International Financial Reporting Standards (IFRS)

Discuss about the Contemporary Accounting Theory for International Finance.

Language of business in accounting and financial reporting is regarded as a medium through which language of accounting is communicated form one business to another. Accounting as well as the financial reporting has been regulated by the International Financial Reporting Standards (IFRS). IFRS has been issued by the International Accounting Standard (IAS). It provides recognition, presentation, disclosure, & measurement requirements in respect to the events which are presented in the financial statements. In 2001 IFRS was developed by the International Accounting Standard Board (IASB). These IFRS were developed to safeguard   the interest of the public. It is single guide which assures high quality; inform accounting principles and understandable standards. Due to globalization, finance is gaining a worldwide growth. IFRS is regarded as a reliable manner through which financial information can be exchanged in a meaningful as well as in the trustworthy manner. Investor before investing goes through the financial statement before making the investment decisions. Thus it is essential from investor’s point of view that it reflects right information. IFRS are accounting standards which has been developed by IASB (Ilott, 2016). Today IFRS along with their fundamentals (Mathur, 2011)and principles have been applied in more than 100 nations around the globe. From 2005 onwards it has covered almost all European countries, it a non profits organization, monitoring board was also established to measure its activities and ensure the high quality service (Siddiqui, 2011). International Accounting Standard Committee (IASC): this committee was established in 1973 by France, Germany, Canada, Netherlands, Mexico, Japan, Australia, United Kingdom, USA, and Ireland through an agreement. The professional accountancy bodies of these nations formed a committee known as IASC, subsequently other members were added to the organization, and by 1982 all the members of International Federation of Accountants (IFAC) were also the sponsoring members of IASC. The major components comprised of: IASC (Basu & Saha, 2013) Board, consultative group, advisory council, standing interpretations committee, steering committee. The vision of ISAC is to provide more high quality globally accepted accounting standards as a result they changed the structure in 2000 and this committee was renamed as IASB. Thus from 2000 onwards functions of IASC are now performed by IASB (Deloitte, 2016).Initially international accounting standard were issued. IASs were issued by the IASC (Narayanswamy, 2014). These standards were issued between 1973 to 2001. In April 2001 there was change in the IASC which was taken over by the IASB. Now the responsibility for publishing new accounting standards vests with the IASB instead of the IASC. First meeting was conducted and it was decided that IASB will adopt the existing IAS (international accounting standard) as well as the Standing Interpretations Committee standards (SICs) (Shodhganga, 2016).

International Accounting Standard Committee (IASC)

IASB was established and formed in 2001, it was considered as the part of the IASC Foundation. In 2010 IASC was renamed as IFRS Foundation. Governance of IFRs foundation is vested upon the 22 trustees. IFRS foundation is responsible for appointing the IASB members, taking care of the financing of the company and associated committee. Standards issued by the IASB were known as the IFRS (Unegbu, 2014). Presently IFRS is applicable in many parts of the world including the Malaysia, European Union, GCC countries, Hong Kong, South Africa, Turkey. IFRS is applicable in more than 100 countries. IFRS is regarded as a common global language; through this accounts are comparable as well as understandable in the global world. Set of international accounting standard is known as IFRS. IFRS have been issued by the IASB. It states the procedures that how an accountant should maintain and report their accounts. IFRS (international financial reporting standards) maintains transparency as well as the stability in the finance world. IFRS are globally accepted standards. It provides a global marketplace (Rashid1 et al., 2012). It helps in accessing world capital markets. It also assists in promotion of new business. Quality of reporting & internal communication within the organization will be enhanced as it provides a consistent methodology for financial reporting that will assist multinational corporations (MNC) to apply and use common Accounting standards for its subsidiaries as well as holding company including its parent company. It also enhances the decision making process. IFRS provides the facility to benchmark its company against the various peers around the world. Investor can analyze the growth of the organization globally. Evaluation process of performance with respect to competitors is simplified. It enhances comparability within companies of the same industry (Zakari, 2014). Capital of the business enterprise is efficiently priced. IFRS is always regarded as a trending topic. IFRS gained its importance when the European Union has decided to convert or converge their financial reporting according to the IFRS (Barry J. Epstein, 2008). Earlier European Union used to follow US GAAP. Manifestation of globalization is represented by the IFRS. IFRS is used to create an image which is in consistent with the developed nation as well to the multinational corporations. At present 115 countries such as EU, South Korea, Russia etc. have adopted the IFRS. IFRS are the most acceptable standards in the world. It represents true picture of the financial statements of the company. IFRS is based on certain principles which ensure that financial statements are comparative as well as updated for analysis purpose. IFRS is used in building the confidence of the investor (Kirk, 2009). IFRS has harmonized the accounting system across the globe. It is a process through which international standard has been set in the financial world. IFRS provides common platform for (Sharma, 2016) the developing nations and the developed nations. IFRS gives accurate, comprehensive as well as the timely information relating to the financial statements. Information provided by the IFRS is relevant at domestic level and at international level. IFRS makes the reporting standards easy for understanding purpose. It also reduces the risks associated with the financial statements. It is prudential to the interest of the public. It assures the higher quality of the financial information (Duarte, 2015).

