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ACFI317- IFRS Convergence Issues
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Introduction
IFRSs form global accounting standards established by the International Accounting
Standards Board (IASB). India, a country with massive cultural landscape and substantial
economic prospects creates an intriguing instance in the world discourse relating to International
Financial Reporting Standards (IFRS) convergence (Adhikari et al., 2021). India is a compelling
country for our study of the effects of IFRS importation on developing economies due to its
sheer size – as world number five in nominal GDP and second biggest nation population-wise,
accounting practices there might have significant repercussions beyond borders. Second, the
system of accounts which just a few years ago was defined as ‘rudimental’ and relied almost
entirely on British colonial legacies has undergone radical changes in recent times courtesy of
ambitions to align with global financial market. India’s has commitment to join convergence
process with IFRS means that since 2011. The country has been actively engaged IFRS
convergence hence proving growing absorption capabilities of IFRS standards into India
accounting standards reporting.
Literature Review
India’s progress and direction toward joining the International Financial Reporting
Standards (IFRS) convergence pose a highly complicated, multidimensional factors which
determine nation’s guidelines for financial reporting. Several key aspects which are deeply
embedded in the political economy of India as well corporate sector form an ongoing debate on
whether IFRS should be adopted. Modern accounting principles have been co-existing with
traditional practices that are deeply rooted in cultural standards. The change to IFRS requires a
careful balance, recognizing the relevance of cultural nuances in financial reporting. Prudence in
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traditional Indian accounting is an idea of a cautious approach to revenues and assets outputs
which went against the IFRS neutrality. Due to the significant number of economic disparities as
well as regional differences in India, adopting uniform IFRS might not be a feasible task to solve
(Almaqtari et al.,2020). IFRS, as a universal mechanism of financial reporting presents better
comparability and transparency to facilitate cross-border investments or attracting foreign
capital.
Empirical studies by Adhikari et al., (2021) back the adoption, showing that IFRS
adoption reduces the cost of capital for firms in developing countries. The studies of Bansal &
Garg (2021) echo this sentiment, stressing that convergence would facilitate more access to
global financial markets and stimulate foreign investments thus propelling India’s economic
growth. IFRS is often based upon Western legal and financial systems; therefore, sometimes it
fails to fully reflect the realities of emerging economies such as India. Studies by Srivastava &
Muharam (2022) reveal the possibility of what could be termed “dislocation sustainability” in
non-Western settings where IFRS principles may collide with homegrown accounting practice
and cultural mores. In India, there have also been concerns over the compatibility of fair value
accounting with a risk-averse business environment and family-owned businesses.
Iyer & Chakravarthy (2022) identified various signs that point towards Institutional and
professional factors also being included in the discussion on Convergence of IFRS in
India. Regulatory bodies, professional accounting organizations, and their alignment with
international standards play a significant role. The literature points out historical development of
professional accounting regulation in India shaped by British colonial heritages. Alignment with
IFRS principles of these bodies is a prerequisite for the successful implementation of
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convergence. Studies by Tawiah (2020) warn about significant costs and technical difficulties in
implementing it, especially among smaller Indian firms whose net benefits may be minor.
Indian Accounting Standards (IndAs) were Converged with IFRS and mandated under
section 133 of Companies Act, 201. Implementation of IFRS-converged standards leads to
reduced variability in net income, higher volume magnitude of discretionary accruals, delayed
recognition losses and lower value relevance reported earnings. The study findings imply that
may be there is a learning curve to the benefits of IFRS. Tawiah(2020) emphasizes the
consideration of diverse economic events in various states and sectors. Some regions, especially
those with a deep-seated economic background are likely to face opposition in terms of adopting
IFRS standards (Akhtare et al., 2022). Economic reforms and policies should address such
differences so as to make the convergence process holistic while benefiting all sections of
economy. The literature review highlights theories of IFRS convergence in India. Proponents
argue that the adoption of global accounting standards provides transparency, comparability, and
access to international capital markets. Proponents of the efficiency concept believe that ongoing
convergence improves capital allocation by providing investors with better information. Critics,
however, use systems theory and point to challenges with existing organizational structures and
cultural factors, suggesting that it may not be widely adopted.
Critical Discussion
The critical issues surrounding the adoption and harmonization of International Financial
Reporting Standards (IFRS) in India have generated intense debate among stakeholders,
including policymakers and professional bodies. Discussions often center on the challenges,
concerns and potential benefits associated with aligning India’s financial reporting system with
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global standards. Specific subsidiaries and sectors, such as manufacturing and real estate, express
fears over the financial and operational burden of Ind AS transition by 2020. FICCI report
estimated the cost of listing cost of INR 125 billion, raising concerns about affordability and
possible loss of competitiveness (Bathla et al.,2023).This disagreement between intentions and
possibilities calls for a closer look at the adequacy of government support and capacity building
for SMEs.
Moreover, contentious issues are heating up on the appropriateness of certain IFRS
principles in the Indian context. For example, concerns remain about how fair accounting is used
in a low-risk business environment, where conservative practices reign supreme This gap is
particularly evident in areas such as accounting for goodwill, where historically, Indian GAAP
permitted amortization while IFRS mandated fair value. Srivastava& Muhram (2021) highlights
the potential for volatility and variability in the fair value, raising concerns about its suitability
for Indian businesses.
