IFRS - Challenges
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Major Challenges :
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Shortage of Resources
With the convergence to IFRS, implementation of SOX, strengthening of
corporate governance norms, increasing financial regulations and global
economic growth, accountants are most sought after.
India with a population of more than 108 Crores has only approx
145,000 Chartered Accountants far below its requirements.
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Training
IFRS has to be uniformly understood and consistently applied.
Training to be given to all stakeholders, CFOs , Auditors, Audit
Committee, Analysts, Regulators, Tax authorities etc. etc.
To be introduced as a full subject in universities and Chartered
Accountancy syllabus.
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Information Systems
Financial accounting and reporting systems must be able to produce
robust and consistent data for reporting.
The system must be capable of capturing new information for required
disclosures, such as fair values of financial instruments, related party
transactions, segment information etc.
Extra security for addressing potential risk of business interruptions
particularly Fraud, Cyber terrorism and data corruption etc.
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Taxes
IFRS convergence will have significant impact on tax liability
calculations.
Tax authorities should ensure full clarity on the tax treatment for e.g,
unrealised gains or losses on various accountings reqd for financial
instruments etc.
Tax planning strategies has to be revisited.
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Communication
IFRS may significantly change reported earnings and various performance
indicators.
Managing market expectations and educating analysts for a particular
business will be critical.
Reported profits may be different from perceived commercial performance
due to the increased use of fair values and the restriction on existing
practices. Consequently indicators for assessing the performance need to be
revisited.
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Distributable profits
IFRS is value driven, which results very often in unrealized gains and
losses. Whether this can be considered for the purpose of computing
distributable profits will have to be debated.
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Management Compensation and debt covenants
IFRS may significantly change the calculation of performance based pay.
Present plan will be materially different under IFRS.
Significant changes to the plan may be required.
Re-negotiation will be required for contracts that referenced reported
accounting, such as bank covenants on convergence to IFRS.
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Others
Uniform Interpretations
Significant one time cost of converting to IFRS.
Ensure compatibility with local tax regime, RBI, SEBI, Courts,
tribunals etc.
Extensive reliance on fair value measurements for standards relating to
financial instruments and business combination.
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