Project on IFRS

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CONTENT
Sr. No. PARTICULARS Page No.
INTRODUCTION
1 Structure of IFRS 3
2 Benefits of IFRS 4
3 Standards of IFRS 5
IFRS AND INDIA
1 Introduction 6
2 Benefits of adopting for Indian Companies 7
3 IFRS Conversion Program 9
4 Transition From Indian GAAP to IFRS 11
5 Key Difference in Presentation of Financial Statement 13
6 Convergence of IFRS with Indian Accounting Standards 15
7 Challenges to India 16
8 Comparison of Indian GAAP, IFRS and IND AS 18
9 Future Agendas of IFRS 19
IMPORTANCE OF IFRS IN GLOBAL SCENARIO
1 IFRS in China 23
2 IFRS in Australia 25
3 IFRS in Canada 26
4 IFRS in Brazil 26
CASE STUDY OF INDIA
1 Introduction 28
2 Challenges and Issues Involved 31
3 Capacity Building 36
4 Lessons Learned 39
CONCLUSION

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INTRODUCTION:
International Financial Reporting Standards (IFRS) are standards adopted by the International
Accounting Standards Board (IASB). The main hindrance in the free flow of capital across the
borders has been the different reporting standards. So, IFRS has been introduced with the aim of
increasing the flow of capital.
International Financial Reporting Standards are the global accounting standards which are being
increasingly accepted by more and more countries across the world. Accounting Standards are
the principles governing accounting practices and determine the appropriate treatment of
financial transactions. Till now different countries across the world used different accounting
standards which were called as local GAAP (Generally Accepted Accounting Principles) e.g.
India uses Indian GAAP (IGAAP), America uses US GAAP, Australia uses AGAAP etc. But
now the world is moving towards common accounting standards called IFRS. IFRS are rapidly
increasing their footprints and are gaining worldwide acceptance. IFRS are now being used for
public reporting purposes in some 100 countries like Australia, United Kingdom etc. and FASB
(Financial Accounting Standards Board of United States) has taken steps to align FAS (Financial
Accounting standards) with IFRS.
International Financial Reporting Standards (IFRS) is a set of accounting standards, developed
by the International Accounting Standards Board (IASB) and is becoming a universal standard
for the preparation of public company financial statements. Over 100 countries worldwide have
moved or in a process of synchronizing their national accounting standards with IFRS. The
rationale behind migrating to IFRS is to provide a single set of high quality, understandable and
uniform accounting standards, to improve comparability, transparency in reporting to build up
investors’ confidence and to seek better access to international capital market at lower cost of
capital. In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has
declared convergence with IFRS in India with effect from April 1, 2011. Globalization of Indian
GAAP will offer blend of rewards as well as challenges. Thus, the analysis of its feasibility in
order to reap maximum benefits with a minimum cost and to devise strategies to face the future
challenges effectively.
International Financial Reporting Standards (IFRS) are designed as a common global language
for business affairs so that company accounts are understandable and comparable across
international boundaries. They are a consequence of growing international shareholding and
trade and are particularly important for companies that have dealings in several countries. They
are progressively replacing the many different national accounting standards.
The International Financial Reporting Standards the "IFRS" aims to make international financial
reporting comparisons as easy as possible because each country has its own set of accounting
rules. For example, U.S. GAAP is different from Canadian GAAP and both are far apart from
India GAAP. Synchronizing accounting standards across the globe is an ongoing process in the
international accounting community.

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STRUCTURE OF IFRS:
The International Accounting Standard Committee (IASC) Foundation is an independent body
that oversees the International Accounting Standard Board (IASB) The IASC appoints Standard
Advisory Council, The IASB and International Financial Reporting Interpretations Committee
(IFRIC).
1. IASB consists of 14 members for the initial term of three to five years. IASB is responsible
for technical matters including:
-- Preparation & issue of IFRS
-- Preparation & Issue of exposure draft
--Setting up procedures for reviewing comments received on documents published for comments
-- Issuing bases for conclusions.
2. Standard Advisory Council (SAC) consists of 40 members appointed by IASC Foundation
trustees. They are appointed for a renewable term of three years with a diverse geographic and
functional background. SAC meets in public at least 3 times a year with IASB. Their main
objectives are to advice the IASB on agenda decisions, to pass views of the council members on
the major standard setting project and other works.
3. IFRIC consists of accounting experts from 12 countries appointed by trustees.
The main objects of IFRIC are to develop conceptually sound & practicable interpretations of
IFRSs to be applied on a global basis:
 For newly identified financial reporting issues not specifically addressed in IFRSs
 Where unsatisfactory, conflicting, divergent or other unacceptable interpretations have
developed or seem likely to develop in the absence of authoritative guidance.

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BENEFITS OF IFRS:
IFRS are the accounting standards, a set of accounting principles which state the rules, the
format to be followed while posting transactions into the financial statements. IFRS are the new
standards which have incorporated the International Accounting Standards (IAS), which were
issued from 1973-2000. With this standardization, the comparisons of the various financial
statements would be made easy across borders.
The meaning of IFRS can be classified in terms of narrow and broad:
Narrow IFRS - The term narrow related to IFRS means, that the new standards which IASB is
notifying that are different from those issued by IAS.
Broad IFRS - Broadly tells us about the entire body of IASB declarations, including standards &
Interpretations approved by the IASB, IASC, SIC & IFRIC.
IFRS is making a big impact on the minds of the investors because it provides a better
standardization and comparison across various markets and international boundaries and helps
for an easy entry into the stock exchanges worldwide. Due to the financial results and statements
being more clear and transparent the cost of capital would reduce and also the risk premium
would come down.
For these changes to happen across the organizations, it would require a large effort in terms of
technology and systems change, changes in the accounting policies, financial processes, investor
relations, as well as in human resources and their training and development.
The companies already implementing IFRS are seeing benefits in terms of costs as they have to
prepare similar financial statements under multiple jurisdictions for reporting requirements and
preparation of these statements with the guidelines of globally accepted standards would further
help to reduce the cost because similar type of statements will be required for local or statutory
purposes. Implementation of IFRS also helps to improve the quality and comparability of
financial information which give a benefit to the shareholders, stakeholders and the analyst
which always are in hunt of consistent, high-quality information to assess companies across
borders.
Other benefits of IFRS adoption include the following:
 Efficient availability and use of resources: As the similar standards would be followed
globally. The development of standardized training programs would be facilitated.
Divergent accounting systems would be eliminated.
 Better controls: It results in a better control over statutory reporting, which reduces risks
related to penalties and compliance problems at the local level.
 Improved cash management: Cash flow planning would be improved as payments of
the dividends from subsidiaries would not be effected by the local standards.

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STANDARDS OF IFRS:
IFRS
Standard Standard Name
Effective
Date
IFRS 1
First-time Adoption of International Financial Reporting
Standards 1 July 2009
IFRS 2 Share-based Payment
1 January
2005
IFRS 3 Business Combinations 1 July 2009
IFRS 4 Insurance Contracts
1 January
2005
IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations
1 January
2005
IFRS 6 Exploration for and Evaluation of Mineral Resources
1 January
2006
IFRS 7 Financial Instruments - Disclosures
1 January
2007
IFRS 8 Operating Segments
1 January
2009
IFRS 9 Financial Instruments
1 January
2015
IFRS 10 Consolidated Financial Statements
1 January
2013
IFRS 11 Joint Arrangements
1 January
2013
IFRS 12 Disclosure of Interests in Other Entities
1 January
2013
IFRS 13 Fair Value Measurement
1 January
2013
IFRS 14 Regulatory Deferral Accounts
1 January
2016
IFRS 15 Revenue from Contracts with Customers
1 January
2017

