Over 150 countries have implemented or announced plans to migrate to International Financial Reporting Standards (IFRS). India proposes to adopt IFRS from the accounting period starting April 2011 or later. The uniformity in accounting and disclosure standards will enable all stakeholders to understand the performance of entities and make comparisons across sectors and countries. However, the challenges cannot be underestimated as some countries that adopted IFRS took over two years for complete convergence.

In spite of efforts by the core group set up by the ministry of corporate affairs to bring convergence of Indian Accounting Standards with IFRS, a lot of ground is yet to be covered to align and harmonise legislative changes with various enactments. The conflict between legislation and accounting standards results in multiple interpretations for a transaction. While the pace of regulatory changes is yet to gain momentum, the challenge for industry comes from differences in the underlying conceptual framework and lack of trained people. Differences between Indian GAAP and IFRS that can impact businesses include the focus on economic substance over legal form, use of the fair value concept over historical cost accounting and consolidated financial statements as primary financial statements. The list also includes detailed guidelines on business combinations and revenue recognition as well as valuation and disclosure of financial instruments like redeemable preference shares.

Some of these changes can impact debt covenants, ratings, design of financial products and key financial performance metrics. Training the finance department alone is not enough — it also requires an understanding of the modification in processes including IT architecture. Companies should devote time and resources in educating and training employees and other stakeholders. Considering the cost and resources required to migrate to IFRS, very few companies are geared to move to IFRS. More efforts are required to bring awareness on the conceptual framework and timeline to prepare companies, particularly small and medium enterprises (SMEs), to switch to IFRS seamlessly.

The Institute of Chartered Accountants of India (ICAI) is finalising accounting standards in convergence with International Financial Reporting Standards (IFRS), and they are expected to be ready by June this year. Taxation issues are being addressed and amendments to various legislation are also being carried out.

The expectation is that companies required to follow the IFRS converged Indian Accounting Standards from April 1, 2011, would be able to do so. This is based on the fact that many of them, covered in phase I, are also preparing their financial statements based on IFRS or US GAAP. So, their transition to IFRS-converged Indian accounting standards would not be too cumbersome.

Also, these entities will not have to present comparatives for 2010-11 as per the IFRS-converged accounting standards. They will still have some more time to prepare themselves for these standards.

The roadmap prepared by the ministry of corporate affairs mandates banks and non-banking financial companies to follow the converged accounting standards from April 1, 2013. This would prepare them to change their accounting and other systems in accordance with the new accounting standard on financial instruments, IFRS 9. This standard is expected to be finalised by the International Accounting Standards Board by end-March 2011. So is the case of insurance companies that would be required to converge to IFRS from April 1, 2012.

The preparedness of industry also depends on the readiness of professionals in carrying out tasks related to preparation and audit of financial statements in accordance with the IFRS-converged accounting standards. The ICAI has started training its members in industry and in practice. Last year, it launched a certificate course in IFRS. So far, about 1,600 members have undergone this training. Besides, the ICAI has conducted seminars and conferences on IFRS to discuss the aspects relating to convergence. From mid-April, the ICAI plans to start training programmes for industry at several centres in collaboration with the ministry of corporate affairs.

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