Hit & Trial IFRS (1)

8/6/2019 Hit & Trial IFRS (1)

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DISCRIMINATIVE STUDY ON IMPLEMENTATION OF

INTERNATIONAL FINANCIAL REPORTING STANDARDS

A THESIS

P RESENTED TO THE FACULTY OF

SBS S WISS BUSINESS S CHOOL


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IN P ARTIAL FULFILLMENT

O F THE REQUIREMENT FOR THE DEGREE

MASTER OF BUSINESS ADMINISTRATION

BY

SAURAV KUMAR JAIN J UNE 2011

P ROMOTER : D R. R EJIMON THOMAS


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DECLARATION

I, Saurav Kumar Jain, a student of MBA Class of 2009-2011 of Swiss BusinessSchool, , Zurich, hereby declare that this dissertation report Implementation of International Financial Reporting Standards in India is an authentic piece of work exclusively prepared by me and has not been submitted to any other institute or

published anywhere before.

Saurav Kumar Jain

MBA 2009-2011

CERTIFICATE OF ORIGIN

Swiss Business School Page 3


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This is to certify that Saurav Kumar Jain, a student of Master of BusinessAdministration-Class of 2009-2011, Swiss Business School, Zurich has done hisdissertation on the topic Implementation of International Financial ReportingStandards in India under my guidance

To the best of my knowledge this project is an authentic piece of work and has not been submitted to any other institute or published anywhere before.

Dr. Rejimon Thomas

Lecturer

MBA- Class of 2011

Swiss Business School

ACKNOWLEDGEMENT



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I take this opportunity to extend my humble gratitude to all those people who havehelped me in my dissertation report which is an integral part of any MBA studentscurriculum. I am grateful to Dr.Rejimon Thomas for guiding me through every stageof my project work and helping me to overcome all the problems that had arisen in thedue course of completion of the project.

I am also genuinely thankful to Dr Rajaram, Dean (RIMS) who has given me hisvaluable advice and shared his enriching experience to help me make this project

I also express my heartfelt thanks to all the respondents who participated in my surveyand made this project a success.

I am also indebted to my family and friends without whose constant support andencouragement the completion of this project would not have been possible.

At last, I thank God for showering His blessings on me and giving me the courage tocomplete this project successfully.

EXECUTIVE SUMMARY

Accounting is an integral part of recording financial transactions in each and every

organization across the world. Till a few years ago, each country used to record

transactions according to its domestic accounting standards. India records its

transactions according to the Indian Generally Accepted Accounting Principles



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(Indian GAAP). In the last few years, the world has changed a lot. A number of

multinational corporations have come up in India and abroad. Cross-border

transactions have increased leading to increased volume of international transactions

among nations. Recording of transactions according to the accounting standards of

individual countries was creating confusion as well as complications. In order to save

time and cost and to harmonize the discipline and profession of accounting, it is

imperative to record all financial transactions under International Financial Reporting

Standards (IFRS). India has decided to complete its first phase of IFRS convergence

by 1 st August, 2011 so that Indian companies can successfully benchmark their

performance with foreign competitors.

In this report, a survey has been conducted to find out the awareness and state of IFRS

implementation in India. A sample size of 63 respondents has been analyzed. The

survey tells us about the state of awareness and the preparedness of various chartered

accountants, MBAs, finance professionals and academicians. The survey also brings

out the areas where the respondents feel that they need training and the individual

IFRS that they feel should be focused upon.

The last section deals with the conclusion and recommendations for smooth

implementation of IFRS in India.

CONTENTS

S.No Particulars Page No.

1. Introduction

2. Literature Review

3. Research Methodology

4. Data analysis & Findings

5. Conclusion & Recommendations



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Appendix (including questionnaire)

References

INTRODUCTION



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Accounting is the art of recording transactions in the best manner possible, so as to

enable the reader to arrive at judgments/come to conclusions, and in this regard it is

utmost necessary that there are set guidelines. These guidelines are generally called

accounting policies. The intricacies of accounting policies permitted Companies toalter their accounting principles for their benefit. This made it impossible to make

comparisons. In order to avoid the above and to have a harmonized accounting

principle, Standards needed to be set by recognized accounting bodies. This paved the

way for Accounting Standards to come into existence.

Accounting Standards in India are issued by the Institute of Chartered Accountants of

India (ICAI). At present there are 31 Accounting Standards issued by ICAI

Objective of Accounting StandardsObjective of Accounting Standards is to standardize the diverse accounting policies

and practices with a view to eliminate to the extent possible the non-comparability of

financial statements and the reliability to the financial statements.

The Institute of Chartered Accountants of India, recognizing the need to harmonize

the diverse accounting policies and practices, constituted at Accounting Standard

Board (ASB) on 21st April, 1977.

Compliance with Accounting Standards issued by ICAI

Sub section (3A) to section 211 of Companies Act, 1956 requires that every

Profit/Loss Account and Balance Sheet shall comply with the Accounting Standards.

'Accounting Standards' means the standard of accounting recommended by the ICAI

and prescribed by the Central Government in consultation with the National Advisory

Committee on Accounting Standards(NACAs) constituted under section 210(1) of

companies Act, 1956.

Accounting Standards Issued by the Institute of Cha r tered Accountants of India

are as below :

AS-1 Disclosure of Accounting Policies.

AS-2 Valuation of Inventories



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AS-3 Cash Flow Statements

AS-4 Contingencies and Events occurring after the balance sheet date

AS-5 Net Profit or Loss for the Period, Prior Period Items and change in Accounting

Policies

AS-6 Depreciation Accounting.

AS-7 Construction Contracts

AS-8 Revenue Recognition

AS-9 Accounting for Fixed Assets

AS-10 The Effects of changes in Foreign Exchange

AS-11 Accounting for Government Grants

AS-12 Accounting for Investments

AS-13 Accounting for Amalgamation

AS-14 Employee Benefits

AS-15 Borrowing Costs

AS-16 Segment Reporting

AS-17 Related Party Disclosure

AS-18 Accounting for leases

AS-19 Earning Per Share

AS-20 Consolidated Financial Statements

AS-21 Accounting for Taxes on Income



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AS-22 Accounting for Investments in Associates in consolidated financial statements

AS-23 Discontinuing Operations

AS-24 Interim Financial Reporting (IFR

AS-25 Intangible Assets

AS-26 Financial Reporting of Interest in joint ventures

AS-27 Impairment of Assets.