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IFRS AND INDIA:
For India, adoption and implementation of IFRS has been finalized by Institute of Chartered
Accountants of India (ICAI). It has been decided that India would be moving to IFRS from the
accounting period commencing on or after April 1, 2011 for listed and other public interest
entities such as banks, insurance and large–sized entities.
To have a timely implementation of IFRS by 2011, affirmation has also come from the Ministry
of Corporate Affairs for the harmonization of the Indian Accounting Standards and to have a
continued effort for achieving the convergence with IFRS for large public interest entities. The
convergence of Indian GAAP with IFRS is desirable and would be facilitated by the fact that
historically Indian standards have been principle-based and because of the nature of the Indian
Accounting Standards, the implementation is going to have its own complexities.
With over 100 countries mandating International Financial Reporting Standards (IFRS), it is
rapidly emerging as a globally accepted accounting framework. With its inherent benefits in the
global economy, countries like Australia, Hong Kong, China and the Middle East have mandated
IFRS compliance for publicly listed companies. With more and more companies following these
standards U.S Securities & Exchange Commission (SEC) has also allowed foreign private filers
in the U.S. to file IFRS-compliant financial statements which would finally result in cross-border
investments, capital flow, enhanced comparability, reporting transparency and reduction in the
cost of capital and compliance for enterprises.
With the adoption of IFRS, it is not only the change from one set of accounting principles to
another. The changes would reflect in financial reporting issues and extend to significant
business and regulatory matters including implications on performance indicators, compliance
with debt covenants, structuring of ESOP schemes, training of employees, modification of IT
systems, and implication of mergers and acquisitions and tax planning. Also the basic definitions
would change, as Preference equity will become loans; dividends will become interest while
hedge accounting and fair value will become very difficult concepts.
Indian Accounting Standards have not kept pace with changes in IFRS. There are significant
differences between IFRS and I-GAAP, because Indian standards remain sensitive to local
conditions.
In order to have consistency with the legal, regulatory and economic environment of India, the
Accounting Standards released by ICAI get departed from the corresponding IFRS. In 2006, it
was decided by ICAI that India should adopt IFRS in complete form at least for listed and large
companies. In 2006 ASB and ICAI got to the conclusion that there would be many advantages if
convergence happens between Indian standards and IFRS and to remove these differences to a
minimum level, an IFRS task force has been formed with the aim:
 Of formulating an approach for achieving convergence with IFRS, and
 Of laying down a road map for achieving convergence with IFRS

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After the analysis, the IFRS Task Force has decided to implement the change with a ‘big bang’
approach, i.e. to full convergence of Indian Accounting Standards with IFRS (issued by IASB),
with effect from April 1st 2011.
Benefits of adopting IFRS for Indian companies:
In India, IFRS converged Indian Accounting Standards (Ind AS), have been published by The
Institute of Chartered Accountants of India & Notified by the Ministry of Corporate Affairs in
February 2011. The date for adoption of Ind AS' by Indian Companies is yet to be finalized.
The perceived benefits of IFRS are:
 Enhanced comparability of financial statements
 Improved corporate transparency
 Improved quality of Financial Statements
 Potentially lower cost of capital
 Reduced cost of preparing Statements
 More discretion to convey superior information
With the present analysis there are many factors, which show that the implementation of IFRS is
likely to provide significant benefits to Indian corporate sector.
 Improved access to International capital markets
 Lower cost of capital
 Enable benchmarking with global peers and improve brand value
 New opportunities
Changing from Indian GAAP to IFRS would change not only the accounting methods, but would
have consequences on business activities also. So, due consideration should be given to the
conversion process because it can bring negative publicity and also lead to regulatory action.
The various areas which would be affected and might face large number of challenges are:
 Business Combinations
 Financial Instruments (It should be noted that ICAI has approved AS 30, AS 31 and AS
32 which are based on IFRS
 Group Accounts

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 Fixed Assets and Investment Property
 Presentation of Financial Statements
 Share-based Payments
In this impact assessment an analysis can be done to have a comparison of the current financial
statements and statements that are based on IFRS because the perception of the business can
change with IFRS implementation.

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IFRS CONVERSION PROGRAM:
The transition to IFRS is a not an easy process. A preliminary study need to be done before
proceeding for IFRS conversion, which will give an opportunity to challenge the way it is
viewed and evaluated by the outside world.
Various steps that can be followed are listed as follows:
STEP 1: DIAGNOSTIC AND DESIGN PROCESS
The tasks to be carried out in this step would vary according to the nature of business.
Companies which have a number of subsidiaries will take more time to implement IFRS.
At this step:
 Identification of the existing processes, issues related to the industry and study of
benchmarks is done.
 Observing the differences under the two standards and assessment of the impact on the
business will be done.
 Identification and analysis of the current IFRS practices and preparing a detailed road
map.
STEP 2: SOLUTION DEVELOPMENT PROCESS
The way the data is handled by the software systems would also change. Determining the
changes required in IT systems will be a critical process.
STEP 3: IMPLEMENTATION AND MAINTENANCE PROCESS
Expert’s inputs will be required for the implementation of IFRS i.e. for stating the opening
balance sheet, restating the financial statements for comparative period. Preparation of first IFRS
financial statements will also have to be done. For maintenance, it is required to follow the IFRS
updates.

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Diagnostic and
Design
• Perform the accounting
diagnostic
• Identify industry issues
and benchmarks
• Assess business impact
• Perform an IT diagnostic
surrounding major
accounting differences
• Tailor the team with
appropriate expertise
• Prepare detailed
timetable
Solution
Development
• Develop and document
scenarios
• Prepare accounting
manual
• Deternine IT critical
changes required and
launch development
when appropriate
Implementation
and Maintenance
• Restate opening
balance sheet
• Restate balance sheet
and profit and loss
account for comparative
information
• Prepare full year IFRS
Financial Statement
• Follow IFRS updates

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TRANSITION FROM INDIAN GAAP TO IFRS:
Assets and liabilities in the opening balance sheet not meeting IFRS definitions:
Under IFRS, assets and liabilities are not recognized but under Indian GAAP, they are
recognized and so they are required to be eliminated from the opening balance sheet. E.g. under
IAS 38, deferred revenue expenditure of share issue expenses do not meet the definition of
intangible asset. There is also lots of information that is not disclosed under Indian GAAP but is
required to be disclosed as per IFRS.
E.g. Indian GAAP prohibits disclosure of contingent assets but IFRS do not. Similarly proposed
dividends cannot be disclosed as liability under IFRS.
Assets and liabilities not recognized in Indian GAAP:
All derivative financial assets and liabilities and embedded derivatives need to be recognized in
IFRS opening balance sheet. If these are not recorded under Indian GAAP, entities need to bring
them on the IFRS balance sheet.
IFRS require restructuring provisions to be recognized based on constructive obligation. Indian
GAAP permits recognizing such provision only when legal obligation arises. Therefore, if an
entity had constructive obligation on the opening balance sheet date, it needs to record the
provision in the IFRS balance sheet. If there was no legal obligation by that date, Indian GAAP
balance sheet would not have recorded such provision.
IAS 12 is based on the balance sheet liability approach. AS 22 requires deferred taxes to be
recognized based on the income statement liability approach. Therefore, temporary differences
for which deferred tax is not recognized under Indian GAAP need to be identified on the opening
balance sheet date and deferred tax should be recognized accordingly under IFRS.
IFRS classification of assets and liabilities:
Asset and liability classifications under Indian GAAP balance sheet does not conform to IFRS.
Therefore, the assets and liabilities need to be classified to draw up the opening IFRS balance
sheet in accordance with IFRS requirements.
Indian GAAP balance sheet does not have a separate class as equity. Therefore, items which
meet the definition of equity under IFRS need to be identified first and then to be classified into
this class in the opening IFRS balance sheet.
There may be acquired intangible assets in the past business combinations, which do not meet
the definition of intangible assets under IFRS. These need to be classified as goodwill and vice
versa in the opening balance sheet.

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IFRS 1 provides exemption from split accounting of compound financial instruments when
certain conditions are satisfied. When this exemption cannot be availed by the entity, compound
financial instruments need to be split into equity and liability portions for their appropriate
classification. Those items which are liabilities but are classified as equity under Indian GAAP,
such as mandatory redeemable preference shares, need to be re-classified as liability in the
opening balance sheet.
IAS 27 does not provide any exemption from consolidating subsidiaries. Therefore, if the entity
has not prepared CFS under Indian GAAP or has not consolidated any subsidiary in its Indian
GAAP CFS, opening IFRS balance sheet needs to be redrawn to ensure all subsidiaries are
recorded in the consolidated opening balance sheet.

