A PROJECT ON IFRS CONVERGENCE IN INDIA (ADVANCED FINANCIAL ACCOUNTING) SUBMITTED BY Mr. RAJ ANIL SAHU ROLL NO. 18, MASTER OF COMMERCE, PART-I (ACCOUNTANCY) (SEMISTER-II), K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE, VIDYAVIHAR (EAST) AFFILIATED MUMBAI UNIVERSITY ACADEMIC YEAR 2012-13 PROJECT UNDER THE GUIDANCE OF 1
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A PROJECT ON
IFRS CONVERGENCE IN INDIA
(ADVANCED FINANCIAL ACCOUNTING)
SUBMITTED BY
Mr. RAJ ANIL SAHU
ROLL NO. 18, MASTER OF COMMERCE, PART-I
(ACCOUNTANCY) (SEMISTER-II),
K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE, VIDYAVIHAR (EAST)
AFFILIATED
MUMBAI UNIVERSITY
ACADEMIC YEAR
2012-13
PROJECT UNDER THE GUIDANCE OF
DR. (PROF.) MAYURESH PATIL
1
CERTIFICATE
This is to certify that Mr. RAJ ANIL SAHU of M.Com. (Part-I) (Accountancy), Roll
No. 18, Semester-II (2012-2013), has successfully completed the project on “IFRS
CONVERGENCE IN INDIA” Under the guidance of DR. (PROF.) MAYURESH MULE
Sign of Co-ordinator. Sign of principal.
Sign of Project Guide & Sign of External Examiner
Internal Examiner
2
ACKNOWLEDGEMENT
I have great pleasure in presenting our project on “IFRS CONVERGENCE IN INDIA”
I wish to dedicate this work to my lovely parents for their physical and spiritual support
throughout the period I have spent on this thesis work.
I wish to express my profound gratitude DR. (PROF.) MAYURESH MULE my mentor for
his good advice, support and immense contributions toward this research work.
I am highly indebted to our principal DR. MRS. SUDHA VYAS & our Vice Principal DR.
MAYURESH MULE who took keen interest and allowed me to perform this project.
I would also like to thanks our librarian who sincerely helped me getting this information.
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DECLARATION
I Mr. RAJ ANIL SAHU, student of M Com- (Part I) Roll Number 18 hereby declare that the
project for the paper ADVANCE FINANCIAL ACCOUNTING, “IFRS CONVERGENCE
IN INDIA” submitted by me for Semester-II during academic year 2012-2013, is based on
actual work carried out by me under the guidance and supervision of DR. (PROF.)
MAYURESH MULE
I further state that this work is original and not submitted anywhere else for any
examination.
Signature of student
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INDEX
SR.NO. TABLE OF CONTENTS PAGE NO.
1 Present Status of Indian Accounting Standard 6
2What is IFRS?
7-8
3Convergence to IFRS: Meaning and Proposed Timelines
8-10
4Entities impacted with Convergence
10-13
5Format of IFRS for India
13
6Role of ASB in Post Convergence Scenario
13
7Benefits and Challenges of Convergence
14-18
8Critical success factors for IFRS conversion projects
19-25
9Categorization of IFRS by ICAI
25-29
10Project Management for IFRS Convergence Project
29-30
11Conclusion
31
12Bibliography
32
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IFRS CONVERGENCE IN INDIA
1. Present Status of Indian Accounting Standard
Presently, the Accounting Standards Board (ASB) of the Institute of Chartered
accountants of India (ICAI) formulates Accounting Standards (ASs) based on the
IFRSs keeping in view the local conditions including legal and economic environment,
which have recently been notified by the Central Government under the Companies
Act, 1956.
Accordingly, the Ass depart from the corresponding IFRSs to maintain consistency
with legal, regulatory and economic environment, and keeping in view the level of
preparedness of the industry and the accounting professionals
In some cases, departures are made on account of conceptual differences with the
treatments prescribed in the IFRSs.
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2. What is IFRS?
IFRS is a set of international accounting standards stating how particular types of
transactions and other events should be reported in financial statements.
IFRS are generally principles-based standards and seek to avoid a rule-book mentality.
Application of IFRS requires exercise of judgment by the preparer and the auditor in
applying principles of accounting on the basis of the economic substance of
transactions.
IFRS are issued by the International Accounting Standards Board.