India’s Current Accounting Regulatory Framework and its Progress Towards Standardizing the IFRS

Under the supervision of the ASB (Accounting standard board) accountings standard are issued in India. In 1977 this body was constituted. ASB committee has been constituted under ICAI (Institute of chartered accountant of India). It involves representatives from professional bodies such as ICSI, FCCI, and government departments. 

Initially in India, Companies act 1956 was applicable but later on it was replaced by the Company’s Act 2013. According to the section 133 of the conies act 2013 it is essential for the business enterprises to follow accounting standard which has been issued by the NFRA (national financing reporting authority) in consultation with Central Government and ICAI.

In India premier accounting body which deals directly into the accounting standards is ICAI. Till now the council of India has issued 32 accounting standards. Out of 32 accounting standards AS 8 related to the “Accounting for research and development” is not applicable presently because it has been withdrawn by the ICAI. Instead of that AS 26 has been amended. Thus, effectively there are 31 accountings standards.

At the early phase business transaction of the nation is quite limited. In order to compete in the global world it is very essential for the nation to have uniform accounting policy so that financial statements are comparable and understandable at global platform. In order to indulge IFRS IND AS has been issued by the ICAI which are in consistent with the IFRS. This is the big step of the nation towards the adoption of the IFRS. IND AS has been issued so that business operations in India are familiar with the basic fundamental of the IFRS. These IND AS has been specified in sec 133 of the company’s act 2013 (PWC, 2016).

Indian accounting standards are based on certain principles which are familiar with the IFRS principles that are to give complete information to the investor relating to the performance, cash flow, and position of the financial decisions (Mirza et al., 2010).

India has chosen to go for IFRS convergence rather than going for the IFRS adoption. Therefore, IND AS has been prepared which are basically and primarily based on the IFRS. Further, there are some carve outs which represent major difference between the IFRS and the IND AS (PwC, 2016).

Transitional previsions which are stated under each IFRS have not been stated under IND AS. Rather a separate IND AS named as Ind S 101 has been issued which contains almost all the relevant previsions relating to the transitional provisions. IND AS 101 is related with the First time adoption of the Indian accounting standard (Unegbu, 2014). This IND AS 101 is correlated with the IFRS 1 i.e. First time adoption of the International Financial reporting standard (Mackenzie et al., 2013).

IND AS and IFRS have some different terminology for instance IFRS’s Statement of financial position is called as balance sheet in the Ind AS. Further in IND AS statements of profit and loss is used instead of the statement of comprehensive income (Weygandt et al., 2010).

India is going for the IFRS because it will improve the comparability of the financial information with the global peers. Moreover, financial performance of the financial information can be ensured according to the industry standards. It will enhance the transparency within the financial reporting. This process will be beneficial for the key stakeholders, investors and the customers. This will ensure the better quality of the financial reporting. It will enhance the trust and confidence of the investors in the financial statements.