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KEY DIFFERENCE IN PRESENTATION OF FINANCIAL STATEMENT:
IAS 1 Presentation of Financial Statements is significantly different from the corresponding AS
1 Disclosure of Accounting Policies. While IAS 1 sets out overall requirements for the
presentation of financial statements, guidelines for their structure, and minimum requirements
for their content, Indian GAAP offers no standard outlining overall requirements for presentation
of financial statements. In India, for various entities, the statutes governing the respective entities
lay down formats of financial statements. For example, in the case of companies, format and
disclosure requirements are set out under Schedule VI to the Companies Act, 1956. For entities
such as partnership firms, the statute governing those entities does not lay down any specific
format of financial statements.
IAS 1 recognizes true and fair override. True and fair override is generally not permitted under
Indian GAAP. Though Clause 49 of the Listing Agreement contains provisions relating to the
true and fair override, no practical guidance is available.
IAS 1 essentially sets out overall requirements for presentation of financial statements. In case of
balance sheets, it requires a clean segregation of current and non-current items for assets and
liabilities. In the profit and loss account, both, the functional format and the format based on
nature of expenses are allowed. Therefore, IAS 1 significantly impacts the presentation of
financial statements. These impacts are covered under the following broad parameters:
1. Enhanced transparency and accountability
2. Better presentation of financial position
3. Legal implications
IFRS 3 Business Combinations applies to most business combinations, both amalgamation
(where acquiree loses its existence) and acquisition (where acquiree continues its existence).
Under Indian GAAP, there is no comprehensive standard dealing with all business combinations.
AS 14 applies only to amalgamation, i.e., when acquiree loses its existence and AS 10 applies
when a business is acquired on a lump-sum basis by another entity. AS-21, AS-23, and AS-27
apply to subsidiaries, associates and joint ventures respectively.
IFRS 3 requires all business combinations (excludes common control transactions) within its
scope to be accounted as per Purchase method and prohibits merger accounting. Indian GAAP
permits both Purchase method and Pooling of Interest method. Pooling of Interest method is
allowed only if the amalgamation satisfies certain specified conditions.
IFRS 3 requires net assets taken over, including contingent liabilities, to be recorded at fair value
unlike Indian GAAP, which requires recording of net assets, with a few exceptions, at carrying
value. Contingent liabilities are not recorded as liabilities under Indian GAAP. IFRS 3 prohibits
amortization of goodwill arising on business combinations and requires it to be tested for
impairment. Indian GAAP requires amortization of goodwill in the case of amalgamations. With

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reference to goodwill arising on acquisition through equity, no guidance is provided in Indian
GAAP.
IFRS 3 requires negative goodwill to be credited to profit and loss account, whereas the same is
credited to capital reserve under Indian GAAP. In IFRS 3 acquisition accounting is based on
substance. Reverse acquisition is accounted assuming the legal acquirer is the acquiree. In Indian
GAAP, acquisition accounting is based on form. Indian GAAP does `not deal with reverse
acquisition.

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CONVERGENCE OF IFRS WITH INDIAN ACCOUNTING STANDARDS:
The Ministry of Corporate Affairs (MCA) reported on 13th
May 2008 that the initiative for
harmonization of the Indian Accounting Standards with International Financial Reporting
Standards (IFRS), which was taken up in 2001 and implemented through notification of
accounting standards in 2006, would be continued by the Government with the intention of
achieving convergence with IFRS by 2011. The initial road map notified by MCA for conversion
of Indian Accounting Standards with IFRS is yet to be implemented and a revised road map was
under consideration of MCA.
A core group was constituted in July 2009 under the Chairmanship of Secretary, MCA to prepare
a road map for convergence with representatives from regulatory bodies (RBI, CAG, SEBI,
IRDA, and PFRDA), Ministry of Finance, The Institute of Chartered Accountants of India
(ICAI), Chambers and Industry bodies and experts. The core group was supported by two sub
groups. The core group had communicated the changes required to be carried out by various
regulators as well as the road map for implementation of the Converged Accounting Standards
(Ind-AS) in phases. As per the road map announced by MCA in March 2010, the Ind-AS were to
be applied to specified class of companies in phases beginning with the financial year 1st
April
2011. The Ind-AS would be applicable for both stand-alone and consolidated financial
statements.

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CHALLENGES TO INDIA:
Shortage of Resources:
India has about 145,000 Chartered Accountants, which is far below the number what is required.
There is a huge demand of Chartered Accountants because of IFRS implementation. In the recent
years with lots of corporate frauds, there has been implementation of SOX, strengthening of
corporate governance norms, increasing financial regulations. So, at present we see a shortage of
accounting professionals, at least in a short run.
Training:
If India wants to implement IFRS effectively from 2011, there is a need to train all the
stakeholders, comprising CFOs, auditors, audit committees, teachers, students, analysts,
regulators, and tax authorities. The best way to have a talent pool in this field can be done by
introducing IFRS as a full subject in universities and Accountancy syllabus.
Information systems:
The computer systems and the software, which are going to handle financial accounting and
reporting must be designed and made available in such a way that they produce robust and
consistent data for reporting financial information. These systems have to be reliable. The new
systems should have the capability of capturing new information for required disclosures, such as
segment information, fair values of financial instruments, and related party transactions. The
companies need to enhance their IT security so that their business is at minimum risk from
potential fraud, cyber terrorism, and data corruption.
The differences between GAAP and IFRS are wide and very deep routed, to say a few: Plant
Property and Equipment (PPE) accounting, Financial Instruments accounting, Investment
accounting, Business combination, Share based payment, current and non-current classification
of asset and liabilities, presentation of financial statements, all are not dealt under Indian GAAP.
Convergence is not just one time technical steps but will impose practical challenges of
significant business and regulatory matters like structuring of ESOP schemes, training of
employees, tax planning, modification of IT system, compliance with debt covenants. Educating
investors to understand the changed financial reporting's under IFRS. Challenges on account of
differences in various conceptual, practical, legal and implementation methods. The Indian
GAAP keeps abreast the local conditions, including the legal and economic environment. For
example AS 29 does not specifically deal with constructive obligation whereas IAS 37 deals
specifically with this in the context of creation of a provision. The effect of this is that in some
cases provisions will be required to be recognized at an early stage.
The regulatory and legal requirements in India will pose a challenge unless the same is been
addressed by respective regulatory. For example the present direct tax laws do not address any

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tax implications likely to arise from IFRS transitions. Complexities of the introduction of
concepts such as present value and fair value measurement, recognition and the extent of
disclosure required under IFRS. For example, a few listed below though not all:
IFRS does not provide for the compromise, merger and amalgamation through court schemes,
effect of all such schemes are recognized through income statement.
Treatment of expenses like premium payable on redemption of debentures, discount allowed on
issue of debentures, underwriting commission paid on issue of debentures etc is different. This
would bring a change in income statement leading to enormous confusion and complexities.
Equity definition changed, this would result impact on tax benefits where interest is treated as
receiving a dividend.
Financial statements more complex under IFRS and thereby would pose challenge making useful
decision.
The law and regulations of a country is a land specific and so of India too.

