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Cagig e I i IGAAP:Perspecives Iias rasii IFRS


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About ACCA

ACCA (the Association o Chartered CertiedAccountants) is the global body or proessional

accountants. We aim to oer business-relevant,rst-choice qualications to people o application,ability and ambition around the world who seek arewarding career in accountancy, nance andmanagement.

We support our 131,500 members and 362,000students throughout their careers, providingservices through a network o 80 o ces andcentres. Our global inrastructure means thatexams and support are delivered and reputationand infuence developed at a local level, directlybeneting stakeholders wherever they are based, orplan to move to, in pursuit o new career

opportunities. Our ocus is on proessional values,ethics, and governance, and we deliver value-addedservices through our global accountancypartnerships, working closely with multinationaland small entities to promote global standards andsupport.

We use our expertise and experience to work withgovernments, donor agencies and proessionalbodies to develop the global accountancyproession and to advance the public interest.

Our reputation is grounded in over 100 years o

providing world-class accounting and nancequalications. We champion opportunity, diversityand integrity, and our long traditions arecomplemented by modern thinking, backed by adiverse, global membership. By promoting ourglobal standards, and supporting our memberswherever they work, we aim to meet the currentand uture needs o international business.

Changing the I in IGAAP: Perspectives on Indiastransition to IFRS, is available in PDF.

The report can be downloaded ree o charge romthe ACCA website.

www.accaglobal.com/general/activities/library/nancial_reporting/

Foreword 3

Preace 4

Executive summary 5

1. Introduction 9

2. The ruits o IFRS 12

3. Where are we now and where do we want to be? 15

4. From here to utopia challenges and solutions 19

Appendix A: List o Indian accounting standards andequivalent international inancial reporting standards 27

Appendix B: Abbreviations and acronyms used in thisreport 29

Ces


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3CHANGING THE I IN IGAAP: PERSPECTIVES ON INDIAS TRANSITION TO IFRS

Frewr

Indias decision to converge with International FinancialReporting Standards (IFRS) issued by the InternationalAccounting Standards Board (IASB) represents animportant step towards the goal o truly global accounting

standards. India is in good company. More than 100countries already require or permit the use o IFRS anumber expected to increase to more than 150 within thenext ew years.

India already plays an increasingly important role in theglobal economy and many Indian companies occupysignicant positions in international capital markets.Indias convergence to IFRS will not only help the economyexpand urther, but will also urther the acceptance o IFRSas the global accounting language.

Earlier experiences rom jurisdictions that have adoptedIFRS show that the move to IFRS or companies requires

careul planning. While international businesses havedemanded comparability through harmonised nancialreporting, such changes bring their own set o challenges.This report oers a timely perspective on how Indiancompanies are making progress towards transition to IFRS,and what remains to be done.

This report continues the ACCAs long-standing support orglobal accounting standards, and will provide a useul aidto Indian companies as they implement IFRS.

Sir David TweedieChariman o the International Accounting Standards Board

November 2009


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Preace

Following the Council o the Institute o CharteredAccountants o Indias decision to adopt IFRS rom 1 April2011, IFRS is set to be an integral part o Indias corporatereporting landscape. Much progress has been made to

pave the way or a successul transition to IFRS. Howeverquestions still abound. How ready is India Inc toimplement IFRS? What are the benets to India rommoving to IFRS? How will dierences between IFRS andIndian accounting regulations be resolved?

To help answer these questions and understand thecurrent status o IFRS implementation in India, ACCAchaired roundtable events in Mumbai, Delhi and Pune withleading members o the business community. Participantswere rom various sectors o Indian business includingmajor national and international corporates, multinationalnancial institutions, leading proessional service rms,and signicant outsourcing companies.

The results o these discussions clearly indicate signicantbenets rom IFRS adoption and give insights into how thechallenges o IFRS transition can be overcome. It is clearthat there is much still to be done and this report brings

suggestions o what should be included in a widerroadmap or convergence.

ACCA would like to thank all the participants who gave uptheir time to oer their rank opinions at the roundtablemeetings. It is those views which orm the basis o thisreport and many o the recommendations within it. Wewould also like to give a special thank you to Get ThroughGuides or their instrumental role in organising themeetings and the British High Commission or theirsupport in hosting the roundtables.


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bACkGRound

In July 2007, the Council o the Institute o CharteredAccountants o India set a target o adopting International

Financial Reporting Standards (IFRS) or all listed, publicinterest and large-sized entities rom accounting periodsbeginning on or ater 1 April 2011. IFRS already orms thebasis o accepted accounting principles or companiesbased in over 100 countries around the world. With othermajor economies such as Brazil, Canada and Japan set torequire their major companies to report under IFRS (orequivalent standards), along with the US paving a roadmap or convergence, IFRS has cemented itsel as theglobal accounting language o choice.

As businesses increasingly operate and seek to accessnance around the globe, international businesses need tobe able to communicate their perormance through

globally comparable and harmonised nancial reporting.Indeed, in a 2008 survey conducted by CFO ResearchServices in collaboration with ACCA,1 41% o the 94 IndianCFOs surveyed elt that the timetable [or adopting IFRS]should be accelerated because China and othercompetitors are already reporting using global nancialstandards.

With 2011 rapidly approaching, Indian companies andnance proessionals are aced with a major change tonancial reporting. Experience rom other jurisdictions hasshown that not only can the nancial statementsthemselves be impacted signicantly, but the transition

costs related to adopting IFRS can be substantial. In orderto ensure as smooth a transition as possible, businessesneed to develop detailed strategies and programmes orimplementation.

In July 2009, ACCA chaired a series o discussion groupsin Delhi, Mumbai and Pune, where a number o leadingnance proessionals rom various sectors o Indianbusiness discussed Indias pending transition to IFRS. Thispaper summarises participants views on a number orelated issues including:

how companies, and the Indian economy as a whole,will benet rom IFRS

what progress is being made, by companies and theirclients, to prepare or IFRS, and

the challenges that are being aced to ensure IndiaInc. is well placed to meet the adoption date andcontinuing use o IFRS thereater.

1. CFO Publishing Corporation,A Climate o Convergence: Indias Road to

Global Reporting Standards, 2008.

WhAt ARE thE ExPECtEd bEnEFItS to IndIA oFAdoPtInG IFRS?

Indian companies have already embraced globalisation, as

evident in the prominent role they play in the internationaloutsourcing and inormation technology sectors. Similarly,participants unanimously believed that Indianorganisations will not only embrace IFRS, but will fourishthrough increased global trade and the creation o newknowledge-based business opportunities leveraged roman understanding o IFRS.

From the national economic view, there is a generalperception that the increased comparability andtransparency in nancial reporting o Indian companieswill:

acilitate global investment opportunities, both inboundand outbound

reduce barriers to entry to global capital markets

potentially lower cost o capital, and other costs andrisks associated with dual lings.

By helping Indian companies themselves to expand, therewill also be knock-on eects such as additional revenuesor the government, allowing urther investment in theinrastructure o the economy as a whole.

For individual businesses and industries, there will be

increased opportunities:

to provide new and enhanced services, especially in theBusiness Process Outsourcing (BPO) sector and orproessional services rms

or cost savings in education and training, asproessionals will only need to maintain understandingo a single accounting regime

to conduct a comprehensive, once-only review onancial reporting and inormation systems processesand controls within an organisation.

There is also a resounding perception that reporting underIFRS will benet management decision-making. Theexpected transparency in reported gures under IFRS willbe more suitable or making strategic decisions.


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WhAt PRoGRESS IS bEInG mAdE to PREPARE FoR IFRS?

Participants had a clear idea o what their organisationsneed to achieve by 2011. The discussion groups outlined

the most important areas o activity or Indian companies.

While the key elements o a transition programme werereadily agreed upon. Participants views about how muchmost Indian companies have progressed with suchprogramme varied considerably.

ha resrcesthe right number and level o expert sta is important bothor the proessional services rms and corporates. Theproessional services rms need to be in a position to ulltheir assurance role, as well as being able to oerappropriate technical advice. Corporates need to be in aposition to understand the impact o IFRS on the operations

o their business as well as nancials, and be able tocommunicate this to internal and external stakeholders.

SsesIn order to achieve the benets o producing inormationunder IFRS, appropriate IT and inormation systems will needto be in place to capture and analyse data relevant to IFRS.

CicaiAlthough there is a need to ensure early consultation withauditors and proessional consultants, it is essential orchannels to be in place to ensure that investors, analystsand nanciers are updated in a timely manner so as to

understand the impact o moving rom Indian GAAP(IGAAP) to IFRS. Such a major adjustment to corporatereporting requires well thought out change management.

Raisig awareessAs IFRS is seen to have a wide impact beyond the nanceunction, it is important or managers to be made aware ohow IFRS may aect their decision-making. Also, it will helpensure that there is high level buy-in to the IFRS strategy.

