India has committed itself at the G-20 to make its companies, IFRS compliant from April 1st, 2011. Though India has not adopted the IFRS in full but it converged its Accounting Standards (AS) to get those in line with the international reporting standards. In this process Indian government, till date has issued 35 accounting standards which are in line with existing IAS and IFRS.
Impact of IFRS on Indian businesses can be studied in various contexts. We will do a cost benefit analysis of the same.
Cost Associated With Implementation of IFRS.
1) The transition to IFRS will place a burden on company staff. Training of staff will be deemed necessary. Further, companies have to employ staff on a permanent basis to take responsibility for compliance with accounting standards and disclosure requirements. This will increase the manpower cost for companies.
2) Information and communication technology (ICT) systems may not be able to supply information in all instances to be required to achieve compliance with IFRS, which suggests that more ICT system changes will be seen in the future. For example maintenance of information relating to property, plant and equipment, such as updating of the fixed asset register and recording and updating of the residual values and useful lives, in the transition to to IAS 16 (property, plant and equipment) will be a burdensome task.
3) In a few cases, the adoption of IFRSs may cause hardship to the industry. To avoid the hardship, some companies may go to the court to challenge the standard. Earlier, to avoid hardship in some genuine cases, the ICAI has deviated from corresponding IFRS for a limited period till the preparedness is achieved. But now such deviation will not be there as the new accounting standards are in line with IFRS.
Benefits Associated with implementation of IFRS.
1) As the forces of globalization prompt more and more countries to open their doors to foreign investment and as businesses expand across borders, both the public and private sectors are increasingly recognizing the benefits of having a commonly understood financial reporting framework, supported by strong globally accepted standards. The benefits of a global financial reporting framework are numerous and include:
• Greater comparability of financial information for investors;
• Greater willingness on the part of investors to invest across borders;
• Lower cost of capital;
• More efficient allocation of resources; and
• Higher economic growth.
Challenges for Small and Medium-Sized Entities
In emerging economies like India, a significant part of the economic activities is carried on by small- and medium-sized entities (SMEs). Such entities face problems in implementing the accounting standards because of:
• Scarcity of resources and expertise with the SMEs; and the
• Cost of compliance is not commensurate with the expected benefits
Hence keeping in mind Government of India has decided that non-listed companies which have a net worth of Rs. 5000 Millions 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.
Hence there will be two sets of accounting standard in India.