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COMPARISON OF INDIAN GAAP, IFRS AND IND AS:
Topic Indian GAAP IFRS Ind AS
Presentation of
Financial
Statements
AS-1 Disclosure of
Accounting
Policies
IAS 1-
Presentation of
Financial
Statement
Ind AS 1-
Presentation of
Financial
Statements
Format Schedule VI
prescribes
mandatory formats
for presentation of
balance sheet and
statement of profit
and loss.
Only illustrative
formats for
presentation of
financial
statements have
been given.
Ind AS does not
include any
illustrative format
for the presentation
of financial
statements though
Ind AS 27 does set
out the form in
which consolidated
financial
statements are to
be presented.
Inventories AS-2 Valuation of
Inventories
IAS 2- Inventories Ind AS 2-
Inventories
Classification As per the
requirements of
Schedule VI,
inventories need to
be classified as:
Raw materials
Work in progress
Finished goods
Stock in trade
Stores and spares
Loose tools
Others
No specific
classification
requirements-
classification
should be
appropriate to the
entity
Similar to IFRS

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FUTURE AGENDAS OF IFRS:
The historic 2002 Norwalk Agreement between the US standard setter, FASB, and the IASB
called for "convergence" of the two sets of standards, and indeed a number of revisions of either
US GAAP or IFRS have already taken place to implement this commitment, with more changes
expected in the near future.
More recently (late 2007), the US Securities and Exchange Commission waived the longstanding
requirement that foreign private issuers (i.e. registrants) filing financial statements prepared in
accordance with full IFRS (i.e., not European or other national versions of IFRS) reconcile those
financial statements to US GAAP. Additionally, the SEC is weighing a rule change that would
permit US domestic registrants to choose between compliance with US GAAP and IFRS. These
current and prospective changes, coupled with ongoing convergence efforts, seemingly portend a
greatly expanded usage of IFRS in world commerce.
Typical IFRS timeline can be explained as:
The aim was to disclose the plan for IFRS convergence by the end of 2009 and in 2010 the main
task to be completed has been outlined as to
 Collect IFRS comparative data.
 Disclosure of the detailed plan.

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Financial services, health services, consumer and industrial products are the industries which are
highly interested in going for IFRS. These industries are interested because most of their
competitors are non-U.S. Companies. In addition, cross-border merger and acquisition
transactions make IFRS attractive to companies in these industries.
US have recognized that IFRS is going to have a significant impact of the US companies. As the
principles of IFRS are similar to U.S. GAAP, the professionals there are not going to face much
difficulty in implementing IFRS. Major differences have been minimized and the concepts in
both have been aligned. Several areas in which substantial convergence between U.S. GAAP and
IFRS has occurred are:
 Share-based payment.
 Business combinations.

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IMPORTANCE OF IFRS IN GLOBAL SCENARIO:
The changes and the challenges have not been restricted to a few selected nations. With the fast
growth of technology and internet, there has been redefinition of the way business is being
carried on and challenges are being faced by new methods of commerce.
Different countries following different accounting standards can be looked as “Inefficiency at its
Best”
Presentation of Standards can be done in different ways. In terms of accounting, standards are a
mark of quality. International standards are international marks of quality, and specifically the
IFRS. In the recent times, IFRS has been widely recognized as the leading standard to be adhered
to in the coming future. The quicker local organizations move to working within this framework,
the quicker the investment will flow.
India is moving towards IFRS because its major trading partners like Russia and China are
planning for a move. There is no legislation as such in UAE which directs the companies to
follow IFRS, but the standards are being followed by the banks and the companies which are
listed on the stock market. Those countries who want large investments in this competitive world
would have to follow IFRS in near future. The IFRS standards would help to link the small and
big countries of the world in a better way. Now there is no choice with the companies to follow
the local accounting standards. As the business is being carried on globally and companies are
getting listed on stock exchanges in different countries, there is a need to have a consistent
reporting system across the world. The solution is IFRS. The aim of implementing is to create
more reliable, comparable and more detailed financial statements that would expedite trade
taking place between countries.
There are certain reasons in general which speak about the need to implement and follow IFRS
 Subsidiaries and joint ventures of the holding and parent companies, operating under the
law where IFRS have been implemented, are required to follow the same accounting
regulations as their corporate origin/parent/holding company.
 MNCs which want to start their operations in a foreign country will be required to follow
IFRS to obtain a license to operate and expand.
Converting the IAS standards to IFRS is a complex process. It is not only the changes in the
accounting exercise but various other aspects of the company would also change that can be
listed as
 Financial reporting process
 Issues related to an organization i.e. matters related to law, tax related issues,
compensation procedures etc.

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An important moment came on June 6th, 2002 when European Council of Ministers made it
mandatory for the EU Companies listed on a regulated market to prepare accounts in accordance
with the International Accounting Standards for accounting periods beginning on or after January
1st, 2005. With these steps taken, the importance of IFRS has been increased by European
Capital market which is the second largest economic power in the world after US. European
commission published the necessary components to achieve a single capital market in 'Financial
Service Action Plan (FSAP)' in 1999 which comprises of a five year legislative process.
The major objectives are:
 To have one EU Wholesale securities market.
 To have Open and secure retail markets.
 To have State of art prudential rules and supervision.

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WORLD WIDE IMPLEMENTATION OF IFRS:
The countries till few years back were developing their own Generally Accepted Accounting
Principles (GAAP). Based on these laws the financial statements were prepared for the different
countries differently. The advent of IFRS has brought with it the choice of adopting a globally
accepted set of standards instead of using local GAAP. Financial statements are prepared based
on a number of accounting principles and assumptions. Accountants use their judgment to apply
these principles and produce financial statements for use by management, shareholders, analysts,
finance providers, governmental agencies, the general public and other stakeholders. Based on
these financial statements the users are able to make the correct decisions.
The accountants can interpret the financial statements differently if no common standard is
followed globally. Cases have come up that the companies, which reported under IFRS, have
recorded a loss; but when the same company filed its accounts as per different standard, it
recorded a profit. With IFRS subjectivity is removed and the information that we get is
consistent basis for recognition, measurement, presentation and disclosure of transactions and
events in financial statements.
Convergence of accounting standards will have the effect of attracting investments through
greater transparency and a lower cost of capital for potential investors. Stock exchanges that do
not recognize accounts filed in accordance with IFRS are finding it increasingly difficult to
attract new listings. Differences in accounting practice make it difficult for investors, whether
individual or institutional, to compare the financial results of different companies and make
investment decisions
IFRS IN CHINA:
China has made sincere efforts for harmonizing Chinese accounting standards with IFRS.
Deloitte Touche Tohmatsu has played a significant role for the development of Chinese
Accounting Standards in accordance with the global standards.
China has long realized the importance of a sound financial system with its economic
transformation happening from a centrally planned economy to a market oriented economy.
Earlier as China had a planned economy, the design of the accounting system was different from
what is needed now. Earlier the main focus was on whether the state-owned enterprises were
able to execute the financial plans or not. So, the performance parameters and objectives were
also significantly different from the financial objectives in a modern market oriented economy.
In 1979, China opened its door for foreign investments, which lead to rapid growth of its
economy, international trade and securities market. This all lead to the need of having new
objectives for financial reporting. With the changes happening in the economy, State-owned
enterprises now look a lot like profit oriented businesses and reliable information is required for
making decisions for efficient allocation of capital.
In 1993, there were efforts being made to develop Chinese Accounting Standards (CAS) which
were in line with the accounting and reporting standards. MOF engaged Deloitte Touche
Tohmatsu as consultants to develop CAS. Since then exposure drafts on about 30 standards have

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been developed and since 2001 remarkable achievement can be seen in this field. In 2001 a new
comprehensive Accounting System for Business Enterprises (the “System”) was released .The
new System replaced the Accounting System for JSLE from January 1, 2001 and Accounting
Regulations for FIE from January 1, 2002. In 2001-2002 all Joint Stock Limited Enterprises
(JSLE, including all listed enterprises) and Foreign Investment Enterprises (FIE) were required
to follow one unified new System. The MOF plans to ultimately require all medium-size and
large enterprises (other than financial enterprises) to adopt the new System, and it also
announced its expectation that state-owned enterprises will adopt the new System over time.
When all the enterprises will follow these new standards, comparison of the financial statements
will be better. With these steps and with the adoption of updated definitions of accounting
elements similar to those of IFRS Chinese financial system is moving closer to the International
Accounting standards.
The financial statements prepared for FIE were earlier based on Accounting Regulation for FIE
and so the companies actual results were not reflected and lot of adjustments were required when
financial statements were prepared for filing in some other country. This process had cost a lot in
terms of money and time. With the adoption of IFRS the results will become more clear and
transparent thereby enabling the foreign investors to assess the performance of their investments
more efficiently.
Over the past few years importance of IFRS has increased significantly. Many countries are
accepting this standard for more efficient trade to happen. Convergence with this standard is
being seen as a high priority because the differences which are existing between the GAAP of
individual countries and IFRS are significant. This international accounting harmonization is also
being supported by ministry of finance of China and it is paying due consideration while drafting
each CAS so that it is in accordance with IFRS. MOF is trying to come up with Accounting
Standards in accordance with IFRS and it is also keeping the point that the standards should also
follow the national laws.
The Chinese ministry of finance has accelerated the development of standards that are in
accordance with IFRS. The finance ministry has to work, also on the standards that are industry
specific- e.g. banking, agriculture, oil and gas. The ministry is also working on the accounting
system of small enterprises for better comparability. In recent times significant progress has been
made by the Chinese Accounting Standards. With its recent plan we expect China will see
further convergence with IFRS in near future and keeping in mind there are standards responsive
to Chinese economy during the transitional period.