There is a belie in many companies that managementremained ambivalent to IFRS, and this is oten refected inthe lack o orward planning in those companies. Wherecompanies have already started implementing a

conversion programme, it is because their managementhad been inormed about the implications o IFRS early.

Sraeg a assesseTypically companies (including clients o the proessionalservices rms) that were listed or multi-nationals tended tobe more advanced in terms o having strategies in place.O those, some had set up steering groups to manage theprocess. These groups had already conducted diagnosticso how IFRS will impact the nancial statements andollowing early buy-in rom management, theirorganisations had heavily invested in IFRS implementationprogrammes. However, the majority o companies are

simply aware o IFRS, but little concrete preparation workhas been done.

up-siigEducation and training o sta is seen to be the overridingactor in successul implementation. Nonetheless, whilemanagement in some companies has evaluated the skills

o the internal workorce, and were beginning to trainrelevant sta through IFRS courses and qualications, thisis not the case in the majority o businesses. There is alsoa ear that many companies were over relying on externalconsultants to ultimately manage their conversion processas well as updating sta on key issues relating to IFRS.This is elt to be unsustainable and ine cient in thelong-run.

WhAt ARE thE mAIn ChAllEnGES oF IFRSAdoPtIon?

Although participants indicated that some companies werewell advanced when examining most o the key elements

undamental to conversion to IFRS, there was believed tobe a general lack o ocus in the Indian businesscommunity.

This relatively casual attitude appears to refect a lack oclarity about the transition rom regulators. It also hidesthe act that there are signicant challenges or India inachieving a successul and worthwhile conversion.

Participants noted a number o challenges.

diereces ewee IFRS a Iia GAAPWhile IGAAP has been converging with IFRS as much as

possible in recent years, dierences still remain, and someo these were viewed as signicant challenge to overcome.Participants noted concerns in the ollowing areas.

a) IFRS is more principles based, and thereore moreliberal than Indian GAAP. More choice under IFRS willmean the increased need to use proessionaljudgement, and this will require a undamental changein mindset or Indian accountants.

b) Initial transition will be a challenge given dieringrecognition and measurement criteria or assets andliabilities. These will not only impact earnings, but it isimportant to be able to capture those dierences

through appropriate inormation systems.

c) Specic accounting areas that will be more complexincluded business combinations and nancialinstruments. Many o the problems associated withthem arise rom the greater use o air value accountingunder IFRS.


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bsiesses aagig e prcesswith the requirement to prepare opening balance sheetnumbers or comparative gures using IFRS eectively 1April 2010 the need or assessment and planning is

increasingly urgent. In order to ensure that the processruns smoothly, businesses need to:

assess the impact IFRS will have on their nancialresults, their inormation systems and their operations,and then instigate appropriate processes to enableconversion to take place

communicate, internally and externally, to ensure thatthere is buy-in rom internal stakeholders throughoutthe organisation and to manage investor relations andexpectations as soon as possible.

Pressias aressig wege

in order to successully manage the process, it is vital tohave the expertise to assess what the impact o IFRS willhave, when compared to IGAAP. Whether it be preparing,auditing, or analysing nancial statements under IFRS, thecurrent level o expertise needs to be nurtured and grownsignicantly. Participants recommended:

embedding IFRS into the syllabus o proessionalqualications and the curriculum o graduateaccounting courses

raising IFRS expertise in qualied and practicingaccountants, through ocused training sessions andrecognised qualications in IFRS

ocused training and recruitment o specialists orcomplex areas in IFRS, such as valuation experts todeal with aspects o air value measurement

ormation o industry-based orums and discussiongroups to help raise awareness o key issues, acilitatebest practice and to strengthen accounting practicesand policies adopted by companies.

Ieraci ewee egisai a accigThere are concerns about the compatibility o Indian lawswith IFRS in certain matters pertaining to accounting, suchas ormats and presentation requirements. Similarly, there

is uncertainty over tax treatments o items arising romconvergence such as unrealised gains and losses and themove rom a tax basis or depreciation (IGAAP) to one ouseul economic lie (IFRS).

Ecai a raiiga key challenge is to ensure companies, auditors,regulators and the investment community areappropriately skilled to apply and interpret IFRS.

Efcie facia reprig prcessesalthough many Indian companies have still not thoughtabout the impact on their inormation systems. These willrequire a undamental review and initial costs could be

signicant. At the same time, it is important to have inplace sound systems in order to ensure that subsequentgeneration o reporting inormation is e cient.

RECommEndAtIonS

It was evident in the discussion groups that there isconsiderable level o ambivalence in the business andproessional community around IFRS. This largely stemsrom the perceived uncertainty over the 2011 transition date.

Some participants believed that this is because thegovernment, regulators and standard-setters are ranticallylooking into many o the issues associated with IFRS

adoption in India. It was, however, unanimously agreed thatmore dialogue with industry and greater transparency aboutgovernment and regulator thinking on adoption is needed.Although adoption at the earliest opportunity is preerred,most companies will be happy to delay as long as thereasons are communicated openly.

Gvere, regars a saar seers a ifeappraccorporate reporting in India is directed by a number obodies, including the accounting standard-setter (ICAI),regulators (IRDA, RBI and SEBI) as well as throughlegislation (Companies Act). Together with potential taximplications, this means that IFRS adoption is not simply a

matter o companies implementing IFRS instead o IndianAccounting Standards.

In order to assist stakeholders throughout the nancialreporting supply chain, and ultimately to bring momentumto the implementation process, participantsrecommended:

a stronger lead rom key government departmentssuch as the Ministry o Corporate Aairs

a more coordinated approach rom the varying groupso standard setters

clear and transparent signals rom regulators andstandard setters as to the transition approach and date,with a detailed and complete roadmap or conversionas soon as possible.

outlook: moVInG In thE RIGht dIRECtIon

Positive steps are being taken, as revisions to theCompanies Act, the new Income Tax Code, and

Valuations Act are now in progress. In August 2009,the Indian Ministry o Corporate Aairs alsoestablished a group o prominent experts to addressimplementation challenges related to convergence.

outlook: bEnEFIttInG FRom ExPERIEnCE

Participants strongly urged businesses and proessionalservices rms to review transition models in jurisdictionsthat had already implemented IFRS. There is muchknowledge available on how European organisationssuccessully planned, implemented and communicatedtheir conversion strategies, and these were oconsiderable value here in India.


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51Communication: businesses need tocommunicate their IFRS conversion strategiesat an early stage. Internal stakeholders needto understand the impact o IFRS on theirbusiness and their buy-in is crucial to orminga workable transition plan. Expectations oexternal stakeholders need to be managed,as IFRS could have a signicant impact on

perormance measures.

Expertise: proessionals need to developtheir skills to meet the specic requirementso IFRS. With the increased use o air valueaccounting, there is an acute need orvaluation specialists, and clear systems needto be in place to accredit such proessionals.

Education: proessional bodies anduniversities need to be embed IFRS into thesyllabus o their proessional and universitycourses, in order to meet the demand orIFRS qualied, proessional accountants.

Inuence: proessionals rom industry andpractice need to orm working groups tohighlight and respond to key issues. Theseshould set objectives o lobbying or nationalregulatory changes as well as infuencing theIFRS standard-setting process.

Eaig eecive rasii IFRS i Iia: 8 e aci pis

Leadership: the government needs toclearly emphasise the benets o IFRS, andtogether with regulators provide a strongerlead in declaring a complete roadmap toconvergence to bring momentum to IFRSimplementation.

Coordination: the government andregulators need to work closely and takeurgent steps to align regulatory andlegislative requirements with those o IFRS.

Preparation: businesses need to ensurethat transition programmes are in place assoon as possible, as the 2011 transitiondate means comparative gures need to berestated under IFRS. Businesses need tostart assessing the impact o IFRS on theirorganisation in earnest and instigateprocesses to enable that conversion.

Training: businesses need to commitresources or IFRS training and developmento sta. The training programme has to beled by internal management, withexperienced consultants providing expertsupport.


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IFRS thE GlobAlly ACCEPtEd ACCountInGlAnGuAGE

Over the last decade, International Financial Reporting

Standards (IFRS) have developed into the primaryaccounting ramework, with widespread acceptancethroughout international capital markets. The InternationalAccounting Standards Committee (IASC) was establishedin 1973, with the agreement o representatives rom theproessional accounting bodies o nine countries.1 TheIASCs rst published standards were IAS1 (1975)Disclosure o Accounting Policies and IAS2 (1975) Valuationand Presentation o Inventories in the Context o theHistorical Cost System. Since 1975, the IASC has morphedinto the more amiliar International Accounting StandardsBoard (IASB), with over 100 countries now either requiringor permitting the use o the various standards andinterpretations that orm IFRS.2

tae 1.1: use IFRS r esic ise cpaies

Number o countries

Permitted 23

Required or some 5

Required or all 89

117

Not permitted 35

Source: iasplus.com, Deloittes (August 2009).

