A PROJECT ON

IFRS CONVERGENCE IN INDIA

(ADVANCED FINANCIAL ACCOUNTING)

SUBMITTED BY

Mr. RAJ ANIL SAHU

ROLL NO. 18, MASTER OF COMMERCE, PART-I

(ACCOUNTANCY) (SEMISTER-II),

K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE, VIDYAVIHAR (EAST)

AFFILIATED

MUMBAI UNIVERSITY

ACADEMIC YEAR

2012-13

PROJECT UNDER THE GUIDANCE OF

DR. (PROF.) MAYURESH PATIL

1

CERTIFICATE

This is to certify that Mr. RAJ ANIL SAHU of M.Com. (Part-I) (Accountancy), Roll

No. 18, Semester-II (2012-2013), has successfully completed the project on “IFRS

CONVERGENCE IN INDIA” Under the guidance of DR. (PROF.) MAYURESH MULE

Sign of Co-ordinator. Sign of principal.

Sign of Project Guide & Sign of External Examiner

Internal Examiner

2

ACKNOWLEDGEMENT

I have great pleasure in presenting our project on “IFRS CONVERGENCE IN INDIA”

I wish to dedicate this work to my lovely parents for their physical and spiritual support

throughout the period I have spent on this thesis work.

I wish to express my profound gratitude DR. (PROF.) MAYURESH MULE my mentor for

his good advice, support and immense contributions toward this research work.

I am highly indebted to our principal DR. MRS. SUDHA VYAS & our Vice Principal DR.

MAYURESH MULE who took keen interest and allowed me to perform this project.

I would also like to thanks our librarian who sincerely helped me getting this information.

3

DECLARATION

I Mr. RAJ ANIL SAHU, student of M Com- (Part I) Roll Number 18 hereby declare that the

project for the paper ADVANCE FINANCIAL ACCOUNTING, “IFRS CONVERGENCE

IN INDIA” submitted by me for Semester-II during academic year 2012-2013, is based on

actual work carried out by me under the guidance and supervision of DR. (PROF.)

MAYURESH MULE

I further state that this work is original and not submitted anywhere else for any

examination.

Signature of student

4

INDEX

SR.NO. TABLE OF CONTENTS PAGE NO.

1 Present Status of Indian Accounting Standard 6

2What is IFRS?

7-8

3Convergence to IFRS: Meaning and Proposed Timelines

8-10

4Entities impacted with Convergence

10-13

5Format of IFRS for India

13

6Role of ASB in Post Convergence Scenario

13

7Benefits and Challenges of Convergence

14-18

8Critical success factors for IFRS conversion projects

19-25

9Categorization of IFRS by ICAI

25-29

10Project Management for IFRS Convergence Project

29-30

11Conclusion

31

12Bibliography

32

5

IFRS CONVERGENCE IN INDIA

1. Present Status of Indian Accounting Standard

Presently, the Accounting Standards Board (ASB) of the Institute of Chartered

accountants of India (ICAI) formulates Accounting Standards (ASs) based on the

IFRSs keeping in view the local conditions including legal and economic environment,

which have recently been notified by the Central Government under the Companies

Act, 1956.

Accordingly, the Ass depart from the corresponding IFRSs to maintain consistency

with legal, regulatory and economic environment, and keeping in view the level of

preparedness of the industry and the accounting professionals

In some cases, departures are made on account of conceptual differences with the

treatments prescribed in the IFRSs.

6

2. What is IFRS?

IFRS is a set of international accounting standards stating how particular types of

transactions and other events should be reported in financial statements.

IFRS are generally principles-based standards and seek to avoid a rule-book mentality.

Application of IFRS requires exercise of judgment by the preparer and the auditor in

applying principles of accounting on the basis of the economic substance of

transactions.

IFRS are issued by the International Accounting Standards Board.

The term IFRS comprises IFRS issued by IASB; IAS issued by IASC; and

Interpretations issued by the Standing Interpretations Committee (SIC) and the

International Financial Reporting Interpretations Committee (IFRIC) of the IASB.

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 rules to be followed by accountants to maintain

books of accounts which is comparable, understandable, reliable and relevant as per the

users internal or external.