25
IFRS IN AUSTRALIA:
There are 41 Accounting Standards issued by Australian Accounting Standards
Board (the AASB) called as A-IFRS. These were applicable for annual reporting periods
beginning on or after 1 January 2005.
A-IFRS is not consistent with IFRS because of:
 The updates to accommodate the Australian legislative environment.
 Due to the application of AASB 1 ‘First-Time Adoption of Australian Equivalents to
International Financial Reporting Standards’ on transition to A-IFRS leads to deletion of
transitional provisions in individual Standards.
 Additional/amended requirements for not-for-profit entities
There are also cases in which from a number of options, AASB permits only one option from the
corresponding.
 Additional disclosures.
 Overseas reporting of foreign-owned Australian companies where the foreign parent
entity is applying IFRS.
July 2002 Australian Financial Reporting Council announced that Australia would adopt
international financial reporting standards 1 January 2005. Australian equivalents to IFRS i.e.
AIFRS take effect for reporting periods beginning on or after this date.
AIFRS apply to all
 listed and non-listed entities,
 profit,
 not-for-profit
 public sectors
AIFRS transition involves two elements;
1. Companies integrating the new reporting requirements into the internal business processes,
2. Share market coming to terms with changed accounting treatments and their impact on a
companies ‘on paper’ financial position.

26
IFRS IN CANADA:
In January 2006, the Canadian Accounting Standards Board (AcSB) announced its decision to
replace Canadian Generally Accepted Accounting Principles (GAAP) with International
Financial Reporting Standards (IFRS) for all Canadian Publicly Accountable Enterprises (PAEs).
PAEs include listed companies and any other organizations that are responsible to large or
diverse groups of stakeholders, including non-listed financial institutions, securities dealers and
many co-operative enterprises. Effective January 1, 2011, enterprises issuing financial statements
under standards other than IFRS must demonstrate that they are not publicly accountable. To
allow affected companies sufficient time to prepare for the transition, the AcSB announced a
five-year transition period, with an expected changeover date of January 1, 2011, for annual
periods beginning on or after that date. This transition will be significant and far reaching for
affected organizations and all their stakeholders, including their employees, lenders, and
investors.
Canada’s small, open economy comprises less than 4% of world capital markets. The AcSB is
adopting IFRS for publicly accountable enterprises to help them remain competitive within
global capital markets. Not only will the adoption of IFRS improve the clarity and comparability
of financial information globally; ultimately, it will also prove more efficient and cost effective
by eliminating the need for reconciliations of information reported under separate national
standards. While Canada’s standards setters have played a leading role in developing
international standards from the onset, Canada’s transition to IFRS has been slower than in some
other parts of the world. This is because the AcSB has been careful to consult widely with
affected entities before determining the best transition approach for Canada. The AcSB also
wanted to be confident that the transition to IFRS occurred with as little disruption as possible,
allowing enough time for those affected to learn and understand IFRSs to be able to properly
plan for their transition.
Over the last few years, over 100 countries, including the European Union, Australia and New
Zealand, have adopted IFRS. Pressure on Canadian businesses to harmonize with U.S. GAAP
and its higher compliance costs have declined. The U.S. standard setter, Financial Accounting
Standards Board (FASB), is now working with the International Accounting Standards
Board (IASB) to develop converged standards; the SEC has proposed to accept foreign issuer
filings in accordance with IFRS without reconciliation to U.S. GAAP by 2009. The world-wide
trend to IFRS adoption is clear. The transition to IFRS repositions Canadian financial reporting
for the future.
IFRS IN BRAZIL:
In Brazil, the deadline has been set as 2010 for adoption of IFRS by the Brazilian Central Bank
and the Brazilian Securities and Exchange Commission (CVM). So from 2010 IFRS would be
followed for the consolidated financial statements of financial institutions and publicly-held
companies. As per the recent publication of Law 11.638/07, it has become priority for the
Brazilian companies to make the transition to IFRS. By revising the accounting aspects of
Company Law 6.404/76, Law 11.638/07, effective from January 1, 2008, is the most significant
change in Brazilian corporate legislation in the last 31 years. The new law talks about various

27
steps to be followed for the convergence with IFRS. There is no point mentioned in the law that
tells to adopt IFRS immediately or going for a total convergence between Brazilian and
international accounting practices.
Brazil seems to be in a privileged position as of now as compared to the 7,000 European
companies that have undergone transition to IFRS because Brazil has the opportunity to learn
from the mistakes of the companies which have already adopted IFRS and benefit from the
advances subsequently made by the regulating body of the International Accounting Standards
Board (IASB). As already discussed the adoption of IFRS helps to make the financial statements
with more transparency and also helps to include better Corporate Governance practices in
companies. So the financial statements that are more transparent will definitely help in better
comparability of financial statements and would help the investors in their decision-making
process. It will also improve the investor confidence. More than a simple accounting change,
IFRS adoption will require the analysis of impacts on businesses, processes and information
systems and the need to train professionals involved directly or indirectly with IFRS.

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CASE STUDY OF INDIA:
In recent years, India has experienced strong economic growth, rising foreign exchange reserves,
falling inflation, global recognition of its technological competence and interest shown by many
developed countries to invest in the engineers and scientists produced in the country, including
by setting up of new research and development centres. Above all, as the largest democracy in
the world, India has a reputation for providing leadership for one billion people in a country with
different cultures, languages and religions. The technological competence and value systems of
India are highly respected. Foreign institutional investors find investing in India attractive.
Indians are also investing in companies abroad and are opening new business ventures.
The Government of India is also committed to economic development, ensuring a growth rate of
7–8 per cent annually, enhancing the welfare of farmers and workers and unlocking the creativity
of the entrepreneurs, business persons, scientists, engineers and other productive forces of the
society. Today, India is one of the fastest growing economies in the world, with a compounded
average growth rate of 5.7 per cent over the past two decades. The Government of India has
plans to transform India into a developed nation by 2020.
In India, accounting standards are issued by the Institute of Chartered Accountants of India based
on international financial reporting standards (IFRS). Departures from IFRS are made with a
view to the prevailing legal position and customs and usages in the country. Accordingly, this
case study of India is prepared to highlight the practical challenges involved in adapting IFRS in
India. This case study also throws light on the existing regulatory framework in the country and
the enforcement of the standards in the country.
Accounting standards-setting in India: A historical perspective:
The accounting profession in India was among the earliest to develop, as the Indian
Companies Act was introduced in the mid-1800s, giving the accounting profession its start.
Since then, considerable efforts have been made to align Indian accounting and auditing
standards and practices with internationally accepted standards. Indian accounting and auditing
standards are developed on the basis of international standards and the country has many
accountants and auditors who are highly skilled and capable of providing international-standard
services.
The Institute of Chartered Accountants of India (ICAI) set up the Accounting Standards Board in
1977 to prepare accounting standards. In 1982, ICAI set up the Auditing and Assurance
Standards Board (initially known as the Auditing Practice Committee) to prepare auditing
standards. ICAI became one of the associate members of the International Accounting Standards
Committee (IASC) in June 1973. ICAI also became a member of the International Federation of
Accountants (IFAC) at its inception in October 1977. While formulating accounting standards in
India, the ASB considers IFRS and tries to integrate them, to the extent possible, in the light of
the prevailing laws, customs, practices and business environment in India.
The Accounting Standards Board has worked hard to introduce an overall qualitative
improvement in the financial reporting in the country by formulating accounting standards to be
followed in the preparation and presentation of financial statements. So far, the board has issued