1. Representatives o proessional accounting bodies rom Australia,

Canada, France, Germany, Japan, Mexico, Netherlands, United Kingdom /

Ireland and the United States signed the agreement.

2. Appendix A lists the current suite o Indian Accounting Standards

compared to IASB standards (8 IFRS and 29 IAS) and interpretations (16

IFRICs and 11 SICs) issued to date.

The growth o IFRS has been ed by calls or support romgroups such as the (then) G7 Finance Ministers andInternational Monetary Fund, who clearly saw the benetso a single accounting regime as being an integral part o

strengthening the international nancial architecture. Thisobjective led the International Organisation o SecuritiesCommissions (IOSCO) to recommend ormally that itsmembers accept IASC standards or cross-border oeringsand listings, in 2000. Another major coup or IFRS was theannouncement by the European Commission that allconsolidated nancial statements o listed companies inthe European Union (eective rom 1 January 2005) wouldhave to be prepared using IFRS. Indeed, since that date,not only have those European countries (currently 30 EU/EEA member states) adopted IFRS en masse, but so toohave a number o other countries around the world.

outlook: AlREAdy FACInG IFRS

With IFRS becoming the standards o choice inmarkets around the world, many Indian companies,even in advance o conversion to IFRS, already acesituations where they have to understand IFRSnancial statements. Examples noted byparticipants included:

companies that have attempted to acquire anIFRS-reporting target company, have needed tobe in a position to interpret the targets currentnancial position and perormance

companies with oreign, IFRS-reporting parentcompanies are already producing and reportingIFRS inormation

companies with oreign subsidiaries with localstatutory IFRS-reporting requirements also needto understand how that inormation is convertedto IGAAP or consolidation purposes

companies seeking to raise capital in oreign

markets have been required or permitted to useIFRS nancial inormation

multinational companies in industries whosemajor competitors are reporting under IFRSalready attempt to understand and interprettheir competitors current nancial position andhistorical perormance.

1. Irci


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Even the US, still the largest capital market, has nowaccepted the international support or IFRS. Although itdoes not permit IFRS or domestic registered issuers, theSecurities and Exchange Commission (SEC) now accepts

IFRS nancial statements led by oreign private issuers,without reconciliation to US GAAP. In 2008, the SECproposed a roadmap or the use o IFRS by US issuers,with a number o lers expected to prepare such nancialstatements as early as 2010/11, with a urther and nalphased adoption rom 2014 to 2016. Given that othermajor economies, such as Brazil, Canada and India, willalso have adopted IFRS well beore then, US acceptancewill certainly cement the view that IFRS is the globallyaccepted accounting language.

outlook: IndIAn ComPAnIES In GoodComPAny

Currently, 190 o the Forbes Global 500 companiescurrently use IFRS, a urther 140 use US GAAP, andthe remainder use national GAAP. It is estimatedthat, when other major economies (not including theUS) move to IFRS in the next ew years, about 310 othose companies will be using IFRS.

IndIAS RoAdmAP to ConVERGEnCE

In line with the momentum around the world orbusinesses to communicate with their stakeholders and

investors in the common language o IFRS, India has alsoembraced the opportunity to benet rom adopting aglobal set o accounting standards. In its Concept Paper onConvergence with IFRSs in India (CP), the Institute oChartered Accountants o India (ICAI) established 1 April2011 as the date o adoption o IFRS in India. Acceptingthe benets to the Indian economy, investors, industry andthe accounting proession, the CP was developed with theobjectives o exploring:

1. the approach or achieving convergence with IFRSs,and

2. the creation o a roadmap or achieving convergencewith IFRSs, with a view to making India IFRS-compliant.

For a number o years, the Accounting Standards Board(ASB) o ICAI has aimed at ormulating Indian AccountingStandards (AS) that are based on IFRS. As acknowledgedin the CP, however, deviations have had to be made inorder to ensure compliance and consistency with the legal,regulatory and economic environment, as well as the needto keep in view the level o preparedness o the industryand the accounting proessionals. Although the ASB aimsto develop a set o IFRS-equivalent Indian AccountingStandards, which necessarily remove these dierences, itis clear rom our discussions that they do pose a

signicant challenge. Chapter 4 o this report exploresthose challenges in greater detail, highlighting in particularthe need to resolve the conficting requirements romregulatory bodies and those that will be required romIFRS-based standards.


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mAkInG SuRE tImE IS on youR SIdE

Because the ICAI suggests the adoption o IFRS or public-interest entities rom accounting periods beginning on or

ater 1 April 2011, the timerame or transition rom IGAAPto IFRS should be high on the agenda or India Inc. Allstakeholders in the nancial reporting supply chain needto ensure, i they have not already, that they have thoughtabout what conversion will entail.

What is evident rom the experience in other parts o theworld, such as Europe, Australia and Asia, is thatconversion projects have oten required more time andresources than initially expected. India, in a ortunateposition to make the most o those experiences, mustensure that many o the benets o conversion to IFRS arenot eroded by unnecessary costs and complications. Anearly and coordinated eort rom all stakeholders is

required to ensure a relatively smooth and e cienttransition.

Preparers, users, regulators, proessional accountancybodies and educators need to be engaged in the planningas well as the implementation o IFRS. The impact o

transitioning to IFRS on nancial reporting should becommunicated as early as possible to avoid any potentialsurprises.

(United Nations Conerence on Trade and Development (UNCTAD) Review

o Practical Implementation Issues o International Financial Reporting

Standards, August 2007)

IFRS FoR All?

Owing to the inherent complexity o IFRS, the CP believesthat adoption o IFRS in India will be restricted to public-

interest entities. The denition o what is envisaged as apublic-interest entity in the CP is a slight modication othe criteria previously used to distinguish Level IEnterprises under existing guidance rom the ICAI3 and asstipulated in the Companies (Accounting Standards) Rules2006.

leve I EerprisesThe ICAI views a public-interest entity as one that alls intoone or more o the ollowing categories.

1. Its equity or debt securities are (or are in the process obeing) listed, whether within or outside India.

2. It is a bank or other nancial duciary, such as acooperative bank, mutual und or insurance business.

3. Its turnover (excluding other income) in theimmediately preceding accounting period, exceedsRs.100 crore.4

4. Its borrowings, including public deposits, exceededRs.25 crore5 at any time in the immediately precedingaccounting period.

5. It is a holding or a subsidiary o an entity covered byany one o the above.

leve II & III EerprisesThe ICAI considers Level II and Level III enterprises to besmall and medium-sized entities (SMEs), and that there isa strong case or analysing the IASBs IFRS or SMEs(issued in July 2009) in the context o setting accountingstandards or these enterprises. This is not currently onthe short term agenda, but will have a considerable impacton the long term uture o IGAAP.

3. Announcement on Applicabilit y o Accounting Standards (with

reerence to small and medium-sized enterprises), ICAI, 2003.

4. One crore is equal to 10 million.

5. The 2003 Announcement rom the ICAI, uses a threshold o Rs.50crore

or turnover, and Rs.10crore or borrowings.

IFRS

Indian GAAP

2009 2010 2011 2012

1 April 2011Implementation date

1 April 2010Transition date.

Opening IFRS b/s

31 March 2012First annual IFRS

nancial statements

2010 comparativesrestated, in accordancewith IFRS, published

in 2011 nancials

Figre 1: tieie r IFRS rasii


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There was a clear consensus rom all the round-tablegroups that the business community in India would benetconsiderably rom the adoption o IFRS. A number odelegates noted that it was important or India to embrace

this aspect o globalisation, just as it had others, such as inthe outsourcing and inormation technology (IT) industries.There was general agreement on some o the morecommonly cited macroeconomic gains rom adoption o aset o internationally recognised accounting standards. Atthe same time, and clearly refecting the micro-perspectivearising rom where participants worked, there were a arwider range o ways in which individual businesses wouldbenet.

thE mACRoEConomIC, CAPItAl mARkEt PERSPECtIVE

From a macroeconomic perspective it was clear thatIndian businesses using IFRS would benet rom using the

same nancial reporting language as their counterpartsaround the world. The increased comparability and, assome participants suggested, credibility that this oers isexpected to have substantial benets or capital infowsand outfows. Indian companies will nd it easier to raisenances across borders and potentially at a lower cost ocapital. The cost o having to convert nancial statementsrom IGAAP or international stock markets washighlighted as still being a major cost.

2. te ris IFRS

In parallel, it was strongly argued that the businessenvironment would become more conducive to investment.Both oreign direct investment into India as well as localbusinesses expanding through mergers and acquisitions

(M&A) in international markets would fourish throughenhanced comparability. There would be considerably lesscost in understanding and evaluating a potentialacquisition i the nancial statements were in a recognisedand similar ormat.

