“IFRS convergence: opportunities and challenges in India”

AUTHORS Parvathy P. R.

Parvathy P. R. (2017). IFRS convergence: opportunities and challenges in India.

ARTICLE INFO
Accounting and Financial Control, 1(2), 13-18. doi:10.21511/afc.01(2).2017.02

DOI http://dx.doi.org/10.21511/afc.01(2).2017.02

RELEASED ON Friday, 09 June 2017

RECEIVED ON Tuesday, 30 May 2017

ACCEPTED ON Wednesday, 07 June 2017

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© The author(s) 2021. This publication is an open access article.

businessperspectives.org
 Accounting and Financial Control, Volume 1, Issue 2, 2017

Parvathy P. R. (India)

BUSINESS PERSPECTIVES IFRS CONVERGENCE:

OPPORTUNITIES
AND CHALLENGES IN INDIA
LLC “СPС “Business Perspectives”
Hryhorii Skovoroda lane, 10, Sumy, Abstract
40022, Ukraine
Past decade has witnessed several changes in the process of conduct of business activi-
www.businessperspectives.org ties across the world especially due to the wave of globalization. It has also made drastic
changes in the process of financial reporting, in particular the continuing adoption of
IFRS (International Financial Reporting Standards) worldwide. IFRS are high quality,
understandable, enforceable and globally acceptable accounting standards issued by
IASB (International Accounting Standard Board). Thus these are a set of international
accounting standards stating how a particular type of transaction and other events
should be reported in the financial statements. Thus IFRS are designed as a common
global language for business affairs so that company accounts are understandable and
comparable across international boundaries. IFRS is becoming the global language
of business with over 40% of the world adopting this as their standard for reporting.
India also decided to converge to IFRS from 1st April 2016 in a phased manner, which
Received on: 16th of May, 2017
in turn improves the financial statement comparability and transparency that helps
Accepted on: 7th of June, 2017
to attract greater cross border investments. This paper focuses on the convergence of
IFRS with Indian Accounting Standards, its utility, issues and challenges faced by the
stakeholders. It also throws light to the ways through which problems can be addressed.

© Parvathy P. R., 2017 Keywords globalization, IFRS, accounting standards, financial

reporting, stakeholders, financial statements

Parvathy P. R., Post Graduate student

JEL Classification G30, M41
(Master of Commerce), Farook
College (Autonomous), Calicut,
Kerala, India.
INTRODUCTION
Financial reporting is the process of disclosure of financial informa-
tion to the management and the public about a company’s perfor-
mance over a specific period of time. There are well defined princi-
ples for accounting known as Accounting Standards. With the advent
of globalization, the financial reporting of business activities un-
derwent a great deal of change which includes the adoption of IFRS
(International Financial Reporting Standards).

IFRS are high quality, understandable, enforceable and globally accept-

able accounting standards issued by IASB (International Accounting
Standard Board). Thus these is a set of international accounting stan-
dards stating how a particular type of transaction and other events
This is an Open Access article, should be reported in the financial statements. The ultimate goal of is-
distributed under the terms of the
Creative Commons Attribution-Non- suing these standards is to achieve a single set of high quality, common
Commercial 4.0 International license, accounting standards that is practiced all around the world so as to fa-
which permits re-use, distribution,
and reproduction, provided the cilitate transparency of financial information. Before IFRS we had IAS
materials aren’t used for commercial
purposes and the original work is (International Accounting Standards) issued by IASC (International
properly cited. Accounting Standards Committee). In India, Accounting Standard

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Accounting and Financial Control, Volume 1, Issue 2, 2017

Board (ASB) of India constituted under the ICAI (Institute of Chartered Accountants of India) sets and
publishes the standards in tune with IAS. Since India has its own accounting standards that are differ-
ent on many counts, following a set of common standards that are altogether different in practice will
require some compromise between prevailing standard norms and new provisions.

Thus at present, as we cannot adapt to IFRS due to our legal constraints, we have prepared our own
standards for application for a limited period known as IndAS (Indian Accounting Standards). Actually
these are IFRS converged Indian Accounting Standards. These standards will be in practice for 3 years
from now, by that period, we have to change our corporate legislation to suit the international level.

