International Financial Reporting Standards (IFRS) are principles-based Standards,

Interpretations and the Framework (1989)[1] adopted by the International Accounting Standards
Board (IASB).

Many of the standards forming part of IFRS are known by the older name of International
Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the
International Accounting Standards Committee (IASC). On 1 April 2001, the new IASB took
over from the IASC the responsibility for setting International Accounting Standards. During its
first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop
standards calling the new standards 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 after 2001

 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 2001
 Framework for the Preparation and Presentation of Financial Statements (1989)

IAS 8 Par. 11

"In making the judgement described in paragraph 10, management shall refer to, and consider
the applicability of, the following sources in descending order:

(a) the requirements and guidance in Standards and Interpretations dealing with similar and
related issues; and

(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income
and expenses in the Framework."

Underlying assumptions

IFRS authorize two basic accounting models:

I. Financial capital maintenance in nominal monetary units, i.e., Historical cost accounting
during low inflation and deflation (see the Framework, Par 104 (a)).

II. Financial capital maintenance in units of constant purchasing power, i.e., Constant Item
Purchasing Power Accounting - CIPPA - during low inflation and deflation (see the Framework,
Par 104 (a)) and Constant Purchasing Power Accounting (see IAS 29) - CPPA - during
hyperinflation. Financial capital maintenance in units of constant purchasing power is not
authorized under US GAAP.

The following are the four underlying assumptions in IFRS:

 1. Accrual basis: the effect of transactions and other events are recognized when they
occur, not as cash is gained or paid.
 2. Going concern: an entity will continue for the foreseeable future.
 3. Stable measuring unit assumption: financial capital maintenance in nominal
monetary units or traditional Historical cost accounting; i.e., accountants consider
changes in the purchasing power of the functional currency up to but excluding 26% per
annum for three years in a row (which would be 100% cumulative inflation over three
years or hyperinflation as defined in IFRS) as immaterial or not sufficiently important for
them to choose financial capital maintenance in units of constant purchasing power
during low inflation and deflation as authorized in IFRS in the Framework, Par 104 (a).

Accountants implementing the stable measuring unit assumption (traditional Historical Cost
Accounting) during annual inflation of 25% for 3 years in a row would destroy 100% of the real
value of all constant real value non-monetary items not maintained under the Historical Cost
paradigm.

 4. Units of constant purchasing power: financial capital maintenance in units of

constant purchasing power during low inflation and deflation; i.e. the rejection of the
stable measuring unit assumption. See The Framework (1989), Paragraph 104 (a).
Measurement in units of constant purchasing power (inflation-adjustment) under
Constant Item Purchasing Power Accounting of only constant real value non-monetary
items (not variable items) remedies the destruction caused by Historical Cost Accounting
of the real values of constant real value non-monetary items never maintained constant as
a result of the implementation of the stable measuring unit assumption during low
inflation. It is not inflation doing the destroying. It is the implementation of the stable
measuring unit assumption, i.e., HCA. Only constant real value non-monetary items are
inflation-adjusted during low inflation and deflation. All non-monetary items (both
variable real value non-monetary items and constant real value non-monetary items) are
inflation-adjusted during hyperinflation as required in IAS 29 Financial Reporting in
Hyperinflationary Economies, i.e. under Constant Purchasing Power Accounting.

Requirements of IFRS
Main article: Requirements of IFRS

IFRS financial statements consist of (IAS1.8)

 a Statement of Financial Position

  a Statement of Comprehensive Income or two separate statements comprising an
Income Statement and separately a Statement of Comprehensive Income, which
reconciles Profit or Loss on the Income statement to total comprehensive income
 a Statement of Changes in Equity (SOCE)
 a Cash Flow Statement or Statement of Cash Flows
 notes, including a summary of the significant accounting policies

Comparative information is required for the prior reporting period (IAS 1.36). An entity
preparing IFRS accounts for the first time must apply IFRS in full for the current and
comparative period although there are transitional exemptions (IFRS1.7).

On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial Statements.
The main changes from the previous version are to require that an entity must:

 present all non-owner changes in equity (that is, 'comprehensive income' ) either
in one Statement of comprehensive income or in two statements (a separate
income statement and a statement of comprehensive income). Components of
comprehensive income may not be presented in the Statement of changes in
equity.
 present a statement of financial position (balance sheet) as at the beginning of the
earliest comparative period in a complete set of financial statements when the
entity applies the new standatd.
 present a statement of cash flow.
 make necessary disclosure by the way of a note.

The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009. Early
adoption is permitted.

