Financial Reporting, Segment Reporting and Global Convergence of Accounting Standards

(Accounting Theory and Practice - Tutorial Assignment)

Submitted by: Soumya Sharma

Deepika Gupta

Pooja Jain

M.Com Sem-III

Submitted on: 11th September 2014

Submission Details

S.No. Topic Submitted by Roll No.

1. Financial Reporting Soumya Sharma 07

2. Segment Reporting Deepika Gupta 33

3. Global Convergence of Accounting Standards

Pooja Jain 37

Meaning Financial reporting is the process of communicating financial information in regards to a

company's position, performance and flow of funds for a specific period to external

users. It can also be defined as a total communication system wherein the business

entity is the preparer or issuer of the statements, its investors and creditors are the

primary users, the professional accounting bodies are the auditors, and the government

and related administrative authorities are the other external users.

Financial reporting generally includes the following documents: 1. External financial statements Balance sheet (position statement), Profit & Loss

Account (periodic income statement), cash flow statement and fund flow

statement.

2. The notes to the financial statements.

3. Press releases and conference calls regarding quarterly earnings and related

information.

4. Quarterly and annual reports to stockholders.

5. Financial information posted on a corporation's website.

6. Financial reports to governmental agencies including quarterly and annual

reports to the Securities and Exchange Commission (SEC).

7. Prospectuses pertaining to the issuance of company stock and other securities.

Objectives Financial reporting is not an end in itself but is a means to certain objectives. There is

no final statement on objectives of financial reporting. However, consensus on some

points describes the following as the primary objectives of financial reporting:

1. Rational Investment Decision-Making The basic objective of financial reporting is to provide both current as well as

future investors and creditors qualitative as well as quantitative information about

the state of affairs of the company so as to enable them in making sound

investment decisions. It should aid the investors in undertaking a company

analysis in relation to the industry and the economy in which it operates. Further,

it should facilitate comparison of various investment opportunities in terms of

risks and returns.

2. Management Accountability A second basic objective of financial reporting is to provide information on

management accountability to judge managements effectiveness in utilizing

resources and running the company. This includes information about future

activities, budgets and forecasts, expansion and acquisition plans etc.

Qualitative characteristics of Financial Reporting Information According to the International Accounting Standards Board (IASB), the following are the

attributes that a financial report must possess in order to be useful to its users: 1. Relevance A financial report must contain all such items of information that aid

its users in decision-making. The first step is identification and recognition of the

purpose for which the information will be used. Thereafter, the relevance of

information can be judged on the basis of its ability to predict events of interest to

users.

2. Reliability It is that quality which permits users of the information to rely on it and use it confidently as a basis of decision-making. Information can be termed

as reliable when it is generated after proper application of GAAP, through an

effective system of internal control.

3. Understandability It is the quality that enables even the most unsophisticated users to interpret the information contained in the financial statements accurately.

4. Comparability It should facilitate investors in comparing the strengths and weaknesses of the entity relative to some other standard. This requires

application of uniform standards throughout the industry.

5. Consistency This quality complements the comparability attribute to a great extent. Consistent use of accounting principles over accounting periods

enhances the utility of financial statements by facilitating analysis and

understanding of the data.

6. Timeliness Time is of the essence in decision-making. Investors are able to derive benefits from financial reporting only when the relevant information is

communicated to them in a timely fashion, so they can grab opportunities as and

when presented.

7. Verifiability Verification provides a degree of assurance as to the reliability of the data. Investors can thus proceed to use the verifiable information confidently

and take decisions accordingly.

8. Economic Realism It means that figures reported should be an accurate measurement of business operations in terms of economic costs incurred and

benefits generated in business activity. The objective is to convey facts as it is.

Wherever necessary, even fluctuations in earnings must be reported to the

investors.

Significance of Financial Reporting Financial reporting is important and valuable for a large number of reasons. Some of

these are as follows:

1. Financial reports are relatively more accessible than any other source of

information about the company.

2. Financial reports contain audited information, which is high on reliability and

boosts confidence of the public.

3. Financial reports contain much more information than just the company financial

statements, which may not be available through any other source.

4. Financial reports provide relevant and useful information to a wide variety of

investors amateurs and professionals alike. They provide a basis for estimating

future share prices and related cash flows, thereby facilitating sound decision-

making.

