Study of the impact of adoption of IFRS (International financial reporting standards) on Indian companies

Abstract

With India all set to adopt the International Financial Reporting Standards in 2011 and many of the developed nations already having done so, this CCS tries to explore in depth the current position of the country and the various listed and unlisted companies. The report enumerates the need, importance and benefits of IFRS implementation in India. It also reviews briefly the trend in the rest of the world with respect to IFRS. This report also explores the basic differences between the IFRS and the Indian GAAP to put into perspective the major changes that the companies would have to undergo to adopt the IFRS. These differences are numerous and would bring significant changes in the way reporting has been done in India. However many new accounting standards issued by the ICAI have been based to a certain extent on IFRS and several Indian companies (MNCs and companies with overseas offices, lenders, etc) have been reporting as per IFRS and US GAAP and hence the concept would not be entirely new to these companies. To study the impact a survey of 200 companies was undertaken and based on the limited responses received by us a summary on current level of preparations and requirement for IFRS implementation has been made. This summary was used then to recast select portions of the financial statements of some companies to find out the actual impact of the change. The limited recasting has shown that there have been significant changes in the reported figures of the company but these re-casted figures are based on secondary data collected from annual reports of the company and may not be accurate. Based on the above this survey and interactions with company professional and auditors this study determines that there is very low level of awareness in Indian companies about how and in which areas would IFRS implementation affect the financial reports of the company, accounting policies of the company and internal processes related to accounting. The reports also seek to explain how IFRS implementation is dependent on a mutual effort from the Government, Regulatory authorities and Accounting bodies in India. Finally this report concludes that IFRS implementation would be highly instrumental in bringing Indian companies on par with International companies and would help greatly in movement of capital and increased trade between India and other countries which have adopted IFRS. The report also states some basic recommendations for implementation of IFRS in India with a focus on shifting the responsibility of reporting processes from legislation to Accounting Bodies like ICAI.