7

3. Convergence To IFRS

The IFRS issued by the International Accounting Standards Board (IASB) are

increasingly being recognized as Global Reporting Standards.

More than 100 countries such as countries of European Union, Australia, New Zealand

and Russia currently require or permit the use of IFRSs in their countries.

In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has

proposed a plan for convergence with IFRS with effect from April 1, 2011.

Convergence to IFRS would mean India would join a league of more than 100

countries, which have converged with IFRS.

8

International Financial Reporting

Interpretations Committee (IFRIC)

International Financial Reporting

Interpretations Committee (IFRIC)

Standing Interpretations Committee (SIC)

Standing Interpretations Committee (SIC)

International Accounting

Standard (IAS)

International Accounting

Standard (IAS)

International Financial reporting

Standard (IFRS)

International Financial reporting

Standard (IFRS)

IFRSIFRS

Why Convergence to IFRS?

A single set of accounting standards would enable internationally to standardize

training and assure better quality on a global screen.

It would also permit international capital to flow more freely, enabling companies to

develop consistent global practices on accounting problems.

It would be beneficial to regulators too, as a complexity associated with needing to

understand various reporting regimes would be reduced.

Meaning of Convergence with IFRS

Convergence means to achieve harmony with IFRSs; in precise terms convergence can

be considered “to design and maintain national accounting standards in a way that

financial statements prepared in accordance with national accounting standards draw

unreserved statement of compliance with IFRSs”, i.e., when the national accounting

standards will comply with all the requirements of IFRS.

But convergence doesn’t mean that IFRS should be adopted word by word, e.g.,

replacing the term ‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial

Statements’. Such changes do not lead to non-convergence with IFRS.

The IASB accepts in its ‘Statement of Best Practice: Working Relationships between

the IASB and other Accounting Standards-Setters’ that “adding disclosure requirements

or removing optional treatments do not create noncompliance with IFRSs. But

additional disclosures or removing of optional treatment should be made clear so that

users of the IFRS are aware of the changes.

9

IFRS Reporting In India: Proposed Timelines

Reporting under IFRS, as proposed by ICAI, would be applicable for accounting

periods beginning on or after April 1, 2011.

The first set of IFRS financial statements for the year ending March 31, 2012 would

require preparation of:

Opening balance sheet as on April 1, 2010

Comparative financial statements – year ending March 31, 2011

Reporting enterprises would need to ensure preparedness for IFRS reporting as early as

April 2010.

4. Which Entities will be covered under Convergence Strategy

Keeping in view the complex nature of IFRSs and the extent of differences between the

existing ASs and the corresponding IFRSs and the reasons therefore, the ICAI is of the

view that IFRSs should be adopted for the public interest entities from the accounting

periods beginning on or after 1st April, 2011.

10

Which Entities are Public Interest Entities

IFRS for Small and Medium Sized Entities (SMEs)

SMEs need not adopt all the IFRS as it will be too voluminous for them.

A separate standard for SMEs will be formulated based on the IFRS for SMEs which is still

in exposure draft stage.

11

Public Interest

Listed Entities

BankingEntities

Insurance Companies

Large Size Entities

Public Interest Entities

Public Interest Entities

a) whose equity or debtsecurities are listed or arein the process of listing on

any stock exchange,whether in India or

outside India; or

a) whose equity or debtsecurities are listed or arein the process of listing on

any stock exchange,whether in India or

outside India; or

d) which has public deposits

and/or borrowings from banks and financialinstitutions in excess of

rupees 25 crore at any time during theimmediately preceding

accounting year; or

d) which has public deposits

and/or borrowings from banks and financialinstitutions in excess of

rupees 25 crore at any time during theimmediately preceding

accounting year; or

e) which is a holding or a subsidiary of an entity

mentioned a) to d) points.

e) which is a holding or a subsidiary of an entity

mentioned a) to d) points.

c) whose turnover (excluding other income) exceeds rupees 100 crore

In the immediately preceding accounting year;

c) whose turnover (excluding other income) exceeds rupees 100 crore

In the immediately preceding accounting year;

b) which is a bank (including

a cooperative bank),financial institution,

a mutual fund, oran insurance entity; or

b) which is a bank (including

a cooperative bank),financial institution,

a mutual fund, oran insurance entity; or

The proposed standard represents a simplified set of standards for SME's with disclosure

requirements reduced, methods for recognition and measurement simplified and topics not

relevant to SME's eliminated.

