When we talk of convergence of accounting standards in India, it means convergence of Indian Accounting Standards with International Financial Reporting Standards (IFRS).
IFRS are the accounting standards of International Accounting Standards Board (IASB). One of the major commitments of G-20 is to implement common IFRS standards across the globe. G-20 is the group of 20 biggest economies in the world.Globalization has resulted in increased economic integration between countries. This integration demands a common accounting standard across the world. Convergence of local accounting standards with IFRS is a step in this direction.
The government of India and Institute of Chartered Accountants of India (ICAI) support the convergence of Indian Accounting Standards with IFRS. The IFRS converged Indian accounting standards are known as Ind AS.According to ICAI the following entities should prepare their financial statements according to IFRS-converged standards from April 1st 2016 onwards:
- All companies whose stock or debt is listed at a stock exchange. The exchange of listing can be Indian or foreign.
- All banking companies, insurance companies, mutual fund companies and financial institutions.
- All unlisted companies having net worth of more than Rs. 500 crore.
- All businesses whose borrowing from banks, financial institutions or through deposits from public exceeds Rs. 20 crore at any point in the immediately preceding financial year.
- Every business or joint venture of a company that is a subsidiary of an entity that is required to prepare financial statements according to IFRS-converged standards.
The original plan was to implement IFRS-converged standards by April, 2011 but that plan had been delayed mainly because of lobbying from various industry bodies.The convergence with IFRS in India may marginally bring down the cost of capital for Indian businesses that try to raise capital from abroad. Foreign investors and lenders consider it an additional risk when a company is not following IFRS for preparing its financial statements. The convergence of IFRS with Indian accounting standards will improve the quality of corporate governance in Indian companies because the quality of financial reporting will improve.
Attracting foreign direct investment (FDI) in the country is a priority of the new Indian government that took charge in May last year. Therefore it is likely that unlike in the past, the implementation of IFRS-converged standards will not be delayed this time.