Benefits of Financial Reporting Adequate and reliable financial reporting is beneficial in the following ways:

1. Economic Decision-Making In the light of scarcity of resources, maximization of social welfare in an economy

is possible only through an efficient allocation of resources. Two factors, which

influence allocation of resources, are Investments and Credit decisions. The

very people who are the external users of financial reporting take both these

economic decisions. Thus, a reliable assessment of the impact of current

business activities and developments on the earning potential of a company is

essential. Financial reporting is the tool, which provides all such information,

which communicates the ability of the business company to survive, adapt and

grow in the ever-changing business environment.

2. Cost of Capital Adequate disclosure through financial reporting, devoid of any manipulations and

misrepresentations by the preparers, shall lower the cost of capital for a

company. The reason is that disclosures reduce information asymmetry between

the company and the market and facilitate trading of shares at a high value. If we

assume market efficiency, then markets would interpret the companys

information correctly. Investor confidence is boosted which consequently leads to

a fall in cost of capital.

3. Equilibrium in Share Prices Adequate disclosure helps minimize fluctuations in companys share prices. This

is because fluctuations occur as a consequence of information asymmetry

between the company and the market. Disclosures reduce uncertainty prevailing

in the market, enabling share prices to remain near equilibrium.

Segment reporting Society looks to corporations for assistance in the efficient allocation of resources and

expects the corporations to assume the responsibility of providing information. In order

to have efficient allocation of resources the enterprise must made growth of diversified

enterprises that carry on activities in two or more lines of business. This widespread

lead to a need for information about the various segments of an enterprise in addition to

consolidated financial statements about its overall performance but various industry

segments have different operations, different profitability rates, degrees and type of risk

and opportunity of growth. The investors cannot successfully evaluate a diversified

enterprise without having complete information about various segments, consolidated or

total financial statements. It is true that segmentation along industry and geographical

lines is likely to indicate most of the distinguishable components of the diversified

enterprises, which are subject to different profitability, different risk and different growth

prospects. Basically the purpose of segment information is to assist financial statement

users in analyzing and understanding the enterprises financial statements by permitting

better assessment of the enterprises past performance and future prospects.

Benefits of segment reporting Availability of segment information would play an important role in (1) improving

allocation of resources, (2) helps in investment and credit decisions, (3) also helps in

adjusting the prices of company shares, (4) also reveal the true and fair view of financial

position.

Arguments against segment reporting Sometimes certain arguments take place against disclosure of information like

sometimes investors invest in a company but a company is made of its different

segments and segment information is very useful in making better analysis of risk-

return. Such information of business is useful to an investor also but sometimes he fails

to understand and evaluate them. Another situation can be when segment information

misleading to investors and other external users who read it. There are many more

reasons due to which problem occur: when data cannot be prepared with sufficient

reliability; several costs has to incur in developing, preparing and providing information;

may also lead to competitive damage.

Bases of segmentation We can sub divide a diversified company on the bases of: organizational division,

business activities, market structure, geographical segments .The term division has

different meanings in different companies. Organisational division is considered an appropriate base of segmentation for external financing reporting purposes because it is

sometimes used for internal reporting and managerial control also. Organisational lines

define area of managerial responsibility, planning and control. Therefore segmentation

on such basis meets the information needs of investors and creditors. Secondly data is

readily available and they could be used for external reporting. Thirdly auditors might

also not have to face any difficulty in verifying data, which are already, use by

management.

On the basis of business activity we can have segmentation in 3 categories namely:

1. Broad industries groupings - under this the distinguishable components of an

enterprise are engaged in providing different product or services.

2. Lines of business or product lines - it refer to major business lines or operating

activities in which company is engaged.

3. Individual products and services - it defined groups or categories of products

manufactured or sold and services rendered as reporting units.

On the basis of Market structure we can have solution to the problem that different markets have different degrees of risk. Information for different market is valuable to

users in determining the future growth and stability of the company.

On the basis of Geographical segments, we should consider similarity of economic and political condition, relationship between operations in different areas, proximity of

operations, special risk associated with operations in particular area, exchange control

regulations and the underlying currency risks.

Disclosures in segment report Setting standards of segment disclosure for diversified companies requires the

determining the relevant data to be disclosed and the methodology to be used in these

disclosures. The following items of information have been proposed for disclosure in

published annual reports of diversified companies. 1. Segment revenue

The portion of enterprise revenue that is directly attributable to a segment.

The relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment.

Revenue from transactions with other segments of the enterprise. 2. Segment expense

The expenses resulting from the economic activities of a segment that is

directly attributable to the segment.

