The forces of globalisation prompt more and more countries to open their doors to foreign investment and as businesses

expand across borders the need arises to recognise the benefits of having commonly accepted and understood financial reporting standards. In this scenario of globalisation, India cannot insulate itself from the developments taking place worldwide. Now, as the world globalises, it has become imperative for India also to make a formal strategy for convergence with IFRSs with the objective to harmonise with globally accepted accounting standards.

Need for Convergence with IFRSs

1.In the present era of globalisation and liberalisation, the World has become an economic village. The globalisation of the business world and the attendant structures and the regulations, which support it, as well as the development of e-commerce make it imperative to have a single globally accepted financial reporting system. A number of multi-national companies are establishing their businesses in various countries with emerging economies and vice versa. More and more Indian companies are also being listed on overseas stock exchanges. Sound financial reporting structure is imperative for economic well-being and effective functioning of capital markets.2. The use of different accounting frameworks in different countries, which require inconsistent treatment and presentation of the same underlying economic transactions, creates confusion for users of financial statements. This confusion leads to inefficiency in capital markets across the world. Therefore, increasing complexity of business transactions and globalisation of capital markets call for a single set of high quality accounting standards.

Benefits of achieving convergence with IFRSs

1. The convergence benefits the economy by increasing growth of its international business. It facilitates maintenance of orderly and efficient capital markets and also helps to increase the
capital formation and thereby economic growth. It encourages international investing and thereby leads to more foreign capital flows to the country.2. Financial statements prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statements prepared using a different set of national accounting standards. For better understanding of financial statements, global investors have to incur more cost in terms of the time and efforts to convert the financial statements so that they can confidently compare opportunities. Investors confidence would be strong if accounting standards used are globally accepted. Convergence with IFRSs contributes to investors understanding and confidence in high quality financial statements.3. The industry is able to raise capital from foreign markets at lower cost if it can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards. With the diversity in accounting standards from country to country, enterprises which operate in different countries face a multitude of accounting requirements prevailing in the countries. The burden of financial reporting is lessened with convergence of accounting standards because it simplifies the process of preparing the individual and group financial statements and thereby reduces the costs of preparing the financial statements using different sets of accounting standards.4. accounting professionals are able to sell their services as experts in different parts of the world. The thrust of the movement towards convergence has come mainly from accountants in public practice. It offers them more opportunities in any part of the world if same accounting practices prevail throughout the world. They are able to quote IFRSs to clients to give them backing for recommending certain ways of reporting. Also, for accounting professionals in industry as well as in practice, their mobility to work in different parts of the world increases.

CHALLENGES FOR IFRS

IFRS challenges

1.Increase in cost initially due to dual reporting requirement which entity might have to meet till full convergence is achieved. 2.Unlike several other countries, the accounting framework in India is deeply affected by laws and regulations. Changes may be required to various regulatory requirements under The Companies Act, 1956, Income Tax Act, 1961, SEBI, RBI, etc. so that IFRS financial statements are accepted generally. 3.If IFRS has to be uniformly understood and consistently applied, all stakeholders, employees, auditors, regulators, tax authorities, etc would need to be trained. 4..Entity would need to incur additional cost for modifying their IT systems and procedures to enable it to collate data necessary for meeting the new disclosures and reporting requirements. 5.Differences between Indian GAAP and IFRS may impact business decision / financial performance of an entity. 6..Limited pool of trained resource and persons having expert knowledge on IFRSs. Major differences between IFRS v/s INDIAN GAAP 1.Entities should make an explicit and unreserved statement in the notes that the financial statements comply with IFRS. v/sThere is a presumption that financial statements should be prepared in compliance with accounting standard to give a true and fair view. 2. The override does not apply where there is a conflict between local company law and IFRS; in such a situation, the IFRS must be applied. v/s The Accounting Standards by their very nature cannot and do not override the local regulations which govern the preparation and presentation of financial 3. On a voluntary basis, an entity may present separate financial statements, which need not be appended to, or accompany c o n s o l i d a t e d f i n a n c i a l statements. v/s However, public listed companies in India are required to present consolidated financial statements along with the standalone financial statements as per listing agreement. 4. statement of financial position v/s balance sheet; Statement of comprehensive income statement v/s profit and loss account; 5. items of income or expenses as extraordinary items either on the face of the statement of comprehensive income or the separate income statement in the notes. v/s statement of profit and loss any income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly as extraordinary items. 6.an entity shall disclose c omparative information in respect of previous period for all amounts reported in current period's financial statements. An e n t i t y s h a l l i n c l u d e comparative information for narrative and descriptive information when it is relevant to an understanding of the current period's financial statements. v/s an entity shall disclose one year of comparatives for all numerical information in the financial statements. 7. The standard also requires an entity to determine its functional currency and its results and financial position in that currency. v/s does not require determination of functional currency. 8. An entity shall offset assets and l iabilities or income and expenses only when the same is required or permitted by IFRS. v/s no specific guidance 9.cash flow statements mandatory for all v/s not mandatory for small and medium scale cos 10. cash flow statement by any method(dirsct or indirect) v/s direct for insurance cos and indirect for others 11.dividend in operating or financing v/s didvidend in financing 12.Depreciation on revalued portion cannot be recouped out of revaluation reserve.v/s is recouped 13. financial assets are divided four categories: financial asset at fair value through profit or loss;, held to maturity,; loans and receivables, ;and available for sale v/s assets divided into long term and current investments 14.non controlling interests are presented as a component of equity v/s minority interests are presented separately from equity and liabilities