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Prarthana Bajaj
Student
Amity International Business School

Abstract:
International Financial Reporting Standards (IFRS) introduced by International Accounting
Standards Board (IASB) are worldwide accepted accounting principles which are coming
under limelight. In this world of globalization and cut throat competition its highly crucial for
the Indian Economy to converge with this form of reporting system in order to be at pace
with the world economy. This concept is extremely essential for global Indian companies to
establish a name in the international market and to encourage investments from abroad. This
paper talks about the considerable differences between Indian GAAP v/s IFRS, the opinion of
finance/accounting professionals also certain segments impacted of telecom sector.
Objective of the Study:
Primary Objective:
The Study of the major challenges being faced by Indian Economy on implementing
IFRS:
There exist various issues which need to be sorted in order to give clear entrance to
introduction of IFRS in a domestic economy. It is very important to rationalize the concepts
of domestic GAAP to those being adopted under IFRS, the level of ambiguities being forced
upon by various set of regulatory bodies also the confusion on how the taxable income is to
be computed on its implementation.
Secondary Objective:
Analysing the strongest reason behind the delay:
Every individual has a different take on the procedures being adopted by India Inc. various
factors are to be looked into. Thus the approach was of industrial personnel who are already
undergoing the stress of change in their comfort level. The rigorous training and exhausting
measures which are to be adopted in order to bring about the best results.
Studying the major concerns of SMEs:
India has a huge percentage of businesses functioning in the domain of SMEs which face
issues of lack of financial resources, slow mind set of running business, set of rigid
employees under such scenarios to deal with the complex nature of IFRS.



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Studying the Global Business Opportunities:
IFRS is deemed to be worldwide accepted accounting standards which will make comparison
of accounts/financial data to global peers easy. It would encourage display of appropriate and
trustworthy information of financial facts in order to encourage investments from abroad.
Scrutiny of segment being impacted the most:
The difference between domestic GAAP and IFRS would impact parts of financial
statements, understanding and gathering information on which segment is impacted the most
by the difference and why.
Is India ready for IFRS or not?
Studying all articles on IFRS reflect that India Inc. is not ready for the same yet as it involves
various stages that need to be covered which would time and capital both of the
organizations.
Hence its important to study the trade off between the benefits of introducing IFRS in the
accounting system to the cost involved in its implementation.
The objectives of the report are to be met by studying articles, journals and published papers
on the same. Majorly gathering the appropriate extract from contacting the professionals of
the financial industry, researchers and students covering aspects of finance/accounting.

Study of Indian GAAP V/s IFRS:
Analysis of International Financial Reporting Standards , its techniques, concepts of
recording and representation of financial data against those adopted by Indian GAAP. There
are a number of difference that prevail between the two, few basic difference are elaborated
here:
Study of the conceptual difference :
IFRS focuses on representation of facts that are substantial in nature rather than just
focusing on rules whereas Indian accounting standards are rule based statements
being less flexible in nature , Regulatory authorities like SEBI, RBI, IRDA etc play
a key role in defining the rules for accounting and presentation of financial
statements.

IAS 1 states the guidance for the presentation of financial statements, the structure,
and the minimum content requirements. The format and components of financial
statements include:
Statement of Financial Position (Balance sheet),
Statement of Comprehensive Income / Income Statement (Profit and Loss
Account),
Statement of Changes in Equity (SOCIE),

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Statement of Cash Flows,
Notes comprising a summary of significant accounting policies and other
explanatory information, and
Statement of Financial Position as at the beginning of the earliest comparative
period when an entity applies an accounting policy retrospectively or makes
retrospective restatement of items in its financial statements, or when it
reclassifies items in its Financial Statements.
There is no specific standard on presentation and content of financial statements but
as per Companies Act, the following are displayed:
Balance Sheet
Profit & Loss A/c,
Notes to Accounts.

As stated in the above explanation key importance is given to regulatory authorities
further elaborated under the following example: As per AS3 which talks about Cash
Flow Statements and its methodology of calculation under direct or indirect method.
SEBI mandates the use of indirect method for listed companies. The insurance
regulator IRDA requires insurance companies to prepare the Cash Flow Statement
using the direct method. The concept of SOCIE does not prevail; however, they are
represented by the captions share capital and reserves and surplus in the balance
sheet.

