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Binod Khatri 

Abstract: It is well known that companies all over the world have become more and more internationally oriented during last few decades. They create fusion, make investment, conduct trade and co-operate over country borders. International Financial Reporting Standards (IFRS) is becoming the global language of business with over 40% of the world having moved to IFRS in the past few years. By 2018, it is expected that all companies in major markets will be using IFRS. The globalization creates an increased need for communication in the terms of language, awareness of culture differences and domestic customs. Moreover the financial communication such as accounting and financial results is just as important for business leaders and employees to master.

Background: Globalization has changed the close economy into open economy. Now a day’s national economy is integrating in international market with other countries by spreading their trade and business outside their own country. Foreign Direct Investments, Foreign Institutional Investors, Merger and Acquisition, Franchising and Business Outsourcing are some example of international transaction in global business. For the integrity of different county’s business together in the world market it was necessary for the business to adopt a common set of accounting standard, since accounting is the language of a business. Therefore in 1973, international professionals from different countries established the International Accounting Standard Committee. Main objective to this committee is to issue International Accounting Standards, at this present time Ministry of Corporate Affairs notified 35 Accounting Standards. In 2001 International Accounting Standard Committee are superseded as International Accounting Standard Board. Now the board issues the International Financial Reporting Standard formerly known as International Accounting Standards. Accounting Standards were prepared for some benefits in global market which are compelling. The use of common set of accounting standards throughout the world provides an easy way of comparability and transparency of financial information. It also reduces the cost of preparing financial statements. A constant use of accounting standards provide higher quality information which enables the investors to make a better decision, indirectly fund will allocate in more efficient manner in the market and the company can reduce its overall cost of capital.

Understanding IFRS?

“A single set of high quality, understandable and enforceable global accounting standards that Abstract: Globalization has laid down a way for all the countries to adopt a single set of accounting standards. Recent years have seen major changes in financial reporting worldwide under which the most obvious is the continuing adoption of IFRS worldwide. More than 100 countries have converged or recognized the police of convergence with the IFRS. IFRS are the globally accepted accounting standards and interpretations adopted by the IASB. An upcoming economy on world economic map, India, too, decided to converge to International Financial Reporting Standards (IFRS). In India, ICAI has decided to adopt the IFRS by April 2011. This paper discusses the IFRS adoption procedure in India and the utility for India in adopting IFRS, the problems and challenges faced by the stakeholders and its impact on India

Objectives of IFRS

The main objective of IFRS development is harmonization in financial statements reporting.

Some additional objectives are:

  1. To create the global financial reporting infrastructure.
  2. To generate sound business sense among the beneficiaries.
  3. To generate the dimensions of fair presentation of financial statement.
  4. What is the reason to implement the International Financial Reporting Standards (IFRS) in India?

Process of convergence with IFRS in India

Adoption of IFRS has become a vital issue of discussion and debate in the different country. Due to the variation in different country’s GAAP of an individual country, a threat is always sustain on the harmonization of accounting standards. IFRS is one of the best financial reporting systems, which does not include any country with variation of accounting policies. Now a single set of financial reporting is final statement to present across the world at a reduced cost and more reliable, transparent and fair reporting of an entity. These benefits are attracting each country to set mandatory for adopting IFRS in their country. India has also mandate the IFRS for financial reporting statement from 1st April 2011 but still India have been not succeeded to resolve its issues relating to conversion with IFRS such as taxation. After enactment of Companies Act 2013 the ministry of corporate affairs has focus to implement IFRS.

Phase I 1st April 2016: Mandatory Basis

(a) Companies listed/in process of listing on Stock

Exchanges in India or Outside India having net worth > INR 5 Billion

(b) Unlisted Companies having net worth > INR 5 Billion

(c) Parent, Subsidiary, Associate and J.V. of Above

Phase II 1st April 2017: Mandatory Basis

(a) All companies which are listed/or in process of listing inside or outside India on Stock Exchanges not covered in Phase I (other than companies listed on SME Exchanges)

(b) Unlisted companies having net worth INR 5 Billion > INR 2.5 Billion

(c) Parent, Subsidiary, Associate and J.V. of Above

Ø Companies listed on SME exchange not required to apply Ind AS.

Ø Once Ind ASs are applicable, an entity shall be required to follow the Ind AS for all the subsequent financial statements.