AS-28 Provisions, Contingent Liabilities and Contingent Assets

AS-30 Financial Instrument: presentation

AS-31 Financial Instruments, Disclosures and Limited revision to accounting

standards

Internationa l Financial Reporting Standards

International Financial Reporting Standards (IFRS) are Standards, interpretationsand the framework adopted by the International Accounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older name of

International Accounting Standards (IAS). IAS were issued between 1973 and

2001 by the Board of the International Accounting Standards Committee (IASC). On

1 April 2001, the new IASB took over from the IASC the responsibility for setting

International Accounting Standards. During its first meeting the new Board adopted

existing IAS and SICs. The IASB has continued to develop standards calling the new

standards IFRS.

Structure of IFRS

IFRS are considered a "principles based" set of standards in that they establish broad

rules as well as dictating specific treatments. International Financial Reporting



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Standards comprise:

International Financial Reporting Standards (IFRS) - standards issued after

2001

International Accounting Standards (IAS) - standards issued before 2001 Interpretations originated from the International Financial Reporting

Interpretations Committee (IFRIC) - issued after 2001

Standing Interpretations Committee (SIC) - issued before 2001

Requirements of IFRS

IFRS financial statements consist of (IAS1.8)

a Statement of Financial Position a comprehensive income statement

either a statement of changes in equity (SOCE) or a statement of recognized

income or expense ("SORIE")

a cash flow statement or statement of cash flows

notes, including a summary of the significant accounting policies

Comparative information is provided for the previous reporting period (IAS 1.36). An

entity preparing IFRS accounts for the first time must apply IFRS in full for the

current and comparative period although there are transitional exemptions

(IFRS1.7) .On 6 September 2007, the IASB issued a revised IAS 1 Presentation of

Financial Statements. The main changes from the previous version are to require that

an entity must:

present all non-owner changes in equity (that is, 'comprehensive income')

either in one statement of comprehensive income or in two statements (a

separate income statement and a statement of comprehensive income).

Components of comprehensive income may not be presented in the statement

of changes in equity.

present a statement of financial position (balance sheet) as at the beginning of

the earliest comparative period in a complete set of financial statements when

the entity applies an accounting

'balance sheet' will become 'statement of financial position'

'income statement' will become 'statement of comprehensive income'Swiss Business School Page 11
http://en.wikipedia.org/w/index.php?title=Comprehensive_income_statement&action=edit&redlink=1http://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Statement_of_cash_flowshttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Statement_of_cash_flowshttp://en.wikipedia.org/w/index.php?title=Comprehensive_income_statement&action=edit&redlink=1


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'cash flow statement' will become 'statement of cash flows'.

The revised IAS 1 is effective for annual periods beginning on or after 1 January

2009. Early adoption is permitted. More than 100 countries across the world have

already started implementing IFRS and many other countries are replacing their national standards with IFRS. Countries which have already started using IFRS are as

follows:

Australia

Canada

European Union

Russia

Turkey

Hong Kong

Singapore

United States

India and Japan will be preparing all financial statements for the period beginning on

or after 1 st April, 2012 according to IFRS.

International Financial Reporting Standards and India

IFRS is not only going to help Indian companies benchmark their performance with

global counterparts but also escape from filing multiple reports for Indian companies

who have gone global. On 22 nd January 2010, the Ministry of Corporate Affairs

(MCA) issued a press release setting out the roadmap for IFRS convergence in India.

The roadmap requires IFRS to be implemented in a phased manner. This is a historic

step that will elevate Indian entities and their finance and accounting professionals to

much greater heights.

Various factors are responsible for the convergence of Indian accounting standards

and the international accounting standards such as increasing number of multinational

corporations, spread of Indias global presence and harmonization of the profession

and discipline of accounting. Cross-border transactions have increased, capital

markets have been internationalized, As the world is becoming more of a global

village, it has become imperative to have a common standard for all countries to

making the accounting procedure easier and uniform.



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Difference between International Accounting Standards and Indian GAAP

ASby

ICAI

IFRS /

IAS

Position under IAS / IFRS

After considering recent changes

Position as per Indian GAAP

AS-1 IAS 1 Disclosure of Accounting Policies IAS 1,inter alia, deals with overall considerations,including fair presentation, off-setting,comparative information. IAS 1 prescribedminimum structure of financial statementsand contains guidance on related issues viz.current liabilities etc.

Under IAS 1, financial statements includes

Statement showing changes in equity Under IAS 1, there is a presumption thatapplication of IFRS would lead to fair

presentation

AS 1 does not deal with theseaspects.

AS 1 does not prescribe anyminimum structure. AS 1 doesnot prescribe any suchstatement to be prepared. There

is no such presumption under AS 1.There is no such specific

provision in AS 1.

There is no such specificdisclosure requirement in

AS 1.AS 5 specifically requiresdisclosure of certain items asExtra-ordinary items

AS 2 IAS 2 Valuation of Inventories:

IAS 2 prescribes same cost formula to beused for all inventories having a similar nature and use to the entity.

There are certain additional requirement inIAS 2 which are not contained in AS 2which are as under:

1. Purchase of inventory on deferredsettlement terms -

Excess over normal price is to be accountedas interest over the period of financing.

2. Measurement criteria are not applicableto commodity broker-traders.

AS 2 requires that the formulaused in determining the cost of an item of inventory needs to

be selected with a view to providing the fairest possible

Approximation to the costincurred in bringing the item toits present location andcondition. However, there is no

stipulation for use of same costformula in AS 2 as comparedto IFRS

AS 3 IAS 3 Cash Flow Statements: AS 3 has no such stipulation

AS 3 mandates disclosure of



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Bank overdrafts are to be treated as acomponent of cash/ cash equivalents under IAS 7.IAS 7 allows interest and dividend

paid to be classified either under OperatingActivities or Financing Activities

interest and dividend paidunder Financial Activities only.