Study of the accounting framework :
Historical Cost or Fair Valuation:
IFRS uses the concept of historical cost for valuation of the organizations assets but
intangible assets, plant & equipment (PPE) and investment property might be
revalued at fair value. Derivatives, financial instruments and biological assets are
surely valued at fair price. As per Indian GAAP which follows historical cost
themselves and similar treatment for PPE but no guidance on derivates and
biological assets.

First time adoption of accounting Framework:
IFRS 1 talks about the procedure that must be followed for inculcating IFRS in their
system , taking into account the retrospective effect , the comparative statements to
be prepared and the limited number of exemptions being covered. No such standard
is available for first time adoption under Indian GAAP.

Extraordinary items :
IFRS prohibits the use of such items in financial statements whereas as per Indian
GAAP, they are defined as irregular, distinctive aspects of business considered
separate from the regular functioning of the business. These items are not frequent
but are recorded in the books of accounts.


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Related party disclosure :
IAS 24 (under IFRS) and AS 18 of Indian GAAP both state the procedure for
related party disclosures. The key difference being that IAS 24 focuses on the
substance of the relationship that exists rather than the legal form. Under IAS 24 the
pricing policies being adopted also needs to be disclosed whereas there are no such
requirements under AS 18.

Hyper-inflationary economics :
IAS29 discusses about the recording of transactions in Hyper- Inflationary
Economics whereas Indian GAAP does not refer to any such discussions.

Employee share-based payment :
IAS 19 states computation of equity acquired or liability incurred as per fair value
method. There is no Accounting Standard in India regarding this aspect but SEBI
has set guidelines on the same for the public listed companies. Compensation
expense as per stock option is recorded either based on intrinsic value or fair value
using option pricing model.

Depreciation :
As per IFRS, depreciation is allocated on a systematic basis to each accounting
period over the useful life of the asset. As per Indian GAAP its a similar procedure
except that the useful life is shorter as envisaged under Companies Act and the rate
of depreciation is higher.

Goodwill:
IAS 36 states Impairment of assets requires Goodwill to be tested for impairment at
each balance sheet date whereas as per Indian GAAP no testing for impairment
needs to be done at each balance sheet date.

Revenue recognition :
IAS 18 provides that revenue is to be recognized when rewards, risks and controls
have been transferred to the buyer. In case of construction contracts, the level of
completion is to be taken for revenue valuation but this must be reliable. AS 9
provides an option of either proportionate completion method or completed service
method.






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Preparation of cash flow statements :
As per IFRS there exists no exemptions for small to medium enterprises (meaning
all companies have to compulsorily prepare cash flow statements) whereas as per
Indian GAAP all listed or in the process of listing, banks, financial institutions,
insurance companies, basically all enterprises with turnover exceeding Rs. 500
million or having borrowings in excess of Rs. 100 million in the current accounting
year or either its holding or subsidiary.

Key Challenges faced by Indian Accountants:
Fair value
As per IFRS fair value is computed for display of financial information but thats not
the case as per the current standards being followed which might display extensive
volatility in terms of EPS, P/E etc. Taking an example of real estate companies
which have to restudy their construction contracts for revenue recognition as the
revenue is taken into account on completion stage basis and when risks , rewards of
ownership has been shifted to the buyer.

Also its difficult to obtain information on fair value of financial aspects.

Amendments in regulations
Accounting Standards are not only set by the Institute of Chartered Accounts of
India (ICAI) but a set of other regulatory bodies play a crucial role aswell like
Securities Exchange Board of India (SEBI), Insurance Regulatory and Development
Authority (IRDA) , Reserve Bank of India (RBI) and National Advisory Committee
on Accounting Standards (NACAS). The presentation of financial information
involves all these aspects.
Schedule VI of Companies Act which defines the format for display
of financial information of a company, referring to classification of
expenses by nature. Under IFRS expenses can be classified either by
nature (salary, rent, stationary, fuel & power etc) or by function (cost
of revenue, selling expenses, general and administrative expenses).
Taxable Income is computed under the guidance of Income Tax Act,
1961. Shifting of the reporting style to IFRS will require
clarifications with tax authorities, for example gains or losses from
derivates are to be marked as per IFRS which needs to be sorted by
Indian Tax Authorities.
RBI and IRDA provide for display, reporting and accounting treatment for Banks,
financial institutions, insurance companies etc which dont match the guidelines of
IFRS.