The term IFRS comprises IFRS issued by IASB; IAS issued by IASC; and
Interpretations issued by the Standing Interpretations Committee (SIC) and the
International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
International Financial Reporting Standards (IFRS) are designed as a common global
language for business affairs so that company accounts are understandable and
comparable across international boundaries. They are a consequence of growing
international shareholding and trade and are particularly important for companies that
have dealings in several countries. They are progressively replacing the many different
national accounting standards. The rules to be followed by accountants to maintain
books of accounts which is comparable, understandable, reliable and relevant as per the
users internal or external.
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3. Convergence To IFRS
The IFRS issued by the International Accounting Standards Board (IASB) are
increasingly being recognized as Global Reporting Standards.
More than 100 countries such as countries of European Union, Australia, New Zealand
and Russia currently require or permit the use of IFRSs in their countries.
In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has
proposed a plan for convergence with IFRS with effect from April 1, 2011.
Convergence to IFRS would mean India would join a league of more than 100
countries, which have converged with IFRS.
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International Financial Reporting
Interpretations Committee (IFRIC)
International Financial Reporting
Interpretations Committee (IFRIC)
Standing Interpretations Committee (SIC)
Standing Interpretations Committee (SIC)
International Accounting
Standard (IAS)
International Accounting
Standard (IAS)
International Financial reporting
Standard (IFRS)
International Financial reporting
Standard (IFRS)
IFRSIFRS
Why Convergence to IFRS?
A single set of accounting standards would enable internationally to standardize
training and assure better quality on a global screen.
It would also permit international capital to flow more freely, enabling companies to
develop consistent global practices on accounting problems.
It would be beneficial to regulators too, as a complexity associated with needing to
understand various reporting regimes would be reduced.
Meaning of Convergence with IFRS
Convergence means to achieve harmony with IFRSs; in precise terms convergence can
be considered “to design and maintain national accounting standards in a way that
financial statements prepared in accordance with national accounting standards draw
unreserved statement of compliance with IFRSs”, i.e., when the national accounting
standards will comply with all the requirements of IFRS.
But convergence doesn’t mean that IFRS should be adopted word by word, e.g.,
replacing the term ‘true & fair’ for ‘present fairly’, in IAS 1, ‘Presentation of Financial
Statements’. Such changes do not lead to non-convergence with IFRS.
The IASB accepts in its ‘Statement of Best Practice: Working Relationships between
the IASB and other Accounting Standards-Setters’ that “adding disclosure requirements
or removing optional treatments do not create noncompliance with IFRSs. But
additional disclosures or removing of optional treatment should be made clear so that
users of the IFRS are aware of the changes.
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IFRS Reporting In India: Proposed Timelines
Reporting under IFRS, as proposed by ICAI, would be applicable for accounting
periods beginning on or after April 1, 2011.
The first set of IFRS financial statements for the year ending March 31, 2012 would
require preparation of:
Opening balance sheet as on April 1, 2010
Comparative financial statements – year ending March 31, 2011
Reporting enterprises would need to ensure preparedness for IFRS reporting as early as
April 2010.
4. Which Entities will be covered under Convergence Strategy
Keeping in view the complex nature of IFRSs and the extent of differences between the
existing ASs and the corresponding IFRSs and the reasons therefore, the ICAI is of the
view that IFRSs should be adopted for the public interest entities from the accounting
periods beginning on or after 1st April, 2011.
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Which Entities are Public Interest Entities
IFRS for Small and Medium Sized Entities (SMEs)
SMEs need not adopt all the IFRS as it will be too voluminous for them.
A separate standard for SMEs will be formulated based on the IFRS for SMEs which is still
in exposure draft stage.