The relevant portion of enterprise expense that can be allocated on a

reasonable basis to segment.

Expenses from transactions with other segments of the enterprise. 3. Segment profitability

Segment contribution.

Segment net profit 4. Assets

Assets used by or directly associable with a segment.

Assets used jointly by two or more segments to be allocated on a

reasonable basis.

Difficulties in segment reporting 1. Basis of segmentation this causes how a diversified company should be

fractionalized for reporting purposes. The problem lies in the fact that

diversification may exit in different forms such as industry, product lines etc. Each

diversification may create segments that vary significantly in terms of profitability,

growth and risk. 2. Allocation of common cost- common cost for the purpose of preparing needs

to be apportioned between different products. In some cases cost ate

apportioned on a basis, which may be classified as reasonable and reliable. 3. Pricing of inter segment transaction-A diversified company having disparate

segments may have very few inter segment transactions. On the contrary a

diversified enterprise have closely integrated segment, which would surely have

very substantial transactions among themselves. 4. Comparability of segment data- when apparently similar segment in different

firms may be identified differently, the treatment of inter segment transfer may

differ and common cost may be allocated on different basis. 5. Degree of integration in segment activities-in the case of vertically integrated

firm the recognition of external markets for intermediate may not always be

warranted. Similarly in the case of horizontal integrated firm there may be a

circumstances where there is a substantial amount of interdependence between

activities, which are coordinated by management to an extent that the recognition

of separate activities cannot be supported.

Need for interim reporting In a dynamic business environment with the increased scope and complexity of

business enterprises annual data are insufficient to evaluate developments in general

economic, industry, and company activities and making or revising projections of

earnings and financial position as a basis for investment decision.no doubt annual

report will continue as a report on managements stewardship for the full year and

benchmark for measurement of financial progress over several years. Therefore it is

suggested that company financial reporting should continuously measure and report on

the firms progress and provide information on a less than annual basis for the benefit of

shareholders and other external users.

SEBIS guidelines on interim reporting 1. A company should furnish unaudited financial result on a quarterly basis in the

prescribed Performa within one month of the expiry of the period to the stock

exchange and will make an announcement forthwith to the stock exchange

where the company is listed and also within 48 hours of the conclusion the board

meeting at least in one English newspaper circulating in the whole and published

in the language of the region where registered office is situated.

2. The board of director should take on record the unaudited quarterly results which

shall be signed by the managing director. The company shall inform the stock

exchange where its securities are listed about the data of aforesaid board

meeting at least 7 days in advance and shall issue immediately a press release

in at least one national newspaper and one regional language newspaper about

the data of the aforesaid board meeting.

3. The unaudited result should not differ from audited result of the company. If the

sum of four quarters as regards any item differs more than 20 percent when

compared to its full year figure the company shall explain the reason of such

variance.

4. A company has to prepare half yearly results in the same proforma. The half

yearly results are subject to limited audit review by the auditors of the company.

5. If the sum of the first and second quarterly unaudited results in respect of any

item given in the same proforma format varies 20 percent or more from the

respective half yearly results as determined after limited audit review, the

company has to prepare statement explaining reasons thereof.

6. If a company intimates the stock exchange in advance that it will punish its

audited result within a period of three months from the end of the financial year,

then there is no need to publish the result of the last quarter.

Problems in interim reporting Accounting problem

1. Inventory problems-it includes determination of inventory quality, valuation

of inventories, and adjustments of valuation.

2. Matching problem-business operations are not similar and uniform

throughout the year. Resources are acquired and output is done in

advance of sales. Some costs related to current sales d not mature into

liabilities or readily measurable expenses until subsequent time. Because

of various lead and lag relationships between cost and sales difficulties are

creating in matching costs and revenues.

3. Extent of disclosure problem-there is a problem of deciding the quantity of

disclosure in reports. In the absence of mandatory interim disclosure,

practices are likely to vary. It causes problem of determining materiality

criteria for deciding the information.

Conceptual causes Interim reporting restricts the quality of accounting measurements. Also disclosures in addition to the basic financial statement often cannot be fully

developed and thus interim disclosures become limited in comparisons with

annual disclosures. But users are likely to consider the opportunity loss caused

by delay in receipt of current financial information than the benefit of more

detailed, accurate information received later. The conceptual issue is whether the interim period is a part of a longer period or

is a period in itself. The former position is known as the integral view the latter as

the discrete view. Under the integral view revenue and expenses for interim

periods are based on estimates of total annual revenues and expenses. The

discrete view holds that earnings for such period are not affected by projections

of the annual results the method used to measure earnings are the same for any

period whether a quarter or a year.