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Change in the organizations IT system
Conversion to IFRS will lead to significant upgradation in IT system used for
recording transactions of the company. Severe replacing and updating of ERP
applications is to be conducted, for example ERP modules such as for inventory ( As
IFRS does not follow LIFO method), reporting, asset management , purchase and
project accounting might require modifications.

Determine the Impact
As there exist differences between Indian GAAP and IFRS, application of IFRS
might lead to significant impact on the financial position and performance of many
Indian companies. In accordance with IFRS financial disclosure is made on
qualitative basis that includes display of related party transactions, risk management
policies, currency exposures for entities etc. Whereas schedule VI of Companies Act
focuses more on quantitative factors such as sales volume, production capacity, CIF
value of imports and exports etc. Indian entities prepare their financial statements in
Indian currency, IFRS calls for measuring assets, liabilities, revenue and expenses as
per functional currency which reflects the economic substance of underlying events
and circumstances. Also Indian entities consider preference capital to be a part of the
shareholders fund however thats not the case in IFRS as they do not include
preference capital in shareholders fund which might indicate a significant decline in
the net worth of the entities if they adopt the same. As per Indian GAAP intangible
assets have a definite life span not exceeding 10years but under IFRS intangible
assets can have indefinite life time exceeding 10years. Interest paid can be shown as
either a financing or an operating cash flow under IFRS but as per Indian GAAP its
reflected as a financing cash flow.

Availability of Professionals
There is lack of professional advisors for the purpose of conversion to IFRS; hence
the entities might have to hire outsiders for the same and also invest heavily in
training of the accounts conducting the conversion.









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Research Analysis:
Delay in Introduction to IFRS in India

Figure 1
There are various factors which have lead to delay in adoption/ convergence to IFRS in India.
The difference between domestic GAAP and IFRS can impact various set of stakeholders of
the company especially the investors as they have keen interest in profits and net worth of the
company. Asset valuation is done via fair value basis under IFRS whereas in India via
historical basis, each factor of the financial statement can be impacted by the change. Hence
39% of professionals are of the opinion that the strongest reason in delay of implementation
of IFRS in India is the drastic impact the difference can have on the accounting system. Also
implementation of IFRS needs basic level change in the system, professionals are not trained
to adapt to the same, one cant ignore the fact that employees are resistant to change hence
requires high level of expenditure in training and bringing about the change, as per my survey
15% of the professionals are of the opinion that delay is majorly cause lack of IFRS trained
professionals.







Significant
Difference
Between
IFRS vs
Indian GAAP
39%
Lack of IFRS
trained
professionals
15%
Interference by
Regulatory
Authorities in
Accouting
procedures
21%
Change in the
Organization's
IT System
9%
Impact on the
Net Worth
9%
The cost
involved in
bringing
about the
change
7%

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Global Business Opportunities Abroad:

Figure 2
IFRS provides a common platform to the world Economy, this characteristic helps improve
the level of comparability and compatibility of financial statements across the globe. It
improves the scenario of global finance, as Indian companies like Infosys, Wipro, Airtel
Reliance etc have ADRs & GDRs also functions across half the planet. This helps investors
analyze financial statements giving them a better prospective. It would also encourage inflow
of foreign investments in the Indian market.
Transparency in the Indian Accounting System:
As we are aware of the fact that Indian Accounting system is filled ambiguities and lacks
clarity in terms of display of information, IFRS in the system would help global companies
compare the financial statements with other global peers. It would inculcate the responsibility
of achieving goals in a very efficient and effective manner. The procedure of accounting
involves a series of steps that need to be undertaken also its important in a country like ours
to follow regulations set by regulatory authorities hence making it a task, IFRS sets a fixed
pattern of guidelines in terms of accounting clarify the purpose of same. The various factors
undertaken and percentage held as follows:
0%
10%
20%
30%
40%
50%
60%
Efficient and
effective
form of
global
sourcing
Influential
capital
allocation
Inflow of
more FII
funds in the
capital
market
World wide
accepted
platform
Efficient and
effective form of
global sourcing
Influential capital
allocation
Inflow of more FII
funds in the
capital market
World wide
accepted platform
Global Scenario 25% 6% 18% 51%