IFRS for SMEs will be adopted in to or with modifications, if necessary.

Compliance with this IFRS for SMEs is not necessary to make India IFRS-compliant.

The impact of IFRS will be much larger and broader than anticipated.

Although it is widely known that IFRS is more than an accounting change, the breadth and

depth of the potential IFRS impacts may surprise many executives. According to our survey,

adoption will affect people, processes and technology in vital areas across the enterprise.

Indeed, although executives aware of IFRS generally know the new standards represent a

major change for the accounting function, those participating in our survey see it as much more

than that. In fact, more than half of all respondents said that most major functions of their

business—including IT, business operations, external stakeholders, customers and human

resources (HR)—will experience a significant impact from IFRS (see Figure 3). Additionally, a

large majority of respondents think IFRS adoption will add complexity to other planned

initiatives, including mergers, enterprise resource planning (ERP) and other IT

implementations, geographic expansion and outsourcing or shared services implementations

Further reflecting the significant scope of this change is the fact that executives expect IFRS

adoption to require a substantial investment. More specifically, recent studies on European

IFRS conversions estimate one-time conversion costs at an average of .05 percent of revenue.

However, Accenture’s own research reveals that while an average can give some guidance on

spend, companies need to more fully understand how the conversion relates to their specific

circumstances. For instance, as illustrated in Figure 5, the anticipated spending on IFRS

conversion among our survey sample, as a percent of revenue, varies substantially by the

12

size of the enterprise. In fact, as the figure shows, smaller companies

5. Format of IFRS for India

The format of IFRSs to be adopted for public interest entities should be the same as that of

IFRSs, including their numbers.

The numbers of the existing Accounting Standards may be given in brackets for the

purpose of easier identification.

Wherever required, a section may be added at the end of the adopted IFRS indicating the

Indian legal and regulatory position.

The IFRSs when adopted will also take into account the International Financial Reporting

Interpretations issued by the IFRIC of the IASB.

Only in rare circumstances of public interest a carve out from an IFRS may be made.

6. Role of ASB in Post Convergence Scenario

13

Endorse the IFRSs in the form of IFRS-

equivalent Indian Accounting

Standards for the local

regulatory framework with

changes such as removing optional

treatments and adding disclosure

requirements, where appropriate

Present the Indian Accounting

Standards so developed for

approval of National Advisory

Committee on Accounting

Standards (NACAS) for the

purpose of Government notification

Determine whether each

IFRS meets specified criteria set out in

local legislation/regulation

7. Benefits of Convergence

There are many benefits of achieving convergence with IFRS. A few are

discussed below:-

I. The Economy

As the markets expands globally the need for convergence increase. The convergence

benefits the economy by increasing the growth of its international business. It also

facilitates the 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.

II. Investors

A strong case for convergence can be made from the view point of the investors who wish

to invest outside their own country. Investors want the information that is more relevant,

reliable, timely and comparable across the jurisdictions. The financial statements prepared

using a common set of accounting standards helps the investors to better understand

investment opportunities as opposed to financial statements prepared using a different set

of national accounting principles.

For better understanding of financial statements, investors have to incur more costs in

terms of time and effort to convert the financial statements so that they can confidently

compare opportunities. The investors’ confidence would also be string if accounting

standards used are globally accepted. Convergence with IFRs contributes to investors

understanding and confidence in high quality financial statements.

14

III. The Industry

A major force in the movement towards convergence has been the interest of the industry.

The industry is able to raise capital from foreign markets at lower cost if it can increase

confidence in the minds of the 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 multitude of

accounting requirements prevailing in the countries.

The burden of financial reporting is lessened with the 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 set of

accounting standards

IV. The Accounting Professionals

Convergence with IFRS’s also benefits the accounting professionals in a way that they 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 the same accounting practices

prevail throughout the world. They are able to quote IFRS to clients to give them backing

for recommending certain ways of reporting. Also, for accounting professionals in the

Industry as we as in practice, their mobility to work in different parts of the world

increases.

