IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) IN INDIAN BANKING SECTOR: EFFECTS AND CHALLENGES

Miss. NAVERIYA BANU & Mr. RANJAN B U Research Scholars, Mandavya Research & Development Center, Mandavya First Grade College, Mandya .

INTRODUCTION

India is a country which is rapidly moving towards globalization, is still in the process of adopting global reporting standards (i.e. IFRS).

Indian banking sector considered as one of the strongest industry, where everything is standardized, but even today it practicing the traditional accounting system i.e. Indian GAAP.

Adoption of global accounting standards in Indian banking system will bring more positive drastic changes, where as it has plenty of challenges also.

This paper/presentation concentrates on effects and challenges in implementation of IFRS in Indian banking sector.

OBJECTIVES OF THE STUDY

To comprehend the concept and effects of International Financial Reporting Standards (IFRS).

To study the major challenges for International Financial Reporting Standards (IFRS) adoption in Indian banking sector.

To suggest the appropriate measures for the effective implementation of IFRS in Indian banking industry.

SCOPE OF THE STUDY

The scope of the study is confined to nationalized banks and excludes all other industries in India.

The data collected by consulting the accountants and bankers are belongs to banking industry in and around Mandya district.

Further the scope is limited to the data collected by the accountants and bankers are 25 respondents only.

The time covered by the study is one month.

STATEMENT OF THE PROBLEM

In Indian banking industry in order to get the advantages of IFRS adoption we have to control over the challenges for the adoption of IFRS, in order to control them the proper understanding of those challenges is most important.

Thus the study concentrates on identifying the major challenges and understanding the effects of IFRS adoption in Indian banking sector

METHODOLOGY

Quantitative research method is adopted. The data for the study collected from both primary sources as well as secondary source:

PRIMARY DATA: Primary data has collected through questionnaire by consulting 25 accountants and bankers of different nationalized banks around Mandya district.

SECONDARY DATA: Secondary data has collected from various books, articles, journals, dailies, and official websites.

The Primary and secondary data are analyzed using simple arithmetical techniques such as percentage, tables, graphs that are extensively used for analyzing and interpretation of the data collected.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

IFRS - stands for International Financial Reporting Standards are high quality, understandable, enforceable and globally accepted accounting standards issued by IASB (International Accounting Standards Board).

These standards are a set of international accounting standards stating how a particular type of transaction and other event should be reported in the financial statements.

The ultimate goal of issuing these standards is to achieve a single set of high quality, common accounting standards should be in practice around the world

LIST OF EXISTING IFRS:

NO.TITLEORIGINALLY ISSUEDEFFECTIVE IFRS 1First-time Adoption of International Financial Reporting Standards2003January 1, 2004IFRS 2Share-based Payment2004January 1, 2005IFRS 3Business Combinations2004April 1, 2004IFRS 4Insurance Contracts2004January 1, 2005IFRS 5Non-current Assets Held for Sale and Discontinued Operations2004January 1, 2005IFRS 6Exploration for and Evaluation of Mineral Resources2004January 1, 2006

IFRS 7Financial Instruments: Disclosures2005January 1, 2007IFRS 8Operating Segments2006January 1, 2009IFRS 9Financial Instruments2009January 1, 2015IFRS 10Consolidated Financial Statements2011January 1, 2013IFRS 11Joint Arrangements2011January 1, 2013IFRS 12Disclosure of Interests in Other Entities2011January 1, 2013IFRS 13Fair Value Measurement2011January 1, 2013IFRS 14Regulatory Deferral Accounts2014January 1, 2016

IFRS CONVERGENCE PLANThe Ministry of Corporate Affairs of India as a part of Government of India, in January 2010 announced a multi phased plan for transition beginning April 1, 2011 to the new converged accounting standards Indias attempts to converge the IFRS which has carve outs that distinguish it from IFRS which is known as Ind AS.

The MCA has finalized Thirty five Ind AS in February 2011. The actual date of application of these Ind AS is yet to be notified.

EFFECTS OF IFRS ADOPTION IN INDIA:

Common basis of comparison: Adopting a global financial reporting basis will enable the banks to be understood in the global market place. It would allow banks to be perceived as an international player.

Improved access to international capital market: Migration to IFRS will enable Indian banks to have access to international capital market reducing the risk premium that is added to those reporting under banking regulation act.

Escape multiple reporting: IFRS will eliminate the need for multiple reports and significant adjustments for preparing consolidated financial statements or filing financial statements in different stock exchanges.

MAJOR CHALLENGES FOR IFRS ADOPTION IN INDIA:

Wide Gap: IFRS is very much different from the present accounting policies being followed. There are big differences expected in accounting for financial instruments, business combinations and employee benefits.

Inadequate Trained People on IFRS: A large group of trained and skilled accountants and bankers are required to Indian banks for the effective implementation of IFRS.