No such disclosures requiredunder AS 3. AS 3 was issued

prior to AS 21, hence issuesrelating to consolidate financialstatements are not dealt with.

AS 4 IAS10

Contingencies and Events occurring after the Balance Sheet Date: IAS 10 providesthat proposed dividend should not be shownas liability. IAS 10 requires date of

authorization for issue of financialstatements to be specifically mentioned inthe financial statements itself. IAS 10 alsorequires disclosure of contingent liability to

be updated in the light of new informationreceived after the balance sheet date.

AS 4 specifically requires suchdisclosure as the same ismandated by statutoryrequirement. AS 4 has no such

stipulation. AS 4 requiresadjustments to figures stated in

Financial statements for eventsoccurring after the balancesheet date, if such events relateto conditions existing at the

balance sheet date.

AS 5 IAS 8 Depreciation Accounting (AS 6): In case of change in method of depreciation, IAS 16requires effect to be given prospectively.

Change in method of depreciation is treatedas change in accounting estimate under IAS16.

AS 5 requires only prospectivechange in accounting policywith appropriate disclosures.AS 5 covers only incomes andexpenses in the definition of

prior period items. AS 5requires prior period items to

be included in thedetermination of net profit or loss for the current period. AS

5 does not require suchdisclosure

AS-6 No

Corres po-

ndingIAS

(covere

Construction Contract (AS 7): ContractRevenue under IAS 11 is measured at thefair value of the consideration received or receivable.

AS 6 requires retrospectivelyre-computation

Of depreciation and any excessor deficit on such re-computation is required to be

adjusted in the period in which



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d

By IAS

which

discuss

about

assets)

such change is effected. AS 6considers this as change inaccounting policy

AS-7(Revised)

IAS11

Revenue Recognition (AS 9): Under IAS18, revenue from sale of goods cannot berecognized when entity retains continuing

managerial ownership or effective controlover the goods sold. In case of revenuefrom rendering of services, IAS 18 allowsonly percentage of completion method .

.AS 7 does not refer to fair value and states that Contractrevenue is measured at the

consideration received or receivable

AS-9 IAS-18

Accounting for Fixed Assets: Under IAS16, if subsequent costs are incurred for

replacement of a part of an item of fixedassets, such costs are required to becapitalized and simultaneously the replaced

part has to be de-capitalized.

AS 9 does not contain any suchstipulation. AS 9 allows

completed service contractmethod or proportionatecompletion method. AS 9requires interest income to berecognized on a time

proportion basis. AS 9 permitsrecognition when the goods are

Manufactured, identified andready for delivery in such

cases.

AS-10

IAS16

Property, plant and equipment should berecognized when the future economic

benefits are expected and the cost of theasset can be reliably measured .

AS 10 provides that only thatexpenditure which increasesthe future benefits from theexisting asset beyond its

previously assessed standard.



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AS 11

(Revised)

IAS21

Effects of changes in Foreign ExchangeRates: The revised IAS 21 makes nodistinction between an

Integral foreign operation and non-integral

foreign operation as done in AS 11. In fact,the factors of distinction between anintegral operation and a non-integraloperation are incorporated as considerationsfor determining functional currency.

AS 11 provides separatetreatment for integraloperations and non-integraloperations. There is no conceptof functional currency under AS 11. Absence of functionalcurrency concept does notenable AS 11 to provide for such a stipulation. AS 11 doesnot contain any guidance onthis issue.

AS-

12

IAS

20

Government Grants: The concept of extra-

ordinary item is deleted under all standardsof IFRS.

In case of non-monetary assets acquired atnominal / concessional rate, IAS 20 permitsaccounting either at fair value or atacquisition cost

AS 12 requires disclosure of

government grants for financialsupport / compensation for losses as extra-ordinary itemsin P&L. AS 12 requiresaccounting at acquisition cost.

AS-14

IFRS3

(IFRS3

supers

e d e s

IAS22)

Accounting for Amalgamations: IFRS 3allows only purchase method. Option of

pooling method given under IAS 22 has been withdrawn. IFRS 3 requires valuationof assets & liabilities at Fair Value. IFRS 3requires Goodwill to be tested for impairment. IFRS 3 requires recognition of negative goodwill immediately

in P&L A/c.

AS 14 allows both Pooling of Interest

Method and Purchase Method.AS 14 requires valuation atcarrying value. AS 14 requiresamortization of Goodwill AS14 requires it to be credited toCapital Reserve AS 14 doesnot deal with reverseacquisition AS 14 contains nosuch similar provision.

There is no such provision inAS 14

Exposure

Draft

issued

on

AS-

IAS19

Employee Benefits: IAS 19 provides anoption to recognize actuarial gains andlosses either by following "Corridor Approach" or immediately in P&L A/c.Under IAS 19, the discount rate used todiscount post employment benefitobligations should be determined by

reference to market yields of high qualitycorporate bonds or, in case there is no deep

AS 15 ED requires an entity tofollow AS 29

in this regard. AS 15 EDrequires adjustment againstopening balance of revenuereserves.



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15 market in such bonds, on the basis of market yields of Govt. bonds..

AS-16

IAS23

Borrowing Costs: IAS 23 prescribes borrowing costs to be recognized asexpense as benchmark treatment. It requirescapitalization as an allowed alternative

AS 16 mandates capitalizationof borrowing costs.

AS 16 does not require suchdisclosure.

AS-

17

IAS

14

Segment Reporting:

IAS 14 prescribes treatment of revenue,expenses, profit/loss, assets and liabilities inrelation to Associates & Joint Ventures inconsolidated financial statements.

AS 17 is silent on the aspect of

treatment in consolidatedfinancial statements. AS 17does not make any distinction

between vertically integratedsegment and other segments

AS 17 does not contain anysuch stipulation reasonablydeterminable.

AS-19

IAS17

Leases Under IAS-17 it has been clarifiedthat land and buildings elements of a leaseof land and buildings need to be consideredseparately. The land element is normally anoperating lease unless title passes to thelessee at the end of the lease term. The

buildings element is classified as anoperating or finance lease by applying theclassification criteria.