The debate extends to financial instruments as well as accounting. Karunia et al., (2020)
study shows that IFRS emphasis on mark-to-market valuation of certain instruments is in
contrast to the historical cost approach of Indian GAAP. These changes may increase volatility
while increasing transparency and increasing exposure to market volatility. Changes that may be
unfavorable for Indian companies operating in a dynamic and frequent economic environment is
unpredictable (Adhan 2020). The study also highlights that revenue recognition practices differ
between Indian standards and IFRS. The debate has focused on the timing and criteria for
revenue recognition, with implications for financial statement users and comparability. The
transition to IFRS principles in this area stimulates discussion about the flexibility of India’s
industry and the potential flexibility required for seamless integration. Beyond specific statistical
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treatment, the question of legal authority and enforcement emerges as a central concern.
According to Rajpurohit,(2021) 2018 ICAI report on Ind AS implementation highlighted
persistent problems with disclosure compliance, accounting and auditing reporting standards.
Conclusion
In conclusion, the IFRS harmonization project in India represents a complex and nuanced
effort underwritten by various factors. The delay in the adoption of IFRS standards in India
reflects the country’s complex cultural, economic and legal interactions(Singh et al.,2020). The
careful approach of the Government, as observed in the careful analysis of the convention
project, emphasizes the importance of understanding and respecting India’s unique cultural
heritage and economic diversity. The long-term convergence requires a balance between
preserving traditional accounting methods and adopting global standards recommended by IFRS
(Iyer et al.,2022). India’s IFRS journey is not limited to technical accounting standards rather a
discussion about balancing global integration and domestic interests . By focusing on contextual
issues, adapting the program to local needs and creating an ongoing dialogue, policymakers can
ensure that the forum serves not only international investors but various stakeholders in India’s
own vibrant and growing economic environment. In this dynamic process, it is important to
recognize that successful IFRS harmonization in India depends on careful consideration of
cultural, economic and legal factors hence ensuring seamless cobergence between IFRS and
Indian accounting reporting standards.
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References
Adhana, D. (2020). Convergence of International Financial Reporting Standards (IFRS) in Indian
Accounting Curriculum. Alochana Chakra Journal, 9.
Adhikari, A., Bansal, M., & Kumar, A. (2021). IFRS convergence and accounting quality: India
a case study. Journal of International Accounting, Auditing and Taxation, 45, 100430.
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Akhtar, M. A., Khan, K. A., & Tripathi, P. K. (2022). The impact of IFRS convergence on key
financial indicators of Public Sector Undertakings listed on NSE, India. International
Journal of Behavioural Accounting and Finance, 6(4), 333-347.
Almaqtari, F. A., Farhan, N. H., Al-Homaidi, E. A., & Mishra, N. (2020). An empirical
evaluation of financial reporting quality of the Indian GAAP and Indian accounting
standards. International Journal of Accounting, Auditing and Performance
Evaluation, 16(2-3), 200-229.
Bansal, M., & Garg, A. (2021). Do high-quality standards ensure higher accounting quality? A
study in India. Accounting Research Journal, 34(6), 597-613.
Bathla, S., Sharma, A. K., & Kandpal, V. (2023). Stakeholders’ Response to IFRS
adoption/convergence on accounting quality and disclosures: A bibliometric review of
Scopus database. Heliyon.
Firoz, M., & Dalal, S. (2023). The effect of IFRS convergence on risk disclosure: an
investigation into the Indian accounting system. International Journal of Accounting &
Information Management, 31(5), 864-886.
Iyer, S. V., & Chakravarthy, L. (2022). Examination of the convergence route to IFRS reporting
and disclosure. Corporate Governance and Sustainability Review, 6(1), 32-45.
Karunia, A. N., NurFauzia, A., & Yulitaningtias, N. Z. (2020). National Culture, IFRS
Convergence, and The Accounting Quality: Evidence from EAGLEs Countries. The
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Rajpurohit, P. (2021). First Time IFRS Convergence in India: Impact on Key Accounting
Measures and Accruals Quality. SCMS Journal of Indian Management, 18(4).
Saravanan, R., Mohammad, F., & Kumar, P. (2023). Does IFRS convergence affect the
readability of annual reports by Indian listed companies?. Journal of Applied Accounting
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Singh, G., Kaur, S., & Sharma, R. (2020). Impact of IFRS convergence on financial statements
with special reference to IT sector. International Journal of Public Sector Performance
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Srivastava, A., & Muharam, H. (2021). Value relevance of earnings and book values during
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Srivastava, A., & Muharam, H. (2022). Value relevance of accounting information during IFRS
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Tawiah, V. (2020). Convergence to IFRS: a comparative analysis of accounting standards in
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Weerathunga, P. R., Xiaofang, C., Nurunnabi, M., Kulathunga, K. M. M. C. B., & Swarnapali,
R. M. N. C. (2020). Do the IFRS promote corporate social responsibility reporting?
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