IMPLEMENTATION OF

INTERNATIONAL FINANCIAL REPORTING STANDARDS

(IFRS) IN INDIAN BANKING SECTOR: EFFECTS AND

CHALLENGES

Miss. NAVERIYA BANU & Mr. RANJAN B U

Research Scholars, Mandavya Research & Development Center,

Mandavya First Grade College, Mandya .

INTRODUCTION

India is a country which is rapidly moving towards globalization,is still in the process of adopting global reporting standards (i.e.IFRS).

Indian banking sector considered as one of the strongestindustry, where everything is standardized, but even today itpracticing the traditional accounting system i.e. Indian GAAP.

Adoption of global accounting standards in Indian bankingsystem will bring more positive drastic changes, where as it hasplenty of challenges also.

This paper/presentation concentrates on effects and challengesin implementation of IFRS in Indian banking sector.

OBJECTIVES OF THE STUDY

To comprehend the concept and effects of International

Financial Reporting Standards (IFRS).

To study the major challenges for International Financial

Reporting Standards (IFRS) adoption in Indian banking

sector.

To suggest the appropriate measures for the effective

implementation of IFRS in Indian banking industry.

SCOPE OF THE STUDY

The scope of the study is confined to nationalized banks

and excludes all other industries in India.

The data collected by consulting the accountants and

bankers are belongs to banking industry in and around

Mandya district.

Further the scope is limited to the data collected by the

accountants and bankers are 25 respondents only.

The time covered by the study is one month.

STATEMENT OF THE PROBLEM

In Indian banking industry in order to get the

advantages of IFRS adoption we have to control over

the challenges for the adoption of IFRS, in order to

control them the proper understanding of those

challenges is most important.

Thus the study concentrates on identifying the major

challenges and understanding the effects of IFRS

adoption in Indian banking sector

METHODOLOGY

Quantitative research method is adopted. The data for the studycollected from both primary sources as well as secondary source:

PRIMARY DATA:

Primary data has collected through questionnaire by consulting 25accountants and bankers of different nationalized banks aroundMandya district.

SECONDARY DATA:

Secondary data has collected from various books, articles, journals,dailies, and official websites.

The Primary and secondary data are analyzed using simple arithmetical techniques such as percentage, tables, graphs that are extensively used for analyzing and interpretation of the data collected.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

IFRS - stands for International Financial ReportingStandards are high quality, understandable, enforceableand globally accepted accounting standards issued byIASB (International Accounting Standards Board).

These standards are a set of international accountingstandards stating how a particular type of transaction andother event should be reported in the financialstatements.

The ultimate goal of issuing these standards is to achievea single set of high quality, common accountingstandards should be in practice around the world

NO. TITLE ORIGINALLY ISSUED EFFECTIVE

IFRS 1

First-time Adoption of

International Financial

Reporting Standards

2003 January 1, 2004

IFRS 2 Share-based Payment 2004 January 1, 2005

IFRS 3 Business Combinations 2004 April 1, 2004

IFRS 4 Insurance Contracts 2004 January 1, 2005

IFRS 5

Non-current Assets Held for

Sale and Discontinued

Operations

2004 January 1, 2005

IFRS 6Exploration for and Evaluation

of Mineral Resources2004 January 1, 2006

LIST OF EXISTING IFRS:

IFRS 7Financial Instruments:

Disclosures2005 January 1, 2007

IFRS 8 Operating Segments 2006 January 1, 2009

IFRS 9 Financial Instruments 2009 January 1, 2015

IFRS 10Consolidated Financial

Statements2011 January 1, 2013

IFRS 11 Joint Arrangements 2011 January 1, 2013

IFRS 12Disclosure of Interests in Other

Entities2011 January 1, 2013

IFRS 13 Fair Value Measurement 2011 January 1, 2013

IFRS 14 Regulatory Deferral Accounts 2014 January 1, 2016

IFRS CONVERGENCE PLAN

The Ministry of Corporate Affairs of India as a part of

Government of India, in January 2010 announced a multi

phased plan for transition beginning April 1, 2011 to the

new converged accounting standards India’s attempts to

converge the IFRS which has carve outs that distinguish it

from IFRS which is known as “Ind AS”.

The MCA has finalized “Thirty five Ind AS” in February

2011. The actual date of application of these Ind AS is yet

to be notified.

EFFECTS OF IFRS ADOPTION IN INDIA:

Common basis of comparison:

Adopting a global financial reporting basis will enable thebanks to be understood in the global market place. It wouldallow banks to be perceived as an international player.

Improved access to international capital market:

Migration to IFRS will enable Indian banks to have access tointernational capital market reducing the risk premium that isadded to those reporting under banking regulation act.

Escape multiple reporting:

IFRS will eliminate the need for multiple reports and significantadjustments for preparing consolidated financial statements orfiling financial statements in different stock exchanges.

MAJOR CHALLENGES FOR IFRS ADOPTION IN INDIA:

Wide Gap:

IFRS is very much different from the present accounting policiesbeing followed. There are big differences expected in accounting forfinancial instruments, business combinations and employee benefits.

Inadequate Trained People on IFRS:

A large group of trained and skilled accountants and bankers are required to Indian banks for the effective implementation of IFRS.

