they were treated separately as cost. Other under Indian GAAP mainly due to differences of
causes of difference under both set of accounting stock premium and share based payment reserves.
standards are treatment of excise duty. Differences
in recognition principles for profit on sale of
investments, interest income and exchange 10. Conclusion
fluctuations had contributed to the difference
between revenue under IFRS and Indian GAAP. The empirical results of the present study
indicate that there are significant differences
 Causes of difference between Return on between the ratios calculated as per Indian GAAP
Capital Employed and IFRS. More specifically, significant differences
Earnings after Taxes before interest under were found in all profitability ratios, though the
Indian GAAP were not in agreement with IFRS impact was not found to be significant for debt
financial statements due to the differential equity ratio and current ratio. The significant
recognition principles for finance expenses under impact on profitability ratios and debt to total
both set of accounting standards. The assets ratios was consistent with the findings of
reclassification of secured loans and unsecured Swamynathan.S and Sindhu (2013) & Bahrgava &
loans as termed under Indian GAAP into current Shikha (2013). Further investigation into the causes
and noncurrent liability under IFRS has been the of differences between Indian GAAP and IFRS
cause of increase of debt under Indian GAAP. financial statements revealed that fair value
Unsecured loans are very high under Indian GAAP measurement, revenue recognition norms,
financial statements as compare to IFRS financials. classification of assets and liabilities into current
Recognition principles for deferred tax liabilities, and noncurrent, share based payments and
financial lease obligations and provisions have recognition of deferred tax assets and liabilities
resulted in differences in total noncurrent liabilities. were some of the major contributory factors for
Differential principles of valuing derivative differences.
liability, accrued expenses, and advance from Internationally also it was established that the
customers had contributed to the differences of adoption of IFRS will create significant impact on
debt under both set of accounting standards. Equity key financial ratios as stated by Goodwin et al.
comprises of share capital which is approximately (2007), Goodwin and Ahmed (2006) and Aisbitt
same under both the reporting standards. Under (2006). Lantto and Sahltström (2009); Dunne et al.
IFRS share application money received and (2008); Iatridis (2010), and Aharony et al., (2010),
pending allotment is reported under other liabilities who stated that after the transition to IFRS,
whereas Indian GAAP requires share application profitability and growth would be higher. Financial
money pending allotment to be presented ratios have been significantly impacted due to
separately from equity. Reserves and surplus have varying recognition norms for revenue, advances
differed due to various recognition principles and accrued expenses. Fair value measurement,
adopted under both set of accounting standards. share based payment reserves and valuation of
Reserves and surplus have specifically decreased deferred tax liabilities had significantly impacted
under Indian GAAP mainly due to differences of the assets and liability situation of the company.
stock premium and share based payment reserves.
 Causes of difference between Return on 11. Limitations of Study
Equity
Earnings after Taxes under Indian GAAP and The present study is limited to a single company
IFRS were found to be different due to the that is Wipro though there are other companies
differential recognition principles under both set of which are voluntarily disclosing the IFRS financial
accounting standards. There have been differences statements. Empirical analysis is based on the
in depreciation, amortizations, Employee stock availability of IFRS financial statements.

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ISSN: 2454-1362, http://www.onlinejournal.in

Curie Research Training Network The IFRS

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