AS-19 - Accounting for Leases" at it stands at presentdoes not deal with leaseagreements to use lands.Hence, the classificationcriteria are applicable only to

buildings as a separate asset.To be in line with IAS-17, asuitable modification isrequired in AS-19 to bringlease



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AS-18

IAS24

Related Party Disclosures: The definition of related party under IAS 24 includes

Post employment benefit plans (e.g. gratuityfund,

pension fund) of the enterprise or of anyother entity, which is a related party of theenterprise.

AS 18 does not include thisrelationship. AS 18 read withASI-18 excludes non-executive

directors from the definition of

key management persons.

AS 18 does not specificallycover indirect authority andresponsibility. AS 18 coversonly relatives of KMPs AS 18read with ASI 23 requiresdisclosure of remuneration

paid to key management persons but does not mandate

category-wise disclosures. AS18 contains no such stipulation.

AS-20

IAS33

Earnings per Share (EPS):

IAS 33 requires separate disclosure of basisand diluted EPS for continuing operationsand discontinued operations. IAS 33 dealswith computation of EPS in case of Share

based payment transactions. IAS 33 prescribes treatment of written put optionsand forward purchase contracts incomputing.

AS 20 does not requires anysuch separate computation or disclosure. AS 20 does notcontain any such provision. AS20 is silent on this aspect.

AS 20 does not prescribe suchtreatment. AS 20 requiresEPS / DPS with and withoutextra-ordinary items to bedisclosed separately.

AS-21

IAS27

Consolidated Financial Statements (CFS):Under IAS 27, it is mandatory to prepareCFS and an entity should prepare separatefinancial statements in addition to CFS only

if local regulations so require. Under IAS27, exemption from preparation from CFSif certain conditions are fulfilled. Under IAS 27, a subsidiary cannot be excludedfrom consolidation under anycircumstances.

Under AS 21, it is notmandatory to prepare

CFS. There is no such

exemption under AS 21.Under AS 21, a subsidiary can

be excluded

from consolidation if (1) thesubsidiary is

acquired and held with anintention to dispose;

or (2) the subsidiary operatesunder severe long term



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restrictions impairing its abilityto transfer funds to parent.

AS-22

IAS12

Accounting for Taxes on Income: IAS 12 is based on Balance Sheet approach andtherefore temporary difference (for e.g.Difference on any upward

revaluation of assets, leads to creation of deferred tax liability)

AS 22 is based on incomestatement approach and onlytiming differences leads tocreation of deferred tax asset or liability.

AS 22 provides no suchexception as it does

not deal with temporarydifferences

AS-23

IAS28

Accounting for Associate in ConsolidatedFinancial

Statement: Under IAS-28, Potential votingrights currently exercisable to be considered

in assessing significant influence.As per IAS 28, difference between Balancesheet date of investor and associate can not

be more than three month

AS-23 is silent on this.

Under AS 23, no period isspecified. Only consistency ismandated

Under AS 23, if it is not practicable to make

such adjustments, exemption isgiven, provided appropriatedisclosures are made.

Under AS 23, losses are to berecognized to the extent of investment plus incurred

obligations plus paymentsmade towards guaranteedobligations.

AS-25

IAS34

Interim Financial Reporting:

Under IAS 34, minimum components of Interim

Financial Report includes - Statementshowing changes

No such disclosure is requiredunder AS 25.

AS 25 requires restatement of figures of

prior interim periods of the



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in Equity Under IAS 34, in case of anychange in accounting policy, figures of

prior interim periods of the current financialyear and comparable figures of corresponding previous

current financial

year only AS 25 does notaddress these issuesspecifically.

AS 26 IAS38

Intangible Assets:

There is no presumption under IAS 38 asregards useful life of an intangible assetIAS 38 does not exclude intangible assetsarising in insurance enterprise from contractwith policy holder Under IAS 38, intangible

assets having "Indefinite useful life" cannot be amortized. Indefinite useful life meanswhere, based on analysis, there is noforeseeable limit to the period over whichthe asset is expected to generate net cashinflow for the entity.

Under AS 26, there is a rebuttable presumption

that the useful life of intangibleassets will not exceed 10 years.

Intangible assets arising ininsurance enterprise

from contract with policyholder are excluded fromscope of AS-26.There is nosuch restriction in AS 26

AS-27

IAS31

Financial Reporting of Interests in JointVentures:

Under IAS 31, when the investments aremade by venture capital organization,mutual funds, unit trusts and similar entitieswhen those investments are classified asheld for trading and accounted for as per IAS 39.

IAS 31 not to apply if parent is exemptfrom preparing CFS under IAS 27.

There is no such specific provision under AS

27.

AS 27 permits only proportionate consolidationmethod.

AS-28

IAS36

Impairment of Assets: Under IAS 36, for determining net selling price, cost of disposal to be reduced only in cases whereasset is intended to be disposed off.

AS 28: For determining netselling price, cost of disposal to

be reduced from fair value of assets in all cases.

AS-29

IAS37

Provisions, Contingent Assets andContingent Liabilities IAS 37 permits

AS 29 do not permit anydiscounting AS 29 does not



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discounting of provisions. mandate it.

In order to make the transition smooth and orderly and to complete it within the

decided time schedule, the Ministry of Corporate Affairs (MCA) has issued a

roadmap where the various companies have been divided into three phases.

The phases of IFRS conversion are as follows:

Phase Date Coverage

Phase 1 Opening Balance

Sheet as at April 1,

2011

Companies which are part of NSEIndex-Nifty 50.

Companies which are part of BSEIndex-BSE 30.

Companies whose shares or securities are listed on a stock exchange outside India.

Companies, whether listed or not,having net worth of more than INR 1000 crores.



2013

Companies not covered in Phase 1

and having net worth exceeding INR

500 crores.



2014

Listed companies not covered in the

earlier phases.

If the financial year of a company commences at a date other than 1 April, then it

shall prepare its opening balance sheet at the commencement of the immediately

following financial year.



