Evolution and Convergence of International Financial Reporting Standards (IFRS) in India

 Introduction

 The International Financial Reporting Standards (IFRS) are a set of global accounting standards developed by the International Accounting Standards Board (IASB) to bring consistency, transparency, and comparability to financial statements worldwide.  Recognizing the growing globalization of markets, India decided to converge, rather than adopt fully, IFRS with its own accounting standards, leading to the creation of Indian Accounting Standards (Ind AS).

 Evolution of IFRS Globally

 1973: Formation of the International Accounting Standards Committee (IASC).

 1973–2000: Issuance of International Accounting Standards (IAS).

 2001: Establishment of the IASB, replacing the IASC; IFRS began to be issued.

 2005: European Union mandated IFRS for listed companies; IFRS adoption gained momentum worldwide.

 Evolution of IFRS in India

 Pre-2000: India followed its own accounting standards (AS) issued by the Institute of Chartered Accountants of India (ICAI).

 2006: ICAI announced its intention to converge with IFRS to enhance global acceptability of Indian companies.

 In 2009, the Ministry of Corporate Affairs (MCA) made a plan to get IFRS closer to convergence. 2011: Planned adoption deferred due to industry concerns and global financial instability.

 2015: MCA notified 39 Ind AS converged with IFRS.

 Based on thresholds for net worth, Ind AS became mandatory for some businesses in April 2016. Roadmap for IFRS Convergence in India

 The convergence plan was implemented in phases:

 Phase I (2016-17): Companies with a net worth of ₹500 crore or more had to adopt Ind AS.

 Phase II (2017-2018): Listed businesses and other entities whose net worth is between 250 and 500 crore rupees. Phases Following: Insurance companies, NBFCs, and banks were also included in a staggered manner. IFRS vs. Ind AS: Key Differences Carve-outs and Carve-ins: Ind AS has certain departures from IFRS to suit Indian legal, regulatory, and economic environments.

 Examples:

 Ind AS requires companies to recognize gains and losses from changes in fair value of certain investments differently.

 Treatment of government grants, revenue recognition, and leasing transactions has slight modifications.

 Problems with Convergence high transition costs (for compliance, training, and systems). Complexity in understanding new standards.

 Need for alignment of taxation laws (e.g., Income Computation and Disclosure Standards - ICDS).

 Differences in regulatory environments (e.g., SEBI, RBI, IRDA).

 Benefits of IFRS Convergence

 Enhanced comparability of financial statements with global peers.

 Improved access to international capital markets.

 increased openness, dependability, and investor trust. Better corporate governance and financial reporting.

 Recent Developments

 Continuous amendments to Ind AS to keep pace with IFRS updates (e.g., new standards on leasing, financial instruments, revenue recognition).

 Efforts toward full alignment and reduction of carve-outs.

 Discussions on making Ind AS mandatory for small and medium-sized enterprises (SMEs) in the future.

 Conclusion

 India’s journey towards IFRS convergence reflects its commitment to align with global best practices while maintaining relevance to domestic needs.  Although challenges remain, the implementation of Ind AS has significantly improved the financial reporting landscape in India, positioning Indian businesses more favorably on the global stage.

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