29
29 accounting standards. In addition, it has also issued various accounting standards
interpretations and announcements, so as to ensure uniform application of accounting standards
and to provide guidance on the issues concerning the implementation of accounting standards
which may be of general relevance. Appendix A contains a comparative statement of
international accounting standards/international financial reporting standards and Indian
accounting standards.
As accounting standards in India are formulated on the basis of IFRS issued by the IASB,
ICAI interacts with the IASB at various levels, namely:
 Sending comments on the various draft IFRS issued by the IASB;
 Active participation in the meetings of the global standard-setters with the IASB;
 Active participation in the meetings of the regional standard-setters with the IASB;
 Contribution in the discussions on various ongoing projects of the IASB, e.g. on the
IASB management commentary project;
 ICAI is approaching the IASB to take up projects to be carried on by India, e.g. IFRS for
regulated enterprises.
Challenges involved in adoption of IFRS and implementation issues:
(A) Convergence with IFRS in India
A financial reporting system supported by strong governance, high-quality standards and a sound
regulatory framework is key to economic development. Indeed, high-quality standards of
financial reporting, auditing and ethics form the foundations of the trust that investors place in
financial information and therefore play an integral role in contributing to a country’s economic
growth and financial stability. As the forces of globalization prompt more and more countries to
open their doors to foreign investment and as businesses expand across borders, both the public
and private sectors are increasingly recognizing the benefits of having a commonly understood
financial reporting framework, supported by strong globally accepted standards. The benefits of
a global financial reporting framework are numerous and include:
 Greater comparability of financial information for investors;
 Greater willingness on the part of investors to invest across borders;
 Lower cost of capital;
 More efficient allocation of resources; and
 Greater economic growth.

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However, before these benefits can be fully realized, there must be greater convergence with a
single set of globally accepted high-quality standards. International convergence is a goal that is
embraced in the mission of the International Federation of Accountants (IFAC) and shared by
IFAC members, international standard-setters and many national standard-setters.
As a member body of IFAC, India has recognized in its preface to the statements of accounting
standards that “ICAI, being a full-fledged member of the International Federation of
Accountants (IFAC), is expected, inter alia, to actively promote the International Accounting
Standards Board’s (IASB) pronouncements in the country with a view to facilitating global
harmonization of accounting standards. Accordingly, while formulating the accounting
standards, the Accounting Standards Board will give due consideration to International
Accounting Standards (IAS) issued by the International Accounting Standards Committee
(predecessor body to the IASB) or international financial reporting standards (IFRS) issued by
the IASB, as the case may be, and try to integrate them, to the extent possible, in the light of the
conditions and practices prevailing in India”.
Accordingly, the accounting standards issued by ICAI are generally in conformity with IFRS.
Indeed, with respect to certain recently issued/revised Indian accounting standards, there are no
differences between the Indian accounting standards and IFRS. For example, accounting
standard No. 7 on construction contracts and accounting standard 28 on impairment of assets are
identical to the corresponding IFRS. However, in exceptional cases, when a departure from IFRS
is warranted by conditions in India, the major areas of difference between the two are pointed out
in the appendix to the accounting standard.
ICAI endeavors to bridge the gap between Indian accounting standards and IFRS by issuing new
accounting standards and ensuring that existing Indian accounting standards reflect any changes
in international thinking on various accounting issues. In this regard, it should be noted that ICAI
is making a conscious effort to bring the Indian accounting standards into line with IFRS by
revising existing accounting standards. ICAI has so far issued 29 Indian accounting standards
corresponding to IFRS.
In view of the above, Indian accounting standards are largely in step with IFRS. This is also
recognized in the following extracts of article from an Indian financial daily, Hindu Business
Line, on 5 November 2005:
“Indian Companies can now get listed on the London Stock Exchange (LSE) by reporting
their financial results based on Indian accounting standards. Until now, these companies
had to report their financial data in accordance with the international financial reporting
standards (IFRS).”

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CHALLENGES AND ISSUES INVOLVED IN CONVERGENCE WITH
IFRS IN INDIA:
i. Legal and regulatory considerations:
In some cases, the legal and regulatory accounting requirements in India differ from the
IFRS; in such cases, strict adherence to IFRS in India would result in various legal problems.
The examples below illustrate this point.
IAS 1 – Presentation of Financial Statements:
In India, laws governing companies (e.g. the Companies Act of 1956), banking enterprises (e.g.
the Banking Regulation Act of 1949) and insurance enterprises (formats of financial statements
for insurance companies as prescribed by the Insurance Regulatory and Development
Authority regulations in the document “Preparation of Financial Statements and Auditor’s
Report of the Insurance Companies” (2002), prescribes detailed formats for financial statements
to be followed by respective enterprises. At this stage lawmakers/regulators may not be willing
to accept IAS 1 in its present form and change the existing law. Therefore, full adoption of IAS 1
may not be possible at this stage. However, it is proposed that the corresponding accounting
standard being developed by ICAI, would have an appendix containing suggested detailed
formats of financial statements which, while complying with IAS 1, would also contain other
disclosures prescribed in the formats laid down by various legislations to address the concerns of
the legislature.
IAS 21 – The Effects of Changes in Foreign Exchange Rates:
If IAS 21 is adopted in India it would result in violation of schedule VI to the Companies Act of
1956. Schedule VI requires foreign currency fluctuations in respect of foreign currency loans
raised to acquiring foreign assets to be reflected in the cost of the fixed assets, whereas IAS 21
requires the same to be charged to the profit and loss account. The corresponding Indian
accounting standard prescribes the accounting treatment contained in IAS 21; however, through
a separate announcement issued by ICAI, it is recognized that law will prevail.
IAS 34 – Interim Financial Reporting:
The disclosures requirements of IAS 34 are not in accordance with the formats of unaudited
quarterly/half-yearly results prescribed in the listing agreement issued by the Securities and
Exchange Board of India. The corresponding Indian standard prescribes disclosure as per IAS
34, but also recognizes that the law will prevail insofar as presentation and disclosure
requirements are concerned.
ii. Alternative treatment:
IFRS allow alternative treatments a number of cases. The implications of adopting IFRS as they
are would be that it would lead to presentation of incomparable financial information by various
enterprises. The following examples illustrate this aspect.

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IAS 23 – Borrowing Costs:
IAS 23 on borrowing costs prescribes expensing of borrowing costs as the benchmark treatment;
however, it also allows capitalization of borrowing costs as an allowed alternative. If this
standard is followed (and it is), some enterprises then charge borrowing costs to the profit and
loss account, while others capitalize these costs as part of the cost of the assets
acquired/constructed using the borrowings. In India, however, the corresponding accounting
standard No. 16 does not allow any alternative and borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset to be capitalized. However, the
IASB has issued an exposure draft of proposed amendments to IAS 23 in May 2006, in which it
has decided to eliminate the option of immediate recognition of the borrowings costs as an
expense and allow only capitalization of borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset as part of the cost of the assets.
Thus, once this exposure draft is finalized, no difference would remain between accounting
standard No. 16 and IAS 23.
IAS 19 – Employee Benefits:
IAS 19 allows the following options with regard to the treatment of actuarial gains and losses:
 Immediate recognition in the profit and loss account in the year in which such gains and
losses occur;
 Adjustment against the retained earnings, whereby the current year’s profit and loss
account is not affected at all; or
 Recognition of a part of the actuarial gains and losses in the profit and loss account which
exceeds the specified percentage (known as the “corridor approach”).
The corresponding Indian accounting standard No. 15 on employee benefits requires only the
first alternative, however: i.e. immediate recognition in the profit and loss account.
The above are only some of the examples that could be presented. To facilitate comparability, it
is imperative that there should be no options in the accounting standards, otherwise the investors
and other users of financial statements cannot take decisions based on comparable information.
Indian accounting standards do not ordinarily permit any option, but prescribe one of the most
appropriate options permitted by the corresponding IAS/IFRS.
The IASB recently issued the “Statement of Best Practice: Working Relationships between the
IASB and other Accounting Standard-Setters”, which states that removing optional treatments
does not mean any non-compliance with IFRS.

