Convergence of IAS with IFRS

The Institute of Chartered Accountants of India (ICAI) created the accounting standards for India. India took the official decision to converge IAS with IFRS in 2007. Instead of adopting IFRS entirely, the ICAI and IASB worked together to create high-quality and equivalent accounting standards for India. For the following types of companies, new requirements will be required starting on April 1st, 2016, according to the Ministry of Corporate Affairs:

• Banks, insurance companies, and financial service companies.
• As well as listed companies with an annual turnover of over 250 crores.

Need for Convergence of IAS with IFRS

The following factors led to the perception that IAS and IFRS needed to converge:

• To guarantee that everyone is aware of the ideal international accounting standards
• To ensure that the financial statements are comparable, transparent, and trustworthy
• To encourage international investment and accelerate industrial growth
• For the global standardized application of financial reporting and accounting
• For the removal of informational obstacles for users of financial information

Aim of convergence

• There would be a single set of accounting standards applied globally, which would also be advantageous for regulators because it would make it simpler for them to comprehend multiple reporting systems.
• Because they did not need to prepare a different set of financial statements to comply with laws of other jurisdictions, the corporations will have less compliance load.

Benefits of Convergence of IAS with IFRS

The following are some advantages of IAS and IFRS convergence:

• Financial capital markets accessibility: The global financial capital markets will become more accessible to Indian businesses due to convergence, and they will be able to easily attract investments from abroad at more affordable rates, aiding in their overall growth and expansion.
• Attractive Investment and Cross-border Trade Options: Indian businesses would be able to list themselves on international stock exchanges, which will encourage cross-border commerce and investment, particularly in underserved geographic areas.
• Eliminate the duplicity of efforts: Convergence will further minimize dual reporting because Indian companies won’t have to generate separate financial statements, which reduces and eliminates duplication of effort in financial reporting and extra accounting.
• Increases comparability and reliability: Since all international tax and accounting jurisdictions accept IFRS, the convergence of this standard with IAS would improve the comparability and credibility of Indian company financial statements. This will boost the confidence of international investors in Indian companies and persuade them to make more significant investments.
• Increased acceptance of Indian professionals in international markets: This convergence will provide Indian accountants access to global opportunities and emphasize their skills and abilities overseas, turning India into a machine that generates foreign cash.

Challenges Associated With the Convergence Of IAS With IFRS

Below are some of the challenges associated with the convergence of IAS with IFRS:

• Increased Training Costs: Since most professionals aren’t trained in IFRS, it puts a significant financial strain on businesses to educate and train these workers. This makes it challenging for their companies to implement IFRS.
• Indian regulatory changes: Since IFRS varies from the current regulations, a thorough revision of the current rules would be necessary to apply IFRS standards. To make them compliant with IFRS, changes must be made to the Companies Act of 2013, the SEBI Act of 19921, the Income Tax Act of 1961, etc. These are the legal obstacles to IFRS adoption in India.
• System differences: The IFRS uses the fair value system to measure assets, while the Indian GAAP recognizes the historical system. These variations give financial statements subjectivity and volatility, affecting how the company performs and makes money.
• Changes to IT systems: Adherence to IFRS would necessitate new financial accounting software for reporting and the need to change the existing reporting infrastructure, which requires significant investment from the company and which Indian businesses are hesitant to make.
• For the SME sector: The costs of such convergence outweigh the advantages of implementing them. Small and medium-sized businesses (SMEs) do not have sufficient resources or financial competence, which furthers the divergence between IAS and IFRS. However, because it is so crucial to the Indian economy, a sector like this cannot be disregarded.
• Amendments to existing Indian laws: A variety of changes to existing Indian legislation could emerge from implementing IFRS, including changes to the Companies Act of 1956, SEBI rules, banking laws and laws governing financial institutions, and insurance laws and legislation. Various Indian regulators oversee the reporting obligations, and their rules precede any other laws. IFRS does not recognize such overriding laws. The regulatory organizations must make sure that laws are changed promptly to allow for easy adoption.
• Creating awareness about international accounting practices: Increasing public understanding of international accounting standards (IFRS) requires a significant overhaul of the complete set of financial statements. They differ in several ways, requiring much work to educate users on the fundamental IFRS principles, practices, and new vocabulary to understand these IFRS-compliant financial statements.

Benefits of India adopting IFRS-like standards for different groups:

Think of it like switching to a common language for money:

1. For Indian Businesses (Companies):

• More Money: It's like having a sign that everyone understands, attracting more investors from around the world.
• Global Stage: They can list their companies on international stock markets, making them more visible.
• Less Paperwork: Eventually, they only need one set of financial reports, saving time and hassle.
• Look Good: It makes their business look more trustworthy to global partners and investors.

2. For Investors (People who invest money):

• Easy to Compare: It's like using the same ruler to measure different things, making it easier to compare investments.
• See Clearly: They get clear and reliable financial information, helping them make better decisions.
• Trust More: They trust the information coming from Indian companies because it follows global standards.

3. For Government & Regulators (The people in charge):

• Easy to Watch: It's like having a common map for tracking businesses, making it easier to monitor the economy.
• Global Help: They can communicate better with regulators in other countries because they speak the same "money language."
• Easy Rules: It's easier to make sure everyone follows the rules when everyone is speaking the same language.

4. For Accountants & Auditors (People who work with numbers):

• Global Jobs: They can get better jobs anywhere in the world because they're experts in a global standard.
• Better Skills: They learn skills that are valuable globally, making them more employable.
• High Demand: There's a greater need for their skills, giving them more job opportunities.

5. For India as a Whole (The Economy):

• More Investment: It attracts more foreign money, helping India's economy grow.
• Global Connection: It helps India connect better with the global economy.
• Stronger System: It makes the Indian economy more efficient and stable.

In short, adopting IFRS-like standards is like giving everyone a common language for understanding money. This makes Indian businesses more attractive, investments safer, and the economy stronger. It also gives Indian professionals more opportunities worldwide.

Difference between IFRS and IAS

IAS stipulates specific guidelines that must be followed, which may make it harder for businesses to adjust to unusual situations. Contrarily, IFRS offers broader principles that permit more discretion and interpretation, providing businesses more freedom to tailor the standards to their particular situations. The table below lists the distinctions between IAS and IFRS:

IAS	IFRS
The International Accounting Standards Committee (IASC) developed IAS between 1973 and 2003.	The International Accounting Standards Board created IFRS in 2001.
IAS covers a range of financial reporting-related issues.	All IAS standards, as well as other industry-specific standards, are covered under IFRS.
IAS concentrates on basic accounting principles.	IFRS covers both broad principles and specific criteria for various businesses and transactions.
IAS is less flexible in application requirements and regulations.	IFRS is more flexible since it allows for judgment and interpretation depending on specific situations.
Several nations use IAS. However, it is less commonly recognized than IFRS.	Over 140 nations utilize IFRS, a generally accepted international standard for financial reporting.
Due to variations in the interpretation and application of particular regulations, IAS might cause variances in the reported financial information.	Due to the broader principles-based guidance provided by IFRS, reported financial information is typically more consistent and comparable.