15

V. Single Reporting

Convergence with IFRS eliminates multiple reporting such as Indian GAAP, IFRS, US

GAAP

VI. Increase Comparability

IFRS will give more comparability among sectors, countries and companies.

This will result in more transparent financial reporting of a company’s activities which will

benefit investors, customers and other key stakeholders in India and overseas

VII. Access to Global Capital Markets

Convergence with IFRS will enable Indian entities to have easier access to global capital

markets and eliminates barriers to cross-border listings.

It encourages international investing and thereby leads to more foreign capital flows to the

country.

VIII. IFRS balance sheet will be closer to economic value

Historical cost will be substituted by fair values for several balance sheet items, which will

enable a corporate to know its true worth

IX. Improvement in financial reporting

Better quality of financial reporting due to consistent application of accounting principles

and improvement in reliability of financial statements.

This, in turn, will lead to increased trust and reliance placed by investors, analysts and

other stakeholders in a company’s financial statements

16

Challenges of Convergence

I. Change to regulatory environment

For the success of convergence in India, certain regulatory amendment is required.

For example, The Companies Act (Schedule VI) prescribes the format for presentation of

financial statements for Indian companies, whereas the presentation requirements are

significantly different under IFRS. So, the companies act needs to be amended in line with

IFRS.

II. Lack of Preparedness

Adoption of IFRS by approximately 5000 listed companies by 2011 would result in a

significant demand for IFRS resources. Corporate India and accounting professionals need

to be trained for effective migration to IFRS. Additionally auditors would need to train

their staff to audit under IFRS environment

III. Educating Stakeholders

Educating Stakeholders comprising of investors, lenders, employees, auditors, audit

committee and etc would be a big challenge as this would require a considerable time and

effort

IV. Significant cost

Significant one-time costs of converting to IFRS (including costs of internal personnel

time, adapting IT systems, implementing revised reporting policies and processes, training

personnel and educating investors, analysts and members of the board)

17

V. Complexity in the financial reporting process

Under IFRS, companies would need to increasingly use fair value measures in the

preparation of financial statements. Companies, auditors, users and regulators would need

to get familiar with fair value measurement techniques

VI. Impact on financial performance

Due to the significant differences between Indian GAAP and IFRS, adoption of IFRS is

likely to have a significant impact on the financial position and financial performance of

most Indian companies

VII. Communication of Impact of IFRS to investors

Companies also need to communicate the impact of IFRS convergence to their investors to

ensure they understand the shift from Indian GAAP to IFRS.

VIII. Conceptual differences

For example, the Indian standard on intangibles is based on the concept that all intangible

assets have a definite life, which cannot generally exceed 10 years; while IFRS

acknowledge that certain intangible assets may have indefinite lives and useful lives in

excess of 10 years are not unusual

18

8. Critical success factors for IFRS conversion projects

The International Financial Reporting Standards (IFRS) are arguably the most widely discussed

accounting topic of the moment among businesses in the United States (US)—in particular,

what is involved in adopting the standards. The volume of discussion has only intensified since

November 2008, when the US Securities & Exchange Commission (SEC) proposed a roadmap

that would allow some US companies to adopt IFRS as soon as 2009 and require adoption by

all companies by 2014, 2015 or 2016, depending on the company’s size and filing status.

According to Accenture 2008 IFRS Survey, information technology is most commonly seen as

a key to the success of an IFRS initiative, fact cited by just less than 60 percent of executives

surveyed. Not far behind in the minds of survey participants are trained people, cited by just

under half of the respondents. And, given the scope and extent of IFRS’s impact on an

enterprise, it is no surprise that approximately one-third of executives view change

management as a critical success factor.

Having Technology in Place to Support the Conversion [57%]

No doubt, a company’s enterprise resource planning system may need to be modified to

handle differences in the way some accounting measurements — for example, asset

19

Leadership

Communication

Resources

Knowledge Project Management

Time

Strategy

retirement obligations — are calculated under IFRS. The same goes for processing logic.

For example, unlike Canadian and U.S. GAAP, IFRS allows an asset previously written

down for impairments to be written back up if its fair value recovers. Processing logic that

takes that possibility into account would need to be built into systems.

There may also be a need for changes to the interface between the general-ledger system

and any other system that relies on data from the ledger, such as for internal-management

reporting or compliance.

