Module IV

CONVERGENCE TO INTERNATIONAL FINANCIAL REPORTING STANDSRDS

• Financial reporting :
• Financial
reporting is the communication of enterprise to the
management , investors, and their shareholders.
• Accounting standards:
• Accounting is considered the language of business. Each language
has certain set of rules
• Accounting standards are certain set of rules and guidelines based
on the principles and methods of accounting to be followed to
have uniformity in terminology , approach and presentation of
results.
Role/Objectives of Accounting standards

• The
main aim of AS is to ensure transparency, reliability, consistency, and
comparability of the financial statements.
• In
India, the Indian Accounting Standards are issued by the Institute of Chartered
Accountants of India (ICAI).
• Till now, there are 41 types of Accounting Standards in India.
• Accounting Standards mainly deal with four major issues of accounting, namely:
• Recognition of financial events
• Measurement of financial transactions
• Presentation of financial statements in a fair manner
• Disclosure requirement of companies to ensure stakeholders are not misinformed
Role/Objectives contd…..
• To improve the reliability of financial statements.
• To enable the Comparability financial statements.
• To provide a standard for the diverse accounting
policies and principles.
• To provide standards which are transparent for
users.
• To define the standards which are comparable over
all periods presented
• To facilitate ease of both inter-firm and intra-firm
comparison.
GLOBAL ACCOUNTING STANDARDS
• Global Accounting standards are the standard set to make the
financial statements prepared globally more meaningful and
useful by making them comparable with those of different years
of the same firm or those of with other firms of the same industry.
• IASC(International Accounting Standards Committee) was
formed for the purpose in 1973
• In2001 IASC was renamed as IASB( International Accounting
standard Board.
NEED AND IMPORTANCE OF GLOBAL ACCOUNTING
STANDARD
• Facilitates Ethics Compliance
• Improves international investment
• Multinational companies
• International trade
• Sets generalized standards
• Growth of international capital market
• Better analysis of financial data
• Increasing investor
Role and functions of IASB in developing IFRS
• Creating and developing global accounting standards
• Enforcement of standards
• Convergence of accounting standards
• Promoting adoption of IFRS
• Research on enterprises
• Assuring quality in financial reporting
• Assisting the auditors
• Assisting interested parties
• Exposure drafts
• Approval of interpretations.
IFRS (International Financial Reporting Standards )

• IFRS or International Financial Reporting Standards refers to a

globally-accepted set of accounting and financial reporting
guidelines for preparing and presenting financial statements. It
ensures uniformity in accounting practice that makes financial
records comparable across different reporting entities worldwide.
General features of IFRS
• Principle based accounting standards
• Clear
and simple language and easy to understand
and apply.
• Various
transactions are recorded on the basis of their
economic substance .
• Fixed assets are recorded at current cost.
• Assets,
liabilities, revenues, and expenses are
reported in its functional currency .
• Depreciation is calculated on the cost of important
parts of the asset
• Advantagesof Convergence with IFRS to the
economy, investors and industry
• Economy Favorable
• Inthe event that the accounting standards are converged, it will
help in promoting the international business and will also increase
the capital inflow into the nation.
• Beneficial to Investors
• Convergence helps financial specialists who wish to put resources
in foreign economies and markets. It makes it a lot simpler for
them to study and compare the financial reports of foreign
organizations.
• Advantageous to the Industry
• With worldwide accepted standards the business can easily
upswing ahead. It will enable the business to bring down the
expense of foreign capital. It will permit simple entry into the
market if that organization is not consumed by embracing two
distinct sets of standards.