• Indian accounting standard 1: Related with the presentation of the financial statements
• Indian accounting standard 2: Related with the inventories in the business
• Indian accounting standard 7: This standard is related with cash flow statements
• Indian accounting standard 8: This is related with the change in accounting Estimates as well as errors, accounting policies (Ernst&Young, 2016).
• Indian accounting standard 10: This is related with the material events and transactions which occur after the balance sheet date or in other words it can be said as events occurring after the balance sheet date
• Indian accounting standard 12: This standard is related with income taxes which includes deferred taxes(ICAI, 2016)
• Indian accounting standard 16: This standard is related with property, equipment and plant
• Indian accounting standard 17: This standard is related with leases which included both financial lease as well as the operating lease
• Indian accounting standard 19: This standard is related with Employee benefits
• Indian accounting standard 20: This standard is related with Government grants’ accounting and government assistances’ disclosure in the financial statements
• Indian accounting standard 21: this standard is related with Foreign exchange fluctuation and its impacts on the financial statements.
• Indian accounting standard 23: This standard is related with borrowing cost and its related disclosure in the financial statements
• Indian accounting standard 24 This standard is related with related party disclosure and it impact on the financial reporting
• Indian accounting standard 27: This standard is related with separate financial statements  and its treatment (Deloitte, 2016)
• Indian accounting standard 28: This standard is related with Investments in the Associates as well as in the  Joint Ventures
• Indian accounting standard 29: This standard is related with Hyperinflationary Economies reporting in the financial statements
• Indian accounting standard 32: This standard is related with Presentation of Financial Instruments:
• Indian accounting standard 33: This standard is related with earning per share which includes diluted earnings also
• Indian accounting standard 34: This standard is related with the interim financial reputing
• Indian accounting standard 36: This standard is related with impairments of the assets which includes  the recovery value and the  net sale value of the asset
• Indian accounting standard 37: This standard is related with the Contingent Assets, Provisions as well as Contingent Liabilities 
• Indian accounting standard 38: This standard is related with Intangible Assets
• Indian accounting standard 40: This standard is related with the Investment Property
• Indian accounting standard 41: this standard is related with the Agriculture transactions and their impact on the financial statements.
• Indian accounting standard 101: This standard is related with the first time adoption and implementation of the  Indian Accounting Standards
• Indian accounting standard 102: This standard is related with payments relating to the share based
• Indian accounting standard 103: This standard is related with the Business Combinations
• Indian accounting standard 104: This standard is related with the Insurance Contracts
• Indian accounting standard 105: This standard is related with the Non-current Assets which are held for Sale as well as the Discontinued Operations
• Indian accounting standard 106: This standard is related with the Exploration as well as Evaluation of Mineral Resources and their impact (ICAEW, 2016)
• Indian accounting standard 107: This standard is related with the Disclosures relating to the  Financial Instruments and its impact on the financial reporting
• Indian accounting standard 108: This standard is related with the Operating Segments
• Indian accounting standard 109: This standard is related with the Financial Instruments
• Indian accounting standard 110: This standard is related with the Consolidated Financial Statements and its impact on the business (E&Y, 2016).
• Indian accounting standard 111: This standard is related with the Joint Arrangements with the business operations(IFRS, 2016).
• Indian accounting standard 112: This standard is related with the Revelation  or disclosure of Interests in Other enterprises or entities
• Indian accounting standard 113: This standard is related with the Fair Value Measurement
• Indian accounting standard 114: This standard is related with the Regulatory Deferral Accounting system (Chua et al., 2016)
• Indian accounting standard 115: This standard is related with the Revenue from Contracts and the  Customers (Ministry of Corporate Affairs, 2016)

The above list clearly shows India’s efforts towards the IFRS implementation and adoption in the nation. This will pervade better access towards the financial statements within the nation. It will also help in reducing the operation cost which is spent in making the financial statements comparable in the global market.  It will enhance the reliability of the financial statements (Isabel, 2015). 

Conclusion

Hence it can be said that IFRS provides the framework or guidelines for the financial reporting. It is regarded as authoritative standards. It states various ways and methods by which reporting of the accounting transactions can be done properly. Financial statements prepared on the basis of IFRS are sophisticated, potentially informative, and comprehensive. It precisely monitors the net position of the business. It helps in maintaining the stakeholders’ trust. Risks relating to misrepresentation are reduced through IFRS. It safeguards the right of the shareholders as well as investors. IFRS is imposed on the company which ensures the minimum or low level of consistency. It covers revenue recognition and expenses recognition on accrual basis. It ensures the credibility and consistency of the financial statements. IFRS method is more appropriate as compared to any other method for accounting purpose.

References

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