Why to implement IFRS ???

Growing interest in the global acceptance of a single set of robust accounting standards comes from all participants in the capital markets. Many multinational companies and national regulators and users support it because they believe that the use of common standards in the preparation of public company financial statements will make it easier to compare the financial results of reporting entities from different countries. They believe it will help investors understand opportunities better. Large public companies with subsidiaries in multiple jurisdictions would be able to use one accounting language company-wide and present their financial statements in the same language as their competitors. Another benefit some believe is that in a truly global economy, financial professionals including CPAs will be more mobile, and companies will more easily be able to respond to the human capital needs of their subsidiaries around the world. Recent SEC actions and global trends have increased awareness of the need to address possible adoption. According to a December 2009 PricewaterhouseCoopers survey of more than 100 chief financial

officers and managing directors of U.S.-based multinational companies, more than half (53%) of all executives responding place IFRS conversion as a moderate or higher priority. A survey of more than 2,500 executives by global accounting firm KPMG, taken subsequent to the SEC s February 2010 release, found that 49% of U.S. executives want the option to move to IFRS earlier than the SEC 2015 potential adoption date, if the SEC makes a decision in 2011 to allow IFRS for U.S. issuers. Nevertheless, many people also believe that U.S. GAAP is the gold standard, and some degree of quality will be lost with full acceptance of IFRS. Another concern is that worldwide, many countries that claim to be converging to international standards may never get to 100% compliance. Most reserve the right to carve out selectively or modify standards they do not consider in their national interest, an action that could lead to incomparability the very issue that IFRS seek to address.

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 i. 1: Companies Opening which balance are part sheet of as NSE at 1 Index April Nifty 2011* 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 2013*

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

y

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.

 In India the Accounting Standards Board (ASB) was constituted by the Institute of Chartered Accountants of India (ICAI) on 21st April 1977 with the function of formulating accounting standards.

The current status of IAS (Indian Accounting Standards): In India, the Statements on Accounting Standards are issued by the Institute Of Chartered Accountants of India (ICAI) to establish standards that have to be complied with to ensure that financial statements are prepared in accordance with generally accepted accounting standards in India (India GAAP ). From 1973 to 2000 the IASC has issued 32 accounting standards. These standards, as a matter of fact, most of the countries in the world, which are interested, and confidence in adopting these standards may be followed. But it is observed that many countries are not adopting the standards in the presentation of accounting information. With a view to examine the time gap for indianisation of International Accounting Standards, the information is analyzed and presented in Annexure - I. The table shows that the average gap for indianisation of International Accounting Standards is 6.13 years. It shows that for adopting IAS in India, it is taking 6.13 years for one accounting standard. This analysis points out the poor research work, and development in the accounting field. A significant criticism of IAS; * That the standards are too broad based and general to ensure that similar accounting method is applied in similar circumstances. For Instance, the accounting for expenses incurred under a Voluntary Retirement Scheme ( VRS ) , in which the methods used range from pay-as-you-go to Amortization of the present value of future pension payments over the period of benefit. * It may be noted that in several important areas, when the Indian Standards are implemented, the accounting treatment in these areas could lead to differences in the restatement of accounts in accordance with US GAAP . Some of these areas are: Consolidated financial statements Accounting for taxes on income Financial Instruments Intangible Assets

* Restatement to US GAAP : A restatement of financial statements prepared under India GAAP to U.S. GAAP requires careful planning in the following areas: - Involvement of personnel within the accounts function and the time frame within which the task is to be completed. - Identification of significant accounting policies that would need to be disclosed under U.S. GAAP and the differences that exist between India GAAP and U.S. GAAP - The extent of training required within the organisation to create an awareness of the requirements under U.S. GAAP - Subsidiaries and associate companies and restatement of their accounts in conformity with U.S. GAAP - Adjustment entries that are required for conversion of India GAAP accounts. - Reconciliation of differences arising on restatement to U.S. GAAP in respect of income for the periods under review and for the statement of Shareholder's equity. * The timetable for restatement of the financial statements to US GAAP would depend upon the size of the company and the nature of its operations , the number of subsidiaries and associates . The process of conversion would normally take up to 16 weeks in a large company in the initial year . It is thus necessary to streamline the accounting systems to provide for restatement to U.S. GAAP on a continuing basis. At first sight the restatement of

