IFRS ADOPTION OPPOURTUNITIES AND CHALLENGES: AN …India [7]. Rawat analyzed the c hallenges and...

IFRS ADOPTION OPPOURTUNITIES AND

CHALLENGES: AN INDIAN PERSPECTIVE Keerthana.k, Ambily.R

Department of Commerce and Management

Amrita School of Arts and Sciences,

Amrita Vishwa Vidyapeetham,

Amritapuri

[email protected]

ABSTRACT

The adoption of IFRS will be a great step for the Indian economy and help in tapping the global market,

since IFRS is gaining its importance all over the world. It is considered as global financial reporting

language and acts as a tool to improve comparability, transparency in reporting, pool more capital and

attract new business avenues across the globe. This paper attempts to reveal insight into opportunities and

challenges due to IFRS in the Indian economy and to grasp the perspective of qualified accountants and

bankers towards the convergence and their inherent positives and negatives.The study additionally advance

through investigation of their perception on the degree to which IFRS adoption brings advantages to

Companies/Industries, Investors and to the National Regulatory Bodies .The study continues through

information gathered from qualified chartered accountants and bankers through organized survey from the

state of Kerala. Accounting practitioners feel that convergence would be beneficial for India, since it

promotes more efficiency, transparency and comparability in financial reporting.It taps greater Investment

opportunity and bring better corporate governance and create existence of uniform accounting system, yet

they additionally bring up that there are different inalienable negatives for IFRS adoption, for example, high

cost of adoption, lack of knowledge on fundamentals of new standards, human psychology (resistance to

adopt new things), and lack of training. Professionals feel that they should prepare themselves for IFRS and

even audit firms must organize training for their employees and partners. Further the inadequacies of IFRS

adoption and the major difficulties brought up in the study can be settled by legitimate and careful

interference by government and giving appropriate training to users by ICAI which is the apex body to frame

standards in our nation.

KEYWORDS: IFRS, Accounting practitioners, Bankers, Financial reporting, International accounting standards,

Convergence

I. INTRODUCTION

A sound financial reporting framework is required for the economic development of a country.it ought to be

maintained by legitimate political administration, well-defined quality standards, and established regulatory

framework. The adoption of IFRS will be a great step for the Indian economy and help in tapping the global

market, since IFRS is gaining its importance all over the world. It is considered as global financial reporting

language and acts as a tool to improve comparability, transparency in reporting, pool more capital and attract

new business avenues across the globe. The accounting standards in our country are drafted by the Institute of

chartered accountants of India (ICAI).As we are on the path of globalization, there is a high requirement for

convergence with international financial reporting standards (IFRS).In the present situation of the world

changing into a global village, our nation can't isolate itself from the extreme developments occurring around

the world.The application of various accounting techniques in various nations causes difficulty for end users of

financial statements causing inadequacy in capital markets all over the world. The Indian MNCs are also going

for international businessalliances post the 1991 liberalization and rapid development of the Indian economy;

these companies have been also acquiring capital from the international capital market. Due to all these reasons,

it has become essential for the Indian companies to adopt IFRS for their financial reporting. The government of

India had decided about merging of Indian accounting standards with IFRS from April 1, 2011. The new set of

IFRS that is proposed is more principles-based than the earlier Indian accounting standards that were basically a

rules-based. There are a lot of discrepancies between the accounting practices laid down in the existing

accounting standards as against the treatments conceived in the converged IFRS. These changes have an impact

on the depiction of profit and financial position of an enterprise. IFRS is drawn up by the international

accounting standards board (IASB) that is replacing the global standard for the engendering of corporate

financial reporting. IFRS is a more refined system of financial reporting which bring about more corporate

governance and provides more comparable accounting reports across international boundaries. The main aim of

International Journal of Pure and Applied MathematicsVolume 118 No. 20 2018, 4137-4148ISSN: 1314-3395 (on-line version)url: http://www.ijpam.euSpecial Issue ijpam.eu

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IFRS is to implement a global structure for companies to prepare and present their financial statements. IFRS

provides general guidance for the formation of financial statements and replaces the many different national

accounting standards. By 2018, all companies are expected to converge into IFRS.