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Figure 3

Interference by Regulatory Authorities:
The rules and regulations set by Institute of Chartered Accountants of India for accounting
procedures to be adopted are highly influenced by the various regulatory bodies in how the
actual accounts of a company are to be managed. The Companies Act of 1956 under its
schedule IV talks about how the financial information of the company is to be displayed, it
states the format which needs to be followed. Under IFRS the expenses of a company can be
displayed either as by nature (such as salary, rent, stationary etc) or by function (cost of
revenue, operating expenditure etc) whereas schedule IV talks about classification only by
nature. Computation of taxable income is governed by Income Tax Act, 1961 hence in order
to ensure proper functioning of IFRS in India the facts are to be dealt with also tax
authorities. Reserve Bank of India and Insurance Regulatory Development Authority govern
the accounting system, the format to be followed and reporting of certain key transaction for
banks, financial institutions and insurance companies.
Securities Exchange Board of India sets format presentation of quarterly and annual results of
listed companies in our economy. National Advisory Committee on Accounting Standards
advises ICAI on how the Indian accounting system is to be managed.
The following displays the segregation as per my survey:
Achieving local
as well as
global targets
efficienlty
28%
Elimination of
bureaucracy
19%
No form of
multiple
reporting
9%
Principal based
accounting
compared to
rule based
19%
Removal of
tedious
procedures
25%

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Figure 4

Segment Impacted


Figure 5
On studying the concept of IFRS v/s Indian GAAP, we come across stark differences
between the two, which may have a negative or a positive impact on a certain aspect of the
financial information. Indian GAAP focuses on rule based form of accounting also in India
importance is given to law rather than facts and judgement on the other hand IFRS is more of
principal based accounting , it deals with application of intelligence.
Securities and
Exchange
Board of India
42%
Reserve Bank
of India
34%
Insurance
Regulatory
and
Development
Authority of
India
20%
Competition
Commission of
India
4%
0%
10%
20%
30%
40%
50%
60%
17%
11%
15%
53%
5%
10%
Segment Impacted

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One of the major differences between the two is the display in the presentation of financial
data. As per Companies Act, 1956 (schedule IV) reflects upon the display of financial
information majorly on how the formatting is to be done whereas on the other hand IFRS
does not prescribe any specific format, even IAS does not state any pre- requisites.
Is India ready for IFRS?


Figure 6
As per the survey 45% of accountants/finance personnel rank India 3/5 in terms of readiness
to adopt India, but as per other study off the internet - Indian Corporate world is not ready to
achieve the target of adopting IFRS by 1
st
April, 2013. The concepts of IFRS have come
across as slightly illogical to India Inc. Almost 70 per cent of the companies believe it is
illogical and not good for the corporate sector.
Study conducted:
This part basically covers the study paper of Telecom Regulatory Authority of India, India
has decided upon converging with IFRS not adopting the same yet as Indian economy
functions differently from the world economy. Ministry of Corporate Affairs came up with
notified 35 Indian Accounting standards in convergence with IFRS. This paper studies the
implementation of IND AS/IFRS in the accounting system of telecom sector and how it
impacts their corporate profit.
Implementation of IND AS would leave an impact on the corporate profits of the sector
bringing about a degree of fluctuations blowing the stakeholders of the sector away.
It is important to study the possible impact it causes on the financial position of the company,
Airtel has already introduced the concept of IFRS in their annual report.


1 2 3 4 5
Rank out of 5 2% 34% 45% 17% 2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
I
n

%

o
f

r
e
s
p
o
n
s
e
s



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Segment of Revenue Recognition impacted on the Telecom Sector:
Revenue Recognition Activation Fee (Customer Connection Fee):
This is a fee charged on customers for availing any telecom companys services.
There exists a key difference in its accounting treatment under IND AS compared to
that under IGAAP. As per IND AS (18), such installation/activation fee is be charged
on the P&L a/c over the life of the customer and not to be recognized upfront whereas
AS-9 has no such specific treatment of this form of revenue just that it is to recorded
in the year of receipt. For example: A fee of Rs 500 charged from a customer with an
expected life of 2years (2012-13).
Under IND AS (18): Rs. 250 would be displayed in the P&L a/c for the first year
(2012-13) and balance in the next year (2013-14).
Under AS-9: Rs. 500 would be taken upfront on the year of receipt (2012-13).