Improving interim reporting 1. Reports on interim period activities should be designed to materially assist

important individual users or group user to achieve major objectives related to

investment and credit decisions.

2. For general distribution should be directed towards meeting the needs of both

current and prospective shareholders and important representatives of these

groups.

3. It should be designed so as to reduce the amplitude of those exchange price

fluctuations that result from misinformation. Misinformation is used here to

include failure to communicate and partial communicate.

4. Substantial disaggregation of data should be reflected in reports for interim

periods. Disaggregation should be emphasis disclosure of information amount

the nature of the events, which underline the reported data.

5. It should incorporate data developed with an emphasis on forecast ability.

Unusual events the effect of which is material in size should be separately

disclosed in reports.

6. Timelines should be emphasized in the reporting of information about interim

period activities. Financial reports should be promptly distributed by publicly

owned business firms to external users at least four times during each fiscal year,

and usually following the end of each three months period.

Global Convergence with International Financial Reporting Standards (IFRS) The emergence of transnational corporations in search of money, not only for

stimulating growth, but to maintain on-going activities has demanded flow of capital from

all parts of the globe. This has brought millions of new investors into the capital markets

whose interests are not constrained by national boundaries.

Each country has its own set of rules, regulations and reporting standards. When an

entity decides to raise capital from the markets other than the country in which it is

located, the rules and regulations of that other country will apply. This will require that

the enterprise is in a position to understand the differences between the rules governing

financial reporting in the foreign country as compared to its own country. Translations

and re-instatements of financial statements are of extreme importance in a rapidly

globalizing world.

To ensure the trust and confidence of the investors chasing global opportunities, a

sound financial reporting system, supported by strong governance, high quality

standards and a firm regulatory framework are necessary.

In this background, harmonisation of National Accounting Standards with the

International Financial Reporting Standards (IFRSs) has become necessary.

Convergence with IFRS Convergence with IFRS refers to achieving harmony of national accounting practices

with IFRS. It may be important to note that convergence with IFRS does not mean

adoption of IFRS in total, but adoption of IFRS provisions.

International Financial Reporting Standards (IFRS) Background IFRS It stands for International Financial Reporting Standards and includes Standards &

Interpretations adopted by International Accounting Standards Board (IASB) including

International Accounting Standards (IAS) and Interpretations developed by International

Financial Reporting Interpretation Committee (IFRIC).

IFRSs set out the recognition, measurement, presentation and disclosure requirement,

which deals with transaction and events that are important in General Purpose Financial

Statements.

The IFRSs comprises of 9 IFRS, 29 IAS, 16 Interpretations issued by International

Financial Reporting interpretation Committee and 11 Interpretations issued by Standing

Interpretation Committee. Thus, there are 38 standards and 27 interpretations, which

comprise the total IFRS.

Ind AS The Ind AS are the Indian Accounting Standards converged with IFRSs.

The Indian Accounting Standards are generally the same as IFRSs. While formulating

the Indian Accounting Standards, the aim has always been to comply with the IFRSs as

far as possible. However, few modifications have been made; therefore these Indian

Standards are not the same as the IFRSs.

Under the new standards the complete set of financial statements comprises of the

following:

1. Balance Sheet as at the end of the period (along with the Statement of Changes in

Equity)

2. Statement of Profit and Loss (including Other Comprehensive Income)

3. Statement of Cash Flows for the period

4. Notes comprising the summary of significant accounting polices and other

explanatory information.

5. Balance Sheet as at the beginning of the earliest comparative period when an entity

applies an accounting policy retrospectively.

Why Global Convergence with IFRS? In general terms, convergence means to achieve harmony in relation to IFRS; in

precise terms, convergence can be considered to design and maintain national

accounting standards in a way that financial statements prepared in accordance with

national accounting standards draw unreserved statement of compliance with IFRS.

International analysts and investors would like to compare financial statements based

on similar accounting standards, and this has led to the growing support for an

internationally accepted set of accounting standards for cross-border filings. A strong

need was felt by legislation to bring about uniformity, comparability, transparency and

adaptability in financial statements. Having multiplicity of accounting standards around

the world is against the public interest. It creates confusion, encourages error and

facilitates fraud. The cure for these ills is to have a single set of high quality global

standards. The goal of the IFRS is to create single set of accounting standards that can

be applied anywhere in the world, allowing investors to compare the performance of

business entities across geographic boundaries.