Indeed, a number o delegates pointed to a trait o IFRS namely the use o air value accounting as beingparticularly benecial in the area o M&A and also in thecontext o the current nancial crisis. Although signicantconcerns were raised about the extensive use o air valueaccounting (as discussed later in Chapter 4) in IFRS, it wasnoted that IFRS refects the true (air) value oacquisitions better than IGAAP currently does.

outlook: FAIR VAluE VS hIStoRICAl CoSt

IFRS3 requires accounting or net assets taken overin a business combination at air value, while inIGAAP, under AS 14Accounting or Amalgamations,business combinations are in almost allcircumstances recorded at carrying values. Fairvalues are based on expected uture cash fowsrelating to the assets and liabilities acquired at a

specic time, as opposed to historical cost, whichrecords the carrying value o those assets andliabilities at original transaction prices, subject toamortisation and impairment. These costs canthereore be outdated, while levels o depreciationand impairment can be subjective.

outlook:WIll IFRS REduCE youR ComPAnyS

CoSt oF CAPItAl?

In theory, the widespread acceptance o IFRS shouldmean that Indian companies will be able to seekcapital rom a broad range o global unding, andwith the expected increased competition amongglobal investors and nanciers or attractiveinvestments, a strong business should attract alower cost o capital through:

using a globally accepted set o accountingstandards

removing any risk premium associated with

IGAAP reporting.

As IFRS conversion around the world is still relativelynascent, it is too soon to say categorically whetherthe anticipated lowering o cost o capital hasoccurred. Early studies6 have shown that there hasbeen a positive impact on the cost o capital romadoption o IFRS, but more time is needed toconclude ully on the extent. Nonetheless, given thepotential amount o capital raising by Indianbusinesses, even a slight improvement in interestrates and other transaction terms will have asignicant impact on individual businesses.

6. Lee, Walker and Christensen, Mandating IFRS: Its Impact on the Cost o

Capital in Europe, ACCA research report 105, ACCA, 2008.


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thE mICRoEConomIC, IndIVIduAl buSInESSPERSPECtIVE

Participants were equally enthused about the benets that

would accrue to their own organisations and the industriesin which they operate.

Cig e ppriiesWith the majority o participants being qualiedaccountants and a number o these representingaccounting rms, it was not surprising to hear that therewould be considerable opportunities or the accountingproession in particular and the services sector in general.Many accounting rms have strong links with network andassociate rms across the globe that have alreadyexperienced conversion rom local GAAP to IFRS. Accessto that knowledge and experience was thought to becritical in ensuring a successul transition a point noted

was that India was at an advantage to other IFRSconversions, including that o Europe, where there hadbeen little practical experience to all back on.

For many Indian entities that currently have norequirement to produce IFRS accounting inormation oroverseas ling, some o the requirements o IFRS,discussed later in this report, were considered to be achallenge on initial adoption. Participants were again quickto point to air value requirements in IFRS, and theincreasing need or companies to have to revalue theirassets on a periodic basis. At the same time, as has beenthe case in Europe and other jurisdictions that have

adopted IFRS, this has allowed accountants to specialise inparticular areas and has paved the way or related servicespecialists, such as actuaries and valuation experts, todevelop.

outlook: bPo to kPo

There were a number o participants rom the BPOsector. They sensed the opportunity or India toestablish itsel as a hub or global accountingservices, just as it had done previously or business

process outsourcing (BPO). By ocusing on o-shootservices resulting rom transition to IFRS, such asvaluations and nancial statement preparation,,there are great prospects or outsourcing knowledgeprocesses related to accounting requirements, whichthrough IFRS, are becoming increasingly consistentthrough the world.

The challenge that many noted is servicing this cleardemand with the current level o accountingproessionals in India, and to ensure the appropriatelevel o expertise in IFRS is developed, throughstrong qualications and training.

bsiess prcessig ppriiesOutsourcing companies, thriving in India, already providesignicant accounting services to businesses around theworld. As the participants pointedly noted, this comes with

the need to employ, educate and train sta in dierentaccounting regimes. The act that US companies stillreport using US GAAP, and entities in Europe report undernational GAAPs and IFRS, while sta employed in Indiahave been trained in IGAAP, means a considerable andcontinuing investment or such organisations.

In the view o participants rom accounting rms, acommon reporting language, embedded in thequalications o would-be accountants, would markedlyreduce the additional training required or sta. It wouldalso acilitate a common platorm or training, as well asproviding greater opportunities or trained nance sta inother parts o the business.

outlook: PAVInG thE WAy FoR othERAdoPtIonS

A number o representatives rom the BPO sectoralso noted that many o their overseas clients stillused national GAAP. With conversion to IFRSincreasingly inevitable in those countries , and manyIndian companies likely to convert sooner than theirclients, there is a great opportunity to pass on the

expertise harnessed rom the India conversion toexisting and prospective clients.

Similarly, many Indian multinational corporationsalready listed abroad, or having overseassubsidiaries, are likely to be aced with numerousstatutory ling requirements. This again meanshaving to invest in experts in each national GAAP orlocal ling and reconciling to parent companyreporting GAAP. There was a wholeheartedrecognition that use o IFRS globally will reduce

these reporting burdens and related costs as well asdiminishing the risk o error.


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14

A e-ie ppriAs well as recognising that early planning was critical tosuccessul implementation within organisations, a numbero participants noted that conversion was likely to bring a

unique opportunity to review their entire nancialreporting processes thoroughly. They also acknowledgedthat had they not already perormed a relatively recent ITupgrade, the transition to IFRS would have been the idealopportunity to update their inormation systems.

The conversion process will allow companies to start, ineect, rom a clean sheet o paper or nancial policiesand processes. For multinational organisations seeking toput in place common accounting processes, it will providethe impetus to centralise and streamline nance unctionsand strengthen internal controls. Common accountingpolicies and processes would in turn be a major aid ormanagement decision making, thus having an impact on

business strategy beyond the cost savings.

From the discussions, it appears that the benets omoving to IFRS or organisations and or the Indianeconomy as a whole are numerous. There was also a veryhigh level o optimism among the corporate community.This was echoed by the proessional services rms, bothamong themselves and on behal o their clients.Nonetheless, participants were q uick to curb theirenthusiasm, considering the challenges o many kindsacing the implementation process. These challenges arediscussed in Chapter 4 o this report, while the nextsection looks at the stage o the implementation process

businesses have now reached, and where they want to bein 2011 and beyond.

EduCAtIon And tRAInInG

With India at the centre o globalisation already, manycompanies, most obviously the BPO sector and the largermultinationals, already have to deal with multiple regimeso nancial reporting. The strains on resources, andespecially training and education, can be signicant. AsIGAAP (outside the adoption o IFRS or the public interestcompanies) urther converges with IFRS, this newaccounting language will be embedded in the accountingeducation system, and these strains should diminish over

time.

SummARy: PERCEIVEd bEnEFItS oF IFRS toIndIA

Ecic ipacIncreased comparability and transparency oIndian company nancial statements

Facilitation o global investment options

Reduced barriers to entry in global capitalmarkets

Potentially lower cost o capital, and other costand risk reductions associated with dual lings

Iivia siess a isr ipacOpportunity to provide new and enhancedservices BPO sector and proessional servicesrms

Cost savings or education and training, with asingle accounting regime

A once-only opportunity to review nancialreporting and inormation system processescomprehensively


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Echoing the general enthusiasm or IFRS, there was awidespread sentiment that Corporate India needs to accept that IFRS is on its way. I an organisation sees itsel as aleading company and wants to ensure that it reaps thebenets o adopting IFRS, it needs to start theimplementation process now.

utoPIA

Beore considering how they and their clients weredeveloping implementation strategies, participants wereasked to consider where they wanted their organisations tobe or transition and beyond.

The overriding theme was the need to have appropriatesta in place. This was important or the proessionalservices rms, which need to be in a position to provideassurance and guidance to their clients rom an IFRSperspective. Similarly, representatives rom the corporatesectors asserted that a successul transition would entailhaving the correct number o sta, with the rightknowledge and expertise. The experience o their sta wascritical to implementing IFRS smoothly, and this very muchencompassed all areas o the organisation, beyond just theaccounting and nance unctions.

Another essential ingredient that businesses hope to havein place is up-to-date inormation management systems,incorporating the particular requirements inherent inreporting IFRS appropriately. As already mentioned, therewere perceived benets both or internal managementreporting, as well as to external users. In order to achievethis, a robust IT and wider inormation system would haveto be in position, supported by revised internal controls.