1. LITERATURE REVIEW Shanthanu (2015). Shantanu Kumar Das did study

entitled “Indian Accounting Standards and IFRS”
Preethi, Deepti & Rawat (2015). A study on “Cha- in 2014. The main goal of the study was the com-
llenges and Prospects of IFRS in Indian Accounting parison of India Accounting Standards with IFRS,
Systems” was done by Dr. Preethi Shrivastava, Dr. in which he concluded that the global accounting
Deepti Maheswari and D. S. Rawat. The main fo- standards would remove a frictional element to
cus of the study was whether by following the con- capital flows and lead to wider and deeper invest-
verged IFRS the primary objective of uniformity ment in markets with the adoption of IFRS.
and comparability of the financial statements pre-
pared in India with rest of the countries of globe
will be achieved. They came to a conclusion that the 2. OBJECTIVES,
benefits of global accounting standards irrespective
of its various challenges will change the contents of
RESEARCH PROBLEMS
the corporate financial statements leading to great- AND METHODOLOGY
er transparency and comparability.
The objectives of the paper are following:
Govindarajan (2014). A study on “Introduction to
IFRS and Convergence” was done by N. Govin- • to explore the present landscape of IFRS
darajan, in which he mentioned about what is convergence in India;
IFRS, its needs, Convergence and challenges faced
by the stakeholders. He concluded that the con- • to examine the application of international
vergence of IFRS with Indian Standards will, of financial reporting standards in the Indian
course, benefit us. context;

Kirit & Meenakshi (2015). A study on the topic • to examine the India`s utility or opportu-
“IFRS: Challenges Ahead” was done by Prof Kirit nity in IFRS adopting;
Magana and Dr. Meenakshi Somani. Here the
main attention was on the benefits of IFRS to the • to analyze the problems faced by stakehold-
Indian Corporate and Professionals, its key issues ers due to the convergence of IFRS with
and challenges. The findings of the study were that Indian Accounting Standards.
a single set of high quality standards would be in
public interest and would provide a uniform lan- IFRS is one of the recent developments in the field
guage for financial reporting which, in turn, will of standard setting. Here, an attempt is made to
have a positive impact overall. bring in parity in the reporting of financial state-
ments before the users by trying to formulate a
ASSOCHAM (2014). A study on the topic “IFRS in single set of standards to be followed by the world.
India” was done by ASSOCHAM, Hyderabad. It Since many countries including India have their
analyzed the Global Convergence of Accounting own National accounting standards that are dif-
Standards with Indian Standards. It also focused ferent on many counts, especially on socio-eco-
on the use IFRS to various countries. nomic, cultural and legal norms, following a set

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 Accounting and Financial Control, Volume 1, Issue 2, 2017

of common standards that are altogether differ- • to create comparable, reliable and transpar-
ent in practice will require some compromise be- ent financial statements;
tween prevailing standard norms and new pro- • to synchronize the accounting standards
visions. The paper mainly attempts to focus on across the globe;
the convergence of IFRS with Indian standards,
• to increase and improve foreign investments;
opportunities and problems being faced in the
convergence of IFRS with Indian Accounting • to increase the industrial growth;
Standards. • to remove information flow barriers.

The study deals with the convergence of IFRS in IFRS hierarchy:

financial reporting in India and impact among
stakeholders. It blends descriptive and explor- 1. International Accounting Standards Commit-
atory research work. The data is purely secondary tee Foundation. This is the body that oversees
and is collected through journals, articles, web- the international accounting standards.
sites, dailies as well as published books.
2. International Accounting Standards Board
The study is organized into different sections such as: (ISAB). This is the body that sets interna-
tional financial reporting standards (IFRS)
• IFRS and its Need;
and approves interpretation.
• Convergence of IFRS and Indian
Accounting Standards; 3. International Financial Reporting Interpreta-
• Opportunities; tions Committee (IFRIC). It is responsible for
interpretation of standards and issue guidance
• Challenges. on issues that have not yet been addressed by
standards.

