IFRS Convergence Key Challenges
Introduction: In last decade the Global market has become local. Entities are reaching new markets world over to sell their products & services, tap capital markets & banks for funds. Investors have started investing in shares & securities globally. All the stakeholders taking decision based on these financial statements need to be sure on one thing i.e. financial statement present a true and fair view and their understanding is in line with the person responsible for preparing them. This has necessitated the need for a financial statement, prepared using a uniform and globally accepted accounting principles.
However, different countries have local accounting standards or principles which spell out the accounting treatment and disclosure requirements for preparing the financial statement. These standards may have different accounting treatment for the same type of transaction in two different countries. This makes difficult for the end user to understand the financial statements for taking any economic decisions unless these are prepared based on uniform accounting standard. Financial statement prepared based on single, universally accepted GAAP will ensure a transparent financial statement across globe. This in turn will help global financial system to achieve next level.
IFRS implementation world over and in India: The usage of IFRS as a universal financial reporting language is on increase world over simply due to its wide acceptance. Most of the country has started acting in this direction either by allowing the IFRS implementation or by their local GAAP converging to IFRS. Major stock exchange across the world today accepts IFRS financial statement. It is expected that more than 150 countries would follow IFRS by 2011. The U.S. allows foreign filers to IFRS financial statement. Going forward it may follow IFRS for local filers as well to ensure that it does not lose the capital market advantage.
In India, the ICAI states that IFRS should be adopted by the listed entities, Banks, Insurance companies and large sizee entities for the accounting periods beginning on or after 1 April 2011. However, in the above statement there is a catch. Although, for IFRS convergence the accounting period specified is 1 April 2011, but for all practical purposes the entities preparing the IFRS financial statement has to prepare the same from the accounting period 1 April 2010. This will ensure the comparisons between two accounting periods. Convergence to IFRS will enhance Indian companies reach in global market for low cost fund. This will also help Indian companies in benchmarking their performance with the counterparts globally.
Challenges in India: IFRS compliance will need a lot of coordination amongst various regulatory authorities and framework viz. ICAI, SEBI, Companies Act, IRDA, RBI, etc. IFRS implementation may result in inconsistencies with existing regulation and the above stated coordination will avoid such state. Reporting requirement governed by various regulations in India override other laws including the accounting standard. IFRS does not allow such deviations; hence appropriate steps need to be taken in time to avoid such conflict. In addition to regulatory challenges, IFRS convergence in India will facee other challenges viz. Training, Shortage of Resources, Information systems, etc.