Revenue Recognition Multiple Deliverables:
Telecom sector companies provide multiple deliverables along with a particular
with the customer such as handsets, modems, free call minutes etc.
For treatment under IND AS (18): The set of bundled deliverables, free bees,
handsets and other multiple components are to be divided on unit basis for
accounting purposes and further consideration to be done on fair value basis
whereas under AS-9, there is no specific guideline to be followed just that the sale
made under the contract is to be taken as a single unit of revenue generation.
For example: A service provider has provided a mobile connection with mobile
handsets along with 500 free calls to a customer in April 2012 for a total value of
Rs. 3000. All free calls are used by customer in the year 2012-13.
Under IND AS (18): the bundled set is divided into two components the value of
handset and the value of call minutes, say Rs. 2700 is for the handset going in P&L
a/c as revenue from sale of handsets and the balance Rs. 300 as revenue from sale of
talk time.
Under AS-9: The value of the whole contract is taken as one reflecting Rs. 3000 as
revenue for sale of handsets in P&L a/c.




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Revenue Recognition for free talk time:
Telecom operators along with paid talk time give customers an incentive of free talk
time aswell. As per its treatment under IND AS (18), the extra minutes provided are
added to compute the revenue per minute for revenue recognition whereas under
AS-9, the free minutes are not added for the purpose. For example: A customer
purchased a package of 500 minutes for Rs. 500 in April 2012 and he has been
given another 500 minutes free as Bonus talk time by the service provider with a
validity period of 2 years. The customer could use 600 minutes only in the year
2012-13.
Under IND AS: the revenue per minute is computed as Rs.500/ (500+500) minutes
= Rs.0.50, 600minutes are consumed in first year, reflecting a revenue of Rs.300 in
P&L a/c for 12-13 and balance Rs.200 in the next year when minutes are consumed
before its expiry.
Under AS-9: The revenue charged for a minute is to be taken into account i.e.
Rs500/500minutes, the entire value of Rs.500 would be shown as revenue earned.

Conclusion:
The significant difference between Indian GAAP and IFRS may lead to a heavy dent in the
financial disclosure especially in terms of presentation of financial data, net worth
computation, cash flow statements and other aspects too.
Also the implementation of IFRS involves high level of cost as India lacks well trained
professionals to converge/adopt the same concept. These matters can be looked after by
inculcating the knowledge of IFRS in the academic sessions, focusing on grass root level
issues, diverging our attention on benefits of IND AS/IFRS. Ministry of Commerce has
notified 35 IND AS standards which are in sync with IFRS; these must be looked into with an
open mind in order to converge with globally accepted standards.







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References:
Study of the concept:
http://www.pwc.in/en_IN/in/assets/pdfs/ifrs-us-gaap-indian-gaap.pdf
http://www.ifrs.com/ifrs_faqs.html
http://www.pwc.com/en_US/us/10minutes/assets/pwc_10minutes_090308.pdf
http://www.astuteconsulting.com/upload/Document/IFRS%20in%20India%20-
%20Key%20Aspects.pdf

Articles:
http://www.thehindubusinessline.com/industry-and-economy/article3785544.ece
http://articles.economictimes.indiatimes.com/2009-08-05/news/27655596_1_ifrs-
accounting-assets
http://www.caclubindia.com/articles/ifrs-impact-on-country-s-gdp-
13485.asp#.UUICVNamjys
http://www.centreformanagement.com/resources/career-counselling/147-ifrs-
how-will-this-affect-indian-accounting
http://www.indianmba.com/Articles_on_Management/AOM49/aom49.html

Research Papers:

(Source: International Journal for Computational Engineering & Management,
(November 2012)
(Source: Research paper on IFRS by Prashant Madhukar Shinde, (April 2012)
(Source: World Journal of Social Sciences, research paper by Pawan Jain, (April
2011)
(Source: Research paper on Need for India Inc. in terms of IFRS by Bhuvnesh
Sharma, (July 2011)
(Source: Research on convergence with IFRS by Dr. Kavita Indapurkar, (November
2009)
(Source: Research by Chand and White, (2007)

Study Paper by TRAI:
http://www.trai.gov.in/WriteReadData/WhatsNew/Documents/FINAL%20Study%20PaperJan-13.pdf