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Public Interest
Listed Entities
BankingEntities
Insurance Companies
Large Size Entities
Public Interest Entities
Public Interest Entities
a) whose equity or debtsecurities are listed or arein the process of listing on
any stock exchange,whether in India or
outside India; or
a) whose equity or debtsecurities are listed or arein the process of listing on
any stock exchange,whether in India or
outside India; or
d) which has public deposits
and/or borrowings from banks and financialinstitutions in excess of
rupees 25 crore at any time during theimmediately preceding
accounting year; or
d) which has public deposits
and/or borrowings from banks and financialinstitutions in excess of
rupees 25 crore at any time during theimmediately preceding
accounting year; or
e) which is a holding or a subsidiary of an entity
mentioned a) to d) points.
e) which is a holding or a subsidiary of an entity
mentioned a) to d) points.
c) whose turnover (excluding other income) exceeds rupees 100 crore
In the immediately preceding accounting year;
c) whose turnover (excluding other income) exceeds rupees 100 crore
In the immediately preceding accounting year;
b) which is a bank (including
a cooperative bank),financial institution,
a mutual fund, oran insurance entity; or
b) which is a bank (including
a cooperative bank),financial institution,
a mutual fund, oran insurance entity; or
The proposed standard represents a simplified set of standards for SME's with disclosure
requirements reduced, methods for recognition and measurement simplified and topics not
relevant to SME's eliminated.
IFRS for SMEs will be adopted in to or with modifications, if necessary.
Compliance with this IFRS for SMEs is not necessary to make India IFRS-compliant.
The impact of IFRS will be much larger and broader than anticipated.
Although it is widely known that IFRS is more than an accounting change, the breadth and
depth of the potential IFRS impacts may surprise many executives. According to our survey,
adoption will affect people, processes and technology in vital areas across the enterprise.
Indeed, although executives aware of IFRS generally know the new standards represent a
major change for the accounting function, those participating in our survey see it as much more
than that. In fact, more than half of all respondents said that most major functions of their
business—including IT, business operations, external stakeholders, customers and human
resources (HR)—will experience a significant impact from IFRS (see Figure 3). Additionally, a
large majority of respondents think IFRS adoption will add complexity to other planned
initiatives, including mergers, enterprise resource planning (ERP) and other IT
implementations, geographic expansion and outsourcing or shared services implementations
Further reflecting the significant scope of this change is the fact that executives expect IFRS
adoption to require a substantial investment. More specifically, recent studies on European
IFRS conversions estimate one-time conversion costs at an average of .05 percent of revenue.
However, Accenture’s own research reveals that while an average can give some guidance on
spend, companies need to more fully understand how the conversion relates to their specific
circumstances. For instance, as illustrated in Figure 5, the anticipated spending on IFRS
conversion among our survey sample, as a percent of revenue, varies substantially by the
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size of the enterprise. In fact, as the figure shows, smaller companies
5. Format of IFRS for India
The format of IFRSs to be adopted for public interest entities should be the same as that of
IFRSs, including their numbers.
The numbers of the existing Accounting Standards may be given in brackets for the
purpose of easier identification.
Wherever required, a section may be added at the end of the adopted IFRS indicating the
Indian legal and regulatory position.
The IFRSs when adopted will also take into account the International Financial Reporting
Interpretations issued by the IFRIC of the IASB.
Only in rare circumstances of public interest a carve out from an IFRS may be made.
6. Role of ASB in Post Convergence Scenario
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Endorse the IFRSs in the form of IFRS-
equivalent Indian Accounting
Standards for the local
regulatory framework with
changes such as removing optional
treatments and adding disclosure
requirements, where appropriate
Present the Indian Accounting
Standards so developed for
approval of National Advisory
Committee on Accounting
Standards (NACAS) for the
purpose of Government notification
Determine whether each
IFRS meets specified criteria set out in
local legislation/regulation
7. Benefits of Convergence
There are many benefits of achieving convergence with IFRS. A few are
discussed below:-
I. The Economy
As the markets expands globally the need for convergence increase. The convergence
benefits the economy by increasing the growth of its international business. It also
facilitates the maintenance of orderly and efficient Capital Markets and also helps to
increase the Capital Formation and thereby economic growth. It encourages international
investing and thereby leads to more foreign capital flows to the country.
II. Investors
A strong case for convergence can be made from the view point of the investors who wish
to invest outside their own country. Investors want the information that is more relevant,
reliable, timely and comparable across the jurisdictions. The financial statements prepared
using a common set of accounting standards helps the investors to better understand
investment opportunities as opposed to financial statements prepared using a different set
of national accounting principles.
For better understanding of financial statements, investors have to incur more costs in
terms of time and effort to convert the financial statements so that they can confidently
compare opportunities. The investors’ confidence would also be string if accounting
standards used are globally accepted. Convergence with IFRs contributes to investors
understanding and confidence in high quality financial statements.