This paper attempts to reveal insight into opportunities and challenges due to IFRS in the Indian economy and to

grasp the perspective of qualified accountants and bankers towards the convergence and their inherent positives

and negatives.The study additionally advance through investigation of their perception on the degree to which

IFRS adoption brings advantages to Companies/Industries, Investors and to the National Regulatory Bodies

.The study continues through information gathered from qualified chartered accountants and bankers through

organized survey from the state of Kerala.

II. REVIEW OF LITERATURE

Zabihollah Rezaee analyzed the perspective of academicians and practitioner on convergence to IFRS. The

examination uncovered that IFRS convey advantages to the preparer of financial statements, users, auditors,

analyst and standard setters .the author brought up that IFRS will enhance capital market, bring greater

consistency of financial reporting, reduce the obstacles of international competition, enhance comparability and

creates more informed marketplaces . The author additionally recommends that convergence would cause costly

changes in norms and administrative procedures in US and different countries. IFRS convergence requires

appropriate training for auditors, administration and investors [10].Pavan Jain dissected the IFRS selection

process in India and brought up the different advantages of IFRS to Indian economy including more access to

global capital markets, better comparability etc. The investigation additionally continues by giving an

understanding into the difficulties in IFRS adoption, for example, absence of proper training, lack of knowledge

on the provision, huge changes in existing structures and so on. The investigation concludes by proposing

different methods to handles the obstacles in IFRS adoption [5].Alexandra Fontes contemplates the three

techniques for estimation of success of convergence of two sets of accounting standards. They proposed two

measures, for example, Jaccard's coefficient and Spearman's coefficient to analyze the progress of convergence

with IFRS [4]. Patro did an empirical study to comprehend the impression of Indian management student on

IFRS and aims to explore the levels of arranging required for including IFRS in the educational programs of

colleges and management schools. The investigation calls attention that interest should be shown from parts of

students for the success of IFRS adoption as a course and success of integrating the course also relies on the

proper training of teachers, providing proper study material etc.[8].Thomas Jean-jean, completed an exploratory

investigation on the impact of IFRS adoption on earnings management in various countries. For the

examination, they considered three first time IFRS adopting nations like Australia, France, and the UK, results

uncovered that earnings management did not diminish after the introduction of IFRS but rather in actuality

expanded in France [6]. Patil analyzed the various favorable circumstances and threats in Adopting IFRS in

India. The author proposes different advantages of IFRS adoption in India to users and preparation of financial

statements; likewise he suggested the various recommendations for effective enforcement of IFRS framework in

India [7]. Rawat analyzed the challenges and opportunities of IFRS in Indian accounting system and the

investigation proposed that IFRS s will enhance consistency and equivalence of the financial statements

prepared in India with the rest of the nation’s [9].Deepak Adhana discussed about the utility of IFRS for India,

the issues and the difficulties confronted by Indian corporate in adopting IFRS, the author additionally

prescribes the measures for the productive execution of IFRS in India[1].Dr. Atul Bansal, discussed the issues

faced in the banking sector on convergence with IFRS,, the author brings up the impact of IFRS on different

components relating to banks, for example, such as loans/investment impairment, fair value system, the effect

on derivatives and hedge accounting etc[3].Ray Ball did a study regarding the pros and cons of IFRS adoption to

investors, he analyzed the various factors that will fall beneficial as well as problematic for investors after the

adoption of IFRS in world economies[2].

International Journal of Pure and Applied Mathematics Special Issue

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III. OBJECTIVE OF THE STUDY

1) To study the perception of qualified accountants and bankers towards the convergence and their

inherent positives and negatives.

2) To study their perspective on the extent to which IFRS adoption brings benefits to

Companies/Industries, to Investors, for National Regulatory Bodies.

IV. RESEARCH METHODOLOGY

The research used the sample survey to access the respondents through structured questionnaire. The

questionnaire consists of the variables related to convergence such as positives and negatives IFRS adoption,

how IFRS adoption brings benefits to Companies/Industries, to Investors, for National Regulatory Bodies.