The harmonization of financial reporting around the world will help to raise confidence of

investors in the information they are using to make their financial decisions.

Indian Scenario The globalization of the business world and the attendant structures and the

regulations, which support it, as well as the development of e-commerce makes it

imperative to have a single globally accepted financial reporting system. Increasing

complexity of business transactions and globalization of capital markets call for a single

set of high quality accounting standards. Thus, the case for a single set of globally

accepted accounting standards has prompted many countries, including India to pursue

convergence of national accounting standards with IFRS.

As evidenced by the global experience, convergence with IFRS would also pose

significant challenges for corporate India. Additionally, there are certain specific

challenges that are unique to India. Unlike in several other countries, the accounting

framework in India will depend on cooperation received from the Government,

Regulators Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI)

and Insurance Regulatory and Development Authority (IRDA), Tax authorities, Courts

and Tribunals.

The IFRS has been classified into four broad categories as part of its convergence

strategy, which can be detailed as follows:

First category describes IFRS which can be adopted immediately or in the

immediate future in view of no or minor differences (for example, construction

contracts, borrowing costs, inventories).

Second category includes IFRS which may require some time to reach a level of

technical preparedness by the industry and professionals, keeping in view the

existing economic environment and other factors (for example, share-based

payments).

Third category includes IFRS which have conceptual differences with the

corresponding Indian Accounting Standards and where further dialogue and

discussions with the IASB may be required (consolidation, associates, joint

ventures, provisions and contingent liabilities).

Last category comprises of IFRS, which would require changes in

laws/regulations because compliance with such IFRS is not possible until the

regulations/laws are amended (for example, accounting policies and errors,

property and equipment, first-time adoption of IFRS).

The following areas, where significant accounting changes are anticipated are

discussed below:

1. Business Combinations: IFRS 3 requires the net assets taken over, including contingent liabilities and

intangible assets to be recorded at fair value, unlike Indian GAAP, which

requires, the recording of net assets at carrying cost. Likewise, there are

differences in treatment of amortization of goodwill, reverse acquisitions,

measurement of contingent consideration in a business. The changes brought in

by IFRS 3 primarily involve providing greater transparency and insight into what

has been acquired, and allowing the market to evaluate the managements

explanations of the rationale behind a transaction.

2. Group Accounts: There are many key differences with regard to the accounting for Group

Accounts under IFRS.

Under IAS 27, Consolidated and Separate Financial Statements, the preparation

of group accounts is mandatory, subject to a few exemptions, whereas,

preparation of Consolidated Financial Statements is required only for listed

entities under Indian GAAP.

3. Fixed Assets and Investment Property:

As per the provisions contained in IAS 16, Property, Plant and Equipment

mandates component accounting, whereas, AS 10 recommends, but does not

require, component accounting. IFRS requires depreciation to be based on the

useful economic life of an asset. In Indian GAAP, depreciation is based on higher

of useful life or Schedule XIV rates. Major repairs and overhaul expenditure are

capitalized under IFRS as replacement costs, if they satisfy the recognition

criteria, whereas, in most cases, Indian GAAP requires these to be charged off to

the profit and loss account as incurred.

4. Presentation of Financial Statements:

IAS 1 Presentation of Financial Statements is significantly different from the

corresponding AS 1. While IAS 1 sets out overall requirements for the

presentation of financial statements, guidelines for their structure and minimum

requirements for their content; Indian GAAP offers no standard outlining overall

requirements for presentation of financial statements.

Steps Involved

1. Recognition - It refers to recognizing all the assets and liabilities as required by IFRS. This might result in recognition of any item not previously recognized. For

example, an entity might be required to recognize prevent value of the

decommissioning liabilities in the cost of plant, property or equipment as laid

down in IAS 16 Property, Plant and Equipment.

2. Derecognition - It refers to derecognizing all the assets and liabilities that do not meet IFRS recognition criteria but have been earlier recognized under local

GAAP. For example, proposed dividend is required to be adjusted in the financial

statements as per AS-4 Contingencies and Events Occurring after the Balance

Sheet if it relates to the reporting period and is proposed before the finalization of

financial statements in accordance with the statutory requirements laid out in

Schedule VI to the Companies Act, 1956.