• More Transparency
• It
will make it simpler for the clients to comprehend the financial
position. What's more, this will produce better transparency and
raise the certainty of the investment fund by investors.
The components of IFRS
• The Components of IFRS are:
1. International Financial Reporting Standards (IFRS)
2. International Accounting Standards(IAS)
3. Interpretations originated by the International
Financial Reporting Interpretations Committee
(IFRIC); and
4. Interpretations issued by the former Standing
Interpretations Committee (SIC)
• FASB(The Financial Accounting Standards Board)
• Functions of FASB
• 1.) Establish and interpret GAAP
• FASB has the power to create accounting principles that will become
the standard for all financial reporting. They define best practices and
interpretation of these GAAP principles, giving businesses the
information they need to make good business decisions.
• 2.) Develop and improve the implementation of GAAP
This is in order to provide financial reporting objectives that promote a
transparent discussion of the reporting entity’s financial position,
results from its operations, and cash flows.
3.) Issue Statements with Accounting Standards
The FASB issues accounting statements, which are used by companies
as guidelines when preparing their own financial reports.
• 4.) Overseeing changes to existing set standards, and making sure
proposed changes meet legal requirements.
• FASB is in charge of devising or changing standards that are meant to
improve the reliability of financial data by eliminating factors that distort
reported information.
• 5.) Oversight over SEC’s staff decisions, draft reporting requirements,
and compliance with FASB reporting.
• FASB works toward maintaining its standards after they are implemented
by companies through the Securities Exchange Act of 1934.
• 6.) Ensure investors receive information
• Investors have the right to know the profits and losses of a company in
its operations. It is the responsibility then of FASB to make sure that
investors have access to essential information.
• It ensures the proper treatment of accounting principles and financial
information so that companies can provide accurate reports to their
investors.
Process of setting IFRS standard
1.Setting agenda: Define International standard setting priorities and
develop its project work plan
2.Planning the project: Most projects are planned with proper research
which helps to explore the possible financial reporting problems
3. Developing and publishing discussion paper: Discussion papers are
published for suggesting principles to make disclosures in financial
statements more effective
4.Developing and publishing the exposure draft : Draft is issued for
public consultation
5. Developing and publishing the standard: Standards are published
globally
6.Post analysis of the standard: Post Implementation of review of each
standard should be conducted
• NFRA( National Financial Reporting Authority)
• The National Financial Reporting Authority (NFRA) was constituted on 01st
October,2018 by the Government of India under Sub Section (1) of section
132 of the Companies Act, 2013.
• Functions and Duties
• As per Sub Section (2) of Section 132 of the Companies Act, 2013, the
duties of the NFRA are to:
• Recommend accounting and auditing policies and standards to be adopted
by companies for approval by the Central Government;
• Monitor and enforce compliance with accounting standards and auditing
standards;
• Oversee the quality of service of the professions associated with ensuring
compliance with such standards and suggest measures for improvement in
the quality of service;
• Perform such other functions and duties as may be necessary or incidental
to the aforesaid functions and duties.
Elements of financial statements
• Elements are as follows:
•• Assets. These are items of economic benefit that are expected to yield
benefits in future periods. Examples are accounts receivable, inventory, and
fixed assets.
• Liabilities. These are legally binding obligations payable to another entity or
individual. Examples are accounts payable, taxes payable, and wages
payable.
•• Equity. This is the amount invested in a business by its owners, plus any
remaining retained earnings.
• Revenue. This is an increase in assets or decrease in liabilities caused by the
provision of services or products to customers. It is a quantification of the
gross activity generated by a business. Examples are product sales and
service sales.
•• Expenses. This is the reduction in value of an asset as it is used to generate
revenue. Examples are interest expense, compensation expense, and utilities
expense.
Standard Setting Process in India
• Standard Setting Process in India
•• First, the ASB will identify areas where the formulation of
accounting standards may be needed
•• Then the ASB will constitute study groups and panels to
discuss and study the topic at hand. Such panels will prepare
a draft of the standards. The draft normally includes the
definition of important terms, the objective of the standard,
its scope, measurement principles and the representation of
said data in the financial statements.
• The ASB then carries out deliberations of the said draft of the
standard. If necessary changes and revisions are made.
• Then this preliminary draft is circulated to all concerned
authorities. This will generally include the members of the
ICAI, and any other concerned authority like the Department
of Company Affairs (DCA), the SEBI, the CBDT (central Board
of Direct Taxes), Standing Conference of Public Enterprises
(SCPE), Comptroller and Auditor General of India etc. These
members and departments are invited to give their
comments
• Then the ASB arranges meetings with these representatives to
discuss their views and concerns about the draft and its provisions
•• The exposure draft is then finalized and presented to the public
for their review and comments
•• The comments by the public on the exposure draft will be
reviewed. Then a final draft will be prepared for the review and
consideration of the ICAI
•• The Council of the ICAI will then review and consider the final
draft of the standard.If necessary they may suggest a few
modifications.
• Finally, the Accounting Standard is issued. In the case of standard
for non-corporate entities, the ICAI will issue the standard. And if
the relevant subject relates to a corporate entity the Central
Government will issue the standard.
• Thedifferences between IFRS and Indian Accounting
standards
• 1.
IFRS is based on fair value concept. But, Indian
accounting standards are based on historical cost.
• 2.
Financial statements under IFRS and Indian
accounting standard differ in form and substance.
• 3.
Under IFRS, past errors are incorporated in the
accounts of the years it pertains to,even if audited
and adopted y shareholders. But, these are treated
as adjustments in the current year under Indian
accounting standards.
• 4.Depreciation on revalued assets needs to be routed
through income statements under IFRS. But Indian
accounting standards disallow such a treatment.
• 5.
Certain Indian accounting standards offer accounting
policy choices, these are not available under IFRS, Eg, use of
pooling of interest method in accounting for amalgamation.
• 6.
Indian accounting standards define assets by classes
which can be depreciated at given rates, whereas IFRS
promotes the concept of components of fixed assets based
on their usefulness.
• 7.Under IFRS, prior period items will be given retrospective
effect in opening equity. Under Ind as, it is not so.
• 8.Proposed dividend is not required to be reflected in financial
statements under IFRS. But this is required to be reflected in
financial statements under ind AS.
• 9.Under IFRS, provision made for dismantling of asset or for site
closure can be capitalized. But under Ind AS, this cannot be
capitalized.
• 10.
Under IFRS, EPS has to be disclosed separately for continuing
and discontinuing operations. This is not required under Ind AS.
• 11.The terminologies used in IFRS and Ind AS are different. For
example, instead of statement of comprehensive income under
IFRS, the term statement of profit or loss is used in Ind AS.
Similarly in place of statement of financial position under IFRS, the
term Balance sheet is used in ind AS.
Thank you