Having Trained People in Place [49%]

As is the case with any large-scale change initiative, a comprehensive communication

program should accompany the IFRS conversion to inform key stakeholders of what IFRS

means for them (and, in the case of employees, how specific elements of their jobs will be

affected by conversion). For investors and analysts, communication should focus on how

IFRS will affect earnings, as well as the company’s assets and liabilities. Employees and

business unit leaders also will need to be alerted to what is changing and when, and how

those changes will affect their daily jobs (and, as noted earlier, in some cases their

compensation).

How are companies faring in these areas? Organizations in Accenture survey are

proceeding down the path to addressing these key IFRS success factors, although

considerable opportunity for improvement exists. For example, about 40 percent of

respondents claimed their companies have a high level of skills and capacity to address

IFRS conversion impacts on a variety of areas, including tax planning and strategy, capital/

investment planning and strategy, internal and external reporting, mergers and acquisitions

(M&A) planning and strategy, and ERP and financial systems. But only approximately

20

one-third gave a high rating to their ability to address IFRS impacts on such areas as

investor relations, incentive compensation changes and debt covenant revisions.

One-third of respondents also said they “very much so” have an adequate number of

personnel with sufficient skills and capacity for converting to and maintaining IFRS

financial statements; just less than half said they “somewhat” have such skills. However, 20

percent said they either have no such skills in place or don’t know the state of their

capabilities in this area. And when it comes to change management and communications,

just less than half said they expect to have a moderate focus on these areas, while only 37

percent said their focus on such factors will be significant.

In sum, it appears that for a substantial portion of companies surveyed, the talent and

attention focused on IFRS adoption are not as strong as they could be given the magnitude

of the initiative they face.

Having a Good Change Management Plan [31%]

Accenture’s experience in IFRS conversions has revealed additional and related insights into

the factors for success. For example: 

They have learned that it is critical to get started early, which the large companies in our

survey are in fact doing. And the scale, scope and complexity of the initiative can be

significant, so it behooves companies to take advantage of the time they have to tackle the

challenge.

Second, they found that a strategic assessment is invaluable for defining how adoption will

impact each specific organization, and in particular how the chosen IFRS policies will

affect people, processes, data and technology.

21

 

Conducting such an assessment will enable companies to have a more effective timeline for

preparation and implementation, and will allow them to understand potential synergies with

other company initiatives. Here are some examples:

A company designing and implementing an ERP system should consider how their chart of

accounts and general ledger design and configuration would have to change to

accommodate the parallel accounting required by IFRS. Doing so would allow them to

embed those changes in the new system while it is being developed, instead of having to

implement costly changes down the road when the conversion to IFRS is made.

Another example relates to training: companies generally understand that the finance

function will have to undergo extensive training to make the shift to IFRS. However, as

mentioned earlier, IFRS likely will affect many other areas of the business, and therefore

training for employees in functions outside of finance also must be developed and

implemented to make the transition to IFRS as smooth as possible.

Given the fact that IFRS could touch many areas of the business, it is also critical to have

representatives from across the enterprise involved in the initiative. One way to secure such

participation is by creating a cross-functional steering committee—accountable to the audit

committee—that includes individuals from human resources, information technology, business

operations and finance.

 Sufficient Funding [19%]

In its proposed plan to move all U.S. publicly traded companies to the global standards, the

SEC also predicted that the largest U.S. registrants that adopt IFRS early would incur about

$32 million in additional costs for their first IFRS-prepared annual reports.

22

The most widely used metric for the expenses incurred in Europe came from the Institute of

Chartered Accountants in England and Wales back in 2005, after European Union companies

switched from their home-country GAAPs to IFRS. Those with revenue between 500 million

Euros and 5 billion Euros spent 0.05 percent of their revenue in their first year of transitioning

to IFRS.

Smaller companies likely will have a disproportionately higher cost to begin the conversion

process, if regulators mandate that they, as well as their larger counterparts, move to IFRS.

Companies with revenue between $1 billion and $4.9 billion — the lowest category in the

Accenture survey — predict they would spend 0.731 percent of their revenue on the change.

Compare that to the companies with revenue over $50 billion that expect to spend only 0.103%

of their revenue.