3. Reclassification - It refers to the reclassification of items recognized under local GAAP into classification required by IFRS. For example, redeemable preference

shares are required to be shown as a liability under IFRS instead of equity as

under Indian GAAP.

4. Measurement - It refers to the measurement of recognised assets & liabilities by applying IFRS.

Benefits of Convergence with IFRS 1. Improved access to international capital markets

2. Access to low-cost foreign funds.

3. Easier Comparability with global peers

4. Elimination of multiple reporting costs

5. Opportunities for professionals

6. More efficient allocation of resources

7. Greater economic growth

8. Increased credibility of domestic capital markets to foreign capital providers and

potential foreign merger partners

9. Greater transparency and understandability- a common financial language

10. Portability of knowledge and education across national boundaries

11. Consistency with the concept of single global professional credential; and

12. Ease of regulation of securities market

Challenges in the way of Global Convergence IFRS poses a great challenge to the drafters of financial statements and auditors and

users such as:

1. Legal and regulatory considerations: In some cases, the legal and regulatory accounting requirements in India differ from the IFRS; in such cases, strict

adherence to IFRS in India would result in various legal problems.

2. Economic environment: The economic environment and trade customs and practices prevailing in India may not, in a few cases, be conducive for adoption of

an approach prescribed in an IFRS.

3. Level of preparedness: In a few cases, the adoption of IFRS may cause hardship to the industry. To avoid the hardship, some companies have gone to

the court to challenge the standard.

Thus, to avoid hardship in some genuine cases, ICAI has deviated from

corresponding IFRS for a limited period until such time as preparedness is

achieved.

4. Frequency, volume and complexity of changes to the international financial reporting standards: It has clearly been a very challenging time for preparers, auditors and users of financial statements, following the publication of new and

revised IFRS. The following changes evidence the frequency, volume and

complexity of the changes to the international standards:

The IASB Improvements Project resulted in 13 standards being amended,

as well as consequential amendments to many others.

Repeated changes of the same standards, including changes reversing

the previous stances of the IASB, and changes for the purpose of

international convergence.

Complex changes on accounting standards, such as those on financial

instruments, impairment of assets and employee benefits, require

upgrading of skills of those professionals who implement them, in order to

keep up with the changes.

5. Challenges for small and medium-sized enterprises and accounting firms: In emerging economies like India, a significant part of the economic activities is

carried on by small- and medium-sized enterprises (SMEs). SMEs face problems

in implementing the accounting standards because:

Resources and expertise within the SMEs are scarce; and

Cost of compliance is not commensurate with the expected benefits.

Way Forward Convergence is a continuous process. The convergence of financial reporting and

accounting standards is a valuable process that contributes to the free flow of global

investment and achieves substantial benefits for all capital market stakeholders. It

improves the ability of investors to compare investments on a global basis and, thus,

lowers their risk of errors of judgment. It has the potential to create a new standard of

accountability and greater transparency, which are of significant value for market

participants including regulators.

Focused on realistic economic representation, financial reporting should address the

legitimate needs of key stakeholders and provide a comprehensive overview of financial

information. Every stakeholder should gain from active participation in shaping the

successive phases of the convergence process.

Convergence is lengthy process and it may take years to reach the important goal of a

single set of accounting standards.

There is an urgent need to understand the complexities in IFRS implementation.

Cultural, legal, and political obstacles may exist in the convergence path. With the

assistance of the appropriate authorities, these intricacies can be minimized.

Legislators, regulators, and standard-setting bodies need to be aware of the technical

faults in the current convergence process and, where appropriate, they should take

action to ensure reasonable progress. Reconciliation and restatement of financial

statements is costly, not only in monetary terms but also in terms of resources.

The complicated nature of some IFRS is perceived as a barrier to convergence in many

countries. All entities will have to consider their own roadmap and gear up for complying

with IFRS differences. Convergence to IFRS will be quite challenging and entities

should ensure that their convergence plans are designed in a phased manner.

The convergence with IFRS is now at a very crucial stage in India. The Indian

corporates are now entering into a new era of financial reporting. This opens up new

challenges and also the opportunities for the profession.

A successful transition requires a well thought of plan and hopefully well in advance.

There is a need to develop an enabling regulatory framework and infrastructure that

would assist and facilitate IFRS convergence. The government would need to frame

and revise laws in consultation with the NACAS and the ICAI. Similarly, regulators such

as IRDA, RBI, SEBI and CBDT would have to consider accepting IFRS in place of the

existing set of prescribed accounting rules.