International Financial Reporting Standards (IFRS)

What is IFRS? 

IFRS is a set of accounting standards developed by the International Accounting Standards Board (IASB)—an independent group of 15 experts—that is steadily becoming the global standard for the preparation of financial statements of public companies. 

How many countries follow IFRS? 

Approximately 120 nations require IFRS for domestic listed companies. Of these, about 90 countries have made it mandatory for their domestic companies to follow IFRS, while in the rest it is optional for companies to either follow IFRS or the domestic accounting norms. India, at the moment, does no require companies to follow the IFRS. However, as per its commitment in the G20 summit last year, India will converge its domestic accounting standards with IFRS in a phased manner starting April 1, 2011. While BSE and NSE-listed entities, apart from companies with networth over Rs 500 crore, are required to converge with IFRS from April 2011, for banks and insurance companies the date of convergence has been extended to April 1, 2013 and April 1, 2012 respectively. 

How relevant is a shift to IFRS now? 

By making a shift to IFRS, a business can present its financial statements on the same lines as its foreign competitors, making comparisons easier. This will lead to increased trust and reliance placed by investors, analysts and other stakeholders in a company’s financial statement. Companies also need to convert to IFRS if they are a subsidiary of a foreign company that is mandated to use IFRS, or if they have a foreign investor that is mandated to use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad. 

How difficult is it for Indian companies to converge their accounts as per IFRS? 

The costs would be determined largely by the size and nature of the respective company. While the initial cost to identify and quantify the differences between Indian accounting standard and IFRS, staff training and implementing IT support could be significant, the conversion could result in an ultimate reduction of costs for capital and financial reporting. Initial challenge lies in making changes to a company’s internal infrastructure related to data storage and availability. 

What are the regulatory impediments that come in way of IFRS convergence in India? 

For a smooth convergence to take place, India needs to amend key provisions in the Companies Act, SEBI Act, Insurance Act as also RBI regulations. While the changes to the Companies Act have been provided for in the proposed new Companies Bill, sectoral regulators like Reserve Bank of India and Insurance Regulatory and Development Authority of India will have to bring in certain changes in their norms.