Fair Value Measurement of Items in the Financial Statements: IFRS uses fair value as a base to measure a majority of items in the financial statements which yields a true value of a business. But the Indian banks are preparing financial statements on historical cost basis, and there are difficulties are there in shifting from historical cost based of accounting to the fair value based accounting system.

DATA ANALYSIS AND INTERPRETATION:

1. WHETHER THE ACCOUNTANTS AND BANKERS ARE COMFORTABLE WITH THE PRESENT METHOD OF ACCOUNTING SYSTEM:

Source: primary data. INFERENCE: From the above table and graph we can noticed that, out of 25 respondents the entire 25(100%) respondents are comfortable with the existing system of accounting, and no one is uncomfortable with the present method of accounting in India

OPTIONNO. OF RESPONDANTSPERCENTAGE (%)Yes25100No.00000Total.25100

2. THE DEGREE OF AVAILABILITY OF TRAINING AND KNOWLEDGE TO THE RESPONDENTS TOWARDS LATEST DEVELOPMENTS IN ACCOUNTING IN THEIR ORGANISATION:INFERENCE: From the above table and graph we can observes that, out of 25 respondents, 07 (28%) of the respondents has an excellent availability of training and knowledge on the latest developments an accounting by their banks, while 12 (48%) respondents has Good, 04 (16%) has Satisfactory, and 02 (08%) respondents has poor availability of that training and knowledge in their organizations.

Chart1

7

12

4

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Excellent7

Good12

Satisfactory4

2

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3. THE AWARENESS OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) AMONG THE RESPONDENTS:

INFERENCE: From the above table and graph we can come to know the fact that, out of 25 respondents, only 08 (32%) of them are aware of IFRS and 17 (68%) of the respondents are unknown of IFRS.

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8YesYes

17NoNo

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Series 1Column1Column2

Yes8

No17

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4. WHETHER THE RESPONDENTS ARE READY TO MIGRATE FROM INDIAN BANKING ACCOUNTING SYSTEM TO IFRS:INFERENCE: From the above table and graph we can conclude that out of 25 respondents, 15(60%) of the respondents are ready to migrate from existing accounting system to global accounting standards (IFRS), and 10 (40%) of them are not ready for the migration.

OPTIONNO. OF RESPONDANTSPERCENTAGE (%)Yes1560No.1040Total.25100

5. RESPONDENTS OPINION ABOUT THE MAJOR BENEFIT OF IFRS ADOPTION IN INDIA:

OPTIONNO. OF RESPONDENTSPERCENTAGE (%)Improvements in the efficiency the international capital market.0312Increased flow of FDI to India0416Better information to investors.0000Competition with foreign companies.0520Reduced burden of multiple reporting.1040Increased transparency.0312Total25100

6. ACCORDING TO THE RESPONDENTS, THE MAJOR CHALLENGE BEHIND THE DELAY IN IFRS ADOPTION:

OPTIONNO. OF RESPONDENTSPERCENTAGE (%)Difficulties involved in the transition process.0312Fair value measurement of assets and liabilities.0208Accounting policies.0312Lack of knowledge on IFRS.0728Tax implications 0416Amendments to the existing laws.0624Total.25100

7. RESPONDANTS RECOMMENDATION TO THEIR ORGANISATION FOR THE EFFECTIVE IMPLIMENTATION OF IFRS:

OPTIONNO. OF RESPONDANTSPERCENTAGE (%)Training to the staff.1248Guidance and assistance of higher authority.0520Keep investors informed.0000All of the above.0728Total.25100

SUGGESTIONSThe study indentified that the knowledge on International Financial Reporting Standards (IFRS) is very poor among the respondents, though the accountants and bankers are the pillars of the transition process it is suggested to ensure adequate training and knowledge on IFRS, its benefits, its implementation from now itself.

An adequate management and government support is very essential to the banks and other organizations for the effective implementation of IFRS in India.

The another key success factor for the effective IFRS implementation is Outsourcing, India can import the information related to the successful implementation of IFRS by other countries who are the leaders in the effective implementation of IFRS.

The Government of India shall provide assistance as well as incentives to the banks that are ready to migrate to IFRS, this will definitely helps in the effective and early adoption of IFRS in Indian banking sector.

The another important suggestion is that the information given to the various stakeholders including investors, creditors, suppliers, customers, etc., regarding the migration from Indian accounting Standards to IFRS in such a way that it shall not create any confusions among them, that means it should be reliable, relevant and on time.

Academicians are also the part of transition process, so it is suggested to include the IFRS as a curriculum activity especially for the commerce students from the pre university level itself.

CONCLUSIONThe adoption of IFRS in Indian banking sector will ensure a greater credibility and faith in the international capital market. It also helps in upgrading the status of Indian banks in the views of investors both domestic as well as Foreign Institutional Investors (FII).

There can be number of challenges will enter into the transition process, but the worth of benefits derived from the transition will definitely overcome those challenges.

Thus it is suggested to Indian banking sectors that the IFRS adoption or convergence have to be came into action as soon as possible.