Fair Value Measurement of Items in the Financial Statements:

IFRS uses fair value as a base to measure a majority of items in thefinancial statements which yields a true value of a business. But theIndian banks are preparing financial statements on historical costbasis, and there are difficulties are there in shifting from historicalcost based of accounting to the fair value based accounting system.

DATA ANALYSIS AND INTERPRETATION:

1. WHETHER THE ACCOUNTANTS AND BANKERS ARE COMFORTABLE WITHTHE PRESENT METHOD OF ACCOUNTING SYSTEM:

Source: primary data.

INFERENCE: From the above table and graph we can noticed that, out of 25 respondents the entire 25(100%) respondents are comfortable with the existing system of accounting, and no one is uncomfortable with the present method of accounting in India

OPTION NO. OF RESPONDANTS PERCENTAGE (%)

Yes 25 100

No. 00 000

Total. 25 100

2. THE DEGREE OF AVAILABILITY OF TRAINING AND

KNOWLEDGE TO THE RESPONDENTS TOWARDS LATEST

DEVELOPMENTS IN ACCOUNTING IN THEIR ORGANISATION:

7

12

4

2

Excellent

Good

Satisfactory

Poor

INFERENCE: From the above table and graph we can observes that, out of

25 respondents, 07 (28%) of the respondents has an excellent availability of

training and knowledge on the latest developments an accounting by their

banks, while 12 (48%) respondents has Good, 04 (16%) has Satisfactory, and

02 (08%) respondents has poor availability of that training and knowledge in

their organizations.

3. THE AWARENESS OF INTERNATIONAL FINANCIAL

REPORTING STANDARDS (IFRS) AMONG THE RESPONDENTS:

0

2

4

6

8

10

12

14

16

18

Yes No

8

17

INFERENCE: From the above table and graph we can come to know the fact

that, out of 25 respondents, only 08 (32%) of them are aware of IFRS and 17

(68%) of the respondents are unknown of IFRS.

4. WHETHER THE RESPONDENTS ARE READY TO MIGRATE

FROM INDIAN BANKING ACCOUNTING SYSTEM TO IFRS:

OPTION NO. OF

RESPONDANTS

PERCENTAGE (%)

Yes 15 60

No. 10 40

Total. 25 100

INFERENCE: From the above table and graph we can conclude that out of 25 respondents,

15(60%) of the respondents are ready to migrate from existing accounting system to global

accounting standards (IFRS), and 10 (40%) of them are not ready for the migration.

5. RESPONDENTS OPINION ABOUT THE MAJOR BENEFIT

OF IFRS ADOPTION IN INDIA:

OPTION NO. OF RESPONDENTS PERCENTAGE (%)

Improvements in the efficiency

the international capital market.

03 12

Increased flow of FDI to India 04 16

Better information to investors. 00 00

Competition with foreign

companies.

05 20

Reduced burden of multiple

reporting.

10 40

Increased transparency. 03 12

Total 25 100

6. ACCORDING TO THE RESPONDENTS, THE MAJOR

CHALLENGE BEHIND THE DELAY IN IFRS ADOPTION:

OPTION NO. OF RESPONDENTS PERCENTAGE (%)

Difficulties involved in the

transition process.03 12

Fair value measurement of

assets and liabilities.02 08

Accounting policies. 03 12

Lack of knowledge on IFRS. 07 28

Tax implications 04 16

Amendments to the existing

laws.06 24

Total. 25 100

7. RESPONDANTS RECOMMENDATION TO THEIR

ORGANISATION FOR THE EFFECTIVE IMPLIMENTATION OF IFRS:

OPTION NO. OF

RESPONDANTS

PERCENTAGE (%)

Training to the staff. 12 48

Guidance and

assistance of higher

authority.

05 20

Keep investors

informed.00 00

All of the above. 07 28

Total. 25 100

SUGGESTIONS

The study indentified that the knowledge on InternationalFinancial Reporting Standards (IFRS) is very poor among therespondents, though the accountants and bankers are thepillars of the transition process it is suggested to ensureadequate training and knowledge on IFRS, its benefits, itsimplementation from now itself.

An adequate management and government support is veryessential to the banks and other organizations for the effectiveimplementation of IFRS in India.

The another key success factor for the effective IFRSimplementation is “Outsourcing”, India can import theinformation related to the successful implementation of IFRS byother countries who are the leaders in the effectiveimplementation of IFRS.

The Government of India shall provide assistance as well as

incentives to the banks that are ready to migrate to IFRS, this

will definitely helps in the effective and early adoption of IFRS

in Indian banking sector.

The another important suggestion is that the information given

to the various stakeholders including investors, creditors,

suppliers, customers, etc., regarding the migration from Indian

accounting Standards to IFRS in such a way that it shall not

create any confusions among them, that means it should be

reliable, relevant and on time.

Academicians are also the part of transition process, so it is

suggested to include the IFRS as a curriculum activity

especially for the commerce students from the pre university

level itself.

CONCLUSION The adoption of IFRS in Indian banking sector will ensure

a greater credibility and faith in the international capitalmarket. It also helps in upgrading the status of Indianbanks in the views of investors both domestic as well asForeign Institutional Investors (FII).

There can be number of challenges will enter into thetransition process, but the worth of benefits derived fromthe transition will definitely overcome those challenges.

Thus it is suggested to Indian banking sectors that theIFRS adoption or convergence have to be came intoaction as soon as possible.