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Literature Review



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Literature Review

Convergence of International accounting standards with the Indian GAAP is a mustfor placing India on the global platform. For this, Indian accountants, auditors and

finance professionals should be made aware about the various aspects of International

Financial Reporting Standards. The level of readiness of Indian companies should be

found out so that appropriate measures can be taken for successfully implementing

IFRS in India in a timely manner. Accounting Standards; The Chartered Accountant,

ICAI, New Delhi ; Vol. XLIX , No. 10 ; April 2001, P.73, states the importance of

maintaining uniformity in the accounting standards across the world and preaches the

importance of convergence of International Financial Reporting Standards with the

Indian Generally Accepted Accounting Principles.

Krishnamurthy, Mahesh, 2009, conducted a survey and found that 27% of the blue

chip foreign and Indian companies are ready for the conversion of IFRS form Indian

GAAP. Nearly 60% of the respondents complained that critical factors for a cost-

effective conversion have been overlooked.

Srivastava, Anubha, 2009, conducted a survey on 100 respondents and came to the

conclusion that uniform accounting policy is desirable. Though IFRS differs from

Indian accounting standards in a few areas, Indians need to gear up for the big

transition.

KPMG India, 2009, conducted a survey in India and concluded that implementation

of IFRS requires changes to the regulatory environment, requires large pool of IFRS

trained and experienced resources; and requires educating and communicating

effectively with investors, analysts and Board of Directors.



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Dsouza, Dolphy, 2009, stated that regulatory approvals are must for the successful

implementation of IFRS in India and so the RBI, IBA should align their policies

according to the requirements of the international standards.

RESEARCH

METHODOLOGY



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Statement of the Problem:

The research conducted would help to identify the possibility of implementation of

International Financial Reporting Standards in India

Objectives of the Research:

1. To find out the state of implementation of International Financial Reporting

Standards (IFRS) in India.

2. To find out the level of awareness among Indian accountants, finance

professionals, auditors and academicians regarding the process of convergence

with IFRS and the fields in which tutorials are required.

3. To focus on the problems impeding the process of implementation of IFRS in

India.

Hypothesis

H0: there is no 100% possibility of implementing International Financial ReportingStandard in India.

H1: there is 100% possibility of implementing International Financial Reporting

Standards in India.

Methodology of Study

Descriptive research is used to obtain information concerning the current status of the phenomena to describe what exists with respect to variables or conditions in asituation. The data will be collected from both primary and secondary sources.Convenient sampling will be employed in arriving at the sample size. In collecting

primary data questionnaire will be distributed to financial professionals and secondarydata will be collected from journals, websites and books



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Sampling Plan:

Sample is the fraction of the population; sampling is a technique or a method of

selection of samples. The researcher in carrying out this research is adopted the most

appropriate sampling technique for research that is Simple Random Sampling

technique.

According to the simple random sampling method it is assumed that

entire population is homogeneous and the samples are selected in

such a way that each and every unit in the population has equalchance of occurrence or equal probability of occurrence. In other

words the sampling units are selected randomly. Since random

sampling implies equal probability to every unit in the population, it

is necessary that the selection of the sample must be free from

human judgment.

Sample SizeThe total number of respondents for the survey is 63.

Data collection methods:Data has been collected from both primary and secondary source. The survey has

been conducted through the Questionnaire method. The questionnaires have been

directly filled by the respondents. Most of the questions are close-ended with a few

open-ended questions. The respondents are either accountants, auditors, academicians

or finance professionals who are directly related to the transition process.



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Primary DataPrimary data was collected from the primary sources i.e. financial professionals through

personal interview and questionnaire methods respectively. This data has been useful in

providing factual information regarding the topic of the study.

Secondary Data:This data has been obtained from the Company reports, magazines, internet, business

reviews and books of marketing etc.

Limitations of the study:

1. One of the main limitations is the sample size which is relatively low because of

the complexity of the International Financial Reporting Standards. Though the

survey is totally authentic, yet the findings may be a bit skewed due to the limited

sample size.

2. Time and cost was also another of the constraints. Due to this constraint I had toconduct the survey on the basis of convenience sampling.

3. Due to lack of awareness respondents were unwilling to participate in the survey.

Presentation of data:

The data collected through the questionnaires are presented in the following ways:

Tables

Pie charts

Bar charts



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Data Analysis and

Findings



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Analysis and Interpretations

A. Demographic details

a. Age and profession-cross tabulation

Particulars

What is your age?

Total21-35 35-45 45-55

55 andabove

What is yourprofession?

Auditors 8 3 0 0 11

Accountants 11 3 4 6 24

Academics 6 1 0 2 9

Finance professional

8 5 4 2 19

Total 33 12 8 10 63

Analysis: The table shows that majority of the respondents are between the age of 21-

35. In this age group, majority of the respondents are accountants. In the age group

between 35-45, finance professionals form the major chunk of respondents and in the

age group between 45-55, there are 8 respondents in total, equally divided between

accountants and finance professionals. In the last age group, accountants form the

major part, claiming the digit 6.

b. Profession and qualification-cross tabulation



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Particulars

What is your Qualification?

TotalGraduates

PostGraduates

professional(ca/icwa/mba)

What is yourprofession?

Auditors 2 0 9 11

Accountants 7 0 17 24

Academics 3 2 4 9


3 2 14 19

Total 15 4 44 63

Analysis: As we can see, of the total number of auditors, 2 are graduates and 9 have

professional qualification. Out of the 24 accountants, 7 are graduates and the rest are

chartered and cost accountants. 4 out of the 9 academicians are professional degree

holders and the majority of finance professionals are professional degree holders as

well.

Thus, the majority of the respondents are either Chartered Accountants or cost

accountants or MBAs.

c. Are you aware that IFRS will be implemented from 2011? What is your

profession? Cross Tabulation

Particulars What is your Profession? Total



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Auditors Accountants AcademicsFinance

Professional

What is

yourprofession?

Yes 10 24 9 18 61

No 1 0 0 1 2

Total 11 24 9 19 63

Analysis: The above table shows that out of 63 respondents, 11 are auditors, 24 are

accountants, 9 are academics and the remaining 19 are finance professionals working

in different companies, firms and banks.

Of the 11 auditors, 10 are aware about the implementation of IFRS since 2011, all the

accountants and academicians are up-to-date about the upcoming major change and

only 1 finance professional is not aware about the impending transition. Thus, we can

see that the awareness is maximum among accountants and academicians. It is good

that the surveyed academicians have knowledge about the IFRS convergence because

then they will be able to enlighten the student force of India.

