The International Financial Reporting Standards (IFRS) is, as all we know, is posed as the global language of accountancy which is aimed to make the comparison and interpretation of the financial statements across the world easier. This, however, is only possible if all the countries prefer the IFRS reporting. Till now, more than 100 countries of the world have adopted the IFRS as their standards of accounting.
India has also committed itself at the G-20 to make it's companies IFRS compliant from April 1st, 2011. Now, there are two ways to make the reporting structure of a country IFRS compliant. Either you adopt the IFRS in their entirety, or you converge your local standards in lines with the IFRS. The India has adopted the latter.
Convergence Vs. Adoption:
It means, India has not adopted the IFRS in full but it is revising it's Accounting Standards (AS) to get them in line with the international reporting standards. The premier standard setting body in India is the Institute of Chartered Accountants of India (ICAI) which has already issued the "Exposure Drafts of Converged Accounting Standards".
The perceived reason by many for why India has not adopted the IFRS in it's original form is the concerns of India over some critical issues in the original standards. Indian Government and the Industry feel that it would not be possible to implement IFRS as they are in some areas like agricultural accounting, foreign exchange transactions, pension accounting etc. Therefore, India has preferred the convergence road-map. The final destination seems to be full adoption but it will take some time after once the businesses of the country get used to converged standards.
The Road-map for Convergence in India:
Road-map for convergence in respect of Companies other than Banking Companies, Insurance Companies and NBFCs
Conversion of opening balance sheets as at April 1, 2011, if the financial year commences on or after April 1, 2011:
- Companies which are part of NSE - Nifty 50
- Companies which are part of BSE - Sensex 30
- Companies whose shares or other securities are listeon stock exchanges outside India
- Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crore
These companies are required to prepare their financial statements for the financial year 2011 - 12 in accordance with converged Accounting Standards, but will show previous years’ figures as per the financial statements prepared by them previously for 2010 - 11 i.e. as per non-converged Accounting Standards. However, such companies shall have the option to add an additional column to indicate what these figures could have been if converged Accounting Standards had
been applied in that previous year.
Conversion of opening balance sheets as at April 1, 2013, if the financial year commences on or after April 1, 2013
- The companies, whether listed or not, having a net worth exceeding Rs. 500 crore but not exceeding Rs. 1,000 crore.
Conversion of opening balance sheets as at April 1, 2014, if the financial year commences on or after April 1, 2014
- Listed companies which have a net worth of Rs. 500 crore or less
The companies which are not affected by the convergence:
Non-listed companies which have a net worth of Rs. 500 crore or less and whose shares or other securities are not listed on Stock Exchanges outside India and Small and Medium Companies (SMCs) will not be required to follow the notified Accounting Standards which are converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified Accounting Standards which are not converged with the IFRS.
While the Insurance, Banking and NBF Companies are given some relaxation for now, they will also have to adopt the converged IFRS over the time in phased manner.