3. KEY RESEARCH FINDINGS 4. The Standards Advisory Council (SAC). This

is a forum to provide broad strategic advice on
3.1. IFRS and its need IASB’s agenda priorities and insights into cost
and benefits of project.
IFRS are high quality, understandable, enforce-
able and globally acceptable accounting stan- IFRS comprises the following statements:
dards issued by IASB (International Accounting • International Accounting Standards (IAS);
Standard Board). Thus these is a set of interna-
tional accounting standards stating how a partic- • International Financial Reporting
ular type of transaction and other events should Standards (IFRS);
be reported in the financial statements. The ulti-
mate goal of issuing these standards is to achieve • Standard Interpretations (SIC);
a single set of high quality, common accounting • International Financial Reporting
standards that is practiced all around the world Interpretations (IFRIC).
so as to facilitate transparency of financial in-
formation. This is a framework that establishes
recognition, measurement, presentation and dis- 3.2. IFRS Convergence in India
closure requirements relating to transactions and
events that are reflected in the financial state- IFRS convergence, in recent years, has gained mo-
ments. It was developed in the year 2001 by IASB. mentum all over the world. As capital markets
become increasingly global in nature, more and
The need of IFRS: more investors see the need for a common set of
accounting standards. Approximately 100 coun-
• to make a common platform for better un- tries have adopted and many have converged IFRS
derstanding of accounting; with their own standards (Table 1).

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Accounting and Financial Control, Volume 1, Issue 2, 2017

Table 1. IFRS convergence in some countries 1. Better access to global capital markets.

Country Year of implementation As a result of global expansion, or so-called

European countries 2005 globalization, along with the growth and ex-
pansion, of course, they need funds from
Canada 2011
cheaper sources. Convergence to IFRS helps
USA 2016 Indian firms to procure capital from abroad.
Japan 2016

Nepal 2011 2. Better cross border listing.

Brazil 2010
As Indian firms acquire funds for their ma-
India 2016 jor expansion plans from outside the bound-
aries of India, it is imperative for them to
In India, Accounting standards are formulated by follow IFRS. Thus by following IFRS it be-
council of Institute of Chartered Accountants of comes easier for the Indian Companies to
India (ICAI). In July 2007, ICAI set a target of adopt- list abroad.
ing IFRS for all listed, public interest and large sized
entities from April 2011. In 2007 India decided to 3. Elimination of multiple reporting.
converge to IFRS. The accounting standards that
are converged with IFRS are known as Indian AS. Large business entities will have their sub-
Thus in India Indian Accounting Standard Board sidiaries registered in India as well as
and IASB continue to collaborate together to de- outside. Firms in India prepare their ac-
velop high quality, compatible accounting stan- counting according to Indian Accounting
dards rather than adopting IFRS by itself. In India Standards whereas those registered in for-
Ministry of Corporate affairs has announced the eign countries have to prepare accounting
implementation of new standards effective from 1st according to financial reporting standards
April 2016 in a phased manner. Existing standards of these countries. Convergence to IFRS en-
will cease to apply after that dates. The Ministry of sures elimination of multiple financial re-
Corporate Affairs notified the implementation plan porting by these firms by following a sin-
in a phased manner over a period of four years. i.e., gle set of International Financial Reporting
from 1st April 2016 to 1st April 2019. This leads to the Standards.
necessity of learning new standards at the earliest.
4. Better quality of financial reporting.
As per the notification of the Ministry the manda-
tory implementation dates are: IFRS are high quality, understandable, enforce-
able and globally acceptable accounting stan-
• For listed companies with net worth of dards. Adoption to IFRS will result in better
Rs. 500 crores or more – from 1st April 2016; quality of financial reporting due to the consis-
tent application of Accounting Principles and
• For listed companies with net worth of thus improves the reliability of the financial
Rs. 250 crores or more – from 1st April 2017; statements.

• For Banks and Insurance Companies – 5. Easier global comparability.

from 1st April 2019.
As we know IFRS are becoming the global lan-
3.3. Utility guage for financial reporting. With the adop-
tion of IFRS by the Indian firms the compari-
Economies across the globe have benefited by son becomes easier. Investors, bankers, lend-
adopting IFRS for financial reporting purposes. ers and other stakeholders also find it easier
Some of the benefits to Indian firms by conver- to compare the financial statements following
gence to IFRS are following: the same reporting procedures.

