India is looking to adopt International Financial Reporting Standards (IFRS) by April 2015.The Institute of Chartered Accountants of India has prepared the roadmap for complete adoption of IFRS by Indian companies.
In the first phase of implementation, which will begin from April this year, companies with net worth of more than 1000 crore will adopt IFRS. Adoption of IFRS means that these companies will have to prepare their accounts and financial statements as per IFRS.The second phase of implementation will begin from April 2016. In this phase listed and unlisted companies with net worth between 500 crore and 1000 crore will have to adopt IFRS in the preparation of their accounts and financial statements. Once the second phase is over, complete adoption of IFRS will be rolled out for all companies.
The IFRS standards have already been adopted by more than 135 countries. Adoption of IFRS in India will make accounting more transparent. The IFRS’ disclosure norms are more stringent than Indian Accounting Standards (Ind ASs) norms. One area in which IFRS and Ind ASs differ considerably is mark-to-market valuation of financial assets. The IFRS requires that all financial assets should be valued at their existing market value (IFRS Code 13). Another area is that of recognition of revenue by real estate companies. Under Ind ASs real estate companies recognize revenue as soon as the buyer signs the purchase contract. Under IFRS real estate companies can only recognize revenue after the buyer gets possession of the property.
The objective of IFRS is to improve the quality of accounting and to create a seamless global accounting framework that can cater to the needs of globalization. Indian companies, like Infosys, which are also listed at foreign stock exchanges like Nasdaq, already prepare their financial statements as per IFRS.The quality of financial reporting by Indian companies will improve significantly after the adoption of IFRS. This will improve corporate governance and will be beneficial for all the stakeholders. IFRS requires companies to prepare balance sheet (statement of financial position), profit & loss statement (statement of income), cash flow statement and statement of changes in equity.
For those working in the area of Accounting, knowledge of IFRS standards is much needed so that they do not become irrelevant once India adopts IFRS standards completely. Training in the application of IFRS standards will enhance their employability considerably.