For the analyses questionnaire was divided into 5 parts

1) Demographic profile of respondents

2) Major positives or advantages of IFRS adoption

3) Major challenges or negatives of IFRS adoption

4) Knowledge evaluation of respondents

5) Benefits of IFRS to company/industry, benefits to investors, benefits to national regulatory bodies

50 questionnaires were distributed among the various qualified accountants and bankers of Thrissur district of

Kerala and all responses were complete in all respects (response rate of 100percent) and hence were considered

for the study. Various tables charts where used to study the benefits of IFRS to company or industry, investors

and regulatory bodies. Chi-square test was used to test the hypothesis formulated. percentage analysis and cross

tabulation techniques where use to build an understanding on all other variable taken into consideration for the

further clarification.

V. DATA ANALYSIS AND INTERPRETATION

A) STUDY FOR UNDERSTANDING THE PERSPECTIVE OF RESPONDENTS ON POSITIVES OF IFRS

For analysis of the perspectives of the above mentioned respondents on the positives of IFRS following factors

were taken into consideration percentage analysis was used for interpretation.

1. IFRS improves transparency of reporting

2. IFRS improves comparability of financial statements

3. IFRS increases investment opportunity

4. Mandatory application of IFRS

5. IFRS promotes Better corporate governance

6. IFRS promotes Existence of uniform accounting system


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fig1: Major positives of IFRS

Interpretation:

Respondents were asked to rank the major reasons they found contributing to positives of IFRS from rank 1 to

rank 6.majority of people gave rank1(48 percent.) for the question on whether IFRS improves transparency of

reporting,rank2 (54percent.)For the question whether IFRS improves the comparability of financial statements,

rank5 (60 percent.) for the question whether IFRS adoption provides investment opportunity to companies,

rank6 (34 percent.) for mandatory applications of IFRS, rank4 (50 percent.)For the question on whether IFRS

creates better corporate governance and rank3 (28 percent.)for IFRS helps in the existence of uniform

accounting system.

B) STUDY FOR UNDERSTANDING THE PERSPECTIVE OF RESPONDENTS ON NEGATIVES OF

DISADVANTAGES OF IFRS

For analysis of the perspectives of the above mentioned respondents on the challenges of IFRSpercentage

analysis was undertaken and following results were arrived at:

transparency comparabilityinvestment opportunity

Mandatory application of

it

Better corporate

governance

Existence of uniform

accounting system

rank1 24 6 3 3 5 15

rank2 6 27 4 4 8 5

rank3 2 5 11 10 6 14

rank4 4 1 5 10 25 4

rank5 8 10 15 6 6 2

rank6 6 1 12 17 0 10

05

1015202530

ranks


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Fig2.Major negatives of IFRS

Interpretation: Respondents were asked to reveal their perspectives on the major challenges in adoption of IFRS

in India and rank them from rank1-rank5.majority of them(72percent.) gave lack of knowledge about IFRS

rank1,high cost of adoption rank2(32percent.),lack of training rank3(42percent.),resistance from employees

rank4(56percent.),large changes in existing accounting practices rank5(62percent.).

C) STUDY OF KNOWLEDGE LEVELS OF CHARTERED ACCOUNTANTS AND BANKERS ON

SUBJECT MATTERS OF IFRS

I Category of respondents-level of awareness

It is observed from table1 that There is an association between category of respondents and their level of

awareness (chi-square with 4 degree of freedom P=0.677).hence H0 is accepted

From table 1.1it is observed that out of 50 respondents majority of people have mediocre awareness on

provisionsof IFRS.

Table1 Chi-Square Tests

Value df Asymptotic Significance (2-sided)

Pearson Chi-Square 2.323a 4 .677

.

cost of adoption is

high

Lack of basic knowledge about IFRS

resistance from

employees

Lack of proper training to

users

large changes in existing accounting practices

rank1 9 36 2 1 3

rank2 16 7 5 21 5

rank3 3 2 13 21 9

rank4 10 3 28 6 2

rank5 12 2 2 1 31

05

10152025303540

rank

Table 1.1 Category of respondents and awareness on IFRS

How educated you are in connection to provisions of IFRS?

