India needs to gear up to meet ifrs transition in accounting by 2011

The rigorous fair value principles  required to be applied in case of International Financial Reporting Standards (IFRS) would be significantly different from the financial information currently presented by  companies and can bring in subjectivity and unpredictability in the financial statements. Therefore, preparedness of the professionals with necessary valuation skills as per the IFRS would be most important.

Given the tough current economic situation, Indian companies need to be more aware about the challenges of transition from Indian GAAP to IFRS and their impact on important performance parameters such as earning per share, price equity ratio etc. and other aspects such as tax liability, distributed profits, stock options and managements’ compensation.

PHD Chamber, supported by Ernst & Young as Knowledge Partner, is organizing a Seminar on “Convergence to IFRS: Roadmap and Implementation Issues” on 2nd August 2008 to create awareness about the IFRS reporting requirements, their impact in the Indian context, the practical issues likely to arise in the transition process as also the strategy to be adopted to effectively manage such challenges.

Transition to IFRS from the Indian GAAP would yield significant benefits in terms of enhanced comparability, reporting transparency, cost of raising capital as well as eliminating multiple reporting. However, the process is bound to throw up some practical implementation issues. Apart from financial reporting issues, conversion to IFRS will have implications in terms of compliance with various business and regulatory matters, level of preparedness of the Indian industry and professionals, conceptual issues such as taxation, management compensation, distribution of profits, net worth etc. 

There is also a need to bring amendments in the relevant laws and regulations governing financial reporting. For instance, as per the Companies Act 1956, redeemable preference shares are classified as equity instrument. However, these may be considered as financial liability under the IFRS norms.  The Ministry of Corporate Affairs would need to address such issues at the earliest so that convergence to IFRS from the Indian GAAP gains momentum.

Moreover, in certain cases, there are multiple regulators of accounting standards. For instance, in case of a listed bank, accounting norms prescribed by SEBI, RBI, Companies Act, ICAI and the Banking Regulation Act would be applicable which may at times be inconsistent with each other and with IFRS norms. Other regulators such as SEBI, RBI and the Income Tax Department would need to accept IFRS to avoid any conflict while converging to the IFRS norms.

Similarly, there may be differences in the treatment of depreciation, accounting for amalgamation, definition of subsidiary, treatment of expenses such as preliminary expenses, underwriting commission etc.