As well as having the support o management andpersonnel across the organisation itsel, the relationshipwith other external stakeholders was also a key issue.There was recognition rom the corporate sector thatconsultants and proessional service rms would play an

important role in the overall implementation process,although both parties recognised that the internalaccounting and nance unctions would have to be lessreliant on those services over time.

Similarly, communication channels with the investorcommunity and other users such as nanciers and taxauthorities would have to be in place. It was seen asimportant to ensure that reported numbers in IFRS andthe dierences between IGAAP reported gures areunderstood.

It was clear where participants believed their organisations

ocus was likely to be in the orthcoming months, but therewas less certainty over the actual position o corporateIndia at this time.

tEntAtIVE StEPS

As with any major system overhaul, participantsunanimously considered that eective changemanagement was pivotal to the conversion process. Thediscussions below summarise the status o the conversionprocess through the eyes o participants and their clients.

SraegA new nancial reporting regime could aect business in aocused area, or it could have more wide-ranging eectsacross most unctions. Determining which outcome waslikely was believed to be crucial in devising an appropriatetransition plan.

Some o the proessional services rms claimed thatalthough many o their clients were talking to them aboutIFRS, they were doing little in actual preparation. Othershad already put conversion strategies in process, and hadplanned or the internal and external work required. Suchcompanies, which were mainly SENSEX listed, had alreadyinvested heavily in areas such as IT systems and internaldiagnostics.

3. Were are we w a were we wa e?

Figre 2: mvig r IGAAP IFRS

2009/10 2010/11 2011/12 2012/13

Assessment and strategy

impact assessment

(investors, operations,

people and agreements)

draw up strategy and

project plan

Business as usualImplementation

execute system changes

embed IFRS into

organisation

parallel running o IFRS and

IGAAP

review results and systems

Set-up and modications

work through issues

establish policies

prepare initial results


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Early acquisition o the right level o knowledge andexperience was recognised as crucial to understanding theimpact o IFRS, which in turn would enable a successulimplementation strategy to be put in place. It is essential

thereore that up-skilling is very much internally ocused those with the existing knowledge o the business beingkept in place and trained accordingly. Again, rom aresource perspective this was clearly more easible orlarger organisations. Multinationals were ideally placed topull in internal resources rom other regions o thebusiness where IFRS was already in use, or who hadexperience o conversion processes. Nonetheless, it wasemphasised that all businesses need to ensure that theirkey sta are ully trained.

Again, the proessional service rms were cited as a majorasset in assisting the awareness side o implementation.They had played a major role in other jurisdictions when

converting to IFRS and having access to that experienceand the retained knowledge base is, and will continue tobe, a major help to them and their clients.

outlook: tAkInG thE lEAd

Those companies that had already started theircomprehensive education and training programmesemphasised the need to build this theme into anyoverall assessment. It was crucial to assess the

existing skill levels within the organisation, andunderstand what the additional requirements were.The size o the aected workorce as well as theexisting level o experience and qualications wouldbe critical or assessing what additional educationand training were required, and how they would bedelivered whether through in-house training,ormal courses or specic IFRS qualications.

Who IS GoInG to do It?

Another important point raised was that it would be vitalor companies not to ocus entirely on short-term training

needs, and ensure that programmes were in place orcontinuing education. In order to ensure that adoptingIFRS was sustainable rom an individual businessperspective, it would be important to limit the dependencyon outside consultants.

Apart rom some o the individual exceptions, there was ageneral belie that IFRS expertise and knowledge withinmost businesses in India is currently too low. Althoughwork was in process, with particular assistance rom theaccounting rms, there was a clear indication that there issome way to go or the majority o businesses likely to beaected.

It was argued that a major reason or this was that manycompanies have had the mindset that consultants will dothe work or them. The proessional service rms agreedthat this would not be sustainable, and that while theycould and already were talking about impact analysis, etcwith their clients, the more longer-term education andtraining requirements had to be managed internally.

IFRS doesnt end ater the rst balance sheet...[we] needto keep people dedicated to it, and reduce thedependency on consultants.

(QUOTE FROM PARTICIPANT)

Indeed, one participant noted the hard lessons learnedrom their organisations US GAAP conversion a number oyears ago. The emphasis was very much on internaleducation, with a level o involvement rom consultants(depending on the resources available). In particular, it wasnoted that educating people to understand the impact oIFRS needed to go beyond just the preparers and internalusers, but very much needed to include communicationwith investors and shareholders. It was crucial that theaccounting proession and other regulators take this onboard.


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outlook: lEARnInG FRom EACh othER

There appeared to be a major ocus on the role theproessional service rms would play in theconversion process. Interestingly, there were quitedivergent views on how well prepared even some othese were in their current levels o expertise inIFRS. Similarly, there was a concern that theproessional services rms were at times givingopposing advice on accounting treatments.

Participants, both rom practice and industryexpressed a need or the major rms to cooperatemore closely in raising awareness, while moreavenues such as these roundtable meetings wereneeded to acilitate discussions on key issues.

At the same time, while programmes were beingconducted, these had to move beyond the basicoverviews o IFRS.

Others ascribed the lack o urgency in preparing or IFRS,and the low investment in education and training, to thelack o clarity about the date o transition. There is awidespread attitude that scaling is not a problem, and that

it will be done when needed. For many, it was a matter obeing pushed, and the ambiguity over transition therehave been increasing suggestions rom the corporateworld and the proession that this could be delayed wasnot helping to build the appropriate mindset.

While there were some good examples o companies thathad progressed well in their implementation plans, overallthe current level o preparation o IFRS conversion is notwell advanced. Many companies are still short o theresources that are likely to be needed, and participantsbelieved that many companies were relatively apatheticabout conversion when the time comes it will be OK.

Although there was overwhelming condence that whenclear goals were in sight, there would be progress, in orderto manage the process smoothly it would be vital or thewider proession to tackle the challenges arising rom thecurrent situation o the majority o industry. As shown inFigure 1 on page 11, the need to provide comparativeinormation in IFRS is urgent, as the transition date orconversion is essentially a matter o months away. Thehurdles need to be overcome now.

SummARy: kEy PoIntS thAt WIll AId thEtRAnSItIon to IFRS

Strategy and assessment. To some extentinterdependent, successul transitions willdepend signicantly on having a well-thought-out plan.

A preliminary study o the impact on thenancial statements is an integral part o theoriginal assessment, which will aect otherareas.

IFRS is likely to have a wide impact, beyond thenance unction, and these managers need tobe made aware o how IFRS may aect theirdecision-making.

IT and inormation system costs are likely to bea major expense in the conversion process, asnew accounting policies and processes need tobe adopted it is worthwhile assessing i theconversion process can be tied in with otherIT-related restructuring.

Education and training will be a major actor.Management needs to consider how to increasethe skills o the internal workorce, using expertconsultancy advice where needed, while

ensuring that the process is both orwardlooking and internally managed.

Organisations must work with internationalsubsidiaries and associates to ensure thatconsistent accounting policies and practices arein place global group manuals will be neededor multinationals converting to IFRS.

Early communication is key helping keystakeholders to understand the impact oconverting to IFRS, rom a change-managementperspective, and the impact on the nancialstatements themselves.

Having ormed an assessment and a strategy, itis important that a strict timeline is ollowed(converting opening balances; rst reports,announcements, changes to IT systems).

A steering group needs to be set up to reviewthe process on a regular basis.


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Although participants indicated that there are somebeacons among companies that have ormal strategies inplace, looking at most o the key elements undamental toconversion to IFRS there appears to be a general lack o

ocus in the Indian business community. This relativelycasual outlook rom regulators appears to refect a lack oclarity about the transition. It also hides the act that thereare signicant challenges or India in achieving asuccessul and worthwhile conversion.

It was noted that the challenges may be limited or thoseIndian companies that have listed Global DepositaryReceipts (GDRs) and American Depositary Receipts (ADRs)and thereore already have experience o transition to acertain level, but the impact o switching to IFRS on Indiaas a whole was being underestimated. Participants notedthat, given the potential number o companies required toreport in IFRS rom 2011 well in excess o 20,000, the

number o accountants who would need to thoroughlyamiliarise themselves with the uture accounting languagewould be considerable. When taking into account theparallel need to educate other stakeholders, such asregulators, investors and internal management, and raiseawareness o the impact o IFRS among them, thechallenge was signicant.

WhAtS thE dIFFEREnCE?

When reerring to the revision and review o newaccounting standards in India, the ICAI notes that the aim

has always been to ollow the IFRSs, to the extent possible.However, deviations rom IFRSs have been made due tovarious unavoidable reasons. Some o the reasons notedby the ICAI are:

the need to maintain consistency with legal andregulatory requirements

economic environment

level o preparedness

conceptual dierences.

To some extent, these also refect the participantsconcerns about the challenges o adoption o ull IFRS.These views are discussed throughout this section. It isclear that these challenges arise because IGAAP and IFRSare two dierent accounting regimes, with dierent bases.

