Do we need IFRS in India?
Indian Companies are listed on overseas stock exchange and have to prepare accounts with respect to GAAP followed in respective countries. Foreign companies having subsidiary in India have to prepare there accounts in order to meet overseas reporting.
FDI and FII’s are more comfortable with one global accounting language which can be understood globally.
Applicability of IFRS for Indian concerns
Currently IFRS has been made applicable from the reporting year 2011 (or 2011-12, as the case may be) by Ministry of Corporate Affairs for the following:
-Bank, Insurance companies, mutual funds and Financial Institutions
-Turnover in preceding year exceed INR 1 Billion
-Borrowing in preceding year exceed INR 250 Million
Impact of IFRS implementation
There are several areas where impact of IFRS exists for entities such as presentation of accounts, accounting policies and procedures, language of legal document, the way the entity will look at its business model and conduct business. At the transition stage itself company has to be give careful thought and planning for its accounting policy and procedure because it in turn will affect financial position of company and its operations.
Challenges faced by companies in IFRS implementation
- IFRS is itself a moving target with changes being done continually
- There are not many trained resources for IFRS
- Also IFRS training in an organization will be huge task
- Not many people are aware and have understanding of IFRS
It is better for the corporate to start as early as possible the implementation of IFRS and come up with IFRS roadmap because Government is not looking forward to extend the date of 2011. Ultimately the onus will be on management to comply with the requirement and the auditors will only have to comment on whether the management has properly compiled with or not.
My personal view is if IFRS is completely adopted in India most of the companies’ financial statement will show lower profits than what have been under Indian GAAP. There may be the question in mind of layman stakeholder that how can the profits of a company change drastically by following different GAAP’s but this is not necessarily due to a ‘faulty’ reporting system adopted by the companies but because of inherent IFRS GAAP differences. (Notable differences exist in IFRS fixed assets and IFRS inventory standards.)
CA. Shalini Tibe, IFRS Consultant