1. Are you aware that IFRS will be implemented in 2011 in India?



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20

40

60

80

100

P e r c e n t96.8

3.2

Analysis -: Out of 63 respondents, 96.8% are aware of the implementation of IFRS

from 2011 and 3.2% are not. This shows that auditors, accountants and other finance

professionals have knowledge about the status of IFRS implementation in India which

is a good sign because as awareness will increase, the pace of implementing the

changes would also gear up, thus completing the task within schedule.

2. Are you aware of the contents of IFRS?



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6.3

27

54

12.7

not at alluncertain

yes

very familia

Analysis: From the diagram above, we can see that 54% of the respondents are

familiar with the contents of IFRS, 12.7% are very familiar with the contents, 27% are

uncertain and 6.3% are not at all familiar with the contents of IFRS. Efforts have to be

made to include more and more respondents in the very familiar segment because

proper implementation of the new standards are possible only when more and more

professionals in the field of accounting and finance like auditors, chartered

accountants etc are clearly aware about the ingredients of the new standards. Also in

order to make our accountants globally efficient, it is very important to make

everybody aware about the new standards.

3. Are the majority of your clients aware about IFRS implementation from2011?



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9.5

66.7

23.8

noYes, but not fullyclear on thecontent of thenew standar Yes, and alsofully clear on thecontent of thenew standa

Analysis: As we can see, clients of 66.7% of our respondents are not fully clear about

the contents of IFRS and clients of 9.5% of respondents are not at all aware about the

contents. So the ratio of clients not fully clear to those fully clear is more than thrice.

This might pose as an impediment towards the conversion into IFRS because unless

and until the clients are not fully clear they will not be able to successfully implement

the new reporting standards in their respective firms and companies.

4. Has the procedure to adopt the new accounting standards been started byyour client?



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10

20

30

40

50

60

70

P e r c e n t

69.8

30.2

Analysis: Clients of 69.8% of the respondents have started the procedure toimplement the new accounting standards whereas clients of the remaining respondents

are yet to start. Out of this 30.2%, 5% comprise companies, who have to prepare their

financial statements according to IFRS from 1 st April, 2013. This is not a good feature

because though companies listed in the Nifty have to start IFRS conversion for all

financial statements for the period beginning on or after 1 st April 2012, they also have

to prepare the financial statements of 2010 according to the new accounting standards

for comparison purposes. And the time left for adopting the changes is very less. For

successful implementation of IFRS, companies listed on the NSE Nifty should start

the process to record financial statements according to IFRS. Early adoption of IFRS

gives companies the opportunities to anticipate challenges, manage outcomes and

implement the best solutions. Without careful study, the full impact of converting to

IFRS will not be clear.

5. IF Yes, then what is the situation regarding your clients implementation of accounting standards?



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Analysis: 31.4% of the respondents claimed that majority of their clients have already

adopted the new standards. The chartered accountant firms and other professionals

should convince their clients to gear up in the process of adopting these new standardsas this would enable India to come closer to global standards quickly. Banks are also

preparing themselves for this conversion.

6. What is/are the major problem(s) faced by (the majority of) these clients inrelation to the implementation of the new accounting standards?



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57.1

6.3

3.2

3.2

15.9

1.6

11.1

Insufficientknowledge othe part of accountingclerks

1,2

1,3

1,4

Insufficienthumanresources inthe area of accounting

The newaccountingstandards wiincrease timand cost

3,4

other reason

Analysis: 57.1% of the respondents clients are facing problems in theimplementation of IFRS because of insufficient knowledge in the part of accounting

clerks. A very important aspect of IFRS conversion is preparing the accounting clerks

for the big change because if the accounting division is not prepared then proper

implementation would not be possible. A dedicated team of employees should work

on the conversion exercise. The next biggest problem faced by the firm is the

possibility of increase in time and cost due to the new standards as the average length

of the annual financial statements will increase significantly. Accounting staff should

be given adequate training to gear up the conversion into IFRS. Firms have also stated

reasons like absence of specific guidelines from RBI, IRDA etc as hindrances in the

conversion process.

7. Will the implementation of the new accounting standards be a smoothprocess for (the majority of) these clients?



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14.3

34.9

50.8

very smoothnot smooth

somewhatsmooth

Analysis: 50.8% of the clients will have a somewhat smooth implementation process

and 14.3% will have a very smooth implementation process. But a major chunk of clients i.e. 34.9% do not think that their implementation process will be smooth.

Efforts should be made to help all firms to have a smooth implementation process. All

the firms should develop an implementation plan and work accordingly as this will

help sticks to the schedule. Also an impact assessment plan should be made so that a

company can cope with the various technical and functional changes that will follow.

A strong project management team should be appointed for the efficient

implementation of each phase of the conversion.

8. Please indicate the factors that hinder the smoothness in implementing the New Accounting Standards.



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3.2

20.6

4.8

1.6

44.4

1.6

12.7

9.5

Managementbelieves theimplementationinappropriate1,3the standardsare over-complicated2,32,5staff is unfamiliawith accountingstandards3,4lac of correspondingreferencematerial/trainingother reasons

Analysis: 44.4% of the respondents stated that most of their clients faced problems

due to unfamiliarity of the staff with the accounting standards. Well this is an issue

which needs to be addressed at the earliest. More and more training programmes have

to be adopted by the companies and firms and a proper training schedule for the staff

should be developed. Companies are also feeling that the new standards are over

complicated. Also lack of proper reference material is also hindering the smooth

transition .

9. If you have any queries with regard to the implementation of the accounting standards, whom would you turn to for answers?



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CRAC colleagueswithin theprofession

academicinstitutions

professionalbody of

which you

4,5 other reasons

0

10

20

30

40

50

P e r c e n t

4.8

23.8

6.3

42.9

1.6

20.6

Analysis: For queries regarding IFRS implementation, 42.9% of the respondents

would refer to the professional body of which they are a member of, 23.8% would

turn to colleagues within the profession, 20.6% would turn to other bodies like ICAI,

MCA, RBI, 6.3% would consult academic institutions, 4.8% would consider CRAC

and 1.6% would turn to either a professional body or other bodies.

