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What are IFRS/IAS?
Statements of International Accounting Standards (IAS) issued by the IASC (1973-2001) are designated as IAS. However, the 1ASB announced in April, 2001 that its Accounting Standards would be designated as ‘International Financial Reporting Standards’ (IFRS).

IASB publishes its Standards in a series of pronouncements called International Financial Reporting Standards (IFRS). It also adopted the body of Standards issued by the Board of the International Accounting Standards Committee. Those pronouncements continue to be designated as “International Accounting Standards” (IAS).

Who uses IFRS?
IFRS are increasingly being recognized as Global Reporting Standards. Currently more than 113 countries require or permit the use of IFRS. These include members of European Union (EU), Australia, New Zealand, Mauritius, Russia, Nepal, etc. Canada has announced its intention to adopt IFRSs from 2011. US has also taken up convergence projects with IASB with a view to permit filing of IFRS compliant financial statements in the US Stock Exchanges without requiring the presentation of reconciliation statement.

What are the benefits of adoption or convergence to IFRS?
The use of different accounting frameworks in different countries, which require inconsistent treatment and presentation of the same underlying economic transactions, creates confusion for users of financial statements. This confusion leads to inefficiency in capital markets across the world. Therefore, increasing complexity of business transactions and globalization of capital markets call for a single set of high quality accounting standards. High standards of financial reporting underpin the trust investors place in financial and non-financial information. Hence, the case for a single set of globally accepted accounting standards.

Has India decided to adopt or converge to IFRS?
Keeping in view the benefits of convergence to IFRS, the Council of ICAI has decided to converge with IFRS issued by IASB from the accounting periods commencing on or after 1-4-2011.

Whether all entities will be required to follow IFRS?
ICAI is of the view that IFRSs should be adopted for the public interest entities such as listed entities, banks and insurance entities and large-sized entities from the accounting periods beginning on or after 1st April, 2011. The countries which have adopted IFRSs have done so for similar types of entities.

From which date IFRSs need to be followed in India?
First set of IFRS Financial statements will need to be presented for the accounting year 2011-12. However, since comparatives will also have to be presented as per IFRS in 2011-12, what the entities will have to do is that they will also have to prepare their financial statements for 2010-11 as per IFRS.

Whether all entities will be required to follow IFRS?
In the first phase, IFRSs will be adopted for the public interest entities such as listed entities, banks and insurance entities and large-sized entities from the accounting periods beginning on or after 1st April, 2011. The countries which have adopted IFRSs have done so for similar types of entities. The exact definition of public interest entity is being worked out.

In the first phase, IFRS may apply to the following entities:
1. BSE-Sensex
2. NSE-Nifty
3. Companies that have raised debt > $ 50 million abroad
4. Insurance Companies
5. Mutual Funds
6. Commercial banks
7. Companies that are publicly accountable with an aggregate borrowing > Rs. 1,000 crores
8. Indian subsidiaries of foreign companies that have implemented IFRS at the parent company.
9. Companies that do not fall under any of the above categories with capital > $ 50 millions outside India.

Which accounting standards will be applicable for Small and Medium Sized Entities (SMEs)?
In respect of entities other than public interest entities (termed as ‘small and medium-sized entities’ (SMEs), a separate standard for SMEs may be formulated based on the IFRS for Small and Medium-sized Enterprises. IASB has recently issued a separate IFRS for SMEs. Presently, it is not clear whether the same IFRS will be adopted by India for SMEs). However, compliance with this IFRS for SMEs is not necessary to make India IFRS-compliant.

From which date IFRSs need to be followed in India?
First set of IFRS financial statements will need to be presented for the accounting year 2011-12. However, since comparatives will also have to be presented as per IFRS in 2011-12, what the entities will have to do is that they will also have to prepare their financial statements for 2010-11 as per IFRS. In other words, due to the requirement to give IFRS comparatives, effectively IFRS accounts will have to be prepared from 1-4-2010 onwards. Further, since the listed companies need to publish these financials on a quarterly basis, while presenting the financials for April-June 2011 quarter, they are likely to be required to give the IFRS comparatives for April-June 2010.

Hence, the industry as well as the accounting professions need to gear up for adoption of IFRS from 1-4-2010 itself. For meeting this time line background work should commence much in advance.

It is quite possible that for the first year no comparatives need to be given. But the question, whether in this case the accounts without comparatives will be IFRS compliant needs to be answered? The authors feel that even if the regulation requiring comparatives in the first year is dispensed with, it is prudent for the management to have comparative for internal MIS and other performance measurement requirements.

What is the road map to IFRS implementation ?
IFRS implementation requires a project approach with commitment from the highest level. It can be divided into the following phases:

Phase I : Plan Conversion
Phase II : Impact Analysis & Quantification
Phase III : Redefine/Redesign
Phase IV : Opening balance sheet as per IFRS
Phase V : Reporting date – IFRS financial statements

CA Krishan Kant Tulshan is an Executive Director at Cyber Media and Dr. J.L.Gupta is an Associate Professor- Finance at the University of Delhi.

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