Total very little little mediocre much very much

chartered

accountants

3 3 14 2 6 28

bankers 3 4 10 3 2 22 Total 6 7 24 5 8 50


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II Category of respondents and their level of awareness about the advantages and disadvantages of IFRS

application

From table2 it is observed that out of 50 respondents majority of people have mediocre awareness pros and cons

of IFRS application

From further analysis of chi-square it is evident that there is an association between category of respondents and

their level of awareness about the advantages and disadvantages of IFRS application. (Chi-square with 4 degree

of freedom P=0.275).hence H0 is accepted

III Category of respondents and their perception on the adaptability of current accounting software with

IFRS

From table3it is observed that out of 50 respondents majority of people have mediocre knowledge on

adaptability of existing accounting software with IFRS provisions.

From further analysis of chi-square it is evident that there is an association between category of respondents

andtheir perception on the compatibility of existing accounting software with IFRS. (Chi-square with 4 degree

of freedom P=0.33).hence H0 is accepted

D) STUDY PERCEPTION OF RESPONDENTS ON BENEFITS OF IFRS TO COMPANY/INDUSTRY,

BENEFITS TO INVESTORS, BENEFITS TO NATIONAL REGULATORY BODIES

D.1: Analysis of the perception of respondents on benefits of IFRS to company/industry

Table2: Category of respondents and their awareness on advantages and disadvantages of IFRS

application

Are you aware of the advantages and disadvantages of

applying IFRS?


chartered

accountant

2 6 13 3 4 28

bankers 5 5 9 1 2 22 Total 6 10 18 9 7 50

Table3:category of respondents and their perception on the adaptability of current accounting software

with IFRS

Are thecurrent software’s of accounting adaptable with

IFRS provisions?


Chartered

accountants

6 9 10 1 2 28

Bankers

4 4 7 4 3 22

Total 11 15 14 5 5 50


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In order to study the suggestion of respondents on the benefits of IFRS to company and industry percentage

analyses was conducted and following are the results and interpretation of the same

FACTORS STRONGLY DISAGREE

DISAGREE UNDECIDED AGREE STRONGLY AGREE

IFRS adoption would

shorten the process of

preparing the individual

and group financial

statements

1 2 percent

3 6percent

6 12percent

18 36

22 44 percent

Accuracy & reliability of

reported earnings and

financial position

improved

0 0 percent

2 4 percent

6 12 percent

18 36 percent

24 48 percent

Merger/Acquisition

became easy

0 0 percent

3 6 percent

12 22 percent

17 34 percent

19 38 percent

IFRS brings better

corporate governance

1 2 percent

1 2 percent

11 22 percent

14 28 percent

23 46 percent

improved avenue to

capital market

0 0 percent

1 2 percent

10 20 percent

17 3 percent

22 44 percent

It will reduce cost of

capital

1 2 percent

7 14 percent

12 14 percent

12 24 percent

18 36 percent

It will improve analysis of

information for decision

Making

0 0 percent

1 2 percent

8 16 percent

12 24 percent

18 36 percent

Accurateness &

dependability of

accounting information

will be upgraded

1 2 percent

1 2 percent

4 8 percent

20 4 percent

24 48 percent

Better inter- company

comparison of financial

statements

0 0 percent

1 2 percent

4 8 percent

12 24 percent

33 66 percent

Benefit of using single

consistent standard for

reporting for subsidiary

companies from different

countries.

1 2 percent

2 4 percent

9 18 percent

17 34 percent

21 42 percent

It will make internal audit

simple and less costly 2 4 percent

2 4 percent

12 24 percent

15 30 percent

19 38 percent

Unify internal and

external reporting by

building a unique

accounting language

1 2 percent

2 4 percent

8 16 percent

17 34 percent

22 44 percent

It will promote better

business risk management

1

2

7

18

22


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2 percent 4 percent 14 percent 36 percent 44 percent

Interpretation: from the above table it is clearly evident that majority of the respondents had strongly agreed

with all the laid down benefits of IFRS to company and industry

D.2: Analysis of perception respondents about the utility of IFRS to investors

In order to study the suggestion of respondents on the benefits of IFRS to investors percentage analyses

was conducted and following are the results and interpretation of the same.