10. Do you consider whether the Financial Reporting Standards currently beingadopted provide adequate coverage?



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10

20

30

40

50

60

70

P e r c e n t 66.7

33.3

Analysis: 66.7% of the respondents feel that IFRS is providing adequate coverage

whereas the remaining 33.3% are against the view.

11. Please choose the area that you consider should also be included in the new

standards.



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23.8

1.6

17.5

11.13.2

14.3

27

Standards relateto financialservices (IAS32,IAS39, and1,3

1,4

Share-basedpayment (IFRS2

Standards relateto consolidatedfinancialstatements (IA

3,4Investmentproperty (IAS40

Adoption of all tremainingstandards.

Analysis: The demand for standards related to financial services is the greatest

followed by inclusion of all standards of the present system, then share based

payment, investment property in that order. As financial services are in greater focus,

measures to bring Schedule VI, preference capital, securities premium etc. in line with

IFRS should be efficient.

12. Do you consider the promotional activities of accounting standardsadequate?



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10

20

30

40

50

P e r c e n t49.2

39.7

11.1

Analysis- As we can see, 49.2% of the respondents feel that the new standards are

adequately promoted, 39.7% are ok with the promotional activities and 11.1% are of

the opinion that the new standards are not adequately promoted. Most of the students

pursuing chartered accountancy are not aware of the new standards. They are the

future accountants. If they lack knowledge, smooth conversion is far from being

achieved.

13. Are you interested in the financial accounting training?



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10

20

30

40

50

60

P e r c e n t50.8

25.4 23.8

Analysis: Training is very important for smooth implementation of the new

accounting standards. 50.8% of the respondents are interested in the financial

accounting training because the basis of all the standards is after all core

accounting.25.4% are not interested and 23.8% are indifferent towards the FA

training.

14. Are you interested in tutorial related to individual IFRS?



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10

20

30

40

50

60

70

P e r c e n t 65.1

23.8

11.1

Analysis: 65.1% of the respondents are interested in training related to individual

standards within the IFRS. More and more training courses and tutorials should be

imparted to the masses in the related to the individual IFRS of their choice..

15. Are you interested in tutorials related to industry-specific IFRS?



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10

20

30

40

50

60

P e r c e n t 57.1

27

15.9

Analysis: 57.1% of the respondents are interested in tutorials related to international

accounting standards used in specific industries. Tutorials related to industry-specific

IFRS should be provided by authorized organizations to make the people of India

capable for a smooth and successful transition to the international accounting

standards.

16. Proposed industry



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14.3

3.2

19

17.51.6

36.5

7.9

real estateandconstructions

1,4

hotel,catering,conventionandentertainmen

gamimg,operationsandmanagement

3,4

banking,insurance anfinancialservices

others

Analysis: The survey showed that the industry which has generated maximum

interest among my respondents is the banking, insurance and financial services

industry, followed by the hotel and entertainment industry, gaming operations and

management industry, in that order .

17. What is the preferred mode of learning?



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11.1

11.1

3.2

4.8

1.6

41.3

7.9

1.6

7.9

4.84.8

seminars1,2

1,2,3

1,3

1,3,4

interactiveworshops

2,3

2,3,4

2,4

e-learning

classroom

format

Analysis: Interactive workshops are the most preferred mode of learning followed by

a combination of seminars and interactive workshops. Experiences of other nations

such as Europe, America, Australia show that IFRS convergence is not an overnight process and requires theoretical knowledge along with practical experience to

smoothen the process. Ernst and Young and PWC are organizing seminars across

India and also providing free web-based modules to speed up the learning process .

18. Do you agree on establishing continuing professional development (furthertraining) requirements for auditors and accountants.



49/59

10

20

30

40

50

60

P e r c e n t

36.5

57.1

6.3

Analysis: 93.7% of the respondents agreed that continuing professional development

is required by auditors and accountants . Auditors and accountants and other finance

professionals should be kept up to date with the changing global scenario in the field

of accounting and related issues so that our accountants are efficient enough to

perform in the global scenario.

Test of Hypothesis:



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1. H0: there is no 100% possibility of implementation of International FinancialReporting Standard in India.

H1: there is possibility of 100% implementation of International FinancialReporting Standards in India.

2. Chi Square Analysis is considered as test statistics.

3. Chi Square Value is derived at



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CONCLUSION ANDRECOMMENDATIONS

The survey has given us an idea about the state of International Financial Reporting

Standards (IFRS) in India. Majority of the respondents are aware about the

convergence of IFRS and the Indian accounting standards though not all are clear



52/59

about the contents of IFRS. Clarity of content is very important if we want to make

our accountants and auditors competitive in the global scenario.

The clients of our respondents, being firms, companies and banks are also lagging

behind in understanding the new accounting platform. Standards related to financialservices are the most the most in demand. Though I have conducted the survey

randomly, yet most of the respondents want standards related to financial services to

be included, closely followed by the inclusion of all remaining accounting standards

and standards related to share-based payments. The major problems faced by the

clients during the implementation process were due to lack of knowledge of the

accounting staff, insufficient human resources in the area of accounting and increase

in time and cost due to the new method of recording financial statements, in that

order. Respondents also stated that changes should be made in the Companies Act.

The problem faced by banks is that there is no clarity as to whether the specific

guidelines needed for the transitions would be issued by the Reserve Bank of India,

ICAI or the Ministry of Corporate Affairs. Other issues faced by banks in adopting

IFRS are related to fair value accounting, erosion in value of loans and investments

and derivatives and hedge accounting . Experience gained from the convergence of

banks in the global arena has showed that proper roadmap is necessary for smooth

transition. Poor planning will lead to irrevocable problems for both Indian Authorities

and Indian companies. Proper training in the field of financial accounting, individual

IFRS and industry-specific IFRS is a must to make Indian accountants and financial

professionals eligible enough to bring about a smooth transition. Proper training in

financial accounting, individual IFRS and industry-specific IFRS is a must to make

Indian accountants and financial professionals eligible enough to bring about a

smooth transition. As the success of international standards convergence requires

both theoretical knowledge and practical knowledge, more workshops should be

conducted across the length and breadth of India.