Executive and Board Support [19%]

When it comes to both the impacts and opportunities inherent in adopting IFRS, Accenture

research shows that CFOs take a very different view than other executives. Indeed, while all

respondents acknowledged the complexity of IFRS, CFOs see the task as more challenging, are

more optimistic about its results and are more prepared to act fast.

For example, more than two-thirds of CFOs predicted IFRS conversions would add significant

complexity to executing other enterprise initiatives, versus less than half of other respondents.

Across the board, CFOs also are more likely than other respondents to believe IFRS adoption

will have a significant impact on all functions: a minimum of 60 percent of CFOs voiced this

sentiment, compared with a range of 21 percent to 47 percent for other respondents.

This difference likely explains why CFOs also are more apt than others to recognize the

importance of change management. In fact, 64 percent of CFOs, versus only 30 percent of

23

other respondents, plan to emphasize change management and communication as part of their

IFRS initiative.

Finally, CFOs appear much more ready to act. While 15 percent of directors of finance and

accounting are waiting for more clarity and direction before beginning their IFRS projects, less

than 5 percent of CFOs believe they need more insight to proceed.

To make an enterprise become successful in IFRS conversion, it needs more than an adaptable

executives, it needs a full supporting executives.

Professional Support with IFRS Experience [12%]

Just as today not everyone within a company’s controllership and accounting functions is

knowledgeable about U.S. GAAP literature in its entirety, the same will be the case with IFRS

conversion training. All such personnel should get “awareness-level” training to paint the big

picture. But deeper training should be given only on accounting issues that people specifically

deal with in their roles. For example, someone who works on pensions and employee benefits

will need a lot of instruction in how IFRS treats that, but won’t necessarily need to know much

about inventory accounting.

And for those all, an IFRS adopter need professional support with IFRS Experience. Having

in-house accountants who establishes a position as the “go-to” person on IFRS within a

company, will give a good impact in the transition.  The footnotes to financial statements “are

going to be much more important” than with U.S. generally accepted accounting principles,

because they will allow more flexibility in what and how information is presented.

24

It’s going to be a different kind of expert than you’ve had under GAAP, and that person is

going to be extremely needed because they will help the company understand what its real

options are. 

9. Categorization of IFRS by ICAI

ICAI has categorize the IFRS in five categories based on the extent of changes or

the extent of support required from the regulatory authorities:

25

Categories of IFRS

Category ICategory II Category III Category VCategory IV

Category I A Category I B Category III A Category III B

Category I IFRS

Category I A

IFRSs which do not have any differences with the corresponding Indian Accounting Standards

IAS 11, Construction Contracts

IAS 23, Borrowing Costs

Category I B

IFRS which has certain minor differences with the corresponding Indian Accounting Standards

IAS 2 Inventories

IAS 7,Cash Flow Statements

IAS 20, Accounting for Government Grants and Disclosure of Government Assistance

IAS 33, Earnings Per Share

IAS 36, Impairment of Assets

IAS 38, Intangible Assets

Category II IFRS

Category II: IFRSs which may require some time to reach a level of technical preparedness by

the industry and professionals keeping in view the existing economic environment and other

factors

IAS 18, Revenue

IAS 21,The Effects of Changes in Foreign Exchange Rates

IAS 26, Accounting and Reporting by Retirement Benefit Plans

IAS 40, Investment Property (Corresponding Indian Accounting Standard is under

preparation

26

IFRS 2, Share-based Payment (Corresponding Indian Accounting Standard is under

preparation

IFRS 5, Non-current Assets Held for Sale and Discontinued Operations

(Corresponding Indian Accounting Standard is under preparation)

Category III IFRS

Category III A

IFRSs having conceptual differences with the corresponding Indian Accounting Standards that

should be taken up with the IASB

IAS 17,Leases

IAS 19, Employee Benefits

IAS 27,Consolidated and Separate Financial Statements

IAS 28, Investments in Associates

IAS 31, Interests in Joint Ventures

IAS 37, Provisions, Contingent Liabilities and Contingent Assets

Category III B

IFRSs having conceptual differences with the corresponding Indian Accounting Standards that

need to be examined to determine whether these should be taken up with the IASB or should

be removed by the ICAI itself

IAS 12, Income Taxes

IAS 24, Related Party Disclosures

IAS 41, Agriculture (Corresponding Indian Accounting Standard is under preparation)

IFRS 3, Business Combinations

IFRS 6, Exploration for and Evaluation of Mineral Resources

IFRS 8, Operating Segments

27

Category IV

IFRSs, the adoption of which would require changes in laws/regulations because compliance

with such IFRSs is not possible until the regulations/laws are amended.