FACTORS STRONGLY DISAGREE

DISAGREE UNDECIDED AGREE STRONGLY AGREE

Better information for

decision making

0 0 percent

2 4percent

6 12 percent

21 42 percent

21 42percent

More confidence in

information presented 0 0 percent

3 6 percent

11 22 percent

18 36 percent

18 36 percent

Save time in analyzing

financial reports. 4 8 percent

4 8 percent

7 14 percent

17 34 percent

19 38 percent

Investors can compare a

peer group of companies

financial statements

0 0percent

4 8 percent

7 14 percent

19 38 percent

20 40 percent

More timely financial

report

1 2 percent

5 10percent

8 16percent

15 30 percent

21 42 percent

Better understanding of

risk and return

1 2 percent

1 2 percent

9 18percent

19 38 percent

20 40percent

Interpretation: from the above table it is clearly evident that majority of the respondents had strongly agreed

with all the laid down benefits of IFRS to investors


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D.3: Analysis of the perception of respondents on benefits of IFRS to national regulatory body

Fig 3 Benefits of IFRS on national regulatory bodies

Interpretation: from above chat we can see that majority of respondents agree that IFRS adoption will be

beneficial to national regulatory bodies.40percent of respondents feels that IFRS will create more affective

regulatory oversight and enforcement of high standards of financial disclosure.40percent of respondents agrees

that IFRS will help to make early caution signals of corporate frauds.38percent agrees that capital market

regulatory will be easier and 38percent agree that IFRS result in improving income taxes exchange rates.

VII. FINDINGS

The study aimed at understanding the perspectives of the selected group of respondents (qualified chartered

accountants and bankers) toward the major reasons of advantages and disadvantages of IFRS adoption in

India.The accounting practitioners and bankers feels that IFRS adoption will be a great step in Indian’s

financial reporting since it helps in advancement of transparency in reporting, brings more comparability

financial statements. Likewise they suggested that the IFRS adoption will help existence of uniform accounting

system. The respondents feel that IFRS will create better corporate governance. They also feels that the new

standards will increase the investment opportunities to company’s in our country. They also pointed out

mandatory application of IFRS as major positives for the country. Even after all the laid down positives the

IFRS adoption faces various inherent challenges.in the perspectives of the respondents the major challenges of

IFRS included lack of knowledge on the basics of IFRS, the convergence with the new provisions IFRS by

companies involves high cost of adoption. Lack of training for the users of IFRS yet another negative. Majority

of the professionals feel that IFRS adoption in company will face resistance from the part of employees and

causes broad changes in the existing accounting practices.

The test conducted to study the knowledge level of respondents about the subject matter of IFRS covered mainly

three questions 1)How educated you are in connection to provisions of IFRS?2) Whether respondents are aware

about the advantages and disadvantages of IFRS and 3) whether they believe that the current accounting

software’s are adaptable with IFRS. The study revealed that majority of the respondents has only mediocre

knowledge about the questions raise. Chi-square test was conducted revealed thatthere is significant difference

between the knowledge level of respondents on the subject matters of IFRS. The test also revealed that there is

an association between category of respondents and awareness on IFRS.it is observed that out of 50

respondent’s majority of people has mediocre awareness on IFRS (chartered accountants 50precent, bankers

More affecting regulatory oversight and enforcement of higher standards of financial discloss

IFRS will made early warning signals of corporate fraudsCapital market regulatory will be easierIFRS will result in improving income (taxes) exchange rate

SA-Strongly Agree 17 13 15 14

A- Agree 20 20 18 19

UD- Undecided 12 16 15 13

DA- Disagree 0 1 2 3

SDA- Strongly Disagree 1 0 0 1

0

5

10

15

20

25


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45.5percent). Chi-square test for understanding the relationship between category of respondents and their level

of awareness about the advantages and disadvantages of IFRS application revealed that There is an association

between category of respondents and their level of awareness about the advantages and disadvantages of IFRS

application.it was observed that out of 50 respondents majority of people (chartered accountants 46.42precent,

bankers 40.9percent) have mediocre awareness about the same.Chi-square test for understanding the

relationship between category of respondents and their perception on the adaptability of existing accounting

software with IFRSrevealed that there is an association between category of respondents andtheir perception on

the compatibility of existing accounting software with IFRS.it was observed that out of 50 respondents majority

of people (chartered accountants 35.7precent, bankers 31.82percent) have mediocre awareness about the same.

