November 8, 2019
5 min read
This article discusses the meaning, objective and implementation of IFRS in India.
Companies around the world have become more oriented towards serving a larger audience and access more customers. Globalisation has opened avenues for businesses across the globe to conduct trade, invest and sell their products in multiple companies. However, when it comes to accounting standards, the situation 10 years ago was different and each country had its own accounting standards and set rules. The implementation of International Financial Reporting Standards (IFRS) has provided a global language to the accounting aspect of a business. This article discusses the meaning, objective and implementation of IFRS in India.
The International Financial Reporting Standards (IFRS) has been defined as the “single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions”
The IFRS provides an international framework for the manner in which public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements instead of listing out specific rules for the industry-based reporting.
An international standard is essential for large companies having subsidiaries in different countries. Implementation of common accounting standards simplifies accounting procedures and allows businesses to use a global financial reporting language.
The main objective of IFRS development is harmonisation in financial statements reporting worldwide. The other objective of implementing IFRS includes:
To create the global financial reporting infrastructure.
To generate sound business sense among the beneficiaries.
To generate the dimensions of fair presentation of financial statement.
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Various categories of companies are required to carry out the convergence of Indian Accounting Standards with IFRS with effect from April 1, 2011. During the first phase that was implemented from April 1, 2016, the following kinds of companies became liable to convert to the IFRS system mandatorily:
Companies listed/in process of listing on Stock Exchanges in India or Outside India having a net worth more than INR 5 Billion
Unlisted Companies having a net worth more than INR 5 Billion
Any Parent, Subsidiary, Associate and Joint Venture of the companies mentioned above.
The second phase was implemented from April 1, 2017, wherein other kinds of companies were made liable for mandatory conversion to IFRS in India:
Companies listed/or in process of listing inside or outside India on Stock Exchanges not covered in Phase I (other than companies listed on SME Exchanges)
Unlisted companies having a net worth more than INR 2.5 Billion but less than INR 5 Billion,
Any Parent, Subsidiary, Associate and Joint Venture of the companies mentioned above
Since the mandatory implementation of IFRS varies from company to company, it is advised to seek guidance from experienced IFRS consultants in India who can assess whether the business is liable to implement the international standards, or can continue with the Indian Accounting Standards.
The impact of IFRS adoption on Accounting and Reporting issues, procedures and systems, and the primary business of the company is assessed. Then the firm will find the key conversion dates according to IFRS training plan has laid down. As and when the training plan is in place, the firm will have to identify the important Financial Reporting Standards which will apply to the firm and also the variations among the present financial reporting standards being followed by the firm and IFRS both.
This step involves reformation of the internal reporting systems and processes of the company to be able to implementation of IFRS. Talking to an accounting consultant in India who is well-versed with the IFRS standards and understands the requirements and effects of the implementation of IFRS in India can help the business in getting insights on how to reform the internal reporting systems of the company without affecting its other operations.
Conversion to IFRS can also affect the asset accounting, revenue recognition, capital expense, or working capital of the company. The company is also required to change its planning and budgeting policies as per these standards.
The final step is the actual implementation of IFRS. During this step, an opening Balance Sheet at the date of transition to IFRS is prepared as the initial step. This is done to analyse the effects of conversion to IFRS from the Indian Accounting Standards. Once this analysis is done, the final implementation of IFRS can be done for the business.
SeekWiser can connect you with highly skilled professionals who can provide you with IFRS advisory services for your conversion to IFRS from the Indian Accounting Standards and manage your international projects efficiently. Give us a call at +91-7827886239 to get your first 60-minutes free consultation free with the best IFRS consultants in India.
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