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iii.Economic environment:
The economic environment and trade customs and practices prevailing in India may not, in a few
cases, be conducive for adoption of an approach prescribed in an IFRS. For example, in a
country whose markets do not have adequate depth and breadth for reliable determination of fair
values, it may not be advisable to follow a fair value-based approach prescribed in certain IFRS.
Certain IAS/IFRS assume an economic environment with mature markets. For example,
IAS 41 on agriculture is based on the fair value approach presuming that fair values are available
for various biological assets such as plants, crops and living animals. The standard is relevant
only if the fair values are reliable; this may not be true in India as, in some instances, market data
may not be reliable in view of markets not being mature enough.
Conceptually, ICAI is in agreement with the fair value approach followed in various IFRS.
However, there is always the risk of misuse of this approach as was reportedly the case in Enron.
ICAI has so far been cautious in adopting the fair value approach in its accounting standards,
although certain accounting standards recognize this approach, (for example, accounting
standard No. 28 on impairment of assets), and ICAI has decided to follow this approach in its
proposed accounting standard on financial instruments (recognition and measurement)
corresponding to IAS 39.
iv. Level of preparedness:
In a few cases, the adoption of IFRS may cause hardship to the industry. To avoid the hardship,
some companies have gone to the court to challenge the standard, for example:
 When ICAI issued accounting standard No. 19 on leases, which is based on the
corresponding IAS, leasing companies are of the view that it may cause hardship to them.
To avoid this, the Association of Leasing Companies approached the courts to receive
context to the standard.
 When ICAI issued accounting standard No. 22 on accounting for taxes on income to
introduce the international concept of deferred taxes in India for the first time, a number
of companies challenged the standard in court, as they were concerned about the effect it
may have on their bottom lines.
In view of the above, to avoid hardship in some genuine cases, ICAI has deviated from
corresponding IFRS for a limited period until such time as preparedness is achieved.
In addition to the above-mentioned technical differences, there are a few conceptual differences
between Indian accounting standards and IFRS. For example, IAS 37 deals with constructive
obligation in the context of creation of a provision. The effect of recognizing provision on the
basis of constructive obligation is that, in some cases, provision will need to be recognized at an
early stage. For instance, in case of a restructuring, a constructive obligation arises when an
enterprise has a detailed formal plan for the restructuring and the enterprise has raised a valid
expectation in those affected that it will carry out the restructuring by starting to implement that
plan or announcing its main features to those affected by it. It is felt that merely on the basis of a

34
detailed formal plan and announcement thereof, it would not be appropriate to recognize a
provision, since a liability cannot be considered to be crystallized at this stage. Furthermore, the
judgment whether the management has raised valid expectations in those affected may be a
matter for considerable argument. Accordingly, the corresponding Indian accounting standard,
accounting standard No. 29, does not specifically deal with constructive obligation. Accounting
standard No. 29 does, however, require a provision to be created in respect of obligations arising
from normal business practice, custom and a desire to maintain good business relations or act in
an equitable manner. In such cases, general criteria for recognition of provision must be applied.
The treatment prescribed in accounting standard No. 29 is also in consonance with the legal
requirements in India.
v. Frequency, volume and complexity of changes to the international financial reporting
Standards:
It has clearly been a very challenging time for preparers, auditors and users of financial
statements, following the publication of new and revised IFRS. The following changes evidence
the frequency, volume and complexity of the changes to the international standards:
 The IASB Improvements Project resulted in 13 standards being amended, as well as
consequential amendments to many others. In India, a project to examine of IAS
revisions, pursuant to the IASB improvement project, has been launched to determine
whether corresponding Indian accounting standards need revision.
 Repeated changes of the same standards, including changes reversing the previous
stances of the IASB, and changes for the purpose of international convergence.
 Complex changes on accounting standards, such as those on financial instruments,
impairment of assets and employee benefits, require upgrading of skills of those
professionals who implement them, in order to keep up with the changes.
Challenges for small and medium-sized enterprises and accounting firms:
In emerging economies like India, a significant part of the economic activities is carried on by
small- and medium-sized enterprises (SMEs). SMEs face problems in implementing the
accounting standards because:
 Resources and expertise within the SMEs are scarce; and
 Cost of compliance is not commensurate with the expected benefits.
To address the issue of applicability of accounting standards to SMEs, ICAI has provided certain
exemptions/relaxations for such companies. For the purpose of applicability of accounting
standards, enterprises are classified into three categories: level I, level II and level III. Level I
enterprises are large and publicly accountable entities. Level II enterprises are medium-sized
enterprises and level III are small enterprises. Level II and level III enterprises are considered as
SMEs. Level I enterprises are required to comply fully with all the accounting standards issued

35
by ICAI. The relaxations/exemptions are provided for level II and level III enterprises from
accounting standards. Level II and level III enterprises are fully exempted from certain
accounting standards which primarily lay down disclosure requirements, such as accounting
standard No. 3 on cash flow statements, accounting standard No. 17 on segment reporting,
accounting standard No. 18 on related party disclosures and accounting standard No. 24 on
discontinuing operations. In respect of certain other accounting standards, which also lay down
disclosure requirements, level II and level III enterprises are exempted from some of its
disclosure requirements, such as accounting standard No. 19 on leases, accounting standard No.
20 on earnings per share and accounting standard No. 29 on provisions, contingent liabilities and
contingent assets. Generally, ICAI does not favour exemptions to be given in respect of
recognition and measurement requirements. However, considering rigorous measurement
requirements in accounting standard No. 15 (revised 2005) on employee benefits and accounting
standard No. 28 on impairment of assets, simplified measurement approaches have been allowed
to the SMEs.

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CAPACITY BUILDING:
The pace at which accounting standards have recently been issued and mandated in India is
posing various accounting problems and has serious business consequences. Building the
capacity of the preparers and the auditors is therefore a stiff challenge to the accounting
profession. To enhance capacity-building and to ensure effective implementation of accounting
standards, the Institute of Chartered Accountants has acted proactively by taking the following
steps:
(a) Issuing accounting standards interpretations on matters related to accounting standards:
With a view to resolving various intricate interpretational issues arising in the implementation of
new accounting standards that have already been issued, ICAI has issued 30 interpretations of
accounting standards.
(b) Issuance of background materials on accounting standards:
To facilitate discussion at seminars, workshops, etc., ICAI has issued background material on
newly issued accounting standards. The background material deals, inter alia, with the key
requirements of the accounting standards with examples and frequently asked questions that
accountants and auditors may encounter in the application of accounting standards.
(c) Issuance of guidance notes on accounting matters:
ICAI has issued various guidance notes in order to provide immediate guidance on accounting
issues arising as a result of the issuance of new accounting standards, and to provide immediate
guidance on new accounting issues arising because of changes in legal or economic environment
and/or other developments. These guidance notes form an important part of the generally
accepted accounting principles in India and need to be referred to on a regular basis by people
involved in the preparation and presentation of financial statements, as well as by people
involved in auditing these statements.
(d) Organizing seminars and workshops:
ICAI has always been striving for excellence in terms of standards of professional services
rendered by its members. To enable members to maintain high standards of professional
services, ICAI is providing inputs to members by way of seminars, workshops and lectures.
(e) Responding to various queries raised by members:
While performing their attesting function members of the ICAI are often presented with certain
delicate situations, particularly as they apply accounting standards to the specific situations of an
enterprise, where an authentic view is required. For the purpose of assisting its members, the
ICAI council formed an expert advisory committee to answer queries from its members. The
committee deals with queries on accounting and/or auditing principles and related matters.