financial statements in accordance with U.S. GAAP appears to be formidable. However, as the Indian accounting standards are built on the foundation of international accounting standards, on which a truly global GAAP might be built, there is no cause for concern . Another reason for the prevailing divergent accounting practices is the Accounting Standards, the provisions of the Income Tax Act 1961 and Indian Companies Act 1956 do not go together. (a) Company law and Accounting Standards: In India, though accounting standards setting is presently being done by ICAI, one could discern a tentative and halfhearted foray by company legislation in to the making of accounting rules of Measurement and reporting. This action by itself is not the sore point but the failure to keep pace with the changes and simultaneously not allowing scope for some one else to do it is disturbing. A study of the requirement of company law regarding the financial statements reveal several lacunae like earning per share, information about future cash flows, consolidation, mergers, acquisitions etc. (b) Income Tax Act and Accounting Standards: The Income Tax Act does not recognize the accounting standards for most of the items while computing income under the head "Profits & Gains of Business or Profession". Section 145(2) of the I.T. Act has empowered the Central Government to prescribe accounting standards. The standards prescribed so far constitute a rehash of the related accounting standards prescribed by ICAI for corporate accounting. On a close scrutiny of these standards one is left wondering about the purpose and value of this effort. Examples are application of prudence substance over form, adherence to principles of going concern etc. (c) Other regulations and accounting standards: In respect of banks, financial institutions, and finance companies the Reserve Bank of India (RBI) pronounces policies among others, revenue recognition, provisioning and assets classifications. Similarly the Foreign Exchange Dealers Association (FEDAI) provides guidelines regarding accounting for foreign exchange transactions. Since the Securities & Exchange Board of India (SEBI) is an important regulatory body it would also like to have its own accounting standards and in fact, it has started the process by notifying cash flow reporting format. It is also in the process of issuing a standard on the accounting policies for mutual funds. It appears as if several authorities in our country are keen to have a say in the matter of framing accounting rules of measurement and reporting. The tentative and half hearted legal and regulatory intervention in accounting in our country, has come in the way of development of robust, continuously evolving and dynamic accounting theory and standards. Conclusion:

India is slowly entering the arena of accounting standards. But the progress of formulation of accounting standards has been very slow compared with the developments at international levels. Bringing about harmonization in accounting practices among countries throughout the world is indeed a very formidable task. The vision of a harmonized accounting world may inspire many minds but in the practical field it is hard to go about embracing a situation where accounting principles and procedures are perfectly harmonized among countries through out the world. The development of harmonized accounting rules and a uniformity of approach among countries towards education and training of professional accountants should accompany principles. Further more, the harmonization of accounting rules and principles among countries should also be accompanied by inter country harmonization in auditing principles and standards. Harmonization initiatives are now working much more effectively than ever before. Many of the initial hurdles have been overcome and much progress towards harmonizing accounting principles and procedures among countries has already been achieved. Differences are still there but they are narrowing. It is expected that the pace of progress in the sphere of harmonization will accelerate further in the coming years. ANNEXURE-I List of Indian accounting standards adopted from IASC with time gap in years S. no. of Indian Year of Indian Corresponding IAS Year of issue of IAS Accounting Accounting Standards (International (International Standards Accounting Standards) Accounting Standards) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1976 1981 1981 1982 1982 1982 1983 1985 1985 1985 1989 1991 1995 1995 1995 1 2 7 10 8 4 11 9 18 16 21 20 25 22 19 1975 1975 1977 1978 1978 1976 1979 1978 1982 1982 1983 1983 1986 1983 1983 Time Gap (in years) 4 6 4 4 4 6 4 7 3 3 6 8 9 12 12