IAS 1, Presentation of Financial Statements

IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors

IAS 10, Events After the Balance Sheet Date

IAS 16, Property, Plant and Equipment

IAS 32, Financial Instruments: Presentation (Exposure Draft of the Corresponding Indian

Accounting Standard has been issued)

IAS 34, Interim Financial Reporting

IAS 39, Financial Instruments: Recognition and Measurement (Exposure Draft of the

Corresponding Indian Accounting Standard has been issued)

IFRS 1, First-time Adoption of International Financial Reporting Standards

IFRS 4, Insurance Contracts

IFRS 7, Financial Instruments: Disclosures

Category V

IFRSs corresponding to which no Indian Accounting Standard is required for the time being.

IAS 29, Financial Reporting in Hyper-inflationary Economies

Which way of Adoption of IFRS is preferred: stage wise on the basis of

category of IFRS or all at once from a specified future date

The ICAI examined whether a stage-wise approach to convergence should be followed

whereby certain IFRS are adopted immediately (Category I) and certain other IFRS are

28

adopted within a short period of time, say two years (Category II and III) and the balance

standards are adopted only when the laws and regulation are changed.

However, the ICAI concluded that such a stage-wise approach may result in several

application complexities because many accounting standards are inter-related. So,

considering the challenges to transition, the ICAI has opted for an approach whereby all

IFRS should be adopted for the defined entities for accounting periods commencing on or

after April 1, 2011.

The ICAI believes that this transition period till April 1, 2011 will enable all participants in

the financial reporting process to help in building the environment supporting the adoption

of IFRS.

10. Project Management for IFRS Convergence Project

Complex tasks are easier when divided into manageable pieces and it is true for IFRS

convergence project also. Project can be broken down into three key phases.

1. Assess

Identify the key dates and the date of transition to IFRS

Develop an IFRS training plan for accounting and finance personnel.

Identify differences in the relevant accounting policies.

Identify gaps in systems and processes to gather information needed under IFRS and the

currently available information.

2. Design

Redevelop reporting manual i.e., develop IFRS accounting manual modifying chart of

accounts and containing detailed instructions.

Measure the impact of the differences identified on the latest financial prepared under

Indian GAAP.

29

Apply latest version of IFRS consistently

Apply IFRS 1 which deals with first-time adoption of IFRS.

Identify permitted exemptions from specified IFRS as per IFRS 1.

3. Implement

Prepare an opening IFRS balance sheet at the date of transition to IFRS

Explain the impact of transition from previous GAAP to IFRS as required by IFRS 1

Apply IFRS as business as usual.

30

Conclusion

Benefits derived from convergence are lot but also the challenges. The success of the

convergence to IFRS in India will depend on cooperation from government, regulators and

tax departments.

Ultimately, it is imperative for Indian entities to improve their preparedness for IFRS

adoption and get the conversion process right. Given the current market conditions, any

restatement of results due to errors in the conversion process would be detrimental to the

company involved and would severely damage investor confidence in the financial system.

The transition to IFRS is likely to be challenging for corporate India. However, if the

transitioned is planned and managed successfully, it will generally be positive for financial

reporting in India. This will improve the quality and transparency of the financial reporting

process and further align corporate India to the global economy and the global capital

markets.

There is an urgent need to address these challenges and work towards full adoption of IFRS

in India. The most significant need is to build adequate IFRS skills and an expansive

knowledge base amongst Indian accounting professionals to manage the conversion

projects for Indian entities . This can be done by leveraging the knowledge and experience

gained from IFRS conversion in other countries and incorporating IFRS into the curriculum

for professional accounting courses.

31

References

www.sebi.gov.in

economictimes.indiatimes.com

www.wikipedia.com

www.pwc.in/en/services/ifrs/ifrs-in-india.jhtml

Economic Times

Times of India

32