Many participants did indeed indicate that the dierencesbetween the regimes were diminishing. Nevertheless, theyhighlighted some areas o IFRS that would be a particularchallenge or the accounting proession in India.

IFRS allows more choices than IGAAP, and thereorenecessitates wider use o proessional judgement.

Citing examples such as the treatment o actuarialgains and losses allowed in IFRS compared with IGAAP,participants argued that IFRS was more liberal thanIGAAP, and that a change in mindset would be needed.

Initial transition would be a major challenge, asrecognition and criteria or assets and liabilities dierbetween IGAAP and IFRS. Their recognition orderecognition under IFRS, as well as their measurementunder IFRS principles would have signicant impact oninitial earnings, and the need to put in placeinormation systems to catch these dierences wouldthereore be vital.

Business combinations and nancial instruments werethe other major areas that participants indicated couldbe a problem early on, with other dierences likely tooccur in income taxes, employee benets and revenuerecognition.

4. Fr ere pia caeges a sis


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Fair vaeParticipants did not concentrate heavily on the detaileddierences between IFRS and IGAAP, as there isconsiderable literature already available on this, and more

complex issues need more in-depth discussions.Nonetheless, it was evident that air value accounting ingeneral was a broader issue.

As noted earlier, there are notable benets to providingmore transparent and relevant inormation, which somehad argued would be available through the use o airvalue accounting. Although the debate on the concept oair value would continue, and was still running at theIASB and elsewhere, the bigger problem will be ensuringthat the expertise is available to provide the inormation toarrive at those values.

By their very nature, air values require active markets, and

can be assessed only i there are readily available marketprices and values. In their absence, greater reliance has tobe placed on valuation techniques and estimates. There is anabsence o this expertise, with a shortage o both valuersthemselves and the accounting proessionals needed toimplement and challenge the resulting accounting.

outlook: thE EuRoPEAn ExPERIEnCE

Most early reviews suggested that compliance withthe principles o IFRS was eective in most cases,

although disclosures were less well done. Thediverse nature o existing national standards inEurope was refected in a national impression givenby many o the nancial statements. Theproblematic standards were the ones that were notcovered by national accounting systems, such asshare-based payments and particularly nancialinstruments, where numerous areas were problematic:

split accounting

distinction between equity and liabilities

need to account or derivatives on balance sheet

number o classications

greater use o air value.

Common restatements rom national GAAP alsooccurred in the areas o business combinations such as:

requirement to recognise and value more intangibles

no more systematic amortisation o goodwill subject to annual impairment review

higher than expected impairments o intangibles(and tangibles).

outlook: InPut Into IFRS

As noted below, when discussing issues o Adoptionor Convergence?, participants understood thatadopting IFRS would mean loss o local sovereigntyover the setting o accounting standards. While asnapshot decision could be made ater thoroughreview, any subsequent changes to IFRS would meanautomatic use in India, i IFRS were adopted ully. Inorder to preserve the notion o a single set ostandards, while needing to resolve any particularnational economic issues, a national committeewould have to be ormed, to respond ormally toIASB standards. This committee would be led by theaccounting proession and the business community,and provide a united view on how the issues aectIndian business.

mvig argesWhen discussing the issues o accounting dierences andparticularly those relating to nancial instruments, a majorconcern or participants was how to cope with IFRS

standards that are in the process o being revised. Thiswas particularly the case or the IFRS related to nancialinstruments that are currently being revised, but may notbe eective until ater IFRS transition in India. It wasargued that there might be a greater burden on India (andother converting countries) compared with countries thathave already converted, and that thereore have somerelevant inormation systems in place. Indian companiesmight have to implement the old standards, only to have torevise their systems again to apply the new requirements.


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outlook: GEttInG EVERyonE to thE tAblE

Participants representing organisations where theconversion strategy was well progressed indicatedthat the ormation o an internal steering committee

was a major help. The early buy-in rommanagement leading to its ormation, as well as thebroad make-up o the group meant that there was apositive impact on sta, who were able to engagemore readily.

An IFRS working group and steering committee shouldhave representation rom all interested partiesacross the business and would typically include

relevant board members, to understandbusiness impact

technical accounting and policy advisor, likely to

be rom the nance unction to identiy keyaccounting drivers

IT specialist, looking into systems requirementsand analysis

HR manager, to action training and educationrequirements

legal specialist, given the implications orexisting and uture contracts and agreements oapplying IFRS

investor relationship manger, ensuring early andeective communication o how IFRS conversionis aecting the company

thE buSInESS CASE

Awareess ave a e e face ciAs mentioned above, some changes resulting rom

switching accounting regimes will be simple and otherscomplex, but the repercussions will be experienced wellbeyond the accounting and nance unctions. Given theimpact on each business as a whole, all participantsagreed that it was imperative that key decision makersthroughout the business are aware o the potential costs oimplementation and the potential impact on reportednumbers. Early indications were that, in many cases, thosecharged with governance and management were not ullyaware o the implications o convergence with IFRS. Thisclearly refects the general ambiguity amongst manycompanies, highlighted earlier.

As the company board is ultimately responsible or

approving conversion strategies and setting them inmotion, companies have to move away quickly rom thealse notion that only the nance unction will be aected.I they do not understand the challenge, the whole internalconversion process will be hampered.

CicaiMost participants believed that in many companiesprotability as well as the position o the business wouldbe aected and quite possibly in a negative way. It was

important or management to understand that this was notdue to any alterations in the economics o the underlyingtransactions, but a refection o accounting requirements.Similarly, management need to be made aware o thebusiness benets o moving to IFRS. Although conversionto IFRS in India is not optional, participants argued thatmore emphasis needs to be placed on the positive impact,the possibility o creating value or the business, to ensurethat management and boards are ully behind the process,so that they do not see it as simply another complianceexercise. Again, as previously noted, those charged withputting in place contracts and agreements with thirdparties also have to be made aware o the potential impacton accounting numbers resulting rom existing contracts,and on new or renewed ones.

Ultimately, the users o listed company nancialstatements are shareholders and investors. Their mainconcerns will be how any changes might aect share priceand the overall impact on the value o the business. It wasclear that there were major incentives or companies toensure that the communication process with investors andanalysts was well thought out, and that this would beessential in maintaining trust during initial transition,where there would be relative uncertainty over reporting.

What was also evident rom the discussions was a general

impression that the analyst community was not ully awareo IFRS. Analysts would need to reconsider their currentmodels, and be able to incorporate IFRS assumptionsappropriately. Participants agreed that the issue oeducation and training needed to spread beyond theaccounting proession. It would have to include analysts,investor groups and regulators, as well as ocused work onhigh-level issues or tax authorities and internal management.


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outlook: mAnAGInG ExPECtAtIonS

Experience rom other jurisdictions shows howbenecial good and early communication can be inthe conversion process. Good examples rom theEuropean experience were plentiul, with companiescommenting on key IFRS dierences by:

issuing early statements to analysts

having one-to-one calls with the press to explainsome o the major dierences allowingcomments to be much more meaningul

providing investor releases or shareholders this is already being done by some Canadiancompanies, which will also be moving to IFRS in2011

using preceding nancial statements tocommunicate, quantiy and reconcile dierencesbetween reported gures under existing nationalGAAP compared to those that are likely underIFRS

Figre 3: Receais r cicaig rasii i facia saees

Source: Based on Committee o European Securities Regulators (CESR) proposals outlined in their paper, European Regulation on the Application o IFRS

in 2005: Recommendation or Additional Guidance Regarding the Transition to IFRS, 2003.

2009/10 2010/11 2011/12 2012/13

The transition plan

DescriptionIdentication o keydierences

Reporting

Interim statements inaccordance with IAS34 orNational standards with

IFRS measurement basis

Quantitative analysis

Eect on 2010nancials

lEARnInG thE lESSonS

A theme in raising awareness among both internal andexternal stakeholders has been the need to educate those

groups about the potential impact o IFRS on nancialreporting.

Coupled with the belie that there is an existing shortage oaccounting proessionals in India, the current limited IFRSexpertise and knowledge in India meant that participantssaw training and education as the biggest challenge oadoption. The ICAIs CP notes that Indian standards havealready been aligning with IFRS or a number o years.Nonetheless, there was a clear indication rom the majorityo participants that some signicant dierences did exist.More undamentally, it was believed that IGAAP was inmany respects more conservative than the inherentlyprinciples-based IFRS. Thus even well-trained, qualied

accountants would be aced with new and quite dierentchallenges.


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EcaiInterestingly, many participants argued that understandingthe underlying principles was crucial to grasping IFRS, butthat these concepts were not well understood.

