International Financial Reporting Standards
The International Accounting Standards Board (IASB), based in London, developed International Financial Reporting Standards (IFRS) with the goal of developing a single, unified accounting standard and making changes in accounting standards accordingly. They also introduced new accounting standards. They are principle-based standards with wide criteria for financial reporting.
Right today, our global economy is extremely interconnected. Businesses raise funds all throughout the world. They also promote and market their products internationally. As a result, they owe taxes in a variety of countries. As a result, an international accounting standard is now required.
IFRS
Advantages of IFRS
Advantages for the Industry: With globally recognised standards, the company may easily advance. Convergence is so critical for business. It will allow the company to lower the cost of overseas funding.
Extra Candour: The users of financial reporting gain from convergence as well. As a result, they will have a better understanding of the financial situation. This will also boost transparency and investor confidence in the investment fund.
Spending Less Money: It will immediately free corporations from the necessity to keep separate accounting records.
Disadvantages of IFRS
Absence of Specifics: Investors, regulators, employees, and the general public rely on the financial reporting system, which requires enterprises to disclose data about their financial status on an annual basis. This information should be presented regularly so that reviewers can compare it to industry standards.
GAAP Is More Comprehensive than IFRS: Due to the the process of establishing these standards over time, the IASB has had to give up a level of precision that national standards currently possess in order to attain global norms that are acceptable to everyone.
Challenges in the Convergence of Accounting Standards
Training and Awareness - Many people are unfamiliar with the IFRS standards, making implementation difficult. Financial professionals will be able to perform the standards consistently and uniformly after completing the relevant training.
Changes to Indian legislation - In order to implement IFRS standards, the current laws governing financial regulation would need to be totally changed. To comply with IFRS regulations, the SEBI Act of 1992, the IT Act of 1962, the Companies Act of 1956, and other legislation would need to be amended. These legal stumbling blocks are a substantial impediment to IFRS convergence.
IT systems - Financial accounting software and reporting tools would need to be completely redesigned, necessitating major investment in IT infrastructure by Indian enterprises. When it comes to suggestions that require money, time, or effort, Indian firms are typically hesitant.
Accounting Standards
Case Study
Case: How does India serve as a model for IFRS convergence and accounting excellence? Explain.
The purpose of this case study is to look into the effects of the convergence of Indian generally accepted accounting principles (IGAAP) and International Financial Reporting Standards on the accounting quality in India (IFRS). Using a pre- and post-IFRS adoption period design, the correctness of financial information reported under IGAAP and Ind AS can be accessed.
Subsequent testing findings show that accounting quality is improving over time. There may be a learning curve before the benefits of IFRS adoption and convergence propagate throughout a system. Furthermore, simply adopting or converting to IFRS without significantly changing institutional and enforcement frameworks may not result in improvements in accounting quality, especially in countries with liberal regulatory bodies. Examples include introducing IFRS into university curricula on purpose and providing workshops and continuing education courses. Changes to the institutional structure for financial reporting are also required.
Conclusion
Convergence of IFRS with Indian accounting standards is surely a difficult task. All parties concerned should agree and be convinced of the benefits that would result from standardisation. Most importantly, this will strengthen Indian firms' reputation on the global financial market, and they will benefit greatly from it. Since India has already fallen behind, businesses in India cannot afford to grow any more complacent. Also, since the convergence and transition process has been delayed thus far, Indian firms may, if necessary, seek support from successful peers in industrialised countries.
FAQs on Convergence with IFRS - Changes in Accounting Standards
1. What are some of the challenges in convergence with IFRS?
The convergence of IFRS and the Indian Accounting Standard is fraught with difficulties. Among them are the following:
In addition to the Accounting Standards, India has a plethora of rules and regulations in place to ensure their implementation. These regulations must also be changed.
Nowadays, bookkeeping is performed with software such as SAP, Oracle, Microsoft Navision, and others. Convergence with IFRS meaning implies that this product must be upgraded at a high cost.
Similarly, there is a scarcity of qualified employees. Bookkeepers, auditors, and other professionals should obtain experience in planning and learning programmes for the revised criteria.
2. What do we understand by harmonisation of accounting standards?
National and international accounting rules and practices must be harmonised in order to achieve a consistent set of global standards. High-quality standards improve market efficiency, reduce capital costs, and promote investor trust. A unified set of worldwide standards would facilitate comparisons and establish a fair playing field in which no country would be favoured or penalised due to accounting laws. Adoption of a single set of high-quality standards globally will result in improved user comprehension and cost savings for users of financial statements and others.
3. Describe the goals of IFRS.
The IFRS' ultimate goal is to provide standardised accounting as a common global language for global business. As a result, if a company does business in numerous countries, it merely publishes a single set of financial statements that meets the legal requirements of each country where it does business. Furthermore, if there is a global standard, users of these financial statements will find it much easier to compare them. The government should form a task group to offer recommendations for changes to current legislation in order to encourage regulatory compliance and to monitor implementation to ensure that it is carried out properly.