Ø Companies not covered by the above roadmap shall continue to apply existing

but the professionals are still having difference on how to get fair value of assets and liabilities. Therefore India needs to develop its conference regarding to IFRS convergence. Also need to develop some training programs for IFRS policies. For the purpose of successful conversion of IFRS with Indian Corporate, India needs to have efficient professionals to operate in this field. Apart from this, IFRS require the fair market value applications in financial reporting this may create significant differences in financial information currently presented in financial reports.

IFRS adoption procedure in India

To rationalize accounting practices in the country, the Indian government in 1949, established Institute of Chartered Accountants of India by passing ICAI Act, 1949. Accounting Standard Board was Constituted by ICAI in 1977 in order to create harmony among the diversified accounting policies and Practices in India. Three steps process was laid down by the accounting professionals in India which are Summarized as follows:

Step 1 – IFRS Impact Assessment 

This is the first step. In this step the firm will assess the impact of IFRS adoption on Accounting and Reporting issues, on procedures and systems, and on core business of the entities. Then the firm will find the key conversion dates according to IFRS training plan has laid down. As and when the training plan is in place, the firm will have to identify the important Financial Reporting Standards which will apply to the firm and also the variations among the present financial reporting standards being followed by the firm and IFRS both.

 Step 2 – Preparations for IFRS Implementation

This is the second step of the process, which will carry out such activities required for IFRS implementation process. Then the firm will reform the internal reporting systems and processes. IFRS first deals with the adoption and implementation offirst time adoption process.

Step 3 – Implementation

This is the final step of the process which deals with the actual implementation of IFRS. The initial phase of this step is to prepare an opening Balance Sheet at the date of transition to IFRS. To understand the actual impact of the transition from the Indian Accounting Standards to IFRS is to be developed. This will follow the full application of IFRS as and when it is required.


Some of benefits of IFRS is discussed below..

1. The Investors:

Convergence of Indian Accounting Standards with IFRS makes accounting information more reliable, relevant, timely and comparable across different legal and economic frameworks and requirements since it would then be prepared by using a common set of accounting standards which will facilitate the investors who willing to invest in the countries apart from India. It will also develop better understanding of financial statements worldwide which increase the confidence among the people as investors., from whole of the world.

2. The Industry:

The other important is the industry which in the event of convergence with IFRS will be benefited because of some basic reasons. Firstly it will enhance confidence in the minds of the foreign investors, secondly, it decreases the burden of financial reporting, thirdly, it would make the process of preparing the individual and group financial statements easier and simplest, and the last and important one is that this will reduce cost of preparing the financial statements using different sets of accounting standards.

3. Accounting Professionals:

However, there would be initially many problems but convergence with IFRS would surely benefit the accounting professionals and it will be helpful them to sell their talent and expertise across the globe.

4. The Economy:

All the discussions made above explains how convergence with IFRS would help industry grow and is beneficial to the corporate entities in the country as this would make the internal and  external highly consisted, and it will report improvement in the risk rating among the foreign investors. Moreover, the international comparability is also benefiting the industrial and capital markets in the country which lead to better economy across the country.


IFRS are formulated by International Accounting Standard Board. However, the responsibility of convergence with IFRS vests with local government and accounting and regulatory bodies, such as the ICAI in India. Thus ICAI need to invest in infrastructure to ensure compliance with IFRS. India has several constraints and practical challenges to adoption and compliance with IFRS. So there is a need to change some laws and regulations governing financial accounting and reporting in India.

Therefore there are several challenges that will be faced on the way of IFRS convergence. These are:

1. Difference in GAAP and IFRS:

Adoption of IFRS means that the entire set of financial statements will be required to undergo a drastic change. The differences are wide and very deep routed. It would be a challenge to bring about awareness of IFRS and its impact among the users of financial statements.

2. Training and Education:

Lack of training facilities and academic courses on IFRS will also pose challenge in India. There is a need to impart education and training on IFRS and its application.

3. Legal Consideration:

Currently, the reporting requirements are governed by various regulators in India and their provisions override other laws. IFRS does not recognize such overriding laws. The regulatory and legal requirements in India will pose a challenge unless the same is been addressed by respective regulatory.

4. Taxation EFFECT :

IFRS convergence would affect most of the items in the financial statements and consequently the tax liabilities would also undergo a change. Thus the taxation laws should address the treatment of tax liabilities arising on convergence from Indian GAAP to IFRS. 

5. Fair value Measurement:

IFRS uses fair value as a measurement base for valuing most of the items of financial statements. The use of fair value accounting can bring a lot of instability and prejudice to the financial statements. It also involves a lot of hard work in arriving at the fair value and valuation experts have to be used.






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June 2024