IFRS Convergence
IFRS refers to the accounting policies and standards that every nation follows. The monetary situation all over the world has seen a drastic change in a recent couple of years. Currently, few transitional organizations are working in several countries to solve the situations related to IFRS convergence. Hence, there is a need to maintain the standard which can also be accepted worldwide widely. It also refers to the aim of establishing a particular set of standards that can be used by everyone nationally and internationally.
Difference Between IFRS and Indian Accounting Standards
Various points distinguish Indian accounting standards and the IFRS. Thus, Indian accounting standard vs international accounting standard can be formulated in the following way:
Issuing Body: The Indian Accounting standards are issued by the Institute of Chartered Accountants of India (ICAI). On the other hand, the International Financial Standards (IFRS) is issued by the International Accounting Standards Board (IASB) which is based in London.
Constitution: The ICAI established an effective accounting standard board in the year 1977 on 21st April after recognizing that there is a need to maintain the accounting practices and policies and the IFRS convergence status. On the other side, the International Accounting Standards Board (IASB) which is based in London had begun its operation in the year 2001.
Representation: The Indian Accounting Standards are referred to as Indian GAAP or represented in the order of AS- (). International Financial Reporting Standards are also represented as the IFRS/IAS- ().
Thus, a broad differentiation of Indian accounting standards and IFRS is given in the above context.
IFRS Full Form in India
IFRS stands for the International Financial Reporting Standards. The term is developed by the International Accounting Standards Board (IASB). The accounting standards of India are based on the substantially converged standards that are issued by the board.
Elaborate the Process of Issuing IFRS
IFRS standard settings are done through
Public meetings are held in the office in London.
Agenda papers informing the Board.
Decisions and discussions are then made public after the meeting is held.
Comment letters are received on the consultation documents.
Difference Between Convergence And Adoption
IFRS is applied in more than 100 countries worldwide which include countries like Hong Kong, South Africa, Australia, Singapore, the European Union, and others. But there still prevails confusion over the difference between convergence and adoption. However, many countries use them interchangeably.
Adopting IFRS means that the particular country would implement it as same as the IASB and that they would follow the guidelines that are issued by the IASB.
On the other hand, convergence with IFSR refers to the situation where both ASB and IFRS would work together by developing compatibility.
It is said that the increase in the number of convergences will make adoption less costly and easier.
Challenges of Convergence with IFRS
There are a lot of challenges that are faced and they are:
The difference between IFRS and GAAP
Education and Training
Legal Consideration
Taxation Effect
Measuring Fair Value
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FAQs on Indian Accounting Standards vs. IFRS: Key Differences
1. What are Indian Accounting Standards (Ind AS) and IFRS in simple terms?
International Financial Reporting Standards (IFRS) are a set of accounting rules used by companies in many countries to ensure their financial statements are consistent and comparable globally. Indian Accounting Standards (Ind AS) are India's version of these standards. They are largely based on IFRS but have been modified to suit the specific needs of the Indian economy.
2. What is the biggest difference between Ind AS and IFRS?
The main difference is that India has not directly adopted IFRS but has converged with them. This means Ind AS are almost the same as IFRS, but with some specific changes called 'carve-outs' and 'carve-ins'. These are modifications made by the Ministry of Corporate Affairs (MCA) to address unique Indian legal and economic situations.
3. Why did India create Ind AS instead of just using IFRS directly?
India created Ind AS to ensure a smoother transition to global standards without disrupting its existing economic and legal framework. Directly adopting IFRS might have caused issues for Indian companies. By creating Ind AS, India could align with global best practices while still keeping rules that make sense for the local business environment. This approach helps companies adapt gradually.
4. Can you give a simple example of a difference in accounting treatment between Ind AS and IFRS?
A good example is the treatment of investment property. Under IFRS, companies can choose to value investment properties using either the cost model or the fair value model. However, under Ind AS 40, companies are only permitted to use the cost model. They cannot use the fair value model for their investment properties, which is a significant 'carve-out' from IFRS.
5. How is Ind AS different from the older Accounting Standards (AS) used in India?
The older Accounting Standards (AS) were based on Indian laws and practices and were not linked to IFRS. In contrast, Ind AS are based on the IFRS framework. Key differences include:
- Ind AS uses the concept of 'fair value' more extensively than AS.
- Ind AS has more detailed requirements for financial instruments and consolidations.
- Overall, Ind AS are more principle-based, requiring more judgement, while AS were more rule-based.
6. Which companies in India must follow Ind AS?
The adoption of Ind AS in India is being done in phases. Generally, it is mandatory for:
- All companies listed on a stock exchange in India.
- Unlisted companies with a net worth of ₹250 crore or more.
- Holding, subsidiary, and associate companies of the businesses mentioned above.
7. If a company follows Ind AS, does that mean its financial statements are also IFRS compliant?
No, not automatically. Because of the 'carve-outs' and 'carve-ins', financial statements prepared as per Ind AS are not identical to IFRS statements. While they are very similar, they are not considered fully IFRS compliant. A company would need to make adjustments for these differences to present its financials under pure IFRS.
