Redefining the Accounting World

International Financial Reporting Standards (IFRS) are the guidelines designed for all sorts of business affairs, so that company accounts are undersatndable and comparable across international boundaries. They are the consequence of growing international trade and are prominent for those companies which have dealings in several countries. It acts as a set of rules to be followed by accountants to maintain understandable, reliable and relevant as per the users internal or external.

Initially IFRS was an attemp to synchronize accounting arcoss the European Union but in no time IFRS concepts wre in demand all around the world.

Approximately 120 nations permit or require IFRS for domestic listed companies, although approximately 90 countries have fully conformed with IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports. Other countries, including Canada and Korea, are expected to transition to IFRS by 2011. Mexico will require IFRS for all listed companies starting in 2012. Japan has introduced a roadmap for adoption that it will decide on in 2012 (with a proposed adoption date of 2015 or 2016) and is permitting certain qualifying domestic companies to apply IFRS from fiscal years ending on or after March 31, 2010. Still other countries have plans to converge their national standards with IFRS.

And even in India IFRS has crawled its way. According to the Institute of Chartered Accountants of India (ICAI) 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. These accounting standards are known as Ind AS.

Before getting in to Ind AS let us try and understand the pros and cons of convergence or adoption of IFRS.

Pros:

By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.  

Cons:

Despite a belief by some of the inevitability of the global acceptance of IFRS, others believe that Accounting Standards of India (ASI) is the golden standard, and that a certain level of quality will be lost with full acceptance of IFRS. Further, certain Indian issuers without significant customers or operations outside the India may resist IFRS because they may not have a market incentive to prepare IFRS financial statements. They may believe that the significant costs associated with adopting IFRS outweigh the benefits.

What is the difference between convergence and adoption?

Adoption would mean that the Securities and Exchange Commission (SEC) sets a specific timetable when publicly listed companies would be required to use IFRS as issued by the IASB. Convergence means that the U.S. Financial Accounting Standards Board (FASB) and the IASB would continue working together to develop high quality, compatible accounting standards over time. More convergence will make adoption easier and less costly and may even make adoption of IFRS unnecessary. Supporters of adoption, however, believe that convergence alone will never eliminate all of the differences between the two sets of standards. 

But India has made its peace to convergence to IFRS rather to adopt it. In early 2010, the Ministry of Corporate Affairs (MCA) issued various press releases on the IFRS roadmap and convergence plan for India specifying the convergence date to be 1 April, 2011, through 2014 for select Indian companies. Accordingly, ICAI has now come up with Ind AS.

Ind AS

Indian Accounting Standards ( Ind AS) are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with International Financial Reporting Standards (IFRS).Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) and IFRS converged Indian Accounting Standards(Ind AS). The Ind AS are named and numbered in the same way as the corresponding IFRS. As on date the Ministry of Corporate Affairs notified 35 Indian Accounting Standards (Ind AS). But it has not notified the date of implementation of the same.

Ind AS Ref	Ind AS Name	Corresponding IFRS			Existing AS Ref
		IAS/ IFRS	IFRIC	SIC
IndAS 101	First-time Adoption of Indian Accounting Standards	IFRS 1
IndAS 102	Share based Payment	IFRS 2
IndAS 103	Business Combinations	IFRS 3			AS 14
IndAS 104	Insurance Contracts	IFRS 4
IndAS 105	Non-Current Assets Held for Sale and Discontinued Operations	IFRS 5			AS 24
IndAS 106	Exploration for and Evaluation of Mineral Resources	IFRS 6
IndAS 107	Financial Instruments: Disclosures	IFRS 7			AS 32
IndAS 108	Operating Segments	IFRS 8			AS 17
IndAS 1	Presentation of Financial Statements	lAS 1			AS 1
IndAS 2	Inventories	lAS 2			AS 2
IndAS 7	Statement of Cash Flows	lAS 7			AS 3
IndAS 8	Accounting Policies, Changes in Accounting Estimates and Errors	lAS 8			AS 5
IndAS 10	Events after the Reporting Period	lAS 10	IFRIC 17		AS4
IndAS 11	Construction Contracts	lAS 11	IFRIC 12	SIC 29	AS 7
IndAS 12	Income Taxes	lAS 12		SIC 21,25	AS 22
IndAS 16	Property, Plant and Equipment	lAS 16	IFRIC 1		AS 6,10
IndAS 17	Leases	lAS 17	IFRIC 4	SIC 15, 27	AS 19
IndAS 18	Revenue	lAS 18	IFRIC 13,15,18	SIC 31	AS 9
IndAS 19	Employee Benefits	lAS 19	IFRIC 14		AS 15
IndAS 20	Accounting for Government Grants and Disclosure of Government Assistance	lAS 20		SIC 10	AS 12
IndAS 21	The Effects of Changes in Foreign Exchange Rates	lAS 21			AS11
IndAS 23	Borrowing Costs	lAS 23			AS 16
IndAS 24	Related Party Disclosures	lAS 24			AS 18
IndAS 27	Consolidated and Separate Financial Statements	lAS 27		SIC 12	AS 21
IndAS 28	Investments in Associates	lAS 28			AS 23
IndAS 29	Financial Reporting in Hyperinflationary Economies	lAS 29	IFRIC 7
IndAS 31	Interests in Joint Ventures	lAS 31		SIC 13	AS 27
IndAS 32	Financial Instruments: Presentation	lAS 32	IFRIC 2		AS 31
IndAS 33	Earnings per Share	lAS 33			AS 20
IndAS 34	Interim Financial Reporting	lAS 34	IFRIC 10		AS 25
IndAS 36	Impairment of Assets	lAS 36			AS 28
IndAS 37	Provisions, Contingent Liabilities and Contingent Assets	lAS 37	IFRIC 5,6		AS 29
IndAS 38	Intangible Assets	lAS 38		SIC 32	AS 26
IndAS 39	Financial Instruments: Recognition and Measurement	lAS 39	IFRIC 9,16,19		AS 13,30
IndAS 40	Investment Property	lAS 40

Note: 

The term 'International Financial Reporting Standards' ('IFRS') comprises of:

• International Financial Reporting Standards (IFRS)
• International Accounting Standards (lAS)
• Interpretations from the International Financial Reporting Interpretations Committee (IFRIC)
• Interpretations from Standing Interpretations Committee (SIC) 

Conclusion:

Conversion is much more than a technical accounting issue. IFRS or Ind AS may significantly affect any number of a company’s day-to-day operations and may even impact the reported profitability of the business itself.

Conversion brings a one-time opportunity to comprehensively re-assess financial reporting and take ‘a clean sheet of paper’ approach to financial policies and processes.

Source-Internet