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IFRS - Challenges
n      Major Challenges :
v      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.
v      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.
v     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.
v      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.
v     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.
v      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.
v     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.
v      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.

Published by

CA. Amit Daga
(Finance Controller, CA. CS. CFA. CIFRS. M.COM. )
Category Accounts   Report

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