RECOMMENDATIONS

1. Proper training programmes have to formulate and accounting and finance

professionals should be trained so as to make the transition smoother.



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2. The investors and external stakeholders should also be properly educated about

the impending change so that they can understand the financial results of the

company recording transactions under the International Financial Reporting

Standards.

3. Banks like Bank of Baroda have hired consultants to train their staff about IFRS.

This practice should be taken up by all other banks and firms.

4. RBI and IBA should come out with specific guidelines to effect a smooth

transition in the Indian banks.

5. Since we are adopting IFRS, multiplicity of Indian tax structure (VAT, Excise,

Service Tax) would make it difficult for companies to disclose the amount and its

effect. For successful implementation our disclosure requirements need to get

changed, that is appropriate changes are required in Companies Act to ensure easy

and smooth transformation.

6. As the IFRS convergence would result in both functional and technical changes, a

proper plan for assessing impact of the changes should be developed beforehand.

7. Business processes mechanisms such as mechanisms related to control and

reporting should also be changed in line with the requirements of IFRS.

APPENDIX

Survey Questionnaire



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About the Implementation of New Accounting Standards (IFRS - International Financial Reporting Standards )

Please take a moment to complete the following questionnaire. The questionnaire issolely intended for the purpose of data analysis. None of your personal informationwill be revealed at any stage of the research. It is required just to maintainauthenticity. Your cooperation is very much appreciated. Thank you in advance.

Part I: General Infor mation

For professionals, academics, and corporate-

1. Name:

2. Name of the company/institution/firm:3. Please specify your profession: ( mark your choice in red font colour )

Auditors

Accountant

Academics


1. Post held in company/institution/industry (if employed):

2. Age ranging between: 21-35_____, 35-45_____, 45-55_____, 55 andabove______. (Mark your choice in red font colour )

3. Qualification: Graduate_____, Post Graduate_____,

Professional (CA/ICWA/MBA/CS/CFA)_____. (Mark your choice in red fontcolour )

4. Experience in years: _________ (optional)

If (practicing/self employed) experience in years _________

Part II- Implementation of New Accounting Standards (IFRS)

*Mark all your choices in red font colour .

Q1- Are you aware that the implementation of the new accounting standards(IFRS) begins in 2011?



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Yes No

Q2- Are you familiar with the content of the content of the new accounting

standards (IFRS)?

Not at all Uncertain Yes Very Familiar

Q3-Are (the majority of) your clients/management of your employerscompany/persons responsible in accounting department aware that they mustcomply by the new accounting standards (IFRS) in 2011?

No Yes, but not fully clear on the content of the new standards. Yes, and also fully clear on the content of the new standards.

Q4- A: Has the procedure to adopt the new accounting standards been started byyour client?

Yes No

B: IF Yes, then what is the situation regarding your clients implementationof accounting standards?

The majority of the clients have already adopted the new accountingstandards.

About one half of all clients have adopted the new accounting standards. Only few clients have adopted the new accounting standards. Other reasons (please specify)-

Q5- What is/are the major problem(s) faced by (the majority of) these clients inrelation to the implementation of the new accounting standards? (you maychoose more than one option).

Insufficient knowledge on the part of accounting clerks in relation to the newstandards.

Insufficient human resources related to the area of accounting. Implementation of the new accounting standards will result in drastic increase

in work time and cost. Other reasons (please specify)-



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Q6- Will the implementation of the new accounting standards be a smoothprocess for (the majority of) these clients?

Very smooth (please proceed to Q8) Not smooth Somewhat smooth

Q7- Please indicate the factors that hinder the smoothness in implementing the New Accounting Standards (you may choose more than one option):

Management believes implementation of standards is inappropriate. The standards are over-complicated. Staff is unfamiliar with Accounting Standards . Lack of corresponding reference material/training. Other reasons ( please specify)-

Q8- If you have any queries with regard to the implementation of the accounting standards, whom would you turn to for answers?

CRAC ( Careers Research and Advisory Centre) Colleagues within the profession Academic institutions Professional body of which you are a member of Others (please specify)-

Q9- Do you consider whether the Financial Reporting Standards currently beingadopted provide adequate coverage?

Yes (proceed to Q11) No

Q10- Please choose the area that you consider should also be included in the newstandards (You may choose more than one option):

Standards related to financial services (IAS32, IAS39, and IFRS7). Share-based payment (IFRS2) Standards related to consolidated financial statements (IAS27, IAS28, IAS31, and

IFRS3) Investment property (IAS40) Adoption of all the remaining standards.

Q11- Do you consider the promotional activities of Accounting Standardsadequate?

Yes Moderate



57/59


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E-learning Classroom format Others

*Mark all your choices in red font colour .

Part IV- Other Suggestions

Q15- Do you agree on establishing continuing professional development (furthertraining) requirements for auditors and accountants registered in Macao SAR?

Very much agree Agree Do not agree (please proceed to Q16) Absolutely reject the idea (please proceed to Q16)

Q16- Suggestions _____________________________________________________

Thank you for your valuable time and suggestions.



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REFERENCES

1. Accounting Standards ; The Chartered Accountant , ICAI , New Delhi ; Vol.

XLIX , No. 10 ; April 2001, P.73

2. An exception to harmonization S. Murlidharan C hartered Accountant January

2003

3. International Financial Reporting Standards (IFRS) , US GAAP,U.K GAAP

and Indian GAAP, Dr. A.L. Saini , Snow White Publication Pvt. .Ltd , year

2005

4. Accounting and Financial Polices , Practices , Standards & Reporting , Snow

White Publication Pvt. Ltd , Bimal R. Bhatt, C.A, New Edition 2004-05

5. Illustrated Guide to Accounting Standards , D.G Sharma , G Sriniwasan

Anand G. , 2 nd edition 2004

6. KPMG survey, March 2009

7. Survey by Resources-Global Professionals, August 2009.

8. http://www.financialexpress.com/news/indian-cos-ready-for-ifrs-conversion-e&y/450500/

9. http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards

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