Although the need to train already-qualied accountantswas an undisputed and urgent issue, because they wouldbe leading the actual detailed conversion work, there was astrong opinion that a bottom-up approach to theeducation system was needed. A participant noted thatlearning needs to start early. It was recognised not onlythat knowledge gaps in IFRS-based accounting need to belled as soon as possible among the wider proession, butalso that uture preparers and auditors must be wellequipped to speak on IFRS. Specic suggestions includeda thorough review o the university education system, suchthat IFRS would be embedded into the accountingsyllabuses.

Similarly, despite the much-needed eorts by ICAI todevelop its certicate in IFRS, and other well-recogniseddiplomas in the subject, concerns were raised about whenIFRS would be incorporated into the main ICAIqualication. This is clearly a di cult issue, given that orsome time there is still likely to be IGAAP that will berelevant to many Indian lers. This is urther exploredbelow in the section headed Future o IGAAP.

traiigAs mentioned, courses and qualications in IFRS are awelcome addition to the development or qualied,

practising accountants who have been trained underIGAAP, and may have knowledge about other accountingregimes. The key point noted by participants was that it isvital that such qualications are practical, allowing well-versed proessionals to explore the key issues they arelikely to ace.

Again, participants pointedly reerred to the principlednature o IFRS, and the subsequent need to understandcore concepts and be able to apply judgement to relevantissues. The particular nature o IFRS is such that simplebook learning is not enough. Both or preparers in thecorporate sector and qualied proessionals in theassurance and consultancy services, practical and

continuing proessional development (CPD) are required.

The act that IFRS themselves are going through signicantchange was also noted, again emphasising the need toensure that training programmes or both corporate clientsand proessional rms is part o a long-term exercise. Thiswas considered to be more o an issue or some o thesmaller businesses, but it would be helpul i CPDrequirements were built into ormal qualications.

Participants rom some o the larger organisations alsomentioned the act that although more specic detailedtraining was required or their accounting sta, higher-levelcourses did exist and were being used; or example, those

aimed at audit committees.

We cannot have standard training or all. There is a needor diferent levels o training or the very high level,

standard external training could be used, but moredetailed bespoke training is needed or the accountingand nance unctions, but someone needs to tell

everyone what to do.


These thoughts rom participants again refect the actthat while the right noises are being made in manyorganisations, there was still a lack o condence andstructure or getting the training and education in order.Although considerable help is already orthcoming romthe proessional rms, there also appeared to be concernsabout how well equipped they themselves were. Theaccountancy rms in general believed that the knowledgewas there, and certainly being built up, but that the clientspossibly believed that this was not su cient. Nonetheless,all groups again made the point that reliance should notbe placed on outside consultants, and that the trainingprogrammes had to be planned and managed internally.

Frs a iscssi grps

There was also strong support or using networks to obtainknowledge. Most accountants had a su cient networkbase to do so.

Moreover, it was seen as important to set up industrygroups, as was the case in Europe, where acilitated groupswere a major help in ensuring that consistent solutionsand decisions were arrived at or common issues.Similarly, it was argued that the proessional rms neededto work more closely together, both in helping to acilitatesuch groups, and in ensuring that they too were providingtheir clients with consistent responses to queries aboutaccounting treatments and eects.

outlook: PoSItIVE ExPERIEnCE FRom EuRoPE

As noted by a number o participants withexperience rom the European transition, theacilitated industry groups meant that it was thecorporates who were taking the responsibility andinitiative, and they were then able to relay this to theconsultants. As one participant noted, while thereare some groups, such as CII, India needs to nd away o building up more extensive groups, with

discussion orums like this being an importantstarting point.


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SEttInG thE RulES

The setting up o NACAS, by the Ministry o CorporateAairs in conjunction with various regulators such as the

Reserve Bank o India (RBI), the Insurance Regulatory &Development Authority (IRDA) and the Securities andExchange Board o India (SEBI), should have been a clearsignal o the Indian governments intention regarding IFRSadoption. Early indications have been that the 2011transition date was set in stone. Nevertheless, a commontheme among all participants was the apparent lack oclarity about whether the planned transition date wouldstill go ahead. It is clear, however, that at least in publicneither the government nor the ICAI has wavered rom thatdate.

The perceived lack o clarity, which many argued washaving a severe eect by delaying implementation

programmes or many companies, stemmed rom anumber o issues that many believed still need to beresolved beore the 2011 goal can be reached.

Ieraci ewee accig a egisaiConcerns were raised about the compatibility o Indianlaws with IFRS in matters governing accounting. Forexample, many noted that the ormats prescribed in

Schedule VI o the Companies Act 1956 dier rom thepresentation requirements in IAS1. There is no separateSORIE or SOCIE in IGAAP, and there is no requirement toseparate on the balance sheet amounts partly recoverablein 12 months rom those recoverable over a longer period.Other issues around the lack o clarity about true and airoverride guidance in IGAAP (Clause 49 o the ListingsAgreement) and in IAS1 were also noted.

As compliance with national law and regulation overridesIFRS, it is vital that any dierences are nullied as soon aspossible.

taig aersAdopting IFRS is going to have a major impact on thebottom line or a large proportion o companies. This willaect tax liabilities, and entities will need to ensure thatappropriate tax planning strategies are considered.

From a wider perspective, participants argued that greatercooperation was needed between the tax authorities andstandard-setters. There was considerable uncertaintyabout tax treatments o items that would arise rom theconvergence with IFRS unrealised gains when revaluingnancial instruments at air values was noted as a primeexample. When IFRS was introduced in the UK, where inessence the accounting system is relatively tax-neutral,

ormal groups were ormed by what was then the InlandRevenue to look into and discuss the potential impact oIFRS on tax accounting. While there were no major issuesrom the UK perspective, many participants argued thatthe interactions between accounting and current tax lawswere an issue or Indian businesses. It was again importantto sort out these issues to give condence to the market.

Interestingly, it was believed that one o the reasons whythere was still a level o ambivalence in the business andproessional community about the 2011 transition date,was because the government was rantically looking intomany o the issues outlined above. Whatever was thesituation, it is important that there is more dialogue with

industry and greater transparency about governmentthinking on transition. Although adoption at the earliestopportunity was preerred, most companies would behappy to delay, i it meant that any issues were openlyresolved.

outlook: muSt ConVEy bEnEFItS

As previously noted, many organisations argued thatthey needed more and clearer signals rom the

government about IFRS transition. Once they wereconvinced, they would move more decisively toaccelerate the implementation processes. Currentlythey were reluctant to make substantial investments,in case the transition date was indeed delayed. Theyalso claimed that a more positive approach wasneeded rom the government, outlining what thepotential benets were or the Indian economy as awhole many believed that Indian companies couldwell achieve even more substantial gains than thosein other jurisdictions that have adopted IFRS. Therewill be costs, but most participants believed thatthese would be largely initial costs and thatincreased global competitiveness would soon

outweigh these the government should be morepositive.


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outlook: dElAy not nECESSARIly A bAd thInG

Time pressure was a common and strong themeamong participants. There was a rm belie thatrom a regulatory perspective the process needed atleast three to our years. Europe had aced similarissues, but there the inrastructure to review andmake changes to legislation was in place muchearlier. Greater cohesion was needed betweenregulators, standard-setters and government bodies.

outlook: EduCAtInG thE REGulAtoRS

In its 2004, ROSC report on India, the World Banknoted the Stock Exchanges lack su cient numberso qualied proessionals and nancial resources tosystematically carry out monitoring o compliancewith accounting and nancial reportingrequirements9. Participants echoed these concerns,noting that education and training in IFRS needed tobe extended well beyond accountants in companiesand accounting rms.

Clearly, listed companies were already regulated to a largeextent, and participants noted the positive and timelyreaction to accounting scandals in India, as well the as thecareul peer process that had been put in place throughthe SEBI. Nonetheless, as discussed below, many morecompanies will be adopting IFRS, according to the currentproposals by the ICAI. There needs to be a robustmechanism or supervising the reports o such companiesand their accountants.

thE FutuRE oF IndIAn GAAP

Stemming rom the question o adoption or convergence,urther questions were raised about what would nowhappen to IGAAP i ull IFRS were adopted by the intended

companies. There would still be a considerable number oentities that would need to le accounts, presumablyunder IGAAP. Would a more converged orm o IGAAP berelevant to such entities?

Psig e ressA more pressing concern was, however, whether thecurrent threshold level or adopting IFRS was appropriatein itsel. When Europe adopted IFRS in 2005, it wasestimated that only 7,000 or so companies (all listed) werecovered by the requirements. As at April 2009, there were4,93010 listed securities on the BSE, and a urther 1,64611securities available or trading on the National StockExchange o India. Despite the act that the proposed

turnover threshold or a public-interest entity (Rs.100crore) is twice that o the current guidance on whatconstitutes a Level I Enterprise, there are estimates that asmany as 20,000 companies could be required to prepareIFRS nancial statements in 2011.

