Countries around the world have accepted the importance of converging accounting standards and are well on their way towards implementing them. Most countries have adopted IFRS standards and are in various stages of adoption at the end of this financial year.
The Implications of IFRS Convergence for Indian Companies
Investments in India are valued at lower of the cost of fair trade value under Indian accounting standard – one of the divergences from IFRS. After implementing IFRS, only fair value will be calculated. The differences of our Indian accounting Standard with IFRS are minor with respect to IAS – 2 inventories, IAS – 7 cash flow statements, IAS – 20 accounting for government grants and disclosure of government assistance, AS – 33 earnings per share, AS 36 impairment of assets, AS – 38 intangible assets etc, therefore the transition to IFRS for Indian companies is certainly easier.
Benefits of IFRS for Indian Companies
Ease of Investments
Overseas investors will choose economies with IFRS compliant financial statements.
Higher Confidence Levels
Organizations will operate with the confidence of having a common accounting system perceived as stable and transparent.
IFRS will eliminate barriers to cross border listings and will be beneficial for investors who ascribe a risk premium if the underlying financial information is not prepared in accordance with international standards.
Mergers & Acquisitions Made Easier
Trans border acquisitions and mergers will be easier for both parties in as far as redrawing of documents is concerned.
Companies have adopted IFRS from FY10 to make available comparative figures in the annual report. Successful transition requires a planned procedure well in advance. Several large listed companies have moved to the new standards and those in transition are actively incorporating the changes, in the beginning of the new financial year.
International Financial Reporting Standards (IFRS) is a unified reporting standard adopted by most countries today. In the past, every country had their own set of accounting and reporting standards based on factors such as individual legal systems, political systems, capital markets, etc. and this led to differences in how transactions get reported from one country to the next.
Back in 1973, accountancy bodies in 10 countries together formed The International Accounting Standards Committee. The committee proposed development of one set of international reporting standards. By 2000, over 100 countries were in agreement and 41 international accounting standards were in place. However, many countries continued to use their own reporting standards.
Since 2000, this is quickly changing. The International Accounting Standards Board replaced the IASC and continues issuing international accounting standards. Today, over 100 countries have adopted the use of IFRS. Japan and the United States are the last two large countries to officially adopt the now globally accepted IFRS standard. However, both will adopt the use of IFRS in the next several years.
The world is so much smaller thanks to the use of technology. Global business is now the norm rather than the exception. Investments are now aimed at the global marketplace, and to succeed companies need to understand the financial reporting standards of the companies they will work with. IFRS helps streamline accounting procedures internationally.
IFRS offers several advantages that will create a unique opportunity for privately held companies struggling with the issue of growth, increasing production costs, and a shrinking marketplace.. It has been well-documented that China and India will have a strong sustainable economic growth that will provide an opportunity for privately-held companies to access additional customers.
Changes and developments are evolving around IFRS constantly. Kothari Auditors & Accountants are committed to develop the expertise to assist our current and future clients in this area.
By adopting IFRS, privately-held companies will be received well in the global marketplace and perceived as an international player. This will afford them an opportunity for growth that, for the most part, has only been afforded to U.S. publically-held companies with an abundance of financial resources to gain access to international customers, suppliers and world capital markets, reducing some of the risks and barriers of setting up international joint venture supply arrangements and importing/exporting.
The aim of this article is to keep you informed of recent developments with IFRS. We would very much appreciate hearing comments or questions you may have on how we can enhance it or questions or concerns on IFRS.
The current recession has business on edge due to the length of the recession period. Since 1854, the average length of a U.S. recession has been 17 months from peak to its low, according to the National Bureau of Economic Research. For the purpose of perspective, the great depression lasted 43 months. Our current recession started in December 2007 and the end is not yet in sight. And when it recovers, economists say it will be gradual. To compound the problem, the liquidity crisis continues making it difficult for markets to pick up again and overturn the crisis.
The trends we anticipate in the near future are:
All businesses as well as accounting firms will boost the use of cloud computing, SaaS, portals and hosted solutions. This rapid changeover will fuel the need for higher levels of data security, and online filing demands.
Microsoft 7 and Office 2010 will fuel replacement of dated computer equipment. Many firms will replace dated computer equipment this year. Trends are towards dual monitors, laptops and smart phones and away from traditional desktop computing.
Business development and new business acquisition are back in vogue. Most companies are now focusing on business development and new business acquisition. This is a shift away from staffing and recruitment of a couple years ago.
Evolution towards paperless offices will continue. Much like the evolution towards online filing, true paperless is seldom attained and is an evolutionary process. Those that embarked on paperless years ago will move further down this path. Many on the fence will test the waters this year but will incorporate paperless practices selectively.
Current trends in accounting will continue such as:
Web and intranet / internet applications, web based accounting, CRM, payroll and HR systems, e-commerce, e-procurement systems, cloud services / SaaS, asp, hosted web based systems.
Multiple ways to access web based systems e.g.: pc, laptop, PDA’s, handhelds, mobile phones, shared service centers providing accounting, payroll and human resource services, real-time processing, to provide immediate information to users, increased automation and seamless access with open web-based systems and systems supporting global business expansion
Much innovation is anticipated in the immediate future, some of the business best practices include:
Improved business efficiency from changes in business processes and reduction of manual data handling, reduced transaction costs and paper usage, faster access to information, rapid growth of data volumes, due to additional systems, numbers of PC’s, growth in email and archiving requirements. Increased data storage requirements combined with attempts to control data growth e.g.: by rationalizing the number of servers, email limits, freeing up of management time, enabling analysis and direction with more relevant information to manage business and increased information sharing within the organization and the use of cross departmental teams.
Increased co-operation between organizations leading to:
Reduced day-to-day operational costs for Finance, Payroll and HR functions and the HR department taking on a more strategic role
The intranet / internet enabled accounting software and systems will continue to grow in the direction of:
- Web based accounting software with a browser ‘front end’
- Automating routine accounts administration
- Web services
- e-procurement, e-commerce, online payment and internet expenses systems integrated within accounting software
- Web interfaces eg from e-commerce systems
- Workflow functionality integrated within accounting software
- Accounting employee portals containing all work tasks in one location
- Manager Self Service (MSS) tools in accounting software eg for monthly performance monitoring and reporting, budgets, expenses and travel authorizations
- Electronic payments
- Improving reporting, analytics, performance management and business intelligence eg slice and dice financial information, identify cost savings
We will also see continued growth in non-web based accounting software such as:
Financial and accounting regulations e.g.: IFRS, Sarbanes-Oxley, e-filing
System functionality and tools will either be purpose built or added to existing systems to assist with regulatory compliance e.g.: automated reconciliation tools, records management and documentation applications, security monitoring and control, repository and storage products.
Costs for financial and accounting regulation will be rationalized, Integration with other associated accounting software modules e.g.: CRM. Efficiency in scalability will greatly improve – accounting software such as ERP that was available for larger organizations will be redesigned for SME businesses and accounting software designed for SME businesses will increase functionalities and extend capability to be suit larger businesses.