Adoption of IFRS
IFRS are used in many parts of the world, including the European Union, Hong Kong, Australia,
Malaysia, Pakistan, GCC countries, Russia, South Africa, Singapore and Turkey. As of 27
August 2008, more than 113 countries around the world, including all of Europe, currently
require or permit IFRS reporting. Approximately 85 of those countries require IFRS reporting for
all domestic, listed companies. In addition, the US is also gearing towards IFRS. The SEC in the
US is slowly but progressively shifting from requiring only US GAAP to accepting IFRS and
will most likely accept IFRS standards in the longterm.[8]

It is generally expected that IFRS adoption worldwide will be beneficial to investors and other
users of financial statements, by reducing the costs of comparing alternative investments and
increasing the quality of information.[9] Companies are also expected to benefit, as investors will
be more willing to provide financing.[9] However, Ray J. Ball has expressed some skepticism of
the overall cost of the international standard; he argues that the enforcement of the standards
could be lax, and the regional differences in accounting could become obscured behind a label.
He also expressed concerns about the fair value emphasis of IFRS and the influence of
accountants from non-common-law regions, where losses have been recognized in a less timely
manner.[9]

For a current overview see IAS PLUS's list of all countries that have adopted IFRS.

India

The Institute of Chartered Accountants of India (ICAI) has announced that IFRS will be
mandatory in India for financial statements for the periods beginning on or after 1 April 2011.
This will be done by revising existing accounting standards to make them compatible with IFRS.

Reserve Bank of India has stated that financial statements of banks need to be IFRS-compliant
for periods beginning on or after 1 April 2011...

The ICAI has also stated that IFRS will be applied to companies above Rs.1000 crore from April
2011. Phase wise applicability details for different companies in India:

Phase 1: Opening balance sheet as at 1 April 2011*

i. Companies which are part of NSE Index – Nifty 50
ii. Companies which are part of BSE Sensex – BSE 30

a. Companies whose shares or other securities are listed on a stock exchange outside India

b. Companies, whether listed or not, having net worth of more than INR1,000 crore

Phase 2: Opening balance sheet as at 1 April 2012*

Companies not covered in phase 1 and having net worth exceeding INR 500 crore

Phase 3: Opening balance sheet as at 1 April 2014*

Listed companies not covered in the earlier phases

 If the financial year of a company commences at a date other than 1 April, then it shall
prepare its opening balance sheet at the commencement of immediately following
financial year.

On January 22, 2010 the Ministry of Corporate Affairs issued the road map for transition to
IFRS. It is clear that India has deferred transition to IFRS by a year. In the first phase, companies
included in Nifty 50 or BSE Sensex, and companies whose securities are listed on stock
exchanges outside India and all other companies having net worth of Rs 1,000 crore will prepare
and present financial statements using Indian Accounting Standards converged with IFRS.
According to the press note issued by the government, those companies will convert their first
balance sheet as at April 1, 2011, applying accounting standards convergent with IFRS if the
accounting year ends on March 31. This implies that the transition date will be April 1, 2011.
According to the earlier plan, the transition date was fixed at April 1, 2010.
The press note does not clarify whether the full set of financial statements for the year 2011-12
will be prepared by applying accounting standards convergent with IFRS. The deferment of the
transition may make companies happy, but it will undermine India’s position. Presumably, lack
of preparedness of Indian companies has led to the decision to defer the adoption of IFRS for a
year. This is unfortunate that India, which boasts for its IT and accounting skills, could not
prepare itself for the transition to IFRS over last four years. But that might be the ground reality.
Transition in phases Companies, whether listed or not, having net worth of more than Rs 500
crore will convert their opening balance sheet as at April 1, 2013. Listed companies having net
worth of Rs 500 crore or less will convert their opening balance sheet as at April 1, 2014. Un-
listed companies having net worth of Rs 500 crore or less will continue to apply existing
accounting standards, which might be modified from time to time. Transition to IFRS in phases
is a smart move. The transition cost for smaller companies will be much lower because large
companies will bear the initial cost of learning and smaller companies will not be required to
reinvent the wheel. However, this will happen only if a significant number of large companies
engage Indian accounting firms to provide them support in their transition to IFRS. If, most large
companies, which will comply with Indian accounting standards convergent with IFRS in the
first phase, choose one of the international firms, Indian accounting firms and smaller companies
will not benefit from the learning in the first phase of the transition to IFRS. It is likely that
international firms will protect their learning to retain their competitive advantage. Therefore, it
is for the benefit of the country that each company makes judicious choice of the accounting firm
as its partner without limiting its choice to international accounting firms. Public sector
companies should take the lead and the Institute of Chartered Accountants of India (ICAI) should
develop a clear strategy to diffuse the learning. Size of companies The government has decided
to measure the size of companies in terms of net worth. This is not the ideal unit to measure the
size of a company. Net worth in the balance sheet is determined by accounting principles and
methods. Therefore, it does not include the value of intangible assets. Moreover, as most assets
and liabilities are measured at historical cost, the net worth does not reflect the current value of
those assets and liabilities. Market capitalisation is a better measure of the size of a company.
But it is difficult to estimate market capitalisation or fundamental value of unlisted companies.
This might be the reason that the government has decided to use ‘net worth’ to measure size of
companies. Some companies, which are large in terms of fundamental value or which intend to
attract foreign capital, might prefer to use Indian accounting standards convergent with IFRS
earlier than required under the road map presented by the government. The government should
provide that choice. Conclusion The government will come up with a separate road map for
banking and insurance companies by February 28, 2010. Let us hope that transition in case of
those companies will not be deferred further.