9. World Bank, Report on the Observance o Standards and Codes (ROSC):

India, p. 12, 2004.

10. Bombay Stock Exchange, BSE Key Statistics [online text], .

11. National Stock o Exchange [website], .

Api r cvergece?Almost all participants agreed that it would not be

benecial simply to have converged standards, whichbrought in IFRS, but were adapted or Indian legislationand the nuances o Indian business. Full adoption wouldbe required to ensure that the benets o a single set oglobal standards were achieved in the long run. Clearly, itis important or India to ensure that any particular industryand regulatory issues are dealt with, beore ull adoption,but ideally Indian businesses should be adopting ull IFRS.It was noted that even i India did not ully adopt actualIASB standards, this would not be unique, as manyjurisdictions have adopted IFRS-equivalent standards, andEuropean legislation similarly includes a carve out romone requirement within IASB standards.

Everyone is still waiting or a signal rom the government.

There needs to be a separate agency reviewing this.While the Ministry o Corporate Af airs are taking certaininitiatives8 [we] need an empowered group to geteveryone working together.(QUOTE FROM PARTICIPANT)

Geig e irasrcre i paceSome participants claimed that there had been littleconsideration o how the transition to IFRS would besupervised at the proessional level. Education and trainingwere a major issue, as already discussed, but there werealso concerns that: IGAAP itsel is not always appliedconsistently how will we make sure that IFRS is beingapplied correctly? It was seen as important to ensure thata wider supervisory inrastructure is put in place, to ensurethat standards are maintained in the proession.

8. In August 2009, subsequent to these roundtable meetings, the Ministry

o Corporate Aairs established a group o prominent experts to address

implementation challenges related to convergence.


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Evidence rom Europe suggests that, the smaller the size 12o the entity, the greater the proportionate costs oimplementation. Coupled with the very limited number osuitably trained sta, many participants considered that

the current threshold levels needed to be revised.

There needs to be a debate on size, with more realistictargets required. A more realistic phased approach would

be more appropriate. [Restrict] implementation to listedcompanies rst.13


Wa a e res IFRS r SmE?Although the debate was very much about Indiastransition to ull IFRS, the IASB project or producing a ullstandard or small and medium-sized entities was raised.There was a positive reaction to the recently issued IFRSor SME standard, and many believed that this was goingto be the uture o IGAAP. Indeed, as the ICAI CP noted, itwill be looking at this in more detail in this very context, asare other jurisdictions around the world. Following thisstandard will mean that the principles o IFRS will beretained, without placing an unnecessary burden onsmaller companies. The positive impact on education andtraining as a result o incorporating such a standard wasnoted as another big positive point, as accountants wouldnot need to learn two accounting regimes, part o whichare based on dierent principles.

12. ICAEW, EU Implementation o IFRS and the FV Directive: A Report or

the European Commission, 2007.

13. In October 2009, a group set up by the Ministry o Corporate Aairs to

look at IFRS convergence, tentatively concluded that a phased approach

would be more appropriate.

SummARy oF ChAllEnGES FACInG IndIAStRAnSItIon to IFRS

Underlying all the challenges was the view that IFRSand IGAAP were two dierent accounting regimes,and although work is already well under way to bringIndian accounting standards in line with IFRS,signicant dierences remain.

The increased use o air value accounting underIFRS means proessionals and industries need tobe in place to arrive at reliable values.

The importance o aligning regulatory andlegislative requirements with those o IFRS is akey obstacle. A coherent and revised roadmapneeds to be prepared, to ensure that theimplementation is not derailed by uncertaintyover whether transition will occur as expected.

There needs to be strong and coordinatedlobbying or such change, and the governmentneeds to act on this, as well as emphasising thebenets o IFRS.

Although the costs o business restructuring willbe signicant, the biggest challenge orresources is training and development o sta.The training programme has to be led by

internal management, with consultants playingan important part.

For the uture o the proession, IFRS needs tobe embedded in accounting and universitysyllabuses.

The dierences arising rom the adoption oIFRS have to be communicated to internal andexternal stakeholders early and in anappropriate manner.


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Appei A: lis Iia accig saars a eqivaeieraia facia reprig saars

Indian Accounting Standards (AS) IFRS (IAS) equivalent

AS 1 Disclosure o Accounting Policies IAS 1 Presentation o Financial Statements

SIC 29 Service Concession Arrangements: Disclosures

AS 2 (Revised) Valuation o Inventories IAS 2 InventoriesAS 3 (Revised) Cash Flow Statements IAS 7 Statement o Cash Flows

AS 4 (Revised) Contingencies and Events Occurring ater

the Balance Sheet Date

IAS 10 Events ater the Reporting Period

AS 5 (Revised) Net Prot or Loss or the Period, Prior

Period Items and Changes in Accounting Policies

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

AS 6 (Revised) Depreciation Accounting IAS 16 Property, Plant and Equipment

AS 7 (Revised) Construction Contracts IAS 11 Construction Contracts

AS 8Accounting or Research and Development(AS-8 was

withdrawn rom the date AS-26 became mandatory)

AS 9 Revenue Recognition IAS 18 Revenue

SIC 31 Revenue Barter Transactions Involving Advertising Services

IFRIC 13 Customer Loyalty Programmes

AS 10 Accounting or Fixed Assets IAS 16 Property, Plant and Equipment

AS 11 (Revised) The eects o Changes in Foreign

Exchange Rates

IAS 21 The eects o Changes in Foreign Exchange Rates

SIC 7Introduction o the Euro

AS 12 Accounting or Government Grants IAS 20Accounting or Government Grants and Disclosure o Government Assistance

SIC 10 Government Assistance No Specic Relation to Operating Activities

AS 13 Accounting or Investments IAS 39 Financial Instruments: Recognition & Measurement

IAS 40Investment Property

AS 14 Accounting or Amalgamations IFRS 3 Business Combinations

AS 15 Accounting or Retirement Benets in the Financial

Statements o Employers

IAS 19 Employee Benets

IFRIC 14 The Limit o a Dened Benet Asset , Minimum Funding Requirements and their

Interaction

AS 16 Borrowing Costs IAS 23 Borrowing Costs

AS 17 Segment Reporting IFRS 8Operating Segments

AS 18 Related Party Disclosures IAS 24 Related Party Disclosures

AS 19 Leases IAS 17 Leases

SIC 15 Operating Leases Incentives

SIC 27 Evaluating the Substance o Transactions Involving the Legal Form o a Lease

IFRIC4 Determining Whether an Arrangement Contains a Lease

AS 20 Earnings Per Share IAS 33 Earnings Per Share

AS 21 Consolidated Financial Statements IAS 27 Consolidated and Separate Financial Statements

SIC 12Special Purpose Entities

AS 22 Accounting or Taxes on Income IAS 12 Income Taxes

SIC 21 Income Taxes Recovery o Revalued Non-Depreciable Assets

SIC25 Income Taxes - Changes in the Tax Status o an Entit y or its Shareholders

AS 23 Accounting or Investments in Associates in

Consolidated Financial Statements

IAS 28

AS 24 Discontinuing Operations IFRS 5 Non Current Assets Held or Sale and Discontinuing Operations

AS 25 Interim Financial Reporting IAS 34 Interim Financial Reporting

IFRIC 10Interim Financial Reporting and Impairment

AS 26 Intangible Assets IAS 38 Intangible Assets

SIC 32Intangible Assets Website Costs

AS 27 Financial Reporting o Interests in Joint Ventures IAS 31 Interests in Joint Ventures

SIC 13Jointly Controlled Entities Non Monetary Contributions by Venturers

AS 28 Impairment o Assets IAS 36 Impairment o Assets

IFRIC 10 Interim Financial Reporting and Impairment

AS 29 Provisions, Contingent Liabilities and Contingent

Assets

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IFRIC 1Changes in Existing Decommissioning, Restoring and Similar Liabilities

IFRIC 5Rights to Interests Arising rom Decommissioning, Restoration and Environmental Funds

IFRIC 6Liabilities Arising rom Participating in a Specic Market Waste Electrical and

Electronic Equipment (WE&EE)

AS 30 Financial Instruments: Recognition & Measurement IAS 39 Financial Instruments: Recognition & Measurement

IFRIC 9Reassessment o Embedded Derivatives

AS 31 Financial Instruments: Presentation IAS 32 Financial Instruments: Presentation

IFRIC 2Members Shares in Cooperative Entities and Similar instruments

AS32 Financial Instruments: Disclosures (and limited

revision to Accounting Standard (AS) 19, Leases)

IFRS 7 Financial Instruments: Disclosures


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The ollowing IFRSs do not have any directly related AS equivalents

IFRS 1 First-time adoption o International Financial Reporting Standards

IFRS 2 Share-based Payment

IFRS 4 Insuran

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