37
Auditing issues involved in implementation of accounting standards:
Independent auditors play a vital role in enhancing the reliability of financial information
produced by companies, not-for-profit organizations, government agencies and other entities by
providing assurance on the reliability of the financial statements. As mentioned above, ICAI
members are required to ensure compliance with ICAI accounting standards when performing
their attesting function under certain legislation (such as the Companies Act (1956)), as well as
by ICAI itself.
ICAI has established an auditing and assurance standards board that formulates standards that are
broadly in line with ISAs issued by the IAASB. In general, the text of the national board is based
on the text of the equivalent ISA, although certain modifications are introduced into the
accounting and assurance standards in order to adapt them to local circumstances when
considered necessary.
Examples of audit issues arising as a consequence of adaptation of IAS/IFRS:
Some of the major issues that may have an impact on the work of auditors in India in
implementation of Indian accounting standards that have been formulated on the basis of the
corresponding IAS/IFRS are given below.
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors:
IAS 8 provides that financial statements do not comply with IFRS if they contain immaterial
errors that were deliberately included to achieve a particular presentation of an entity’s financial
position, financial performance or cash flows. The Accounting Standards Board of ICAI has also
prepared the preliminary draft of the revised accounting standard No. 5, corresponding to IAS 8.
In the draft, the board has decided that since the above accounting treatment is conceptually
correct, it should be adopted in accounting standard No. 5 too. However, the board also feels that
this requirement would be too onerous on the auditors, since it would be difficult for the auditor
to determine whether the errors had been intentionally made or not and he or she may ignore
such errors on the grounds of materiality. The board has, therefore, decided that once the
standard is finalized, it may ask the Accounting and Assurance Standards Board of ICAI to look
into the matter and provide necessary guidance.
IAS 19 - Employee Benefits:
IAS 19 also deals with measurement of defined benefit plans, which is complex when compared
to measurement of defined contribution plans, since actuarial assumptions are required to
measure the obligation and the expense, and there is a possibility of actuarial gains and losses.
ICAI has recently issued the revised accounting standard No. 15 on employee benefits based on
IAS 19, which recognizes the role of a professional actuary. An auditing issue may arise about
the extent of reliance that an auditor may place on the actuary’s report, particularly in view of
extensive disclosure requirements prescribed in the standard.

38
To effectively address the problem, ICAI has asked the Actuarial Society of India to revise its
guidance note on the subject, so that the actuary’s report contains the relevant information as
envisaged in the accounting standard, in order to guide actuaries (as has been done in certain
other countries, including the United Kingdom). In any case, the responsibility of the auditor will
continue to be determined under Auditing and Assurance Standard 9 on using the work of an
expert, which provides guidance on auditor’s responsibility in relation to and the procedures the
auditor should consider in using the work of an expert, such as an actuary, as audit evidence.
IAS 27 – Consolidated and Separate Financial Statements:
In accordance with IAS 27, a parent enterprise shall present financial statements in which it
consolidates its investments in subsidiaries. Along the lines of IAS 27, IAS 21 on consolidated
financial statements provides that a parent which presents consolidated financial statements
should consolidate all domestic and foreign subsidiaries.
It is possible that the auditor of the parent enterprise is not the auditor of its subsidiary
enterprises. Furthermore, the auditor of the consolidated financial statements may not necessarily
be the auditor of the separate financial statements of the parent company, or one or more of the
components included in the consolidated financial statements. However, a law or regulation
governing the enterprise may require the consolidated financial statements to be audited by the
statutory auditor of the enterprise. In such cases, the auditor will face issues of reliability of the
work performed by the other auditors. In India, the listing agreement requires financial
statements to be audited apart from the audit of separate financial statements under the
Companies Act (1956). ICAI recently issued a guidance note on audit of consolidated financial
statements, which provides detailed guidance on the specific issues and audit procedures to be
applied in an audit of consolidated financial statements.
Fair value issues:
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction. As mentioned in the above section
entitled “Challenges involved in adoption of IFRS and implementation issues”, the economic
environment in India may not be conducive for adoption of the fair value approach prescribed in
various IFRS. ICAI agrees on a conceptual level with this approach – it has used it in accounting
standard No. 28 on impairment of assets, and has also decided to follow it in its proposed
accounting standard No. on financial instruments (recognition and measurement), which
corresponds to IAS 39 – but an auditor might face difficulties in satisfying him or herself that the
fair values computed are reliable.
Although the IFAC)has recently issued a ISA) on auditing fair value measurements and
disclosures to address the increasing number of complex accounting pronouncements containing
measurement and disclosure provisions based on fair value, it still remains to be seen whether
this ISA, in the Indian context, will adequately address the auditing issues that need to be
examined.

39
LESSONS LEARNED:
Convergence of accounting standards in all countries, including India, is duly recognized as the
future of global accounting standards. In the past, different views of the role of financial
reporting made it difficult to encourage convergence of accounting standards, but there now
appears to be a growing international consensus that financial reporting should provide high
quality financial information that is comparable, consistent and transparent, in order to serve the
needs of investors. Convergence is possible in two ways, either by adopting or adapting a
standard. As discussed in earlier sections, IAS and IFRS in India are being adapted while the
legal and other conditions prevailing in India are borne in mind. The major lessons learned
during such adaptation are:
a. Implementation of certain requirements of IFRS should be a gradual process:
India has learned that adapting IFRS is not just an accounting exercise. It is a transition that
requires everyone concerned to learn a new language and new way of working. While
formulating accounting standards on the basis of IFRS, one should consider that, in certain cases,
it may cause undue hardship to the industry, at least at the beginning. In other words, Indian
industry may not be prepared to apply the provisions of the standards immediately and some
transitional measures are needed to be introduced for them.
b. Lessons learned in addressing differences in the accounting treatment prescribed in
IFRS and law:
As a standard-setter, ICAI has learned a lesson that where the conceptually superior accounting
treatments prescribed in various IFRS are in conflict with the corresponding legal requirements.
c. Guidance needs to be provided in various cases for effective implementation of accounting
standards:
Adequate guidance needs to be provided for effective implementation of accounting standards.
In some cases, where accounting standards require management of the enterprises concerned to
use judgement in making accounting estimates etc., various issues arise in the actual
implementation. To address those issues, ICAI has issued accounting standards interpretations,
guidance notes and other explanatory material. For example, accounting standard No. 16 on
borrowing costs corresponding to IAS 23, defines the term “qualifying asset” as “an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale”. The issue
as to what constitutes “substantial period of time” has been addressed by issuance of accounting
standard interpretation 1 on substantial period of time.
Furthermore, ICAI has also undertaken various projects for providing guidance on accounting
matters arising from issuance of a new accounting standard, for example, it has recently
undertaken to prepare a guide on estimating future cash flows and discount rates in the context of
accounting standard No. 28 on impairment of assets.

40
d. Capacity-building required before issuance of some of the newer accounting standards or
revision of accounting standards corresponding to IFRS:
Nowadays, with the issuance of newer accounting standards or revision of existing ones on the
basis of IFRS, various new concepts are being introduced in India for which preparers and
auditors need to be adequately trained; by organizing workshops, conducting seminars, etc. It is
increasingly recognized that the preparers and auditors should be given training even before final
issuance of a new standard, at the exposure draft stage itself, so that when the standard is finally
issued, they are ready to effectively implement the standard.

41
CONCLUSION:
Irrespective of various challenges, adoption of IFRS in India has significantly changed the
contents of corporate financial statements as a result of:
 More refined measurements of performance and state of affairs, and
 Enhanced disclosures leading to greater transparency.
With the rapid liberalization process experienced in India over the past decade, there is now a
huge presence of multinational enterprises in the country. Furthermore, Indian companies are
also investing in foreign markets. This has generated an interest in Indian GAAP by all
concerned. In this context, the role of Indian accounting standards, which are becoming closer to
IFRS, has assumed a great significance from the point of view of global financial reporting.
Indian companies using the Indian accounting standards are experiencing fewer difficulties
accessing international financial markets, as Indian accounting standards are becoming closer to
IFRS. Indian standards are expected to converge even further in the future, especially after the
challenges mentioned in study are addressed over the next few years.

Project on IFRS

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