Majority of Accounting practitioners and bankers strongly agreed that the convergence will benefit the company

and industry by simplifying the process of preparing the individual and group financial statements, making

mergers and acquisition easier etc. Majority of them strongly believes that the convergence will be beneficial to

the industries, investors and the national regulatory bodies. The major benefits derived have been tabulated in

the above segments.

VIII. RECOMENTATIONS AND CONCULSION

An effective administration Mechanism is very important to create quality corporate financial reporting

environment. Solely adopting International Financial Reporting Standards is not sufficient. All the stakeholders

of the company, namely Top employees, Auditors and Accountants and the government will have to work as a

team for a smooth IFRS adoption procedure. The administration ought to make sure that the financial reports are

prepared and presented in agreement with the IFRS provisions. Auditors and Accountants should submit

Financial Statements inconsistency with the new changes in accounting procedures. The government must

actualize effective control and monitoring arrangement for administrative compliance of IFRS. Further, the

Regulators ought to guarantee that legitimate alterations are to be made in the current laws for smooth

convergence with IFRS.Different approaches for handling the obstructions in the path of adoption of IFRS can

be outlined as follows:

In order to assure proper convergence of Indian accounting standards toIFRS in India, Accountants and Auditors

who are well trained inIFRS are needed in expansive number. But now there is a huge shortage of adequate

number of Accountants and Auditors who are educated on the provisions of IFRS. Though Training programs

for members and other interested individuals are undertaken by the Institute of Chartered Accountants of India

(ICAI), trained personnel's are not available according to the current requirement of India.

As an end note, convergence to IFRS is unavoidable for Indian economy since it opens new business avenues

globally. Government of India and Accounting associations are taking conceivable huge efforts for a smooth

transition process. Steps for increasing Mindfulness and appropriate Training should add to that procedure.

With every one of these plans taking place in a well-definedmanner, the adoption procedure will turn out to be

extremely smooth and precise.

REFERENCE

[1] Adhana, D. K. (2015). Convergence with International Financial Reporting Standards (IFRS) in

India.

[2] Ball, R. (2006). International Financial Reporting Standards (IFRS): Pros and Cons for

Investors (No. ID 929561). Rochester, NY: Social Science Research Network. Retrieved from https://papers.ssrn.com/abstract=929561

[3] Bansal, A., Prusty, R., Tanna, J., & Denis, L. (2010). Convergence to IFRS - Issues for Banking Sector (No. ID 2336421). Rochester, NY: Social Science Research Network. Retrieved

from https://papers.ssrn.com/abstract=2336421

[4] Fontes, A., Lima Rodrigues, L., & Craig, R. (2005). Measuring Convergence of National Accounting Standards with International Financial Reporting Standards. Accounting Forum, 29, 415–436. https://doi.org/10.1016/j.accfor.2005.05.001

[5] Jain, P. (2011). IFRS Implementation in India: Opportunities and Challenges. World Journal of

Social Sciences, 1, 125–136.


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[6] Jeanjean, T., Stolowy, H., Jeanjean, T., & Stolowy, H. (2008). Do accounting standards

matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of Accounting and Public Policy, 27(6), 480–494. Retrieved from https://EconPapers.repec.org/RePEc:eee:jappol:v:27:y:2008:i:6:p:480-494

[7] Patil, P. S. (2012). Opportunities and Challenges in adopting IFRS in India. International Indexed & Referred Research Journal, 1(1), 2250–2556.

[8] Patro, A., & Gupta, V. K. (2012). Adoption of International Financial Reporting Standards (IFRS) in Accounting Curriculum in India-An Empirical Study. Procedia Economics and Finance, 2, 227–236. https://doi.org/10.1016/S2212-5671(12)00083-4

[9] Rawat, D. S., & Maheswari, D. (n.d.). A Study on Challenges and Prospects of IFRS in Indian Accounting System.

[10]Rezaee, Z., Smith, L. M., & Szendi, J. Z. (2010). Convergence in accounting standards:

Insights from academicians and practitioners. Advances in Accounting, 26(1), 142–154. https://doi.org/10.1016/j.adiac.2010.01.001


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IFRS ADOPTION OPPOURTUNITIES AND CHALLENGES: AN …India [7]. Rawat analyzed the c hallenges and...

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