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 Accounting and Financial Control, Volume 1, Issue 2, 2017

6. Improved cross border investments. 4. Use of fair value measurement base. IFRS
uses fair value base to measure majority of
The adoption to IFRS improves the cross bor- items in the financial statements. The use of
der investments by enhancing the compara- fair value accounting can bring a lot of vola-
bility of financial statements prepared any- tility and subjectivity in financial statements,
where in the world. e.g.: it would increase volatility in reported
earnings and related performance measures
3.4. Challenges such as EPS (Earnings per Share), PE (Price
Earnings) Ratio etc. Thus fair value (reflect-
As in the case of two sides of a coin, along with ing the true worth of assets) results in gains
utilities it also consists of challenges for the Indian or losses which are reflected in Profit and Loss
firms. They are following: accounts. Indian corporate entities which pre-
pare financial statements on historical costs
1. Training. Lack of training and academic will need to have enough time for shifting into
knowledge in IFRS is a challenge as far as fair value accounting.
Indian economy is concerned. Thus ade-
quate training should be given to the stake- 5. Financial reporting system. In India fi-
holders such as Chief Financial Officers nancial reporting is done according to stan-
(CFO), auditors, tax authorities. Then only dards issued by ICAI (Institute of Chartered
it can be uniformly understood and consis- Accountants of India). We need to amend the
tently applied. same to suit the requirements of IFRS. The in-
formation systems should be designed to cap-
2. Awareness. The adequate knowledge about ture new requirements related to fixed assets,
IFRS is still limited to few numbers of people segment disclosures, related party transac-
in India. Most of the stakeholders like firms, tions etc.
banks, shareholders, exchanges etc. are not
aware about the same. Such lack of awareness 6. SME concerns. Scarcity of resources and lack
about these standards is one of the major chal- of expertise with SME (Small Manufacturing
lenges faced by Indians. Sector) act as a barrier for the process of con-
vergence to IFRS. As far as SME are concerned,
3. Amendments in Regulations. In order to cost would surpass its benefits as a result of
adapt to IFRS, we need to amend our exist- convergence with the IFRS. Hence it acts as a
ing rules and regulations. As Indian account- challenge.
ing practices are governed by the Companies
Act, 1956, Income Tax Act 1961, Reserve 7. Change in IT Systems. Financial accounting
Bank of India Act, Insurance and Regulatory and reporting systems must be able to pro-
Authority of India Act, GAAP etc. which are duce robust and consistent data for report-
different from IFRS, adequate changes must ing. The system must be capable of capturing
be made in order to follow IFRS. Thus legal new information required for disclosure such
constraints are major challenges would be as fair values of financial instruments, related
faced. party transactions, segment information etc.

CONCLUSION AND REMARKS

Convergence of IFRS with the Indian Accounting Standards will, of course, ensure greater credibility
in the international capital market. Adequate time is required to react to new changes and an intensive
effort from all the stakeholders is imperative in order to achieve that goal. The process of convergence
has been making a slow but steady progress in India and is expected to have a common set of high qual-
ity standards in adoption. There are several challenges that we come across while converging to IFRS,

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Accounting and Financial Control, Volume 1, Issue 2, 2017

but the benefits from the same are worthier than that of its challenges. Regulators and law makers must
implement efficient monitoring system of regulatory compliance of IFRS and should also ensure that
proper changes are to be done in the existing laws for the same.

Based on research findings we suggest following:

1. Proper awareness should be given about IFRS and the need to converge the same to stakeholders.
2. More number of trainers should be engaged.
3. Adequate training should be given to develop a suitable system.
4. Necessary modification should be made in governing business and laws.
5. Government shall provide assistance as well as incentives to promote the same.

REFERENCES
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Cost Accountants of India, 3-7. Indian Accounting Standards
Implementation in India:
and IFRS. Slide Share.
2. Govindarajan, N. (2014). Opportunities and Challanges.
Introduction to IFRS and Research Gate. 10. Shobhan, S. (2013). IFRS
Convergence. Slide Share. Convergence and Applicability
7. Preethi, S., Dr. Deepti, M., & in India: Some Issues. Economic
3. Gurpreet, K., & Amit, K. (2014).
Rawat, D. S. (2015). Challenges Times, 24-32.
IFRS in India: Problems and
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